This article first appeared in Volume 20, Issue 3 of International Corporate Rescue and is reprinted with the permission of Chase Cambria Publishing - www.chasecambria.com
Synopsis
The Judicial Committee of the Privy Council ('JCPC') considered appeals from the Guernsey Court of Appeal ('GCA') and the Jersey Court of Appeal ('JCA'). The hearings were consolidated and heard together in June 2021.
The GCA had previously upheld a judgment of the Royal Court of Guernsey (the 'Guernsey Royal Court') (handed down in December 2019) in the long running ITG Limited & Ors v Glenella Properties Limited & Ors litigation. The claim, commenced by ITG Limited (formerly Investec Trust (Guernsey) Limited) and Bayeux Trustees Limited as former trustees of the Tchenguiz Discretionary Trust (the 'TDT') (the 'Former Trustees'), relates to a trust governed by the laws of Jersey. The Royal Court held that the claims of a Former Trustee and its trust creditors had priority over those of the incoming trustees and in turn that the Former Trustee claims had priority over creditors claiming through them as subrogated to their lien. The GCA upheld these findings.
In Halabi, the Royal Court of Jersey (the 'Jersey Royal
Court') had ruled at first instance that in the case of an
'insolvent' trust that the assets ought to be distributed
pari passu between all trustees so that each (including the
creditors claiming through the trustee) receives some recovery of
their debt. However on appeal the JCA found that the assets ought
to be distributed on the first in time basis – earlier
ranking trustees being preferred.
On appeal the JCPC was unanimous in concluding that the indemnity
enjoyed by trustees comprised an equitable lien such that it
bestowed a proprietary interest in the trust assets. It was also
unanimous in concluding that the proprietary interest of a trustee
survived the transfer to an incoming trustee and that it extended
to the costs of proving its claim in the event of insolvency.
The members of the JCPC differed in their reasoning as to whether a former trustee's interest in the trust assets took priority with the majority concluding there was no priority and that such ranked pari passu. The minority view was that the interests of the trustees are competing ones and the first in time ought to be prioritised.
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