Guernsey Royal Court judgment affects both Bailiwicks

Friday 14 February 2014

Channel Islands’ trustees are being warned to take great care to avoid incurring personal liability under English property law.

Michael Morris, a group partner at Collas Crill says a recent case in Guernsey has far reaching consequences, particularly for trustees dealing with, and financing, UK property.

Mr Morris, a solicitor who specialises in UK property, said the effect of the judgment given recently in the Royal Court of Guernsey is where a trustee contracts with a third party, they must now ensure that it contractually limits their liability.

"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,” he said.

These laws 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. 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.

He continued: "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. 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."

However, he added, 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.