The States of Jersey is shortly to amend the Trusts (Jersey) Law 1984 for a seventh time.
The 2016 consultation paper canvassed views on whether to amend the Trusts (Jersey) Law 1984 in twelve areas in which there were perceived either to be difficulties with the current law or where it was thought improvements could be made. Those areas were:
Area 1 – the certainty of objects – specifically whether there needs to be a beneficiary or purpose for whom the trust property is to be managed and applied at all times during the existence of a trust.
Area 2 – The rights of beneficiaries to information from the trustee
Area 3 – The reservation of powers by a settlor or third party
Area 4 – The arbitration of trust disputes in Jersey
Area 5 – The extension of the statutory provisions for trustees to self-contract
Area 7 – Extension of the trustee’s indemnity provisions
Area 9 – Introducing an express presumption of lifetime effect for Jersey trusts
Area 10 – The powers of the court to effect a variation of Jersey trusts
Area 11 – The application of Jersey’s forced heirship regime (légitime) to trusts
My submissions to the Trusts Working Party’s summer 2016 consultation the can be found here.
Not all of the areas that underwent consultation will result in amendments to the law. The following areas however will be subject to change.
RIGHTS OF BENEFICIARIES TO INFORMATION
Article 29 of Trusts (Jersey) Law 1984 sets out the framework in which trustees should disclose (and are entitled to withhold) documents and information about the trust from the beneficiaries. The existing provision, particularly the double negative in Art 26(d) that the trustee should not not disclose information relating to or forming part of the the trust accounts to the beneficiaries, has long been criticised as an unwieldy and difficult provision in need of reform.
Article 29 is to be completely redrafted. The new Article is likely to be modelled on the provisions in section 26(1)-(2) Trusts (Guernsey) Law 2007, which more accurately reflects the broad principles governing the disclosure by trustees to beneficiaries at common law espoused in the seminal Schmidt v Rosewood decision of the Privy Council and the In Re Rabaiotti Settlement decision in Jersey.
There is no intention to prescriptively specify the principles of disclosure or what documents and information must be disclosed. Neither is there an intention to introduce provision to restrict the principle that duty of trustees to account to beneficiaries is fundamental to the concept of the trust and part of the ‘irreducible core’ of obligations as per Armitage v Nurse. A beneficiary will retain the ability to apply to the court for further access to information and the court will retain an overarching discretion as to whether to order disclosure in the particular circumstances.
Article 9A of the Trusts (Jersey) Law 1984 deals with powers reserved to the settlor or third party power holder. It is proposed to make various minor amendments to clarify and enhance Article 9A. The fundamental amendments being progressed are as follows:
- Article 9A(1)(a) – clarification that “all” or any of the beneficial interest may be reserved or granted (current language uses “any”).
- Article 9A(1)(b) – clarification that “all” of those powers at Article 9A(2) can be reserved or granted (current language uses “any”).
- New Article 9A(2A) – confirmation that the holding of a reserved power or interest does not of itself constitute the holder a trustee.
- New insertion of a presumptive provision (rebuttable by express language to the contrary) that reserved or granted powers cease to have effect upon the death, incapacity or bankruptcy of powerholder.
Two proposals on which there was consultation but which will not be progressed are as follows:
- Article 9A(3) – confirmation that a trustee complying with the exercise of a power by another power holder is not liable. There were differing views of this point. On the basis that it is already arguable there is no obligation on the trustee to monitor the exercise of reserved powers or supervise the actions of a power-holder, the Government has decided not to proceed with this amendment.
- It was debated as to whether clarification should be inserted on the question of whether reserved or granted powers are personal or fiduciary in nature. It was decided the issue would continue to be ultimately determined by the court on a construction of the trust instrument and all other circumstances.
EXTENSION OF THE TRUSTEE’S INDEMNITY
The proposal that Article 34(2A) of the Law be extended to permit a former trustee’s officers and employees to enforce an indemnity in their own right. This provision was originally introduced into Jersey law to get around the practical difficulties of a chain indemnity where a trust structure has a succession of trustees.
It is often standard to extend a retiring trustee’s indemnity to the trustee’s officers and employees in many Jersey DORAs. Our view was that such provision can be adequately provided for by those with appropriate negotiation and drafting without making specific legislative provision. The Royal Court has already approved such provision as reasonable.
The States of Jersey will proceed to make the amendments to the 1984 Law to make it possible for individual officers and employees to benefit from indemnities from a new trustee (including where an indemnity has been extended or renewed by subsequent trustees) and to have direct access to the court to enforce such indemnities as necessary. In most cases it will be still be appropriate for the trustee to act as representative of these “Indemnified Persons.”
POWER OF THE COURT TO VARY A TRUST
The consultation asked whether it would be beneficial to provide the Royal court with powers to vary a trust that were wider than those already contained in Article 47 of the 1984 Law (which are the mirror of those found in the Variation of Trusts Act 1958).
The responses, including my own, were strongly of the view that any perceived benefit was outweighed by the risk of undermining the Article 9A firewall provisions particularly in matrimonial cases.
It is seen as helpful to permit the Court to provide consent to a variation on behalf of beneficiaries who the court is satisfied cannot be found despite proper attempts to locate them or who, due to their number, it is practically unfeasible to contact, and then only if the Court determines that such variation is in their best interests. Accordingly amendments to the 1984 Law will be brought forward to this end.
THE ROAD NOT TAKEN…YET
Changes to the Trusts (Jersey) Law 1984 in respect of the arbitration of trust disputes (as opposed to proceedings in Jersey’s courts), extension to the provisions permitting trustees to contract with themselves in different capacities and a wide provision to permit court variation of trusts (save as set out above) will not proceed.
It was proposed:
- to remove any ambiguity over the retrospective nature of Article 31 (ie whether Article 31 as it is currently drafted applies to contracts which were entered into before as well as after Amendment No. 5 came into effect); and
- to expressly permit a trustee to contract with itself in different capacities (ie as an individual/company and as a trustee).
The crucial importance of the common law prohibition on self-dealing is an important corollary of the trustee’s status as a fiduciary. While the proposed amendment does not abolish the prohibition on self-dealing a number of respondents were concerned that the provisions of Articles 21 and 23 which qualify the ability of the trustee to contract with itself would not be sufficient to prevent a trustee intent on profiting themselves from so doing.
Recent litigation which I have been closely involved concerned multiple egregious examples of a corporate trustee borrowing money from trusts of which it is a trustee at interest and then lending that money, at a higher rate of interest, to companies held in a different trust for which it was also the trustee. The trustee secured such lending in favour of itself and with the trustee taking the spread (undisclosed to the beneficiaries) on the interest. Dick v Pantrust International SA & Ors  JRC 021 was an example, par excellence, of the danger inherent in Article 31(3) and its interaction with the extent to which a trustee is accountable to beneficiaries for the substance of its decision making. In the Pantrust litigation, as it was only by happenstance that the beneficiaries discovered that their trustee had been engaged in inter-trust lending and profiting itself.
No amendment to Article 31 will be proceeded with.
The Chief Minister’s Department will not proceed to introduce a specific amendment to Jersey’s légitime regime in respect of testamentary dispositions into trust. Will now consult more widely as to whether Jersey wishes to abolish the principle altogether. The widely held view was that proceed with the proposed amendments in relation to trusts in isolation would lead to a strange anomaly which is difficult to justify whereby testators may avoid the effect of légitime when leaving their movable estate to trustees but remain subject to the principle where they do not.
These amendments to the Trusts (Jersey) Law 1984 are not as far reaching as those in previous amendments and will not fundamentally alter existing trust law principles in Jersey.
The Seventh Amendment serves simply clarify certain areas with the object of making Jersey an attractive and competitive offshore jurisdiction for private wealth administration.