Case update: Investec Trust (Guernsey) Limited & Bayeux Trustees Limited v Glenalla Properties Limited and others [Civ 1462/2010]

In this Royal Court of Guernsey case, the court was asked to consider the circumstances in which trustees could be personally liable to repay loans obtained in their capacity as a trustee. The Court specifically highlighted the importance of using express wording in agreements to ensure that the trustee's liability is restricted to exactly what was intended.

Background

Investec Trust (Guernsey) Limited and Bayeux Trustees Limited (the Trustees) were the former trustees of TDT, a Jersey law trust (the Trust). While they were trustees of the Trust, the Trustees entered into deeds of novation in order to assume liabilities for loans owing to four BVI companies, which were owned by the Trust. These loans were not recorded in any formal written agreements. They were unsecured, interest free and repayable on demand. The loans were not intended to constitute corporate borrowing, but rather were intended as intergroup transfers.

The relevant issues arose when the BVI companies were put into liquidation and the companies' liquidators sought repayment of the loans from the Trustees.

The Jersey Law

Article 32 of the Trusts (Jersey) Law 1984 (the "Jersey Trusts Law") states that where a trustee is party to a transaction with a third party and the other party is aware that the trustee is acting as a trustee, any claim against the trustee is limited to the trust property only. If the third party is unaware that the trustee is acting as trustee, the claim can be made against the trustee personally. However the trustee, by way of indemnity, will have a right of recourse to the trust property (unless the trustee was acting in breach of trust).

The Royal Court's decision

The Trustees applied to the Royal Court of Guernsey for a declaration that they should not be personally liable and that any liability should be restricted to the value of the trust assets, as per Article 32 of the Jersey Trusts Law.

Despite the Trust being a Jersey law trust, the Court disagreed and decided that the law governing the loans was Guernsey law because:

  • the Trustees were Guernsey companies;
  • the Trust was administered from Guernsey;
  • and there was no evidence as to a written agreement indicating the proper law of the loans.

As the matter to be decided concerned the enforceability of the loan arrangements, Guernsey law applied. The court could not therefore apply the provisions of the Jersey Trusts Law.

In addition, the court could not apply section 42 of the Trusts (Guernsey) Law 2007, which affords similar protection to trustees as Article 32 of the Jersey Trusts Law, as it only applies to Guernsey trusts.

As a result, the Trustees could not rely on either the Jersey or Guernsey trust law provisions to limit their liability.

Consequently, the court had to consider the deeds of novation to reach a decision. The deeds did include an express statement that the Trustees were entering into the deeds of novation as Trustees of the Trust and that third parties were aware of this.

However, the wording did not expressly limit the liability of the Trustees to the value of the trust assets and the court therefore decided that the Trustees were personally liable. Unfortunately, simply stating the capacity in which the Trustees had entered the deeds was not sufficient.

Importantly, the court stated that if the loans had been documented and expressly worded to be governed by Jersey law, the protection of Article 32 would have been available and the Trustees would not have been personally liable.

This case underlines the importance of trustees clearly recording their legal obligations and expressly specifying the law governing the transaction in question. This is of particular importance for trust companies administering trusts with a different proper law from the jurisdiction in which the administration take place and ultimately, where most of the decisions are made.