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Equitable lien, Indmenity, insolvency, trust, Trustee liability, Trustees, Trusts, Trusts Bill

Equitable lien equality

As noted in Representation of Rawlinson & Hunter SA re Z Trusts at decision of the Royal Court of Jersey at [2] a trustee’s equitable lien is a “device of equity granted to trustees by the Court to give them rights of indemnity and priority over the interest of beneficiaries.”  The Royal Court in this case then went on to consider whether a former trustee of an insolvent trust could claim the costs of defending a successful claim where the Trustee had incurred costs of  some £247,000 in relation to a claim of some £90,000.

Concluding, that the Trustee could not recover its costs, notwithstanding that the Trust was insolvent, the Royal Court found that while a former trustee’s right of indemnity and equitable lien securing that right extends to and encompasses expenses reasonably incurred in making good its claim under that indemnity and equitable lien applied to a solvent trust, this was not the case where the trust was insolvent.

As noted at [13], to do otherwise would not “… have the effect of frightening wise and honest people from undertaking trusteeships [but what] could well frighten them is the possibility that in the unlikely event of the trust becoming insolvent, the rights of a former trustee would enable it “to scoop the pot” in relation not only to its claim but also to the cost of proving that claim.  A far more just result would be for all those trustees involved in the administration of the trust, acting properly and in good faith, to be treated equally.”

Editor’s note:  The gross disproportion in the costs incurred in relation to the debt were noted by the Royal Court.  Also see the costs decisions where the Royal Court of Jersey held that “Equity Trust’s claims were clearly self-interested claims to procure a personal advantage over the other creditors.  Over an extended period of time it had advanced a position that it was entitled to priority over all other creditors that would have resulted in it “scooping the pot” to the significant prejudice of all of the other creditors, all of whom accepted that the position should be pari passu.” and that “it has the characterisation of hostile proceedings to which the ordinary principles set out in Watkins v Egglishaw should be applied.  It is clear that in respect of both matters, the Executor was the winning party.  Where a winner is readily apparent, the overriding objective of doing justice between the parties is usually met by making an award of costs in its favour.”  Accordingly, Equity Trust was required to meeting its own costs.

References:

Discussion

One thought on “Equitable lien equality

  1. Good post.

    Posted by Hugh Ammundsen | September 27, 2018, 11:36 pm

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