I am dealing with a case of a discretionary trust with an open category of beneficiaries (“children and grandchildren and in such shares as the trustees shall in their absolute discretion think fit”) where the terms of the trust include a power to add or remove beneficiaries in the hands of the trustee. Beneficiaries have no fixed/vested positions.
I am aware that under the English Law a settlor cannot exclude the “Saunders v Vautier” power by declaring the beneficiaries shall not be free to take the trust property in disregard of the settlor’s stipulated purpose: Stokes v Cheek.
I was wondering if anyone had any experience with this in Jersey Law: is it possible for the settlor to oust this principle by express declaration in the trust deed (governed by Jersey Law)?
In light of the recent rulings, I am no longer so sure that the rule in Saunders v Vautier does not apply where there is a fluctuating body of beneficiaries from time to time within a class.
Thank you very much for your support.
More a question than an answer: Can you clarify how Saunders v Vautier could apply to that situation in the first place? If I have understood the facts as you present them, no beneficiary or group of beneficiaries could, between them, be absolutely entitled to the trust fund (unless/until the trustees so appoint).
Thank you for your reply. It is a question I have also asked myself and have found differing opinions on the subject.
Before answering, I would like to point out one thing: the open class of beneficiaries is currently represented by three individuals: the settlor’s son and his two granddaughters - one adult and one minor. The weakness on this point may be the presence of a minor and/or unborn beneficiary.
I am aware that the rule in Saunders v Vautier only applies if all the beneficiaries are of full capacity and are (together) entitled absolutely to the property.
It follows that the rule does not apply where there is an open class of beneficiaries, even where the likelihood of another beneficiary being born before the trust fund is exhausted is remote.
It is settled law nowadays that the Saunders v Vautier also extends to discretionary trusts, at least where the class of beneficiaries is closed (for example because there is only one beneficiary at all).
The question of whether the rule can operate where the class of beneficiaries is open (because the terms of the trust include a power to add or remove beneficiaries) in my opinion it is controversial. I’m probably wrong.
I know that under English Law a settlor cannot exclude the “Saunders v Vautier” power. However, I was wondering whether under Jersey law it was possible.
Thank you very much for you time.
I suggest you have in mind article 43(3) Trusts (Jersey) Law 1984, which was the subject of judicial interpretation either last year or the year before.
My recollection is the Royal Court held that where a trust had a single beneficiary, with power for the trustees to add further beneficiaries, Article 43(3) applied to enable the sole named beneficiary to call for the trust fund to be transferred to them, free from the trusts. It does not only apply if there is a single beneficiary, so long as all members of the beneficiary class are in existence and act together. In effect it modifies the Sv.V rule to ignore the possibility of further beneficiaries being added where there is power so to do.
Accordingly, Article 43(3) does not assist where there is a specific class of beneficiaries that includes minors and the “unborn”.
This is a statutory disapplication of the rule in Saunders v. Vautier in specific circumstances and is not to be applied lightly.
The Jersey position has no relevance to an England & Wales trust as there is no equivalent provision under E&W law.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I don’t think the idea that a DT is not within Saunders v Vautier because of the existence of an overriding power of appointment is controversial and the question whether the non-exercise of a power to add prevents this is also, so far as I know, never been canvassed in the cases and so may remain controversial through lack of precise authority.
The power is a fiduciary power, as conferred on trustees, and is arguably analogous to the principles attaching to more commonly encountered powers of appointment and the distributive powers of a DT particularly when the class of objects is closed or very small. Thomas on Powers expatiates over some 70 pages on the general duties of donees of powers: to consider their exercise, actively or not, to not act capriciously, to not be under direction or instructions of another, to treat objects and beneficiaries even-handedly, to exercise so as to achieve the intended purpose, and to take account of, and only of, relevant considerations, and to act overall in good faith.
The remedy for objects who are dissatisfied is ultimately to ask the Court to remove the trustee(s) and replace them but even then the Court will not to supplant their discretions, only moderate their exercise of them. I think trustees who were asked to exercise their power to add and either refused to do so, or to confirm they were not in fact minded to exercise it, or agree to release it (which is normally specifically allowed by the trust instrument) would not be allowed to thereby, unreasonably or capriciously, prevent the subsistence of what would otherwise become a Saunders v Vautier position. Where the class of a DT is closed that will be the position if the trustees have no discretion over the total amount of the fund to be applied even if they still do over the method of applying it, per Romer J in Re Smith Ch 915. He did not say this but no doubt equality is Equity if their discretion as to which eligible recipient should receive what is not exercised. In that case all the remaining living objects had together assigned their entire interests to a third party so the “what” issue did not arise.
Thank you very much for your valuable clarification.
You have captured exactly my dilemma, it was those two judicial interpretations and the questioning of Article 43(3), which made me doubt.
Your words reassure me, fortunately the English law is more favourable.
I have also come across trust deeds (governed by Jersey law) in which the Sv.V rule was expressly disapplied, but I am not so sure that such a clause can be effective.