Equity Trust (Jersey) Ltd v Halabi (in his capacity as Executor of the Estate of the late Madam Intisar Nouri)
| Jurisdiction | UK Non-devolved |
| Judge | Lord Reed,Lord Richards,Sir Nicholas Patten,Lord Stephens,Lord Briggs,Lady Arden,Lady Rose |
| Judgment Date | 13 October 2022 |
| Neutral Citation | [2022] UKPC 36 |
| Docket Number | Privy Council Appeal No 0119 of 2019 |
| Court | Privy Council |
[2022] UKPC 36
Lord Reed
Lord Briggs
Lady Arden
Lord Stephens
Lady Rose
Lord Richards
Sir Nicholas Patten
Privy Council Appeal No 0119 of 2019
Privy Council
Michaelmas Term
From the Court of Appeal of Jersey and the Court of Appeal of Guernsey
Appellant (Halabi)
Shân Warnock-Smith KC
Clare Stanley KC
Damian James
Simon Hurry
(Instructed by Collas Crill LLP (Jersey) and Sinclair Gibson LLP)
Appellants (Fort Trustees Ltd and another)
John Machell KC
Nicholas Robison
(Instructed by Babbé LLP and Lee Bolton Monier-Williams)
Respondent (Equity Trust (Jersey) Ltd)
Emma Jordan
James Goodwin
(Instructed by Taylor Wessing LLP (London))
Respondents (ITG Ltd and Bayeux Ltd)
Simon Taube KC
Jeremy Wessels
James Brightwell
Thomas Fletcher
(Instructed by Macfarlanes LLP)
Appellants
(1) Fort Trustees Ltd
(2) Balchan Management Ltd
Respondents
(1) ITG Ltd
(2) Bayeux Ltd
(3) [ Glenalla Properties Ltd]
(4) [ Thorson Investments Ltd]
(5) [ Eliza Ltd]
(6) [ Oscatello Investments Ltd]
(7) [ Geneva Trust Company]
(8) [ Helen Green and Kelvin Hudson (Joint Receivers)]
Heard on 15, 16 and 17 June 2021
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 liabilities and expenditure which he or she has incurred in the capacity of trustee.
The principal issues can be summarised as follows:
1. Does the right of indemnity confer on the trustee a proprietary interest in the trust assets?
2. If so, does the proprietary interest of a trustee survive the transfer of the trust assets to a successor trustee?
3. If so, does a former trustee's proprietary interest in the trust assets take priority over the equivalent interests of successor trustees?
4. Does a trustee's indemnity extend to the costs of proving its claim against the trust if the trust is “insolvent”, in the sense that trustees' claims to indemnity exceed the value of the trust fund?
The Board's account of the background circumstances, and its reasoning and conclusions in relation to the first, second and fourth issues, are set out in paras 5–166, 214–224 and 233–237 of the judgment of Lord Richards and Sir Nicholas Patten: that is to say, the whole of their judgment, apart from the sections concerning the third issue. All the members of the Board agree with their judgment to that extent.
In relation to the third issue, the members of the Board are divided. One view, favouring the prioritisation of trustees' claims according to the chronological order in which they were appointed, is expressed in the judgment of Lord Richards and Sir Nicholas Patten, with whom Lord Stephens agrees. Another view, favouring the pari passu ranking of trustees' claims to be indemnified out of the trust fund, is expressed in the judgment of Lord Briggs, with whom Lady Rose and I agree. Lady Arden, in a concurring judgment on this issue, also favours pari passu ranking, for reasons which are largely but not entirely consistent with those of Lord Briggs. The decision of the Board on the third issue is therefore that the trustees' claims rank pari passu. The reasoning in support of that decision is set out in the judgment of Lord Briggs, in so far as it is consistent with Lady Arden's judgment. As I understand their judgments, that means that the reasoning of the majority is set out in Lord Briggs's judgment at paras 238–240, 254–268, 270 and 272–278.
Lord Richards AND Sir Nicholas Patten ( with whom Lord Stephens agrees, and Lord Reed, Lord Briggs, Lady Arden and Lady Rose agree in part):
This judgment concerns two unconnected appeals which have been heard together. They raise common issues about 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 liabilities and other expenditure properly incurred by the trustee. Although the proceedings giving rise to the appeals have been brought, in one case, in Jersey and, in the other case, in Guernsey, the trusts in both cases are governed by Jersey law and it is common ground that, on these appeals, no issues of Guernsey law arise. We will refer, as appropriate, to the Jersey appeal and to the Guernsey appeal.
Although a trustee's right of indemnity is well established in English law and is confirmed by section 26(2) of the Trusts (Jersey) Law 1984 (“the TJL”), the particular context which has given rise to controversy in the present appeals is that of insolvency in the sense of the assets of the trusts being insufficient in amount to permit the reimbursement of all of the legitimate expenditure and liabilities of the relevant trustees.
In both cases there is a contest between successive trustees as to their respective entitlement to be indemnified out of the available assets. This has given rise to argument as to what is the correct method under Jersey law of dealing with trust liabilities in such circumstances and in particular with whether the trustee who is first in time enjoys priority for its claim over those of subsequent trustees and their creditors.
Much of the argument on this issue centres on the nature (and even the existence) of what in the English authorities is commonly referred to as the trustee's lien. This is relied on by the respondents in both appeals as giving the trustee a form of proprietary interest in the trust assets which ranks in priority to those of the beneficiaries and any subsequent trustees. The appellants' primary case is that a former trustee has no proprietary or security interest in the trust assets, except to the extent that it has negotiated and obtained some specific security interest as a means of protecting its position in respect of future or undischarged liabilities prior to transferring the assets to its successor trustee. Any subsisting rights of indemnity must be pursued against the trustee for the time being and will rank pari passu with all other relevant claims for indemnity and reimbursement.
The appellants' position is inconsistent with what was said in an earlier judgment of the Board in one of the two cases under appeal. In Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2019] AC 271 (“ Investec 1”) the Board had to consider the extent to which the unlimited personal liability of a trustee under English law for claims by creditors has been modified by article 32 of the TJL (as substituted by article 11 of the Trusts (Amendment No 4) (Jersey) Law 2006). This provides:
“32. Trustee's liability to third parties
(1) Where a trustee is a party to any transaction or matter affecting the trust —
(a) if the other party knows that the trustee is acting as trustee, any claim by the other party shall be against the trustee as trustee and shall extend only to the trust property;
(b) if the other party does not know that the trustee is acting as trustee, any claim by the other party may be made against the trustee personally (though, without prejudice to his or her personal liability, the trustee shall have a right of recourse to the trust property by way of indemnity).
(2) Paragraph (1) shall not affect any liability the trustee may have for breach of trust.”
The Board held that article 32(1)(a) has the effect, in the case of liabilities to parties who know that the trustee is acting as trustee, of abrogating the rule of English law that the liability is enforceable against the trustee personally. For claims falling within article 32(1)(a), the trustee becomes liable only in his fiduciary capacity and they are enforceable only to the extent that there are trust assets sufficient to meet the claims. But a creditor does not obtain any right which he can pursue in rem against the trust assets. It continues to be the position that he can access the trust assets only by way of the trustee's right of indemnity.
As part of the judgment of the Board, Lord Hodge summarised some principles of English law, relevant to the issues of liability then under consideration. At [59](v) he said:
“(v) A trustee is entitled to procure debts properly incurred as trustee to be paid out of the trust estate or, if he pays it in the first instance from his own pocket, to be indemnified out of the trust estate: In re Blundell (1888) 40 Ch D 370, 376. To secure his right of indemnity, the trustee has an equitable lien on the trust assets: Lewin on Trusts, 19th ed (2015), para 21–043. Because an equitable lien does not depend on possession, it normally survives after he has ceased to be a trustee: In re Johnson; Shearman v Robinson (1880) 15 Ch D 548, 552.”
The appellants on these appeals do not take issue with the principles set out by Lord Hodge at para 59, except that they invite the Board to re-consider what is said in the second and third sentences of para 59(v), which they submit is not supported by authority and is wrong.
Before turning to the issues, it is necessary to set out a brief summary of the facts and procedural history in the two appeals and to explain some of the more peripheral issues peculiar to each appeal which may also need to be considered.
Eight discretionary trusts governed by Jersey law were established by the late Madam Intisar Nouri. Two of those trusts, the Ironzar II Trust and the Ironzar III Trusts, are relevant to the Jersey appeal. The respondent to this appeal, Equity Trust (Jersey) Ltd (“ETJL”), was the...
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