THE HHH EMPLOYEE TRUST [Royal Ct]

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: Clyde-Smith, Commr. and Jurats Le Breton and Milner
• Judgment Date: 28 June 2012
• Date: 28 June 2012

ROYAL COURT

Clyde-Smith, Commr. and Jurats Le Breton and Milner

A.D. Hoy for the representor;

E.C.P. Mackereth for the second respondent.

Cases cited:

(1) B Settlement, In re, 2010 JLR 653, considered.

(2) Bathurst (Countess) v. Kleinwort Benson (Channel Islands) Trustees Ltd., [2007] WTLR 959, considered.

(3) Bird Charitable Trust, In re, 2008 JLR 1, considered.

(4) Freiburg Trust, In re, 2004 JLR N [13]; [2004]JRC056, considered.

(5) Imperial Group Pension Trust Ltd. v. Imperial Tobacco Ltd., [1991] 1 W.L.R. 589; [1991] 2 All E.R. 597; [1991] I.C.R. 524; [1991] I.R.L.R. 66, dicta of Browne-Wilkinson, V.-C. applied.

(6) Londonderry's Settlement, In re, [1965] Ch. 918; [1965] 2 W.L.R. 229; [1964] 3 All E.R. 855, referred to.

(7) Mettoy Pension Trustees Ltd. v. Evans, [1990] 1 W.L.R. 1587; [1991] 2 All E.R. 513, referred to.

(8) Murphy v. Murphy, [1999] 1 W.L.R. 282; [1998] 3 All E.R. 1, referred to.

(9) Prudential Staff Pensions Ltd. v. Prudential Assur. Co. Ltd., [2011] Pens. L.R. 239; [2011] EWHC 960 (Ch), applied.

(10) Rabaiotti 1989 Settlement, In re, 2000 JLR 173, referred to.

(11) S v. L, 2005 JLR N [34]; [2005]JRC109, considered.

(12) 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, considered.

(13) Spellson v. George (1987), 11 NSWLR 300, considered.

Legislation construed:

Trusts (Jersey) Law 1984 (Revised Edition, ch.13.875, 2007 ed.), art. 2: The relevant terms of this article are set out at para. 29.

art. 51(2): "The court may, if it thinks fit—

(a) make an order concerning—

.?.?.

(iii) a beneficiary or any person having a connection with the trust .?.?."

Text cited:

Lewin on Trusts, 18th ed., para. 14-41, at 487-489; para. 23-102, at 842; para. 23-104, at 844; paras. 29-15 - 29-17, at 986-987; para. 29-45, at 998; para. 30-56, at 1136 (2008).

Trusts—employee benefit trust—powers of employer—under Trusts (Jersey) Law 1984, art. 51(2)(a)(iii), settlor/employer with fiduciary powers under employee benefit trust (e.g. to appoint new trustees) is "person having connection with trust"—court also has jurisdiction over fiduciaries under inherent jurisdiction to supervise and, if appropriate, intervene in administration of trusts—beneficiary entitled to seek disclosure from fiduciary (other than trustee) only of information held in connection with fiduciary duties—general trust information to be sought from trustee

A beneficiary sought disclosure against the trustee and settlor of a trust.

The second respondent ("the settlor"), a multinational company, created a trust in 1998 for the benefit of its employees. The first respondent was the trustee of the trust and also of sub-trusts created under it. Under the trust, the settlor had powers (i) to remove trustees and appoint one or more persons as new or additional trustees; (ii) to appoint any person as protector; and (iii) with the consent of the trustee, to amend any provision of the settlement (of an administrative nature) in its application to trust assets. The representor, B, had been employed by the settlor between 1992 and 2005 and was therefore a beneficiary under the trust. In 2000, the trustee created the B sub-trust for the benefit of B and his family, the value of which, in 2009, was approximately US$30m.

B was concerned that neither he nor his family could obtain any benefit from the sub-trust without a very substantial liability to UK income tax and national insurance, contrary to representations allegedly made to him by the settlor before contributions were made to the trust and as a result of certain decisions subsequently made by the trustee and/or the settlor. There had been discussion in open correspondence about the possibility of the settlor removing the trustee and appointing a new trustee but, having been advised that there would be serious tax risks, the settlor declined to do so.

B's first draft representation sought the removal of the trustee; the appointment of a new trustee; an order that an account be taken of the losses of the sub-trust due to the trustee's actions; and the payment to B of the amount found to be due. The representation brought before the court sought only extensive disclosure against both the trustee and the settlor to enable B to obtain the necessary advice regarding the tax implications of his interest in the sub-trust, and an order for wasted costs. B subsequently filed an amended representation, out of time, which included hostile claims against the settlor and the trustee. It alleged false representations on the part of the settlor and claimed that, as a consequence of the false representations and of certain failures by the trustee, B had lost the opportunity to enter into beneficial tax planning strategies. Damages were sought against the settlor and the trustee, as well as disclosure. B was granted leave to file a re-amended representation, from which the hostile claims were, once again, removed and which sought only disclosure from the settlor and the trustee. The Royal Court directed that the application for disclosure against the settlor should be dealt with separately from that against the trustee.

The disclosure sought from the settlor was very wide-ranging, including inter alia the trust deed and all deeds of variation, amendment or addition and all deeds of appointment and retirement; and communications between the settlor and the trustee. B claimed that he required the information to make informed decisions as to what to do with the sub-trust but also to understand whether he had any claims against the settlor arising from the explanation (or lack of it) of the burden of taxation.

The settlor considered that disclosure for the latter purpose would amount to pre-action disclosure. It accepted that there was no principle preventing a beneficiary, who was concerned about the actions of his trustees or actually contemplating hostile action, from independently exercising his right as a beneficiary to seek disclosure under art. 51 of the Trusts (Jersey) Law 1984, but where, as in the present proceedings, a hostile action was contemplated, an application under art. 51 required careful scrutiny to ensure that the beneficiary did not thereby obtain pre-action disclosure.

The parties agreed that the settlor was not a trustee for the purposes of the Trusts Law but that the court had jurisdiction over it under art. 51(2)(a)(iii) as a person "having a connection with the trust." They agreed that B was entitled to disclosure of material held by the settlor in connection with its fiduciary powers under the trust and that the settlor's powers (i) to remove and appoint trustees; and (ii) to appoint a protector were fiduciary. They disagreed as to the nature of the settlor's power of amendment. The settlor submitted that that power was merely a limited power and it was entitled to consider its own interests as employer when deciding whether to exercise it, whereas B submitted that the power would be illusory if it were not fiduciary.

To the extent that the material sought from the settlor could have been obtained from the trustee, B submitted that the settlor should be required to disclose that material to show that, in accordance with its obligations as a fiduciary, it had kept itself fully informed as to the administration of the trust.

Held, declining to order the settlor to make disclosure:

(1) The settlor had retained two fiduciary powers under the trust, namely the power to appoint a protector and the power to appoint and remove trustees. Its power to amend was a limited power. An employer's rights and powers under an employee benefit trust were subject to the implied obligation of good faith, namely the special duty of an employer not knowingly to injure the relationship of trust and confidence that ought to exist between employer and employee. An employer was not prevented from considering its own interests when deciding how to exercise its powers, but it could not set limits to the benefits provided for members for any collateral purpose without regard to their legitimate expectations. In the present case, when deciding whether to propose amendments to the trust, the settlor was entitled to consider its own interests as employer, provided it had regard to the reasonable expectations of the beneficiaries. It had its own interests, financial or otherwise, in the future operation of the scheme to protect. Thus, the consent of the trustee was required to any proposed amendments, because, as a fiduciary, the trustee was solely concerned with the interests of the beneficiaries. The fact that the settlor could consider its own interests did not render the power to amend illusory ( paras. 27-28).

(2) The settlor was not a trustee as defined under art. 2 of the Trusts (Jersey) Law 1984, i.e. it did not hold or have vested in it property of which it was not the owner in its own right. Article 29 of the Law, which dealt with disclosure by a trustee, did not therefore apply. As the settlor had retained fiduciary powers under the trust, however, the court had jurisdiction over it under art. 51(2)(a)(iii) of the Law, as a person "having a connection with the trust," and also under its inherent jurisdiction to supervise and, if necessary, intervene in the administration of trusts, which extended to control over any person undertaking a fiduciary role under a trust. The mere fact that the settlor might possess information relating to the trust was not a sufficient ground for requiring it to disclose that information to someone interested in the trust such as a beneficiary. It would be undesirable if a settlor's reservation of certain fiduciary powers under a trust potentially exposed it to onerous disclosure obligations at the suit of beneficiaries or objects of a trust as if it were a trustee with stewardship of trust property. The disclosure obligations of a...