Future statutory changes to the law of trusts in Jersey

1. The Chief Minister’s Department in Jersey has very recently published a Consultation Response and Policy Paper on proposed amendments to the Trusts (Jersey) Law 1984 (the TJL 1984).[1]  The contents are highly significant for anyone involved with the trusts industry in Jersey.  This briefing note therefore sets out what we can expect in terms of amendments in the near future as well as highlighting other potential future areas of change.

Changes on the horizon

2. Rights of beneficiaries to information (Article 29).  The Government has indicated that it will seek to rework Article 29 to clarify existing principles of disclosure in light of case law.  The precise drafting is yet to be seen but the amended provision is likely to look very different.  At the very least, one should expect the focus to be on what the trustee must disclose rather than what a trustee shall not be required to disclose (thereby removing the double negative in the existing drafting).  Further, one may reasonably speculate that the amended Article 29 will bear at least some resemblance to the existing regime in Guernsey as set out at Sections 26 and 38 of the Trust (Guernsey) Law 2007.  The Government response notes the general view that these provisions could be a “convenient starting point”.
3. The Government has, however, stated that the amendments will not seek to set out a full iteration of the principles of disclosure.  This is clearly sensible.   The discretionary approach laid down by the Privy Council in Schmidt v Rosewood Trust Ltd [2003] UKPC 26 (as adopted in Jersey subject to the provisions of the TJL 1984) prevails precisely because drafting a set of rules to cater for all situations is hugely problematic. The overarching discretion of the court is therefore essential to ensure that the regime in Jersey is sufficiently flexible – it is, after all, perfectly possible for rights to information to be restricted or enlarged by the terms of the trust.
4. Reservation of powers by a settlor (Article 9A). The Government has decided to proceed with some (but not all) of the proposed amendments as follows:

4.1.             The words “or all” are to be added at Article 9A(1)(b) to clarify that the settlor may reserve all of the powers listed at Article 9A(2).

4.2.             The definition of “corporation” is to be widened for the purposes of the power to act as, or give binding directions as to the appointment or removal of, a director or officer of any corporation wholly or partly owned by the trust (Article 9A(2)(c)).  It is expected this will now embrace other vehicles such as Scottish Limited Partnerships, SLPs and other partnership interests (presumably including ordinary partnerships which are not incorporated).

4.3.             In relation to the power to appoint or remove an investment manager or investment adviser, the words “including any person acting in relation to the affairs of the trust or holding any trust property” were proposed in the Consultation Paper.  The intent is to widen the scope of persons appointed in exercise of such a power, but this wording carries the risk of (a) expanding the range of persons who should be treated as an investment manager or adviser and/or (b) blurring the distinction between an appointee and a trustee given the definition of the latter at Article 2 TJL 1984.  The Government has acknowledged these concerns but stated its intention to proceed with the amendment so it is likely the proposed wording will be adjusted.

4.4.             A new Article 9A(2A) is to be inserted which confirms that the holding of a reserved power or interest does not of itself constitute the holder a trustee.  This self-evidently leaves open the possibility of a court determining otherwise depending on the circumstances.

4.5.             A presumptive provision (rebuttable by express language to the contrary in the trust instrument) is to be inserted that reserved powers issued by a powerholder cease to have effect on the death, incapacity or bankruptcy of the powerholder.  In the latter case, those powers would not therefore vest in the hands of a trustee in bankruptcy.

5. Confirmation of the appointment of a corporate trustee post-merger.  The Consultation Paper proposed wording be inserted into the TJL 1984 that “[a] trustee which merges with another company pursuant to the provisions in the Companies (Jersey) Law 1991 shall continue to be a duly appointed trustee of a trust notwithstanding its merger with another company” (i.e. without further action being required).  The Government has indicated that it is minded to make the proposed amendments but that these amendments will be introduced into the Companies (Jersey) Law 1991 rather than the TJL 1984.
6. Extension of indemnity (Article 34).  The Government intends to make amendments to Article 34 to extend the range of persons who may benefit from indemnities from a new trustee (including where an indemnity has been extended or renewed by subsequent trustees) and may enforce that indemnity even if not parties to the relevant deed of indemnity.  These amendments are principally directed at individual officers and employees of the retiring trustee but it appears the drafting will embrace all those covered by the STEP definition of ‘Indemnified Persons’ (which would also cover, for example, the heirs and personal representatives of such officers and employees).  The Government has acknowledged, however, that in most cases it will be appropriate for the trustee to act as representative of those covered by the indemnity in its extended form, which is sensible as a matter of logistics and costs.
7. In connection with these amendments, the Government has indicated that it will also extend the indemnity provisions to cover distributions made during the lifetime of the trust and on termination.  This will therefore require equivalent amendments to Article 43 TJL 1984.
8. Retention and accumulation (Article 38).  Amendments are to be introduced to widen the options for the trustee in relation to accumulation and distribution of income to permit (a) accumulation of income to capital, (b) retaining income in its character as income or (c) distribution of income.  Provision will also be made for the default position to be the retention of income in its character as income in the (relatively uncommon) situation where the trust instrument is silent.  However, these amendments will not have retrospective effect as originally proposed due to concerns over potential tax issues which might arise.
9. Separately, the Government will proceed to amend Article 38(5) to clarify that the power of advancement may be exercised for all of the trust property rather than only part of it.
10. Presumption of lifetime effect.  Consistent with the approach adopted in the Cayman Islands and Bermuda, a provision is to be introduced confirming the presumption of lifetime effect.  This clarifies what is otherwise the general common law position: see e.g. Lewin on Trusts (19th edn), §§ 1–015, 1–018.  It is anticipated that this will closely resemble the equivalent provision in the Cayman Islands found at Section 13 of the Trusts Law (2011 Revision).
11. Power of the court to vary a trust.  The Consultation Paper sought views on substantially extending the court’s powers to vary a trust.  The existing powers in Article 47 of the TJL 1984 are limited to (a) approving arrangements on behalf of minor, unborn and unascertained beneficiaries and (b) conferring powers on the trustee to enter into particular transactions connected with the management or administration of a trust.  The extended powers as described in the Consultation Paper would empower the court to vary a trust generally regardless of whether that variation is supported or opposed by any one or more of the adult beneficiaries.
12. In the face of opposition to this proposal, including the views of the Chancery Bar Association and commentary from specialist practitioners in England, the Government has not proceeded with this proposal.  However, the Government has indicated it will proceed with more limited amendments to permit the court to provide consent to a variation on behalf of beneficiaries if the court is satisfied that (a) they cannot be found despite proper attempts to locate them or it is practically unfeasible to contact them due to their number and (b) such variation is in their best interests.
13. This raises a number of questions.  What will constitute proper attempts to locate a beneficiary? When will it be practically unfeasible to contact a beneficiary (especially in the modern world)? What material will be required for the court to be satisfied that the variation is in the best interests of the beneficiary? It remains to be seen whether these are matters which will be answered by the draftsman or will be worked out incrementally by the courts.

Watch this space

4. In addition to the above amendments to the TJL 1984, the Government response highlighted further upcoming changes and areas requiring consideration which should be kept in mind for the future.
5. Introduction of a non-charitable purpose trusts regime.  The Consultation Paper raised the possibility of amending the TJL 1984 to place beyond doubt the position as to the need for a beneficiary at all times during the existence of the trust, in particular following the decisions in Re Exeter Settlement [2010] JRC 012; Re ‘A’ Employees Shares Trust [2010] JRC 013; and Harper v Apex Trust Company Ltd [2014] JRC 253.  One solution identified by respondents was the introduction of a regime akin to the STAR regime in the Cayman Islands (and thereby introduce the possibility of an enforcer appointed pursuant to the trust instrument or court order with power to enforce the terms of the trust).  The Government has said that this will be explored as a distinct project during 2017 with further consultation.  Accordingly, the Government has not yet confirmed its proposals on the need for a beneficiary at all times during the existence of the trust.
6. Légitime.  The Consultation Paper sought views on removing the references to légitime in Article 9(1) and (3) of the TJL 1984 (concerning the application of Jersey law to questions relating to the trust).  Respondents raised the much broader issue of whether légitime should be abolished altogether.  The Government has therefore agreed to take steps to issue a Consultation paper specifically on the retention or abolition of légitime.
7. Trusts and insolvency.  The Consultation Paper noted the absence of any formal insolvency regime applicable to trusts in Jersey in light of the recent judgments in Representation of the Z Trusts [2015] JRC 196C; [2015] JRC 214.  This is clearly a developing area of the law where the applicable principles are very far from settled: see e.g. the commentary in Lewin (19th edn, Second Supplement), §§ 22–088, 089.  The Government has therefore taken the view (consistent with the majority of respondents) that it is not appropriate at this time to pursue a change in the context of the TJL 1984 alone but that a Working Group should be set up to consider the introduction of a statutory regime in the insolvency legislation.
8. Statutory lien.  Following the coming into force of the Security Interests (Jersey) Law 2012 and the recent decisions in Re Z [2015] JRC 031 and Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd (No.2) (2015-16) 18 ITELR 30, the Government is proceeding with the introduction of a statutory lien.  This has already been introduced in Guernsey.  The Government has stated that the lien will (a) be non-possessory and continue to apply after the vesting of the trust property in a new trustee, (b) secure the payment of authorised remuneration to the trustee and reimbursement of all expenses and liabilities reasonably incurred by the trustee, (c) arise at the time the remuneration falls due or the expense or liability is incurred, (d) take priority over the interests of the beneficiaries but be sequent to other charges on the trust property, (e) survive a distribution unless expressly waived, and (f) be defeated by a bona fide purchaser for value in which case it should attach the sale proceeds.  However, the Government has confirmed that the drafting will not address questions of priority with other creditors or the position as between a former and current trustee.  These issues are to be left to be determined by the court as and when they arise.

THOMAS FLETCHER

[1] The Consultation Paper and the Government response and policy paper can be found on the gov.je website at https://www.gov.je/Government/Consultations/Pages/TrustsJerseyLaw1984.aspx.