Equity Trust (Jersey) Ltd v Halabi [2022] WTLR 55

Analysis

The Privy Council determined appeals from the Jersey Court of Appeal (the Jersey appeal) and from the Guernsey Court of Appeal (the Guernsey appeal) concerning the rights of indemnity of successive trustees against the assets of trusts governed by Jersey law, whose assets were insufficient to meet in full the liabilities incurred by their trustees.

The Jersey appeal

The original sole trustee of two Jersey trusts settled by the late Madam Intisar Nouri was Equity Trust (Jersey) Ltd (Equity Trust). Equity Trust was later replaced as sole trustee by Volaw Corporate Trustee Ltd (Volaw). Volaw was in turn replaced as sole trustee by Geneva Trust Company SA (Geneva).

In 2012 proceedings were brought against Equity Trust by the liquidators of Angelmist Ltd, a company that was an asset of one of the trusts (the Ironzar II Trust), which were later settled. Equity Trust claimed that it was entitled to be indemnified as former trustee of the Ironzar II Trust for the £16.5m it had paid by way of settlement in the Angelmist proceedings and for £2.4m in respect to its own costs of those proceedings. At the time the Ironzar II Trust was regarded as insolvent (in that the claims then made against the trustee exceeded the trust assets) and the indemnity claim was determined in trust administration proceedings originally brought in Jersey by Volaw. Equity Trust also claimed an indemnity as former trustee against the Ironzar III Trust, which was also regarded as insolvent. That indemnity was ultimately established in respect to £90,000. Equity Trust’s costs of establishing that indemnity were £247,000 and it sought to be indemnified from the assets of the Ironzar III Trust with respect to those costs also.

On the trial of the claim the Jersey Royal Court held that the claims on the trust assets of successive trustees and the creditors claiming through them by way of subrogation ranked pari passu (or equally) (Re Z Trusts (2018) (2) JLR 81). The Royal Court also held that Equity Trust was not entitled to be indemnified for the costs of proving its claim (Re Z Trusts (2018) JRC 164).

On Equity Trust’s appeals, the Jersey Court of Appeal, reversing the decisions at first instance, held that priorities as between successor trustees were ranked on a first-in-time basis and that Equity Trust was entitled to be indemnified for the costs of proving its claim (Re Z II Trust [2019]). By the time the matter came before the Court of Appeal the question of priorities as between trustees and creditors of the trusts was no longer live and it was not determined in the Jersey appeal (para [26]).

The Guernsey appeal

The original sole trustee of the Tchenguiz Discretionary Trust (TDT), a Jersey trust, was Investec Trust (Guernsey) Ltd (ITG). Bayeux Trustees Ltd (Bayeux) later became co-trustee with ITG. ITG and Bayeux were removed as trustees and Geneva was appointed in their place. Fort Trustees Ltd and Balchan Management Ltd were later appointed in place of Geneva. While trustees of the TDT, ITG and Bayeux had assumed large liabilities under loan agreements which exceeded the assets of the trust and in respect to which they sought to be indemnified. The TDT was then administered on the basis that it was ‘insolvent’ in that sense (Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2019]).

The Guernsey Royal Court held that the indemnity of a former trustee and claims of its trust creditors had priority over claims of successor trustees and that trustee claims had priority over creditors claiming through them by subrogation to their lien (ITG Ltd v Geneva Trust SA [2019]). This decision was upheld by the Guernsey Court of Appeal (ITG Ltd v Glenalla Properties Ltd [2020]).

In the Guernsey appeal, ITG and Bayeux sought to be indemnified only with respect to their substantial costs of those and previous proceedings and their claim to remuneration as trustees.

Held:

Allowing the Jersey appeal and the Guernsey appeal (para [317]), under Jersey law and as would also be the case under English law (paras [55] and [232]):

1. (1) A trustee’s right of indemnity confers a proprietary (rather than merely possessory) interest in the trust assets (paras [4], [105], [238] and [279]). That right is an equitable lien which arises by operation of law and independently of possession of the trust assets (para [94]).
2. (2) The proprietary interest of a former trustee therefore survives the transfer of legal title to and possession of the trust assets to a successor trustee (paras [4], [166], [238] and [279]).
3. (3) Per Lord Briggs, Lady Arden, Lord Reed and Lady Rose (Lord Richards, Sir Nicholas Patten and Lord Stephens dissenting (paras [170]-[200])), successive trustees’ interests in the trust assets rank pari passu (or equally) where those assets are insufficient to meet all the claims on them made by the trustees pursuant to their indemnities (paras [238]-[240], [254]-[268], [270] and [272]-[278]).
4. (4) A former trustee’s indemnity includes the costs of proving its claim to be indemnified, even if such costs are incurred when the trust is ‘insolvent’. The position of a trustee is not analogous with that of a creditor in bankruptcy, who normally bears the costs of proving a claim (paras [4], [235]-[237], [238] and [279]).

As, by the time the appeals came before the Privy Council, there were no live creditor claims against the trusts, no determinations were made regarding priorities as between creditors of an ‘insolvent’ trust and trustees (paras [26], [43] and [44]).

JUDGMENT LORD REED: [1] As is more fully explained in the judgment of Lord Richards and Sir Nicholas Patten, these appeals raise a number of issues, principally concerning the nature and scope of the right of a trustee under Jersey law to recover from or be indemnified out of the trust assets in respect of …

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