A Rare Example Of A Court Exploring The Nature Of Unit Trusts

Barclays Wealth Trustees (Jersey) Limited & Another v Equity Trust (Jersey) Limited and Another [2014] JRC102D

SUMMARY

If you are involved with a unit trust structure (as trustee, manager or unitholder), and are in any way unsure of the legal nature of a unit trust, then you should read this article. It will assist you to fully appreciate the nature of a unit trust, the rights and obligations involved between the parties and that a manager can be considered a trustee for liability purposes.

FACTS

Barclays Wealth Trustees (Jersey) Limited ("BWT") and Barclays Wealth Fund Managers (Jersey) Limited ("BWFM") (together "Barclays") are the present court appointed trustee and manager of three Jersey proper law units trusts known as R2R Bulgaria Property Fund, R2R Croatia Property Fund and R2R Monenegro Property Fund, of which Equity Trust (Jersey) Limited and Equity Trust Services Limited (together "Equity") were the original trustee and manager. The purpose of the unit trusts were to make investments, through intermediary companies and other investment vehicles, in property of various kinds in Bulgaria, Croatia and Montenegro, but significant investment losses arose. Equity brought the current application before the Royal Court of Jersey to strike out certain parts of Barclay's claims against Equity. However, the application raised important questions about:

the nature of unit trusts (i.e. is it a contract, or a trust, or a quasi contract/ trust?); the legal status of managers and trustees of unit trusts; and the judicial basis of claims against a former trustee and manager by a successor trustee and successor manager. There is little judicial authority on this area in Jersey, or England and Wales, but there is some academic and professional literature exploring these questions, albeit not all of it unanimous in its conclusions.

TRUST INSTRUMENTS AND THE CLAIM UNDER CONTRACT LAW

As is often usual with unit trust instruments, each unit trust was described as an instrument made between trustees and manager, the terms of which relieved the trustee of all, or most, of the duties relating directly to the investment function. The manager was tasked with managing and administering the trust fund with the trustee concurring in, and performing, the acts necessary to enable the manager to exercise its powers.

It was argued by Barclays that, by each of the trust instruments, a contract was formed between the manager and the unitholders such that, by virtue...

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