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19 October 2017
The Jersey Royal Court's recent decision in Y Trust and Z Trust(1) provides welcome guidance with respect to Article 47 applications to vary a trust. In particular, the court considered the interplay between a settlor's wishes and the court's assessment of 'benefit', a point which it had never previously considered. The decision also examines Article 47 applications alongside public policy considerations affecting a modern society.
The application related to two trusts governed by Jersey law. The terms of both trusts prohibited children born into certain relationships from forming part of the beneficial class. These restrictions affected, among others, children of same-sex relationships and children of unmarried parents. These restrictions were the catalyst for the variation application brought in the case at hand.
The family in question had given the matter a significant amount of time and thought before bringing the application. Although they had great respect for the settlor's views, they felt that those views were out of step with modern thinking and the family was unified in its decision that the trusts' terms should more closely reflect modern moral and familial constructs. Accordingly, the revised definitions placed before the court provided for:
The family's chosen mechanism was both to widen the scope of the beneficial class and to create a family council to consider those who may still fall outside the definitions, but who should be considered family.
The significant wealth in the two trusts meant that all those within the beneficial class would be well provided for. Therefore, the court did not consider any dilutive effect of widening the class to be a material factor.
The primary objective of the family's approach was to preserve family unity and harmony. They were acutely aware of the potential divisiveness of wealth and wished to avoid this. The court considered this approach to be extremely laudable.
The court also considered the fact that existing family beneficiaries might, in the future, find that those whom they consider to be their children cannot benefit. It was in the interests of minor, unascertained and unborn family beneficiaries that their children should be entitled to benefit.
The court granted the order, varying the respective definitions of the beneficial class set out in the Y Trust and the Z Trust, accepting that it would benefit those minor, unborn and unascertained beneficiaries for whom the court provided consent.
In granting the application, the court considered the following principles.
Article 47 of the Trusts (Jersey) Law 1984 (as amended) provides the court with jurisdiction to approve an arrangement on behalf of – among others – minors, unborns and unascertained beneficiaries, provided that the court is satisfied that the arrangement is for the benefit of those beneficiaries and that the case is a fit and proper one in which to exercise its discretion.
On the issue of 'benefit', the court referred to the seminal case of In re Osias Settlements,(2) in which Tomes DB accepted the principle that in deciding whether an arrangement is for a person's benefit, the court should consider the matter as a whole, and that the word 'benefit' was not to be interpreted in a strictly financial sense.
The case considered the approach that the court should adopt if the settlor's (or testator's) wishes run contrary to the assessment of benefit. The court was willing to consider English cases under the Variation of Trusts Act 1958 due to the similarities with Article 47 of the law. The court referred to the English cases of Goulding v James(3) and Pemberton v Pemberton(4) and found that the consistent theme of those English decisions was that the court, in considering whether to exercise its discretion, would take into account – but did not necessarily follow – the settlor's wishes (but only where those wishes were relevant to the question of whether the proposed arrangement benefited those for whom the court was concerned).
An exception was made in the case of protective trusts whereby the court may rely on the settlor's or testator's reasons regarding why the court should withhold its consent to the proposed arrangement, as the reason for imposing the protection still exists.
Having considered this issue in detail – not least because the interplay between a settlor's wishes and the assessment of benefit had not been considered in Jersey before – the court accepted and applied the English courts' analysis. Accordingly, where a court is satisfied that a proposed arrangement is beneficial to those on whose behalf it is asked to approve the variation, the fact that the variation might contravene the wishes of the settlor or testator is immaterial. The court's role is not to stand in as, or for, a settlor in varying the trusts.
A second issue considered by the court during the course of this application was the extent to which public policy considerations should factor into the exercise of the court's discretion in Article 47 applications. The court confirmed that policy reasons could influence its approach to an exercise of its discretion.
The applicable public policy argument would be the potential benefit to Jersey's trust industry of enabling practitioners to reassure putative settlors that their wishes would be enforced by the Jersey courts.
The court ultimately concluded that the public policy point could be excluded from its consideration of the application for the following reasons:
In short, the court confirmed that any public policy argument regarding the benefit to Jersey's trust industry of the court enforcing settlors' views was outweighed by the policy statement on Jersey's stance on issues such as those addressed in the abovementioned legislation and the international treaties which bind Jersey. The court confirmed that in respect of Article 47 applications that are brought before it, rights will be adjudicated in accordance with the law, but that with regard to policy considerations, "the Court's policy is one of tolerance towards and acceptance of the rights of others, acting within the law, to live their lives as they see fit".
Y Trust and Z Trust provides welcome additional guidance with regard to benefit and the factors that the court will consider when determining whether to exercise its discretion and grant its consent on behalf of minors, unborns and unascertained beneficiaries.
The case also provides valuable insight into the court's approach to public policy considerations. The case has been proven to be pivotal in pushing a modern agenda through the court and, in doing so, has enabled the court to confirm its tolerant approach.
For further information on this topic please contact Edward Mackereth or Liana Pallot 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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