A recent judgment of the Royal Court of Jersey (In the Matter of the Representation of A Limited and in the Matter of the F Foundation [2013] JRC 075) has provided some useful guidance as to the general principles which apply to foundations and clear direction on the approach the Court will take to the exercise of its supervisory powers. In this case, the council members sought a direction that it would be appropriate for the foundation to take a neutral stance in relation to proceedings in the Jersey Court to which they had been made a party.

Similar principles can be applied to Isle of Man foundations. Part 5 of the Foundations Act 2011 (the "Act") is intended to install the Court with a supervisory jurisdiction over Isle of Man foundations. This part of the legislation is on identical terms to the Jersey equivalent.

Under section 54 of the Act the Court's power to give directions is widely drafted to include:

"such other matters as the High Court considers relevant to the foundation, its foundation instrument, its foundation rules, the administration of its assets or the carrying out of its objects"

The Court will grant directions provided it is satisfied that either:

  1. it will assist a foundation to administer its assets or to carry out its objects; or
  2. that it is otherwise desirable for the Court to give a direction.

The Jersey case, the first of its kind in common law jurisdictions, considered that there was no equivalent jurisdiction in company law for directors to seek assistance of the Courts and whilst analogies could be drawn with trust law principles they were not exactly the same. In particular:

  1. The foundation is an entity in its own right and the beneficial owner of all its assets, so no question arises as to a right of indemnification from its own funds.
  2. Council members do not owe duties to beneficiaries, but do owe fiduciary duties and duties of care and skill to their foundation, in respect of which they may be sued by the foundation for breach.
  3. While the position of council members might be analogous to that of directors of companies, the Jersey Court held that it may be more challenging in some senses than that of a director of a trading company as council members may not have the same level of knowledge of the background to donations to the foundation and the merits of any claim against the foundation.

It was found that the Court's jurisdiction was similar to that in relation to trusts as to whether to bless or not momentous decisions the trustee wishes to take where the trustee surrenders discretion to the Court.

The Act and the Jersey case indicate the willingness of Courts to assist, where appropriate, the council members of a foundation by providing directions they can rely on going forward when faced with a significant decision.

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.