Private international law, trustee liability
Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd  UKPC 7
In this case the Privy Council was asked to consider 8 appeals from the Court of Appeal in Guernsey. Most significant raised two points of general public importance:
- The interpretation of articles 26 and 32 Trusts (Jersey) Law 1984 (the TJL), and
- The relevant rules of private international law of Guernsey
BVI companies were suing a trust, constituted under and governed by Jersey law, in relation to a contract governed by BVI law. The trustees sought to limit their liability by relying on Jersey law.
Investec and Bayeux (I&B) had been trustees of TDT trust, a trust governed by Jersey law which owed £multi-millions to companies within the trust structure. Re-structuring in 2007 aimed to re-finance TDT and ring-fence liabilities, particularly to an Icelandic bank which financed investment deals.
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Loans previously made to the trustees by companies were transferred into the new structure but remained outside that structure. The loans were not transferred to the umbrella company (which had loan agreement with the bank) in the new structure, & so remained liabilities of the trustees.
When the financial markets crashed the bank sought security from the companies, which eventually had to go into liquidation. Liquidators sought the moneys owed under the loans from the trustees.
Which law governed their liability?
Did trustee indemnity apply?
Trusts (Jersey) Law 1984 says:
Art.26 Remuneration and expenses of trustees
(1) Unless authorised by—
(a) the terms of the trust;
(b) the consent in writing of all the beneficiaries; or
(c) any order of the court,
a trustee shall not be entitled to remuneration for his or her services.
(2) a trustee may reimburse himself of herself out of the trust for or pay out of the trust all the expenses and liabilities reasonably incurred in connection with the trust.”
Art.32 Trustee’s liability to third parties
(1) Where a trustee is a party to any transaction or matter affecting the trust—
(a) if the other party knows that the trustee is acting as trustee, any clam by the other party shall be against the trustee as trustee and shall extend only to the trust property;
(b) if the other party does not know that the trustee is acting as trustee, any claim by the other party may be made against the trustee personally (though, without prejudice to his or her personal liability, the trustee shall have a right of recourse to the trust property by way of indemnity).
(2) Paragraph (1) shall not affect any liability the trustee may have for breach of trust.”
The Board held that article 32 TJL dealt with “the status of the trustee against whom the claim is made, introducing a legal distinction between his two capacities, personal and fiduciary. It provides that he may be treated as incurring liabilities not personally but ‘as trustee’, and therefore without recourse to his personal estate” Did art 32 TJL apply when the trustee was resident in Guernsey, loan contract made in BVI?
The Board concluded that the issues concerning the extent of liability of Investec and Bayeux as trustees of a Jersey trust were governed by the proper law of that trust (Jersey law). Did art 26 (indemnity) protect the trustees?
The Board held that the BVI loans were liabilities reasonably incurred at the outset, sufficient to engage the indemnity in art 26 TJL. The Board further held that the current trustees of the TDT had failed to show on a balance of probabilities that any failing by I&B to solve the problem of the loans after 19 December 2007 had caused loss to the TDT (the precarious situation in the financial markets being a factor in this).
Lord Mance dissented – he did not accept trustees could only be liable as trustees
“The majority decision to the contrary is a radical and unprincipled innovation, with potentially far-reaching consequences, even if, at present, it may be confined to Jersey law.”
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