06 December 2013

Guernsey judgment 38/2013

Royal Court of Guernsey (Sir John Chadwick Lieutenant Bailiff)

Whether trustees of a Jersey law trust can rely on Article 32(1)(a) of the Trusts (Jersey) Law 1984 to limit their liability in contract or restitution.

In these Guernsey proceedings involving a Jersey-law trust called the Tchenguiz Discretionary Trust (TDT), the former trustees sought determination of whether certain arrangements for moving money between the trustees and certain BVI companies within the trust created enforceable loan liabilities. The former trustees also claimed that by virtue of Article 32(1)(a) they had no personal liability for such loans and any liability was only as trustees and extended only to the TDT trust property. The BVI companies, now in liquidation, contended that the arrangements gave rise to valid liabilities and counterclaimed for payment of the liabilities. The new trustee contended that the arrangements did not give rise to valid loan liabilities. It also contended that the former trustees were not entitled to an indemnity from the TDT trust assets because of their unreasonable behaviour and/or grossly negligent breach of trust in incurring the liabilities or failing to get rid of them.   

The judge held that the arrangements with two of the BVI companies did create valid loan liabilities.  As regards the third BVI company, he found that there was no loan but upheld a claim in restitution that where A discharges a debt owed by B at the latter’s request, B become liable to A.  The judge rejected the new trustee’s claims that the former trustees had acted unreasonably or that they were grossly negligently. 

The judge held that Article 32(1)(a) did not apply here because, although the trusts were governed by Jersey law, the proper law of the loans and the liability were either Guernsey law or English law, and nothing in Guernsey law or English law limited the liability of a Jersey trustee.  He held that s.65 of the Trusts (Guernsey) Law did not require him to apply Jersey law to anything other than enforcement of the trusts, and the BVI companies’ claims were not enforcement of the trusts.  Accordingly, he concluded that the former trustees were personally liable for the full amount of the liabilities. 

The decision on Article 32(1)(a) exposes trustees of Jersey-law trusts with contracts or liabilities which are not governed by the Jersey law to the risk of personal liability.  David Brownbill QC and Adam Cloherty advised the BVI companies; Bajul Shah advised the new trustee.