11 October 2022
The Privy Council has today handed down its much anticipated judgment in the insolvent trust cases of Equity Trust (Jersey) Ltd (Respondent) v Halabi (in his capacity as Executor of the Estate of the late Madam Intisar Nouri) (Appellant) (on appeal from the Jersey Court of Appeal) and ITG Ltd and others (Respondents) v Fort Trustees Ltd and another (Appellants) (on appeal from the Guernsey Court of Appeal). The two cases were consolidated and heard together by a Privy Council Board of seven members in June 2021.
In its judgment the Board unilaterally upheld three aspects of the Jersey Court of Appeal's judgment, namely that (i) a trustee's right of indemnity confers a proprietary interest in the trust property in favour of the trustee, (ii) that this proprietary interest survives the transfer of the trust assets to a successor trustee, and (iii) that a trustee’s indemnity does extend to the costs of proving its claim against the trust if the trust is “insolvent”.
However, the majority of the Board overturned the Jersey Court of Appeal's decision in relation to the ranking of a trustee's proprietary interest. Lord Briggs, Lady Rose, Lord Reed and Lady Arden held that a former trustee’s proprietary interest in the trust assets ranks pari passu with the equivalent interests of successor trustees. Conversely Lord Richards, Sir Nicholas Patten and Lord Stephens favoured the Court of Appeal's decision and held that a former's trustee's proprietary interest should take priority over successor trustees' indemnities and the indemnities should rank on a first in time basis.
This judgment by the Privy Council is a precedent setting one which brings long awaited finality to the question of how a former Trustee's indemnity is to rank within an insolvent trust scenario. The practical impact of this judgment on the trust industry will be significant with former trustees' indemnities no longer having any priority over successor trustees' claims to assets should there be insufficient assets left in the pot, leaving former trustees rather at the mercy of the administration of the trust by their successors.
In her capacity as a Jersey Advocate, Taylor Wessing Partner Emma Jordan represented Equity Trust (Jersey) Limited before the Privy Council (in addition to having represented the client at the hearings in the lower courts). Emma was assisted by Senior Counsel, Kate Silbermann.