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Trust restrictions or the Court’s supervisory jurisdiction: which will win?

Published November 2015

When a trust deed contains an apparent restriction on the exercise by the Court of its supervisory jurisdiction, what approach is the Court likely to take?

This issue has cropped up recently in two, quite separate, situations.

  • In Bermuda, where the trust deed contained a restriction on disclosure of information: Re application for information about a trust [2015] WTLR 559
  • In Jersey, where the trust deed contained what appeared to be an exclusive jurisdiction clause: Crociani v Crociani [2015] WTLR 975

Re application for information about a trust: a matter of construction

In Re application for information about a trust a beneficiary sought disclosure of trust information from the Trustees.  Clause 9.2 of the trust deed contained a wide information control mechanism in the following terms:

“…except to the extent that the Trustees (with the prior written consent of the Protector) in their discretion otherwise determine no person or persons shall be provided with or have any claim right or entitlement during the Trust period to or in respect of accounts (whether audited or otherwise) or any information of any nature in relation to the Trust Fund or the income thereof or otherwise in relation to the Trust or the trusts powers or provisions thereof…”

The Protector refused his consent to disclosure of trust information without giving reasons.

Kawaley CJ, sitting in the Supreme Court of Bermuda, noted that it is an irreducible core obligation inherent in a valid trust that the supervising court should always be able to enforce a beneficiary’s right to obtain sufficient information to ensure the due administration of the trust. Against this background, he asked whether clause 9.2 was invalid for violating this core obligation. He held that it was not. Clause 9.2 was construed on the basis that it did not purport to exclude the Court’s supervisory jurisdiction over the Trust. A contrary construction would require “plain words” to justify its adoption, and those words were missing from clause 9.2. The Court of Appeal of Bermuda agreed.

In his judgment Kawaley CJ provides valuable guidance on the correct approach to construction of a clause that engages the fundamental rule that the jurisdiction of the Court to supervise a trust cannot be ousted by a settlor. He held that rather than reading the plain words of a trust deed as if they were rigidly cast in stone, they must be read in a more “pliable purposive manner” with a view to giving effect not just to the settlor’s manifested intention but also his implied (or presumed) intention to create a valid trust which does not oust the supervisory jurisdiction of the Court. This approach was held to apply notwithstanding the fact that the beneficiary had positively agreed to the inclusion of an information control mechanism in that case.

Crociani v Crociani: a question of weight

The details of Crociani v Crociani have been summarised in the March 2015 edition of this Legal Digest. The Privy Council was principally concerned with whether, on a true construction, the trust deed contained an exclusive jurisdiction clause in favour of the courts of Mauritius.

What is of interest for present purposes, however, is that the Board went on to consider whether, if the trust deed had contained an exclusive jurisdiction clause in favour of the courts of Mauritius, proceedings for breach of trust and consequential relief should nevertheless proceed before the Royal Court of Jersey. The Board held that the proceedings should continue in Jersey.

The Board took the view that the weight to be given to an exclusive jurisdiction clause in a trust deed is less than the weight to be given to such a clause in a contract. While recognising that a beneficiary who wishes to take advantage of a trust could be expected to accept that he or she is bound by the terms of the trust, the Board considered that this was not a commitment of the same order as a contracting party being bound by the terms of a commercial contract. Unlike a contract, in the case of a trust the Court has an inherent jurisdiction to supervise the administration of the trust. While this does not confer upon the Court a freewheeling unfettered discretion to do whatever seems fair when it comes to trusts, the fact that the Court has a power to supervise, primarily to protect the interests of beneficiaries, represents a clear and significant distinction between trusts and contracts.

Conclusion: the supervisory jurisdiction triumphs

There is a tension in play in many trusts between two fundamental principles. First, the settlor has freedom to declare trusts on the terms he or she thinks fit, and a beneficiary, being a mere volunteer, can choose to accept those terms or disclaim. Second, a trustee is accountable for the exercise of its powers: if the beneficiaries of a trust have no rights enforceable against the trustees, there is no trust (Armitage v Nurse [1998] Ch 241).

What we have following the decisions in In the matter of an application for information about a trust and Crociani v Crociani is guidance on the approach the Courts are likely to take when the drafting of a trust deed brings this tension into play.

The interesting point in both of these cases is the highly flexible approach that the Courts were willing to take in their treatment of the express wording of the trust deeds, in order to find space for the operation of the supervisory jurisdiction. The decisions highlight, on the one hand, the Courts’ reluctance to declare a trust to be invalid, and on the other hand, their desire to ensure that beneficiaries have meaningful access to the jurisdiction of the Courts notwithstanding attempts by the settlor to limit that access.

Written by Emily McKechnie

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