In the recent case of In the Matter of the Turino Consolidated Ltd Retirement Trust  JRC100, the Royal Court considered the variation of a fixed trust. The Royal Court confirmed that the general supervisory power of the court arising from Article 51 of the Trusts (Jersey) Law 1984 ("the Law") does not confer a power on the Royal Court to vary the terms of a fixed trust.
It held that the Royal Court cannot enforce or give effect to any judgment of a foreign court which purports to vary a fixed trust as the Royal Court cannot give effect to an order which it has no power to make or which the trustees have no power to carry out. The court can only act in accordance with the terms of the trust and the Law.
Where, however, all the beneficiaries are ascertained of age and of sound mind and are acting as one, there is long-standing authority that they can call for the termination of a trust and, indeed, the variation of the terms of the trust, following the rule in Saunders v. Vautier (1841) Cr & Ph 240 and reflected in Article 43(3) of the Law
In Turino, a Jersey law trust had been established by a husband and wife. The terms of the trust were such that the assets that each contributed were to be held in separate funds in the proportions of their contributions. Contributions by the husband were 83.33% and by the wife 16.66% of the total trust fund. The trust funds were used to purchase a matrimonial home situated in the Netherlands. This was essentially both the sole asset of the trust and the sole matrimonial asset.
Unfortunately the marriage broke down resulting in a divorce. In heavily contested ancillary relief proceedings (to which the trustee was not a party), the Dutch court held that the matrimonial assets should be split equally between the parties. Whilst the Dutch court did not purport to vary the trust, the matrimonial assets were said to include the respective shares of the parties in the trust. The Dutch court provided a mechanism for the split ordering that the matrimonial home should be sold at a certain value to the wife.
The trustee sought directions from the Royal Court as the wife wished to purchase the house but wished the trustee to distribute the proceeds of sale equally. The husband (for various reasons) urged the trustee and the Royal Court to uphold the terms of the Trust (that is the 83.33%:16.66% split) and stated that there was no power for the Royal Court to vary the terms of a fixed trust.
Unfortunately for the husband, the parties had sent what was termed a "Letter of Wishes" to the trustee some time earlier asking for the trustee to hold the trust funds equally in the event of a divorce. The Jersey court found that this was an effective Saunders v. Vautier direction and that the fixed trust had, therefore, been varied by the parties themselves. The court emphasised that the trust was not varied by reason of any order of the Dutch court or even as the result of any order of the Jersey court. Rather the variation was a result of the instruction by the two sole beneficiaries of the trust.
The court went on to consider the mechanics of the sale. It confirmed the trustee's duty to act in the best interests of the beneficiaries and to be impartial as between them. Usually this would mean that the trustee should sell the property for the best price that could be obtained which would be the full market value; this course of action was supported by the husband. However, as the property was situated in the Netherlands, was subject to the jurisdiction of the Dutch court and was the subject of an order of the Dutch court to the effect that the property should be sold to the wife at a certain price, the Royal Court felt that this was impractical. In these particular circumstances, the court decided that it was in the best interests of both husband and wife for the trustee to sell the property to the wife at the price fixed by the Dutch court which in practical terms would be the best price that could be achieved. As the Royal Court stated, "A trustee should not be criticised for bowing to the inevitable by complying with an order of the court in which jurisdiction the real property in question is situated."
This article first appeared in the autumn 2008 issue of Appleby Jersey's Resolution newsletter.
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