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21 December 2017
The case, which was heard before the Jersey Royal Court, concerned a trust established under the law of England and Wales in 2001 by an Isle of Man incorporated company. RBC Trustees (Guernsey) Limited was appointed as the trustee (the representor). Although the trust was established on standard discretionary terms, its primary function was that of an employee benefit trust, for the benefit of some 180 beneficiaries (eg, employees, former employees of the company and their family members).
The representor sought to retire as trustee and provided the notice required under the terms of the trust to the company by way of a letter of resignation in January 2015. Before its retirement, the representor sought legal advice which confirmed that, further to the terms of the trust, the representor would continue to be responsible for holding the trust assets if no trustee was appointed in its place, albeit without being able to exercise any powers under the terms of the trust.
Despite the fact that the trustee reminded the company, no replacement was lined up when the company was dissolved on September 4 2016. The representor therefore found itself in the difficult position of retaining fiduciary responsibilities for the trust assets, while being completely restricted in exercising any power or discretion under the terms of the trust. Further, there was no power holder in office to appoint a new trustee (previously being the company). Despite issuing a communication to the beneficiaries stating that it had retired, the representor continued to receive communications from the beneficiaries of the trust during this time in respect of updates, distributions and closure of sub-funds, among other standard requests.
Following advice from English chancery counsel, an application was made by the representor for the court to exercise its power under Article 51(2) of the Trusts (Jersey) Law 1984 in order to (re)appoint it as trustee of the trust.
The court was convinced by counsel's analysis of the representor's position, which centred on the following legal issues:
Taking each issue in turn, the court agreed that the representor had effectively resigned by means of the resignation letter and confirmed that the terms of the retirement and appointment provisions in the trust contemplated such a situation where there might be no trustee. The court cited counsel's reference to Lewin on Trusts,(1) which confirmed that where a trustee retires without a new trustee being appointed, it is unlikely that "the retiring trustee… would be divested of fiduciary responsibility" pending the appointment of a replacement.
Counsel's observations were supported by Jasmine Trustees Limited v Wells & Hind,(2) which explores the dichotomy where a "trustee[s] de son tort" (that is, trustees that have fiduciary responsibility for a trust by reason of conduct) are "trustees of the trust property which they happen to have vested in them; they are not trustees of the settlement". The court therefore agreed that the representor still held a fiduciary position in respect of the trust assets, notwithstanding its purported retirement, by which it had divested itself of its powers and discretions under the trust.
The court then discussed the language and effect of the trust's retirement and appointment provisions and agreed that the representor's unilateral retirement was valid. The court also noted that the terminology used contemplated a period of time where there would be no trustee appointed (ie, between trustees).
The court finally turned to the applicability of Article 51(2) – in particular, whether the representor, in having retired from the trust, retained its standing as a trustee for the purposes of the law – in making the application for its appointment. Citing Commissioner Clyde-Smith in In re BB,(3) it was agreed that the "definition… is wide enough to encompass a trustee de son tort". The court was content to assume this (and in the event that this assumption was incorrect, the court acknowledged that it would have granted leave to apply under Article 51(3) of the law regardless).
In light of the clear arguments propounded by counsel and on behalf of the representor, the court had "no hesitation" in exercising its power to (re)appoint the representor as trustee.
The case focuses on the distinction between a trustee's fiduciary responsibilities and its powers and discretions provided for by the terms of a trust. Further, it highlights the real prospect of a retired trustee finding itself in this unfortunate situation. Although the court's firm support of the representor's position and application is reassuring, the representor may have then had the difficult task of making consequential amendments to the terms of the trust, possibly in the absence of a replacement company.
This case is also readily applicable to the many Jersey trusts where a settlor reserves a power of appointment, or an employee benefit trust or pension scheme where a company retains a power of appointment of trustee, emphasising the importance of what happens in the event of the death of the settlor or liquidation of the settlor company.
For further information on this topic please contact Steve Meiklejohn or Matthew Freegard at Ogier by telephone (+44 1534 504 000) or email (firstname.lastname@example.org or email@example.com). The Ogier website can be accessed at www.ogier.com.
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