Trust in the system
30 July 2001
Principles applicable to legal costs incurred in trust-related proceedings in Jersey by trustees, other fiduciaries and beneficiaries
1 October 2013
31 October 2013
21 February 2014
6 August 2013
14 May 2013
Richard C Douglas 1990 settlement (Jersey Royal Court, 3 April 2000)
The Royal Court can vary the terms of a Jersey trust to avoid, minimise, or defer tax if the arrangement proves to be for the benefit of any of the potential beneficiaries listed in Article 43(1) of the Trusts (Jersey) Law, 1984. It does not matter if the tax consequence is the main reason for the variation.
The court also noted that it was an open question whether it would enforce against Jersey trustees the English statutory right of a settlor to be reimbursed capital gains tax which he has paid. The issue did not arise in this case.
Peter Hynd 'H' settlement (Jersey Royal Court, 3 April 2001)
In a judgment delivered by former bailiff of Jersey Sir Peter Crill, sitting as a commissioner of the Royal Court, it was stated: "The effect of the variation would not be automatically to avoid that taxation, but merely to enable the Trustees, in consultation with English counsel who specialise in such matters, to plan the future for the benefit of the settlor and his wife and their children and grandchildren. That cannot, therefore, be said to be an infringement of such undertakings, as the government of this island has given in the past to HM Government regarding taxation. Any scheme in the UK to avoid taxation as a result of changes in legislation in the UK would be challengeable by the Inland Revenue in the English courts and not here.
"There is, of course, a difference between the English courts giving their consent to a variation, the purposes of which would be to assist in the avoidance of English taxation in that jurisdiction, and this court doing the same in respect of a different jurisdiction. A true analogy would be between this court doing the same in this jurisdiction in relation to its own internal taxation."
These cases indicate that a variation for tax planning reasons is likely to be approved by the Jersey Court. Given the complexity of tax legislation in the UK and elsewhere, this development is a useful clarification for the offshore trustee.
Esteem settlement (Jersey Royal Court, 20 July 2000)
A trustee should only be stopped from recovering costs of executing a trust fund if it has been guilty of misconduct. Finding no misconduct in this case, the Royal Court ordered that the trustee's legal and professional costs, of and incidental to, an application to the Royal Court for directions, should be paid from the trust fund on an indemnity basis.
At a previous hearing the court found that the application had been premature, but that it had nevertheless been made in good faith and in the interest of the trust estate. Because of this, it would have been unfair to require the trustee to pay the costs out of their own pocket while waiting for the resumption of the application, which had been adjourned indefinitely.
Esteem Settlement (Jersey Royal Court, 15 January 2001)
In future, trustees might face a tougher test when asking the Royal Court (under article 47 of the Trusts (Jersey) Law), to order that their costs of asking for directions, 1984, be paid on an indemnity basis from the trust fund.
The general principle is that a trustee should only be deprived of its costs if guilty of misconduct. However, an alternative English formulation states that a trustee who acts unreasonably may not only be deprived of costs, but be ordered to pay those of the plaintiff.
In the ruling the deputy bailiff said that it was unclear whether there was any difference between the test of misconduct and that of unreasonableness, but he thought that a trustee could act unreasonably without necessarily being guilty of misconduct. In this case, the trustee was content to be judged under the unreasonableness test which the court therefore applied.
In some cases, the trustee should remain neutral and leave the other parties to fight it out. In others, the court is entitled to expect the fullest assistance from the trustee, which should ensure that all relevant law is before the court and all arguments for and against the possible courses of action are rehearsed. It usually helps the court for the trustee to recommend a particular course of action and explain why. Although the court might reject that recommendation, it is not in the public interest to discourage trustees from making recommendations for fear of being penalised in costs.
In this case the trustee was found to have acted reasonably. This judgment makes it clear that when trustees go to court for guidance on a problem, even if the court disagrees with the view of the trustee, they will be awarded costs for attending court.
This means that trustees will not be dissuaded from going to court and that the Jersey Court is prepared to help trustees faced with difficult issues and is available as a resource to help address such problems.
Rabaoitti 1989 settlement (Jersey Royal Court, 30 May 2000)
The Royal Court has clarified the powers and duties of trustees to disclose documents to beneficiaries of a discretionary settlement.
The general principle is that a beneficiary is entitled to inspect trust documents such as the trust deed and records that show the value and nature of the trust property, the trust income and how the trustees have been investing and distributing the trust property.
There is a strong presumption in favour of disclosure, but if the trustee believes that disclosure to a requesting beneficiary would be prejudicial to the interests of the beneficiaries, they can refuse and either party can ask the court for directions. However, there is a strong presumption against the disclosure of a letter of wishes and the court will not order inspection unless a clear case for disclosure is made.
This judgment has been referred to extensively in the UK. It is about letters of wishes and the principles of which trust documents should be disclosed to beneficiaries, what beneficiaries are entitled to see, and under what circumstances beneficiaries should not see such information. The judgment is a thorough analysis of not just Jersey precedent, but of UK and Commonwealth cases, and it is likely to be of benefit to trust practitioners everywhere.
Financial Services Extension (Jersey) Law 2000
This law, which became effective on 2 February 2001, regulates the providers of trust and company administration services on the island. Henceforth it is a criminal offence for a person to provide such services without a licence. In order to be granted a licence, a service provider must be "fit and proper". Service providers must adhere to detailed codes of practice in the way they manage their business. The codes lay down certain minimum criteria in matters such as adequacy of a trust company's capital base, insurance arrangements, solvency margins, overall management of the business, qualifications and experience of staff, and compliance with anti-money laundering legislation. The law has been broadly welcomed in the industry. Because the codes are so far-reaching, it is felt potential clients will be impressed by the regime and that the legislation will therefore generate business for Jersey and not lose it.
The most significant impact that the law has had in the short term has been an increase in the work of management and compliance departments, in focusing on internal policies, procedures and organisations and a consequent increase in operational costs of trust company businesses. In addition, it has led to some of the smaller businesses and sole practitioners having to reorganise themselves by, for example, merging, so as to better equip themselves to deal with the regulatory regime and the span of control requirements.
Matthew Thompson and Steve Meiklejohn are partners at Ogier & Le Masurier.