Argument in favour of impounding under Trusts Law
Argument against article 46 claim
Decision
In the recent decision of the master of the Royal Court in Patel & Ors v JTC Trust Company Limited,(1) the Court confirmed that it does not possess the power under article 46 of the Trusts (Jersey) Law 1984 (the Trusts Law) to impound the interest of a beneficiary of a discretionary trust. This article considers the arguments for and against.
Argument in favour of impounding under Trusts Law
The defendant argued that the Court could impound all or part of the interests of the beneficiaries by way of indemnity to the trustee in respect of a breach of trust where the beneficiary had instigated, requested or consented to the breach of trust (the article 46 claim).
The defendant argued that the overwhelming majority of Jersey law trusts are discretionary in nature, and so to argue that article 46 did not apply to them would render article 46 meaningless.
Argument against article 46 claim
The third parties argued the article 46 claim should be struck out, on the basis that recent decisions of the Royal Court had made it clear that a beneficiary of a discretionary trust did not have an interest in the trust beyond a right to be considered for distributions. Recent cases had shown that it was not possible, for example, to obtain an injunction over a beneficiary's discretionary interest. In this case, therefore, it was argued that it similarly cannot be possible to impound a discretionary interest.
In this case, all the beneficiaries were discretionary beneficiaries. In applying recent decisions of the Royal Court in Kea Investments v Watson(2) and Re the Realisable Property of R Tantular,(3) among others, the master of the Royal Court held that article 46 can only be applied to a beneficiary holding a fixed or vested interest. This is because a discretionary interest is only that: discretionary. It is purely at the discretion of the trustee to determine whether a distribution would be made to a discretionary beneficiary.
The master also held that the lack of the impounder remedy in relation to discretionary trusts does not leave a trustee without protection. The trustee can protect itself:
- in relation to momentous decisions – the trustee can seek the blessing of the Court (article 51 of the Trusts Law); and
- by seeking to be excused from a breach of trust, if it can satisfy the Court that it has acted honestly and reasonably and ought fairly to be excused for the breach of trust or for failing to obtain directions (article 45 of the Trusts Law).
For further information on this topic please contact Damian Evans, Matthew Davies or Paola Sequeira at Ogier by telephone (+44 1534 514 000) or email ([email protected], [email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.
Endnotes