As noted in Representation of Rawlinson & Hunter SA re Z Trusts at decision of the Royal Court of Jersey at  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 , 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. This decision should be considered in light of the recent New Zealand decision in Courteney v Pratley with respect to proportionality when spending or attempting to spend beneficiaries’ funds. Also see Myths and Liability.
- Representation of Rawlinson & Hunter SA re Z Trusts 10-Sep-2018
- Representation of Rawlinson & Hunter Trustees SA re Z Trusts  JRC 119
- ATC (Cayman) v Rothschild Trust Cayman Ltd  14 ITELR 523
- Bankruptcy (Désastre) (Jersey) Law 1990
- Abell v Screech  10 Ves Jun 355, 32 ER 882
- Investec v Glenalla  UKPC 7