The Royal Court of Jersey Exercises its Discretion to Help a Trustee Out of a “Bit of a Mess”

In the recent case of In the matter of the Number 1 C Trust [2018] JRC 021, the Royal Court of Jersey provided a helpful reminder to trustees of Jersey law trusts to seek its judicial assistance at the earliest opportunity where they encounter difficulties in relation to the due administration of a trust. In the present case, the Royal Court exercised its discretion to ratify the actions of a trustee de son tort and to vary the terms of a Jersey law discretionary trust in the interests of the beneficiaries.

Background
There were three trusts known as the C Trust. The First C Trust was a discretionary trust, governed by Jersey law. The original trustee was a Jersey incorporated trustee (the “Jersey Trustee”). It had a nominal trust fund and the Settlor intended that that trust would receive the proceeds of an insurance policy on his death (the “Policy”). He provided a detailed and prescriptive letter of wishes regarding intended distributions. The Jersey trustee informed the Settlor that it could not accept the letter of wishes as legally binding and could not act as trustee on that basis. Accordingly, the Settlor elected to establish a second, more prescriptive trust (the “Second C Trust”).

The Second C Trust was established in October 1997. A company was incorporated in the USA for the specific purpose of acting as original trustee (the “USA Trustee”). This trust was intended to receive the proceeds of the Policy. The Second C Trust provided that the anticipated proceeds of the Policy would be transferred to the USA Trustee as trustee and that it would then resign in favour of the Jersey Trustee. As set out below, that did not happen. There was no power within the terms of the Second C Trust to distribute trust assets to other trusts and no element of discretion afforded to the trustee. Its terms were detailed and prescriptive as to quarterly distributions to each of a number of the adult beneficiaries. It was to terminate no later than 11 March 2039. There was no relevant provision for earlier termination. Following the death of the Settlor in 2005, the USA Trustee received approximately US$9m pursuant to the Policy to be held on the terms of the Second C Trust.

As stated above, the trustee of the First C Trust (the Jersey Trustee) was unwilling to act. It was replaced as trustee of that trust by the Representor (a Guernsey incorporated company). It was intended that the Representor would also become trustee of the Second C Trust but that did not happen. Instead, the funds received pursuant to the Policy were purportedly transferred by the USA Trustee as trustee of the Second C Trust to the Representor as purported replacement trustee of the Second C Trust (but at a time when the Representor’s only relevant capacity was as trustee of the First C Trust). The Representor’s position as express trustee of the Second C Trust was not confirmed until an instrument dated 12 January 2017. Following the transfer of assets, the USA Trustee was dissolved.

In 2009, doubts arose as to the manner in which the assets were being held. The Representor considered that it must hold the proceeds pursuant to the terms of the discretionary First C Trust (it never having been appointed as trustee of the Second C Trust). However, it was clear that it was the Settlor’s intention that the funds should be held and administered pursuant to the prescriptive terms of the Second C Trust. The Representor took advice from Guernsey advocates who advised that, in order to clarify the position, the Representor should declare that it henceforth held the proceeds on a Guernsey law trust (the “Third C Trust”), whose terms would be the same as those of the prescriptive Second C Trust.

As the terms of the Second C Trust contained no provision permitting the transfer of the funds other than in compliance with its prescriptive distribution policy, the transfer of funds from the USA Trustee to the Representor (as purported trustee of the Second C Trust) was invalid until its appointment as express trustee of the Second C Trust in January 2017. Up until that time the Representor held the funds as trustee de son tort.

Of course, in the intervening period, the Representor had purported to deal with the funds by effecting distributions in accordance with the prescriptive provisions of the Second C Trust and by paying its own and other professional fees. It was in those circumstances that the Representor was seeking ratification for its actions during the period from its receipt of the funds in 2005 to its formal appointment in 2017 and approval of its charges both historic and until the termination of the Second C Trust.

The Representor also sought the Court’s approval on behalf of the minor and unborn beneficiaries to a variation which would facilitate the early termination of the Second C Trust and the distribution to certain adult beneficiaries of the trust fund. If such a variation was not agreed the trust would need to remain in existence until 2039.

 

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JERSEY
Robert DobbynPartnerT +44 (0) 1534 700 773robert.dobbyn@walkersglobal.com
Marc SeddonPartnerT +44 (0)1534 700 761marc.seddon@walkersglobal.com
Fritha FordSenior AssociateT +44 (0) 1534 700 899fritha.ford@walkersglobal.com
James TurnbullSenior AssociateT +44 (0)1534 700 776james.turnbull@walkersglobal.com
Carla PlaterAssociateT +44 (0) 1534 700 872carla.plater@walkersglobal.com