Asking for directions: Representation of SG Kleinwort Hambros Trust (CI) Limited and Others - Boodle Hatfield

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21 Nov 2023

Asking for directions: Representation of SG Kleinwort Hambros Trust (CI) Limited and Others

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Mark Lindley View profile
5 min read

The Jersey Court of Appeal recently considered the scope of the court's supervisory jurisdiction over trusts. 

The decision concerns Article 51 of the Jersey Trust Law 1984 (as amended), but may be of interest for those operating in all jurisdictions where the same or similar supervisory powers exist (including England and Wales). 

Background

The substantive proceedings relate to a number of family trusts. 

The settlor of the trusts died unexpectedly in 2019. The beneficiaries include his widow, his children from his first marriage and his children from his marriage to his widow.   A restructuring of the trusts was proposed to resolve issues that had arisen in relation to the ongoing administration.  The trustees intended to seek the court's 'blessing' of any final restructuring proposals, pursuant to the Article 51 jurisdiction.    

Often, in such cases, the trustee has formed a view as to its decision and seeks the court's approval of that decision.  In this case, however, the proceedings were initiated on the basis that the trustees would develop any restructuring proposals for the court's approval.

As part of this proposed process, the Jersey court gave directions which provided that, at a later hearing, the court would be "able to provide such non-binding observations and views as it may see fit" in relation to the restructuring proposals which the trustees would, by then, have developed.   

The question in the appeal was whether the court's directions in this case were outside of its powers. 

The Appeal

The Appellants queried inter alia:

  1. Whether the Royal Court had any jurisdiction to direct that it would give "non-binding observations and views" at a further hearing.
  2. Whether (if it did, technically, have such jurisdiction) the directions were nevertheless contrary to the so-called "non-intervention principle".

Discussion

In general, the approach to such applications in Jersey is similar to that taken in England and Wales, as set out in Public Trustee v Cooper[1]and other cases. 

The court's general power to supervise the administration of trusts, including to 'bless' proposed trustee decisions (or, more rarely, to take decisions for the trustees) sits in tension with the so-called 'non-intervention principle'. 

This principle was discussed in the decision of the UK Supreme Court in Lehtimäki:[2]

"The jurisdiction to intervene in relation to the discretionary actions of trustees is in general governed by the principle, known as “the non-intervention principle”, that (in the absence of evidence of breach of duty) the court does not intervene in the exercise by a fiduciary of a discretion."

However, as noted by the Jersey Court of Appeal in this case, the non-intervention principle:  

"…is not a rule of law, nor is it inflexible."

Decision

The Jersey Court of Appeal noted that, in this particular case, it was "entirely clear" that the Royal Court and the parties had been working all along on the basis that the court would be providing non-binding guidance as to restructuring proposals for the trusts. 

The Royal Court clearly had jurisdiction to give the directions it did, which were merely case-management directions and therefore it was misconceived to challenge them by an appeal. 

The 'non-intervention principle', which as discussed above was not a binding rule of law but rather a guiding principle, had not been departed from by the court, as the hearing had not yet taken place and no "non-binding observations and views" had yet been expressed. 

The appeal was therefore dismissed.  However, whilst not finding any basis on which to challenge the lower court's directions given in the proceedings, it is worth noting the concluding paragraph of the Jersey Court of Appeal's judgment:

"Whilst the Royal Court will always need to case manage trustee applications such as this, and the Court of Appeal will always respect the case-management decisions of the court below, nothing we have said in this judgment should be interpreted as an encouragement to first instance judges either to depart from the non-intervention principle or to express provisional views as to the substantive content of any possible restructuring in the generality of cases. Self-evidently, judicial decision-making must be, and must be seen to be, based on the best available evidence, which is a situation that is only reached at the end of a substantive trial. As a result, provisional views which have been formed at an earlier stage will not be fully informed and may accordingly be wrong. Equally importantly, any expression of such provisional views will risk giving the impression that the court’s mind is already made up before the evidence is complete. And, irrespective of how disciplined the judicial mind may be, human nature being as fallible as it is, there is always a risk that, having expressed a provisional view, the court will subconsciously be inclined to adhere to it even as further evidence and argument unfold. For these reasons, we would generally discourage the expression by the court of provisional views as to the content of any proposed restructuring."

There is significant flexibility for the court in such cases, but it is clear that the 'non-intervention principle' remains the starting point and that instances where the court will take a more muscular or pro-active approach to the trustee's decision-making process will remain the exception, rather than the rule. 

https://www.jerseylaw.je/judgments/unreported/Pages/[2023]JCA088.aspx

[1] [2001] WTLR 901, 922-924

[2] [2020] UKSC 33, para 36

Without a principled control over the approach that the court takes in choosing how to act, there would be an unwarranted risk of arbitrary and unpredictable outcomes.

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