Three factors make the world of trusts jurisdictions more competitive than ever – the emergence of new jurisdictions in the market such as Singapore, Israel and New Zealand, the global trend of international regulation spanning borders slowly levelling the regulatory playing field, and the increasingly competitive attitude of legislatures and jurisdictions in updating relevant legislation and adopting the best ideas from competitors.
Against that backdrop, Guernsey's position as a leading jurisdiction is being supported by a number of significant recent court decisions that advance jurisprudence and that offer welcome clarity for trustees and related professionals, and by the recent trend of the Royal Court producing more written and publicly available decisions that has been the case in the past.
This emphasises one of the Island's key strengths – that Guernsey's trusts legislation and its well established court and its wealth of case law provide certainty and clarity for trustees. Where a client may be based in or near one of the emerging jurisdictions they will often want trusts established in Guernsey because of the supporting weight court judgments that have applied and interpreted the law for the benefit of future practitioners.
Four types of case in the previous 12 months outline key points for Guernsey trusts:
- The limitation on trustee liability: Investec Trust (Guernsey) Limited v Glenalla Properties Limited – this is arguably the main trust case of the year so far for both Jersey and Guernsey, as it finally (after some years of dispute in the lower courts) confirms the law on the liability of a trustee when transacting as trustee with third parties as a matter of Jersey law and very likely to be followed and applied as a matter of Guernsey law. In essence, Jersey and Guernsey trusts legislation provides for a limitation on a trustee's liability when contracting in its capacity as trustee (and such capacity is known by the counterparty) and that the liability is limited to the assets of the trust. The Privy Council upheld this interpretation of the legislation. In other jurisdictions such as England & Wales which does not have such legislation, the position remains that a trustee remains personally liable when transaction as a trustee
- Re T Limited (2017) and Re P Limited (2018) are both cases involving trusts and divorce, which develop the position in respect what a trustee should do when confronted with beneficiaries divorcing in a foreign matrimonial court. Jersey case law has been followed here but in any case it is essential for a trustee to remain neutral and seek directions from the court.
- Liang v RBC Trust Company was the first case to come to trial following the 2009 Guernsey Court of Appeal decision in Garnet which established that the beneficiary of monies held by a custodian which are subject to a "no consent" by the Financial Investigation Service after a suspicious activity report has been made by the custodian, and are therefore frozen, should bring a private law action against the custodian. In this case Ms Liang sued her trustee with the objective being to prove the provenance of the assets settled into her Guernsey trust. The Court held that the low burden is on the custodian to prove that it has a suspicion but the heavier burden is on the beneficiary to show that the assets have not come from a source which is derived from the proceeds of crime. Ms Liang was unable to provide sufficient information in this case to displace the suspicion that the funds had not come from suspected. criminal activity.
- The M v St Annes Trustees case in the Court of Appeal was an opportunity by the Court of Appeal to take Guernsey back to a pre Pitt v Holt/Futter v Futter test so as to make it easier for trustees to revisit their decisions which had had the effect of having adverse tax consequences. The Court of Appeal clarified that the beneficiary must still show breach of duty (as set out by Lord Walker in Pitt) and that inadequate deliberations equate to breach of fiduciary duty which would render the ultimate decision voidable. However the Court declined to follow the unconscionability test found by the court at first instance, meaning that, in effect, each Hastings-Bass case is to be determined on its own facts (once breach of fiduciary duty is found) and ultimately it is up to the Court to decide, in the exercise of its discretion as to whether the relief sought should be granted
What these cases demonstrate is that the Guernsey courts are grappling with current issues of the day facing trusts practitioners the world over and that Guernsey is a credible and developed trusts jurisdiction.
Guernsey structures offer the key benefit that trustees: know how the rules work; know how scenarios will play out; and fundamentally know how courts may well interpret the law where disputes emerge.
This article first appeared in Guernsey Press Business Review.