Jersey Leads Trust World With Innovative Amendment
It may sound obscure, but the Trusts (Amendment No. 6) (Jersey) Law, introduced in October 2013 and the subject of this review, represents a significant change to Jersey's trust legislation that is expected to lead to more business for the jurisdiction's already substantial trust sector.
While the Trusts (Jersey) Law 1984 ("the Law") has provided a successful legislative framework for the establishment of trusts for over 20 years, it was felt by the Jersey Government that a change was needed due to the constantly evolving nature of trust laws at a global level, as well as developments in case law.
The Trusts (Amendment No. 6) (Jersey) Law 2013 inserts into the Law a statutory version of the existing Jersey law relating to what has become known as the ‘rule in Hastings-Bass' (established in a UK case of the same name in 1975) and the doctrine of mistake. Currently, the position is that this is established in Jersey law as a result of case law (i.e. the rulings of the Royal Court of Jersey).
The idea for a legislative amendment incorporating Hastings Bass and the doctrine of mistake was first considered in 2011 by the Jersey Trusts Law Working Group which comprised leading members of the industry in 2011. The draft amendment was then drawn up following extensive consultation with those specialist practitioners who are most concerned with this area of law, with considerable input from the Society of Trust and Estate Practitioners. The draft amendment was lodged in the States on May 31, 2013 and went into force on October 25, making Jersey the first common law trust jurisdiction to enshrine the Hastings Bass rule and the doctrine of mistake into statute law.
Trustees are commonly given certain powers in relation to the management and distribution of trust assets. The rule in Hastings-Bass enables the court to set aside a trustee's exercise of such a power if the trustee failed to take into account relevant considerations which he ought to have taken into account, or took into account considerations which should properly have been disregarded.
A similar ‘rule' has been formed in relation to settlors of trust property (individuals who settle assets into a trust). This ‘rule' known as the doctrine of mistake, operates on similar principles and allows a settlor who settles assets into a trust to apply to the Royal Court to set aside or unwind his actions.
In relation to both these rules, the "considerations which ought to have been taken into account, or considerations which should properly have been disregarded" often constitutes advice provided by a professional adviser (usually an accountant or lawyer) which it transpires is incorrect.
The ultimate benefit from the provisions is certainty for settlors and beneficiaries that if a transaction is made that results in adverse consequences to the trust fund, an application can be made to the court to rule that the transaction can be unwound. This avoids the alternative option which would involve the uncertainty and costs of litigation against the professional adviser who provided the incorrect advice.
The draft amendment is not a comprehensive code covering exhaustively the circumstances in which transfers or dispositions into trust, and exercises of powers or discretions in relation to trusts or trust property, are voidable. The statutory provision provides a framework for practitioners to work within when bringing certain applications to the Royal Court. The objective has been to enshrine the principles of existing Jersey law concerning Hastings-Bass and mistake into statute.
The statutory provision covers the following 4 areas:
The remedy of setting aside a settlor's transfer or disposition into a trust on the ground of mistake (Article 47E).
The remedy of setting aside an exercise of a fiduciary power in relation to a transfer or disposition into trust on grounds falling within the doctrine of Hastings-Bass (Article 47F).
The remedy of setting aside an exercise of a power or discretion in relation to a trust or trust property on the ground of mistake (Article 47G).
The remedy of setting aside an exercise of power or discretion in relation to a trust or trust property on the grounds falling within the doctrine of Hastings Bass (Article 47H).
These four Articles are explained in more detail below:
Article 47E sets out the grounds on which a court may declare that a transfer or other disposition of property to a trust is voidable where a settlor (whether alone or with another settlor) or another person who has exercised a power to make a transfer etc. on the settlor's behalf, has made a serious mistake in relation to that transaction, and that transfer, etc. would not have been effected but for that mistake. The mistake (defined in Article 47B(2)) can be one of fact or law. It has to be extremely grave to the extent that it would be just for the court to make a declaration under this Article. The declaratory remedy setting the transaction aside may only be sought by the settlor (or any other settlor if more than one), his or her personal representative or successor in title.
Article 47F also concerns cases which involve the transfer or other disposition of property to a trust, but in contrast to Article 47E applies where the transfer has been effected through a person who has exercised a power on behalf of a settlor (rather than being exercised directly by the settlor) and who owes a fiduciary duty towards the settlor in the exercise of his or her power. Where that person when exercising his or her power to transfer property failed to take into account relevant considerations, or took into account irrelevant considerations, the court may declare the transfer voidable if it is clear that the person exercising the power would not have effected the transfer, had he or she not failed to take into account considerations which he or she ought to have taken into account, or taken into account considerations which he or she ought not have taken into account.
In such cases it is not necessary for the person seeking the court's remedy to establish that the person exercising the power was at fault because of any lack of care in the way in which the power was exercised. As in Article 47E, a declaration that the transfer is voidable may only be sought by the settlor (i.e. the person to whom the fiduciary duty is owed), or his or her personal representative or successor in title.
Article 47G concerns cases where the property has passed into trust, and where a trustee or any person who has exercised a non-fiduciary power in relation to the trust makes a mistake in the exercise of that power. The grounds on which the court may declare the exercise of the power voidable on the grounds of mistake are analogous to the grounds set out in Article 47E.
Article 47H also concerns cases where the property has passed into trust, but involves the exercise of fiduciary powers by a trustee or by a person otherwise than in the capacity of a trustee, who exercises a power over, or in relation to a trust, or trust property and who owes a fiduciary duty towards a beneficiary. The grounds for setting aside the exercise of the power are analogous to those set out in Article 47F concerning the failure to take into account relevant considerations or taking into account of irrelevant considerations when exercising the power.
Amendment No 6 has been warmly welcomed by Jersey trust law experts, largely because it is expected to provide greater clarity for the courts, practitioners and those who work with or benefit through Jersey trusts.
"Since its enactment in 1984, the Trusts (Jersey) Law has proved to be a highly effective and hugely influential piece of legislation. This latest amendment, only the sixth in nearly 30 years, provides welcome clarity for the Royal Court and for the many settlors, trustees and beneficiaries, all over the world, who enjoy the benefits of having Jersey law as the governing law of their trusts," observed Geoff Cook, CEO, Jersey Finance. "The ability for the Royal Court to give discretionary relief when a beneficiary finds itself materially prejudiced by a trustee's decision - made, perhaps, in good faith but unfortunately founded upon erroneous advice - provides a welcome alternative to the uncertainties and costs which surround 'classic negligence litigation'".
"With an estimated GBP400bn (USD647bn) of trust assets under administration in Jersey, this amendment can only serve to further bolster Jersey's already highly regarded international private wealth offering," Cook added.
The courts will still decide on a case by case basis when the new statutory remedies provided by Amendment No 6 may be granted. However, as leading offshore law firm Carey Olson concluded, the test for Hastings-Bass relief "is now more favourable than in English law and by comparison emphasises the best interests of settlors and beneficiaries of Jersey trusts."
"As Jersey is the only jurisdiction to have made statutory provision for the principles on which these equitable remedies will be granted, it is again at the forefront of trust law developments internationally," the firm concluded.