Were the trustees dishonest?

1. The key issue was whether PTCL’s behaviour amounted to dishonest assistance in the breaches of trust. In all cases, except two of the Quistclose trusts, the Royal Court held that it did.

2. The essence of the criticism was that PTCL had failed to bring “independent judgment to bear as to whether any of the Nolans’ investments was the right thing to do”.

3. Some of the practical points raised were as follows:

1. Certain inconsistency in information being provided by Mr Walsh should have been apparent and caused alarm bells to ring.
2.  Once the alarm bells were ringing, an honest trust officer should have undertaken further enquires regarding the source and purpose of the investment.
1. This might have included demanding a full explanation of the inconsistencies and, absent such an explanation, not taking at face value any further information provided.
3. An honest trust officer should
1. embargo a transaction until his/her enquiries had been satisfactorily addressed. He/she would also report the transaction to the appropriate people.
4.  An honest trust officer should
1. reflect independently on the commerciality of a transaction. For example,
1. a disparity between the price paid for an asset historically and the price being proposed now might cause further enquiries to be undertaken
5. If there are concerns about the veracity of the information being provided by a party to a transaction, an honest trust officer should seek corroboration from other parties to the transaction.
6. An honest trust officer should
1. inform his/her colleagues of the concerns to preclude inadvertent approval of the transaction by someone else.
7. An honest trust officer should
1. look at the client’s activities as a “continuum”, in order to assess whether concerns in relation to a previous transaction should raise concerns in relation to a current transaction.
8. More generally, there have been concerns about the reliability of information provided in relation to one transaction, then an honest trust officer should
1. proceed cautiously in relation to information provided by the same person in relation to different transactions on the part of PTCL.
9. The fact that there are no reputational or KYC concerns about a client cannot justify a failure to act independently if it subsequently transpires that the client is not what he/she first seemed.
10. The Royal Court concluded in this case that failures in relation to the above were commercially unacceptable and amounted to dishonest assistance on the part of PTCL [footnote 7].

Prescription

1. Article 57 of the Trusts (Jersey) Law 1984 (as amended) says that limitation periods (i.e. the time limits for commencing actions) will not apply for allegations of fraud and/or actions for the recovery of trust property against trustees.

2. However, the Royal Court has now confirmed that those who engage in dishonest assistance are not themselves “trustees”. Therefore, the provisions of Article 57 do not apply, rendering limitation a relevant consideration.

3. In this regard, the Royal Court noted that a recent decision of the UK Supreme Court and the leading Jersey authority were consistent on the underlying principles [footnote 8].

4. The Royal Court also helpfully confirmed that the limitation period for claims of dishonest assistance is three years (not ten years). Again, it found English law persuasive. It held that the concept of dishonest assistance had been imported into Jersey law from English law, where it was considered analogous to economic torts such as deceit or knowingly procuring a breach of contract. A similar analogy was, therefore, to be drawn in Jersey, and the analagous torts are prescribed in Jersey after three years.

5. However, time would not run against a plaintiff if it was practically impossible for him/her to bring the claim (because, for example, he/she was ignorant of the cause of action).

6. In essence, the Royal Court asked itself, applying well-established Jersey principles, whether ignorance of the cause of action was reasonable in all the circumstances.

7. The Royal Court concluded that the Nolans would not have had the information necessary to plead their claim until documents were disclosed to them pursuant to a Jersey injunction in 2010. The claim was brought in January 2011.

8. Therefore, the Nolans were well within the time for bringing the claim.

Conclusion

1. Clearly, the nature of the criticisms is instructive in highlighting generally how a trustee should and should not behave.

2. As set out above, the behavioural threshold for a professional trustee in Jersey is high. Standards are set by a mixture of the common law, statute and regulation.

3. To a layman, the concept of dishonesty might be perceived as preserved for the realm of the criminal. However, a trustee’s honesty is inextricably linked to its own professional standards, and a breach of those standards may bring questions of honesty very much into play.

4. Trustees may be concerned that this sets a dangerous precedent, imposing potentially draconian sanctions for getting decisions wrong.

1. We anticipate that this may be a talking point in the industry.
2. However, there is nothing new in the principles of honesty utilised by the Royal Court, or with the regulatory requirements that have been summarised.
3. Judicial clarification that there is a nexus between them arguably acts only to confirm what must logically have always been the case (in terms of what the reasonable person might expect of a trustee).
4. Exactly what sort of precedent this case will set, and whether it raises the stakes for trustees, remains to be seen.
5. However, in principle, we do not expect this case to erode the divide between carelessness and dishonesty, or between advertent and inadvertent actions.

5. It is also a timely reminder that professional duties and obligations subsist in the activities of Associate Directors, Managers and Administrators just as they do for the activities of Directors.

1. The fact that a trust officer is not at the top of the food chain does not absolve him/her from the burden of those duties and obligations.
2. That trust officer may have day-to-day management of the matter, putting them in a very important position.

6. So what headline points arise out of this judgment, which a trustee should keep in mind? The following is a non-exhaustive list:

1. Understand your client, the business and the transactions they are undertaking. Think laterally and logically to ensure that it all makes sense. Think about the source and purpose of funds.
2. Act diligently and ensure proper records are kept.
3. However important, persuasive or intimidating the client is, do not act as a puppet. Exercising independent judgment is crucial.
4. Trust your instinct. If something does not feel right then do not ignore it.
5. Communicate appropriately – be it to your colleagues, superiors, MLRO or the Financial Services Commission.
6. When faced with problematic situations a transparent approach is the best approach.

7. Finally,

1. a prudent trustee might seek external advice on duties, obligations and risks in tricky situations.
2. Being a trustee is a position which bears significant responsibility, out of which comes the pressure of difficult decisions.
3. Often serious issues can be prevented through advice at an early stage. As this case demonstrates, prevention is far preferable to cure.

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