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
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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