In November 2016, the Royal Court handed down its judgment in In the Matter of the C Trust Company Limited [2016] JRC 144 in which it blessed momentous decisions taken by the council member of five Jersey foundations. This is only the second occasion that the Royal Court has had to consider an application in respect of a Jersey foundation since the introduction of the Foundations (Jersey) Law 2009 (the Foundations Law).
Facts
The applicant was the sole council member of five Jersey foundations (four non-charitable foundations, established for the benefit of a family (the Non-Charitable Foundations) and one charitable foundation (the Charitable Foundation)) (together, the Foundations) and applied to the Court seeking declarations that it had the power to make a number of profound changes to the Foundations such that they would ultimately be dissolved.
Monies totalling some £77million were transferred to the Foundations from a number of Jersey law family trusts and were transferred following receipt of tax advice taken as a result of significant changes to the law of a particular foreign jurisdiction on the taxation of trusts. Under the regulations of the Non-Charitable Foundations, beneficiaries resident in that jurisdiction were excluded from benefit for the duration of their residence. The Jersey trusts were terminated and the Foundations established on the understanding that no obligation vis-à-vis tax filing or liabilities would arise; however, the tax advice relied upon was flawed. The beneficiaries of the Foundations affected by the flawed tax advice wished to regularise their tax positions and comply with their foreign tax obligations and it was on this basis that the applicant brought its application to, inter alia:-
- Amend the definition of "excluded persons" as set out in the Non-Charitable Foundations such that beneficiaries resident in the foreign jurisdiction could benefit;
- Amend the confidentiality provisions to enable disclosure of information to foreign tax authorities;
- Enable payments to be made to foreign tax authorities to satisfy any applicable tax liabilities; and
- Restructure and bring about the dissolution of the Foundations.
The Decision of the Court
In considering the application and in particular its jurisdiction to make orders with regard to Part 5 of the Foundations Law, the Court agreed that it was appropriate for it to have regard to the similar jurisdiction to be found within the law relating to trusts, and in particular, the approach taken by the Royal Court in the case of Re S Settlement [2001] JLR Note 37, namely, that in considering an application by a trustee to approve a proposed course of action, the Court should ask itself:-
- Whether the proposed action is within the trustee's powers; used in, or intended to be used in, unlawful conduct; or
- Whether the proposed action is a proper exercise of that power. In particular, the Court must be satisfied that the opinion has been formed in good faith, is reasonable and has not been vitiated by any actual or potential conflict of interest; and
- Whether the trustees are surrendering their discretion to the Court
It being accepted that the applicant in the current case was not surrendering its discretion, the Court turned its mind to whether or not the applicant had the powers to do that which it proposed to do.
Relevant powers
Having reviewed the regulations for each of the Foundations and the relevant provisions of the Foundations Law, the Court held that the applicant did have the power to make the proposed amendments to the Foundations. The regulations of each of the Foundations granted a power to amend, vary or delete any provision of the regulations, a power to settle tax liabilities or penalties payable by the Foundations and a power to dissolve the Foundations. Article 43 of the Foundations Law enabled a council member (or, indeed, any person with standing), to apply to the Royal Court for certain actions to be taken in respect of a foundation. The Court noted that Article 45 of the Foundations Law enabled the Court to propose amendments to a foundation's regulations or charter if satisfied that such a change would either assist the foundation to administer its assets or enable it to attain its objects and that Article 46 of the Foundations Law conferred upon the Royal Court a power to give directions to assist a foundation to administer its assets or carry out its objects.
Appropriateness of the proposed actions
Satisfied that the applicant had the requisite powers, the Court then considered the appropriateness of the proposed course of action.
The Court was presented with evidence, including an affidavit from the current tax adviser, explaining, inter alia, the adverse tax consequences which would arise in the event that the proposed amendments were not made. The Court concluded that it was clear that the foreign tax authority would look through the Foundations and, in the case of the Non-Charitable Foundations, would regard them as the personal assets of some of the beneficiaries. The Court also noted that all of the family members (the majority of whom were beneficiaries of the Non-Charitable Foundations) supported the application, as did the guardian and stated that this level of support was "an important factor in considering whether or not to bless what is proposed by the [applicant]". Accordingly, the Court blessed the applicant's decision as reasonable and reached in good faith and stated that, even had the regulations not have permitted the applicant to make the changes proposed, the Court would have exercised the power afforded to it by Article 45 of the Foundations Law so as to make the amendments and enable the Foundations to achieve their purposes.
Conclusion
The Royal Court's application of the well-established principles relating to the blessing of a momentous decision to be taken by a trustee in the context of trusts, shows its willingness to ensure a pragmatic approach adopted in the context of foundations and to ensure, in this case, that the Foundations were permitted, pending dissolution, to administer their assets in order to obtain their objects.
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