Court restores confidence in Channel Islands trusts
Concern about the vulnerability of Guernsey and Jersey trusts has been resolved by a recent landmark Privy Council decision, according to one of the litigators involved in the case.
A Guernsey Court of Appeal decision in 2015 had held that a creditor of a trustee may enforce a debt directly against a trust’s assets, even if the trustee has no right to indemnify itself from the trust assets in order to pay the debt.
The Privy Council overturned this aspect of the Court of Appeal’s judgment, which will bring comfort to settlors who know that the trust’s assets are protected even if a trustee unreasonably incurs a liability or acts in breach of trust (thus invalidating its indemnity).
Nick Robison, of Babbé, and colleague Ian Swan acted for the trustees of the Tchenguiz Discretionary Trust and successfully overturned this aspect of the Court of Appeal decision.
‘This new ruling in the Privy Council has restored confidence in the security of assets held in Jersey and Guernsey trusts,’ he said.
‘The Privy Council decision will prove to be of huge importance to settlors, beneficiaries and trustees across the offshore world but particularly those interested in Jersey and Guernsey law trusts. Since the Court of Appeal’s judgment in 2015, there had been concern about the vulnerability of Jersey and Guernsey law trusts but this judgment will give tremendous comfort to those with an interest in those trusts.’
Mr Robison said that the Court of Appeal’s decision had the potential for significant negative effects on the attractiveness of Jersey (and Guernsey) trusts as, apart from potential tax advantages, one of the main purposes of settling assets into an offshore trust was to protect them from hostile creditors.
In this case, high-profile property investor Robert Tchenguiz was a beneficiary of the Tchenguiz Family Trust, which was governed by Jersey law but administered in Guernsey by Investec Trust (Guernsey) Ltd. The creditors were four BVI companies with a very substantial portfolio of investments which had been impacted by both the collapse of Kaupthing Bank and the credit crisis, and which sought to sue Investec for approximately £180m.
The appeal hearing involved a point of law concerning Article 32 of the Trusts (Jersey) Law 1984 which deals with insulating trustees’ personal assets from liabilities to third parties. The Privy Council found that Article 32 can assist the trustees of a Jersey law trust when the extent of their liabilities is subject to litigation before the Royal Court of Guernsey, thereby offering protection to the trustees in respect of their personal assets.
Mr Robison said: ‘Prior to the Privy Council judgment the issue of trustee’s creditor’s rights was unresolved throughout the Commonwealth and it is one of critical, international importance. The judgment will now be considered the leading authority when such matters are considered in other jurisdictions and will be highly persuasive in similar circumstances in other finance centres such as Cayman and the British Virgin Islands.’