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13 April 2021
In B v Erinvale, the Royal Court intervened to set aside a decision of the trustee not to make the spouse of the settlor a beneficiary in her own right. The court's decision has implications for trustees and their obligation to act reasonably despite the trustee setting out reasons for its original decision.
This case concerned an application made by B under Article 51 of the Trusts (Jersey) Law 1984 to be added as a beneficiary of the A Settlement in her own right. B was already a beneficiary of the A Settlement in her capacity as the spouse of the settlor. However, the settlor was in ill health and had issued divorce proceedings, such that B had become concerned about her status as a beneficiary. The trustee had previously resolved not to add B as a beneficiary in her own right and had set out its reasons for not doing so in a detailed minute. However, the Royal Court found that despite the detailed and carefully considered minute, the decision ultimately reached by the trustee not to add B as a beneficiary in her own right was one which no reasonable trustee would have made. The Royal Court therefore intervened in order to set that decision aside.
The settlor and B married in 1997. They had one child together and each had two children from previous marriages. The settlor established the A Settlement – a discretionary settlement governed by Jersey law – in 2012, with the whole of his free estate. It provided the main source of financial support for both the settlor and B and was thought to have a value of approximately £50 million. The beneficial classes were described in the trust instrument as "the Settlor, the Settlor's spouse and the Settlor's children and remoter issue". In 2013 the settlor expressed a wish in his two letters of wishes for £4 million to be set aside for B on his death.
On 30 May 2017 the settlor, who was by that time in ill health, issued a divorce petition. In 2018 the Royal Court found the settlor to lack capacity. B, who was in her late sixties, became concerned about the impact on her status as a beneficiary, given that she was a beneficiary as the settlor's spouse and not otherwise. Although the settlor had agreed not to apply for the decree absolute until after the conclusion of B's claim for ancillary relief, B was still concerned. Even if the decree absolute was not to be sought until a later date, there was a real chance of the settlor dying in the meantime, such that B would become a widow and no longer the settlor's spouse. Similarly, if the settlor were to die after the making of a decree absolute but before the making of orders for ancillary relief, the financial matrimonial proceedings could continue but B would still cease to be a beneficiary of the A Settlement as she would no longer be the settlor's spouse.
B therefore asked the trustee to consider adding her as a beneficiary of the A Settlement in her own right so that her status as a beneficiary would not be dependent on her marriage to the settlor or his survival.
The trustee considered the request before resolving not to add B as a beneficiary in her own right at that time. The reasons given by the trustee in a minute of directors dated 10 January 2020 can be paraphrased as follows:
As expected, this was not the outcome for which B had hoped and she therefore sought the supervisory jurisdiction of the Royal Court over the A Settlement under Article 51 of the Trusts (Jersey) Law 1984 to be added as a beneficiary in her own right.
In considering the application and the parallel sets of proceedings, the Royal Court referred to Re the H Trust , in which Sir Michael Birt had commented as follows:
In this respect it is important to note that the roles of the two courts are very different. The Family Division is concerned to do justice between the two spouses before it. It is sitting in a matrimonial context and its objective is to achieve a fair allocation of assets between those spouses. It has no mandate to consider the interest of the other beneficiaries of any trust involved. Conversely, this Court is sitting in its supervisory role in respect of trusts, as is regularly done in the Chancery Division of the High Court. This court's primary consideration is to make or approve decisions in the interests of the beneficiaries. It is therefore a very different focus from the Family Division.
In consideration of the application by B, the Royal Court noted that "whilst its jurisdiction [under Article 51] is wide, it must be exercised on a sensible and principled basis". The court noted that the position in Jersey on intervention as per S v Bedell Cristin ( JRC 109) is in essence also that reflected in Lewin on Trusts (20th edition) and should not be controversial – that is to say:
With this in mind, the Royal Court noted that the test for intervention is high. However, the trustee is still required to act reasonably. On this occasion, the court found that the trustee had not acted reasonably in not adding B as a beneficiary in her own right and, as such, intervened and set that decision aside.
In doing so, the Royal Court noted that there was a real prospect of the settlor dying before the conclusion of the divorce proceedings. It was troubled by one of the key reasons put forward by the trustee around timing – namely, that it would not add B now but likely would in the future. The court noted that a trustee cannot fetter the future exercise of its discretion. It also noted that any future application by B would probably be opposed by the other beneficiaries and that it could not find any good reason not to add her now in order to remove the uncertainty that she faced. Her own need to remain in the beneficial class far outweighed the interests of the other beneficiaries.
The Royal Court questioned why a reasonable trustee would leave B in this state of uncertainty, something which was of understandable concern to her. It did not think that the trustee should treat the wife of the settlor of approximately 23 years – a woman in her late sixties with no other means of support and the mother of one of the settlor's children – in this way, particularly given the clear intention of the settlor in the two letters of wishes.
What makes this case unusual is that the trustee carefully considered its decision – giving nine different reasons in the minute of directors – and yet the Royal Court still felt that the decision was ultimately an unreasonable one and as such intervened. The court could find no good reason for not appointing B now but every good reason for doing so, so that she would be able to receive whatever was decided should be distributed to her in the future.
When assessing whether a decision is reasonable and one in which the courts would not intervene, a trustee would normally consider that a reasoned decision would cross this threshold. This is therefore a reminder that even if a trustee has gone through a process, it must still ensure that the overall decision is appropriate and that the reasons upon which it is relying are good ones.
For further information on this topic please contact Sally Edwards or Stephen Lord at Ogier by telephone (+44 1534 514 000) or email (firstname.lastname@example.org or email@example.com). The Ogier website can be accessed at www.ogier.com.
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