On 2 November 2012 the Trusts (Amendment No.5) (Jersey) Law came into force, making a number of changes to the Trusts (Jersey) Law 1984.

Whilst none of the amendments are particularly profound they are nevertheless significant in so far as they look to create greater certainty for both professional trustees and their clients in a number of areas where, to date, there has been some doubt. The net effect of the changes will, hopefully, be to make the administration of Jersey law trusts simpler and cheaper.

This article briefly reviews a number of the amendments which are likely to have the greatest impact upon practitioners, settlors and beneficiaries.

Interference by Foreign Courts

The existing Article 9 of (the Trusts (Jersey) Law 1984) provided, inter alia, that certain questions in relation to a Jersey law trust could only be determined in accordance with Jersey law and that no rule of foreign law would affect that question. Article 9 was tested in the Mubarak legislation and, generally speaking, was found sufficient to protect the Jersey law trust in that case from foreign judicial interference (even though the end result was a success for the plaintiff's wife, the decision was reached on the basis that the husband had consented to the alteration of the terms of the trust, not on the basis that the English High Court's order was enforceable in Jersey).

Amendment No.5 further strengthens the protection given to Jersey law trusts against foreign intervention. It does this by extending the list of "questions" relating to a Jersey law trust that may only be determined in accordance with Jersey law to expressly include (i) the purported exercise by a foreign court of any power to vary the terms of a trust and (ii) the nature and extent of any beneficial rights or interests in the trust property – both of which were central issues in the Mubarak litigation. The amendments also provide that foreign tribunal decisions (including arbitration) are caught as well as foreign judicial decisions, and go on to stipulate that not only can such decisions not be directly enforced in Jersey but also that they may not be "given effect to" to the extent that they are inconsistent with the revised Article 9.

As strengthening the pre-existing protections these amendments clearly demonstrate the legislature's commitment to maintaining the integrity of Jersey law trusts and, as such, should inspire confidence in existing and prospective settlors.

Simplifying Indemnities to Former Trustees

Practitioners will be all too familiar with the administrative headache created when the trusteeship of a Jersey law trust changes hands for the fourth, fifth or sixth time. The outgoing trustee will not only want an indemnity for itself relating to its time as trustee of the trust, but it may well be under a contractual obligation also to procure from the incoming trustee express indemnities in favour of each of the preceding trustees.

These indemnities must each be drafted in accordance with the relevant contractual obligations, the previous trustees must be tracked down and made parties to the relevant documentation (a process which creates further complications where they are individuals (especially if they are deceased or are now interdicts) or are companies that have merged or been dissolved)). In short the process is time-consuming and expensive.

Amendment No.5, however, revises the existing Article 34 of the Law in a way which will in most cases render this process unnecessary. An incoming trustee may now simply indemnify both the outgoing trustee and all former trustees without the need for the various former trustees to be contacted and made parties to the document because article 34(2A) now provides that, should the need ever arise, such former trustees may sue on those indemnities notwithstanding the fact that they were not parties to the documentation which created them.

Whilst similar statutory provisions exists in other jurisdictions for contracts in general, this is a new step for Jersey law and is greatly to be welcomed as potentially taking one of the major costs out of the transfer of the trusteeship of mature trusts.

Self-Contracting

It is not at all uncommon for two trusts which have the same trustee to need to enter into a transaction between themselves, such as a loan from one trust to another, or the assets of one trust being used to guarantee the obligations one of its beneficiaries may owe to another trust. If the trusts in question were companies this would not, of course, be a problem – companies have separate legal personalities and may sue and be sued in their own names. Trusts, however, are not separate legal entities. It follows that what is actually happening in these situations is that Trust Co.A (as trustee of the X Trust) is entering into a contract with Trust Co.A (as trustee of the Y Trust).

This causes a conceptual problem. One of the basic rules of contract law is that a person (in this case Trust Co.A) cannot contract with itself – since the logical conclusion would be to say that it could also sue itself. Does the fact that Trust Co.A is doing this in two different capacities make the purported contract legally permissible? Until now nobody has had the definitive answer – it has never been tested by the Jersey courts.

Amendment No.5, happily, now brings certainty to this area. The revised Article 31 of the Law makes it clear that Trust Co.A (or, for that matter, any other trustee) may legally contract with itself provided it is doing so as the trustee of two different trusts.

Trustee Remuneration

Finally, some good news for professional trustees! The position under Jersey law (as under English law) has always been that if a trustee accepts the trusteeship of a trust which does not contain express provision for the trustee's remuneration then he cannot be paid for his services. This is something that from time to time catches trustees out, particularly with older trust deeds which sometimes omit such a clause.

Amendment No.5 now, however, rides to the rescue by revising Article 26 of the Law to provide that a professional trustee may charge for his services (although only those provided after the coming into force of Amendment No.5) where the trust deed in question is silent on the point.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.