serlespeakISSUE NO.5

welcome to the new edition First, it is well established that for a the form of the instrument but may of Serle Speak. This time the trust to exist there must be enforceable consider external including subject is trusts. The edition rights and obligations as between the evidence as to the settlor’s intention. begins with my article on the beneficiaries and the trustees. As Millett Having regard to the evidence external characterisation of trusts as LJ stated in Armitage v Nurse [1998] to the trust agreements, Ground CJ Ch 241 at 253: inter vivos or testamentary, concluded that it was not the intention of the settlor to fetter his unhindered “If the beneficiaries have no rights particularly where the settlor control and enjoyment of the settled enforceable against the trustees there retains control. Richard assets during his lifetime, that he are no trusts.” Walford also discusses the did not have the necessary intent to position of the settlor, this The trusts declared in Articles I and create a trust during his lifetime and time in relation to a settlor’s II to take effect during the settlor’s in consequence the trust instruments power to appoint protectors. lifetime were void on the face of the were testamentary dispositions revoked Elsewhere Giles Richardson documents for want of enforceability/ by his subsequent marriage. accountability. As Ground CJ stated looks at the problems faced by trustees in respect of ancillary The modern trend (in particular in at paragraph 29: relief and bankruptcy proceedings, and Dakis Hagen considers offshore jurisdictions) is to maintain an important development in the of knowing receipt and “my primary conclusion is that the the validity of declared trusts, but limitation. Finally, Professor Jonathan Harris addresses the concatenation of rights and powers as Q v Q demonstrates there is an tensions between EU law and the engagement of English in the settlor, when coupled with the irreducible core of obligations owed courts with offshore trusts. Frank Hinks QC fact that he was the sole trustee at the by the trustees to the beneficiaries time of the constitution of the Trusts, and enforceable by them which is rendered this trust illusory during his fundamental to the concept of a trust lifetime. …… the cumulative effect of and an inter vivos trust can fail as the trust documents, when taken with an invalid or revoked testamentary Trusts ineffective the de facto situation, means that the disposition. settlor as trustee could not effectively An interesting issue is whether the be called to account during this lifetime. combination of the settlor as sole Crucial to this conclusion is Art.VIII as testamentary trustee, the settlor as sole beneficiary H, which allows the settlor to absolve during his lifetime and the settlor himself as trustee from any and all retaining power of revocation would breaches of trust.” dispositions have been sufficient to render the The consequence of there being no trusts declared in Articles I and II void on their face without Article VIII H. The A document which in outward form is an inter vivos trusts effective during the settlor’s mere retention of power of revocation disposition may be a “testamentary disposition” and lifetime was that the remaining trusts will not normally of itself render a trust hence subject to the Wills Acts. (which were stated on the face of the trust instruments to take effect from a testamentary disposition even if the settlor’s death) were testamentary the settlor is sole beneficiary during In the anonymised Bermudan case of issue in Article III were expressly stated in nature. Normally in this situation the his lifetime provided the trustees are Q v Q [2010] the purported settlor was to come into effect upon his death: trusts determined to be testamentary persons other than the settlor. If the a businessman who wanted to settle during his lifetime no one but himself in nature fail for want of due execution settlor is sole trustee there are in reality company shares on two inter vivos could benefit. Most remarkably (and in accordance with the Wills Act. In this no enforceable obligations prior to his trusts for his issue, but reserving to fatally for the purported trusts) Article case by an unusual chance the settlor death: he can prevent any claim by himself complete benefit and control VIII H provided that the written approval signed the trust agreements twice, other beneficiaries against himself as during his lifetime. The trusts although by the settlor of any trust transaction once as donor and once as trustee. trustee by revoking the trusts and does expressly governed by Bermudan during his lifetime should be a complete Each signature was witnessed by a not owe any enforceable obligation law were in US form with the settlor release of the trustee (including the different person, each such person towards himself as beneficiary. as donor purporting to with settlor) of any liability or responsibility of probably being present at the same Nevertheless, in the light of the modern himself as sole trustee but in substance the trustee to any person with respect time and hence, at least arguably attitude of maintaining the validity of declaring himself trustee. By Article to the transaction: retrospectively or execution complied with testamentary trusts Q v Q may be treated by future I he reserved power to revoke or prospectively the settlor could bless formalities. This was not enough to courts as limited to its special and amend the trusts in whole or in part by any transaction carried out by himself save the trusts: they were revoked by rather unusual facts and given only instrument signed by himself as donor as trustee even if effected fraudulently the settlor’s second marriage which limited application. and delivered to himself as trustee. By or in bad faith contrary to the interests was subsequent to the execution of the Article II he was entitled to the entire of all beneficiaries other than himself Frank Hinks QC was Leading trust agreements. net income during his life and to so and hence in flagrant breach of trust. Counsel for the Plaintiffs in Q v Q much of the capital as the trustee (i.e. Secondly, in determining whether an successfully arguing for invalidity. Ground CJ held that the trusts failed himself) should in the trustee’s absolute instrument is a testamentary disposition He specialises in domestic and on two alternative bases. discretion determine. The trusts for his the court is not limited to considering international trusts.

chancery commercial They always offer an excellent, focused team Chambers & Partners

Calling a divorcing beneficiary’s bluff

An unexpected but not infrequent issue facing trustees “suffering anything to be done” in the context of ancillary relief proceedings where which has the effect of preferring only one spouse (usually still the husband) is within someone – here his (former) the trust’s beneficial class is a threat by that spouse spouse; to declare him or herself bankrupt. (2) that person must be a creditor or surety or guarantor of his at the This often appears to be an effort to So simply seeking his own bankruptcy time the preference is given; and thwart a proposed appointment of trust will not assist the spouse determined to monies to the wife or release security evade what he or she regards as “their” (3) he must have been influenced by held by the trust over in the trust benefitting their former spouse. a desire to prefer his spouse. husband’s name. Such threats, even What would happen, however, is that if carried out, ought not of themselves The trustee and preferences the trustee would appoint funds to authority – and sound principle to deflect the trustee from proceeding Whilst this is so, nonetheless the spouse having taken a decision – against the proposition that a to make the appointment or to release beneficiary-spouses have sought to in which the beneficiary would play spouse with a mere expectation the security (if approved by the Court). dissuade trustees from taking steps no part and which he is powerless to of receiving ancillary relief was in relation to ancillary relief orders by The impact of bankruptcy on stop, in circumstances where he has a creditor within the provision: more sophisticated arguments. In ancillary relief orders protested against any benefit being see Re Jones [2008] BPIR particular, he may argue that action conferred at all. Given this, it seems 1051 and the commentary on In the first place, this is because the by the trustee to release security or extremely unlikely that any preference section 340(4) and (5) in Sealy bankruptcy process is in fact irrelevant appoint funds in favour of a spouse claim could succeed: & Milman’s Annotated Guide to to the ancillary relief process. True it is would be a preference in her favour. Insolvency Legislation. that, once a bankruptcy process has (1) the beneficiary would not thereby The relevant statutory provision been completed, a bankrupt will obtain have “suffered” anything to be Given the above, threats by a in England is section 340 IA. his discharge from bankruptcy. The done; beneficiary to cause his own effect is to free him from “bankruptcy bankruptcy can generally be regarded In brief summary of this section, (2) he had not been influenced debts”. But by section 281(5) of the with equanimity by trustees faced with there are a number of fundamental by a desire to prefer his wife Insolvency Act 1986 (“IA”), discharge the manifold other complications which requirements of the jurisdiction which (notwithstanding the rebuttable does not of itself release the bankrupt arise when ancillary relief proceedings would have to be satisfied before a presumption in subsection (5)); from a bankruptcy debt arising under involving a beneficiary are begun. preference would be found to exist: and an order made in family proceedings. Giles Richardson regularly “Family proceedings” are then defined (1) the beneficiary himself will have (3) if the ancillary relief order had acts for and advises trustees in as including matrimonial causes. had to have given the preference not yet been made, the trustee relation to a wide range of trust issues. by doing something himself or in bankruptcy would face firm What you don’t Protector know can’t hurt you appointments:

The Royal Court of Jersey in Bagus Investments Does the settlor owe Limited v Kastening has recently handed down a valuable judgment on knowing receipt and the related law of limitation fiduciary duties?

Bagus Investments and Dr Wilfried Many trust deeds empower the settlor to nominate the Kastening had both been clients Protector of the settlement. But does the settlor owe of a company administrator which fiduciary duties in relation to this power? had gone under because of . Bagus alleged that it could trace funds stolen from it to monies A typical Protector nomination which had been in the hands clause might be: of Dr Kastening. “… the first members of the Board of Dr Kastening was sued under Protectors shall be appointed by the the no-fault restitutionary principle Settlor by written nomination which recognised in Re Esteem. But then, may be revoked by the Settlor at any nearly 13 years after the event, the time or times during his lifetime … “ plaintiff sought to amend to claim knowing receipt. Bagus pleaded In re the T Financing Trust (a that Dr Kastening had feared that, The court recent case in the Royal Court of first, the monies he had received approached with Guernsey, which settled prior to could be frozen, and second that final judgment), questions arose as he could be pursued for repayment. rigour what the to whether this provision imposed Although he did not have actual a duty to appoint, or a power to defendant must appoint, and if the latter, whether it ...it was submitted knowledge of the particular that the settlor was transaction in breach of fiduciary be alleged to was purely personal or fiduciary in nature. Since this form of wording entitled to appoint duty, he had allegedly failed to make have known enquiries. Further it was contended did not impose any sort of obligation as Protectors that there was no limitation period. on the settlor, it became common whoever he wanted, voice… the overwhelming likelihood ground that this was a power. irrespective of their Dr Kastening resisted the is that English law considers that ability or objective amendment successfully. class 2 constructive trustees… are Whilst the members of the Board The case engaged the much- not trustees for the purposes of … of Protectors, once appointed, appropriateness. debated distinction between class the Limitation Act”. After comparing clearly owed fiduciary duties in the 1 constructive trustees (persons English to Jersey legislation he held manner in which they exercised their had to be given by the settlor to all who take possession of trust that the similarities were such as to functions under the trust deed, it was relevant factors when making his property assuming obligations provide a “strong basis” for applying submitted that the settlor was entitled decision, and it was suggested that to others) and class 2 constructive the class 1/class 2 reasoning to its to appoint as Protectors whoever he the Court had the power to intervene trustees (persons who receive interpretation. wanted, irrespective of their ability if it had doubts about the process by property only following an unlawful or objective appropriateness. (It which the nomination was made. Further the Bailiff held that the transaction impugned by the was not, however, suggested that pleading did not meet the necessary The correct approach to this question plaintiff). Dr Kastening said that the settlor might emulate Caligula standard; it inadequately set out Dr is to consider the construction, the statutory provision preventing and seek to appoint a horse!) Kastening’s knowledge of the original nature and scope of the power: if trustees from pleading limitation fraudulent payment. The court thus The exercise of the power, whilst in the function of a power is crucial to in fraud and conversion cases approached with rigour the test in a sense being undertaken on behalf the proper running of the trust as only applied to class 1 constructive BCCI v Akindele, focusing on what of another (the trust/its beneficiaries), a whole and for the welfare of the trustees. Dr Kastening, if liable, the defendant must be alleged to did not carry with it or give rise to beneficiaries as a whole, or if a failure was in class 2. Bagus said that the have known. Receipt of assets a relationship by which trust and or refusal to act could jeopardise the authorities were not settled on the traceable to a breach of fiduciary confidence were reposed in him, proper administration of the trust, point. Also, Bagus submitted, there duty plus generalised allegations of nor did it impose on the settlor any then it is likely that the power would was a Jersey provision whose effect unconscionability will, it seems, not obligation of loyalty to any person be held to be fiduciary in nature. But was to deem a knowing recipient be enough for a sustainable claim. or class of persons as to whether it is suggested that the appointment a trustee for limitation purposes. to exercise the power and if so how. of a Protector is not of itself crucial Dakis Hagen advised Birt B held that while the authorities to the proper running of the trust. Dr Kastening, the successful As against this, it was submitted had “not invariably spoken with one respondent. that the Protectors had such an Richard Walford acted important role in relation to the trust for the principal beneficiaries in that full and proper consideration this substantial trust dispute. Offshore trusts and the straightjacket of EU Law

Recent years have seen heightened tensions about the English courts’ perceived interference with Chambers Jersey law trusts. One contributory factor is the English courts’ desire for one-stop resolution of divorce and ancillary relief claims. The perceived news notion that England is the divorce capital of Europe might suggest that the proper response is to send People Court of Appeal Civil Division for forum shopping spouses packing. four years before stepping down We are pleased to be able to earlier this year. announce that since our last The UK’s position as an EU Member Serle Speak Conor Quigley QC, We were also delighted that State has, however, removed much a specialist EU law silk has become Christopher Stoner QC and Michael of its power to control proceedings; a tenant and Sir Mark Waller, Edenborough QC were both owing to a range of European former Vice-President of the Court successful in this year’s Queen’s Regulations (not binding in Jersey). of Appeal Civil Division, has joined Counsel appointment round; The so-called Brussels II bis our Alternative Dispute Resolution Christopher specialises in property Regulation ((EC) No 2201/2003) Panel as an arbitrator and mediator. litigation and sports disciplinary on jurisdiction in matrimonial matters and regulatory matters and Michael requires an English court to entertain Conor was called to the Bar practises in all areas of IP. divorce proceedings in a very broad in 1985 and took silk in 2003. range of circumstances. Outside the His practice covers all areas of Directories context of divorce, the Judgments European Union law, including Regulation ((EC) No 44/2001) has legislation (e.g. Re B; Mubarak). State aid (in which he is regarded The 2010 Legal 500 directory was been interpreted by the ECJ in an In England, there have been nods as a leading expert), competition published in September and we ever more literalistic way, which has in the direction of greater respect law, public procurement law, tax have had another excellent year. progressively stripped the English for Jersey trusts (e.g. the English law, and other EU-related aspects As a set we are recommended courts of their powers to control Mubarak proceedings); but little of commercial law. in ten practice areas: Banking forum shopping. They are, for real restraint in varying them. and finance, Commercial litigation, Notable recent cases include instance: unable to stay proceedings The English courts have, however, Company, Fraud: civil, Insolvency, Louca v A German Judicial brought against defendants domiciled increasingly offset the strictures of Media, entertainment and sport, Authority, one of the first judgments in England, even in respect of foreign their jurisdiction rules by referring Partnership, Private client: to be delivered by the UK Supreme law trusts (Owusu); and largely to the need to have a “sideways look” personal tax, trusts and , Court, and White v The Crown in powerless to prevent breaches of (Wilson LJ in C v C (Ancillary Relief: Professional negligence and the Court of Appeal. He has been trusts jurisdiction and arbitration Nuptial Settlement)) at foreign law in Property litigation. Individually we instructed in many important cases clauses in other Member States ancillary relief proceedings. And whilst increased our recommendations before the European Court of (Gasser; Turner; and West Tankers). the European tidal wave of private again and now have an impressive Justice and the higher UK courts, This presents the English courts international law initiatives shows 104. and has also represented clients with the tightest of jurisdictional no sign of relenting, the UK has the in investigations and complaints We are extremely grateful to all straightjackets. option of not participating. Hence, the UK has not opted into the European before the European Commission our clients for recommending Conversely, Jersey must compete Commission’s recently proposed and the OFT. us so highly. against ever more extensive offshore Succession Regulation (which might Sir Mark Waller was called to firewall legislation designed to Awards compel English courts to apply the bar in 1964 and took silk in protect local law trusts. Indeed, foreign rules of clawback in respect of 1979. He was a member of 1 So far this year we have received no sooner had Jersey enacted new Jersey law trusts) but will continue to Hare Court (which later merged nominations for Chambers of firewall legislation in Article 9, Trusts participate in negotiations - in pursuit with Serle Court) with a substantial the Year at the Legal Business (Amendment) Law 2006, than the of a compromise that might reconcile commercial practice. He was Awards and the STEP Private Guernsey legislature produced its its commitment to the European appointed a Justice of the High Client Awards. We have also been own revised firewall provision (section internal market with its relationship Court (Queens Bench Division) recognised again at the Chambers 14, Trusts (Guernsey) Law 2007). to offshore trusts jurisdictions. in 1989, sitting mainly in the & Partners Bar Awards; Alan Boyle How might these tensions be PROFESSOR Jonathan Commercial Court, being judge in QC was named as Chancery Silk bridged? In Jersey, whatever the Harris is an editor of Dicey, Morris charge of that court, before being of the year and chambers was legislation might say, there is an and Collins, The Conflict of , made a Lord Justice of Appeal in nominated for Chancery Set of understandable reluctance to assist advisor to the Ministry of Justice 1996. He was Vice-President of the the year. spouses who rely upon firewall on the EU Succession Regulation provisions to escape their financial and was instructed in Charman v responsibilities. This has led to some Charman and Mubarak v Mubarik. Edited by Jonathan Fowles creative interpretation of Jersey

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