This decision of the Royal Court of Jersey is of interest being only the second case where the Court has heard an application under the Foundations (Jersey) Law 2009 (the “Foundations Law”). It concerns an application by the sole council member of five foundations for various declarations and directions under the Foundations Law.
The C Trust Company Limited (the “Council Member”) was the sole Council Member of five foundations (the “Foundations”): one charitable (the “Charitable Foundation”) and four non-charitable family foundations (the “Family Foundations”) established for the benefit of members of a family.
The Foundations together contained some £77 million of assets. The assets, which derived from a number of family trusts, were transferred into the Foundations in accordance with tax advice following significant changes to the law of a particular foreign jurisdiction on the taxation of trusts. Under the regulations of the Family Foundations, family members resident in that particular foreign jurisdiction were excluded from benefit for the duration of that residence. Therefore, at the date of the Court application, only one of the family members, not being resident in the named foreign jurisdiction, was a beneficiary of the Family Foundations. All other family members were, for the time being, excluded from benefit, by virtue of their residence in the relevant jurisdiction.
The tax advice that led to the transfer of the assets from the trusts into the Foundations turned out to be flawed. It emerged that in fact significant reporting obligations to the foreign taxation authorities and liabilities to foreign tax arose in relation to the Family Foundations.
The Council Member brought the Representation to assist the family to comply with their foreign tax obligations. To this end it sought in particular to achieve:
- The amendment of the definition of excluded persons in the regulations of the Family Foundations so that beneficiaries resident in the named foreign jurisdiction would not be excluded persons simply by reason of residence, which would allow distributions to be made to some of those beneficiaries currently excluded;
- The amendment of the confidentiality provisions to facilitate disclosure of information and compliance with foreign reporting obligations;
- The continued cooperation amongst the parties to ensure compliance with reporting obligations applicable in the foreign jurisdiction and the relevant payments being made to the foreign tax authorities; and
- The restructuring and dissolution of the Foundations and distribution of the assets, in the case of the Charitable Foundation to its charitable objects, in the case of the Family Foundations to members of the Family.
QUESTIONS FOR THE COURT
The questions for the Court were:
- Firstly, whether it was within the scope of the Council Member’s powers under the regulations of the Foundations to make the desired changes;
- Secondly, in the event that the Court found the Council Member did have the requisite powers, whether the Court would bless the proposed course of action; and
- Thirdly, and alternatively, if the Court found that the Council Member did not have the requisite powers, whether the Court would itself make the changes to achieve the desired outcome.
Powers of the Council Member
The Court noted various powers conferred on the Council Member under the regulations to the Foundations, in particular a power to amend, vary or delete any provision of the charter or the regulations, a power to pay taxes, interest or penalties payable by the Foundations and a power at any time during the foundation period to dissolve each Foundation.
The Court also noted that Article 43 of the Foundations Law provides that a person with standing (which includes a council member) in respect of a Foundation may apply to the Royal Court for the Court to take certain actions in respect of a foundation.
Power of the Court
The Court noted the powers conferred upon it by the Foundations Law. Article 45 allows the Court to amend the charter or regulations of a foundation if satisfied that the change will assist the foundation to administer its assets or attain (as nearly as possible) its objects. Article 46 confers a broad power to give directions to assist a foundation to administer its assets or carry out its objects or if it is otherwise desirable for the Court to do so.
On the application and extent of the Court’s jurisdiction under Article 46, the Court cited with approval the comments of the Royal Court in A Ltd v B, C Limited, D and E  1 JLR 305. It said:
“We believe that it is appropriate, in considering the jurisdiction of this Court under Part 5 and in particular Article 46 of the Foundations Law, to have regard to the similar jurisdiction to be found within the law relating to trusts.”
In this regard it referred to the well-established principles set out in Re S Settlement  JLR Note 37 regarding the matters to be considered by the Court when asked to approve a course of action proposed by a trustee. It said:
“This is not a matter in which the Representor is surrendering its discretion. This is rather an application to determine what the relevant powers are and whether or not what is proposed is a proper exercise of those powers. In that context, the Representor is seeking the approval of this Court and, at that stage, the Court must turn its mind to questions of good faith, reasonableness or conflict of interest.”
Powers of the Guardian
If a guardian acting in good faith considers it is appropriate to do so in the best interests of the foundation and the regulations do not provide otherwise, he may under Article 14 of the Foundations Law sanction or authorise any action to be taken by the council of the foundation that would not otherwise be permitted by the charter or regulations of the foundation. This power was reflected in the regulations of the Foundations.
There was evidence before the Court that the foreign tax authorities would look through the Foundations and treat them as belonging to certain members of the family. The family members confirmed that the assets derived from family wealth and that there was an expectation that they would be distributed to the family in due course. The guardian supported what was proposed.
The Court noted that all the members of what was a “close and mutually supportive family” as well as the Council Member and the guardian supported what was proposed. It said “[t]his to our mind is an important factor in considering whether or not to bless what is proposed by the Representor”.
The Court held:
- That the proposed action was within the powers of the Council Member either with or without the sanction of the guardian.
- It was an appropriate matter to which it could give its blessing. The Council Member’s opinion had been formed in good faith and its decision was one which a reasonable council member could make. It had not been vitiated in any way by actual or potential conflict of interest. It was a proper exercise of powers by the Council Member and it was supported by the guardian.
The Court went on to say that even if the Court had found that the regulations to the Foundations did not confer on the Council Member the power to make the changes it wished to make, it would have been minded to exercise its powers under Article 45 of the Foundations Law to make the changes sought on the basis that it would enable the Foundations to obtain their objects.
This case reaffirms the Court’s willingness, when considering decisions of a council member in respect of foundations, to apply the well-established principles developed by the Court in blessing momentous decisions of trustees. It is also helpful as it confirms the willingness of the Court to exercise its jurisdiction under the Foundations Law to assist in the administration of a foundation or the carrying out of its objects.
It is thought that the decision would also be of persuasive authority before the Royal Court of Guernsey which jurisdiction has also recently introduced foundations into domestic law.