After some delay, the Trusts (Amendment No 5) (Jersey) Law 2012 received Privy Council approval on 17 October. It will come into force seven days after being registered in the Royal Court which will happen on 27 October or more probably 2 November this year. We originally published a briefing on the changes in 2011 when the Law was passed by the States. However, given the delay between our last briefing and the Law coming into force we thought it would be helpful to set out again the changes that will be intriduced by the new Law.
- Article 1: Introduction of a Definition of 'Professional Trustee' and 'Purpose'
Amendment No. 5 introduces a definition of professional trustee to mean a trustee that is registered under Article 9 of the Financial Services (Jersey) Law 1998 by the JFSC and operates within that law.
Jersey introduced the concept of the non-charitable purpose trust in 1997. They have proved popular as an alternative to the charitable trust for the purpose of holding corporate entities such as private trust or private protector companies. 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 created the necessity for having a purpose which was wider than the settlor actually wanted. Amendment No. 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, i.e. merely holding shares, will be permitted under the new law.
- Article 9: Protection from Foreign Interference
Article 9 is the provision which protects Jersey trusts from attacks by foreign courts. Since Amendment No. 4, the Royal Court has delivered what is regarded as a very helpful judgement in the case of Mubarak v Mubarak (2008) JLR 250, by confirming that a judgment of an overseas court that purports to alter or vary a Jersey trust cannot be enforced by the Royal Court. Accordingly, Amendment No. 5 largely clarifies and takes account of observations made by commentators as to how the article could be improved. The changes are:
The extension to Article 9(1), which sets out the matters which must be determined in accordance with Jersey law and shall not be determined by foreign law (the validity of the trust for instance), to include firstly any exercise by a foreign court of a statutory or nonstatutory power to vary the terms of the trust, and secondly the nature and extent of any beneficial rights or interests in the property.
The creation of a new Article 9(2A). This provision sensibly makes clear that there are limits to the protection 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 at (i) 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 immoveable property situated in a jurisdiction other than Jersey which is invalid under the law of that jurisdiction;
- 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 No. 5 restates the restrictions in Article 9(4) on the enforcement of foreign judgements to include, explicitly, other decisions of foreign tribunals (such as arbitration awards); and also the giving of effect in Jersey (whether or not by enforcement) of such decisions.
Paragraph 6 of Amendment No. 5 widens the definition of "personal relationship" in Article 9(6) to explicitly include relationships with beneficiaries.
- Article 9A: Definition of Protector
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 is used in Article 9A but is currently 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.
- Article 26: Remuneration of Professional Trustees
Currently Article 26 of the Trusts Law 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 its services. The amendment to Article 26(1) applies to professional trustees only, under the definition introduced in the Article 1 amendment, and provides that where the trust deed is silent as to remuneration, professional trustees shall be entitled to reasonable remuneration for its services, but only in respect of services provided after Amendment No. 5 comes into force.
- Article 31: Trustees transacting with themselves on behalf of different trusts
Often with professional trustees, the trustee transacts with itself as trustee of different trusts. However, 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 amendment to Article 31 clarifies that a person may enter as trustee of one trust into a contract or arrangement with a second trust in which the person also acts as a trustee.
- Article 34: Position of Outgoing Trustee
The amendment gives an outgoing trustee a right to enforce a term of a contract providing reasonable security against liabilities, i.e. indemnities, even though not a party to the contract.
The change is welcome. In relation to 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 their own right can enforce the terms in their favour or, the deed must seek to confer a benefit on the trustee and in either case, the deed must expressly identify the trustee.
- Article 57: Limitation of Actions or Prescription
The changes to this article are largely of a clarifying nature. The provision providing that no period of limitation applies to claims against trustees based on fraud or seeking 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, or an interdict, or under that other disability, or sooner dies.
The other welcome change is the provision which provides that (subject to fraud or recovery of trust property claims) actions are time barred after the lapse of 21 years from the date of the alleged breach of trust. The new article also provides that the article (i.e. on limitation) does not apply to foreign trusts whose proper law is the law of a jurisdiction to which the Convention on the Law applicable to Trusts and on their Recognition, signed at The Hague on 20th October 1984 extends.
In our view, the changes in Amendment No. 5 are extremely helpful. In particular, the possibility of creating "ownership only" purpose trusts, the clarification in respect of trustees contracting with themselves, the 21 year long stop on actions against trustees, the ability for 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 our Trusts Law.