ARRESTED DEVELOPMENT: ENFORCEMENT
AGAINST A DISCRETIONARY TRUST?
Can the rights of a beneficiary
under a Jersey discretionary trust be arrested by arrêt entre mains?
Although in Kea Investments Ltd v Watson1
the Royal Court of Jersey declined to confirm
such an arrest, this article considers that they can be. The
Court’s reason for not arresting those rights was that it considered them
to form a bundle of rights subject to the fraud on the power doctrine not to
exercise the discretions in question other than for the benefit of their
beneficiary. It therefore considered
such rights attach of necessity personally to
the discretionary beneficiary in that capacity and so are inseparable
from that person as long as he or
she has that capacity. As they attach inalienably to that person, they are
incapable of transmission to another, and therefore the Court declined to
transmit them to the arresting creditor. As examined below, however, the rights
in question may not be owed to the
debtor beneficiary exclusively, but be shared with other beneficiaries. In
particular, the right for the trustee not to commit a fraud on the power is
enjoyed by persons in other capacities, such as other members of the beneficial
class of the power,
or those who take in default of its exercise. As these rights are enjoyed by
others, they cannot be inseparable from the debtor beneficiary in question, and
since other parties may benefit from them,
they should therefore be capable of arrest.
Kea Investments Ltd
(“Kea”) was a judgment creditor of Eric Watson. Mr Watson was one
of several beneficiaries under three Jersey discretionary trusts. Kea sought to
execute against Mr Watson’s
interests as beneficiary under those
interests by way of arrêt
The terms of the trusts were not
spelt out in the judgment but it was
clear that, under each, the trustees had wide discretionary powers to appoint
income and capital to the benefit of any one or more of the beneficiaries, thus
including Mr Watson.2 It was common ground that
1  JRC 009 (Clyde-Smith, Commr, and Jurats
Crill and Averty).
2 Kea, paras 6, 7, 9,
he was a
discretionary beneficiary, with only a hope of benefitting from the
trustees’ exercise of these powers and no rights or interests in any property of the trust funds itself.3
However, Kea argued that under Jersey law a discretionary beneficiary such as
Mr Watson had a movable property interest susceptible to arrest by arrêt. It referred to:
The definition in the Trusts
(Jersey) Law 1984 (“Trusts Law”)
of “beneficiary” including not only persons entitled to
benefit under trusts (in the narrower sense used in English law)4
but also those “in whose favour a discretion to distribute property held
on trust may be exercised”.5
The Trusts Law providing that the
interest of a beneficiary— including such a discretionary object within
the definition of art 1(1)—constitutes
(c) An arrêt entre mains
being available to arrest movable property in the hands of a third party
but which belongs or is owed to the debtor.
argued, where a debtor who is the beneficiary of a trustee’s discretion
to distribute, his or her rights as such are therefore capable of arrest by arrêt entre mains.
3 Kea accepted that such rights would be arrested as it found
them, and it could not therefore obtain any greater rights than Mr Watson had (nor give it any special advantage
over the other beneficiaries that Mr Watson did not have by reason of his being
beneficiary of the discretion in question).
However, Kea argued that by reason
of arresting Mr Watson’s rights
it could, would, and so should stand in Mr Watson’s shoes as such a
beneficiary and exercise his rights as such.
(a) Kea accepted that the arrêt
would give it no interest in the trust funds. Instead, it focused on Mr
Watson’s rights as beneficiary to request and compel the trustee to
consider making a distribution to pay
the debt owed, and also obtain trust accounts to assess the assets of the trust.
3 Kea, para 13. Mr
Watson’s fixed proportionate share in the trust assets under the default trusts was disregarded
as being incalculable at the time of the judgment. Mr Watson was also
a creditor of the trusts—Kea’s application for an arrêt over those loans was not contested and is not
considered further in this article.
4 Kea, para 17(i)–(ii).
5 Trusts (Jersey)
Law 1984, art
6 Trusts (Jersey)
Law 1984, art 10(10).
In particular, Kea focused on Mr
Watson’s rights as a beneficiary to due consideration by the trustees of
exercising their discretions in his favour.7 To this end, envisaged
that Kea’s interests could be considered in place of Mr Watson’s.8
Kea also focused on Mr
Watson’s rights to due administration of
the trusts and disclosure of trust accounts which it also argued it could
enforce in his place.9
5 Against this, Mr Watson’s son (also a beneficiary of the
trusts in question) intervened and made a number of points. The particular
submission that seems to have told with the court (considered further below)
was that it was not clear whether Mr Watson’s interests (as the
debtor-beneficiary) should be considered when the trustee decided whether to
make a distribution at the arresting creditor’s request, or the arresting creditor’s in his
place. If it was contended that the arresting creditor’s interests be
considered, he submitted, that was plainly not the intention of conferring the
discretion and to do so would be a fraud on a power. If Mr Watson’s
interests were to be considered, however, the arrest added nothing. The trustee
could consider whether to make a distribution in Mr Watson’s benefit to
satisfy the debt in any case.
The court’s decision
6 The court held that—
in this case is whether the rights of a discretionary beneficiary are
transmissible either individually or collectively and whether by assignment or,
as in this case, by distraint, so that
they can be exercised by a third party, in this case a creditor, independently
of the discretionary beneficiary.”10
The court considered that a
beneficiary cannot extend the
beneficial class of the power by assignment of his or her interest under the power to a third party.11 (It
referred to the beneficiary having no ability
under the trust deeds before it, but such an ability would be atypical in
standard discretionary trust instruments.) Later in the judgment, the court
also drew from Lewin12
that under English law, where a discretionary beneficiary assigns his or her rights in respect
7 Kea, para 17(xi).
8 Kea, para 33.
9 Kea, para 17 (xv).
10 Kea, para 20.
11 Kea, para 28.
12 Para 26–011 of Lewin,
at Kea, para 34.
of any future
appointment under the discretion, the assignment risks being tainted as a fraud
on the power where the trustee makes the appointment to benefit the assignee
rather than the beneficiary.13
8 The court noted that the trustees’ powers and discretions
were to be exercised exclusively for the benefit of any one or more of the
discretionary beneficiaries, otherwise, tritely, the exercise would be a fraud
on the power.14 The court’s starting point was that under the trust instruments, the trustee had wide
fiduciary discretionary powers to distribute income and capital, all of which
had to be exercised for the benefit of any one or more of the beneficiaries “as defined”. It
was the risk of not considering their (the beneficiaries’), but the
creditors’ interests, that the court considered would not be permissible
under the fraud on a power doctrine.15
It is this that appeared to detain
the court and inform its decision. It referred to passages in Lewin describing the fraud on a power
doctrine16, and the principle that an intention to benefit a
non-object is sufficient to vitiate an exercise of the power as a fraud on that power.17 It then observed that:
of complementary rights of a discretionary beneficiary of the trusts are rights
which of necessity attach to the
person of the discretionary beneficiary in that capacity and by their nature are not separable from
that person for so long as he or she has that capacity. In a sense it is akin
to the two sides of a coin. On one
side of the coin is the trustee with the discretionary powers to benefit the
discretionary beneficiary. On the other side of the coin is the discretionary
beneficiary who can
benefit from the exercise of such powers and who necessarily has the rights commensurate to that status. These
are not rights which can exist and be exercisable independently of the discretionary beneficiary. They are
13 Kea, paras
34–35. These paragraphs dealt expressly
with a submission that Kea’s interests could be considered in
substitution or addition to those of Mr Watson, but given the court’s
conclusion at para 30 (set out at para 10 of this article) it appears to tie in with the court’s concern
that only the beneficiaries’ interests can be considered when exercising the discretion and that the right to have their respective interests so considered
14 Kea, paras 27 and 29.
15 Kea, paras 29–30 and 39.
16 Kea, para 29, citing
Lewin, paras 30–066 to
17 Kea, para 29, citing Crociani
v Crociani, paras 339–340.
18 Kea, para 30.
Thus, the reason the court
considered the fraud on a power doctrine
to be engaged was that it considered that the interests the trustee must
consider are those of the beneficiary personally, which are inalienable.
11 Having reached this view, the court noted Kea sought expressly to
obtain payment to it, in response to which it drew on Lewin’s comments (referred to above) that on a valid
assignment of the beneficiary’s interest under a discretion, the
discretion must nonetheless be exercised to benefit that beneficiary or else defraud the power.19
It then asked what utility there would be in granting Kea an arrest: the
trustee could not make a distribution in order to benefit Kea, but it could to benefit Mr Watson
with or without an arrest.20 Finally, the court considered that a
non-object’s having, by virtue of an
arrest, the beneficiary’s rights to involve itself in the internal
working of the trust would be inimical to good trust administration.21
These latter three points, at least, appear to have counted as factors that led the court to exercise its
discretion against confirming the arrêt. It is less clear whether
its views as to the inalienability of Mr Watson’s interests were also
factors causing the court’s discretion to be declined or considered an
absolute bar to the arrest taking effect at all. However, it is clear that the
court considered those interests to be inalienable, summarising at the end of
its judgment that:
conclusion, we accept that Mr Watson’s interests under the trusts
constitute movable property pursuant to article 10(10) of the Trusts Law, but
it is not property that is assignable or in any way transmissible under the
terms of the trust deeds, to which article 10(11) is subject, or by its
inherent nature. We will not, therefore, confirm the arret over his
The core of the court’s
reasoning appears to be that the rights of a discretionary beneficiary—or
at least the rights of Mr Watson and the discretionary beneficiaries of the
powers and/or trusts before it—are inalienable and therefore incapable of
arrest. It considered them inalienable because of the doctrine of fraud on a
power which compelled the trustee to consider those beneficiaries’, and
only those beneficiaries’, interests when exercising the discretions in
question. Presumably, although the judgment does not say this, it considered that since the beneficiary can only compel
consideration whether to exercise the discretion, and consideration of whether to exercise the
19 Kea, paras 34–35.
20 Kea, para 37.
21 Kea, para 38.
22 Kea, para 40.
only properly be carried out in the beneficiaries’ best interests, the
beneficiaries’ interests are inalienable from the beneficiary, hence
therefore so are the beneficiaries’ rights. What it did say was that the obligations on the
trustee and the rights of the beneficiary are two sides of the same coin.23
the arrêt entre mains
In any event, the court accepted
that such a discretionary beneficiary’s rights constitute movable
property by reason of art 10(10) of the Trusts Law24, noting further that “a beneficiary may sell,
pledge, charge, transfer or otherwise deal with his or her interest in any manner”, “subject to the
terms of the trust”.25
First, it reminded itself of the
core characteristics of the arrêt entre mains as elaborated in FG Hemisphere
v Gecamines  JRC 195 and 2010 JLR 524 (CA).26
An arrêt is a customary law remedy for the satisfaction of a debt by appropriating the debtor’s
movable property. It may be made against the debtor and his or her property
directly, or against a third party over property owed by the third party to the
debtor (an arrêt entre mains,
or “arrest in the hands” of such a third party).
(b) The effect of the arrest is to charge the thing arrested and
create a proprietary security interest in it in favour of the arresting
The flexibility of the arrêt continues after its
confirmation in respect of the precise benefit it confers on the arresting
creditor in execution of his or her charge.
An arrest may be effected against
future property, where that future property can be identified with precision.
15 Kea accepted that—
“the remedy of arrêt was available for all
kinds of movable property. The arguments that arrêts entre mains were
only available for limited kinds of debt was abandoned at first instance in FG Hemisphere v Gecamines to
judicial approbation (paragraph 145) and on appeal, and in another context, the
Court of Appeal saw no reason
in principle to distinguish between
23 Kea, para 30.
24 Kea, para 25.
25 Article 10(11), para 26.
26 Citing R Holden
Offshore Civil Procedure (Sweet & Maxwell, 2013), paras
JA11.3.3 and 11.4.2.
goods or a liquidated sum in ordering surrender (paragraph 155).”
As the court observed, movable
property is any property that is not
immovable property, being essentially
land and certain interests in it. It can be tangible or intangible, and there
does not seem to be a distinction between the susceptibility of either to
arrest. FG Hemisphere made clear that
intangible movable property is
capable of arrest by arrêt entre
mains. As Matthews and Nicolle describe:
typical example of an intangible movable is a debt or other claim on a person
obliged to perform some action. In
French law this is usually called a ‘créance’,
in English law a chose in action. In
principle, such intangibles are capable of assignment to another person, whether for payment or gratuitously.”27
Whether the French or English usage is preferred,
intangible movable property comprehends rights of all kinds which are legally
recognised and therefore enforceable. As Matthews and Nicolle describe,
intangible movable property includes the right to the performance of
obligations. The word “property” risks obscuring this, but whether
movable property is considered from the perspective of an obligation owed to a créancier
or a chose in action to which a person is entitled, it comprehends such
rights to performance.
In English law, a “chose in action” describes
an intangible right which exists only in law and enjoyment of which can only
ultimately be enforced by legal action:
“‘Things in action’ is when a man hath
cause, or may bring an action, for some duty due to him . . . and because that
they are things whereof a man is not possessed but for recovery of them is driven to his action, they are called
‘things in action.’”28
This is not limited to debts, but any right enforceable by
“It has been suggested that the expression
‘choses in action’ was originally only applicable to debts; and
that by a lax usage it has acquired a secondary and wider significance. I am
not able to adopt this view. The article ‘Choses in Action and Choses in
Suspense’ in Brooke’s Abr., fo. 140, seems to show that as early as
5 Edw. 4 the expression was held to include
the king’s right to the
marriage of his ward; in 9 Hen. 6, the property in deeds in
& Nicolle The Jersey Law of Property (Key
Haven, 1991), para 3.1.
28 Stroud’s Judicial
Dictionary, 10th edn, cit Termes de la Ley.
the hands of a third person was considered as a chose in
action; and in the 33 Hen. 8, the classification of ‘choses in
action’ into real, personal, and mixed was recognized.”29
Judicial Dictionary cites this passage, and then goes on to give as examples of choses in action in
various cases including shares, debts, assignments of debts, and contractual
rights. It could even be used in respect of certain equitable (as opposed to
common law) rights.
As for the French usage, FG Hemisphere accepted Pothier’s account of the saisie-arrêt as corresponding to
the arrêt entre mains, and as
Matthews and Nicolle note Jersey obligations
were customarily thought of in civilian terms. Pothier’s account of the saisie-arrêt can be reconciled
with his account of obligations and (pre FG Hemisphere) the limited Jersey
authority on arrêts entre mains.30
22 According to Pothier, obligations could be divided into obligations to give or obligations to do.31
Either obligation existed between person entitled to performance of the
obligation and the person bound to render it:
“Section III Des personnes
entre lesquelles peut subsister une obligation
124. Il ne peut y avoir
d’obligation sans deux personnes; l’une qui ait contracté
l’obligation, et l’autre envers qui elle soit contractée.
Celui au profit duquel elle a été contractée
s’appelle créancier; celui qui l’a contractée
125. Quoiqu’il soit de
l’essence de l’obligation qu’il y ait deux persounes, dont
l’une soit créancière, et l’autre débiteur . .
[Section III Of
the persons between whom an obligation can subsist
There can be no obligation without
two persons: the one who has
undertaken the obligation, and the other towards whom it is undertaken. He or she to the profit of whom it has been
29 Colonial Bank v Whinney (1885) 30 Ch D 261 (CA), at 286, per Fry LJ;
Colonial Bank v Whinney (1886) 11 App
Cas 426 (HLE), at 438, per Lord
Blackburn, at 446, per Lord
Fitzgerald, and at 447, per Lord Ashbourne.
30 Holden “Arrested and Charged: FG Hemisphere and the Proprietary
Effect of the Arrêt Entre
Mains” (2012) 16 Jersey &
Guernsey Law Review 209.
31 Pothier Traité des Obligations Pt
1 Ch 1 s IV 129–130, at 113.
32 Pothier Traité des Obligations Pt
1 Ch 1 s III 9, at
called the creditor; he or she who has undertaken it, the debtor.
By which it is of the essence of
the obligation that there be two parties: of which one is the creditor and the
other the debtor].
The obligation naturally contains
that which must be done by the debtor in favour of the creditor.
“SECTION IV. De ce cqui peut
faire l’objet et la matière des obligations.
129 II ne peut y avoir
d’obljgation, qu’il n’y ait quelque chose qui soit dû,
qui en fasse l’objet et la matière.
130 L’objet d’une
obligation peut être ou une chose proprement dite (res), que le
débiteur s’oblige de donner; ou un fait (factum) que le
débiteur s’oblige de faire ou de ne pas faire : c’est ce qui
résulte de la definition que nous avons donnée de
[Section IV. Of
that which can be the object and subject of obligations
There can be no obligation unless
there be in it something that is due, which constitutes the object and subject
matter of it.
The object of an obligation can be
either a thing properly so called (res), which the debtor obliges himself to
give; or an act (factum) which the debtor obliges himself to do or not do; that
is what results from the definition we have given of an obligation.]
A simple debt and a bare trust,
can be seen to involve obligations to give. In either the case the débiteur is obliged to give the créancier the sum of money owed
or property subject to the trust.34 An obligation to give is still
an obligation to do: the difference is that the verb give inherently indicates
a thing to be given whereas the obligation to do focuses on the verb itself.
However, the right corresponding to the obligation to give still attaches to
the verb: it is a right to be given, not a right to the thing being given
(hence a ius ad rem rather than a ius in rem, as Pothier noted35).
There therefore seems no reason in
principle why an obligation to do should not be equally susceptible to arrest as
an obligation to give.
33 Pothier Traité des Obligations Pt
1 Ch 1 s IV 129–130, at 113.
34 See Lewin para 1–028.
35 Pothier Traité des Obligations Pt
1 Ch 2 art II 151, at 128.
In either case, the obligation is
an obligation because it is enforceable at law:
“150 Les effets de
l’obligation par rapport au créancier sont 1° le droit qu’el1e lui donne de
poursuivre en justice le débiteur pour le paiement de ce qui est contenu
[150 The effects
of the obligation as regards the creditor are 1° the right it gives him or
her to pursue by court action the debtor for the rendering of that which is
contained in the obligation.]
In any event, it is clear from FG Hemisphere that debts can be
arrested. Shares can also be arrested.37 Further, a beneficial
interest under a bare trust is capable of arrest. In Seaview Estate Agency Ltd v Morgan38 the plaintiff (Mr
Morgan) obtained judgment against Mr Donaldson, and then an arrêt des biens in respect of it.
The Royal Court ordered confirmation of the arrest in all shares beneficially
owned by Mr Donaldson in Seaview—because the shares were in fact
registered in Mrs Donaldson’s name, but the Royal Court found she held
them beneficially for Mr Donaldson. Relying on his standing vis- à-vis the shares
having arrested them, Mr Morgan obtained an order to wind up Seaview. Seaview and Mrs Donaldson appealed this
order, arguing that the confirmation of the arrest was defective because Mrs
Donaldson, as registered legal owner of the shares, had not been summoned in
respect of the arrest.
The Court of Appeal held that
there was no question as to the evidence being sufficient to conclude that Mr
Donaldson was beneficial owner of the shares registered in Mrs
Donaldson’s name. However, she should have been summoned just like any
other subsidiary debtor or third party in whose hands the property arrested
lay. The confirmation was therefore defective and the winding-up order set
aside: however, the confirmation of the arrest had not been appealed and so
remained on foot, the shares remaining arrested, pending subsequent
applications and orders in respect of them.
36 Pothier Traité des Obligations Pt
1 Ch II art II 150, at 127.
37 Morrish v Ramus. La
Société “Jersey Hotels Ltd” à la cause (1952)
248 Ex 26; Re Interactive Telesales Group JRC009; Botas Petroleum Pipeline Corporation v Tepe Insaat Sanayii AS 2016
(2) JLR 101 (CA); Tepe Insaat Sanayii AS v Botas Petroleum
Pipeline Corp 2016 (1) JLR 218 (RC): In Guernsey, see Monument Trust Co Ltd v Gaudion (1998), 26 GLJ 83 (CA); Offshore
Civil Procedure, paras GB5.3–GB 5.5.
38 GCA No 20 (Civil)
(31 October 1986).
As to the procedure for
confirmation of an arrest, the Court of Appeal observed that:
considerations may arise and a different practice may be appropriate where the
subjects arrested are chattels which are in the possession of the debtor on the
one hand, and where they consist of debts or other obligations due by a third
party on the other hand. It was however agreed that where the subject arrested is a debt, such as a bank
account, it is normal to summon the
bank to state by one of its officers whether any sum is owed to the judgment
debtor, and if the sum is less than the amount in the judgment what the sum
It then analysed Mrs
Donaldson’s position—as bare trustee of shares to which Mr
Donaldson was beneficially entitled—and saw no difference between that
and any other third party owing the principal debtor the benefit of an
present case it is alleged that shares registered in Mrs. Donaldson’s
name truly belonged to Mr. Donaldson and if so she would be obliged to make those shares
available to him if required. The arrest of those shares is an arrest in Mrs.
Donaldson’s hands of assets due by her to Mr. Donaldson. We see no
distinction between: her possession and that of any other third party, such as
a bank, in, the instance given above.”40
“. . . we
do not see any reason why property which truly belongs in beneficial ownership
to a debtor should not be arrested even though it stands in the name of another
That suggests that (in Guernsey,
at least) a trust interest may be arrestable. However, from the facts it
appears that the trust in that case
was a bare trust and the language speaks of “beneficial ownership”.
On the other hand:
(a) A bare trust is simply the ownership by one party of property he
or she is bound to convey to another. The trust is simply an obligation to give that property.42
39 Seaview Estate
Agency Ltd v Morgan GCA No 20 (Civil)
(31 October 1986), at 7, per Cameron JA.
40 Seaview Estate
Agency Ltd v Morgan GCA No 20 (Civil)
(31 October 1986), at 8, per Cameron JA.
41 Seaview Estate
Agency Ltd v Morgan GCA No 20 (Civil)
(31 October 1986), at
8–9 per Cameron JA.
42 Lewin para 1–028.
There was no argument or comment
on the standing of Mr Morgan to seek a winding up order as the party arresting
shares (and so standing in the shoes of the
shareholder). The ground of appeal
was that the Royal Court had been wrong to decide “that [Morgan] was an interested party and entitled to
petition for the compulsory winding-up of [Seaview]”. Had there
been any merit in arguments that the arresting party does not arrest
all rights comprising the shares, it would be expected that they would have
featured with greater prominence than a procedural technicality. However, they
did not. A share tritely being a bundle of rights, it therefore appears the
arrest bit against all those rights.
In both Jersey and Guernsey, art
10 of their respective trusts laws43 provides that the interest of a
beneficiary is personal or movable
property, capable of being charged and assigned, And in both laws, “beneficiary” is defined to includes a
person entitled to benefit under a trust and/or a person in whose favour a
power to distribute trust property may be exercised.
Article 10 of the Trusts Law seems
to put beyond doubt that a beneficiary’s rights, under a trust or power,
are arrestable, although given the factors above this would appear to be the
case in any event. Any obligation can be characterised as movable property, and
an arrêt (entre mains in
Jersey, des biens entre mains d’un
tiers in Guernsey) seems capable of arresting any right and therefore
The court in Kea acknowledged art 10 of the Trusts Law and therefore appeared to
consider the rights of a discretionary beneficiary
prima facie arrestable. As the court
in Kea noted, “discretionary
beneficiary” is not a term of art in itself, but instead the precise
rights of any given beneficiary under any given trust are determined by the
terms of that trust.44 However, as noted above, the trusts in Kea provided wide discretionary powers
to appoint income and advance capital to any one or more members of their
respective beneficial classes, in addition to discretionary trusts to
distribute the trust funds amongst beneficiaries at the expiration of the trust
periods. Such discretionary powers and trusts are typical of Jersey law trusts,
and without derogating from the court’s correct assessment that
“discretionary beneficiary” is not a term of art, it is generally
understood to encapsulate the objects of such powers, and/or the beneficiaries
of such trusts. It is therefore adopted here as a useful shorthand). What led it not to confirm the arrest was its analysis
43 In Jersey the Trusts
Law, in Guernsey the Trusts
(Guernsey) Law 2007.
44 Kea, paras 24–25, citing RC Nolan Equitable
Property (2006) 122 LQR
232. See also Re
Tantular 2014 (2) JLR 25, at para 26.
(quoted at para 9
above) that the fraud on a power doctrine meant those rights could not be
parted from the beneficiary whose rights they
Rights of a discretionary beneficiary
Tritely, a discretionary
beneficiary has no interest in the trust fund itself. He or she has merely a
hope or expectation of receiving some portion
of the fund on the trustee (or donee’s) exercise of discretion.
Royal Court observed in Re Tantular:45
the purposes of this judgment, it is not necessary to draw a distinction
between a beneficiary under a discretionary trust (in the strict sense) and the
discretionary object of a power of appointment. We therefore propose for the
sake of brevity to refer to a beneficiary of a discretionary trust to cover
both categories. In our judgment, it is clear and abundantly well- established
law that a beneficiary of a discretionary trust has no
“entitlement” to any of the trust property. His sole right is to be
considered as a potential recipient of benefit by the trustee and he also has a right to have his interest
protected by a court of equity (see Lord Wilberforce in Gartside v. Inland Rev. Commrs (
A.C. at 617)).
27 A convenient description of the position
is to be found in
Snell’s Equity, as follows:
. . .
Nature of the beneficiary’s interests. The beneficiary’s only right
is to be considered for the exercise of the trustee’s discretion and to
compel due administration of the trustee’s duties. He has no more than a hope
that the discretion will be exercised in his favour. Except for any money that
the trustee has already appointed to him, he therefore has no interest that his
creditors or assigns could claim against. His interest is not alienable to
However, such hope refers only to
the beneficiary’s rights (or lack of them) in respect of the assets comprising the trust fund in respect of which the power might (but might not)
be exercised in that beneficiaries’ favour. The beneficiary is not,
however, without rights against the trustee
which the beneficiary can enforce against
45 2014 (2) JLR 215 (RC).
46 32nd edn, paras 22–004—22–005, at 647–648
the beneficiary cannot compel the trustee to exercise the discretion in question to convey any part of the trust fund
to him or her, the beneficiary can
compel the trustee to consider from time
to time to consider how to exercise the power of which he or she is
beneficiary.47 Thus, in Re
Hay’s Settlement Trusts,48 contrasting a discretionary
power with a mandatory trust, the High Court observed that:
power is very different. Normally the trustee is not bound to
exercise it, and the court will not compel him to do so. That, however, does
not mean that he can simply fold his hands and ignore it, for normally he must
from time to time consider whether or not to exercise the power, and the court
may direct him to do this.
When he does
exercise the power, he must, of course (as in the case of all trusts and powers)
confine himself to what is authorised, and not go beyond it. But that is not
the only restriction. Whereas a person who is not in a fiduciary position is free to exercise the power in
any way that he wishes, unhampered by
any fiduciary duties, a trustee to whom, as such, a power is given is bound by the duties of his office in exercising that power to do so in a
responsible manner according to its purpose. It is not enough for him to
refrain from acting capriciously; he must do more. He must ‘make such a
survey of the range of objects or possible beneficiaries . . .’ as will
enable him to carry out his fiduciary duty. He must find out ‘the
permissible area of selection and then consider responsibly, in individual
cases, whether a contemplated beneficiary was within the power and whether, in
relation to other possible claimants, a particular grant was
. . .
If I am right in these views, the duties of a trustee
which are specific to a mere power seem to be threefold. Apart from the obvious duty of obeying the trust instrument, and in particular
47 Lewin, para 1–008.
48  1 WLR 202, cited by Lewin at paras 1–061, 29–008—29–009 and
33–033, as the highpoint of modern authority for the proposition quoted.
49 I.e., a fiduciary,
discretionary power which the donee has discretion whether to exercise and must
therefore consider whether to exercise from time
to time: Lewin para 28–023.
50 Re Hays Settlement
Trusts  1 WLR 202 (Ch), per Megarry
VC, at 209.
making no appointment that is not authorised by it, the
trustee must, first, consider periodically whether or not he should exercise
the power; second, consider the range of objects of the power; and third,
consider the appropriateness of individual appointments. I do not assert that
this list is exhaustive; but as the
authorities stand it seems to me to include the essentials, so far as relevant
to the case before me.”51
35 Thus, as the House of Lords observed in Gartside:
“No doubt in a certain sense a beneficiary under a
discretionary trust has an ‘interest’: the nature of it may,
sufficiently for the purpose, be spelt out by saying that he has a right to be
considered as a potential recipient of benefit
by the trustees and a right to
have his interest protected by a court of equity. Certainly that is so, and
when it is said that he has a right to have the trustees exercise their
discretion ‘fairly’ or ‘reasonably’ or
‘properly’ that indicates clearly enough that some objective
consideration (not stated explicitly in declaring the discretionary trust, but
latent in it) must be applied by the trustees and that the right is more than a
It is the first of these duties on
which Kea concentrated its arrêt in
Kea,53 but the third which
appeared to detain the court as being ultimately inalienable from Mr Watson on
the grounds that to do so would involve the fraud on a power doctrine.
The fraud on a power doctrine
The fraud on a power doctrine54
is well known, and its aspects alluded to but not fully outlined in the
excerpts from Hays and Gartside above. As the Royal Court put
it in Crociani v Crociani:
“339 The 2010 appointment can also be impugned
as a fraud on the power, namely,
as per Lord Walker in Pitt v. Holt . . .
( 2 A.C. 108, at para. 61), an appointment made ostensibly
within the scope of the power but for improper purposes. The classic statement
of principle is that of Lord Westbury in Portland
(Duke) v. Lady Topham . . .
(11 E.R. at 1251; 11 H.L. Cas. at 54):
51 Re Hays Settlement Trusts  1 WLR 202 (Ch), per
Megarry VC at 210.
52 Gartside v IRC  AC 553 (HLE), per Lord
Wilberforce, at 617–618.
53 Kea, para 17(xi).
54 This article concentrates on dispositive powers.
However the doctrine applies to administrative powers:
Re Bird Charitable Trust 2008 JLR 1 (RC).
‘. . .
[T]he donee, the appointor under the power, shall, at the time of the exercise of that power, and for any purpose for
which it is used, act with good faith and sincerity, and with an entire and
single view to the real purpose and object of the power, and not for the purpose of
accomplishing or carrying into effect any bye or sinister object (I mean
sinister in the sense of its being beyond the purpose and intent of the power)
which he may desire to effect in the exercise of the power.’
340 As Lewin,
19th ed., para. 29–290, at 1368 (2015),
says: ‘The term “fraud” in this context . . . merely
means that the power has been
exercised for a purpose, or with an intention, beyond the scope of or not
justified by the instrument creating the
This latter excerpt from Lewin is itself taken from Vatcher v Paull,56 a case on
appeal to the Privy Council from Jersey, but in respect of an English law
settlement. Lord Waddington observed that:
fraud in connection with frauds on a power does not necessarily denote any
conduct on the part of the appointor amounting to fraud in the common law
meaning of the term or any conduct which could properly be termed dishonest or
immoral. It merely means that the power
has been exercised for a purpose, or
with an intention, beyond the scope of or not
justified by the instrument creating the power . . . It is enough that the appointor’s purpose and
intention is to secure a benefit for himself, or some other person not an
object of the power. In such a case, the appointment is invalid, unless the
court can clearly distinguish between the quantum of the benefit bona fide
intended to be conferred on the appointee and the quantum of the benefit intended to be derived by
the appointor or to be conferred
on a stranger.”57
It is clear from Crociani
that the fraud on a power doctrine applies in Jersey. Thus,
the donee of a fiduciary, discretionary power (such as the trustee in Kea) may not exercise that power
fraudulently, in the sense explained in Crociani,
Lewin and Vatcher. He or she must not only periodically consider whether to
exercise it, but when doing so exercise it only bona fide to benefit the object of the power.
55 2017 (2) JLR 303 (RC), at paras 339–340.
56  AC 372 (PC).
57 Vatcher v Paull  AC 372 (PC), per Lord
Waddington, at 378.
Since the donee is under such a
legal duty, there must be a corresponding legal right to performance of that
duty (or to enforcement of its performance or to remedy for failing to perform it), “or else it is not an
obligation, but an aspiration”.58
41 Since the duty is an incident or aspect of the power which is
conferred to benefit its objects, to whose benefit the power must therefore be
exercised, it seems to follow that those objects must be those to whom the duty
is owed. If so, they must have the corresponding right. This appears to be the
conclusion of the court in Kea, when
it held that:
of complementary rights of a discretionary beneficiary of the trusts are rights
which of necessity attach to the
person of the discretionary beneficiary in that capacity and by their nature are not separable from
that person for so long as he or she has that capacity. In a sense it is akin
to two sides of a coin. On one side of the coin is the discretionary beneficiary who can benefit from the exercise of such powers and who necessarily has the rights commensurate to
that status. These are not rights which can exist and be exercisable
independently of the discretionary
beneficiary. They are not transmissible.”59
If that is the case, it would follow that only the
object of the power can bring an
action attacking the purported exercise of that power as a fraud on it. This
was the case in Crociani: the action
was brought by Cristiana, who was one of two sisters, daughters of Mme
Crociani, who were the beneficiaries of the Grand Trust. The Grand Trust
contained a power to appoint trust property to any trust settled for the
benefit of Grand Trust beneficiaries. The trustees (of whom Mme Crociani was
one) appointed to the Fortunate Trust of which Mme Crociani was lifetime
beneficiary, with Cristiana and Camilla (the other daughter) as reversionary,
discretionary beneficiaries. The appointment was found to have been made for
the benefit of Mme Crociani (and also for the benefit of a professional
co-trustee of Mme Crociani’s which wished to reduce the risk of its
trusteeship). The appointment was void as fraud on a power, and Cristiana succeeded
in her action.
However, in Kea it was not Mr Watson who challenged Kea’s ability to
arrest his interest but his children, who intervened in Kea’s action for
the arrêt. The children were
also members of the beneficial
58 L Ho and
RC Nolan The Performance Interest in the
Law of Trusts (2020) 136 LQR 402, at 411.
59 Kea, para 30.
classes of the
trusts in question, and like Mr Watson both the objects of the relevant discretionary power and beneficiaries of the
default, terminal trusts. As discretionary beneficiaries, the children would be
owed the same duties. That begs the question, how did their locus standi arise? If it derived from
their rights as discretionary beneficiaries, wouldn’t they be limited to
arguments arising from those rights?
And if their rights reciprocal to the
trustee’s duty to them not to
commit a fraud on the power were personal to and indivisible from them,
wouldn’t they be limited to arguments regarding
consideration of those aspects, rather than those personal to Mr Watson,
because their rights would be only to expect and compel consideration of those
It would further follow, if that
were the case, that a discretionary beneficiary could only challenge the
exercise of a power as a fraud on the power where it was purportedly exercised
in his or her favour. However, the court heard (and upheld) his arguments that
fraud on the power would be engaged as regards Mr Watson (in respect of whom
the power would putatively be exercised) because of Kea’s involvement,
when Mr Watson’s rights are indivisible from Mr Watson. How can Mr
Watson’s children have standing to raise such arguments?
The answer is that they have an
interest in the proper execution of the power in Mr Watson’s favour
because where it is properly exercised for the purpose for which it was granted
(including to benefit Mr Watson over
them) they cannot legitimately complain. But where the power is improperly
exercised outwith its intended scope, the fund available from which they hope
to benefit in the future is reduced in circumstances where it should not have
been. The children therefore had a legitimate interest in controlling the
trustee when exercising its power as regards Mr Watson.
Thus, where there is fraud on a
power of appointment, those interested in default of appointment are entitled
to challenge the exercise of the power.60 Lewin cites dicta suggesting
the rationale is that the limitations in default of appointment represent the
primary intention of the donor: so a trust for Jack with power of appointment to Jill is a primarily a trust for Jack.61
However, it acknowledges that analysis is not truly representative of modern
discretionary settlements, especially
in Jersey, under which the settlor truly intends to benefit the discretionary objects.62 However, that reality in fact
60 Lewin para 30–082.
61 Lewin para 30–082, cit Vatcher
62 Lewin para 30–082.
does not detract from the analysis in law: the trust
remains a trust for the default beneficiaries which trust is subject to the
powers engrafted on it. Hence, rather than intention, a better analysis is that
the exercise of the power may be challenged by those who, but for the exercise
of the power, might expect to take the property appointed.
47 That the fraud on a power doctrine may be invoked by the
disappointed beneficiary rather than the appointee appears from the authority
originating the term. In Lane v Page,63
a husband was tenant for life under a settlement which gave him a power of
jointure (i.e. a power, on marriage,
to make provision for his wife in the event of his death). On marrying, he
exercised the power but, being in debt, separately agreed with his wife that
she apply a certain amount of the provision made for her towards paying off his
creditors. Lord Hardwicke, LC held:
“This is a
new invention, and the Court will put a stop to it, if possible; for though it
is said to be honest in him to pay his debts,
yet he must do so out of his own estate.
. . .
If the Court should admit to such an execution of this power, so directly
contrary to the intent of the power, it would be attended with the greatest
inconveniences. Nothing could be more
contrary to the power; it is a fraud on the power, and those creating
The action was brought by the
remainderman of the husband’s settlement, against whom it was argued that
he was not defrauded by the exercise of the power in this way, rather than the
wife (who was object of the power):
plaintiff has no reason to complain; if anybody has, it is the wife. But this case
does not come up to Turton
v Benson (2 Vern 764) for here is no fraud on the
wife. It is all but one act no evidence of two agreements. She has avowed it
since her husband’s death and it appears to have been made in consequence of the husband’s
creditors pressing him for their debts.
Here is no
private agreement contrary to a public one with her friends; she was at age,
and acted for herself. Those cases were determined on public considerations.
This is a fraud on the property of a third person, the remainder man.”
63 (1755) Amb 233.
In Re Greaves,64
the issue was whether revocation of the revocable
exercise of a power could be subject to the fraud on a power doctrine. It was held that it could not because revocation
restored the property appointed to the fund available to the remaindermen who
would not therefore be prejudiced. In so holding, the court held that—
language of Lord Parker of Waddington in Vatcher v. Paull may once more be
cited: ‘The real vice of an appointment on condition that the appointee
shall benefit the appointor or a third party is that the power is used not with
the single purpose of benefiting its proper objects but in order to induce the
appointee to confer a benefit on a stranger.’ It is, therefore, in our
judgment, fundamental to the vice that the appointor should have assumed the
burden of making an appointment which (in such a case as the present) he was
never bound to do; and should then have distorted its stated purposes. To that
extent he has defrauded the persons entitled in default of appointment; for he
has divested such persons of their interests otherwise than for the purposes
and in the way limited by the donor of the power.”65
It is therefore not the person in
whose favour the power is purportedly exercised who is defrauded by its
exercise, but those disappointed by its exercise. Hence:
‘duty’ in relation to any exercise of the power of appointment is
no more than a ‘duty’ not to exercise the power otherwise than for
the single benefit of the members of the designated class of objects. If,
therefore, the ‘duty’ applies to the revocation of an appointment
already made, to whom is it owed? Clearly not to the original appointees or to
the class of possible appointees; for the donee of the power never owed any
duty to them to exercise it at all, and they can, therefore, have no valid
ground for complaint if he chooses to recall a revocable exercise of it.
Moreover, if the ‘duty’ were held to be owed to these persons, it
could only be a duty not to exercise the power of revocation otherwise than for
their single benefit; and as revocation per se can never benefit the objects of
the power as such, this would mean that the power of revocation could never be
exercised save with a view to re-appointment.”66
64  Ch 434.
65 Re Greaves
 Ch 434, at
66 Re Greaves
 Ch 434, at
Thus, an alternative analysis to
one based on the settlor’s intention is that the donee of a power having
no imperative duty to make an appointment, the donee’s duty can only be
to those who take in default of
appointment. This explains why, in Kea,
the children had standing to complain of an exercise of the power purportedly
in the interest of another discretionary beneficiary—if the power is
improperly exercised, their hopes are wrongly dashed.
52 If this were given strict application, it may mean that objects
of the power could not complain but
only default or residual beneficiaries
could do so. Thus, the children’s standing to complain would arise
because they held this latter capacity, irrespective of their simultaneous
capacities as objects of the power. However, English authority recognised the
ability of the objects of the power to complain
about its exercise, too—including where the exercise is purportedly in
their favour. In Re Pauling’s
Settlement,67 the objects of
the power were able to challenge its exercise in their apparent favour. A
marriage settlement contained a power of appointment in favour of the children
of the marriage. The power was exercised numerous times to buy and furnish
houses, putatively for the benefit of
the children, but who subsequently challenged the appointments made. At first
instance and appeal, the courts were clear in finding the payments frauds on the power and the children had standing
to set aside the payments purportedly made in each of their favour. What
qualified this standing on the facts was that unsurprisingly it was found to be a defence that, even where
payments were wrongly made, they were made pursuant to a valid request or
consent to such payment.
Lewin also considers that objects of the power may be able to
challenge its exercise as a fraud on that power where the donee of the power
owes them a duty. This is based on a dictum
of Warner, J’s in Mettoy
Pension Trustees Ltd v Evans,68 accepting for the purposes of
the case before him a categorisation of powers made in submission by Robert
Walker, QC.69 These included a category comprising:
given to a person to determine the destination of trust property without that person being under any obligation to
exercise the power or preserve it. Typical of the powers in this category is a special power of
appointment given to an individual where there is a trust in
default of appointment. In such a case, the donee of the power owes a duty to the beneficiaries under
67  1 Ch 303 (CA).
68  1
WLR 1587, at 1613.
69 Lewin para 30–083(2)–(3).
that trust not to
misuse that power, but he owes no duty to the objects of the power. He may
therefore release the power, but he may not enter into any transaction that
would amount to a fraud on the power, a fraud on the power being a wrong
committed against the beneficiaries under the trust in default of appointment. See In Re Mills  1 Ch 654 and In
re Greaves  Ch 434.”70
54 On the basis of this
dictum, Lewin observes that:
been said that the donee of a special but non-fiduciary power owes a duty to
those entitled in default of appointment not to misuse the power but none to
the objects of the power. That suggests that the ability to challenge a fraud
on the power depends on the existence of a duty owed to the objects by the
donee; hence the objects of a power vested in trustees or other fiduciaries,
being entitled to a proper consideration whether the power should be exercised,
would be entitled to challenge a fraud
on the power.”
In Mettoy, the relevant issue concerned whether a power in the pension
scheme, granted to the employer rather than the pension trustees, was fiduciary
or not (and thus who could exercise it, the employer, receivers appointed under
a debenture, or liquidators appointed pursuant to the Insolvency Act 1986.71
Warner, J held that the power was fiduciary, otherwise the benefit to the
beneficiaries, who were not volunteers but earned their standing as
beneficiaries by dint of their employment, would be illusory especially on the
insolvency of the employer (which is when the power would be triggered).72
It was in that context that counsel submitted that for the purposes of the
court’s consideration of that issue, powers could be divided into four
categories. These were: (1) special (i.e.
limited) powers (being subject to the fraud on a power doctrine, but without
any duty to consider their exercise and so capable of release: this was the
category described in the passage cited above);73 (2) powers
conferred on trustees as trustees of the power itself (“fiduciary
power[s] in the full sense”, with duties to consider their
discretionary power in which the discretion is really a duty to form a judgment as to the existence of circumstances giving rise to
70 Mettoy Pension
Trustees Ltd v Evans  1 WLR 1587 at
71 Ibid at 1608.
72 Ibid at 1615F, 1618E–G, 1620F–G.
73 Ibid at 1613G–H.
74 Ibid at 1614B–C—thus described
more in analogy
and (4) discretionary trusts, under which the trustee (or some other) has a
duty to select from a class who receives trust property and in what
Categories (1) and (2) match the
distinction recognised in Jersey in In re VR Family Trust,77
drawing on Lewin, of limited powers
and fiduciary powers as a species of limited power:
“Beneficial powers can be exercised in any way for
the benefit or purposes of the donee
as the donee wishes without restriction. Limited powers must be exercised in
good faith for the purposes for which they are given. They differ from
beneficial powers in that they are conferred for the benefit of one or more of
the beneficiaries other than the donee. The constraints on the exercise of a limited power are expressed
in the doctrine of a fraud on a power. An exercise of the power can be
impeached if, for example, it was made for a corrupt purpose, such as for the
benefit of the donee himself. Fiduciary powers are a class of limited powers.
The significance of the distinction, which according to Lewin has been elaborated in a recent authority, is that the donee
of a fiduciary power owes a duty to the objects of the power to consider from time
to time whether and how to exercise it and they have various remedies open to
them if the donee does not or cannot do so. He is not bound to exercise it
merely by virtue of its being a fiduciary power, the duty being to consider its
exercise, although in the case of what is called a trust power he is bound to exercise it. If
he does exercise it, the donee is subject to the doctrine of a fraud on a
power, in the same way as the donee
of a non-fiduciary limited power.”78
The purpose of these summary categorisations
in the Mettoy case was to assist
identifying the characteristics and so nature of the power in question in order
to address further questions of practicality,
namely who could exercise the power in the circumstances of the donee
employer’s insolvency. They were not addressed to identifying the nature,
rationale and full scope of the fraud on a power doctrine. This follows from
the issue to which the submissions and characterisations were addressed79
as well as the text in question. That this does not exhaustively survey the
range of powers and all their incidents is demonstrated by the judgment
containing no reference to
75 Ibid at 1614D.
76 Ibid at 1613G–1614F.
77 2009 JLR 202
78 Para 27.
79  1 WLR 1588, at 1608F, 1613G.
category of “fiduciary power[s] in their fullest sense” as being
subject to the doctrine of fraud on a power. The dicta in respect of this appear to reflect the submission made that
where a power is fully fiduciary it is as if the donee is a trustee of that
power—and therefore subject to fiduciary duties in respect of its
The dicta in Mettoy should
therefore not be over-extrapolated. They go no further than describing without
analysing the characteristic of
powers subject to the fraud on a power doctrine as subjecting the donee to a
duty. That can be seen to correspond to the existence of the limits placed on
the exercise of the power exceeding which have legal consequences. Since
certain persons have the right to enforce
those consequences, they can be said to be owed a duty. Insofar as Mettoy identifies those persons, it
refers only to the beneficiaries under the trust of the property that remains
in default of its appointment under the power (i.e. the default beneficiaries or remainderman as in Greaves above). Nor does it specify what
the consequences are that can be enforced at their suit.
of fraud on a
Where a power is exercised in breach of the equitable
doctrine of fraud on a power, that exercise is void in equity.80 How
this quite plays into Jersey law, not
distinguishing between law and equity as does English law, is not clear, as the
Court of Appeal in Crociani observed
but while nonetheless accepting it. The English position appears to be that (1)
the exercise of a fraud on the power is void, in equity (rather than voidable),
and (2) in effect the consequences at law
may be avoided by equity (which would prevail over the law where the two are in
conflict).81 In Jersey the position therefore appears to be that the
exercise of the power is void, but consequent transactions may be voidable in
consequence as they will be prima facie valid
on their face until set aside.82
Also, as demonstrated in Crociani, where it is not possible to unscramble the transactions
founded on the fraudulent exercise of the power to restore to the trust the
property actually appointed, the trustee
will be liable to reconstitute the trust fund.83
80 Cloutte v Storey  1 Ch 18 (CA), per Farwell, LJ, at 31; Crociani v
Crociani 2018 (2) JLR 175 (CA), paras 148–149, and 2017 (2) JLR 408 (RC)
81 Cloutte v Storey  1 Ch 18 (CA), per Farwell, LJ at 31.
82 Crociani (CA), para 148.
83 Crociani (RC), para 682
Under the Trusts Law, “breach of trust” means
a breach of any duty imposed on a trustee by the Trusts Law by the terms of the
trust; “terms of a trust” means the written or oral terms of a
trust, and also means any other terms made applicable by the proper law; and
“trust” includes inter alia the
rights, powers, duties, interests and obligations under a trust.84 A
discretionary power may be conferred by the trust instrument, but it is
arguable whether—although a provision of the trust—it is a term of
the trust comporting a sufficient duty failure to comply with which would
qualify as a breach of trust as defined. Although it does not naturally follow
from the statutory language, it could be argued that the fraud on a power
doctrine is a duty inherent in the discretion
conferred. Another analysis could be that a term of the trust imposed by law is the duty not to commit fraud on any power. A further analysis might be that
since art 21(1) applies to the execution by a trustee of his or her duties
“and in the exercise of his or
her powers and discretions”, and includes a duty to observe the utmost
good faith when doing so. To use the power bona
fide for its object could be said to be within the duty to exercise the
power not only according to its express construction but also in good faith. To the extent that a fraud on a power can be
placed within the statutory language in any
of these ways, art 30(1)(2) of the Trusts Law provides that the trustee committing it is liable for any loss
or depreciation of the trust property or loss of profit occasioned by it. In
any event, Crociani did not feel the
need to draw on any such analysis and English authority is that where the power
is vested in trustees, it is a breach of trust if they exercise it in fraud of
These consequences help explain who has locus standi to bring an action in
respect of a fraudulently exercised power and why. Remaindermen and default
beneficiaries will be deprived of the distribution to which they are entitled under the trust of which they are beneficiaries. Discretionary
beneficiaries, whether as objects of the
power in question or beneficiaries of the trust in shares to be determined by
the trustees, will also be deprived of the opportunity to have such property distributed to them. None of them have standing to complain (legitimately) where the power has been exercised
properly, since that is what the power was for and enabled the donee to do. Their expectation or hope of benefit is
always subject to the potential for such exercise. But it is not subject to an
improper exercise of the power.
84 Trusts Law, art 1(1).
85 Lewin 30–094; Re Paulings Settlement Trusts  Ch 303 (CA).
Thus, the rights reciprocal to the donee’s duty not
to commit a fraud on the power when exercising it are not reciprocal to the
elements that render the exercise fraudulent or not. It is for this reason that
parties other than the object of the power, or purported object where it is
exercised fraudulently, have standing in respect of it. They have the right to
the power being exercised properly. The donee therefore has the duty to
exercise the power properly. That duty is owed to those with an interest in the proper performance of the power,
which is those concerned in the subject matter of the power but for its improper exercise. In the case
of a dispositive power, this is those who are deprived of their opportunity to
receive the property disposed of.
This is demonstrated by cases in respect of other
breaches of trust that are not frauds on the power. Freeman v Ansbacher Trustees (Jersey) Ltd86 was an
action, brought by order of justice, for breach of trust. The breaches alleged
were exercising less than due care and skill
in the administration of the trust fund with the result that it was less
valuable than it would have been if properly administered. The trust was—
“relatively conventional in providing for
accumulation trusts of income, subject to powers of appointment of capital or income in favour of a specified class of beneficiaries until
the vesting date, and then ultimate default trusts in favour of those beneficiaries.”87
The issue was whether a beneficiary who was (1) the
object of a discretionary power of appointment, and (2) a contingent, ultimate
beneficiary of the trust had standing to bring such an action. The Royal Court held that she did in both
capacities at one and the same time.88
In so holding, the court drew on Schmidt v Rosewood.89 As the object of a fiduciary
power, the beneficiary had the right to the due administration of the trust
fund which right extended (subject to the court’s discretion when
granting relief) to seeking reconstitution of
the fund if dissipated through maladministration. 90
86 2009 JLR 1 (RC).
87 Freeman v Ansbacher Trustees
(Jersey) Ltd 2009 JLR 1 (RC), para
88Freeman v Ansbacher
Trustees (Jersey) Ltd 2009 JLR 1 (RC), paras 37, 42,
89  UKPC 26; 
2 AC 709.
90 Freeman v Ansbacher Trustees
(Jersey) Ltd 2009 JLR 1 (RC), paras 39–
Although not spelt out in this way, save to dismiss any
distinction in this respect between the beneficiary of a discretionary trust91
and the object of a discretionary
power, both of whom have a right to due administration of the trust fund, Freeman92 identifies the
reason why the object of the power and the contingent, default beneficiary are able to seek reconstitution of the trust
fund. The reason is that the object of a discretionary, fiduciary power has
sufficient interest in the constitution of the fund in respect of which the
power might (and must be considered
to) be exercised to be entitled to remedies preserving or reconstituting its
value. If anything, the court drew on Lewin’s comments to refer to the
intention of the settlor, to the effect that a modern Jersey discretionary
trust is generally settled to benefit the objects of the power who may or may
not be beneficiaries of the ultimate trust, which may well be an unconnected
charity or other default beneficiary with no real hope of or intended benefit.93
However, the court’s conclusion in respect of the
beneficiary’s separate standing as a default beneficiary under the
terminal trust helps illustrate this
point. The court accepted the English position that:
“In the past the existence of an equitable vested
or contingent interest, however minute or remote, has been treated
as sufficient to give a
claimant locus standi to take proceedings
to have the trust fund secured, or to take proceedings for breach of
68 The passage of Lewin
cited by Freeman in this respect
goes on to consider that traditional English position as difficult to reconcile
with the suggestion in Schmidt v Rosewood
(and accepted in Freeman) when
considering applications for disclosure of documents or accounts that the court has a discretion not to grant relief to
beneficiaries (including objects) with a remote or wholly defeasible interest,
and equally difficult to distinguish (e.g.
on grounds that reconstitution of the trust fund involves different
considerations). It then offers that—
“a court would be cautious in exercising its
discretion to deny a beneficiary with a remote or defeasible interest a right
to have the trust fund secured or a breach of trust remedied,
91 I.e. the beneficiary of a trust under
which the trustee must distribute but to the beneficiaries in amounts chosen in
his or her discretion.
92 Cit Schmidt
v Rosewood  UKPC 26;  2 AC 709.
93 Freeman v Ansbacher Trustees
(Jersey) Ltd 2009 JLR 1 (RC), para 43(iii).
94 Freeman v Ansbacher Trustees
(Jersey) Ltd 2009 JLR 1 (RC), para 44, again cit Lewin.
of the remoteness of his interest, and perhaps it is only where the interest is so remote that the
court would be prepared to authorise
a distribution notwithstanding a remote interest that no relief would be
69 An alternative approach would be to consider the
discretion to attach to the remedy, and whether, despite its availability, it
is appropriate to deploy it in the circumstances, rather than to the
circumstances which therefore dictates the choice of remedies available. This
is borne out by the observations of the Court of Appeal in Crociani, which “considered it correct . . . that remoteness
of the interest of the beneficiary seeking equitable compensation is a relevant
factor in exercising the discretion to award compensation”.95
Considering trustees’ liability for loss or depreciation pursuant to art
30(2) of the Trusts Law to be equivalent to the approach developed in English
case law, the Court of Appeal went on that:
“28 . . . The basic rule is that, where property has been
misapplied and cannot be restored in its original form, the trustee must
restore the trust fund to the position in which it would have been but for the
breach. That compensation, appropriately calculated, then forms part of the
trust fund and is held on the same terms as the remainder of the fund unless
the trust is at an end and payment of compensation can be made directly to the
beneficiary or beneficiaries absolutely entitled to the trust fund. Particular
reference can be made to the judgment of Lord Reed, JSC in AIB ( UKSC 58, at paras. 90, 91, 94, 105 and 116).
29 In the case of a misapplication of trust
property by misuse, the application
of the principle will often be straightforward. Subject to calculation of the
appropriate amount of compensation to
place the trust fund in the position in which it would have been had it not
been for the breach, the trust estate must be fully reconstituted in order to
continue to provide benefit—whether by way of discretionary payment or
vested entitlement—to those entitled to participate in the income arising
and those eventually entitled to participate in the distribution of the
These passages demonstrate that some interest in the
fund’s existence—whether vested, contingent or
discretionary—gives standing in respect of its constitution, and so to
sue in the event of its diminution. Although Freeman was concerned with an action for breach of the trustees’ duties of prudence, diligence and skill, which
95 Crociani (CA), para 26.
do comport a right to reconstitution of the fund to the
extent it is diminished by breach of them (as examined above), its reasoning
carries over to standing to sue for fraud on a power.
71 The duty owed by the donee of a power therefore includes the duty not to use the power improperly.
Where it is a dispositive power, the duty is not to exercise the power (or
purport to) in fraud of that power, such that the fund to which it relates will
be reduced improperly. To the extent the fund is reduced, the impropriety
vitiates the exercise of the power such that the reduction has no effect and is
therefore liable to be restored. Where this is not possible, the donee is
liable to make good the loss he or she has wrongfully caused. These duties and
liabilities on the donee exist to the benefit of those prejudiced by the
reduction, who are entitled to its reduction only on proper grounds, and they
therefore have enforceable rights corresponding to those duties. These are the two
sides of the coin of fraud on the power.
Conclusion: fraud on a power and
obligations to discretionary beneficiaries
72 What, then, does this show us?
The duty not to commit a fraud on a power can be owed to objects of the
power, as demonstrated by Re
Pauling’s Settlement Trusts and Crociani.
In each of these cases the objects of the power, the children and Cristiana
respectively, were able to challenge the donee’s purported exercise of
the power as being fraudulent because
the donee did not exercise it for the benefit of those objects but for him and
herself. In Pauling, the power was
exercised ostensibly for the benefit of its objects and in Crociani simply for the benefit of the donee. There is no suggestion that either of
these cases was wrongly decided in law—where the power is for the benefit
of the object, surely the object must have standing to challenge an exercise
which is not to his or her benefit.
However, what the other cases show
is that it is not only the object of
the power who has an interest in the power being exercised purely for the
benefit of the object. To an extent in Pauling
and as was the case in Lane, the powers exercised in the older
English cases (arising in the context of traditional family settlements) were
often exercised ostensibly for the benefit of the object of the power, such as
the children in Pauling or the wife
in Lane, but with their connivance
for an ulterior benefit, such as to benefit the donee of the power. In such
circumstances, unsurprisingly, the object who consented could not successfully
challenge that exercise. Nevertheless, as Lane
showed, that does not mean that the fraud on a power doctrine does not apply nor that the fraudulent exercise
of the power is victimless.
Those who would
benefit from a trust, or even those who might in future benefit from the
exercise of a power, over or in respect of property purportedly appointed in
fraud of the power, are entitled to complain that they have been wrongly
deprived of their opportunity.
75 Indeed, the standing of both categories of plaintiff can be seen
to rest on the same footing. The object him or
herself is as entitled as his or her co-objects to complain that the property
subjected to the power has been wrongfully dissipated by misuse of the power
other than for his or her benefit. He or she has correspondingly been denied
the opportunity to benefit from that property in a proper exercise of the
power, just as any other member of the class of objects of that power has.
Similarly, just as the objects of the power in question are entitled to its
proper exercise so that they are not improperly deprived, so also are any
default beneficiaries, whether fixed or discretionary, who have a similar but different interest in
the trust fund not being reduced save
by a proper exercise of the power. That in many modern discretionary trusts the
discretionary beneficiaries are at once the objects of powers of appointment
and discretionary beneficiaries of the
terminal trusts should not obscure this.
So, if there is a trust for Janet
and John, with a power of appointment in favour of Jack and Jill, all four
beneficiaries have an interest in the proper exercise of the power of
appointment. If the trustee purports to appoint for the benefit of Jack but in
reality for some collateral purpose, Jack may or may not have standing to
complain that the appointment was not genuinely intended to benefit him,
depending on the circumstances including whether or not he consented to the
appointment or was party
to some arrangement for its being made to further that
collateral purpose. However, prima facie and
whether or not Jack has any standing, Jill, Janet and John all would.
Thus, the duty not to commit a
fraud on a power binds the donee, who stands on one side of the obligation not
to do so. But while the object of the power in question may be on the other
side of that obligation, enjoying the reciprocal right that no fraud be
committed, so may other
beneficiaries—whether objects of the power in question or not. It follows
from this that the right not to have
a power exercised fraudulently is not indivisible from the object of the power
or its exercise in question, since others have that right too.
The content of the obligation is
not to exercise the power fraudulently. In particular, where the power is a
discretionary power of appointment,
the obligation is not to exercise that power to appoint other than for the
benefit of the object (to whom or to whose benefit the appointment is
purportedly made). In the example above, Janet, John and Jill may be
indifferent as to whether Jack truly benefits from
which is a matter for him and his good fortune if he does. If he does not,
again, their interest in the matter is not Jack’s welfare but their own
deprivation other than on proper grounds.
The donee is obliged to those
having an interest (in the sense described above) in the constitution and
proper administration of the trust and its property not to exercise the power improperly so that they are deprived of the proper constitution or
administration of them to which they are entitled. It is an aspect of the
propriety of the exercise whether the donee has acted for the benefit of the
appointee (in the case of a dispositive power such as was in issue in Kea) as intended, or for some collateral purpose that renders the exercise a fraud
on the power. Such considerations are distinct from the identity of those who owe or are owed the obligation, hence
the default beneficiaries with a potential interest in the fund are entitled to
police the exercise of the power, and are therefore owed the obligations in
respect of its exercise. This is the
case whether or not the individuals who happen
to be the default beneficiaries are also objects of the power.
A further point follows from this.
If the duty is not owed solely to the beneficiary, the arresting creditor does
not arrest it. The arresting creditor does not stand in the shoes of the
beneficiary when benefit to that beneficiary is considered when the trustee is
deciding whether or not to exercise the power in his or her favour. All the
creditor arrests in this regard is
the right to compel such consideration (the interest and rights identified in Gartside)
and to receive in the beneficiary’s stead, but the duty to consider the
beneficiary’s interests is not owed only to that beneficiary but also to
others with an interest in the trust. The arresting creditor cannot arrest the
interests and rights of those others. Even to the extent the arresting creditor
takes all the rights of the beneficiary whose interests he arrests, the trustee
still owes other, unarrested obligations to other beneficiaries. These include
the obligation not to commit a fraud on the
power, even where the right to
compel consideration of exercising the power and receive any benefit from its
exercise have been arrested.
To the extent that the trustee
owes parallel obligations to other beneficiaries not to commit a fraud on the
power by exercising it other than for
its proper purpose (of benefitting the object), it follows that the obligation
is not indivisible from that object, in the sense of who are parties to that
obligation. To the extent that it is divisible in this sense, allowing other
parties to take the benefit of and enforce the obligation, it suggests it is
capable of arrest. Equally, the rights of the object him or herself not to have
the power exercised to his or her purported benefit but really to benefit
another can be seen as separate rights to the right to be considered for
benefit. On either view, the benefit of the obligation not to commit a fraud on
the power does not
inseparably to the person of the object but can be enjoyed by others.
However, the arresting creditor
takes the rights arrested as he or she finds them. On arresting the rights of a
discretionary beneficiary to (say)
compel the trustee to consider exercising the
power to appoint in favour of that beneficiary, the trustee remains subject to
the duty not to commit a fraud on
that power. If the content of that duty is to
act only in accordance with the purposes of that power, and those
purposes are to benefit the object of the power, then to the extent that the
object itself is owed that duty all the creditor arrests is the right to
benefit from its performance. What must be performed is the content of the
obligation and so the creditor could compel only the consideration of the
object’s best interests. Equally, to the extent that the other
beneficiaries have standing to enforce the trustee’s duty not to commit a
fraud on the power, their rights and the trustee’s obligations to them
are unaffected by the arrest which is res
inter alios acta. This is true of
their standing to enforce the duty, and a
fortiori the content of that duty given the personnel on either side of it
are the same.
An alternative way of looking at
this is that if the creditor arrests and compels the duty to consider making an
appointment, the content of that duty is
to consider making an appointment. When doing so, the
trustee must consider whether the appointment is to the benefit of that
beneficiary (i.e. Mr Watson), and
only make an appointment in order to do so. The duty in that latter respect is
also owed to third parties and is not
arrested. Therefore, irrespective of the arrest, the trustee is to consider the question of benefit by
reference to the beneficiary, rather than his creditor. This, of course, was
contrary to Kea’s submission that it was its interests that fell to be
considered post arrest.
Thus, it is concluded that the
obligations of the donee of a power not to commit a fraud on it are distinct
from the obligations to give due
consideration to the exercise of it and remain enforceable by the beneficiaries
interested in default of its exercise. In particular, the content of the
donee’s duty not to commit a fraud on the power remains to consider the
interests of the beneficiary, not the assignee, arresting creditor or any other
third party. To alter the parties at either side of the obligation does not
necessarily alter the content of the obligation as it stands between them, and
in particular does not do so in respect of the fraud on a power doctrine. That
being so, the confirmation of an arrêt
over the rights of a discretionary beneficiary ought not to be thought to
invoke the fraud on a power doctrine, so that (subject
to any express terms of a trust) the rights of a
beneficiary do appear to be capable of arrest in the hands of the trustee by arrêt
However, that does not mean that
the trustee is absolved from his or her duty not to commit a fraud on the
power. If anything, the above shows that duty remains in favour of the debtor
and others who can step in to complain should the trustee improperly exercise
the power. As a result, it remains for consideration whether the trustee
should, at any given time, pay the arresting creditor to discharge the debtor
beneficiaries’ debt to him. The debtor beneficiary has a right to compel the trustee to consider from time
to time whether or not to do so. That is a right enforceable by that
beneficiary against the trustee, and so one capable of arrest by the arresting
creditor. However, the trustee must nonetheless consider whether, in all the
circumstances it is to the benefit of
the beneficiary to do so.
Richard Holden is an advocate of the
Royal Court of Jersey and Counsel at Carey Olsen LLP, Jersey. The author would
like to thank Advocate Andreas Kistler for his helpful comments on earlier
drafts of this article, but all
infelicities, inaccuracies and heresies in it remain the author’s own.