An invalid exercise of a beneficial power: an invalid revocation
In a landmark decision, the Royal Court of Jersey has held that a settlors’ exercise of personal powers of revocation of a trust should be declared invalid.
In the Representation of Jasmine Trustees Limited and another  JRC 210, the Court held that the settlors of two Jersey law trusts, who each held a power of revocation, had not executed the powers of their own free will. Rather, the Court held that the settlors had been unduly influenced by a third party (the father and a beneficiary of the trusts) to exercise the power of revocation as part of his attempts to assert control over the trusts’ assets.
The trustees of the trusts sought directions from the Court after one of the beneficiaries (the daughter) of the trusts (for whom Appleby acted) raised concerns over the validity of the revocation notices. She had previously been informed by the settlors that they were coming under increasing pressure by the third party to revoke the trusts and that he was threatening consequences if they, the settlors, did not exercise their powers of revocation.
The judgment confirmed that as a matter of Jersey law, a power of revocation is a beneficial power. As such it could be exercised purely for the personal benefit of the settlor with no duty to have regard to the interests of the beneficiaries. It followed that the exercise of a power of revocation could not be set aside on, for example, the grounds of fraud on a power.
The Court, however, had to consider whether the exercise of the power of revocation should be declared invalid on the grounds of undue influence.
The Court confirmed that the law of undue influence in Jersey is similar to that in England. The Court then rejected the father’s submission that only the victims of the undue influence (i.e. the persons who had entered into the transaction because of the undue influence exercised over them; in this case the settlors) had the standing to set aside the transaction in question. The Court confirmed that in most cases it was likely to be the victim who would bring the action as the transaction entered into was likely to be disadvantageous to him.
That, however, was not the position in relation to the revocation of a trust. The Court highlighted that in such circumstances the disadvantage would be entirely to the beneficiaries who would lose the ability to benefit from the trust fund.
The Court thus held that under Jersey law a beneficiary had the right to impugn the revocation of a trust on the ground that the settlor had exercised the power under the undue influence of another. This was particularly so because if a beneficiary couldn’t challenge the revocation it was unlikely it would be challenged by anyone even if it had been carried out as a result of undue influence or even duress.
On the (extraordinary) facts of the case the Court held that the revocation notices should be set aside and declared to be invalid.
This appears to be the first occasion in which a court has declared a revocation notice given by the relevant power holder to be invalid and of no effect, and it will be interesting to see the wider impact this decision may have.