31 October 2018

Flexibility and innovation – trust legislation in Guernsey

Much of Guernsey's economic success over the past 50 years or so has been largely due to its adaptability and flexibility to react to changing market situations and conditions. This adaptability is no better illustrated than by the island's willingness to amend and review legislation to ensure that it retains its position within the increasingly competitive market place of international finance and over recent years there have been many examples of this.

Trusts have been established in Guernsey for more than 160 years and the provision of trustee services has been a mainstay of the local economy for the past 50 years or so despite the fact that trusts do not form part of Norman law from which Guernsey customary law is, in part, derived. The trust is, in origin, an English law concept, developed by English judges and, subsequently, by the courts of those countries whose law is, or is derived from English law. Nevertheless, the concept of a trust and the accompanying duties of a trustee and rights of a beneficiary had been recognised in Guernsey long before the first general statutory intervention was made with introduction of the Trusts (Guernsey) Law, 1989.  This was intended to be a modern and flexible statutory framework which confirmed Guernsey's status as a leading international centre for trust administration.

Apart from minor changes in 1990 there were no revisions to the trust legislation until the introduction of the Trusts (Guernsey) Law, 2007 which replaced rather than revised the earlier legislation. Among other things, the law:

  • permitted the establishment of trusts for non-charitable purposes making it clear that trusts to hold property or to exercise functions without conferring a benefit on any person were valid;
  • expressly authorised the reservation or grant of certain powers by or to a settlor or third parties;
  • removed the previous 100 year time limit for a trust allowing perpetual trusts to be created;
  • created a non-statutory lien over trust assets in favour of retiring trustees to circumvent the need for chains of indemnities in proper cases; and
  • clarified the circumstances in which information may have to be given to beneficiaries.

That legislation has served the island and those using it as a platform for wealth administration very well and some of the innovations introduced then have since been adopted in other jurisdictions. The fiduciary sector in Guernsey has continued to flourish and the island continues to attract family offices and those using trust service providers who are attracted to the environment with its experienced trust practitioners, professional support, well-respected regulatory regime, the rule of law and its capable accessible and responsive judiciary.

Nevertheless, the Trust Committee of the Guernsey Bar are considering proposed revisions which they will be recommending to the Committee for Economic Development. The issues currently being proposed include:

  • the introduction of rules effecting the automatic vesting of trust property in successor trustees;
  • the abolition of the rule against self-dealing so as to make clear that a trustee of one trust may contract with itself as trustee of another trust – so as to facilitate, for example, trustees making enforceable loans between trusts they administer;
  • expanding the role of alternative dispute resolution in the resolution of trust disputes;
  • the introduction of a statutory power so as to confer upon the Royal Court a power to set aside the exercise of a fiduciary power in circumstances where the power holder failed to take into account relevant considerations of law or fact or took into account irrelevant considerations where the consequence was but for that error the power would not have been exercised or would have been exercised differently. In other words, to introduce a statutory Hastings  Bass test as that case was understood before the Supreme Court decision in Pitt v Holt (2013); and
  • various other minor revisions to the legislation.

It is not thought that these changes will be revolutionising the legislation. No revolution is needed. The statutory framework provided by the 2007 law remains fit for purpose – the continuing success of the jurisdiction is evidence of that – but these proposals are what might be regarded as more akin to fettling.  The proposals remain at present just that and so other suggestions for legislative reform are welcome.