Third party proprietary claims to trust property Flashcards
Q1. (General Scenario)
What does it mean when a third party asserts a proprietary claim against assets held on trust?
A1. They argue that they (not the trustee’s named beneficiaries) truly own the specific property – for example, alleging the trustee holds the asset on a constructive trust in favor of the third party, due to some wrongdoing or prior ownership.
Q2. (Guardian Trust)
Which Privy Council case established that a trustee on notice of a third party’s claim risks liability if they transfer trust assets ignoring that claim, and how is it addressed in Jersey?
A2. Guardian Trust v Public Trustee (1942). In Jersey, a Guardian Trust-style application can be made so the court decides whether the third party’s claim is sufficiently serious to halt a distribution.
Q3. (Re BOS Trustee Limited)
What did the Jersey Royal Court clarify about “Guardian Trust” applications in Re BOS Trustee Limited?
A3. These are not ordinary “blessing” applications (where the court checks if the trustee’s decision is reasonable), but rather a limited inquiry whether the third party’s claim is strong enough to prevent trust distributions.
Q4. (Contractual vs. Internal)
If a trustee enters a contract with a bank, and the contract is governed by external law (e.g., English law), who can bring suit for the debt if the trustee defaults?
A4. The bank can sue the trustee (in the trustee’s name). But since Article 32 may limit personal liability, the trustee generally sues or is sued personally but can look to the trust assets for indemnity.
Q5. (Breach Involving a Third Party)
If a trustee transfers a trust asset to a third party in breach of trust, how might that third party become a “constructive trustee”?
A5. If they knowingly participate or receive the asset in suspicious circumstances. Article 33 deems them a constructive trustee of any profit derived, unless they’re a bona fide purchaser for value without notice.
Q6. (Article 55 – Bona Fide Purchaser)
How does Article 55 protect a third party who innocently purchases trust property from a trustee?
A6. If they paid value and had no actual notice of any breach of trust, they’re a bona fide purchaser, unaffected by the trust. The beneficiaries cannot claim that asset from them.
Q7. (Direct Liability to Beneficiaries)
Aside from external liabilities (e.g., contract or tort), how might a third party be directly liable to the trust’s beneficiaries?
A7. If they assisted in or participated in the trustee’s breach of trust (e.g., dishonest assistance), or knowingly received misapplied trust assets and no longer hold them to return.
Q8. (No Notice from Another Trust)
Under Article 31(1), why is a trustee not “affected by notice” from another trust for which they also serve?
A8. Because each trust is treated separately. In the absence of fraud, a trustee’s knowledge from one trust does not automatically transfer to dealings in a different trust.
Q9. (Disclosure to Co-Trustees)
What does Article 31(2) require when the same person is trustee of two trusts entering a transaction with each other?
A9. The trustee must disclose to co-trustees on each side that they hold an “adverse interest” as trustee of the other trust, ensuring transparency.
Q10. (Amendment No. 5)
How did the Trusts (Amendment No. 5) (Jersey) Law 2012 clarify a trustee’s power to contract with themselves as trustee of a different trust?
A10. It inserted Article 31(3), confirming that despite usual rules, a trustee “may in the capacity of a trustee of one trust enter into a contract” with themselves as trustee of another trust, subject to compliance with Articles 21, 23, and general fiduciary duties.
Q11. (Article 51)
Why might a trustee or beneficiary apply to the court for directions under Article 51 in third-party claim disputes?
A11. Because trusts are under the court’s supervisory jurisdiction. The trustee can ask the court to resolve uncertainties or protect them if they face conflicting demands (like a third party’s proprietary claim vs. beneficiaries’ distribution request).
Q12. (Summary)
Explain why third-party proprietary claims can complicate a trustee’s administration.
A12. The trustee must balance duties to existing beneficiaries with the risk of personal liability if a third party’s title claim succeeds. The trustee often seeks court directions (Guardian Trust application) so they don’t pay or transfer assets incorrectly and face constructive trustee liability.
