In Re: Caversham Trustees Limited  JRC 65, the Royal Court set out steps that should be taken by an outgoing trustee in order to comply with its duty to transfer trust assets to the new trustees, and provided further guidance as to what security the trustee could legitimately require.
The Court also clarified that there was no difference in the duties applicable in a retirement and appointment of trustees to those owed where the trustee is appointing the trust assets to a new trust.
Outgoing Trustees' Duties
Following a relationship breakdown between the settlor/beneficiary ("Mr. Van Dalfsen") and the trustee ("Caversham") it was agreed that the trust assets would be appointed to a new trust. However, the transfer took four years, and the Court was asked to determine whether Caversham had caused undue delay. The Court resolved that as (effectively) an outgoing trustee, Caversham was under a duty to co-operate fully and actively in the transfer of the assets, which included taking the following prompt steps:
- instructing lawyers to draft the formal documents by which the assets would be appointed to the new trusts along with any indemnities;
- marshalling and preparing the assets so that they were ready to be transferred;
- ascertaining the identity of the entities to whom the assets were to be transferred;
- where necessary obtaining advice on the steps required to effect and the tax implications, if any, of and cost to be incurred in the transfer of the assets in the jurisdictions in which they were sited;
- setting out a timetable for the transfer of the assets;
- providing information to the new trustee to enable it properly to accept the assets;
- carrying out a due diligence on the new trustees; and
- providing explanations to questions reasonably raised by the new trustee in relation to the assets.
However, Caversham's duty to transfer the assets was subject to its right to be provided with reasonable security for liabilities, and was also dependent upon the co-operation of the new trustee.
Security For Liabilities And Outstanding Fees
Article 34(2) of the Trusts (Jersey) Law 1984 provides for a retiring trustee to be provided with reasonable security for existing, future, contingent or other liabilities before surrendering trust property.
Although in this case the Court held that it was reasonable for indemnities to extend to trustee's officers and employees, it decided it was unreasonable for Caversham to require indemnities to cover officers and employees of "associates" of the trustee or underlying companies forming part of the trust fund.
The Court also considered to what extent the outgoing trustee could seek security in respect of outstanding fees. In Carafe Trust  JLR 159, it was held improper for an outgoing trustee to seek security over the entirety of a trust fund until disputed fees were paid. However, although the solution in Carafe was an escrow, the Court in Caversham held that Carafe did not establish a general principle that escrow arrangements must be accepted by trustees in all cases involving disputes over fees.
The right to security is a right to "reasonable" security and what is reasonable security will depend upon the facts.
In this instance the Court held that although the trustees had exerted improper pressure both in seeking to retain control over the entirety of the trust funds and then in continuing to exert pressure by the slow pace of transfer, their rejection of an escrow arrangement which did not include a mechanism for finally determining the fees owing, was found to be reasonable on the facts.
The Court held that subject to Caversham retaining reasonable security in relation to its fees, its duty was to give effect to the transfer "as soon as reasonably possible", and that it made no difference that Caversham was appointing out trust assets as opposed to retiring in favour of replacement trustees (which duties were reviewed by the Royal Court in Ogier Trustees v. C.I. Law Trustees  JRC 158). In the circumstances, the transfers could reasonably have occurred within a six month period, although in the light of the delay contributed by Mr. Van Dalfsen and the new trustee, this period was extended by a further three months to nine months.
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.