Introduction
Definition of 'professional trustee' and 'purpose'
Protection from foreign interference
Definition of 'protector'
Remuneration of professional trustees
Trustees transacting with themselves on behalf of different trusts
Position of outgoing trustees
Limitation of actions or prescription
Comment


Introduction

After some delay, the Trusts (Amendment 5) (Jersey) Law 2012 received Privy Council approval on October 17 2012. It came into force on November 2 2012, seven days after being registered with the Royal Court. The main changes contained in Amendment 5 are included below.

Definition of 'professional trustee' and 'purpose'

Amendment 5 introduces the definition of 'professional trustee' to include trustees that are registered under Article 9 of the Financial Services (Jersey) Law 1998 by the Jersey Financial Services Commission and operate within that law.

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 had to be external to the trust and could not simply be to hold the relevant shares. This often necessitated having a purpose that 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.

Protection from foreign interference

Article 9 is the provision which protects Jersey trusts from attack by foreign courts. Since Amendment 4 was passed, the Royal Court has delivered 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. 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), has been extended to include:
    • any exercise by a foreign court of a statutory or non-statutory power to vary the terms of the trust; and
    • the nature and extent of any beneficial rights or interests in the property.
  • A new Article 9(2A) has been 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 that 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;
    • validate any testamentary disposition which is invalid under the law of the testator's domicile at the time of his or her 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 to give such decisions effect in Jersey (whether or not by enforcement).
  • Paragraph 6 of Amendment 5 widens the definition of 'personal relationship' in Article 9(6) to include explicitly relationships with beneficiaries.

Definition of 'protector'

A change has been made to Article 9A of the Trusts Law that 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.

Remuneration of professional trustees

At present, 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 their services. The change to Article 26(1) applies to professional trustees only (as defined under the first point above) 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.

Trustees transacting with themselves on behalf of different trusts

With professional trustees, the trustee often transacts with itself as trustee of different trusts. However, before the adoption of Amendment 5, it was uncertain under 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 change to Article 31 clarifies that a person may, as a trustee of one trust, enter into a contract or arrangement with a second trust in which he or she also acts as a trustee.

Position of outgoing trustees

Article 34 of the amendment gives an outgoing trustee 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 retirement of trustees, and notwithstanding the existence of the privity of contract rule in Jersey, this change means that if an indemnity must be provided to previous trustees (in addition to the trustee who is 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 in Article 57 are largely of a clarifying nature. The provision specifying that no period of limitation applies to claims against trustees 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 also remain unchanged.

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 dies first.

The other welcome change is the provision that - subject to fraud or recovery of trust property claims - actions are time barred after 21 years from the date on which the alleged breach of trust occurred. The new article (ie, on limitation) does not apply to foreign trusts whose proper law is the law of a jurisdiction to which the Hague Convention on the Law Applicable to Trusts and on their Recognition.

Comment

The changes in Amendment 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 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.

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 (steve.meiklejohn@ogier.com).

Endnotes

(1) (2008) JLR 250.

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