In the matter of the Y Trust, Royal Court Reported Judgment 25
Facts of the Case
Central to this case were the protracted and hostile divorce
proceedings between two beneficiaries of the Trust, referred to in
the judgment as the mother and the father. The divorce process was
first instigated in 2012 and a settlement was finally reached on
the third attempt in 2015 (the Agreement).
The Agreement provided for the division of the Trust's
property between the mother, the father and their children. While
the mother and children were beneficiaries of the Trust, the father
had inadvertently become an excluded beneficiary. It was therefore
proposed that the Trustee should close the class of beneficiaries
and terminate the Trust so that the beneficiaries could direct the
Trustee to distribute the assets of the Trust in accordance with
the Agreement. The Agreement accordingly included provisions to
limit the potential exposure of the Trustee in making a payment to
an excluded beneficiary (i.e. the father).
The Trustee was concerned it was conflicted between its
interests in limiting its liability and its duties to the Trust.
The Trustee therefore sought to surrender its discretion to the
Court in relation to the exercise of the powers outlined in the
The test applied in applications to surrender discretion to the
Court is set out in In re S Settlement  JRC
154. This provides that:
"[T]he court will only
accept a surrender of discretion for a good reason, the most
obvious good reasons being either that the trustees are deadlocked
(but honestly deadlocked, so the question cannot be resolved by
removing one trustee rather than another), or because the
trustees are disabled as a result of a conflict of
However, the test may only be applied on a restricted basis.
This was emphasised by the Court of Appeal in In re B
Settlement  JLR 653, where it was held that a
surrender of discretion should be regarded as a last resort and
that it would normally only be accepted by the Court where no
"sensible alternative" exists.
The Court held that the Agreement was undoubtedly in the
interests of the mother and the children as it would bring an end
to the expensive and lengthy divorce proceedings. However, the
Court also accepted that the express intention to remove any risk
to the Trustee in the Agreement also represented a conflict of
interest to the Trustee.
Before accepting the surrender of discretion, the Court first
looked to whether a "sensible alternative" existed.
The Court considered that, while the Trustee could have
distributed the entirety of the Trust to the mother to discharge
its obligations under the Agreement, this would not be acceptable
to the father following the lengthy and fraught divorce process to
The Court also looked at whether it would have been preferable
for the Trustee to have made the relevant decisions under the
Agreement before seeking the Court's blessing. However, it was
felt that it may have presented a problem on the grounds that the
Court had to be satisfied that the decisions taken by the Trustee
had not been vitiated by any actual or potential conflict of
interest which has or might have affected its decision.
The alternative solution to a surrender of discretion would have
been arbitration; however, the Court felt this would not have been
appropriate since the arbitrator had no control over the Trustee or
the Trust property.
In conclusion, the Court was prepared to accept that no sensible
alternative existed to a surrender of the Trustee's discretion.
The Court therefore accepted the surrender and directed the
exercise of the relevant powers in accordance with the
This judgment serves as a reminder that an application by
trustees to surrender discretion to the Court is not something to
be undertaken lightly. It is important that trustees considering
this option should investigate whether there any "sensible
alternatives" to the surrender of discretion before
proceeding. However, this judgment also demonstrates that, while
such a decision is intended as a last resort, the Court is minded
to be practical in considering such cases and trustees who may have
felt paralysed by a conflict, even where the end result would have
been preferable for the beneficiaries, have some recourse.
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.
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