Truly Momentous? In which circumstances are trustees justified in seeking the blessing of the Court for a decision they have made?

A recent decision in the Jersey Courts, Representation of Zedra Trust Company (Suisse) SA re C and D Trusts [2023] JRC 213 provides a clear analysis of the circumstances in which trustees are justified in seeking the blessing of the Court for a “momentous decision” they have made.

Trustees, whilst often given very broad powers, particularly in relation to a discretionary trust, may face a situation where, before implementing a difficult decision they have reached (potentially giving rise to the possibility of significant claims), they seek the approval of the Court, which gives them protection from actions by disappointed beneficiaries.

In England and Wales, the decision in Public Trustee v Cooper [1999] All ER (D) 1524 clarified that between the mere interpretation of the deed on the one hand and the trustee’s total surrender of discretion on the other, the court has the jurisdiction to consider the trustee’s decision making process and to confirm that the decision itself is not a breach of trust so long as full disclosure has been made by the trustee.  In reaching his decision, Mr. Justice Hart relied on a judgment of Robert Walker J. in an unreported 1995 case in which Walker J. held that trustees may seek direction from a court in four categories of cases.

In the recent Zedra decision, the trustees relied on the second category, which is

“where the issue is whether the proposed course of action is a proper exercise of the trustees’ powers where there is no real doubt as to the nature of the trustees’ powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers. Obvious examples of that, which are very familiar in the Chancery Division, are a decision by trustees to sell a family estate or to sell a controlling holding in a family company. In such circumstances there is no doubt at all as to the extent of the trustees’ powers nor is there any doubt as to what the trustees want to do but they think it prudent, and the court will give them their costs of doing so, to obtain the court’s blessing on a momentous decision.”

The facts of the Zedra case are as follows:

• The Original Trusts were established to benefit the Settlor’s spouse, his three sons (Mr B, Mr C and Mr D), as well as any male issue of the Settlor’s sons born within the trust period of the Trusts.
• The Settlor had executed a letter of wishes (in the 1970s) stating that the Trusts should benefit his male line only, to the exclusion of the female line, and that the beneficial class should not be changed
• In 2017, following consultation with the family, a restructuring exercise was undertaken in order to create new separate trusts for each family branch. This exercise included the creation of two new trusts for the family line of Mr C and two new trusts for the family of Mr G (namely Mr B’s issue -Mr B having died in 2016) .  The Original Trusts were retained for the benefit of Mr D and his family line.
• The Trusts, which were the subject of this application (the C Trust and the D Trust), were established for the benefit of Mr C and his male living and remoter issue. Mr C has one adult son (Mr F) and three adult daughters.  Accordingly, the current beneficiaries of the Trusts are Mr C, Mr F and any future or remoter male issue of Mr C, to the exclusion of Mr C’s daughters and their issue (male or female).
• The Trustee held the power to add beneficiaries and to vary the Trusts. With the support of Mr C and Mr F, the Trustee sought the court’s blessing to vary the provisions of the Trusts so as to allow for the addition of female beneficiaries and to add Mr C’s wife and his female issue as beneficiaries. The objectives behind this were to enhance family harmony, reduce the potential for dissension and to ensure that future generations of the family (whether male or female) could benefit.

In the Jersey Court, the test to be applied on application for the blessing of a momentous decision was described by the Court of Appeal in Representation of Otto Poon [2015] JCA 109 (at paragraph 14) as follows:

“Where a trustee has made a momentous decision, that is, a decision of real importance for the trust, and seeks the court’s approval for the decision, the legal test to be applied by the court is well established in this jurisdiction.  As explained in Re S Settlement [2001] JLR N.37 the court must satisfy itself (i) first, that the trustee’s decision has been formed in good faith, (ii) second, that the decision is one which a reasonable trustee properly instructed could have reached, and (iii) third, that the decision has not been vitiated by any actual or potential conflict of interest.”

The Representor (the Jersey equivalent of the Appellant) was seeking to address the discriminatory provisions in the Trust deed and while there is little authority in Jersey on the approach to be taken in such cases, the decision in In the Matter of the Y Trust and the Z Trust [2017] (1) JLR 266, in which the Royal Court considered the variation of trusts to enable the children of unmarried or same-sex parents to be added to the beneficial class, in circumstances where they had been expressly excluded by the settlor, provided helpful guidance.

Mr. C and Mr. F (the male beneficiaries who stood to benefit alone, should the claim not succeed) supported the application. In reaching their decision the Court observed:

“We accept, as does the Representor, that their decision is contrary to the views expressed by the Settlor in his letter of wishes. However, whilst it is appropriate to have regard to the Settlor’s views, it is equally appropriate to take into account the views of the current beneficiaries.  The views expressed by the Settlor would appear to be reflective of the culture and values of a different community in a different country in the 1970s, and it is reasonable for the trustees to conclude that they are not reflective of the culture, values and lifestyle of the current living beneficiaries (all of whom live in Country Y) as demonstrated by their support for the Trustee’s decisions.  A dynastic trust is likely to have to provide for a number of generations and, as the philosophy of the family changes, it is appropriate for consideration to be given as to whether it reflects that philosophy and, if it does not, whether any changes are appropriate. In the case of these Trusts, we can see that to continue to exclude the female line could well lead to family disharmony.”

and happily, for all, concluded:

“In the circumstances we regard the decisions taken by the Representor as having been formed in good faith, within the range of decisions which a reasonable trustee, properly instructed, could reach, and not vitiated by any conflict of interest.  We were accordingly content to approve those decisions.”

Paul Whitehead and Rebecca Whitehouse have recently obtained the Jersey Court’s blessing to allow the Settlor of a Trust (who had been irrevocably excluded) to be added as a discretionary beneficiary (on the basis that it was a momentous decision).

If you would like further information please get in touch with your usual contact at MTG, or email info@mtgllp.com.

This note does not contain or constitute legal advice, and no reliance should be placed on it.