Investments can be a minefield for trustees

Date: 18 Sep 2015

Citywealth

John Greenfield, partner at Carey Olsen, Guernsey, says trustees have ventured into a wider field of investments which can be very dangerous territory for them if it goes wrong.

What trends do you see in trustee litigation?

For some time, especially in offshore jurisdictions, trustees have been required to do much more than simply hold safe a trust asset and pay school fees for minor beneficiaries. They are expected to borrow external finance and make wide investment choices. Initially they often do this at the behest of a settlor or protector. The trouble is when such investments go wrong beneficiaries want to blame the trustees and external lenders want their money back quickly. This has led to the courts having to grapple with resolving the very different objectives of beneficiaries and creditors. In the Channel Islands the high profile Tchenguiz litigation has seen the court setting out some guidelines as to how to resolve these issues.

What are the issues around investments?

Trustees have ventured into a wider field of investments which can be very dangerous territory for them if it goes wrong. We have already seen one economic collapse on a global scale and there is much concern in the market place about the impact of the problems with the Chinese economy. Many professionals including those trustees who have made wide reaching investments are bracing themselves for further litigation should the value of the trust portfolio dive.

Are mediators on the rise?

Mediation is an important option in trust litigation as it can avoid the high cost and lengthy delays of the Court process. There are also many family trust situations where the confidentiality of mediation is much preferred, although courts recognise that in certain situations the hearings should be on camera. There is definitely a call for mediators who have a strong background in trust law.

What would you like to add about the current issues of trustee litigation?

Trustee litigation is now much more complex because trustees are required to undertake steps in relation to the administration of the trust which can raise difficult legal issues. Also the precise role of the protector in trusts has come under the spotlight in recent cases. Starting life as the settlor’s trusted advisor to keep an eye on unknown corporate trustees, it has developed into a fiduciary role and protectors need careful advice as to how far they should be seen to intervene in the conduct of the trust or alternatively what liability they may incur if they fail to make such intervention. It can be a difficult role to get the balance right and protectors are often having to have their own separate legal advisors to those of the trustees.