A strong Judicial Committee handed down their reasons yesterday in two conjoined appeals from the Channel Islands on points of importance for (amongst others) those exercising (paid) fiduciary roles in the administration of trusts. However, whilst the JCPC was unanimous in certain regards, it split 4:3 on one aspect, with the majority decision not being reached for the same reasons.
Both appeals arose in the context of trust structures facing significant judgment liabilities in circumstances where (a) the trust assets were insufficient and (b) there had been a succession of trustees. The appeals considered the trustees’ rights in connection with their indemnity and the priority, as between the trustees, of their competing claims for payment.
The Judicial Committee was unanimous in concluding that (consistent with the position under English law) the indemnity enjoyed by trustees comprised an equitable lien rising by operation of law, such that it bestowed a proprietary interest in the trust assets. It was also unanimous in concluding that the proprietary interest of a trustee survived the transfer to a successor trustee and that it extended to the costs of proving its claim against the trust to the extent that it was insolvent.
Where the members of the Judicial Committee differed was in their reasoning concerning the question of whether a former trustee’s proprietary interest in the trust assets enjoyed priority over the equivalent interests of successor trustees. Whilst the majority concluded that there was no priority and that the trustees all ranked pari passu, the rationale for this amongst the majority was not unanimous: three members (Lords Briggs and Reed and Lady Rose) agreed with each other as to the rationale for pari passu ranking; Lady Arden reached the same conclusion by a different route. The majority majority view was that the lack of existing authority required a special rule and a pragmatic and flexible approach to determining the question, the answer to which was equal ranking. The minority view (Lords Richards and Stevens and Sir Nicholas Patten) was that successive trustees’ interests are essentially competing ones and the first in time should enjoy priority.
The circumstances in which these questions arose may be unusual in the sense that the amounts involved were very significant; however, the decision in relation to priority will affect all trustees. Successor trustees would do well, at the very least, to take a considered and perhaps more critical view as to the value of their lien and their ability to recover. The decision has potential to adversely impact on professional trustees’ willingness to assume the role.