
Nick Williams
Partner | Legal
Jersey

Nick Williams
Partner
Jersey
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Representation of Jasmine Trustees [2018]JRC210
In a recent decision, arising out of a long running family dispute concerning two trusts (the trusts), the Royal Court made a number of notable findings regarding the scope and effect of undue influence in a trusts context.
Background
The Trusts, which were established principally for the benefit of the family of a wealthy businessman, have been the subject of long running litigation owing to a breakdown in relationship between the father and daughter.
The most recent decision arose out of an attempt, by the settlors of the trusts, to exercise their power to revoke the trusts by serving notices of revocation on the trustees of each trust (the revocation notices). The trustee was concerned about these actions and so petitioned the Royal Court for directions.
In this context, the validity of each of the revocation notices was challenged by the daughter on the following grounds:
The argument on undue influence
The daughter argued that, as a result of conversations which she had had with the settlors, considerable pressure had been placed on the settlors by her father to revoke the trusts. The daughter contended that the father's behaviour towards the settlor amounted to undue influence with the result that the revocation notices should be set aside as null and void.
Counsel for the father argued that the only person who could apply to set a transaction aside on the grounds of undue influence was the victim of the undue influence – i.e. the person who has entered into the transaction as a result of the influence. In this case, the father submitted that this would be the settlors and them alone.
The Royal Court held that the father's arguments were incorrect. It held that undue influence enables the party who is disadvantaged by the transaction to have that transaction set aside. In the case of the revocation of a trust, it was held that the disadvantage rests with the beneficiaries as they will have lost the ability potentially to benefit from the trust fund.
The Royal Court also gave the following reasons in support of its finding in favour of the daughter:
The argument on mistake
In the alternative to the challenge on the grounds of undue influence, the daughter argued that, in issuing the revocation notices, the settlors were operating under mistake as to either:
In relation to the tax mistake, the daughter contended that the settlors were unaware that by revoking the trusts, they would be exposing themselves to potentially considerable tax liabilities.
Alternatively, in relation to the nominee mistake, the daughter argued that the settlors considered themselves to be acting as nominees of the father, with the result that they considered they were bound by his instructions that the Trusts should be revoked. In support of this argument, the daughter was able to point to affidavits, albeit in draft and therefore unsworn, prepared for the settlors in which they stated that they thought they were nominees for the father.
On the basis that the revocation notices were null and void as a result of undue influence, the Royal Court considered that it was strictly unnecessary to decide the question of mistake. Accordingly, the Royal Court only gave brief conclusions.
In respect of the tax mistake, the Royal Court found that there was insufficient evidence to establish that the settlors were operating under such a mistake. Additionally, the Royal Court also opined that even if the opposite conclusion had been reached, it was ultimately a matter for the settlors as to whether they would wish to revoke the trusts notwithstanding the adverse consequences for them personally.
The Royal Court held that the case in relation to the nominee mistake was made out, and that the settlors had been operating under a mistaken understanding of their position in issuing the revocation notices. In support of this conclusion, the Royal Court pointed to the following factors:
An interesting postscript to the decision
In a postscript to the decision, the Royal Court noted that Article 40(3) and (5) of the Trusts (Jersey) Law 1984 provide that, upon revocation, the assets of a trust are held absolutely for the person who settled them.
The Royal Court noted that it did not consider that this required an expensive and complex tracing exercise to be undertaken with the goal of identifying which parts of the trust fund originated from whom. Instead, the Royal Court stated that the appropriate approach would be to return the trust fund to each source in the proportions initially contributed by them. So for example, if A contributed 10% in value of the original trust fund, B contributed 40% and C contributed 50%, then upon revocation of the trust, A would receive 10% in value of the current trust fund, B would receive 40%, and C would receive 50%.
Lessons to take away from the decision
So what lessons can trustees take away from the decision in this case?
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This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.
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