Tag: Trust law

Trust Foundations & Private Client

Trustee protection – limitation of liability | Jersey Trusts | Parslows International

Trustee protection Parslows International

Privy Council recognises Jersey trustee protection “free-standing” from contractual claims

The recent Privy Council trust judgment in Investec Trust (Guernsey) Ltd & ors v Glenalla Properties Ltd [2018] UKPC 7 concerned trustee protection proceedings issued in the Guernsey courts in relation to contractual claims by the liquidators of BVI creditors against the former, Guernsey based, trustees of the Jersey proper law Tchenguiz Discretionary Trust.

The creditors claimed against the former trustees which, in turn, sought an indemnity from the trust assets, itself resisted by the current trustees.

Key issue was whether or not former trustee personal assets had trustee protection

A key issue in this case was whether or not the former trustees’ own personal assets were protected from the creditors’ claims, so that the creditors’ recourse was only to the trust assets.

That required analysis of the effect of Article 32(1) of the Trusts (Jersey) Law 1984, which provides that, where a trustee is a party to a transaction or matter affecting the trust, and the other party knows that the trustee is acting as trustee, that party’s claims are restricted to the trust property.

The Board identified the distinction between English and Jersey trusts law created by Article 32(1).  It held that the Jersey legislation abrogated the rule of English law to the effect that the law looks no further than the legal entity which has assumed the liability.

In contrast, the Board held that Jersey law introduced a legal distinction between a trustee’s two capacities – personal and fiduciary, recognising the ability for a trustee to incur liabilities “as trustee” thereby denying third parties recourse to the trustee’s personal estate.

However, the creation of a direct right of action against the trust assets was not to be regarded as a corollary of that.  Instead, Jersey law did still subscribe to the rule of English law to the effect that a creditor may access trust assets only by way of the trustee’s right of indemnity.

Accordingly, a creditor would have no right to the trust fund, other than through its right of subrogation to any entitlement which the trustee might have under its indemnity from the trust fund.

It was the BVI creditors’ reliance on subrogation which the current trustees of the Tchenguiz Discretionary Trust sought to utilise as a means by which to prevent them having recourse to the trust funds.

The current trustees argued that the former trustees (and so in turn the subrogated creditors) were not entitled to rely on that indemnity because, while the liabilities to the creditors might have been reasonably incurred at the outset, the subsequent failure by the former trustees to seek to discharge them had been unreasonable.

This required analysis of a further provision of Jersey’s trust legislation – Article 26(2), which gives a trustee a right of reimbursement of all expenses and liabilities reasonably incurred in connection with the trust.  The Board did not accept the current trustees’ argument.  It concluded that availability of the statutory indemnity falls to be assessed when the liability for which the indemnity is sought is first incurred, not with hindsight having regard to subsequent events.  The current trustees’ assertion of unreasonable failure to discharge the liabilities should instead be pursued against the former trustees by way of an action for breach of trust.

The Board, however, determined that Article 32(1) did not have the effect of limiting the liability of a trustee in relation to the costs of legal proceedings, being liabilities personal to the trustee.  Further, that having the blessing of a Beddoes order would not protect a trustee from an award of costs against it personally, if its behaviour in the conduct of the litigation was unreasonable.

The Board’s conclusions as to the effect of these Jersey statutory provisions were not the end of the matter.  What relevance these Jersey law provisions should have, in Guernsey proceedings against Guernsey trustees in relation to BVI law governed contracts, was also a point in issue.  A matter determined by Guernsey private international law.

The creditors argued in favour of the “discharge rule”: that the extent of, (and limitation of), the former trustees’ liabilities should be decided by reference to the contractual liabilities, and that the law which governs the discharge of a contractual liability should be the same as the law of the underlying contract.

The Board however favoured the “status rule”: that questions as to the capacity in which trustees act, and the liability consequences which flow from that capacity, should be governed by the proper law of the trust of which they are trustees.

In relation to that, the Board recognised that the English courts had grappled with the conceptual problem of a foreign representative entity capable of suing or being sued in England, but which under foreign law created liability for its members only in a particular capacity.

In relation to that, the Board commented:

the time has come to recognise that as a general rule the common law will recognise and give effect to limitations of liability which arise under an entity’s constitutive law by reason of the particular status or capacity in which its members or officers assume an obligation.”.

The Board went on to confirm that it would not confine this rule to entities which have separate legal personality but would apply it to partnerships and associations of persons without legal personality and also a Jersey or Guernsey trust.

It is interesting to note that the Board’s decision was not unanimous, with Lord Mance and Lord Briggs dissenting on differing aspects of the majority’s conclusions.

Significant development | Trustee protection

The Privy Council’s recognition of two separate (personal and fiduciary) capacities of trustees of a Jersey trust has been perceived as a significant development.  Parties contracting with trustees of a Jersey proper law trust should be live to this recognition of a potential “free-standing” protection from contractual liabilities afforded to trustees, regardless of the contract’s governing law or the forum in which contractual obligations may be litigated.

If you require further information or trust advice please contact Mason Birbeck mason.birbeck@parslowsinternational.com

 

Trusts, Foundations & Private Wealth

Main contact: Mason Birbeck

Trusts, Foundations & Private Wealth

Mason Birbeck is an expert in Trust Law.  If you require any clarification on this briefing please contact him.

Trust Foundations & Private Client

Amendments to Jersey’s Trust Legislation – Article | Jersey Trusts | Parslows International

Article – Further Amendments to Jersey’s Trust Legislation – Trusts Amendment 7

 

The Trusts (Amendment No.7) (Jersey) Law 201- (“Trusts Amendment 7”) is expected to come into force later in 2018.  It will clarify rather than substantially revise the Trusts (Jersey) Law 1984 (“Trusts Law”).

The principal changes:

Article 1 – new definition of “officer”

In recognition that modern trusts operate in conjunction, not just with corporations, but also other vehicles (LPs, LLPs SLPs etc.), this new definition confirms that relevant provisions of the Trusts Law apply to that wider scope of legal entities, and natural persons connected with them.

Art 9A – settlor reserved / granted powers and interests

Article 9A sets out the nature of powers that can be reserved / granted by a settlor.

Trusts Amendment 7 will clarify, among other things, that:

  • not just some only, but all, of those listed powers can be reserved or granted;
  • the ability to reserve / grant powers in relation to underlying entities in which the trust holds an interest extends not only to underlying corporations, but also other entities – e.g. LPs, LLPs SLPs etc.;
  • the reservation or grant of a power does not of itself constitute the power holder a trustee.

Article 29 – disclosure of information

Article 29 deals with disclosure of trust information and documentation.

Trusts Amendment 7 introduces a new Article 29 which confirms that a trust’s terms can restrict beneficiaries’ access to documents which relate to or form part of the trust accounts.

In recognition of the need to protect both principles of confidentiality and of accountability to beneficiaries, (and potentially competing interests of different beneficiaries, trustees and others), this new Article 29 introduces provisions aimed at balancing a beneficiary’s right to request disclosure, against a trustee’s right to refuse it.

It recognises the court ‘s power to make discretionary orders relating to requests for trust information or documentation.

Article 38 – accumulation and advancement

Article 38 sets out rules for how trustees deal with accumulation and application of trust income.

Trusts Amendment 7, clarifies and widens the options for trustees regarding the accumulation and distribution of income, and the characterisation of trust receipts as either capital or income.

The default requirement to distribute income not accumulated is replaced.  Instead, income is to be retained as income for so long as and to the extent that:

  • income is not distributed / required to be distributed by the trust terms;
  • no trust to accumulate income and add it to capital, or retain it as income, applies or is exercised.

It confirms that there is no time limit within which powers to accumulate income / add it to capital, or to distribute it or retain it as income, must be exercised.

New Article 43A – Security

This new Article 43A clarifies the legislative entitlement to “reasonable security” in the context of ceasing to be a trustee, distributing trust property, or a trust’s termination or revocation.

For Jersey trusts, a contractual indemnity from the recipient of trust funds in favour of the trustee has become the market standard mechanism by which to deal with trustees’ potential personal exposure to trust liabilities.

Article 43A acknowledges that, clarifies which persons (e.g. trustees and their officers) may rely on such an indemnity, and confirms that the doctrine of privity of contract will not operate to prevent those not party to such a contractual indemnity being able to enforce it.

Article 47(1)

Article 47 empowers the court to approve variations to a trust, or enlarge the trustees’ management and administrative powers, but only on behalf of persons who cannot do so themselves (e.g. minors or unascertained beneficiaries).

Trusts Amendment 7 extends the court’s powers, enabling it to give approval on behalf of persons who cannot be found despite reasonable efforts, and on behalf of a member of a beneficial class the size of which makes it unreasonable to contact that member.

Extending the court’s powers will enable advantageous changes to trust arrangements which might otherwise be frustrated or delayed because beneficiaries cannot be located, or the class of beneficiaries is particularly wide.

 

Conclusion

The changes which Trusts Amendment 7 will bring are evolutionary rather than revolutionary.  They add clarity and further flexibility to Jersey’s trusts legislation, ensuring that it remains a jurisdiction at the forefront of international wealth planning.

 

Amendments to Jersey’s Trust Legislation – Briefing | Jersey Trusts | Parslows International

Trusts, Foundations & Private Wealth

Main contact: Mason Birbeck

Trusts, Foundations & Private Wealth

Mason Birbeck is an expert in Trust Law.  If you require any clarification on this briefing please contact him.

Trust Foundations & Private Client

Amendments to Jersey’s Trust Legislation – Briefing | Jersey Trusts | Parslows International

Briefing – Further Amendments to Jersey’s Trust Legislation – Trusts Amendment 7

Jersey’s government has approved further amendments to its principal trusts legislation – the Trusts (Jersey) Law 1984 (“Trusts Law”).  Those changes, to be implemented by the Trusts (Amendment No.7) (Jersey) Law 201- (“Trusts Amendment 7”), will clarify rather than substantially revise the Trusts Law, and are expected to come into force later in 2018.

The legislative changes:

Article 1 – new definition of “officer”

A new definition of “officer” is inserted which includes:

  • A foundation council member;
  • a director, manager, secretary or other similar officers of a corporation;
  • a partner of a limited liability partnership;
  • a general partner or limited partner participating in the management of an incorporated limited partnership or separate limited partnership
  • any other person purporting to act in any of the above capacities.

Why the change?

In recognition that modern trusts operate in conjunction not just with corporations but also with other vehicles (e.g. LPs, LLPs SLPs etc.), this new definition confirms the application of relevant provisions of the Trusts Law to that wider scope of legal and natural persons.


Article 9 – Extent of application of law of Jersey to creation, etc. of a trust

A minor change to Article 9(2A) is made in recognition that, in so far as that provision deals with determining the capacity of legal persons, that includes not just corporations but also other legal persons (such as LLPs and SLPs).


Art 9A – settlor reserved / granted powers and interests

Article 9A sets out the nature of powers that can be reserved / granted by a settlor.

Trusts Amendment 7 will clarify, among other things, that:

  • not just some only, but all, of those listed powers can be reserved or granted;
  • the ability to reserve / grant powers in relation to underlying entities in which the trust holds an interest extends not only to underlying corporations, but also other entities – e.g. LPs, LLPs SLPs etc.;
  • the reservation or grant of a power does not of itself constitute the power holder a trustee.


Article 29 – disclosure of information

Article 29 deals with rights to, and duties of, disclosure of information and documentation concerning a trust.

Trusts Amendment 7 replaces the pre-existing Article 29 entirely.  The new Article 29 recognises that a trust’s terms may:

  • confer a right to request disclosure of information;
  • determine the extent of the right to information; and
  • impose a duty upon a trustee to disclose information to any person.

It also gives beneficiaries the right, (subject to the trust terms or court order), to request disclosure of documents which relate to or form part of the accounts of the trust.

However, as a protection, Article 29 also empowers trustees (subject to court order) to refuse a disclosure request if satisfied that to do so is in a beneficiary’s interests.

What is preserved from the pre-existing Article 29 is a trustee’s right, (subject to the trust terms or court order), to refuse disclosure of information or documents which identify the trustee’s deliberations or the reasons for its decisions.

Article 29 also recognises the power of the court to make discretionary orders relating to a request for / receipt of information or documentation concerning a trust.  A trustee, beneficiary or enforcer (or such others person as the court permits) can apply for such an order.

Why the change?

Amending Article 29 removes uncertainty as to whether the express terms of a trust can restrict beneficiaries’ access to documents which relate to or form part of the trust accounts.

It also updates the legislation so as to reflect developments in Jersey case law in more recent years which have recognised the need to balance principles of confidentiality and of accountability to beneficiaries, and in that regard potentially competing interests of different beneficiaries, the trustees and other persons.


Article 38 – accumulation and advancement

Article 38 sets out rules for how trustees deal with the accumulation and application of trust income.  Currently, save for income attributable to a minor’s interest, the default position (unless supplanted by a trust’s express terms) is that income not accumulated must be distributed.

With Trusts Amendment 7, that default requirement to distribute income not accumulated is replaced.  Instead, income is to be retained as income for so long as and to the extent that:

  • income is not distributed / required to be distributed by the trust terms;
  • no trust to accumulate income and add it to capital, or retain it as income, applies or is exercised.

A new Article 38(2A) clarifies that, unless the trust terms provide otherwise, there will be no time limit within which the power to accumulate income / add it to capital, or to distribute it or retain it as income, must be exercised.

Why the change?

The amendments clarify and widen the options for trustees in relation to the accumulation and distribution of income, and the characterisation of trust receipts as either capital or income.


Article 43 – Termination of a Jersey Trust

Article 43 addresses how trust property is to be dealt with when a trust terminates.  One element of that is the right of trustees to be provided with reasonable security against trust liabilities.

A similar entitlement to reasonable security is contained in Article 34 of the Trusts Law, in the context of a trustee ceasing to be trustee (e.g. on resigning from office).

Trusts Amendment 7 introduces a new Article 43A which clarifies that entitlement to reasonable security in the context of ceasing to be a trustee, distributing trust property, or a trust’s termination or revocation.

Article 43A specifically addresses “reasonable security” provided in the form of a contractual indemnity, and sets out the categories of persons in whose favour such an indemnity may be provided (including, for example, a corporate trustee’s officers and employees).  It confirms that such persons may enforce such an indemnity made in their favour whether they are party to it or not, including a contractual indemnity made by other persons (e.g. replacement trustees) after their relationship with the trust has ceased but which is expressed to extend for their benefit.

Why the change?

Trustees (including former trustees no longer in possession of the trust funds) are potentially personally liable for trust liabilities.

Uncertainty as to the reliance that can be placed on a trustee’s lien under Jersey law has led trustees parting with trust funds to seek other means of ensuring that they will be able to clawback trust assets to meet later discovered trust liabilities which they might otherwise have to meet personally.

A contractual indemnity from the recipient of trust funds in favour of the trustee has become the market standard mechanism by which to deal with that potential personal exposure to trust liabilities.

This new Article 43A acknowledges that, and clarifies which persons may rely on such an indemnity, and also that the doctrine of privity of contract will not operate to prevent those not party to such a contractual indemnity being able to enforce it.


Article 47(1)

Article 47 empowers the court to approve an arrangement varying or revoking a trust’s terms, and to enlarge trustees’ powers of management and administration of trust assets.  The court may only give such approval on behalf of persons who are not able to do so themselves (e.g. minors or unascertained beneficiaries) and if it concludes to do so would be for their benefit.

Trusts Amendment 7 will extend the scope of the court’s powers, enabling it to give approval on behalf of a person who cannot be found despite reasonable efforts to find him/her, and on behalf of a person who is a member of a class the size of which makes it unreasonable to contact that person.

Why the change?

Extending the court’s powers will enable the implementation of advantageous changes to trust arrangements which might otherwise be frustrated or delayed because beneficiaries cannot be located, or the class of beneficiaries is particularly wide.

 

Conclusion

The changes which Trusts Amendment 7 brings are evolutionary rather than revolutionary.  They add clarity and further flexibility to Jersey’s trusts legislation, thus ensuring that it remains a jurisdiction at the forefront of international wealth planning.  If you require further information or trust advice please contact Mason Birbeck mason.birbeck@parslowsinternational.com

 

Amendments to Jersey’s Trust Legislation – Article | Jersey Trusts | Parslows International

Trusts, Foundations & Private Wealth

Main contact: Mason Birbeck

Trusts, Foundations & Private Wealth

Mason Birbeck is an expert in Trust Law.  If you require any clarification on this briefing please contact him.

Trust Foundations & Private Client

UK forces public ownership registers on certain offshore jurisdictions – but not Jersey | Parslows International

 UK forces public ownership registers on certain offshore jurisdictions – but not Jersey | Parslows International

The UK Parliament has today voted in support of requiring Britain’s overseas territories (which include the BVI, Cayman Islands and Bermuda) to adopt publicly accessible registers identifying beneficial ownership of companies incorporated in those jurisdictions*.

The requirement will not however apply to Jersey.

This new UK legislation comes as a result of cross-party support for backbench amendments to the UK’s Sanctions and Anti-Money Laundering Bill passed through the Commons today.

The Overseas Territories will have until 31 December 2020 to either comply or face having the change imposed by the UK.

In a statement issued yesterday, Jersey’s Chief Minister commented that “This amendment, if passed, would properly respect our constitutional relationship [with the UK]. I believe this reflects Jersey’s leading position in having already established registers of beneficial ownership and effective procedures for information sharing that prevent the island from being used for money laundering and terrorist financing…”.

*Source FT

Trusts, Foundations & Private Wealth

Main Contact: Mason Birbeck

Head | Trusts & Private Wealth


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 
Trust Foundations & Private Client

Trust Investment – Lessons Learned In Hard Times (1)

Trust Beneficiaries Parslows InternationalTrust Investment – Lessons Learned In Hard Times (1)

In the Matter of the Y Trust | Beneficiaries

When one considers at first glance the trust arrangement in relation inter alia beneficiaries that the Royal Court was being asked to sanction, it is unsurprising that it identified this as an “unusual application”.

The proposal put to the Court would see trust powers exercised so as to exclude minor beneficiaries whom one might otherwise have anticipated would benefit, for the purpose of enabling the remaining adult beneficiaries to terminate the trust and apply a large proportion of the trust assets in favour of a person expressly excluded from benefit by any exercise of the trustees’ powers.

The application was brought by the trustee of a Jersey discretionary trust caught in the midst of protracted U.S. divorce proceedings.

The children and grandchildren of the husband and wife were beneficiaries of the trust, as was the wife.  The husband’s sister and her grandchildren were also beneficiaries.

As “Appointor” and “Guardian”, (functions provided for in the trust terms), the husband had inadvertently become an “Excluded Person”, and consequently unable to benefit directly or indirectly in any manner from the exercise of any powers vested in the trustee.

As a consequence of the matrimonial proceedings and disputes relating to the trust, the trust fund had, since 2012, effectively been frozen.  The husband and wife had finally agreed to settle, with a divorce hearing imminent, lending urgency to the trustee’s application to the Jersey court.

The divorce settlement, (supported by all the adult beneficiaries), anticipated the termination of the trust, with the bulk of the trust assets being apportioned equally between the husband and wife, and the remainder distributed to their children.

The adult beneficiaries recognised that, in giving effect to the divorce settlement, the trustee would be distributing trust property in the knowledge that the husband, as an Excluded Person, would benefit, and that this could carry some residual exposure for the trustee.

They, therefore, proposed that the class of beneficiaries of the Trust be closed and limited to themselves, enabling them to exercise the power under Article 43(3) of the Trusts (Jersey) Law 1984, whereby all the beneficiaries of a trust acting together can terminate a trust.

As a first step, this would require the Trustee to vary the trust terms to remove certain beneficiaries, extend the class of Excluded Persons, and release its power to add beneficiaries.

The proposal had been formulated specifically to remove any risk to the trustee and so recognised a potential conflict for the trustee, between its personal interests and its duties as trustee.  Accordingly, the arrangement also anticipated that the trustee would apply to surrender its discretion to the Court.

The Court considered whether or not the exercise of the trustee’s powers as proposed would constitute a “fraud on a power”, an exercise for the impermissible purpose of benefiting a non-beneficiary.  It referred to the following passage from the practitioners’ text, Lewin on Trusts:

It is open to an appointee, moreover, to apply the property appointed as he wishes and in particular to apply it in favour of persons who are not objects of the power.  An exercise of a power is not vitiated merely because the donee [of a power] is aware that the proposed appointee intends to do so, nor even if there is an arrangement that the appointee should do so, as long as the donee’s purpose in making the appointment is the benefit of the appointee and not the benefit of those who are not objects.”.

On the question of excluding a beneficiary, the Court held that it is incumbent on the trustee to consider the position very carefully, to take into account the position of the person to be excluded and whether therefore it is reasonable in the interests of the other beneficiaries.

The Court acknowledged that the proposal was not intended to defeat the grandchildren’s interests.  On the contrary, it was framed so that new arrangements could be made for their protection into the future.

The Court was of the view that the primary purpose of the proposal was to benefit the wife and the children, albeit the husband would also indirectly benefit, and was therefore satisfied that the proposal would not amount to a fraud on the relevant powers.

The Court identified that a surrender of discretion should be regarded as a last resort, and considered whether or not the trustee should instead be making the “momentous” decisions itself, and only asking for the Court’s blessing in that regard.

However, the Court accepted that, in this case, the trustee seeking the Court’s blessing to a “momentous” decision presented a difficulty.  The relevant test required the Court to be satisfied that the trustee’s decision had not been vitiated by potential conflict of interest, and the proposal recognised that the trustee did have a conflict.

Accordingly, the Court accepted the surrender and directed the exercise of the trustee’s powers so as to give effect to the proposal.

The Court’s judgment does not appear to address whether or not there is any essential difference in character between the exercise of trust powers facilitating, on the one hand, incidental benefit to a person who is simply outside the class of beneficiaries and, on the other hand, such an exercise of powers which benefits a person who, by the trust terms, is expressly excluded from benefitting by any exercise of the trustees’ powers.

The case with which the Court drew an analogy, In re X Trust [2002] JLR 377, involved incidental benefit to a person outside the class of beneficiaries.  However, there is no suggestion in that judgment that the non-beneficiary was expressly excluded from benefit.  Neither is that distinction addressed by the passage in Lewin to which the Court referred.

The Court acknowledged that the application was an unusual one, so perhaps its decision should not be regarded as establishing any general principle.  It does, however, suggests that provided a trustee’s purpose in exercising its powers is to benefit a beneficiary, such exercise of powers will not necessarily be vitiated only because an excluded person receive an incidental benefit as a result.

For further information contact Mason Birbeck on 00 44 1534 630530 or email mason.birbeck@parslowsinternational.com

Trusts, Foundations & Private Wealth


Main Contact: Mason Birbeck

Head | Trusts & Private Wealth


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows International accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct.