Representation of the Z Trusts  JRC031
Is there a form of equitable lien in Jersey which a former trustee can claim over trust property held by the current trustee? Pursuant to the 2014 decision of the Guernsey Court of Appeal1 on the same question, the short answer is yes. However, this is the first time the Royal Court of Jersey was asked to determine the same question.
Equity Trust (Jersey) Limited (Equity) retired as trustee of eight trusts of which Volaw Trustee Limited (Volaw) became trustee of two and Barclays Private Bank and Trust Limited (Barclays) became trustee of the remaining six. The terms of Equity's retirement were fairly standard indemnities.
However, the settlor was hostile and critical of Equity's performance as trustee and blamed Equity for many of the trusts' financial problems. In an attempt to resolve these issues, the settlor sought to replace Volaw and Barclays with Rawlinson & Hunter Trustees SA in Switzerland, but the settlor saw Equity as obstructing the proposed change of trustees. Consequently, Equity was put on notice of claims against it for which it sought protective indemnification both in contract and in law.
Equity argued an equitable lien over the assets of one of the trusts, concerned to ensure the assets were not diminished or jeopardised, but also because a Swiss resident trustee would make enforcement of Equity's contractual indemnities or equitable lien more difficult.
Rather predictably the Royal Court confirmed that the decision of the Guernsey Court of Appeal in Investec Trust (Guernsey) Limited et al v Glenalla Properties Limited reflected the law of Jersey. Therefore, Equity had an equitable right and was entitled to ensure that the current trustees did not take actions which would affect that right. The Court noted, correctly, that the equitable right would only extend to liabilities which Equity would have been entitled to reimbursement out of the trust property had it remained trustee. However, in respect of Equity having a lien over the trust funds (i.e. in priority to others including beneficiaries and creditors), the matter would be addressed at a later date.
Finally Jersey trustees have some judicial confirmation that, under Jersey law, a former trustee has an equitable right in the trust property. Most other common law jurisdictions, like the Cayman Islands or Bermuda whose laws for historic reasons more closely follow English principals, already permit trustees a right of indemnity either to retain possession of and/or a lien over trust property ranking ahead of the interests of beneficiaries and creditors alike. Unfortunately, the laws of Jersey and Guernsey never developed such concepts. Therefore, Guernsey's trust law was amended in 2007 to provide for a statutory lien whilst the equivalent proposal in Jersey's Trusts (Amendment No. 5) 2012 never came to fruition.
This decision would at least confirm that trustees operating under Jersey law do have an equitable interest in the trust property, albeit the extent of the interest is yet to be determined. That said, the Royal Court did hint that the trustee's equitable right will take priority over claims of beneficiaries, but that the position of creditors is more problematic: i.e. who has priority if current and former trustees all have rights to incurred liabilities, costs and expenses and inefficient trust property exists to pay one and all.
A CHANGE IN PRACTICE
I think it is unlikely we will see a change of practice to exclude the traditional contractual indemnity from an instrument of retirement and appointment. This has certainly not been the case in Guernsey which provides the contractual indemnity without prejudice to the benefits of the statutory lien. Furthermore, many English governed deeds of retirement and appointment will contain express contractual indemnities. This is because, if the trust property is transferred to a trustee resident out of the jurisdiction, recognition and enforcement of an equitable lien may be problematic.
That said, the addition of the equitable right over trust property is very much welcomed in Jersey law. However, we will have to wait and see the extent of the lien.
(See our article - Trustee's Indemnities on Distribution - More than Reasonable Security).
1 Investec Trust (Guernsey) Limited et al v Glenalla Properties Limited et al 
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