Guernsey: Le Making Of The Guernsey Trust

Last Updated: 2 March 2012
Article by Michael McAuley

Most Read Contributor in Guernsey, September 2018

Originally published in Private Client Practitioner Guernsey Supplement, December 2011

Carey Olsen's Michael McAuley examines the origins of trust law in the Channel Islands and the recent Hutcheson case and explains there is more to Guernsey trust law than the simple adoption of English trust law. He suggests, in a mixed jurisdiction such as Guernsey, where much of the private law derives from both the English and continental legal traditions, only so much of the bounty of English trust law has been, and should be, received as appropriate to the legal tradition of the island.

A canny Scot, George Gretton, has noted that there is a tendency to assume that the trust must have come from England. To trace it from anywhere else, he has said, seems as implausible as to suggest that golf originated in Italy.

Yet, across systems of the secular Western legal tradition, there are fiduciary conceptions not rooted in the English model and there are common law trusts no longer firmly reliant upon English notions.

Even if the trust idea were to have originated in England, there are now many variations on the theme and significant departures from the original idea. Not to be creatively outpaced, the English have added new stuff to their model. Curiously unable to promote their own trust idea, the Americans have marvellously synthesised both core and discrete principles and rules of trust law in a magisterial Restatement. On numerous topics, such as mistake, breach and variation, the American approach is radically refreshing. The trust has even seduced civil law systems. Some have happily re-imagined the trust relationship by compressing its bounty into as many words as there are pages in Lewin.

Civilians have also devised a property template that is not deferential to equity. In the cosmos of trusts, everyone is invited to the party and has been for some while.

It has been convincingly demonstrated that trusts in some recognisable form, and for certain purposes, have existed since at least the mid-19th century in Guernsey and Jersey. Yet, the trust was only more widely welcomed after World War II when the relationship became a product and the service became a business. Although the post-war Channel Islands trust is inarguably English in its design, its formal underpinnings differ.

Formal regard today is to the islands' coveted trust laws. The construction of these statutes is susceptible to many doctrinal and jurisprudential influences; chiefly, local judicial decisions but also cases from the courts of England and Wales, Scotland and other familiar trust jurisdictions. These statutes want to see and care to know only about certain trust topics. They are not self-referential codifications and make no claim of autonomy. Thus, they co-exist with other statutory and non-statutory law both ancient and modern. Importantly, they sit in a private law scheme that has its roots in Norman customary law and, by extension, in the generous embrace of civil law thinking and authority.

On the other hand, the islands' informal law of trusts does have a heady English fragrance. The language in which it is practiced, the style of trust documents, the techniques of administration, the education and qualifications of trust professionals and the legal literature all nod to the English look and sound.

In jurisdictions, like the Channel Islands, where the private law is not codified and where there is no strong sense that legislation is the primary source of law, informal custom and everyday practice are influential and reassuring. Essentially in Guernsey and Jersey the law of trusts is an intoxicating mix of formal and informal material.

The Hutcheson case

The content of the Guernsey trust was an issue discussed, but not decided, by the Judicial Committee of the Privy

Council in the case of Spread Trustee Company Limited (Appellant) v Sarah Ann Hutcheson & Others (Respondents) delivered on 15 June 2011. The case concerned a clause in a settlement exonerating the trustees from certain liabilities including gross negligence.

The Trusts (Guernsey) Law, 1989 prohibited a trustee from excluding liability for fraud or wilful misconduct. In 1991 the law was amended to add gross negligence as a prohibited exclusion. The beneficiaries argued that the 1991 amendment applied retrospectively. The trustees argued that it did not.

In the Royal Court the Lieutenant Bailiff (Sir de Vic Carey, the former Bailiff and longest-serving Guernsey advocate) decided for the beneficiaries. He reasoned, however, that the amendment was declaratory of the existing law. The Court of Appeal also decided for the beneficiaries. It saw things somewhat differently. The addition of gross negligence was cosmetic since, in the law of Guernsey, as in the law of Scotland, gross negligence is equivalent to fraud. Accordingly, a trustee cannot be relieved for gross negligence because the law provides that he cannot be relieved for fraud.

The board disagreed 3-2 with both approaches and, in essence, concluded that if the 1989 lawmaker had intended to prohibit a trustee from excluding liability for gross negligence, he would have done so explicitly as, in fact, happened in 1991. The board also held that Guernsey trust law was closely aligned in 1989 with English trust principles at least insofar as trustee exoneration clauses were concerned.

Looking at these clauses in English law, the majority then found that they could validly exclude liability for gross negligence. The board did not deny that Guernsey "might look to other jurisdictions for assistance in developing particular areas of law" or that "Guernsey law must in the end be interpreted in the light of its own terminology, context and history".

Lord Clarke said: "The board entirely accepts that English law would not be imported wholesale and that it would have to yield to a provision of Guernsey customary or statute law." There being no specific customary law on the extent of permissible exclusions of trustee liability, "it appears to the board to be more likely than not that it would have looked to the law of England".

It might be said that the board subscribed to blunt common sense and that it was not prepared to be swayed by the rich broth of Scots law. As Lord Clarke remarked, there is no evidence that "Guernsey at any stage looked at the law of Scotland" and, as a practical matter, if it were contrary to Guernsey law, to exclude liability for gross negligence, then the parties and their advisers would have drafted their settlements accordingly.

En bon père de famille

Keen observers of customary law, and advocates of a more distinct Guernsey trust culture, might well despair.

Yet, the board has rendered a great service. In the making and re-making of Guernsey trust law it will not be enough to write a brief comment or borrow another's story. A thorough discussion paper and report must be developed firmly situating each rule within the desired context. In this way, courts will have at hand relevant persuasive authority. The consultation documents should list the sources and thereby ring-fence the provision.

One can hardly fault the board for failing to appreciate, if indeed it should have, the doctrinal pregnancy of en bon père de famille (literally 'as a good father') in the law ("A trustee shall, in the exercise of his functions, observe the utmost good faith and act en bon père de famille"). It is true to say that, in mature civil law systems, en bon père de famille trumpets a whole regime of administration rules which do not countenance gross negligence.

However, mature civil law systems are mostly not customary and even those that are, like Scotland, have a population that can sustain a deep culture of legal writing and publication. What is needed in Guernsey is a statute, with commentary, to which a court, unfamiliar with local law, "would have to yield".

Guernsey should consider refreshing its law of trusts and borrowing the sterling thinking of elsewhere, such as the law of mistake in the American Restatement. The Trusts (Guernsey) Law, 1989 was internationally hailed as "brilliant" in 1989 but like all good things (and despite being updated in 2007) the passage of time and the ever changing environment in which the Guernsey trust must operate militates in favour of further review. In keeping with its history, any new Guernsey trust law will undoubtedly call upon the most effective elements of both common law and civil law jurisdictions.

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

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.

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