Guernsey At The Centre Of Major Trusts Ruling
Friday, June 24, 2011
A long-awaited Privy Council judgment on a Guernsey trust case has overturned
decisions of the Royal Court of Guernsey and Guernsey Court of Appeal in a move
that is set to have a significant impact on how trust law is interpreted in
In one of the most important trust law cases to date, the Judicial Committee
of the Privy Council sat for two full days in December to hear the appeal by
Spread Trust Company Ltd against Hutcheson and others before ruling in favour
of the trustees on June 15, 2011.
Carey Olsen Advocate John Greenfield said the impact of the Hutcheson case
to English trust law, and similar trust law in common law jurisdictions, cannot
“I have had a number of City trust and chancery lawyers calling me waiting
for the judgement, knowing that this case would significantly impact on trust
law in the future,” he said.
“This is definitely Guernsey leading the world in testing case law and
providing a channel for change and, on a personal level, it is exciting to be
involved in something which has such a significant role in the future of trust
law around the world,” he added.
Acting for the beneficiaries, Greenfield said the case itself concerned the
effect of a clause in long-established Guernsey trust deeds seeking to exonerate
the trustees from certain liabilities, including gross negligence. The trust
was established before statutory legislation was brought in which prevented
trustees from building exoneration of this type into the trust deeds.
“At the heart of the matter is that the beneficiaries complained
that the trustees failed to adequately diversify investment of trust funds and
we argued that the trustees were in breach of trust by this action,” Greenfield
The Guernsey Court had ruled that the duty imposed on Guernsey trustees to
act “en bon père de famille” (as a good father) was incompatible
with the trustee at the same time seeking to exonerate itself from its own acts
of gross negligence by a provision in the settlement deed.
The Privy Council disagreed and has effectively ruled that trustees can be
exonerated from their own gross negligence without breaking the duties to act
“en bon père de famille”. The Privy Council effectively followed
English law in this area. The council’s decision clearly narrows the meaning
of this provision which has its roots in Norman customary law and is part of
Guernsey’s statutory legislation; it has reduced one long-established
distinction between English and Guernsey trust law.
“The Privy Council decision covers some very important
and complex issues of trust law that have significance not only for professional
trustees and legal practitioners in the Channel Islands but also in the United
Kingdom and elsewhere."
“The circumstances under Guernsey common law or customary law where a
trustee could lawfully exclude its liability from a breach of trust had never
previously been determined. The English Court of Appeal had ruled upon this,
for English law purposes, in the 1998 case of Armitage v. Nurse."
“However there are a significant number of trust specialists who believe
that the wrong decision was reached in the Armitage case and it has not been
robustly endorsed. The very fact that these issues are finely balanced is reflected
in the split decision (3:2) of the judges."
"It is highly unusual for the Privy Council to not give a unanimous judgement."
“The case will be a major aid to legal advisors in assessing the chances
of a claim being successful against trustees. For trustees themselves that exoneration
clause, depending on where the trustees’ conduct comes in on the sliding
scale, looks as though it will indeed be worth the paper it is written on."
“It took the council six months to consider and deliver its ruling which
indicates just how important they believed their judgment would be.”