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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 the future.

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 be overstated.

“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 said.

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.

Greenfield continued:

“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.”