The Guernsey Court of Appeal case of Molard International (ptc) Ltd v Rusnano Capital AG (in liquidation) was decided just before Christmas. It dealt with the rights of a single beneficiary of a trust - which might be a family member - to bring that trust to an end.

"A discretionary trust where the beneficiaries were described as 'the children and remoter issue of the settlor' would not be affected because, until there was no possibility of any remoter issue being born in the future, all the beneficiaries would not be 'in existence' as required by section 53(3). However, a discretionary trust whose beneficiaries were described as 'my wife X and my children A, B and C' could be brought to an end by A, B, C and X resolving to do so even if there was an intention to exercise a power to add grandchildren of spouses of A, B or C as beneficiaries at a later stage."

The Red Cross trust argument

An interesting feature of the case was the Court of Appeal's rejection of an argument based upon the effect on so-called "Red Cross trusts." Here we are describing a trust which begins life with only a single beneficiary, a charitable institution, where there is no real intention of benefiting that charity. The argument was along the lines that such an institution could instantly seek the termination of the trust and scoop the pot.

The Court of Appeal was unmoved, saying: "We are not necessarily too discouraged at the possible effect on such trusts. We question whether they are as common nowadays as perhaps they once were and whether they are to be encouraged in an international finance centre such as Guernsey, with a high reputation for upholding international standards."

The court pointed out that beneficiaries could be added before a charity sought termination and again there was the possibility of an application under s53(4).

Costs

The later costs judgment criticised both parties for not appreciating the significance of s53(4). The appellants lost on the principal issue (the construction of s53(3)) which had taken up most of the written and oral submissions. A deduction was made of 20% to allow for the appellant's success in respect of the s53(4) issue. The respondents were therefore awarded 80% of their costs.

Although Rusnano Capital asked for costs on the indemnity basis, the court only awarded them on the recoverable basis. The appellant's conduct (at least in the appeal where the s53(4) point had been taken) had not been unreasonable. Costs below had been reserved to the Deputy Bailiff and remained to be fixed.

The Court of Appeal refused to allow the appellants to reimburse themselves from the trust fund, either for their own costs in connection with the litigation or for the costs awarded against them.

In reality, the contest was between Rusnano Capital and Mr Erochkine. Mr Erochkine ought to have been joined to the Royal Court proceedings, with the trustee and Pullborough remaining neutral. The appellants had fought Mr Erochkine's battle for him. If the appellants were to be allowed to reimburse themselves, the consequence would be that, despite being successful, Rusnano Capital would effectively have paid the losing party's costs in relation to the section 53(3) argument.

Modification by statute

The court made important observations about the nature of Guernsey trust law and its relation to English trust law along with comments about statutory interpretation. In particular, it cited the cases of Spread Trustee Co Ltd v Hutcheson (2002) GCA 299 and [2012] 2 AC 194 and Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2018] GLR 97 in support of the proposition that the question for the court was "...whether any rule of English law has been modified by a Guernsey statute..." concluding in the present case that: "for the reasons which we have given, we are satisfied that it has."

The specificity of Guernsey trust law

The case is therefore important for its emphasis on the fact that, although Guernsey trust law may owe a great deal to English trust law, it cannot be assumed that it is to the same effect. Guernsey trust law has its own specificity. In practice, it will doubtless be rare that all beneficiaries will be in existence and ascertained and a potentially deserving, would-be beneficiary omitted, without a trustee having an opportunity first to appoint such. In any event, however, s53(4) provides a lifeline.

* Gordon Dawes can be reached on +44 1481 723 466; Matt Guthrie can be reached on +44 1481 731 424