A recent case has far reaching consequences for trustees dealing with and financing UK Property and highlights that trustees must now take great care to avoid personal liability when entering into contractual arrangements.
Under English law the position has always been that a trustee acts personally. This means that a trustee is personally liable for any debt incurred when acting as a trustee, and that liability is unlimited.
It is common for a trust deed to contain a limitation of liability clause, however, that limitation is between the trustee and the beneficiaries and not to third parties. It is possible to limit trustee liability contractually so that when a trustee by way of example enters into a contract to sell or lease land, or to borrow money from a Bank, the trustee must ensure that the terms of that contract limit the trustee's liability to the assets of the trust.
Until now, it had been thought that under Guernsey and Jersey law, where Guernsey or Jersey trustees entered into a contract governed by English law (or any law that is not the proper law of the trust) that they would have the protection of Section 42 of the Guernsey Trusts Law and Article 32 of the Jersey Trusts Law which provides that where a counterparty knows or has been made aware that the trustee is acting as a trustee, then the liability of the trustee would be limited to the assets of the trust.
That position has been turned on its head by the recent judgment in Investec Trust (Guernsey) Limited & Bayeux Trustees Limited v Glenalla Properties Limited& others, about which my colleague Bethan Boscher has recently written in more detail in her article Guernsey Royal Court highlights the importance of careful drafting to avoid personal liability for trustees.The effect of the judgment given in the Royal Court of Guernsey is such that where a trustee contracts with a third party, it must now ensure that it contractually limits its liability.