Introduction
Definition of 'purpose'
Definition of 'protector'
Protection from foreign interference
Remuneration of professional trustees
Position of outgoing trustees
Limitation of actions or prescription
Trustees transacting with themselves on behalf of different trusts
Comment
Since the last amendment to the Trusts (Jersey) Law 1984 in 2006, the Trusts Law Working Party has continued to consider how it might improve and enhance the law. Following a period of consultation with industry, the draft Trusts (Amendment 5) (Jersey) Law 2011 was debated and adopted by the States of Jersey on November 2 2011. While perhaps the amendments contained in Amendment 5 are not as significant as those in Amendment 4, the Working Party nonetheless believes that the changes will make Jersey more attractive as a destination for private client business, with the changes bringing clarity and certainty to a number of areas.
Jersey introduced the concept of the non-charitable purpose trust in 1997. It has proved popular as an alternative to the charitable trust for the purpose of holding corporate entities such as private trust or private protector companies. Before the adoption of Amendment 5, the accepted view in respect of these trusts was that the purpose needed to be external to the trust and could not simply be to hold the relevant shares. This often necessitated having a purpose which was wider than the settlor actually wanted. Amendment 5 introduces a definition of 'purpose' for the first time, which includes the acquisition, holding, management or disposal of property. Accordingly, 'ownership only' purpose trusts (ie, merely holding shares) will be permitted under the new law.
An amendment has been made to Article 9A of the Trusts Law which has the effect of defining a 'protector' by replacing that expression (which was used in Article 9A but was undefined) with a reference to a person – other than a trustee, enforcer or beneficiary – who holds a power, discretion or right in connection with a trust.
Protection from foreign interference
Article 9 is the provision which protects Jersey trusts from attacks by foreign courts. Since Amendment 4 was passed, the Royal Court has delivered what is regarded as a helpful judgment in Mubarak v Mubarak,(1) confirming that a judgment of an overseas court that purports to alter or vary a Jersey trust cannot be enforced by the Royal Court. In light of that decision, the Working Party did not believe that any serious surgery was required to Article 9. Accordingly, Amendment 5 largely clarifies and takes account of observations made by commentators as to how the article could be improved.
The main changes include the following:
- Article 9(1), which sets out the matters that must be determined in accordance with Jersey law and shall not be determined by foreign law (eg, the validity of the trust), is extended to include any exercise by a foreign court of a statutory or non-statutory power to vary the terms of the trust.
- A new Article 9(2A) is created. This provision sensibly makes clear that there are limits to the protection that Article 9 can give. It makes clear that the protection of Article 9 cannot:
- validate a transfer of property which was neither owned by the settlor nor the subject of a power of disposition vested in the settlor;
- affect the recognition of the law of any other jurisdiction in determining the questions of the above;
- displace express provisions to the contrary in the terms of the trust;
- in determining the capacity of a corporation, affect the recognition of the law of its place of incorporation;
- affect the recognition of the law of any other jurisdiction prescribing the formalities for the disposition of property;
- validate any trust or disposition of immovable property situated in a jurisdiction other than Jersey which is invalid under the law of that jurisdiction; and
- validate any testamentary disposition which is invalid under the law of the testator's domicile at the time of his death.
- Paragraph 5 of Amendment 5 restates the restrictions in Article 9(4) on the enforcement of foreign judgments to include explicitly other decisions of foreign tribunals (eg, arbitration awards), and also the giving of effect in Jersey (whether or not by enforcement) to such decisions.
- Paragraph 6 of Amendment 5 widens the definition of 'personal relationship' in Article 9(6) to include explicitly relationships with beneficiaries.
Remuneration of professional trustees
Article 26 of the Trusts Law currently provides that unless a trustee is so authorised by the terms of the trust, the consent in writing of the beneficiaries or an order of the court, the trustees shall not be entitled to remuneration for their services. The amendment to Article 26(1) applies only to professional trustees – meaning a person who is registered under Article 9 of the Financial Services (Jersey) Law 1998 by the Jersey Financial Services Commission to carry on trust company business – and provides that where the trust deed is silent as to remuneration, professional trustees shall be entitled to reasonable remuneration for their services, but only in respect of services provided after Amendment 5 comes into force.
Article 34 of the amendment gives outgoing trustees the right to enforce a term of a contract providing reasonable security against liabilities (ie, indemnities), even though they are not parties to the contract.
The change is welcome. In relation to the retirement of trustees, and notwithstanding the existence of the privity of contract rule in Jersey, this change means that if an indemnity is required to be provided to previous trustees (in addition to the trustee who is then retiring), it will be possible for indemnities to be given in favour of those former trustees – notwithstanding that they will not be parties to the deed. The new provision makes clear that the deed must:
- expressly provide that the trustee in his or her own right can enforce the terms in his or her favour; or
- seek to confer a benefit on the trustee.
In either case, the deed must expressly identify the trustee.
Limitation of actions or prescription
The changes to Article 57 are largely of a clarifying nature. The provision specifying that no period of limitation applies to claims against trustees which are based on fraud or seek to recover trust property from the trustee is untouched. The time limits in respect of beneficiary, enforcer or new trustee actions remain unchanged also. However, the article now makes clear that where the beneficiary is a minor or an interdict, or is under any other legal disability, the time periods do not begin to run until the beneficiary ceases to be a minor, an interdict or under that other disability, or sooner dies.
The other welcome change is a provision that – subject to fraud or recovery of trust property claims – actions are time barred after 21 years have elapsed from the date of the alleged breach of trust. The new article (ie, on limitation) does not apply to foreign trusts whose proper law is that of a jurisdiction to which the Convention on the Law Applicable to Trusts and on their Recognition, signed at The Hague on October 20 1984, extends.
Trustees transacting with themselves on behalf of different trusts
Often with professional trustees, the trustee transacts with itself as trustee of different trusts. However, before the adoption of Amendment 5, it had not been certain as a matter of Jersey law as to whether a trustee could contract with itself. The new provision allows a trustee to contract with itself in respect of two or more trusts.
The changes in Amendment 5 are extremely helpful. In particular, the possibility of creating 'ownership only' trusts, the clarification in respect of trustees contracting with themselves, the 21-year long stop on actions against trustees, the ability of trustees to enforce covenants in their favour when they are not parties to the deed and the provision allowing trustees reasonable remuneration where deeds are silent on the subject all improve the Trusts Law. The Working Party is already meeting to consider whether further enhancement can be made.
For further information on this topic please contact Steve Meiklejohn at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email ([email protected]).
Endnotes