Equitable Liens And Providing Finance In Respect Of Jersey Trusts

• Published date: 18 September 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law, Trusts
• Law Firm: Appleby
• Author: Mr Daniel Healy, Iain Millar and Andrew Weaver

The Jersey Court, Jersey Court of Appeal and the Privy Council have presided over a series of high profile, and at times controversial, cases in respect of Jersey trusts in recent years. To an extent these cases inform and supplement each other and together they cover a broad range of topics many of which are worthy of separate consideration in further articles as they do touch on a number of notable points.

The focus of this article is to set out the current Jersey law position in respect of a trustee's equitable lien over trust assets. Discussion on the other issues raised by these cases is outside the scope of this article.

The Jersey law position in relation to a trustee's equitable lien has been the subject of continued heated debate and any lender to a Jersey trust (which includes Jersey Property Unit Trusts) should take note. Even as we write this article we await a further decision from the Privy Council, which could alter the position further.

As a very brief summary of the relevant facts in the most significant dispute on the matter, the former trustee of the Z II Trust (Trust) had sought to recover certain costs incurred by it under the indemnity provided to it upon its retirement. The current trustee had also incurred costs and was seeking to recover those costs under its own indemnity. The assets of the Trust were insufficient to fully indemnify the former trustee, let alone the current trustee.

The Royal Court in the first instance held that the claims of each trustee should rank pari passu, so as to avoid a former trustee "scooping the pot" for its own benefit.

However, it is the latter judgment of the Court of Appeal which raised a number of issues pertinent to finance parties. As at the time of writing this case is the leading case on the point and interestingly the Court of Appeal noted the Privy Council's acknowledgement in Investec Trust (Guernsey) Ltd v Glenella Properties ¹ that "the law of trusts in Jersey is a comparatively recent import from England", and that it looked to the trust law of England save where inconsistent with Jersey's customary law and legislation. The Court of Appeal therefore considered that, to identify the appropriate priority of the rights of indemnification and the trustee's lien, it was appropriate to consider the English law in particular on that issue. The Court of Appeal went on to find that (amongst other things):²

• the Trust was 'insolvent' on the basis that the liabilities incurred on behalf of the...