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08 April 2021
The Trusts (Guernsey) Law 2007 provides Guernsey trustees with a wide array of powers to undertake various acts in their capacity as trustee.
The terms of a trust deed will usually extend the powers conferred on trustees by the Trusts (Guernsey) Law 2007. When deciding to exercise these powers, trustees must consider all of their legal and fiduciary obligations. However, it is not always that simple; at some point a trustee will be faced with a decision so important or complex that even though it is confident that it has the requisite power to make the decision and that it has taken all of the relevant factors into account, it wishes to seek the blessing of the Royal Court for the decision that it has taken (with the usual caveat that it is subject to the court's approval).
In effect, the blessing of the Royal Court deters any future criticism by beneficiaries that the decision was made in breach of the trustee's legal and fiduciary duties.
In order for the trustee to obtain such strong protection, the Royal Court must be satisfied that the decision is a momentous one before it will entertain an application. It is difficult to distil what a 'momentous decision' is, other than being a decision of real importance to the trust. By way of an example, a trustee may receive an offer to sell the trust's sole asset to an interested buyer. This would likely be a momentous decision in any event but more so if there is evidence (eg, in the settlor's letter of wishes) that the settlor did not wish the asset to be sold, or if the beneficiaries oppose the sale in some way. The trustee may truly believe that the sale is in the best interests of the beneficiaries and it is then faced with a difficult decision as to how to proceed, as it will be concerned about the possibility of future claims that:
In Guernsey, such applications are known as 'momentous decision' or 'blessing' applications. The Trusts (Guernsey) Law 2007 provides a mechanism for the trustee to make such an application, although they are usually said to be brought under the 'Category 2' rule in the English case of Public Trustee v Cooper (2001), as the trustee is not fettering its discretion to make the decision to the Royal Court, but rather is asking the court to bless the decision which has, in effect, already been made.
The test that the Royal Court will use when deciding whether to bless a momentous decision was set out in Re AAA Children's Settlement (2014). In that case, the court stated that it will consider whether:
This test was affirmed in In the matter of the LKM Discretionary Trust (2016), in which the trustee was considering making a substantial distribution to one beneficiary. In this case, the Royal Court stated, for the avoidance of doubt, that it will exercise caution with these types of application and will not simply act as a 'rubber stamp'.
In making these applications, the quality of the evidence put before the Royal Court is, as always, crucial, and the trustee must ensure that evidence as to all of the relevant considerations is put before the court, including disclosure of the trustee's reasons for the decision. Minutes, resolutions and any expert advice (eg, professional valuations or tax advice) should be collated to show all of the matters that the trustee has taken into consideration in making the decision. The court will consider all of the evidence and will hear evidence from the representatives of the beneficiaries, either in support of or opposing the application.
As the Royal Court highlighted in In the matter of the LKM Discretionary Trust, each case put before it "will need to be decided on its own facts, and the degree of detail that is required from the trustee cannot be uniform in all circumstances".
Further, it should be borne in mind that the terms of each trust deed will differ and therefore advice may differ depending on the facts at hand.
For further information on this topic please contact Sandie Lyne, Mathew Newman or Tehya Morgan at Ogier by telephone (+44 1481 721 672) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Ogier website can be accessed at www.ogier.com.
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