(1) Investec Trust (Guernsey) Ltd (2) Bayeux Trustees Ltd v (1) Glenalla Properties Ltd (2) Thorson Investments Ltd (3) Eliza Ltd (4) Oscatello Investment Ltd (5) Rawlinson & Hunter Trustees SA (2018)
The board considered points of general public importance concerning the interpretation of the Trusts (Jersey) Law 1984 art.32 and art.26(2) and the relevant rules of private international law of Guernsey when determining issues arising from the administration of a Jersey discretionary trust.
In conjoined appeals from the Guernsey Court of Appeal, the board considered issues arising from the administration of a Jersey discretionary trust.
A family discretionary trust had been established in 1988 under the law of the British Virgin Islands. In March 2007, the first respondent trustee decided to separate the trust assets. A discretionary trust was established, governed by the law of Jersey, which provided that no trustee was liable for any loss to the trust unless the loss arose because of their fraud, wilful misconduct or gross negligence. It also provided that a trustee, on ceasing to be such, could withhold assets they considered necessary in respect of any liability properly chargeable against the trust fund. The second respondent was appointed as co-trustee in August 2007. Substantial assets were transferred from the family trust to the Jersey trust. The respondents received beneficial ownership of shares in companies registered in the BVI, including the first four appellants, and assumed liability for sums owed to the first two appellants and for borrowings under a loan agreement with an Icelandic bank. The BVI companies went into liquidation and the liquidators sought repayment from the respondents of loans due to the companies. The respondents were replaced as trustees in 2010 by the fifth appellant. The respondents brought proceedings, claiming that they had no personal liability in respect of sums owed to the BVI companies, and that any claims extended only to trust property. The judge held that the respondents were subject to binding obligations under various loan agreements and could not rely on the Trusts (Jersey) Law 1984 art.32 to limit their liability to the extent of the trust funds. The Guernsey Court of Appeal held that, as a matter of private international law, art.32 applied to the respondents' liabilities, their status as trustees being governed by the laws of Jersey. It held that they had not incurred personal liability. One of the appeals raised points of general public importance concerning the interpretation of art.32 and art.26(2), which related to trustees' remuneration and expenses, and about the relevant rules of Guernsey private international law.
(Lord Mance dissenting in part on the treatment of art.32 and art.26; Lord Briggs dissenting in part on the recognition by Guernsey private international law of Jersey trust law as the applicable law for determining issues concerning the assets to which the BVI companies might have recourse in relation to the trustees' contractual liabilities).
The board granted permission to appeal on applications refused by the Guernsey Court of Appeal, as it considered the test the court had sought to apply, namely whether the appeals raised arguable questions of law of general public importance, was not consistent with the Court of Appeal (Guernsey) Law 1961 s.16. The board set out its reasoning in A v R  UKPC 4. The instant appeals and A v R demonstrated that the States of Guernsey needed to consider amending the legislation, as Jersey had in 2008, to facilitate the introduction of such a test, A v R considered. The matter should be addressed without undue delay (see para.2 of judgment).
Meaning of art.32 - Was the respondents' liability as former trustees limited to the trust assets? Yes. Article 32(1) abrogated the rule of English law that the law looked no further than the legal entity which had assumed the liability. It dealt with the status of the trustee against whom the claim was made, introducing a legal distinction between personal and fiduciary capacities. It provided that a trustee could be treated as incurring liabilities not personally, but "as trustee". As the law already allowed trustees to limit their exposure contractually, it was reasonable to suppose that the draftsman had intended something more. That was consistent with the fact that art.32(1) was not limited to contractual or transactional liabilities. The opening words of the subsection, "Where a trustee is party to any transaction or matter affecting the trust", indicated that it was confined to liabilities arising from some pre-existing relationship to which the trustee could be said to be a "party", and which had arisen in a manner affecting the trust. However, that would extend to certain claims for unjust enrichment or tort. Article 32(1) could be read literally as conferring a kind of claim in rem against the assets themselves. However, the phrase "shall be against the trustee as trustee and shall extend only to the trust property" had to be read as a whole. The limitation of the trustee's liability was achieved by treating them as having two legally distinct capacities and estates. Limiting the "claim" to the trust property did not introduce a monetary cap on the trustee's liability; it described the character of the claim as one against the trustee in that capacity only. The limitation to trust assets followed on from that. Before art.32 was enacted, trustees could incur liabilities only in their personal capacity. It was unusual for a statutory provision concerning the status of a person against whom a claim was made to depend on the claimant's knowledge. However, there was no conceptual difficulty; the concept was familiar in other common law jurisdictions, notably the US, which the draftsman of art.32 was likely to have had in mind (paras 56-61).
Interpretation of art.32 - Did a creditor whose debt was incurred by a trustee have direct recourse to trust assets to satisfy their debt? No, they were limited to claiming through the trustees by way of subrogation. The current trustees asserted that the respondents had no right of indemnity because the relevant liabilities had been unreasonably incurred and/or because the respondents were guilty of gross negligence. However, the rule that a creditor could access trust assets only by way of the trustee's right of indemnity, and subject to the limits on that right imposed by the trust deed or the general law, had not been modified. The Jersey legislature had not gone as far as the US in the personification of a trust by creating a direct right of action against the trust in return for relieving the trustee of personal liability. Instead it had relieved the trustee of personal liability by providing that a person, when acting as a trustee, acted in a separate capacity. The creation of a new direct means of recourse by creditors against the trust fund, without the protection to the beneficiaries formerly accorded by the inherited English law, would be a radical departure which should not lightly be inferred or implied in the absence of clear words. The Jersey legislature plainly intended art.32 to improve the position of trustees by insulating their personal assets from liabilities to third parties expressly incurred as trustees, and must have appreciated that that would be at the expense either of creditors or beneficiaries. It seemed very unlikely that a deliberate choice would have been made to improve the trustees' position at their beneficiaries' expense. By contrast with beneficiaries, creditors other than tax authorities were usually voluntary, and could choose on what terms as to security and personal guarantees they were prepared to lend or give credit to trustees. Against that background, it was impossible to discern from the terms of art.32 any intended change to the only method (of subrogation to the trustee's indemnity) whereby the pre-existing law enabled creditors to have recourse to the assets of the trust for the enforcement of liabilities incurred by the trustees (paras 62-63).
Private international law of Guernsey - applicability of Jersey law - Jersey law was applicable. The issues concerning the extent of the respondents' liability as trustees of a Jersey trust were governed by the proper law of that trust. The suggested difficulties for a third party dealing with a Jersey trust were not such as to render inappropriate the choice of the proper law of the trust. When a third party chose to contract with a foreign trustee or a foreign partnership, it was prudent to enquire how and to what extent it would be able to enforce its claims against the counterparty and, if necessary, to stipulate for additional means of enforcement, such as the taking of security,Raiffeisen Zentralbank Osterreich AG v Five Star General Trading LLC (The Mount I)  EWCA Civ 68 applied (paras 64-102).
Meaning of art.26(2): Liability of trustees of a Jersey trust for breach of trust - The starting point was to recognise that, although the statutory indemnity in art.26(2) was broad enough to cover a multi-million pound borrowing liability reasonably incurred by trustees to a wholly-owned trading company, as part of a tax-efficient way of moving money around a group of such companies, such a liability was far removed from the typical liabilities for which art.26(2) was designed. Article 26(2) was intended to afford trustees a means of paying for expenses and liabilities out of the trust fund, or refunding themselves for expenses paid out of personal assets. If their ability to do so was put in doubt wherever a review of their conduct after incurring the liability gave rise to a claim for breach of trust, the beneficial effect of the statutory indemnity would be reduced. The availability of an independent remedy for breach of trust in every such case meant that there was no need to give "incurred" in art.26(2) a wider meaning than its ordinary meaning. The BVI loans were liabilities reasonably incurred at the outset, sufficient to engage the indemnity in art.26(2) (paras 103-116).
The board determined further issues, including appeals by the current trustees against the Guernsey Court of Appeal's refusal of interlocutory applications, an application for retrial and human rights challenges (paras 117-132), the fourth appellant's claim in restitution (paras 133-152) and appeals in relation to costs decisions (paras 153-159).
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23 Apr 2018
Lord Mance, Lord Sumption, Lord Carnwath, Lord Hodge, Lord Briggs
LTL 23/4/2018 :  2 WLR 1465 : 21 ITELR 68 :  4 WLUK 369 :  4 All ER 738 : Times, May 14, 2018