Guernsey: How Can A Trustee Limit Its Liability

Last Updated: 10 March 2014
Article by Amy Benest

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Carey Olsen
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Carey Olsen
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions