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THE EVOLVING LANDSCAPE OF JERSEY TRUST LAW [Equiom Trust (CI) Limited, re Estate of Constantin Mattas]

29/05/2024

In an important judgment, Representation of Equiom Trust (CI) Limited, re Estate of Constantin Mattas [2024] JRC 068, the Royal Court in Jersey has recently confirmed, as a matter of Jersey law,

  • Where a trust looks to provide for a mix of both charitable and non-charitable purposes, the non-charitable purpose can invalidate the charitable purpose.
  • However, if the non-charitable purpose is itself invalid, the entirety of the trust property can be held for the charitable purpose.

The court's decision arose in the context of proceedings to determine whether the ultimate disposal of a testator's residuary personal estate was valid or whether there was, in fact, a partial intestacy.

THE JUDGMENT HIGHLIGHTS SEVERAL IMPORTANT LEGAL PRINCIPLES REGARDING TRUST DRAFTING AND ADMINISTRATION:

  1. Legal expertise is important when drafting trust instruments to ensure they are valid and effective in achieving the settlor's intentions. Poorly drafted trust instruments can lead to unintended consequences.
  2. There is a need for regular "health checks" on existing client trust structures to ensure compliance with relevant legal principles, such as the rule against perpetuities.
  3. Previous appointments of property from trusts settled before the Trusts (Jersey) Law 1984 may be at risk of being set aside if they violate perpetuity rules.
  4. The principle that a charitable trust cannot validly be mixed with a private trust.
  5. In this case, the charitable trust component was upheld, but the private trust component was invalid.
  6. The rule against perpetuities remains part of the underlying fabric of Jersey trust law, even though the Trusts (Jersey) Law 1984 explicitly provides against its application. This could impact the validity of trusts created by way of advancement or transfer of assets from pre-1984 trusts.
KEY TAKEAWAYS
  1. The Judgment represents an important survey of the principles applicable to charitable trusts, wills, and their construction.
  2. From the Jersey law perspective, consistent with recent trends, it has served to emphasise the primacy of English trusts law as the basis for Jersey trusts law principles unless Jersey statute or customary law can be said to clearly differ.
  3. The Judgment may have a significant impact on trusts settled before the commencement of the Trusts (Jersey) Law 1984, as the Royal Court has held that the English common law rules on perpetuities will apply to them.
  4. Trusts created by way of advancement or transfer of assets from trusts settled before the commencement of the Trusts (Jersey) Law 1984 may also be subject to the perpetuity rules.
  5. Affected trusts may have been wholly or partly void from the outset.
  6. In any event, affected trusts should be reviewed and care will need to be taken to ensure that past and intended appointments of property from such trusts are not liable to be set aside as infringing perpetuity rules.
LONG READ SOURCED FROM APPLEBY.[link below]
  1. Significantly for Jersey law trusts established prior to the introduction of the Trusts (Jersey) Law 1984, the Court held that the English law rules on perpetuities were applicable with the effect that, in this case, the indefinite duration of the intended trust was a cause of invalidity.
  2. The intention to benefit “promising and intelligent young men” through a scholarship fund was conceptually uncertain on ordinary principles of construction and also led to invalidity.
  3. In addition, the trust of capital was not exclusively charitable, as a proviso in the will made the scholarship fund subject to priority benefit for the testator’s family members.
  4. Despite these issues, the Court declared void only the proviso in favour of the family members, a non-charitable private purpose, allowing the assets to be used entirely for a charitable purpose.
  5. This required the Court to draw on the so-called “Category (d) exception” in the English authority, Re Coxen [1948] 1 Ch 747. The Court was forced to acknowledge both that the authority providing the source of the exception was “somewhat slender” and that the English courts had not specifically applied the exception since.
  6. Although the facts are unlikely to arise again, the case will be of interest to trusts and charities lawyers in common law jurisdictions for the application of the Re Coxen exception referred to above. The case could have wide-ranging ramifications for trusts established in Jersey prior to the introduction of the Trusts (Jersey) Law 1984 – including those created from the assets of such older trusts or which have since changed proper law – as the Court has for the first time confirmed that the English common law rules on perpetuities apply.
BACKGROUND
  1. The Royal Court of Jersey was asked to consider the proper construction and effect of a Jersey law will trust with assets worth around £27 million.
  2. The testator, Dr Mattas, had provided for income trusts for his two nephews during their lifetimes.
  3. The Court had to determine whether there was a valid trust of the capital or whether a partial intestacy had arisen.
  4. The will provided for a scholarship fund to be established by the Greek Government on the death of the second nephew, with the income to be used for loans for postgraduate education for the benefit of “intelligent and promising young men of Orthodox Greek Church religious belief born in Greece of Greek Nationals”.
  5. The scholarship fund was however subject to a proviso in favour of the children and grandchildren of the nephews for their postgraduate education.  The proviso gave the family members priority over the intelligent young men.
  6. The trustee had received an Opinion from Leading Counsel which concluded that there was an intention to create a trust, but that the proviso in favour of the family members meant that the purpose was not exclusively charitable.
  7. The intended capital trust was of indefinite duration and would have failed for that reason had the English rules on perpetuities applied. Further, the word “young” was conceptually uncertain, so the trust would fail for want of certainty of objects.
  8. The trustee brought an application to Court to determine the validity issue against the backdrop of a French wealth tax liability, which the Court authorised the trustee to challenge in the French courts. The parties convened to the application included the Greek Government, the Attorney General of Jersey (representing charitable interests) and the nephews.
DECISION - The Court had to grapple with a series of difficult and overlapping issues.

The first question was whether the testator had intended to create a trust at all.

  1. The Greek Government argued that the intention was to make a gift coupled with either an expression of wishes or an invalid condition subsequent. Alternatively, the trust, if any, was an executory one with the precise terms left to the discretion of the Greek Government as future trustee. The Court construed the words of the instrument on ordinary principles and established that the testator had intended to create a trust. It was clear that there should be a separate fund for specific purposes, and no suggestion in the language that the Greek Government should be beneficial owner in its own right.
  2. The Court went on to consider the different grounds on which the intended trust of capital might be invalid, assuming it was not charitable. It held that the expressions “promising”, “intelligent” and “young” all gave rise to conceptual uncertainty and offended the requirement for certainty of objects. This would lead to invalidity unless the trust was exclusively charitable, in which case the requirement would be disregarded and the charitable intent given effect.

A further issue was the indefinite duration of the intended trust of capital.

  1. This would not be an issue for a charitable trust, but under the English rules against perpetuities would cause invalidity for a non-charitable trust. The Court had to consider whether those English rules would have applied to this specific trust, which had been established prior to the coming into effect of the Trusts (Jersey) Law 1984.
  2. In its form as enacted, this had introduced a statutory rule that trusts could last for a period of 100 years (since amended so that there is no limit at all), but only for trusts established after the statute commenced.
  3. Following the approach suggested by the Privy Council in Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2018] UKPC 7, in the absence of any specific Jersey authority to the contrary, and noting that the general Jersey law of property as influenced by French and Norman customary law also discouraged alienation of property for lengthy or indefinite periods, the Court applied the English rule against trusts of indefinite duration and held that the trust would be invalid.

The Court went on to reject two arguments raised by the nephews in order to attack the validity of the bequest, namely

  1. that the trust was administratively unworkable, and
  2. that the designation of the Greek Government as trustee would also render the trust void due to sovereign or state immunity putting the administration of the trust outside the supervisory jurisdiction of the Court such that it could not be enforced.

On the first issue,

  1. the Court held that the class was not hopelessly wide (leaving aside the conceptual difficulties) and practical issues could be addressed by the trustee.

On the second

  1. The arguments about immunity were also misplaced, given the so-called restrictive theory of state immunity: the Greek Government as trustee would be acting in a private, commercial capacity and not exercising sovereign authority.

The key question was then whether the trust as a whole was a valid, charitable trust.

  1. It was well established as a matter of Jersey law that a valid charitable trust should be for exclusively charitable purposes and for the public benefit, meaning that it must benefit the community or a section of the community. It was common ground that the advancement of education was a valid charitable purpose.
  2. The Court considered that the proviso in favour of the family members was intended to benefit private persons, with no benefit for the public in that regard, and therefore the bequest as a whole was not exclusively charitable. Absent any other considerations, the trust was invalid and would fail unless the charitable element could be saved or severed from the rest.
  3. The Court reviewed a number of English authorities and texts on trusts with mixed charitable and non-charitable purposes in an attempt to classify the case, and referred to the judgment of Jenkins J in Re Coxen [1948] 1 Ch 747, which considered the various exceptions to situations of complete failure. The Court held that the present case fell within the general exception identified under “category (d)” in Re Coxen, whereby as a matter of construction the gift of the entire fund or income is to charity but subject to payments for an invalid non-charitable purpose. In such a circumstance, as a matter of law the invalid purpose is void and would be disregarded with the entirety of the fund available to charity.
  4. The Court was forced to acknowledge that the sources relied upon by Jenkins J in formulating the exception at category (d) were “somewhat slender” but nonetheless considered that it represented an accurate statement of the position under English law. While the exception had not been specifically referred to and applied in subsequent English cases, it had been applied by necessary implication by Jenkins J in a further decision, Re Norton’s Will Trusts [1948] 2 All ER 842. Various Commonwealth decisions had referred to the exception in obiter dicta without casting doubt on it and the leading textbooks also appeared to accept the categorisation as authoritative.
  5. The Court briefly considered whether the amount required to satisfy the proviso in favour of the family members could be quantified with the fund apportioned, part being upheld for the charitable purpose, and the remaining proportion falling to the heirs on intestacy. Having received evidence on quantification from the trustee, which involved a survey of postgraduate university education costs in 1979, the Court concluded that the wide-ranging assumptions required led to a correspondingly disparate range of outcomes. It therefore rejected the quantification approach as lacking the necessary certainty.
KEY TAKEAWAYS
  1. The Judgment represents an important survey of the principles applicable to charitable trusts, wills and their construction.
  2. From the Jersey law perspective, consistent with recent trends, it has served to emphasise the primacy of English trusts law as the basis for Jersey trusts law principles unless Jersey statute or customary law can be said to clearly differ.
  3. The Judgment may have a significant impact on trusts settled prior to the commencement of the Trusts (Jersey) Law 1984, as the Royal Court has held that the English common law rules on perpetuities will apply to them.
  4. Trusts created by way of advancement or transfer of assets from trusts settled before the commencement of the Trusts (Jersey) Law 1984 may also be subject to the perpetuity rules.
  5. Affected trusts may have been wholly or partly void from the outset.
  6. In any event, affected trusts should be reviewed and care will need to be taken to ensure that past and intended appointments of property from such trusts are not liable to be set aside as infringing perpetuity rules.

Sourced from

https://www.applebyglobal.com/publications/beware-greeks-receiving-gifts-representation-of-equiom-trust-ci-limited-in-re-mattas-2024-jrc-068/

JERSEY

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