Equity Trust (Jersey) Ltd v Halabi (in his capacity as Executor of the Estate of the late Madam Intisar Nouri) (Jersey)

A trustee’s right of indemnity under Jersey law creates an equitable proprietary interest in the trust assets. It is not merely a possessory lien and survives retirement, removal and transfer of the assets to a successor trustee. Where the fund is insufficient to satisfy successive trustees’ properly incurred claims, their interests rank pari passu, not by appointment date. The priority is against beneficiaries, not between trustees. The right also extends to reasonable costs incurred in proving an indemnity claim. The Trusts (Jersey) Law 1984 does not displace these principles. Article 32 limits certain personal liabilities but does not give creditors direct rights against trust assets.

Two conjoined appeals concerned trusts governed by Jersey law. The Jersey appeal arose from proceedings involving successive trustees of the Ironzar trusts. The Royal Court held that successive trustees ranked pari passu and that a former trustee could not recover the costs of proving its indemnity claim. The Court of Appeal of Jersey, in [2019] JCA 106, held that a former trustee’s lien ranked first in time and that those costs were recoverable.

The Guernsey appeal concerned successive trustees of the Tchenguiz Discretionary Trust. The Guernsey courts applied the first-in-time approach. The central questions were whether the indemnity created a proprietary interest, whether it survived transfer to a successor trustee, how successive interests ranked, and whether costs of proving an indemnity claim were recoverable.

Disposition. The appeals were allowed in relation to priority. The decision that a former trustee ranked ahead of successor trustees was displaced. The decision that the costs of proving an indemnity claim were recoverable was upheld.

1. Nature of the indemnity. In the joint judgment of Lord Richards and Sir Nicholas Patten, agreed by the Board on these issues, the right of indemnity comprises reimbursement and exoneration for liabilities properly incurred. It creates an equitable proprietary interest in the trust assets. The interest is not merely a possessory lien. A trustee’s ability to retain or apply assets is a practical means of enforcing that interest.
2. Survival. The proprietary interest survives the trustee’s retirement, removal and loss of possession. It continues after the trust assets have been transferred to or vested in a successor trustee. The Board modified, rather than rejected, the earlier statement in Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2019] AC 271 concerning the survival of the lien.
3. Priority. The majority reasoning of Lord Briggs, supported by Lord Reed and Lady Rose, and consistent with Lady Arden’s conclusion, was that successive trustees’ interests rank pari passu where the fund is insufficient to satisfy them all. Appointment dates provide no principled basis for priority. The first-in-time approach would produce arbitrary and administratively difficult results. Lord Richards and Sir Nicholas Patten, with Lord Stephens, would have applied first-in-time priority, but that was not the Board’s decision.
4. Jersey law. The English-law principles were not inconsistent with Jersey customary law or the Trusts (Jersey) Law 1984. The statutory right to reasonable security on retirement did not abrogate the continuing proprietary interest. The contractual indemnity in the DORA did not amount to an implied waiver of ETJL’s equitable rights. Article 32 did not pool trust assets or give creditors a direct claim in rem.
5. Costs. The right of indemnity extends to costs incurred in proceedings brought by or against a trustee in that capacity, absent misconduct. It therefore covered the reasonable costs of proving a former trustee’s indemnity claim. The statutory law of Désastre provided no proper analogy because the trustee was establishing the quantum of a proprietary interest, not proving as a creditor.

• Privy Council: Appeals allowed in relation to priority; the recoverability of the former trustee’s costs was upheld.
• Court of Appeal of Jersey: In [2019] JCA 106, the Royal Court’s decision was reversed on priority and recoverable costs.
• Royal Court of Jersey: The priority issue was decided in (2018) (2) JLR 81; the recoverable costs issue was decided in (2018) JRC 164.
• Guernsey courts: The Guernsey Court of Appeal upheld the Lieutenant Bailiff’s first-in-time approach in the judgment of 21 August 2020.