Should a trustee submit to the jurisdiction? Analysis of A Limited FURBSand the B EBT [2017] 21/2017

In April 2017, the Deputy Bailiff in Guernsey set out his reasoning in relation to the 2016 case of A Limited FURBS and the B EBT which dealt with the question of whether a Guernsey trustee should submit to a foreign jurisdiction, namely the English High Court in matrimonial proceedings.

Specifically, the applicant, T Limited, was the trustee of a Funded Unapproved Retirement Benefits Scheme (FURBS). Mr D became the chairman of FURBS in 2005 as part of his retirement process. In 2015, Mr D was involved in matrimonial proceedings in the High Court of Justice in England and Wales. T Limited was a respondent to the proceedings that involved clarifying Mr D’s interest in the trust. T Limited, as trustee of a Guernsey trust, therefore sought guidance in respect of orders made seeking its participation in the English proceedings.

In the matter of the H Trust [2006] JRC 057 was the existing authority. In that case, the Court held that “it is unlikely to be in the interests of a Jersey trust for the trustee to submit the jurisdiction of an overseas court” because it would interfere with protection afforded to Jersey trusts by the firewall provisions. These provisions restrict considerations of the validity of Jersey trusts to the Jersey courts. Guernsey trusts also benefit from similar protection which is contained in sections 68, 69 and 71 of the Trusts (Guernsey) Law, 2007.

However, in this case the Deputy Bailiff departed from the authority of the H Trust case and held that is was appropriate for the trustee to submit to the jurisdiction of the English High Court.

The Deputy Bailiff justified his position by identifying certain factors which made this case unusual. The matter related to a funded unapproved retirement benefits scheme (FURBS) with only one member. The Deputy Bailiff described the trustee’s role in this type of structure as “mechanistic” and highlighted the fact that the trustee had a lack of discretion, in fact the trustee’s responsibility was limited to making arrangements to pay a pension or (at the election of the member) pay a lump sum. Additionally, the Deputy Bailiff also felt that there was confusion regarding the interpretation of what had happened in the FURBS to the extent that there was some risk that the English proceedings could “head off in a direction that could not then be unscrambled in the event that an order were to be made (or some agreement reached beforehand) that could not lawfully be put into effect”. In these circumstances, the Royal Court of Guernsey considered this to be “one of those exceptional cases where submission to the jurisdiction of a foreign court was permissible and appropriate”, and directed the trustee to submit and join the proceedings in the English Family Division. The Court did also state that the trustee’s application for directions was a proper one and permitted it to recover its costs from the FURBS.

Notwithstanding the decision in this case, the Deputy Bailiff made a number of helpful comments providing guidance to trustees when dealing with the question of whether they should submit to a foreign jurisdiction. Firstly, the Deputy Bailiff stated that if a trustee is asked to submit to a foreign jurisdiction, they should generally seek directions from the court before taking any steps. That will ensure that the trustee is protected from criticism should any issues arise from the decision taken. Secondly, the Deputy Bailiff made the general observation that it will not usually be advisable for the trustee of a discretionary trust to submit to the jurisdiction of the overseas court as this effectively confers powers on the foreign court to make orders in respect of the class of beneficiaries of the relevant Trust in circumstances where it is highly unlikely that the foreign court has properly considered the interests of that beneficial class as a whole. The Deputy Bailiff stated that he would have followed the aforementioned Jersey authority had this been a standard family discretionary trust with a class of beneficiaries extending beyond the divorcing couple.

Prior to this case Guernsey has been lacking authority as regards the approach a trustee should take to this issue so this case provides a helpful indication that the position in Jersey is likely to be followed in Guernsey law.

What is the limitation period in Jersey for a breach of directors’ duties? Analysis of O’Keefe & anor (in their capacity as joint liquidators of Level One Residential (Jersey) Ltd and Special Opportunity Holdings Ltd v Caner & ors [2017] EWHC 1105 (Ch)

In this recent case, the High Court considered the Jersey limitation period (the “Prescription Period”) for claims against directors for breach of duty under Article 74 of the Companies (Jersey) Law 1991 (“the Companies Law”). The Companies Law does not contain any express Prescription Period and this issue had only ever been considered obiter in two Jersey cases previously.

In summary, the Court held that the appropriate Prescription Period for both a claim for breach of a director’s fiduciary duty to act honestly and in good faith with a view to the company’s best interests (Articles 74(1)(a)) and a claim for breach of the director’s duty of care, skill and diligence (Articles 74(1)(b)) is 10 years from the date of the breach.

The directors argued that the Prescription Period should be three years on the basis of either of the following periods: the tort period under Article 2 of the Law Reform (Miscellaneous Provisions) (Jersey) Law 1960 (the “Tort Period”); or the period during which a beneficiary may sue a trustee for breach of trust in Article 57(2)(b) of the Trusts (Jersey) Law 1984 (the “Trust Period”).

The High Court rejected these arguments and held that the 10-year period applied to both claims under Article 74 of the Companies Law. The Court held the Tort Period could not apply to Article 74(1)(a) because a breach of fiduciary duty was not a tort (for example damage is not a pre-requisite for a claim for breach of fiduciary duty whereas it is generally an essential element of tort). Additionally it was held that the Tort Period could not apply to Article 74(1)(b) because the duty of care in the Companies Law was an equitable duty of care rather than a tortious one.

In respect of the Trust Period, the Court held that it did not apply to Article 74(1)(a) because a director is not a trustee and, as a matter of construction of the Trusts Law, Article 57 applied only to trustees in the conventional sense. The Court also highlighted the key difference between English and Jersey law on this point: under English law, there is a long line of authority applying section 21 of the Limitation Act 1980 (which deals with trustees) to directors on the basis that directors are treated as trustees (or constructive trustees) for the purposes of limitation; whereas under Jersey law, there is no limitation statute and the limitation periods relating to trustees are set out in the Trusts Law and are highly bespoke to trustees.

Generally, the Court felt that the application of a Prescriptive Period should not be a mechanical process turning on the similarities and dissimilarities between different causes of action but rather judges should have regard to considerations involving the coherence of the law and the practical convenience of departing from the 10-year default period in any given case. In this case the judge found that there was no good reason to depart from the default period of 10 years and it should apply to claims under both Article 74(1)(a) and (b).

Those trustees who hold directorships within the structures they administer should be mindful of this very long limitation period which conflicts with the shorter Trust Period mentioned above and consider both their insurance and indemnities protection on retirement.