Before : |
M. J. Thompson, Esq., Commissioner, and Jurats Hughes and Le Heuzé |
IN THE MATTER OF THE REPRESENTATION OF A TRUSTEES LIMITED
AND IN THE MATTER OF THE ABC TRUST
AND IN THE MATTER OF ARTICLES 51 AND 53 OF THE TRUSTS (JERSEY) LAW 1984 (AS AMENDED)
Advocate D. Evans for the Representor.
Advocate M. P. Cushing for the Minor and Unborn Beneficiaries.
judgment
the COMMISSIONER:
1. On 9 September 2024, the Court blessed a decision of A Trustees Limited ("the Representor") as trustee of the ABC Trust to enter into a Settlement Agreement in relation to certain proceedings before the English High Court. We also authorised the Representor to pay the legal fees of D incurred in relation to the proceedings that we authorised the Representor to settle and in relation to certain other proceedings by way of loan. We were not prepared however to bless the Representor making a distribution to D to meet the legal fees he had incurred. This judgment contains our reasons for these decisions.
2. The Trust is a discretionary trust governed by the law of Jersey. Accordingly, we possessed jurisdiction under Article 5 of the Trusts (Jersey) Law 1984 (as Amended), to hear the Representor's application.
3. The Trust was established by Settlement Deed made between the Representor and E ("the Settlor").
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6. Advocate Cushing was appointed by an Act of Court dated 22 March 2024 to act as Guardian ad Litem of the Settlor's children and to act as representative for the unborn children and remoter issue of the Settlor.
7. By an Act of Court dated 23 April 2024, Advocate Cushing's role was extended for him to act as representative of the unborn nieces and nephews (i.e. any future children of D).
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42. The conflict referred to was the risk of D or other beneficiaries pursuing the Representor for breach of trust in relation to the circumstances that had led to the proceedings against D and the Trustee, and that Trust assets had to be used to conclude these proceedings .
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69. The Representor in its skeleton helpfully reminded us of the applicable principles where a Court is asked to bless what it considers to be a momentous decision.
70. The approach was set out in the well-known case of Re S Settlement [2001] JRC 154. We accept that the present application is one falling within the second category namely whether the Representor's proposed decisions are a proper exercise of its trustee powers where there is no real doubt as to the nature of its powers and the Representor has decided how it wants to exercise its powers, but the decision is one that is particularly momentous.
71. We also accept that the decision reached by the Representor to settle the claims [redacted] is a clearly momentous one.
72. In Re S at paragraph 11, Birt, Deputy Bailiff as he then was, set out the approach to be taken as follows where a trustee seeks a blessing of a momentous decision:
"(1) Are we satisfied that the Trustee has in fact formed the opinion in good faith that the circumstances of the case render it desirable and proper for it to carry out each of the steps we have described earlier in this judgment?
(2) Are we satisfied that the opinion which the Trustee has formed is one at which a reasonable Trustee properly instructed could have arrived?
(3) Are we satisfied that the opinion at which the Trustee has arrived has not be vitiated by any actual or potential conflict of interest which has or might have its decision?"
73. These principles were confirmed by the Court of Appeal in Representation of Otto Poon Trust [2015] JCA 109.
74. At paragraph 19, the Court of Appeal in Poon observed as follows:
"the court is required properly to scrutinise the proposed exercise of the trustees' power on the evidence, As was pointed out in Re Y Trust [2011] JLR 464 (citing with approval Lewin on Trusts (18th ed.), at paragraph 29-299) (a similar approach is taken in Guernsey: see Re The Trusts (Guernsey) Law 2007 and [AAA] Children's Trust, Royal Court, 8th January 2014 [2015] WTLR 683) the result of the court giving its approval is that the beneficiaries will be unable thereafter to complain that the exercise is a breach of trust, or to set it aside as flawed. Furthermore, when trustees are seeking approval for a decision they have already reached, the beneficiaries are unlikely to have the same advantages of cross-examination or disclosure of the trustees' deliberations as they would have in proceedings to challenge the exercise of the power once made. For that reason, the trustees should put before the court all relevant considerations (supported by evidence) and they should explain their reasons for reaching the decision, even though they are not otherwise obliged to make such disclosure to the beneficiaries."
75. In Lewin 20th Edition at paragraph 48140, the Court's function was described in this way, where the Court was reviewing a decision by a trustee to engage or not to engage in litigation, it should take a more "inquisitorial approach". This is because the Court is well placed to assess the risks of litigation which means that it is in a good position to review whether or not it was sensible for trust assets to be put at risk by engaging in the litigation in question. In our view, this approach also applies to settlement of litigation.
76. These are the principles we have applied.
77. We have also had regard to the relevant authorities in relation to a conflict of interest as set out in Re H Trust [2018] JRC 171 at paragraph 47.
78. In this case we accepted the Representor's submission that this case falls within the third category described in H Trust at paragraph 37 as follows:
"Thirdly, the trustees may honestly and reasonably believe that, notwithstanding a conflict affecting one or more of their number, they are nevertheless able fairly and reasonably to take the decision. In this third case, it will usually be prudent, if time allows, for the trustees to allow their proposed exercise of discretion to be scrutinised in advance by the court, in proceedings in which any opposing beneficial interests are properly represented, and for them not to proceed unless and until the court has authorised them to do so. If they do not do so, they run the risk of having to justify the exercise of their discretion in subsequent hostile litigation and then satisfy the court that that decision was not only one which any reasonable body of trustees might have taken but was also one that had not in fact been influenced by the conflict."
79. In this case, the conflict is that summarised at paragraph 42 above. In relation to this question, we agreed with the Representor that the potential of being sued was not so pervasive as to disable the decisions required and to require the Representor to surrender its discretion to the Court. [Redacted]. The possibility of a conflict did not therefore prevent either the Representor from reaching a decision or prevent this Court from blessing that decision.
80. In relation to the settlement proposal, the decision was clearly formed in good faith. We were also satisfied that the decision the Representor had reached to enter into the settlement was one which a reasonable trustee properly instructed could have arrived at. [Redacted].
81. Thirdly, the decision was not vitiated by any conflict as set out above.
82. The decision of the Representor was also supported by Advocate Cushing. In our view, it was an obvious decision for the Representor to wish to enter into settlement on the terms finally agreed subject to approval of this Court.
83. In relation to the request for a distribution, we agreed with the Representor's assessment that D could not meet his legal fees [redacted] and that it was in the interest of the beneficiaries as a whole for trust assets to be used to meet these fees. [Redacted], these were opinions formed in good faith which a reasonable trustee properly instructed could have arrived at.
84. Where we departed from the Representor's approach was that the Representor did not appear to have considered making a loan to D as distinct from making a distribution to him. [Redacted].
85. When we asked Advocate Evans during the hearing as to whether the Representor had considered the possibility of a loan, we were informed that the Representor had considered this possibility but had discounted it because it felt that D would not be able to repay the same.
86. However, in relation to this submission, there was nothing in the material provided to us [redacted] which showed that the Representor had considered the possibility of a loan as distinct from a distribution. It also appeared to us that the Representor's decision, notwithstanding its desire in due course to create a separate fund for the benefit of minor and unborn beneficiaries, had left the other beneficiaries, in addition to having to bear the settlement cost, also having to bear the legal costs incurred by D [redacted].
87. [Redacted].
88. The Jurats therefore concluded that a reasonable trustee properly instructed would have considered the possibility of a loan to allow the possibility of recovering monies advanced to one beneficiary to meet legal fees for the benefit of other beneficiaries. The Representor in this case did not appear to have done so.
89. However, rather than simply refuse to make a distribution, we indicated to the Representor that we would authorise the making of a loan because, as noted above, we accepted that there was a need for the legal fees of D to be met and it was in the interests of the beneficiaries as a whole to do so. Our concern was therefore only in relation to the mechanism by which that occurred.
90. In relation to the terms of the loan, we indicated that a loan for a period of five years, unsecured and on an interest free basis, would be appropriate. [Redacted]. Also, making a loan for a fixed period on an interest free basis meant that D also got some benefit from the Trust assets because his legal fees were being discharged, while preserving the benefit of that loan being repaid for the benefit of the other beneficiaries.
91. Finally, we stressed to the Representor that while we agreed that it was not necessary at this stage to effect the creation of a ring-fenced fund, we felt that this should occur in early course and, [redacted], that the creation of a ring-fenced fund was a matter of some urgency for the Representor to consider.
Authorities
Trusts (Jersey) Law 1984.
Re S Settlement 2001/154.
Representation of Otto Poon Trust [2015] JCA 109.
Lewin 20th Edition