Straight to the point
9 June 2003
23 July 2013
9 April 2014
4 June 2013
6 August 2013
31 October 2013
In the past 12 months, the rich and fertile garden of trust litigation in Jersey has continued to be ploughed, landscaped and replanted by the Royal Court. Applications for directions by trustees appear to have been the firm favourites, although the hardy perennials of rectification and disclosure of documents continue to feature, with some exotics now starting to appear.
One such exotic featured in the well-known Jersey trust case Hastings-Bass, which allowed for decisions by trustees to be set aside if the full facts of the trust settlement were not known to them. This was reaffirmed as part of Jersey law by the court in Green GLG Trust. The court acknowledged that the precise extent of the rule under English law had yet to be determined. In addition, on the issue of whether a court must be satisfied that the trustees definitely would have acted differently if they had the full facts before them rather than speculating that they might have, the court expressed the view that the higher test of 'would' might be correct.
Trustees were given a timely reminder as to their duties and powers in Parujan v Atlantic Western Trustees Limited. The beneficiary alleged that the trustee had overcharged the trust structure for a number of years. The trustee maintained that its charges were appropriate as it had undertaken extra work in order to ascertain and understand the actions of one of the beneficiaries. In a variation to the usual footballing analogies, the court stated that "a trustee should be in the saddle and firmly holding the reins; he should not be running after the horse desperately trying to mount it". By allowing itself to be swamped by the demands of a difficult beneficiary, the trustee had failed to act prudently and with due diligence, and was not entitled to charge for the additional work. In addition, given the allegations and counter-allegations of lying and deceit and the conduct of the trustee in charging excessive fees, there was obviously a breakdown in the relationship between the trustee and the beneficiaries and, accordingly, the trustee was removed by the court. If all that was not enough excitement for one case, the trustee had used trust assets to pay the legal costs it had incurred in resisting the personal claim for breach of trust. The court expressed its surprise and stressed the impropriety of using the trust assets to pay the trustee's own legal fees in hostile litigation with the beneficiaries.
The importance of certainty in drafting was highlighted in the HH Taylor 1969 settlement. In the case, the court had to determine whether the issue of the settlor included illegitimate grandchildren. The court looked at the objective meaning of the words of the document and held that, as a matter of construction, there is a presumption that "children" means "legitimate children". So the presumption was not rebutted and only legitimate children were included.
It is not only lawyers who need reminding about the need to be accurate. In a settlement, unfortunately named the Double Happiness Trust, drafted by accountants, the court was required to construe the terms of a settlement in which various provisions were inconsistent. The court looked for the three certainties - subject-matter, beneficial interests and beneficiaries - but had difficulty in regard to the latter two. Despite their best efforts, neither the counsel for the trustee nor the counsel for the minor and unascertained beneficiaries were able to construe the settlement in a sensible or coherent manner. In what cynics might describe as a rather neat piece of marketing, the court considered that the document was "a vivid illustration of the dangers of non-lawyers drafting trust deeds".
For rather less fatal errors, the court has been sympathetic to applications for rectification. Re MJB/SJB Amethyste Trust concerned a trust where the primary beneficiaries were defined to include the settlor's grandchildren, who were unfortunately excluded by a subsequent provision. The court ordered rectification, as the intention of all the parties had been to benefit the settlor's grandchildren. In refining the test for rectification, the court must be satisfied in the balance of probabilities that a mistake has been made so that the settlement does not carry out the true intention of the parties, and the settlor in particular. In addition there must also be full and frank disclosure and there should be no other practical remedy available. The newly refined test has been applied from then on.
Sympathy is one thing, delay is quite another. In the McLean Family settlement, an application was made to rectify the omission of one of the settlor's five children from the class of beneficiaries five years after the drafting error had occurred. The delay was caused by the settlor taking tax advice that might have meant that the purpose of the trust would have fallen away. The court did not regard this explanation as sufficient and concluded that the trustees, being aware of their error, were under a duty to apply to the court to correct that error as soon as possible. Nevertheless, the court did decide to exercise its jurisdiction and allowed the rectification, in view of the inequity that would result if only one of the five children were not to be included as a beneficiary of the settlement.
The court has also had to resolve the knotty problem of what to do when the beneficiaries of a trust get divorced, and one party ceases to be a beneficiary (the Eiger Trust), or one never was a beneficiary (the X Trust). In both cases, the court approved the payment by the trustees to enable the orders of the family court to be met.
As for documents, in the M Trust the Royal Court followed its earlier decision in Re Rabaiotti, but went on to refuse to provide documents to a beneficiary who was seeking to invalidate the trust.
David Cadin is an advocat at Bedell Cristin, Jersey