William Simpson and Catherine Moore of Ogier in Guernsey look at the evolution of Guernsey's trust industry.
While trusts have been established in Guernsey for many years, their operation is now governed by a modern, comprehensive statute entitled the Trusts (Guernsey) Law, 2007 (the Trusts Law) brought into force in 2008. The Trusts Law was only introduced following significant consultation with both experts and industry locally and elsewhere, making it a truly practical, modern piece of legislation.
The Trusts Law is one of the most modern of its kind in the world having introduced a number of unique provisions which many jurisdictions have, unsurprisingly, subsequently adopted.
Unlike in other jurisdictions, Guernsey trusts can have no time limit as Guernsey does not recognise the 'rule against perpetuities' or 'remoteness of vesting'. This is useful to those looking to establish a 'multiple-generation' trust. A number of ancillary provisions ensure that existing or resettled trusts will not be invalid because of any change in duration of trust. The Trusts Law permits the establishment of trusts with non-charitable purposes that do not require a class of beneficiaries. The definition of 'purpose' is wide and includes the holding or ownership of property. For instance, a trust may be set up for the sole purpose to hold the shares in a company. Further, the Trusts Law allows trusts to be established with any combination of charitable and non-charitable purposes and beneficiaries. Guernsey non-charitable purpose trusts are popular for asset holding purposes (eg, in off-balance sheet financings, securitisations or other 'orphan' structures such as the ownership of the shares in private trust companies).
The Trusts Law contains clear and practical provisions dealing with a settlor's right to reserve powers to himself or others. However, care must be taken as to the extent of powers reserved to any one person, primarily by reason of tax legislation in other jurisdictions. If extensive powers are reserved to the settlor it might be difficult in those jurisdictions to establish a genuine intention on the part of the settlor to establish a trust. The Trusts Law also contains provisions in respect of disclosure of information which are important to settlors concerned with privacy and confidentiality.
Also, the Trusts Law is clear as to which powers will create a fiduciary duty and which will not. So for instance, purely because the settlor reserves powers to a protector does not mean that they are a trustee or a fiduciary. As regards disclosure of information, the Trusts Law balances the respective rights and obligations of trustees and beneficiaries by expressly permitting the terms of a trust to restrict, modify or prohibit the provision of information to beneficiaries, settlors or trust officials. It also provides beneficiaries and others with express rights to apply to the Court for information, although the Court must agree that such application is necessary or expedient for an order to be made.
One key feature of the Trusts Law is a trustee's entitlement to a statutory non-possessory lien over trust property in respect to all liabilities and expenses duly incurred in connection with the trust. This offers an alternative to the "chains" of indemnities commonly requested by outgoing trustees. Notably the lien continues after the trustee retires regardless of whether the assets are held by a successor trustee or a beneficiary.
The lien will apply irrespective of any indemnities entered into by the parties, unless expressly waived. The only specific exceptions are that the lien does not attach to assets of real property, unidentifiable property nor to any property transferred to a bona fide purchaser for value. The Trusts Law also clarified rules relating to the limitation period for breach of trust actions brought against a trustee and provides a maximum 18 year limitation period for all matters other than trustee fraud, although a shorter period applies for the majority of situations.
Notably, there is no requirement to register trust documents with any governmental office or agency. This enables complete confidentiality of the trust arrangements to be maintained. Indeed, Guernsey trusts may be established by means of a written declaration signed by the trustee alone without the requirement that the settlor appears as a party to the instrument.
Regulation, Supervision, and Enforcement
In addition to its modern and practical trusts legislation, Guernsey benefits from a trusts and finance industry which has developed since the late 1960s and is now one of the most established, transparent and well-regulated financial centres in the world. Guernsey is a member of the OECD and is on the G20 White list. It has previously been assessed by the International Monetary Fund as having a 'high level of compliance' and a legal framework that is fully consistent with the Offshore Group of Banking Supervisors' Statement of Best Practice for Company and Trust Service Providers, while also being a recognised jurisdiction for the purposes of the Financial Action Task Force for its anti-money laundering legislation. Importantly, Guernsey commercial trustees are required to be licensed and regulated by the Guernsey Financial Services Commission to ensure the highest standards of practice are followed.
Hague Convention on the Recognition of Foreign Trusts
The extension to Guernsey in 1993 of the Hague Convention on the Recognition of Foreign Trusts has given further impetus to the expansion of trust services on the Island. Under this convention trusts, which have been duly constituted under the laws of Guernsey, must be recognised by the signatories to the convention.
Fiduciary companies are complemented by a number of large law firms and accountancy firms as well as investment businesses, insurance companies and asset management institutions operating in Guernsey, servicing a global client base. The calibre of the professional practices offering these services also ensures that a sophisticated, professional infrastructure is in place and that Guernsey can comfortably compete with other offshore jurisdictions and continue to attract business from a global perspective.
The Guernsey Courts will seek to ensure that a trust established under the Trust Law is administered by the trustee in accordance with the provisions of the trust instrument and the Trusts Laws; thus providing a high degree of protection for both settlor and beneficiaries. The Guernsey Courts have an acknowledged proficiency in the law of trusts and the senior British Judges who sit on the Courts of Appeal provide added assurance to settlors and beneficiaries that litigation, while unwelcome, will be decided upon justly, fairly and with an expertise which may be lacking in less sophisticated jurisdictions.
For example, a trustee's duty of confidentiality has recently been discussed and clarified in the recent Guernsey Court of Appeal decision set out here.
Re B; B v T (Royal Court, July 2012)
This case involved a Guernsey professional trustee who was trustee of two Guernsey law trusts established by a settlor (who had passed away in 2001) for the benefit of his children and grandchildren and to hold a number of French assets of substantial value. A protector and family advisory committee had been appointed to protect the interests of the beneficiaries.
Not unsurprisingly for the French authorities, both civil and criminal investigations were threatened against the trustees for tax evasion and aggravated laundering, the possible consequences of which were extremely serious including imprisonment for substantial periods of time and very large fines. There was also possible action against one of the directors of the trustee personally. These allegations would obviously have had very serious consequences for the director and the company has a whole.
The Court of Appeal upheld the Royal Court's Decision to allow information to be disclosed by the trustees to the French authorities, deciding the trustee could disclose "any information of whatever nature...the Respondent reasonably considers necessary or prudent to protect the interests of the beneficiaries...to secure the preservation of the trust property or to protect the interests of the Respondent personally in the context of on-going criminal investigation". In considering the duty of confidentiality owed by a trustee, the Guernsey Courts looked to both English law and Jersey cases as it will most often do, given the similarities in trusts law between these jurisdictions. However, in this case, the Court did not follow the same line as recent Jersey cases but looked more toward English case law. In analysing when disclosure would be appropriate, the Court, confirming what some have already considered to be the correct analogy, held that the duty of confidentiality owed by a trustee to a beneficiary is akin to that owed by a bank to a customer, citing the well-known English case of Tournier v National Provincial and Union Bank of England  1 KB 461.
The Court held that trustees have a general duty of confidentiality, but that such duty was not absolute but can be qualified. Whilst this case has been criticised by some for leaving a number of important questions unanswered (such as to whom is a duty of confidentiality owed, is the duty mutual (eg, do recipients of information have a duty to keep information confidential as well), is a trustee's duty of confidentiality the same as for other fiduciaries and is the principle considered the same in all jurisdictions), it will be a welcome decision for the many trustees and fiduciaries who could be threatened with serious action for acting purely as trustee or fiduciary of a trust with foreign elements. This case is also a reflection of how the Courts are conscious of both Guernsey's trusts legislation and also its professional services both of which must operate in an ever evolving, increasingly fiscal world.
Originally published by IFC Review, August 2013.
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.