The limitation period imposed by The Trusts (Guernsey) Law 2007 (the "Trusts Law"), relies solely upon the date the claimant became aware of the breach as the date time begins to run in this case three years (Section 76(2)). Recent experience has highlighted circumstances where this can produce surprisingly inequitable results. Might the customary law principle of empêchement d'agir provide a solution?
Regardless of when the claimant acquires knowledge, no claim may be brought "after the expiration of 18 years from immediately following the date of the breach". An exception is where the claim is in respect of fraud, or is to recover from the trustee trust property converted to his use/under his control – no limitation period then applies. There are also special provisions under Section 76(2)(b) for where the claimant is a minor or is a "person under legal disability". There is no definition of "legal disability" but it might be expected to cover only mental or physical incapacity.
In contrast, both Guernsey contractual and tortious claims count time starting with the date upon which the cause of action accrued. However, unlike some aspects of English law, in both cases the initial premise is that this is regardless of the date of knowledge. There is, for example, no comparison in Guernsey statute to Section 14A of the English law Limitation Act 1980, whereby tortious negligence claims must be brought within six years of the damage (Section 2) or three years from the date of knowledge (Section 14A), whichever is the later.
Arguably, the provision under the Trusts Law is fairer, despite the period being an unusually short three years. Beneficiaries (aside from settlor beneficiaries) have not chosen to enter the relationship with the trustees and therefore, unlike in contractual claims, will not always be aware of the relationship and duties owed to them. Further, they will usually not be professionals and will not have received independent legal advice. It is therefore unfair to expect them to be able to easily monitor and know when breaches occur.
However, the disadvantage of this position is that if a claimant does know of a breach but no loss is suffered until three years later, the claim is seemingly barred (assuming an unfavourable interpretation of "persons under legal disability"). For example, a trustee might have invested in prohibited investments, but those investments might have grown for three years before crashing in value. Even if the claimants had protested against the investments, they would be unable to litigate during the three year period as they would have had suffered no loss. Admittedly, this scenario is probably rare, especially as in many cases there will have at least have been the "loss" of being exposed to a riskier investment, but it nonetheless appears unduly harsh, particularly given the relatively short three year period. The injustice is only compounded by the fact that the "limitation" referred to under the Trusts Law is misleading, it is better termed as "prescription" as limitation is not a concept known under general Guernsey law. The result is that rather than merely barring a remedy, the expiry of the period extinguishes the right itself.
Guernsey Customary Law
Literally meaning "impediment to action" empêchement d'agir is a principle derived from Guernsey customary law and operates to suspend the prescription clock for so long as the impeded claimant is unable to prosecute or defend their rights. There is a similar principle in Jersey. The principle divides the impediments into either "empêchement de droit" or "empêchement de fait". The former covers legal disabilities, such as minority or mental incapacity, whilst the latter covers "practical impossibilities". Whilst empêchement de droit scenarios are commonly explicitly covered in statute (for example Section 76(2)(b) of the Trusts Law), empêchement de fait is necessarily harder to legislate for and its boundaries are uncertain.
Until recently, the examples provided by customary law were not readily translated into a modern context: they included absence on public business, absence in the service of the state where there is nobody entrusted with the potential claimant's affairs and being a prisoner of the enemy. Global communications now make it difficult to see how the first of these two examples would create "practical impossibilities" and further it was doubtful, at least until the case of Holdright Insurance Company Ltd v. Willis Corroon Management (Guernsey) Ltd (25 August 2000), whether the principle was still part of Guernsey law or had been supplanted by statue. However, cases in both Guernsey and Jersey have confirmed that the principle has modern efficacy and have, in particular, used the concept to temper the injustice created by the basic premise that prescription period begins under contract and tort regardless of when knowledge is acquired. Thus, in Public Services Committee v. Maynard  JLR 343 the Jersey Court considered whether a party injured by an industrial illness was barred from bringing a claim despite it having been "practically impossible" to detect the illness earlier. In both Boyd v. Pickersgill (Jersey) and Yaddehigge v. Credit Suisse Trust Limited and others [2007-08 GLR 282] (Guernsey) the courts considered the principle in the context of professional negligence and the non-professional claimant's ignorance of their cause of action.
There is little to suggest however, that the principle is restricted to these sorts of circumstances and cannot be applied to trusts: the Deputy Bailiff in Holdright recognised "new examples in circumstances inconceivable in earlier centuries will undoubtedly arise" and stated each case must be judged on whether "in any particular circumstances, would it be consonant with or inherent in the tests adumbrated in the texts or cases, to apply the maxim?". In Yaddehigge, Carey J.A also reiterated that its application was "acutely factsensitive" and further that it appeared the principle had developed as an "equitable remedy [despite the lack of formal distinction between law and equity under Guernsey law], tempering the way in which the strict rules of prescription of the common law are to be applied". It is also clear that the "impossibility" need not be an absolute obstruction: the judges in Boyd believed that the epithet "practical" softened rather than strengthened the concept of impossibility and that the "test is to be applied objectively to a reasonable person in the particular circumstances in which the plaintiff was placed."
Thus the principle could be applied to the trust investment scenario above: a claim was "practically impossible" as although theoretically a complaining beneficiary could bring a claim for breach of trust where no loss had materialised, a reasonable person would not do so as the trustees would have no liability and pragmatically the beneficiaries would waste costs. It might even be argued that the beneficiary suffered an empêchement de droit – they were legally barred from successful recourse. Whether the courts would agree remains to be seen.
Originally appeared in Resolution, Offshore – Summer 2012
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.