The Jersey Law Review - February 2003
BOOK REVIEWS
WILLOUGHBY’S MISPLACED TRUST by JAMES WADHAM. Gostick Hall Publications 2nd edition, 2002 £48
Like the human body, the trust is a sophisticated instrument. If one part of the complex whole does not function correctly, catastrophe may ensue. This book is an expanded second edition of the short work first written by the late Professor Willoughby in 1999. In twelve chapters it deals with some of the many important things that can go wrong with a trust. The chapter headings tell it all –
1. Trusts in sham transactions.
2. If not a trustee, then what?
3. Invalidity for lack of essential criteria.
4. Invalidity under law of settlor’s home jurisdiction.
5. The trust instrument as an invalid will.
6. Liabilities of professional advisers for defective trusts.
7. Improper administration.
8. Exemption clauses and reasonable fees; indemnification for costs.
9. Breach of director’s duty – asset holdings, private trustee companies.
10. Letters of wishes, protectors and the problems they cause.
11. Setting aside by creditors and “asset protection” trusts.
12. Attempts by beneficiaries to obtain documents for information.
This book is rather like a box of chocolates. It contains a useful collection of pieces of advice, interspersed with provocative argument and interesting anecdote, and laced with valuable references to cases and articles. Like a box of chocolates, attempting to devour it all at one sitting is apt to make you ill. Instead, it is so rich that it can only be dipped into from time to time.
From the point of view of trust professionals in Jerseyand other offshore jurisdictions, it is both a salutary reminder of common – and not so common – problems to avoid, and also a reference guide to how to approach and (preferably) solve such problems once they have been identified. The book is not itself authoritative, often posing more questions than it answers, but it is an undoubtedly helpful resource for an offshore trust professional. Indeed, in addition to the twelve chapters, there are two appendices, one containing a series of guidelines for settlors, trustees, protectors and their advisers, and the second containing extracts from marketing brochures, correspondence and legislation which appear to conflict with or misunderstand the fundamentals of the trust concept. The latter in particular makes uncomfortable reading.
There are a few trifling spelling errors, and some missing references, such as the lack of references to the Jersey hearings in the Grupo Torras saga, on pages 53, 128 and 160. But on the whole the book is well laid out, and easy to look at. As is only to be expected with a new editor, the style of writing has changed. Unfortunately, it has now become rather more wordy and less direct than it was. This does make it sometimes harder to understand the point being made. It is to be hoped that this will be reconsidered in subsequent editions.
There are one or two points, moreover, where the discussion seemed inadequate, or even potentially misleading. One of these is on page 46, where the so-called “blind trust” for politicians is discussed. In fact this is not a blind trust at all, in the usual sense of a discretionary trust where the beneficiaries are not added until later. It is just unfortunate that the same term is used to describe this form of bare trust for a beneficiary who is not to know anything about, much less to interfere with, the assets and management of the trust. Moreover, the really interesting question – whether the politician’s right to information about the trust property can be effectively excluded – is not addressed. Another quibble relates to page 59, where it is suggested that section 6 of the Cayman Islands’ Trust (Foreign Element) Law (as it then was) was a failure, in light of the observation that a claim to upset a trust protected by it was settled by apparently paying out some 8% of the assets to the claimant’s forced heirs. But since, if the forced heirs had won, they would have been entitled to a greater part of the assets, some might suggest that this showed in fact at least a partial success (we would need to know the exact percentages to know how much). Others might also point to the amendments made to that law subsequently with the intention of improving it and its success rate (and which are not mentioned).
One additional area that could have been useful to address, but which is almost ignored, is that of the linked questions of (1) which courts have jurisdiction to deal with a dispute arising from a trust, and (2) the enforcement in the courts of one state of the judgments made by another. Essentially this involves bringing in a third dimension to the existing discussion of problem areas. For there may be no problem in your jurisdiction on a particular point, but there is a weakness on that point in another jurisdiction, and a judgment may be obtained there and brought to you for recognition and enforcement. Perhaps this lack will be put right in future editions.
In conclusion, here is an interesting and thought provoking little book on trusts in the offshore world, which will prove to be a valuable resource for any offshore trust professional.
Paul Matthews is a solicitor of the Supreme Court of England and Wales and a consultant with the firm Withers, 12, Gough Square, London, EC4A 3DE.
PROFESSIONALS & FIDUCIARIES – PERILS AND PITFALLS by SIMON BAUGHEN – Gostick Hall Publications 2002 £45
At a mere 108 pages of commentary this small volume encourages the trustee, solicitor or other professional to refresh the memory and provide himself with a clear analysis of the occasionally confusing and complex areas of knowing assistance and receipt, the economic torts, proprietary claims, actions for money had and received and the risks of vicarious liability for the company director.
Simon Baughen illustrates each point made by reference to the facts of the case and compares the reasoning in the seminal case of Baden Delvaux [1], and the concept of knowing assistance considered there, with the up to date reasoning provided in those cases decided in the last 2 to 3 years including the Twinsectra [2] case in the House of Lords in 2002. In so doing Mr Baughen provides a useful guide to the professional and adviser alike as to what type of activity is likely to attract culpability and what thought processes the professional should adopt in his or her daily activities.
The message of the text is quite clear: It is not sufficient merely to execute the client’s instructions without more. The courts expect the professional to be inquisitive; to understand not only what is being done but why and whether there is sufficient reason for doing it. If there is no apparent legal or business basis for executing instructions in a certain manner then, where there is no obvious or satisfactory explanation, the professional must consider his own position in relation to continuing to act for the client.
The text is as relevant to the professional in Jerseyas it is elsewhere. The examples as to the activities of the accountant and solicitor in the cases of Agip[3] and Dubai Aluminium[4] respectively are helpful and serve to underline the real risks assumed by the professional on a daily basis.
The book emphasises also that the professional must not only have one eye on the relationship with the client but also should have the other eye on whether he is assisting the client to wrong a third party. Such a wrong may give rise to liability, at common law or in equity, and may, in some instances, affect partners and companies and not just the individual concerned.
The text is well set out and easily digestible. Of particular assistance to my mind are the appendices which provide concise analyses of the rules of tracing in Re Hallett’s Estate[5] and the Rule in Clayton’s Case[6]. Extracts from the Law Society’s 1999 guide to professional conduct of Solicitors, especially the sections on money laundering, conflicts and confidentiality are a salutary reminder that the professional needs to become ever more inquisitive as the fraudster becomes ever more inventive.
In short Professionals & Fiduciaries is a book that is easy to read and that will stimulate discussion and further study for the professional and student alike.
Simon Young is a advocate of the Royal Court and is a partner at Bois and Bois, 2 Bond Street, St. Helier, Jersey.
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