Posted: 12/02/2014
Trustees in the Channel Islands are being warned to take great care to avoid personal liability when entering into contractual arrangements following a recent case that has far reaching consequences, particularly for trustees dealing with and financing UK property.
UK property expert Michael Morris, a group partner at Channel Islands law firm Collas Crill, says that a recent case created deep uncertainty, where Guernsey or Jersey trustees entered into a contract governed by English law, they would have the protection of the Guernsey or Jersey trusts laws, which provide for trustee liability to be limited to the assets of the trust.
"The effect of the judgment given recently in the Royal Court of Guernsey is such that where a trustee contracts with a third party, it must now ensure that it contractually limits its liability," he warned.
Michael explained: "Under English law the position has always been that a trustee acts personally. This means that a trustee is personally liable for any debt incurred when acting as a trustee, and that liability is unlimited."
It is common for a trust deed to contain a limitation of liability clause, but that limitation is between the trustee and the beneficiaries and not to third parties.
"It is possible to limit trustee liability contractually so that when a trustee, for example, enters into a contract to sell or lease land, or to borrow money from a bank, they must ensure that the terms of that contract limit the trustee's liability to the assets of the trust," said Michael.
"Until now, it had been thought that under Guernsey and Jersey law, where Guernsey or Jersey trustees entered into a contract governed by English law (or any law that is not the proper law of the trust) that they would have the protection of Section 42 of the Guernsey Trusts Law and Article 32 of the Jersey Trusts Law which provide that where a counterparty knows or has been made aware that the trustee is acting as a trustee, then the liability of the trustee would be limited to the assets of the trust.
"That position has been turned on its head by the recent judgment in Investec Trust (Guernsey) Limited & Bayeux Trustees Limited v Glenalla Properties Limited & others.
"The case highlights the real risk of trustees inadvertently risking personal liability when entering into legal obligations."
Collas Crill, which is able to ensure that trustees are fully protected when dealing with buying, selling, leasing and financing UK property, is offering a seminar to local trust companies to ensure they fully understand the implications of the case. Contact Bethan Boscher at bethan.boscher@collascrill.com for more information.