Guernsey Trusts Conference 2015 - Andrew Holden presentation

Slides from the breakout session of Andrew Holden, Barrister at XXIV Old Buildings

Transcript

1. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event THE  REMOVAL  OF  TRUSTEES AND  FIDUCIARIES Are  you  sitting  comfortably (in  the  ejector  seat)? ANDREW  HOLDEN Barrister,  XXIV  Old  Buildings,  Lincoln’s  Inn
2. ©  Andrew  Holden  2015
3. 3 “I  like  not  that  a  man  should  be  ambitious  of  a  trust   when  he  can  get  nothing  but  trouble  by  it” Lord  Nottingham Uvedale  v  Ettrick  (1682)  2  Cas  in  Ch  130,  131 ©  Andrew  Holden  2015 INTRODUCTION
4. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Express  power  of  removal • Court's  jurisdiction  to  remove • Topics: l Basic  legal  principles l Guernsey  law  position l Tips  for  incumbent  trustee • Cases  – 1  v  old  and  2  v  new! INTRODUCTION ©  Andrew  Holden  2015
5. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Express  power  of  removal • Trusts  (Guernsey)  Law  2007: “(4)  A  trustee  ceases  to  be  a  trustee  immediately  on  – (a)  his  removal  from  office  by  the  Royal  Court,   (b)  his  resignation  taking  effect,  or   (c)  the  coming  into  effect  of,  or  the  exercise  of  a  power  under,   a  provision  in  the  terms  of  the  trust  under  or  by  which  he  is  removed from  or  otherwise  ceases  to  hold  his  office” EXPRESS  POWER  OF  REMOVAL ©  Andrew  Holden  2015
6. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Express  power  in  trust  instrument • Removal  vs  replacement • Powerholder: l Protector l Settlor  during  his  lifetime l Beneficiaries EXPRESS  POWER  OF  REMOVAL ©  Andrew  Holden  2015
7. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Limits  on  exercise  of  power: l Formalities  (deed,  writing  etc.) l Time  limits l Trigger  conditions  ('refuses  or  is  unfit  to  act') • Fraud  on  the  power • Duties  of  powerholder EXPRESS  POWER  OF  REMOVAL ©  Andrew  Holden  2015
8. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Duties  of  powerholder: l Generally  power  to  appoint  trustees  is  fiduciary  power l Fiduciary  power  =  range  of  obligations: l Good  faith l Act  rationally l Take  into  account  all  and  only  relevant  considerations EXPRESS  POWER  OF  REMOVAL ©  Andrew  Holden  2015
9. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • 2  Jersey  law  trusts • Original  protector  =  Father • Assets  =  Father's  family  wealth • Bens  =  2  sons  and  1  daughter • Letters  of  wishes: l Take  into  account  Father's  wishes l After  death,  divide  into  3  pots RE  PIEDMONT  &  RIVIERA  TRUSTS  [2015]  JRC  196 ©  Andrew  Holden  2015
10. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Father  fell  out  with  Daughter • 2010:  New  letters  of  wishes:  2  pots! • Jan  2014:  Father  purports  to  replace  T'ees with  Kairos • Feb:  T'ee seeks  due  diligence • Mar:  Unsatisfactory  responses  from  Kairos &  aggressive  exchange • Apr:  T'ee applies  for  directions RE  PIEDMONT  &  RIVIERA  TRUSTS  [2015]  JRC  196 ©  Andrew  Holden  2015
11. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Jun:  Father  resigns  as  Protector  of  R  Trust  – Sons  appointed • Jul:  Resigns  as  Protector  of  P  Trust  – Bens  appoint  Sons • Dec:  Sons  purport  to  remove  Kairos • Daughter  challenges  Kairos  &  Sons'  appointments • Father  purports  to  'withdraw'  Kairos'  appointment! RE  PIEDMONT  &  RIVIERA  TRUSTS  [2015]  JRC  196 ©  Andrew  Holden  2015
12. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Kairos:  Failure  to  take  into  account  relevant  considerations: l Delay  in  due  diligence l No  info  to  show  expertise  in  trust  administration l Owned  100%  by  one  individual l No  info  re  insurance  cover,  capital  base l No  info  re  careers  /  experience  of  directors l No  internet  presence l NZ  on  other  side  of  world  make  comm more  difficult l Took  into  account  irrelevant  consideration: l Preferable  to  move  to  jurisdiction  'white  listed'  by  Italy  – NZ l Wholly  irrelevant  as  bens  didn't  reside  in  Italy RE  PIEDMONT  &  RIVIERA  TRUSTS  [2015]  JRC  196 ©  Andrew  Holden  2015
13. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Protectors:  Appointment  was  irrational: l US  litigation  between  Sons  and  Daughter l Inc.  complaint  of  breach  of  fiduciary  duty l Sons  not  independent  of  Father l Signed  documents  disenfranchising  Daughter's  shares  and  land l Sons  sided  with  Father  in  dispute l Breakdown  in  relations:  Sons  helped  Father  prepare   'General  Release'  – would  have  stripped  Daughter  of  rights l Acrimony  and  lack  of  communication l Would  have  led  to  impossible  situation l Regular  Court  involvement RE  PIEDMONT  &  RIVIERA  TRUSTS  [2015]  JRC  196 ©  Andrew  Holden  2015
14. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Duty  to  find  'right  person  for  job'  – including  by  beneficiaries • Wide  ambit  of  discretion  – but  cannot  be  obviously  inappropriate • Key  question  is  effect  on  administration  of  trust • Tips  for  trustees: l Q  is  whether  power  exercised  properly l Entitled  to  be  satisfied l Reasonable  due  diligence  appropriate l Views  of  beneficiaries  relevant l Application  to  court  in  cases  of  genuine doubt ©  Andrew  Holden  2015 EXPRESS  POWER  OF  REMOVAL
15. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Court's  inherent  jurisdiction  to  remove: l s.69(1)(a)(ii)  Trusts  (Guernsey)  Law  2007 l Welfare  of  beneficiaries l Bases  for  removal  of  a  trustee: l Misconduct l Conflict  of  interests l Breakdown  in  relations  with  beneficiaries  /  hostility  /   'loss  of  trust  and  confidence':  Letterstedt v  Broers (1884)  9  App  Cas 371 ©  Andrew  Holden  2015 REMOVAL  BY  COURT
16. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Jacob  Letterstedt:  Swedish  immigrant  to  Cape  Colony.  Died  1862. • Brewing  distiller  /  malting  business  -­ Mariedahl  and  Cape  Town. • Will: l 3  executors:  Spengler;;  Hederius  &  'Board  of  Executors' l Business  to  be  carried  on  after  death  by  managers l Profits:  4/6  daughter,  1/6  Mariedahl  manager,  1/6  Cape  Town  manager l Executors  to  appoint  replacement  managers ©  Andrew  Holden  2015 LETTERSTEDT  v  BROERS  (1884)
17. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Executors  – 3  votes  and  act  by  majority • Annual  accounts  /  independent  'commissioners' • D.  1862.  Spengler  d.1863.  Hederius d.1866. • Daughters'  guardians  in  Sweden. • Directors  of  Board l Manager  of  Cape  Town l Commissioners ©  Andrew  Holden  2015 LETTERSTEDT  v  BROERS  (1884)
18. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Daughter  turns  21: l Litigation  seeking  c.£28,000  (multi  million) l Settlement  to  31  Dec  1872:  £21,000  plus  costs l Liquidation  accounts • Further  claim: l Wide  allegations  of  fraud  /  breach  of  duty  &  challenge  to  accounts l Application  to  remove ©  Andrew  Holden  2015 LETTERSTEDT  v  BROERS  (1884)
19. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Privy  Council  (Lord  Blackburne): l Removal  of  trustees l Cases  of  misconduct  – no  hesitation  in  removal l But  not  limited  to  misconduct  – key  test  is  welfare  of  beneficiaries  &  proper   administration  of  trust l No  reported  cases  because... ©  Andrew  Holden  2015 LETTERSTEDT  v  BROERS  (1884)
20. “As  soon  as  all  questions  of  character  are  as  far  settled  as  the  nature  of  the  case  admits,   if  it  appears  clear  that  the  continuance  of  the  trustee  would  be  detrimental  to  the   execution  of  the  trusts,  even  if  for  no  other  reason  than  that  human  infirmity  would   prevent  those  beneficially  interested,  or  those  who  act  for  them,  from  working  in   harmony  with  the  trustee,  and  if  there  is  no  reason  to  the  contrary  from  the  intentions   of  the  framer  of  the  trust  to  give  this  trustee  a  benefit  or  otherwise,  the  trustee  is  always   advised  by  his  own  counsel  to  resign,  and  does  so.  If,  without  any  reasonable  ground,   he  refused  to  do  so,  it  seems  to  their  Lordships  that  the  Court  might  think  it  proper  to   remove  him;;  but  cases  involving  the  necessity  of  deciding  this,  if  they  ever  arise,   do  so  without  getting  reported.  It  is  to  be  lamented  that  the  case  was  not  considered   in  this  light  by  the  parties  in  the  Court  below,  for,  as  far  as  their  Lordships  can  see,   the  Board  would  have  little  or  no  profit  from  continuing  to  be  trustees,  and  as  such   coming  into  continual  conflict  with  the  appellant  and  her  legal  advisers,  and  would   probably  have  been  glad  to  resign,  and  get  out  of  an  onerous  and  disagreeable  position.   But  the  case  was  not  so  treated”. ©  Andrew  Holden  2015 LETTERSTEDT  v  BROERS  (1884)
21. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Board  removed  as  trustees: l Checks  and  balances  intended  by  Testator  failed l Board  had  included  a  sum  of  £4,396  12s.  3d  in  liquidation  accounts: l Had  been  disallowed.  Board  not  guilty  of  concealment. l BUT  deliberate  attempts  to  “try  somehow  or  other  to  get  remuneration  of  which   they  conceive  themselves  to  have  been  unjustly  deprived” l Vexatiously  opposed  inquiry  into  accounts ©  Andrew  Holden  2015 LETTERSTEDT  v  BROERS  (1884)
22. “It  is  quite  true  that  friction  or  hostility  between  trustees  and  the  immediate   possessor  of  the  trust  estate  is  not  of  itself  a  reason  for  the  removal  of  the  trustees.   But  where  the  hostility  is  grounded  on  the  mode  in  which  the  trust  has  been   administered,  where  it  has  been  caused  wholly  or  partially  by  substantial   overcharges  against  the  trust  estate,  it  is  certainly  not  to  be  disregarded” l Possible  trust  for  minors  in  future l So  appropriate  in  all  circumstances  to  remove l Costs  borne  by  each  side ©  Andrew  Holden  2015 LETTERSTEDT  v  BROERS  (1884)
23. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • 131  years  later  in  Guernsey... • Removal  of  a  protector • McMahon  DB: l Letterstedt  v  Broers applies  to  protector  in  fiduciary  position l “it  is  the  welfare  of  the  beneficiaries  and  the  competent  administration  of  the  trust   in  their  favour  that  found  the  jurisdiction  for  the  removal  of  a  trustee  and  so,   by  analogy,  a  protector.  I  am  satisfied  that  it  is  appropriate  for  the  Court  to  adopt   the  same  approach  as  a  matter  of  Guernsey  law” ©  Andrew  Holden  2015 RE  K  TRUST  (2015)
24. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • K  Trust  settled  in  1990  by  Swiss  domiciled  settlor. • Letter  of  wishes:  Wife  principal  beneficiary • Assets  =  investments,  London  property  +  cash • Original  value  =  >£100m.  c.£17m  by  time  of  hearing • Original  protector  =  Settlor's  financial  adviser  /  friend • Settlor  d.2001 • By  2005,  relationship  between  widow  and  protector  breaking  down. ©  Andrew  Holden  2015 RE  K  TRUST  (2015)
25. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Numerous  requests  since  2005  for  Protector  to  resign • 2011:  Widow's  family  (chosen  bens)  asked  for  termination  of  trust • Protector  opposed:  alleged  contingent  tax  liabilities • Dispute:  Did  settlor  die  domiciled  in  UK  or  Switzerland? • Consideration  of  insurance  /  indemnities  etc. • Protector  obtained  Opinion  of  Tax  Counsel  – Settlor  domiciled  in  UK! • DB  concluded  that  Protector  should  be  removed. ©  Andrew  Holden  2015 RE  K  TRUST  (2015)
26. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Reasons  for  removal: l Protector  'almost  a  de  facto  trustee':  picked  over  T'ee  decisions   with  fine-­toothed  comb l Breakdown  in  relations l Stalemate  in  Trust  administration l Taking  unilateral  tax  advice  potentially  damaging  to  beneficiaries'  interests • At  hearing,  Protector  admitted  she  should  resign • Sought  permission  to  retire:  “if  she  is  to  be  pushed,  she  would  like  permission   to  jump  first”. ©  Andrew  Holden  2015 RE  K  TRUST  (2015)
27. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Guernsey  applies  Letterstedt  v  Broers • Breakdown  in  relations  /  loss  of  trust  and  confidence  not  sufficient • “Breakdown  +” l Problems  or  issues  in  administration  of  trust l Objective  basis  for  hostility  /  loss  of  trust  and  confidence l Focus  on  the  future ©  Andrew  Holden  2015 REMOVAL  BY  COURT
28. JERSEY FUNDS FORUM 2014: THE GLOBAL PERSPECTIVE A businesslife.co event • Tips  for  trustees  /  protectors: l Evaluation  by  fresh  pair  of  eyes l Good,  bad  and  ugly. l If  genuine  issues,  position  may  be  untenable: l Get  best  terms  available l Request  for  removal  ill-­founded  /  bootstrapping l Middle  ground: l 'No  fault'  removal l Focus  on  protecting  the  trust  fund ©  Andrew  Holden  2015 REMOVAL  BY  COURT
29. ©  Andrew  Holden  2015 THANK  YOU andrew.holden@xxiv.co.uk