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Landmark ruling for Guernsey trust case to aid legal advisers

A Privy Council judgement on a Guernsey trust case has overturned decisions made by the Royal Court.

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In one of the most important trust law cases to date, the Judicial Committee of the Privy Council sat for two days in December to hear the appeal by Spread Trust Company Ltd against Hutchinson and others before ruling in favour of the trustees on 15 June 2011. Usual cases take just hours before the Privy Council.

Acting for the beneficiaries, Carey Olson advocate John Greenfield, said the case concerned the effect of a clause in a long-established Guernsey trust deed seeking to exonerate the trustees from certain liabilities, including gross negligence. The trust was established before statutory legislation was brought into place preventing trustees from building exoneration of this type into a trust deed.

“At the heart of the matter is that the beneficiaries’ complained that the trustees failed to adequately diversify investment of trust funds and we argued that the trustees were in breach of trust by this action,” said Advocate Greenfield.

The Guernsey Court had previously ruled that the duty imposed on Guernsey trustees to act “en bon pere de famille” (as a good father) was incompatible with the trustee at the same time seeking to exonerate itself from its own acts of gross negligence by provision in the settlement deed.

The Privy Council however disagreed and have effectively ruled that trustees can be exonerated from their own gross negligence without breaking the duties to act “en bon pere de familie.”

Advocate Greenfield said: “The Privy Council decision covers some very important and complex issues of trust law that have significance not only for professional trustees and legal practitioners in the Channel Islands but also in the UK and elsewhere.”

He added that the case would be a major aid to legal advisers in assessing the chances of claims being successful against trustees and said he had already received a number of City trust and chancery lawyers enquiries ahead of the judgement.

“This is definitely Guernsey leading the world in testing case law and providing a channel for change,” he said.

The Privy Council delivered a split decision with three of the law lords upholding the trustees’ position while two others did not. It normally provides a unanimous decision.

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