The decision in Barclays v Equity(1) related to:
- the nature of unit trusts;
- the legal status of managers and trustees of unit trusts; and
- the basis of claims against them by a successor trustee and successor manager.
The new trustee and manager issued an order of justice against the former trustee and manager, claiming that they were liable to compensate the three relevant unit trusts in respect of breaches of trust, fiduciary duty and contract committed in the course of their trusteeship and management of the three unit trusts.
The order of justice claimed that, by virtue of its office as manager of the funds, the former manager was co-trustee of the funds alongside the former trustee and thus owed duties as trustee to all unit holders of each fund. It also claimed that:
- the former manager was subject to the express managerial duties and responsibilities set out in the trust instrument; and
- under the Trusts (Jersey) Law 1984, it was subject to the statutory duties already set out in relation to the former trustee.
The order further claimed that the former manager was a fiduciary office holder and owed fiduciary duties to the unit holders as well as equitable duties of care and skill.
It was also claimed that each of the trust instruments formed a contract between the manager and the unit holders such that, by virtue of its office as manager of the funds, the former manager owed duties in contract to all unit holders of each fund. As such, it was subject to the express duties and responsibilities in contract set out in the trust instrument. Further, the order maintained that the former manager was subject to an implied duty of care and skill in the discharge of its functions as a manager.
The court focused on:
- the degree to which a unit trust was contractual or fiduciary with regard to the obligations imposed on the trustee and manager;
- whether a successor trustee or successor manager had standing to bring a claim against its predecessor; and
- whether the manager of a unit trust may be held liable as a trustee.
The court found that a unit trust can generally be expected to establish a triangular relationship between the manager, trustee and unit holders. The court recognised the contractual origins of the relationship and that the unit trust operated as a trust. The court also found that the trustee and the manager owed trustee-like or fiduciary duties and obligations to the unit holders as:
- they had control of properties belonging to the unit holders;
- they took on activities in the interest of the unit holders;
- they held power that unilaterally affected the interest of the unit holders;
- their obligations are owed entirely for the benefit of the unit holders – to whom the unit trust also owed direct contractual obligations – and this combination of obligations rendered the manager a fiduciary in relation to the unit holders; and
- the unit holders were in a vulnerable position, for they had no right to interfere with the management of their own money.
The court went on to hold that trust instruments are capable of creating contractual obligations enforceable between the trustee and the manager of a unit trust, and that if the trust instrument expressly provides that such obligations are made for the benefit of the unit holders, successor trustees and successor managers have standing to enforce those obligations against their predecessors.
The court held that it is at least arguable that the manager of a unit trust is liable as a trustee. In this case, it was noted that virtually all trustee-like functions were allocated to the manager and the fact that the manager was not registered as a trustee or insured to act as a trustee was irrelevant.
The court found that the manager of the unit trust was a trustee and therefore had standing to bring the claim, particularly because the nominate trustee was required to act on the directions of the manager. The court held that it was unreasonable to insist that the nominate trustee be the sole plaintiff where the nominate trustee was acting in accordance with decisions made by the manager in relation to the litigation.
Further, the court found that, going forward, the common law in this area should develop so that a court can impose equitable remedies on managers, as if they were trustees.
The court held that if the successor trustee and the successor manager were able to show that there was a sufficient relationship of trust and confidence between the unit holders and the previous manager, the unit holders would have the right to enforce the manager's obligations and to claim equitable remedies in respect of their breach.
The court held that the standing of a successor trustee to sue a former trustee does not depend on the breach having any particular character as a breach of a fiduciary duty. It applies generally, to breaches of trust of all kinds. It went on to hold that despite the allegations made in this case being of two kinds (ie, unauthorised payments by companies comprised (indirectly) in the trust funds and breaches of a duty of care owed to the beneficiaries of the trust), a successor trustee may legitimately make both.
The court found that it is arguable that any trustee of a unit trust – including a custodian – has a residual duty owed to the unit holders as beneficiaries to challenge unauthorised instructions of the manager. The court stipulated that this duty applies not only where the trustee had actual knowledge of relevant facts, but also where it would have had that knowledge if it had complied with the statutory duty of diligence.
This is a noteworthy case for Jersey as a significant number of Jersey property unit trusts are administered on the island, invariably with both a trustee and a manager in place. This judgment provides helpful guidance on the duties, responsibilities and potential liabilities of both the trustee and, significantly, the manager. A trustee may has a residual duty to challenge unauthorised transactions of which it should have noticed, and this may have relevance in the area of reserved powers and within the argument that in a reserved powers trust the trustee has a residual duty when provided with prescribed directions from a power holder to ensure no salvage or emergency situation has arisen by virtue of any direction.
For further information on this topic please contact Steve Meiklejohn at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email (firstname.lastname@example.org). The Ogier website can be accessed at www.ogier.com.