No ranking between trustees

The Judicial Committee of the UK Privy Council (the Privy Council) has ruled four to three in Equity Trust (Jersey) v Halab and ITG v Fort Trustees (Guernsey that there is no chronological priority for trustees where there is insolvency. Rather the approach taken is one of pari passu: that is, trust assets should be distributed to each trustee in partial satisfaction of their debt, irrespective of the order in which they assumed trusteeship.

The four questions considered by the Board were:

1. Does the right of indemnity confer on the trustee a proprietary interest
   in the trust assets?
2. If so, does the proprietary interest of a trustee survive the transfer of the
   trust assets to a successor trustee?
3. If so, does a former trustee’s proprietary interest in the trust assets take
   priority over the equivalent interests of successor trustees?
4. Does a trustee’s indemnity extend to the costs of proving its claim
   against the trust if the trust is “insolvent”, in the sense that trustees’ claims to
   indemnity exceed the value of the trust fund?

The Board was largely aligned regarding their approach to the first, second and fourth questions. However, the third question, regarding priority divided the Board who comprised Lord Reed, Lord Briggs, Lady Arden, Lord Stephens. Lady Rose, Lord Richards and Sir Nicholas Patten.

The two cases that are the subject of the decision are unrelated. One was brought in Jersey and the other in Guernsey. It was common ground that no issue of Guernsey law applies.

It is suggested that the issues will be relevant in a number of jurisdictions. In both cases there was a contest between successive trustees as to their respective entitlement to be indemnified out of the available trust assets.

The question for the Privy Council as set out above was whether, under Jersey law the trustee who is first
in time enjoys priority for its claim over those of subsequent trustees and their creditors. It is noted that while the law of Jersey and New Zealand regarding trust insolvency is not completely aligned, there are strong similarities, with the relevant principles confirmed in Butterfield v Public Trust.

The judgment is considered, running to 99 pages, and warrants close reading due to the number of decisions. The judgment also highlights the practical aspect of insolvency on the context of a trust, where a trust is not a separate legal entity. See [330]

References:

• Equity Trust (Jersey) v Halab and ITG v Fort Trustees (Guernsey) 2022 UKPC 36
• Butterfield v Public Trust [2017] NZCA 367