Trust Law Changes in Guernsey

In last year’s review, I wrote about changes to the Jersey Trust Law, and what were then proposals to change the equivalent Guernsey law. Since that article, the changes in Guernsey have been incorporated into new trust legislation (the Trusts (Guernsey) Law, 2007) which was approved by the Guernsey parliament, the States of Deliberation, in July 2007. The legislation is currently with the Privy Council for approval, and it is hoped that it will come into force early next year.

The major changes in the new law are detailed below.

Non-charitable purpose trusts

One of the most significant changes is the introduction in Guernsey of noncharitable purpose trusts. Under the new legislation, it is made clear that trusts established to hold property or to exercise functions without any beneficiaries will be valid and enforceable. The person tasked with enforcing them is someone called an “enforcer”.

Rather than bringing in a completely separate regime for purpose trusts - a route preferred by certain other jurisdictions such as Cayman and the BVI - Guernsey has simply revised the law to remove the requirement for there to be beneficiaries to a trust, and, as I suggested last year, the new rules mirror those which have been in place in Jersey for some time now.

Purpose trusts are used to act as special purpose vehicles in corporate transactions. They also are commonly employed to incorporate private trust companies which, in turn, act as trustees to specific trusts (or group of trusts). Private trust companies in Guernsey may apply to the Guernsey Financial Services Commission for a discretionary exemption from licensing. As part of the exemption process, the Commission will normally impose restrictions on the activities of the company to prevent it providing services to the public.

Removal of limits on the length of a trust’s duration

There was a rule in Guernsey that trusts could last no longer than 100 years. That has now (as in Jersey) been abolished (save for existing trusts), so any new trusts established after the law comes in may have perpetual existence.

Even with the new law, there is nothing to stop a trust’s being for limited duration, where, for example, it is necessary to consider the application of a foreign rule against perpetuities in relation to the transfer of assets from a foreign trust to a Guernsey trust.

The revised legislation also permits assets to be decanted from one trust to another, even where the second trust is of a longer duration than the first, putting an end to the ongoing debate amongst local practitioners as to whether this was allowed under the old law.

Clarification of the position of retiring trustees

In last year’s article, I mentioned the attempts to clarify the extent to which outgoing trustee is entitled to security for any liabilities it incurs once it has gone, which relate to its trusteeship, but which it cannot recover from the trust assets, because they are no longer in its possession.

The new law in Guernsey creates a non-possessory lien over trust assets in favour of the retiring trustees, and simplifies the ability of a previous trustee to enforce an indemnity given in its favour where it is not a party to the document by which the indemnity is given. This should facilitate speedy changes of trustee, and will minimise the need to revert to the cumbersome chains of indemnities that are often required at present in cases where there have been successive changes in trustee. The process of negotiating indemnities of this nature has, at times, become laborious and occasionally slows down the whole transfer process.

The lien will also be available where assets are distributed to a beneficiary, and when the assets are paid out on termination of the trust.

Disclosure of information to beneficiaries

The new law has been drafted in such a way that the terms of the trust may expressly exclude discretionary beneficiaries’ rights to information, but without denying the overriding right of any beneficiary to apply to the court for information. The person seeking the information which the settlor has taken the trouble to deny him would have the burden of proving why disclosure was necessary. Those behind the drafting of the law say that the objective of this change is not to routinely deny beneficiaries information, but to protect the position where a settlor is genuinely concerned that certain information should be kept confidential from beneficiaries until, for example, they have demonstrated an ability to provide for themselves. It remains the case that the trustee must be accountable for his trusteeship.

It is suggested that this tips the balance unfavourably against beneficiaries; rights to information are often habitually excluded for no good reason other than that is the convention. It seems unfair in those cases (as distinct from other situations, such as employee benefit trusts, where there may be legitimate reasons for confidentiality) to force a beneficiary to go to Court to have the matter determined, even if (as seems likely) the trustee would in some cases be penalised in costs if it was found it should have disclosed.

The other change is to include letters of wishes with the class of documents protected from disclosure as being part of the trustee’s decision-making process. The reason for this change was provided in the Bathurst case in Guernsey, which said letters of wishes were disclosable.

Abolition of liability of directors of corporate trustees

I also mentioned last year that it was proposed to abolish the rule under the old law that directors of corporate trustees based in Guernsey or acting as trustees of Guernsey law trusts are personally liable as guarantors in respect of damages or costs awarded against the corporate trustee for breach of trust. The new law repeals this clause in its entirety.

We were told that there was evidence that advisers were steering private trust companies to other jurisdictions since family members and advisers, invited to sit on the board of such companies, were not prepared to accept the liability imposed under the old legislation. It was this evidence which led to the change.

This rule has also gone in Jersey, but, unlike Jersey, directors in Guernsey will remain personally exposed in relation to any breach of trust claim initiated before the Royal Court prior to the date when the new law comes into effect. In Jersey, in the case of Alhamrani, it was accepted that the new law removed any liability in all cases, except where judgment had been entered prior to the change.

Forced heirship, and so on

The new law strengthens the protection of Guernsey trusts by making it clear that, some limited exceptions aside, Guernsey law alone will decide the validity of Guernsey trusts and other matters, such as the extent of the trustee’s powers, and so on. We now have new rules, designed principally with foreign matrimonial orders in mind, to ensure that Guernsey trusts cannot be affected by orders made by foreign Courts which are inconsistent with Guernsey law.

There were always rules of this kind covering forced heirship, but other issues such as sham claims, transactions to defeat creditors, and variation orders are now also covered.

In my article last year, I referred to the Minwalla case in Jersey and expressed scepticism that even the Channel Island Courts would be prepared to uphold the supremacy of local law in every case. That scepticism proved well-founded as in the Jersey case of Re. B Trust, the Jersey Court reviewed the equivalent law in Jersey, and was prepared to uphold an order of the English Matrimonial Court varying a Jersey law trust on the grounds of jurisdictional comity.

The attitude which the Guernsey court adopts to its own rules remains to be seen.

Conclusions

Other changes, such as the introduction of a settlor-reserved power regime (similar to that in Jersey, which I discussed in my previous article) have been introduced. For the most part, the changes are welcome, being intended to confirm Guernsey’s reputation as a premier offshore trust centre.