Both statute and common law principles allow a trustee to invoke the Court's supervisory jurisdiction of a trust by making administrative trust applications to seek the Court's approval. The categories of such applications were first set out in an unreported judgment of Robert Walker J (as he then was) sitting in chambers. The principles of that decision were then recited in Public Trustee v Cooper [2001] WTLR 901.

For those who have considerable experience in the trust industry, making a Public Trustee v Cooper application may be a well-trodden path. Trustees of discretionary settlements will often be faced with difficult situations, such as weighing up competing beneficial interests or considering an external pressure which may threaten the trust funds, requiring the substantial reorganisation of trust assets, or settling a claim. The Court recognises that trustees will sometimes need to invoke the Court's supervision in order to resolve such situations. As set out in Public Trustee v Cooper, there are four categories of administrative application. They are as follows:

1. A construction application: is a particular action within the trustee's powers?

2. A blessing sought for a particularly significant or momentous course of action: is a particular course of action a proper exercise of the trustee's powers?

3. Trustee asking the Court to decide upon a course of action: these applications involve the Court taking a decision in place of the trustees because the trustees are genuinely conflicted; and

4. Retrospective blessing sought for a particular action: were the trustees right to pursue a course of action?

Inevitably, there is potential for overlap between the categories depending on the particular facts of the case, and in practice, it is not always a straightforward matter of whether an application should be made under a particular category.

In the recent Guernsey case of Re F (32/2013), the Court of Appeal considered a trustee's application for approval of a momentous decision. The appeal related, amongst other issues, to an order of Guernsey's Royal Court approving the refinancing of a trust asset and for certain costs incurred in relation to that refinancing to be paid from trust assets.

In Guernsey, the applicable test comes from the Re Mischa Trust case (Royal Court, 15/2010), and is as follows:

  • Does the trustee have the power to make this momentous decision?
  • Is the Court satisfied that the trustee made the relevant decision in good faith, and that in the circumstances of the case, it is desirable and proper for the trustee to effect this decision?
  • Is the Court satisfied that the opinion the trustee has formed is one at which a reasonable trustee properly instructed could have arrived? In considering this aspect of the test, the Court will consider whether the trustee has taken into account all matters relevant to the decision in hand, and not taken into account any irrelevant matters.
  • Is the court satisfied that the opinion at which the trustee has arrived has not been vitiated by an actual or potential conflict of interest which has or might have affected the decision?

The Court of Appeal in Re F stated that when considering category two applications, if the Court is satisfied that this four part test has been satisfied, the Court has very limited discretion when considering the application. Such discretion will only extend to whether or not to "admit" the application, for example, deciding that the decision concerned is of insufficient "moment". This is because the Court should not seek to supplant a trustee's decision in a category two application. If the trustee is unable to make a decision, the application should be framed as a category three application.

The Court of Appeal in delivering its judgment in Re F upheld the Royal Court's decision relating to the refinancing costs. In doing so, it recognised that the effect of granting the trustee's applications was "to protect the trustees from any challenge to their decision by persons interested in the trust, and to make clear that the trustees are entitled to an indemnity from trust assets in respect of the costs or other financial consequences of their decision".

Court's Blessing

If a trustee is to benefit from the protection (or 'insurance') of the court's blessing, it is likely to have to convene all the parties who are to be bound by the court's order. This will usually require all the beneficiaries (including minors and unborns) to be convened and may, depending on the order sought and the particular circumstances of the trust require the protectors also to be convened.

In addition to convening the correct parties, the trustee is also required to ensure that all the parties to the application receive full disclosure of matters relevant to the decision, including documents reviewed in trustee meetings. This means that beneficiaries will receive significantly more information and documents than they could usually expect to receive and review if they were to make an application for disclosure of trust documents.

A trustee should also consider the cost to the trust of any such application. These applications are inevitably expensive, with the costs usually being paid out of the trust fund as an administrative cost. Costs can escalate, particularly if there is a large class of beneficiaries which do not all share the same view on the substance of the application. Depending on the circumstances of the case, convening all the relevant parties to a meeting to explain the trustee's reasons for embarking upon a particular course of action may persuade the beneficiaries of the merits of doing so, leading to an 'uncontested', or at least less contentious, application.

Insurance Policy

Whilst such an application can been seen as an 'insurance' policy for trustees against any potential future challenges to a course of action but trustees should be mindful that the Court has a "paternalistic role" in exercising its supervisory jurisdiction (see Underhill and Hayton, The Law of Trusts and Trustees, 18th Edition, para. 1.23). The Court and the convened parties will review in detail the conduct and deliberations of the trustee, and the trustee should be prepared for the Court to pronounce upon any matters it finds concerning. In one such Jersey case, Y Trust [2011] JLR 464, although the Royal Court granted the order sought, the judgment noted that it was "very troubled by the high-handed manner" in which the trustee had treated a beneficiary.

While the principle of obtaining the court's blessing can be an attractive one to a trustee proposing to make a momentous and difficult decision, a trustee should be careful to ensure that it has prepared its application thoroughly before submitting the application to the Court. The consequences of failing to provide all the parties with the relevant information, or not convening the necessary parties, could not only risk the protection which is sought but also the trustee's indemnity in relation to the costs of making the application.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.