Concern about the vulnerability of Guernsey and Jersey trusts have been resolved by a Privy Council ruling last week, according to one of the litigators involved in the case.
A Guernsey Court of Appeal decision in 2015 had held that a creditor of a trustee may enforce a debt directly against a trust’s assets, even if the trustee has no right to indemnify itself from the trust in order to pay the debt.
The Privy Council overturned this aspect of the Court of Appeal judgment, which will bring comfort to settlors that, in the event that a trustee unreasonably incurs a liability or acts in breach of trust (invalidating its indemnity), the assets in trust will still be protected from creditors.
Nick Robison of Babbé (pictured), who with his colleague Ian Swan successfully overturned this aspect of the Court of Appeal decision, acting for the trustees of the Tchenguiz Discretionary Trust, said: “This new ruling in the Privy Council has restored confidence in the security of assets held in Jersey and Guernsey trusts.
“The Privy Council decision will prove to be of huge importance to settlors, beneficiaries and trustees across the offshore world, but particularly those interested in Jersey and Guernsey law trusts. Since the Court of Appeal’s judgment in 2015, there had been concern about the vulnerability of Jersey and Guernsey law trusts, but this judgment will give tremendous comfort to those with an interest in those trusts.”
He said the Court of Appeal’s decision had had the potential for significant negative effects on the attractiveness of Jersey (and Guernsey) trusts. Apart from potential tax advantages, one of the main purposes of settling assets into an offshore trust is to protect them from hostile creditors.
Case details
In this case, high-profile property investor Robert Tchenguiz was a beneficiary of the trust; the settlor was the Tchenguiz Family Trust. The trust was governed by Jersey law but administered in Guernsey, and its then trustees were Investec Trust (Guernsey).
The creditors were four BVI companies with a substantial portfolio of investments, which had been affected by both the collapse of Kaupthing Bank and the credit crisis, and which sought to sue Investec for approximately £180 million.
The appeal hearing involved a point of law concerning Article 32 of the Trusts (Jersey) Law 1984, which deals with insulating trustees’ personal assets from liabilities to third parties.
Robison said: “The judgment is good news for settlors as well as for those working in the private wealth sector who are advising individuals looking to settle their assets into jurisdictions like Jersey or Guernsey. They know that even if a fiduciary in the islands unreasonably incurs a liability or acts in breach of trust, the trust’s assets will still be protected from the trustee’s creditors.
“Prior to the Privy Council judgment, the issue of trustee’s creditor’s rights was unresolved throughout the Commonwealth and it is one of critical, international importance. The judgment will now be considered the leading authority when such matters are considered in other jurisdictions and will be highly persuasive in similar circumstances in other finance centres such as the Cayman and British Virgin Islands.”