Introduction
Kevin O'Loughlin as part of the STEP Isle of Man Technical and Policy Committee worked with the Isle of Man Government to introduce changes to Isle of Man trust law, enacted in the Trusts and Trustees Act 2023 (the "Act"). The Act became fully operative on 1 December 2023.
Disclosure of trust information
The Act introduces a new provision relating to disclosure of trust information, defined widely to include information or a document relating to a trust. The section provides that the terms of a trust can make provision for disclosure or otherwise of trust information, subject to an order of the court. The section then provides that beneficiaries can request disclosure of trust information, and the trustee may refuse if in the interests of a beneficiary or the beneficiaries generally; again this is subject to any order of the court. The section preserves the re Londonderry1 exception for the trustee's deliberations/reasons. The section then provides that the court has a general power to order disclosure of trust information. Lastly the section provides that a trustee must disclose trust information to a person having a supervisory, regulatory or enforcement function for the purposes of that function.
The section provides a statutory framework for disclosure of trust information, consistent with Schmidt v Rosewood2 principles. The section does not give guidance as to the principles applicable to exercising the court's discretion to order disclosure, therefore the case law on disclosure in exercise of the court's inherent or supervisory jurisdiction will remain applicable.
Disclosure of trust information is also relevant in the context of applied GDPR rights, where reference can be made to what is otherwise required or authorised by law. The statutory framework is more accessible than common law principles.
The new provision, that the terms of the trust cannot exclude the court's jurisdiction to order disclosure, gives statutory effect to what is considered to be the common law position.
Trustees no doubt previously had power to disclose to a supervisor etc. The Act creates a new duty to do so, but only for the purposes of the function being exercised, which therefore appears to go no further than usual supervisory enforcement powers.
Contracts
The Act introduces a new provision that, despite any enactment or rule of law to the contrary, a trustee may in the capacity of trustee of one trust enter into a contract with himself in his capacity as trustee of another trust.
This disapplies several legal rules that might have prevented such a contract, which can often be desirable where, for example, there are two connected trusts with the same trustee and it is desired that property in one trust be sold to the other trust.
The trustee remains subject to the statutory duty of care in entering into such contract.
Limitation of liability
The Act introduces a new provision that, where another party to a transaction or matter is aware that the trustee is acting as a trustee, the trustee is not personally liable in respect of the transaction or matter, and any claim in respect of the transaction or matter extends only to the property of the trust. This does not apply in respect of any transaction or matter in which the trustee acts in breach of trust, and the provision does not affect a trustee's liability for breach of trust or any claim for breach of warranty of authority. A "matter affecting the trust" includes court proceedings properly brought or defended by a trustee, so limiting the trustee's liability for any costs of those proceedings.
There is no injustice in imposing limited liability on persons who knowingly deal with a trustee, just as the principle of limited liability applies in the case of dealings with a limited company.
The breach of trust exception means that the trustee must be acting as authorised by the trust for the limitation to apply. The expression "breach of trust" is not perfectly precise, but it is suggested it should be interpreted in line with the trustee's entitlement to an indemnity from the trust property for the relevant transaction.
Hastings-Bass
The Act introduces new statutory "Hastings-Bass"3 relief. The new section provides that the court may, in certain circumstances, declare that a transaction by a trustee is void or voidable and has such effect as the court may determine. The circumstances are where the trustee failed to take into account any relevant considerations, or took into account irrelevant considerations, and consequently exercised the power differently than it would have otherwise have done. It does not matter if such circumstances occurred as a result of fault on the part of the trustee or its advisors.
The Isle of Man courts had recently decided, in the context of cases on equitable rescission on the grounds of mistake, that they would follow the decision of the UK Supreme Court in Pitt v Holt. This was because the Supreme Court had, in relation to equitable rescission for mistake, done little more than align English law with Isle of Man law which had decades previously applied the Ogilvie v Littleboy test.
The new provision will mean that Isle of Man law will not follow the Supreme Court's further decision that, to excite the Hastings-Bass jurisdiction, requires a breach of duty on the part of the trustee.
It is equitable to allow the court to intervene where something has gone wrong in the administration of the trust and caused loss. Mistakes can happen, even without a breach of duty. If it is just to do so, the situation should be rectified, rather than insisting on a breach of duty as a pre-condition. This better aligns with equitable rescission for mistake, and will avoid beneficiaries either being without a remedy (if there was a mistake but no breach of duty), or having to have recourse to hostile litigation against the trustees or their advisors if a breach of duty is not admitted.
Prescription periods
The Act amends the Limitation Act 1984 in relation to prescription periods for claims against trustees. It provides that, apart from fraud or recovery proceedings against a trustee, an action by a beneficiary in respect of any breach of trust shall not be brought after the expiry of 3 years from the earlier of (a) the date of delivery of the final accounts to the beneficiary or (b) the date on which the beneficiary first has knowledge of the breach of trust. Time does not run against a beneficiary while a minor or under any other legal disability. There is an equivalent three year limitation for an action by a new trustee against a former trustee, and a long stop of 21 years.
This will bring welcome certainty for trustees and beneficiaries as to when claims are time barred.
Other changes
The Act made some other changes which, though perhaps more of technical significance, are yet welcome. These include:
- Section 55 of the Trustee Act 1961 enables the court to confer power on trustees to carry out a transaction that the trustees do not otherwise have power to do. Previously, the transaction needed to relate to the "management or administration" of the trust property. The Act has widened this jurisdiction to "any transaction affecting or concerning" the trust property.
- An equivalent of section 158 of the UK Law of Property Act 1925 is introduced. This essentially renders every power an exclusive power (that is, a power that authorizes the donee to exclude an object entirely), unless the instrument creating the power declares the minimum share of any object. In practical terms, this means powers of appointment should no longer include the words "exclusive of the others".
- The rules relating to the apportionment of income are abolished.
Conclusion
Overall the Act is a welcome updating of Isle of Man trust law.
Footnotes
1. [1965] Ch. 918, CA
2. [2003] UKPC 26
3. [1975] Ch. 25, CA
A version of this article appeared in the STEP Journal (Vol32 Iss3)
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.
