Rawlinson & Hunter Trustees SA v Chiddicks & ors [2022] WTLR 1475

Analysis

The late claimant was the settlor of eight family trusts of which Equity Trust (Jersey) Ltd was the original trustee. Two of the trusts, ZII and ZIII, both Jersey discretionary trusts, were relevant to the proceedings.

In 2006, Equity Trust retired as trustee and was replaced by Volaw Trustees Ltd. Equity Trust had the benefit of an indemnity. In 2008, a property crash led to the trusts becoming insolvent. In 2012, a company owned by ZII and in compulsory liquidation issued proceedings against its director and Equity Trust, which notified Volaw of its intention to rely on the indemnity. Volaw retired and was replaced by Rawlinson & Hunter.

Equity Trust settled the litigation having incurred a total liability of £18m. The only asset of ZII was a loan to ZIII valued at around £6m. Equity Trust contended that its claim took priority over other creditors of ZII and successor trustees. At first instance, the court held that the claims of trustees ranked pari passu between themselves and Equity Trust. The principal issue on the appeal was whether the rights of a former trustee take priority over the rights of other claimants to the assets of a trust whose liabilities exceed its assets.

Held (allowing the appeal):

A trustee possesses a right of indemnity which is enforceable by means of an equitable lien. The right of lien of a former trustee is an equitable right which ranks in priority of time ahead of the right of lien of successor trustees and does so in accordance with the basic rule which applies to the ranking of equitable securities, and can be enforced by the former trustee against the assets of the trust. That ranking in priority exists so long as the trust remains solvent and if it becomes insolvent. The only ranking in time which matters between competing trustees’ rights of lien depends on the dates upon which they were appointed as trustees (paras[176], [184], [191], [196], [282], Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd (2018) applied; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) adopted; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) adopted; Re Exhall Coal Co Ltd, Re Bleckley (1866) and National Provincial Bank Ltd v Ainsworth [1965] considered).

Observed: per totam curiam:

The nature of a trustee’s lien in the law of Jersey is derived from English law. A trustee obtains by virtue of its appointment an equitable interest in the trust fund in respect of the liabilities which it incurs as trustee. The equitable interest represents a first charge or lien upon the trust fund which takes priority over the claims of beneficiaries. The trustee need not wait until the trust property is realised but may by itself or by application to the court bring about a sale of the assets to satisfy its charge, even if the interests of beneficiaries are affected, subject to the court being able to exercise some ultimate control if the existence of the trust itself would be prejudiced (paras [147] and [282]).

JUDGMENT LOGAN MARTIN JA: Introduction [1] This is an appeal against three judgments given after hearings in the Royal Court before the Commissioner (J A Clyde-Smith) sitting alone. The Commissioner sat principally to consider a point of law which is in dispute between Equity Trust (Jersey) Limited, the third respondent and the appellant in this …

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