Jersey & Guernsey
Law Review – February 2013
Conference Proceedings
INSIGHTS INTO TRUST LAW: THE CHANNEL
ISLANDS AND BEYOND
Scott Atkins
Overview
1 This Institute of Law conference in
October 2012 provided an excellent opportunity to reflect upon the rapid
development of trusts law in the Channel Islands. The remarkable success of the
Trusts (Jersey) Law 1984 (“the 1984 Law”) is evidenced by its
export and use in numbers of other jurisdictions. It was adopted shortly after
1984 by Guernsey and both Islands have kept their Laws under almost constant
review to ensure that they keep pace with market requirements.
2 Professor Andrew Le Sueur, Director of
Studies at the Institute of Law, opened the Conference by providing a brief
history of the development of the Institute and thanking speakers and delegates
for attending.
A judicial perspective on the Trusts Law
3 The provision of information by trustees
was the focus of the paper presented by Sir Michael Birt, the Bailiff of
Jersey. He explained that there were three areas to consider: (i) a trustee
supplying information to a beneficiary; (ii) an outgoing trustee supplying
information to an incoming trustee; and (iii) the provision of information from
a trustee to a third party.
4 It was arguably the third area that had
generated the most recent case-law and which showed a distinction between the
development of the law in Jersey and Guernsey. By definition, the question of
whether a trustee should give information to a third party involved
consideration of whether the trustee owes a general duty of confidentiality to
the beneficiary. In In re Internine Trust the Jersey Court of Appeal had said that it
was inclined to the view that there was no presumption that all trust documents
were confidential.
5 The Bailiff noted that in July 2012 the
Guernsey Court of Appeal had held (in B v
T) that there is a general duty of confidentiality between the
trustee and the trust. This was an interesting development, particularly given
that the Jersey Bailiff was a member of the court in that case! Exceptions to
this general duty could exist but would depend on the context of the case. The
trustee could disclose documentation to the extent it was reasonably necessary
to protect a trustee’s interests. The court would examine the
trustee’s and beneficiary’s competing interests.
6 The Bailiff also addressed the question of
confidentiality in relation to art 51 hearings, which were normally held in
private, and the recent tendency of the Family Division of the High Court in
England to require sight of documentation. In Re M Trust, the Royal Court hoped that,
whilst it recognized that the English High Court needed full access to
information, the High Court would similarly recognize the usefulness of art 51
hearings in Jersey.
7 The Bailiff closed his address by thanking
the Channel Islands’ and English Bars and solicitors for their
professionalism as the courts’ judgments could only ever be as good as
the arguments put before them.
Amendments to the Trusts (Jersey) Law 1984
8 James Mews, Director of Financial Services
in the Economic Development Department, explained that the latest amendment to
the 1984 Law (Amendment No 5) had been passed by the Privy Council and would
shortly be registered in the Royal Court.
9 He explained that Amendment No 5 dealt
with three major issues: (i) the clarification of the proper law to be applied
to Jersey trusts; (ii) that holding assets may be a valid purpose for a trust;
and (iii) that in the absence of specific terms in a trust, professional
trustees are entitled to a reasonable remuneration.
10 Mr Mews explained that work has already
commenced on Amendment No 6. Two issues for this Amendment were discussed: (i)
the introduction of arbitration and mediation provisions in trusts; and (ii) varying trusts. The main focus of this discussion was on
the former provision.
11 Arbitration hearings are currently
permitted under the Arbitration (Jersey) Law 1998 but all parties must agree to
such a hearing. This can prove impossible in a trust dispute where there are
more than a few beneficiaries and/or those beneficiaries are minors.
12 If arbitration/mediation is the way
forward, consideration needs to be given to the powers of the
arbitrator/mediator. For instance, should administrative matters be dealt with
just by the courts, as occurs in Malta? Or should the arbitrator/mediator have
extensive powers?
13 A slightly shorter discussion concerned
the variation of trusts. At present, the court may consent to a variation on
behalf of certain individuals (e.g.
minors) if it is for the management or administration of a trust. The main
issue is whether the ability to vary a trust should be extended—perhaps
to substantive variations to the beneficial interest, even if the beneficiaries
refuse consent. The Supreme Court of Bermuda has recently confirmed that this
latter, wider position is available in its jurisdiction (GHIJ v KL). Such a flexible position
may benefit Jersey’s trusts industry.
14 Mr Mews stressed that the States of
Jersey is interested in hearing all views on these matters.
Non-identical twins? The trusts laws of Jersey and
Guernsey compared
15 The similarities and differences between
the trusts models of the two largest Channel Islands was the subject for
Professor Paul Matthews, Visiting Professor at King’s College, London.
16 He outlined the history of the
development of the trust in the Channel Islands. The great strength of the Jersey
law was the introduction of the 1984 statute. Such an initiative gave lawyers
of other jurisdictions confidence that the trust not only existed but was well
regulated. This statute was not a piecemeal reform of existing trusts law, as
had occurred over time in England, but was almost a codification of Jersey
trusts law dealing, as it did, with substantive as well as administrative
trusts law.
17 Professor Matthews explained how Jersey
was keen not to be left behind in trusts law. Amendments followed apace to the
original 1984 Law. The amendments since the original Law have improved the Jersey model by, for instance, permitting non-charitable purpose
trusts and extending cy-près
to non-charitable trusts.
18 In Professor Matthews’ view, recent
developments to the Guernsey model have overshadowed Jersey. Guernsey has
created a number of unique selling points: for instance, their disclosure
provisions are now more cohesive and positive; the forced heirship and divorce
provisions are better; and there is clear provision for trusts of immovable
property. This has been achieved by having powers to amend primary legislation
without the need to resort to the Privy Council.
19 There are wider issues than simply
comparing trusts law of the two Islands. Professor Matthews spoke of the issue
of the potential Federation of the Channel Islands and the extent to which that
would affect the different trusts regimes. He questioned whether one trusts law
may bring benefits or whether perhaps the other Islands have the desire to
develop their own trusts law.
20 Overall, Professor Matthews felt that
both Jersey and Guernsey trusts regimes were in a rude state of health.
The view from England
21 Robert Ham, QC stressed that he was keen
to present ‘a’ view from England as opposed to ‘the’
definitive view concerning the Channel Islands’ trusts regimes.
22 Mr Ham explained that in the 1968
decision of the Court of Appeal in Re
Weston’s Settlements the Court of Appeal was
reluctant to permit the variation of an English trust to be subject to
Jersey’s jurisdiction. The Court of Appeal had noted that trusts’
law in the Island had not been developed. Since that decision, matters had
moved on considerably. There had been such an extent of trusts’
litigation that Jersey’s courts were now more experienced in dealing with
it than their English counterparts. All of the Jersey decisions are now readily
accessible thanks to the Internet and freely cited in English courts.
23 Mr Ham thought that a number of parts of
Jersey trusts law were worthy of praise: for example, art 32 of the Trusts
(Jersey) Law 1984 and the more robust way that the Jersey courts have dealt
with trustee exemption clauses than has occurred in England where such clauses
are managed by professional practice rules as opposed to the courts.
24 The relationship
between art 9 of the 1984 Law and the Family Division of the High Court in
England has caused some interest lately. There remains a danger that Family
Division judges may be pre-disposed to consider off-shore trusts as shams.
25 Finally, Mr Ham commented on the
different conclusions reached in England and Jersey on two cases concerning the
issue of mistake: respectively, Pitt v
Holt and Re the S Trust.
Mr Ham thought that the approach of the Jersey court was to be welcomed as it
was more straightforward to settlors.
A Swiss view of Channel Island trusts
26 Professor Luc Thévenoz from the
University of Geneva gave a presentation concerning how Jersey trusts were
being used in Switzerland. He explained that Swiss law will not permit a trust
to be created but will instead recognize a foreign trust under the Hague
Convention on the Law Applicable to Trusts and on their Recognition.
27 The Jersey trust has been generally well
received in Switzerland. The 1984 Law is a ‘readable’ statute for
lawyers versed in the civilian system. The lack of explicit recourse to
equitable principles supported the ease of recognition of the Jersey trust. The
Swiss courts have shown a good understanding of the trusts laws of both Channel
Islands albeit there have been far fewer cases than in the Islands’
courts.
28 Specifically, Professor Thévenoz
believed that Switzerland was attracted to the proposal to introduce
arbitration provisions into trusts. The ability to resolve disputes by
arbitration would help satisfy people’s concerns that an expert would
decide the case as opposed to the alternatives of submitting to a non-expert
Swiss judge or travelling to the Islands for the case to be resolved in court.
29 Professor Thévenoz highlighted
some areas of concern about Jersey trusts. These included settlor-reserved
powers, trusts with no perpetuity period and non-charitable purpose trusts.
These concerns increased the risk that Swiss courts would be inclined to pierce
the veil of the trust or declare it to be a sham.
An
Italian construction of the Trusts (Jersey) Law
30 Professor Paolo
Panico, Private Trustees SA, Luxembourg
gave an Italian perspective on the Jersey law of trusts.
31 No Italian law
of trusts exists as such but Italy does permit its nationals to settle property
on trust governed by a foreign law. The jurisdiction of Jersey has been the
most successful of foreign jurisdictions, probably due to its trusts’
model and the volume of case-law. Italy had, however, developed its own wealth
of case-law on Jersey trusts, with around 100 judgments in existence including
those from the Supreme Court.
32 Professor Panico
then explained some of the most significant cases to come before the Italian
courts concerning the Jersey law. The cases had developed from fundamental
questions involving recognizing a Jersey trust in the mid-1990s to much more
sophisticated jurisprudence concerning specific articles of the Jersey law in
recent years.
33 The conclusion
was that there was now an established practice of Italian domestic trusts. The
Jersey trust model fitted well with Italian taxation provisions and the Italian
judiciary were perhaps more sympathetic to Jersey trusts than their Swiss
counterparts.
Le best of onshore and offshore trusts
34 The
‘best’ parts of trusts law were discussed by Michael McAuley, of
Counsel, Carey Olsen, Guernsey. He emphasized that the traditional trust can be
seen as a ‘deal’, where the centre of gravity lies between the
settlor and the trustee.
35 Mr McAuley
showed that both academics and other jurisdictions had been nervous of a trust
being impliedly too biased in favour of the original settlor such as by, for
example, reserving the settlor powers. He felt this settlor bias should be
dealt with openly and categorically. A way forward could lie in removing
settlor-reserved powers from trusts law and placing them into discrete
legislation, so enabling the trust to be more beneficially centred and move the
centre of gravity towards the beneficiaries. The way he recommended, however,
was to follow the Cayman Islands’ STAR trusts and draft a special series
of provisions and then blending them with the general law of trusts. Some
American states had gone further by introducing revocable trusts—which
did not shy away from emphasizing the control the settlor could have over the
trust whilst still alive.
The word from the Isle of
Man
36 John Rimmer,
from Appleby in the Isle of Man, gave a presentation on the latest decisions
from the Isle of Man, an exclusively common law jurisdiction. He pointed out
that the Isle of Man was a far smaller trusts jurisdiction
than Jersey with correspondingly less case-law.
37 Looking into future developments in the
Isle of Man, Mr Rimmer explained that the Island was keen to escape English
public policy rules in its development of the law of trusts. In a sense, this
would involve the Isle of Man catching up with Jersey by, for example,
abolishing the need for two trustees and the requirement for a perpetuity
period (already existing in the1984 Law). There may be some desire in the Isle
of Man to take part in the creation of a Supreme Court of the Crown
Dependencies, which would hear final appeals in place of the Privy Council.
This would avoid the possibility of the Privy Council being swayed by British
public policy considerations.
Trusts elsewhere in the
world
38 Advocate Steven Meiklejohn from Ogier,
Jersey, considered the Cayman Islands’ asset protection trust and, in
particular, the recent decision in TMSF v
Merrill Lynch Bank & Trust Co. (Cayman) Ltd.
39 He explained that the decision of the
Privy Council in that case had equated a wide power of revocation enjoyed by
the settlor with ownership of the trust’s assets. This meant that the
power was delegable to the settlor’s receivers who could exercise it in
favour of his creditors.
40 Advocate Meiklejohn suggested the
decision in the case had wider implications and meant that settlors with such a
wide power of revocation should consider surrendering the power or, at least,
should be advised that the benefit of the power carried with it the risk
identified by the decision in the case.
Conference papers
41 The papers presented by the speakers at
the Conference will be available in a publication to be published in 2013.
Conclusion
42 In the High Court decision in Re Weston’s Settlements in 1968,
Stamp, J remarked that—
“there are certain difficulties in connection with
the law of Jersey in relation to trusts which leave me in some doubt whether
the courts of that island are so well adapted as the courts in
this country to administer such trusts as are found in English settlements.”
43 The speakers at the conference all
demonstrated that, in a little over 40 years, the sophisticated development of
the law of trusts in the Channel Islands has been so marked, and the amount of
litigation so voluminous, that it is perhaps no exaggeration to suggest that
the Islands’ courts are now better equipped than the English courts to
adjudicate on trusts matters.