Guernsey: Courtroom Scenes

Last Updated: 6 February 2009
Article by Marcus Leese, Simon Davies and Claudia Shan

Most Read Contributor in Guernsey, September 2018

Originally published in Private Client Practitioner, Guernsey supplement, November 2008

Trustees always need to keep an eye on the latest court cases that may effect them. Here Ogier take a look at a two recent Guernsey cases and the implications for trustees of Guernsey trusts.

Two cases decided in the past year by the Royal Court of Guernsey (the Royal Court), namely In re the H Trust (Royal Court, 29 August 2007) (Judgment 28/2007) and the In re the M Trust (Royal Court, 20 March 2008) (unreported) are worth considering for their implications for the trustees of Guernsey proper law trusts.

In re the H Trust 29 August 2007

The judgment of the Royal Court sets out the principles that the Royal Court will adopt when considering an application to approve the proposed variation of a Guernsey trust under the Royal Court's statutory power in section 52 of the repealed Trusts (Guernsey) Law, 1989 (the 1989 Law). (We note that section 52 has been replaced by the equivalent section 57 under the Trusts (Guernsey) Law, 2007 (the 2007 Law) which came into force on 17 March 2008.)

The settlor established the H Trust primarily to benefit his two children, an adult son (aged 19) and a minor daughter (aged 17). Under the original terms of the H Trust, the trustee had the discretionary power to apply the income for the maintenance, education or benefit of the primary beneficiaries, the son and daughter. They would each become absolutely entitled to one half share of the capital and accumulated income upon attaining the age of 25.

As a result of the adult son's autistic disorder, the parties wished to vary the H Trust to permit the trustee to retain the trusts funds after the son's 25th birthday on trust, instead of making distributions to each of the primary beneficiaries when they each turned 25.

The principal issue for consideration by the Royal Court was whether or not the proposed variation of the H Trust would be for the benefit of the son and daughter and any future beneficiaries, whether unborn or unascertained and if so, whether the Royal Court should approve the variation on behalf of the beneficiaries.

The Royal Court made the initial finding of fact that the son was under a legal disability and was, as a result of this disability, unable to give instructions relating to, or give consent to, the relief claimed in the principal application.

Consequently, the Royal Court appointed an Advocate to act as special guardian of the son so that instructions could be given on his behalf.

The son and the minor daughter were each separately represented by their own Advocates. Submissions were also heard by an Advocate representing the interests of unborn or unascertained beneficiaries under the trust.

Trustees should note that it is common for the Royal Court to stipulate that all the beneficiaries are represented by separate Advocates and that the Royal Court will appoint an Advocate to represent the interests of unborn or unascertained beneficiaries.

The Royal Court approved the proposed arrangement to vary the H Trust under the Royal Court's express statutory power. The Royal Court held that it was satisfied that the variation appeared to be for the financial "benefit" of the son because the variation of the H Trust would enable the trustee to retain the trust funds on trust after the son's 25th birthday, which would be available to generate further investment growth and income for the son and daughter.

It was decided that the word "benefit" could be given a wide construction where necessary. The Royal Court also found that its discretion, whether to approve the application, was fettered only by the express statutory requirement that the variation must be for the benefit of those classes of beneficiaries stipulated under the relevant subsection of section 52 of the 1989 Law.

Useful comments were made by the Royal Court with respect to the extent that a Guernsey court will consider case law from other jurisdictions. Trustees of Guernsey trusts should consider these comments when investigating contentious or non-contentious issues which have no precedent in Guernsey case law.

The Royal Court noted that, because of the similarities in the statutory provisions of the trust laws, it will pay close regard to both English and Jersey common law authorities. It stated that cases from these two jurisdictions were persuasive and would be followed in relevant circumstances. This view reflects and re-enforces the Royal Court's current practise and the view of Guernsey practitioners.

In re the M Trust

Under the previous and current Guernsey trust legislation an outgoing trustee is entitled to "reasonable security" before transferring the trust assets to its successor.

That "reasonable security" is usually given in the form of a contractual indemnity from the successor trustee who will often undertake to obtain an indemnity from its future successor or successors on the same terms which gives rise to a "chain" of indemnities. These indemnities often involve protracted commercial negotiation as to their scope and tend to be complex and cumbersome in their drafting.

The 2007 Law introduced the concept of a statutory non-possessory lien. A trustee is entitled to a statutory non-possessory lien over the trust assets for expenses and liabilities incurred in connection with that trust. Notably the lien continues after the trustee retires (or is removed) 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 real property, unidentifiable property nor to any property transferred to a bona fide purchaser for value.

While the statutory non-possessory lien is generally considered to be a helpful and positive innovation, the precise scope of the protection which it provides is not entirely clear from the legislation in a number of respects. In particular, while the application of the lien is clear in the context of the retirement or removal of a trustee from a trust which is continuing, the 2007 Law (which came into force just three days before this judgment) is unclear as to whether the statutory non-possessory lien applies in instances where a trust is terminated following an appointment of all the assets of the trust to a beneficiary. This issue arose in the context of a divorce settlement arising from an order made by the Family Division of the English High Court. The latter determined that the assets of the M Trust should fall to be divided within the nuptial settlement.

The trustee of the M Trust applied to the Royal Court and was granted an order authorising the termination of the M Trust and the appointment of the trust assets to the wife. The order also stipulated that the trustee was entitled to a non-possessory lien over the trust property for the purposes of securing the trustee's right to pay expenses from the trust property and be reimbursed from the trust property for all expenses and liabilities (existing, future, contingent or otherwise) (the lien).

Notably, the lien created by the Royal Court order was on substantially the same terms as the statutory non-possessory lien to which a trustee that retires (or is removed) would have been entitled to under the provisions of the 2007 Law.

Due to the ambiguity of the legislation as to whether the statutory non-possessory lien applies in instances where a trust is terminated following an appointment of all the assets of the trust to a beneficiary, the only way to put the issue beyond doubt (until legislative amendments or a general judgement by the Royal Court clarifying the position) is for the trustee to make an application to the Royal Court before the trust is terminated seeking directions to confirm the application of the lien.

This could avoid disputes in the future as to whether the trustee is entitled to a lien over trust property.

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.

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
 
In association with
Related Topics
 
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