The B, C and D Settlements

CourtCourt of Appeal
JudgeMcNeill, Martin and Montgomery, JJ.A.
Judgment Date22 December 2010
Date22 December 2010
McNeill, Martin and Montgomery, JJ.A.

Ms. N.L.M. Langlois for the appellants;

D.M. Cadin for the trustee;

S.J. Young for the third and fourth respondents.

Cases cited:

(1) Broere Trusts, In re, 2003 JLR 509, considered.

(2) Butt v. Kelson, [1952] Ch. 197; [1952] 1 All E.R. 167, considered.

(3) C.A. Settlement, In re, 2002 JLR 312, considered.

(4) Esteem Settlement, In re, 2001 JLR N [8], applied.

(5) IMK Family Trust, In re, 2008 JLR 250, referred to.

(6) Internine Trust, In re, 2006 JLR 195, referred to.

(7) Key Trust, In re, 2003 JLR 437, referred to.

(8) S v. L, 2005 JLR N [34]; [2005] JRC 109, dicta of Birt, Deputy Bailiff considered.

(9) Schmidt v. Rosewood Trust Ltd., [2003] 2 A.C. 709; [2003] 2 W.L.R. 1442; [2003] 3 All E.R. 76; 2001-03 MLR 511; [2003] UKPC 26, referred to.

(10) United Capital Corp.Ltd. v. Bender, 2006 JLR 269, applied.

Legislation construed:

Trusts (Jersey) Law 1984 (Revised Edition, ch.13.875, 2007 ed.), art. 51: The relevant terms of this article are set out at para. 36.

Text cited:

Lewin on Trusts, 18th ed., para. 29-301, at 1104 (2008).

Trustspowers of courtdisclosure of trust informationwide supervisory power under Trusts (Jersey) Law 1984, art. 51(2)(a)(iii) to make order concerning beneficiary or person "having connection with trust"requires direct connection with trust relationship between trustee and beneficiarymay make order concerning beneficiary if affects beneficiary in that capacity"connection with trust" if direct and immediate connection with trust relationship (e.g. settlor, protector or potential object of discretionary trust)power not to be used to circumvent corporate trust structurecannot order director of company indirectly owned by trust to disclose information for purposes of execution and administration of trust

A trustee sought a disclosure order against certain beneficiaries, who were directors of companies partially or totally owned by a company which was itself wholly owned by the trustee.

Three brothers, now deceased, had each settled on discretionary trusts (the D Settlement, the B Settlement and the C Settlement) his interest in a joint business operated through six Irish companies. The families of each brother were the principal beneficiaries of each settlement, although to a greater or lesser extent each family also had a beneficial interest in the other settlements. The shares in the Irish companies were mostly held through a Jersey company, all the shares of which were held by the representor, the trustee of the three settlements. The appellants were the directors of the Irish companies and also beneficiaries under the D Settlement (and, to a lesser extent, under the other settlements).

In 2001, the beneficiaries of the B and C Settlements raised concerns as to the management of the Irish companies by the directors. The trustee commenced an investigation into the affairs of the companies but the directors refused to disclose all the information requested and maintained that there was no further information to be given. The trustee took certain measures, including temporarily procuring the appointment of sufficient new directors of three of the companies to give it, indirectly, a majority at board level, and obtaining an amendment to the articles of association of two others so that, on a request by a shareholder majority, those companies would provide the relevant information. A chartered accountant's report concluded that "potentially excessive" directors' remuneration and secretarial and administrative expenses had been paid by the companies, although the remuneration was on balance justified, and that there were potential tax liabilities associated with the excessive payments.

The trustee convened the parties to a hearing at which it proposed that an order be made requiring the appellants to provide information about the affairs of the Irish companies. The trustee surrendered its discretion to the Royal Court because it considered that a number of conflicts prevented it for the foreseeable future from performing any of its functions in relation to the settlements. The Royal Court accepted the surrender and exercised its power under art. 51(2)(a)(iii) of the Trusts (Jersey) Law 1984i.e. to "make an order concerning?.?.?. a beneficiary or any person having a connection with the trust"to order the appellants to disclose information concerning the Irish companies (that decision is noted at 2010 JLR N [29]). The appellants sought leave to appeal against the disclosure order.

There was a dispute between the trustee and the beneficiaries of the B and C Settlements as to which of them, if either, should resist the appeal. In the event, the court was addressed by advocates for both the trustee and the beneficiaries of the B and C Settlements.

Held, granting leave to appeal and allowing the appeal:

(1) The appellants would be granted leave to appeal and the appeal would be allowed because the Royal Court's order fell outside the proper scope of the jurisdiction conferred by art. 51(2)(a)(iii). Although that provision was expressed in the widest possible terms with no apparent limit on the type of order that could be made, provided it concerned a beneficiary or a person having a connection with the trust, as the purpose of art. 51 was to provide a general power to supervise and intervene, if necessary, in the administration of trusts, the jurisdiction conferred by art. 51(2)(a)(iii) could only be exercised in respect of a beneficiary or a person having a connection with the trust if the issue at stake involved a direct connection with the trust relationship between trustee and beneficiary. An order could therefore only be made under art. 51(2)(a)(iii) concerning a beneficiary if the order affected the beneficiary in his capacity as a beneficiary of the trust the administration of which the court was supervising. The fact that a person was a beneficiary would not, of itself, be sufficient to justify the making of an order under art. 51(2)(a)(iii); the order had to be made for the purpose of vindicating or at least promoting some right or interest arising directly from the trust relationship. Similarly, a person would only be a person having a connection with the trust if he had a direct and immediate connection with the relationship between trustee and beneficiary constituted by the trust instrument (e.g. a settlor, protector or potential object of a discretionary power). That he merely had knowledge of the existence of a trust would not suffice, nor could the test properly be framed in terms of his proximity, although that was clearly a relevant factor. The Royal Court's order in the present case fell outside the scope of art. 51(2)(a)(iii) because it ignored the fact that the appellants owed no duty of disclosure to the trustee or beneficiaries arising directly out of the trust relationship. In their capacity as beneficiaries, the appellants had no right to the documents of the Irish companies. In their capacity as directors of those companies, they had the ability to procure the documents but their duties as directors were owed to the companies and not to the trustee or beneficiaries. The fact that the trustee indirectly held an interest in the Irish companies was insufficient to make the appellants persons having a connection with the trust. Trustees who operated through a company structure could not ignore the limitations which that structure imposed and could not invoke the art. 51(2) jurisdiction to circumvent it. The existence of the company structure interposed a separate and distinct relationship between the trustee and the appellants, so that the trust relationship was not the relevant relationship between them. It was not, therefore, permissible to make an order against the appellants under art. 51(2)(a)(iii) either on the basis that they were beneficiaries or that they were persons having a connection with the trust ( paras. 38-46).

(2) If, however, the appellants continued to refuse to provide information the Royal Court considered to be relevant to achieving a proper division of the settled assets, that court could authorize the trustee to pursue further information through the mechanism in the articles of association of two of the companies; to bring proceedings against the appellants in Ireland to recover sums overpaid, with further disclosure being provided in the course of the litigation; or to draw inferences against them and order a distribution on a basis that made assumptions about the benefits they had obtained from the Irish companies ( para. 47).

(3) The Royal Court should be extremely reluctant to accept a surrender of discretion by a trustee in circumstances such as those in the present case, i.e. when the trustee considered in effect that it could not for the foreseeable future perform any of the functions of trustee in relation to the settlements so that, by accepting the surrender, the court put itself in the position in which it would be obliged to occupy the position of trustee not only in respect of a particular exercise of discretion but generally. Trustees were entitled to expect the assistance of the court in cases of genuine difficulty but should not ordinarily be permitted to abdicate responsibility for carrying out their functions. They had accepted the office on the terms of the trust instrument and were not entitled to hand over performance of the trusteeship to the court. A surrender of discretion should be regarded as a last resort and would normally only be accepted by the court in relation to a specific exercise of discretion where there was no sensible alternative ( para. 27).

(4) Leave to appeal against a decision of the Royal Court made following a surrender of discretion by a trustee, where the complaint was that the discretion had been wrongly exercised, would be granted if the applicant demonstrated a clear case of something having...

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