English Court Of Appeal Decision Arguably Results In Higher Burden For Trustees Of Jersey-Law Trusts

To wilful men the injuries that they themselves procure must be their schoolmasters - King Lear, Shakespeare.

A recent decision of the English Court of Appeal appears to have introduced a difference of approach between the UK and Jersey in relation to an issue which is important to trustees of Jersey trusts (and indeed to anyone acting in a fiduciary capacity).

The issue relates to the extent and circumstances in which a trustee can exclude or reduce liability in the event of what might otherwise be regarded as a breach of trust.

In the recent English case of Barnsley v Noble [2016] EWCA Civ 799, the Court of Appeal considered the meaning of wilful wrongdoing, albeit in the slightly different context of a will trust. (The Court found that there was no difference in this context between wilful default, wilful misconduct and wilful wrongdoing.)

Barnsley v Noble concerned the proper interpretation of an exoneration clause contained in a will, intended to relieve the trustee/executors under will trusts of personal liability in respect of certain alleged breaches of duty by them.

The facts, briefly stated, were that a father's will created a will trust in favour of family members, for valuable assets including business interests and property holdings. The family members - one of whom was one of the executors - negotiated between them a demerger of the business empire over a period of time. The executor son was to take the business portfolio and another son and family members were to take the property portfolio.

The businesses (but not the property interests) were entitled to reclaim VAT previously paid as it was held to have been unlawful for HMRC to claim it. During the negotiation of the demerger, the basis for reclaiming VAT changed; the House of Lords decided (in an unconnected case) that a limitation period on reclaims which HMRC purported to rely on was in breach of EU law and, therefore, inapplicable. This substantially increased the potential VAT reclaim for the business interests.

Subsequent to the demerger, when the fact of the significantly greater VAT reclaim became clear, the family members who had taken the property portfolio issued proceedings, on the basis that they had been misled. Part of the claim was for breach of fiduciary duty against the brother who was the executor of the will and trustee under the will trusts (and who had taken the business portfolio and therefore the benefit of the substantial VAT reclaim) in not...

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