Jersey sets trustee trend

As any budding legal student will tell you, the concept of the trust emerged in England during the Crusades as a means of ensuring that the promises of departing knights were properly honoured by those to whom they entrusted their property.

Perhaps less well-known is that Jersey, despite having its legal roots in French civil law (or maybe because of it), placed a skilfully drawn codification of English trusts law into its statute in the mid-1980s. The Trusts (Jersey) Law 1984 quickly became the envy of other jurisdictions and has since become something of a model law, emulated time and time again by jurisdictions around the world.

Traditionally, trust formation and management have been something of a mainstay for Jersey's financial services industry. The jurisdiction also has a well-developed legal and financial infrastructure as well as a formidable body of local jurisprudence.

With such a well-established trusts industry, and a growing reliance on corporate work, trust litigation is something of an inevitability (total trust assets looked after on the island exceed £500bn, excluding collective investment funds).

In the 30 years since it was enacted, the trusts law has only been amended six times. The latest amendment, the Trusts (Amendment No. 6) (Jersey) Law 2013, very much maintains the tradition of innovation, clarity and, of course, equity. It works to codify into statute Jersey's existing jurisprudence on mistake (in the trusts context) and on the so-called rule in Hastings-Bass.

The effect of the amendment is to confirm the Royal Court's ability to provide discretionary relief in a number of trust scenarios, for example where a settlor has made an error in settling assets into trust, or where a trustee has erred in exercising a power, perhaps failing to take into account matters that should have been considered, or acting on incorrect professional advice.

Powers and discretions

Trustees commonly have certain powers or discretions, for instance in relation to the management and distribution of the trust assets. The Hastings-Bass rule enables the court to set aside a trustee's exercise of such a power or discretion if the trustee "failed to take into account relevant considerations which it ought to have taken into account, or took into account considerations which ought properly to have been disregarded".

Unlike many other international finance centres, Jersey has a rich heritage of case law in this area, which was, until recently, aligned with developments in the UK courts. However, in 2011 the English Court of Appeal heard two 'Hastings-Bass' cases (Pitt v Holt and Futter v Futter). The Court of Appeal decided in these cases that the 'rule in Hastings-Bass' should be confined to very limited circumstances.

Responding to that judgment, Jersey decided that it would prefer to retain the rule in its unconstrained form and, accordingly, introduced 'Amendment 6' to provide clarity to the Royal Court and to practitioners dealing with Jersey law trusts. This policy decision remained unaffected by the subsequent confirmation of the Court of Appeal's position by the UK Supreme Court.

Even with its reputation for regulation of Jersey trustees and robust continuing professional development, mistakes do occur sometimes. In such circumstances, being the first jurisdiction in the world to settle into statute the so-called 'rule in Hastings-Bass' and its existing law on mistake, can give trustees and beneficiaries a statutory ability to apply for discretionary relief. In doing so, it provides an alternative to 'blame game' litigation.

It will, of course, not always be appropriate to appeal for this discretionary relief and, no doubt, there will be instances where the relief is refused. However, the feeling in Jersey was that it was right and important for the option to be available.

Geoff Cook is the CEO of Jersey Finance

He writes a regular blog about Jersey for Private Client Adviser