(i)                A trust is not a legal person. Its assets are vested in trustees, who are the only entities capable of assuming legal rights and liabilities in relation to the trust. In particular, they are not agents for the beneficiaries, since their duty is to act independently.

(ii)             English law does not look further than the legal person (natural or corporate) having the relevant rights and liabilities. As Purchas LJ observed in dealing with the legal personality of a temple under Indian law in Bumper Development Corpn Ltd v Comr of Police of the Metropolis [1991] 1 WLR 1362, 1371:

“The particular difficulty arises out of English law’s restriction of legal personality to corporations or the like, that is to say the personified groups or series of individuals. This insistence on an essentially animate content in a legal person leads to a formidable conceptual difficulty in recognising as a party entitled to sue in our courts something which on one view is little more than a pile of stones.”

(iii)           The legal personality of a trustee is unitary. Although a trustee has duties specific to his status as such, when it comes to the consequences English law does not distinguish between his personal and his fiduciary capacity. It follows that the trustee assumes those liabilities personally and without limit, thus engaging not only the trust assets but his personal estate. As Lord Penzance put it in Muir v City of Glasgow Bank (1879) 4 App Cas 337, 368, 16 SLR 483, where debts are incurred by a trustee for the benefit of the beneficiaries, the trustee

“could not avoid liability on these debts by merely shewing that they arose out of matters in which he acted in the capacity of trustee or executor only, even though he should be able to shew, in addition, that the creditors of the concern knew all along the capacity in which he acted.”

“32.     Trustee’s liability to third parties

(1)       Where a trustee is a party to any transaction or matter affecting the trust -

(a)       if the other party knows that the trustee is acting as trustee, any claim by the other party shall be against the trustee as trustee and shall extend only to the trust property;

(b)       if the other party does not know that the trustee is acting as trustee, any claim by the other party may be made against the trustee personally (though, without prejudice to his or her personal liability, the trustee shall have a right of recourse to the trust property by way of indemnity).

(2)       Paragraph (1) shall not affect any liability the trustee may have for breach of trust.”

(i)                The object of the provision is to limit the exposure of the trustee in respect of liabilities incurred by him as such. Since the law already allowed him to do so contractually, it is reasonable to suppose that the draftsman intended something more than that. This is consistent with the fact that subsection (1) is not limited to contractual or even transactional liabilities. The opening words of the subsection (“Where a trustee is party to any transaction or matter affecting the trust”) indicates that it is confined to liabilities arising from some pre-existing relationship to which the trustee can be said to be a “party”, and which has arisen in a manner affecting the trust. But that would extend to certain claims for unjust enrichment (for example claims arising from the frustration of a contract or a total failure of consideration), or tort (for example, claims for negligent misrepresentation).

(ii)             Subsection (1) might be read literally as conferring a kind of claim in rem against the assets themselves. But the phrase “shall be against the trustee as trustee and shall extend only to the trust property” must be read as a whole. The limitation of the trustee’s liability is achieved by treating him as having two legally distinct capacities and two legally distinct estates. Only his capacity as trustee is relevant and only the trust estate is engaged. The words limiting the “claim” to the trust property do not serve to introduce a monetary cap on the trustee’s liability, as all parties now appear to accept. It would be unworkable in practice, in particular where there were multiple third party claims against the trustees of a single trust. Nor are they concerned merely with controlling the execution of judgments. They serve to describe the character of the claim. It is a claim against the trustee in that capacity only. The limitation to trust assets follows on from that.

(iii)           That view of the matter is reinforced by the contrast between subsection (1)(a), which deals with a claim against the trustee as such, and subsection (1)(b), which deals with a claim against the trustee personally. Before article 32 was enacted the trustee could incur liabilities in only one capacity, namely his personal one. The effect of the article is to create two.

(iv)           It is fair to say that it is unusual for a statutory provision about the status of a person against whom a claim is made to depend on the knowledge of the claimant. But there is no conceptual difficulty about this. Irrespective of the knowledge of the claimant, the trustee has two capacities. The knowledge of the claimant does not determine his status. It only determines in which of his two distinct pre-existing capacities he is to be taken to have acted. The concept is familiar in other common law jurisdictions, and notably the United States, which the draftsman of article 32 is likely to have had in mind. In these jurisdictions, the unsatisfactory features of the English rule have led to the enactment of broadly similar statutory provisions to limit the liability of a trustee incurred in that capacity. The American Law Institute, Restatement of the Law, Trusts 3d (2011), Chapter 21, pp 94-95 observes of the principle underlying these enactments that it

“recognizes modern reality rather than traditional concepts. Technically, the trust is still not generally recognized as a legal ‘entity’, but … in practice trustees act on behalf of their trusts and are sued as trust representatives. Indeed, in this Chapter and elsewhere in this country, the trust is treated as an entity to such an extent that it is no longer inappropriate to refer to claims against or liabilities of a ‘trust’ (as in the title and content of this Chapter) and to the liability or debt of a beneficiary to a ‘trust’ (as in Chapter 20), or to refer to and treat trusts, in law and in practice, as if they were entities in numerous other contexts.”

“Where a trustee becomes insolvent or upon distraint, execution or any similar process of law being made, taken or used against any of the trustee’s property, the trustee’s creditors shall have no right or claim against the trust property except to the extent that the trustee himself or herself has a claim against the trust or has a beneficial interest in the trust.”

That subsection might have been expressly limited in its effect to a situation where article 32(1)(b), rather than (1)(a) applied, since in an article 32(1)(a) situation the solvency or otherwise of the trustee would be irrelevant, and there could be no distraint or execution upon his personal assets for his liability as trustee. But it was not. It assumes that the creditor’s right to go against the trust fund continues to depend upon subrogation. In this regard the Jersey legislature has not gone as far as the legal initiatives in the United States in the personification of a trust by creating a direct right of action against the trust in return for relieving the trustee of personal liability. Instead it has relieved the trustee of personal liability by providing that a person when acting as a trustee acts in a separate capacity.

“This section applies to a transaction notwithstanding the lex causae of the transaction, unless the terms of the transaction expressly provide to the contrary.”

This plainly creates a default rule of PIL in relation to issues about the liability of trustees to third parties, subject only to express provision to the contrary in the transaction creating the liability. But it only applies to Guernsey trusts.

“Subject to subsection (2), a foreign trust is governed by, and shall be interpreted in accordance with, its proper law.”

The exceptions in subsection (2) are of no present relevance.

“that justice will be done if your Lordships think it right not only to recognize the fact that the new company exists by the law of its being but to recognize also what it is by the same law … If, for reasons of comity, we recognize the new company as a juristic entity, neither the Greek Government, the creator, nor the new company, its creature, can complain that we too clothe it with all the attributes with which it has been invested.”

Cf, Lord Tucker at p 529.

“it is open to the proper law of a company to limit the liability of its members and officers by adopting either a substantive law route or a procedural law route. The choice is that of the relevant legislature. If it chooses to adopt the substantive law route, that law will have extra-territorial effect, at any rate so far as England is concerned.”

“… the term ‘trust’ refers to the legal relationship created - inter vivos or on death - by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.” (Article 2)

Many other attempted definitions also speak of the trust in terms of relationship. Other definitions, such as that by Mayo J. in In re Scott, Decd [1948] SASR 193, 196, speak more in terms of a trust being:

“[a] … duty or … aggregate accumulation of obligations that rest upon a person described as a trustee.”

“A trust exists if a person (a ‘trustee’) holds or has vested in him, or is deemed to hold or have vested in him, property which does not form or which has ceased to form part of his own estate -

(a)       for the benefit of another person (a ‘beneficiary’), whether or not yet ascertained or in existence, and/or

(b)       for any purpose, other than a purpose for the benefit only of the trustee.”

“26.     Remuneration and expenses of trustee

(1)       Unless authorized by -

(a)       the terms of the trust;

(b)       the consent in writing of all the beneficiaries; or

(c)       any order of the court,

a trustee shall not be entitled to remuneration for his or her services.

(1A)    Despite paragraph (1), where the terms of a trust are silent as to his or her remuneration, a professional trustee shall be entitled to reasonable remuneration for services that the professional trustee provides after this paragraph comes into force.

(2)       a trustee may reimburse himself of herself out of the trust for or pay out of the trust all expenses and liabilities reasonably incurred in connection with the trust.”

The present case is only concerned with subsection (2) but, as will appear, its meaning is best ascertained from reading it in context.

(i)                By asserting that the continued existence of the BVI loan liabilities was attributable to gross negligence by I&B;

(ii)             By alleging other breaches of trust by I&B, capable of being brought into account as a defence to enforcement of their indemnity, in the “Guernsey 3” litigation (which the Board discusses in paras 160–191 below);

(iii)           By claiming that the BVI loans were originally unreasonably incurred by I&B;

(iv)           By claiming in the alternative to (i) and (iii) that the BVI loans should be treated as unreasonably incurred by reason of I&B’s unreasonable failure to get them discharged, at no cost to the TDT, either as part of the restructuring enshrined in the Framework Agreement, or thereafter.

“It seeks to import into article 26(2) of the Trusts (Jersey) Law words of limitation which the legislature has not thought fit to include. I am not persuaded that the right conferred by that article is to be cut down by reading it as if the phrase ‘liabilities reasonably incurred’ was qualified by the words ‘and reasonably permitted to subsist’. If a person interested in the trust - the present trustee or a beneficiary - contends that a trustee has acted unreasonably in permitting liabilities reasonably incurred to persist (when, for example, there was an opportunity to extinguish those liabilities), the remedy is to claim damages for breach of trust or equitable compensation. But, in a case such as the present, the question, then, is not whether the former trustees acted unreasonably in failing to extinguish the liabilities; but whether they were guilty of wilful default or gross negligence: clause 9.1 of the declaration of trust. Reading into article 26(2) of the Trusts (Jersey) Law words of limitation which the legislature has not thought fit to include would have the effect of depriving trustees, in this context, of the protection against liability for breach of trust (absent wilful default or gross negligence) which is afforded by provisions commonly included in trust instruments for the protection of professional trustees.”

The Lt Bailiff therefore found it unnecessary to decide whether I&B had acted unreasonably in allowing the BVI loans to subsist in or after December 2007, although the current trustees say that there are indications in his judgment that, had it mattered, he would have found that they had acted unreasonably in that respect.

“the process [for extinguishing I&B’s liability for the loans] would have been complex and lengthy. It would have become increasingly more difficult as time went by; given the deteriorating market conditions throughout 2008. It may be said that [I&B] should have done more than they did, following entry into the framework agreement, to achieve that objective; but I am not satisfied that the failure of [I&B] to achieve the objective, before the collapse of Kaupthing in October 2008, can be described as amounting to a serious and flagrant degree of negligence.”

“At completion the Parties shall do those things required of them in Schedule 2 …”

The “Completion Obligations” in Schedule 2 included the delivery by Kaupthing to Oscatello and by Oscatello to Kaupthing of “duly executed counterparts of the Iceland Loan and the Oscatello Share Charge”. In the latter case, the TDT also undertook to procure such delivery by Oscatello.

“(D)    procure that Oscatello promptly grants the Oscatello Share Charge in favour of Kaupthing as security for all of Oscatello’s obligations under the Iceland Loan.”

Clause 3.2 provided that

“The consideration payable by each of Oscatello and Eliza for the Shares and the Oscatello Shares respectively is as follows:

(A)      By Oscatello:

(i)        to TDT: the issue of 169,672,450 £0.01 shares in the capital of Oscatello; and

(ii)       to Silverville: the issue of 94,786,000 £0.01 shares in the capital of Oscatello,

With £0.01 credited as paying up the par value and £0.99 credited as premium on the issue of each share, and together with the single no-par share currently held by TDT in Oscatello, being the “Oscatello Shares”, and

(B)      By Eliza:

(i)        to TDT: the issue of 169,672,450 £0.01 shares in the capital of Eliza; and

(ii)       to Silverville: the issue of 94,786,000 £0.01 shares in the capital of Eliza,

With £0.01 credited as paying up the par value and £0.99 credited as premium on the issue of each share.”

“The court may order the costs and expenses of and incidental to an application to the court under this Law to be raised and paid out of the trust property or to be borne and paid in such manner and by such persons as it thinks fit.”

Article 51(1) of the TJL provides that a trustee may apply to the court for direction concerning the manner in which the trustee may or should act “in connection with any matter concerning the trust”. Article 53 empowers the Jersey courts to make costs orders in relation to such applications and confers a wide discretion on the courts which, in the Board’s view, is inconsistent with reading the phrase “any transaction or matter affecting the trust” in article 32 as covering the award of costs.

“when one looks at the interlocutory applications … we consider, essentially for the reasoning of the other parties, … that the behaviour of [R&H] cannot be justified by reference to surrounding circumstances and can only properly be characterised as a determined attempt to derail the appeal process.”

“144.  Upon the basis of the advice given to the defendants by their legal team, the chance of achieving a better final result than was attained in the settlement was fanciful. There is no contradictor to the April 2010 statement and advice by leading counsel, whose view was that the chance of succeeding on a critical matter was no more than 30% and that the realistic prospects of ever receiving any money were less than 10%. As he explained, indeed, the defendants had always considered that they would not be successful at trial. After the failed mediation, the advice in June 2010 was, unsurprisingly, that continuing with the counterclaim in both England and in the BVI could well expose the defendants to an order for indemnity costs.

145.    Applying the legal test which we have outlined above, at para 100, to the situation which the Somerfield proceedings had reached, we are satisfied that the only proper conclusion is that the prospects of success for them were fanciful. The percentages identified are clearly of a level at which only the most committed or foolhardy litigant proceeds, at his or her own potential detriment, to a full blown expensive trial with the prospect of a damaging award of costs. It would be a rare position in which to see a trustee.

146.    Upon the most generous consideration of the position of the plaintiff, although it has put forward, both before this court and below, numerous indications that other matters might be pursued, there has been no real indication that there is a serious likelihood of a point of substance being found which would have altered the prospects for the defendants of achieving any settlement based upon actual evaluation as opposed to nuisance value.

147.    This is not a case, for example, where there is a suggestion of failure to carry out a critical step, or a suggestion of loss of a critical piece of evidence or of a failure in diligence: all that has been done is to suggest, in effect, that certain matters earlier identified by the defendants’ leading counsel, might be worthy of exploration. But there is not even an arguably firm suggestion that any one of those matters has a clear prospect of leading to different prospects of success which, upon that hypothesis, were lost to the defendants as trustees.”

Although the court regarded that analysis as determinative of the appeal, it went on to consider and dismiss ten separate matters of complaint which had been raised by R&H (paras 149-161). In particular, it noted that, apart from the evidential difficulties facing the claim, the insolvency of Oscatello provided a further obstacle to any practical benefit emerging (para 152).

“Guernsey 1 was fundamentally about the loans, whereas the existence of those loans is now part of the canvas on which the allegations the plaintiff wishes to pursue are to be painted.” (para 91)

Thus the claims could have been brought in Guernsey 1, but that did not mean that they should have been.

“It would then have been the function of the Court to hear the representations of all the parties convened in Guernsey 1 on the different options and decide how to deal with the whole case justly. It should not have been the unilateral choice of the plaintiff as to how to conduct its claims.” (para 101)

He rejected the submission for R&H that it should make any difference that it had been brought into Guernsey 1 as a defendant, and was raising matters by way of counterclaim. The rules did not justify drawing a distinction between the position of the plaintiff as counterclaimant and that of a plaintiff commencing two sets of proceedings (para 103).

“I take the view that the BVI Companies would not have wished to have these claims heard at the same time as the proceedings dealing with the loans to them. No one has offered any accurate estimate of how long the trial before the Lieutenant Bailiff would have become had there been a single trial, but it seems to me not to be unreasonable to expect the trial to have doubled in length. This would have had no bearing on the resolution of the issues between the BVI Companies and the other parties. Guernsey 1 started life with the defendants applying for directions. This was solely in the context of the loans and so a reasonably narrow issue. It would, in my view, have been transformed into quite a different trial if the allegations now raised by the Plaintiff had also been included.”

In those circumstances, he would, he thought, have ordered the trial in Guernsey 1 to proceed as planned, and delayed the additional claims for another day, “thereby avoiding the BVI Companies being involved in matters that were of no interest to them” (para 104).

“In my opinion, this issue is very finely balanced. If I could have been persuaded that there would only have been a short delay in re-listing the trial dates and that the length of the trial would not have increased by very much at all, I would probably have concluded that the only aspect to sever was the Somerfield Litigation claim. However, if I had recognised that it would delay the trial involving the BVI Companies and result in them having to waste time sitting through too many days of evidence and argument that had no relevance to their participation in the trial, I would probably have concluded that it was most sensible to proceed as planned and leave the new claims to be commenced in separate proceedings, as has been the case. The defendants, through Advocate Wessels, have not provided a clear picture as to what the pros and cons of this case management aspect would have been at the time they would have been under consideration and, because the defendants bear the burden of establishing the abuse of process on which they rely, that is why I have concluded, on balance, that I would have been more likely to have decided that the additional claims the plaintiff wished to raise should not be included in Guernsey 1 but dealt with separately. In some respects, this is the result of the overall impression I have formed as to the most effective way to manage the claims. Splitting the trial broadly as the plaintiff has done by the way it has pursued its claims separately against the defendants ‘feels’ the right way to have dealt with them.” (para 106)

“Upon such an analysis it can be seen that, although there is not a precise identity between the two, the claims in both actions involve (i) essentially the same parties (ii) acting in essentially the same capacities (iii) in relation to events occurring in essentially the same time period (iv) and in relation to essentially the same series of transactions (v) raising essentially the same cause of action (breach of trust) (vi) whose disposal would turn on essentially the same documentary evidence and (vii) essentially the same witnesses. That is the accumulation of reasons why, having decided that the allegations in the Cause could have been brought in Guernsey 1, the court below ought then to have come to the conclusion that, absent any special reason, those allegations should have been brought in Guernsey 1.” (para 87) (emphasis in original)

“… there is no evidence that the proposed new allegations depend upon information only discovered from an examination by the plaintiff of the documents recovered in late 2011 or early 2012. Nor is there any suggestion that the proposed new allegations depend upon witness evidence from individuals who were not known or available to the present plaintiff prior to having access to those documents. To the contrary, we were informed by counsel for the plaintiff that amongst the relevant witnesses supporting the new allegations would be those who gave evidence on behalf of the plaintiff in Guernsey 1.” (para 92)

The court concluded on this aspect:

“In almost every civil litigation there comes a point when the evidential burden moves from one party to another: and may do on more than one occasion. Here, the learned Deputy Bailiff, having identified that the present plaintiff could have raised the relevant part of the present Cause as part of Guernsey 1, should have recognised that it was incumbent upon the plaintiff to explain, credibly, why that was not done. Failing such a credible explanation it seems to us to follow, on the balance of probabilities, that the party complaining is entitled to a determination that the failure to raise in the earlier litigation that which could have been so raised is an abuse through double vexation. Absent that credible explanation, consideration of what might or might not have occurred at a case management conference was an irrelevant consideration as the complaining party was already entitled to the order striking out the offending pleading …” (para 93)

Article 32

“32.     Trustee’s liability to third parties

(1)       Where a trustee is a party to any transaction or matter affecting the trust -

(a)       if the other party knows that the trustee is acting as trustee, any claim by the other party shall be against the trustee as trustee and shall extend only to the trust property;

(b)       if the other party does not know that the trustee is acting as trustee, any claim by the other party may be made against the trustee personally (though, without prejudice to his or her personal liability, the trustee shall have a right of recourse to the trust property by way of indemnity ...”

“Dealings by trustees with third parties.

42.(1) Subject to subsection (3), where, in a transaction or matter affecting a trust, a trustee informs a third party that he is acting as trustee or the third party is otherwise aware of the fact, the trustee does not incur any personal liability and a claim by the third party in respect of the transaction or matter extends only to the trust property.

(2)       If the trustee fails to inform the third party that he is acting as trustee and the third party is otherwise unaware of the fact -

(a)       he incurs personal liability to the third party in respect of the transaction or matter, and

(b)       he has a right of indemnity against the trust property in respect of his personal liability, unless he acted in breach of trust.

(3)       Nothing in this section prejudices a trustee’s liability for breach of trust or any claim for breach of warranty of authority.

(4)       This section applies to a transaction notwithstanding the lex causae of the transaction, unless the terms of the transaction expressly provide to the contrary.”

“Existence of a trust

A trust exists where a person (known as a trustee) holds or has vested in the person or is deemed to hold or have vested in the person property (of which the person is not the owner in the person’s own right) -

(a)       for the benefit of any person (known as a beneficiary) whether or not yet ascertained or in existence;

(b)       for any purpose which is not for the benefit only of the trustee; or

(c)       for such benefit as is mentioned in sub-paragraph (a) and also for any such purpose as is mentioned in sub-paragraph (b).”

“Proper law of a trust

(1)       Subject to article 41, the proper law of a trust shall be the law of the jurisdiction -

(a)       expressed by the terms of the trust as the proper law; or failing that

(b)       to be implied from the terms of the trust; or failing either

(c)       with which the trust at the time it was created had the closest connection.

(2)       The references in paragraph (1) to ‘failing that’ or ‘failing either’ include references to cases -

(a)       where no law is expressed or implied under sub-paragraph (a) or (b) of that paragraph; and

(b)       where a law is so expressed or implied, but that law does not provide for trusts or the category of trusts concerned.

(3)       In ascertaining, for the purpose of paragraph (1)(c), the law with which a trust had the closest connection, reference shall be made in particular to -

(a)       the place of administration of the trust designated by the settlor;

(b)       the situs of the assets of the trust;

(c)       the place of residence or business of the trustee;

(d)       the objects of the trust and the places where they are to be fulfilled.”

“… the trend is to relieve the trustee of personal liability under a wide range of circumstances on contracts made and torts committed by the trustee or the trustee’s employees during the course of trust administration. Naturally, there is a concomitant trend to permit these third persons to satisfy their claims directly from the trust estate, by suing the trustee in a representative capacity.” (pp 1870-1871, section 26.1)”

Scott and Ascher continue:

“One of the most significant differences between the new rules and the traditional rules is that the new rules shift the risks of dealing with an insolvent trustee. Under the traditional rules, it was the third party who contracted with a trustee who ran the risk that the trustee might be insolvent when the time for performance arrived. Under the new rules this risk now falls on the trust estate. For the most part, trustees act reasonably in entering into contracts for the benefit of the trust estate. Such trustees have always been entitled to indemnification and, indeed exoneration … The new rules make no changes in this regard. It is when the trustee not only is insolvent but also has acted unreasonably or unfaithfully in entering into a contract that the new rules change the ultimate outcome. In such a case, the third party can now reach the trust estate directly, notwithstanding the trustee’s insolvency, leaving the trust estate with no effective recourse against the insolvent trustee. This shift, however seems entirely appropriate. For one thing, the trust is the ‘enterprise’ that has generated the contract; it should, therefore, incur the costs of performing the contract, even if an imprudent or unfaithful trustee, acting on the trust’s behalf, has entered into a contract that is not in all respects proper from the trust’s point of view. For another thing, the selection of a trustee is, at least in the first instance, completely within the settlor’s control. (pp 1877-1878, section 26.2) …

We have seen that, under the emerging notion of trustee liability, a trustee is ordinarily liable in a representative capacity, and not personally, and that a third person can generally assert a claim against the trust assets simply by suing the trustee.” (p 1895, section 26.5)

“105.  Claim against Trust.

A third party may assert a claim against a trust for a liability incurred in trust administration by proceeding against the trustee in the trustee’s representative capacity, whether or not the trustee is personally liable (see para 106).

106: Personal Liability of Trustee; Limitations

A trustee is personally liable:

(1)       On a contract entered into in the course of trust administration only if:

(a)       In so doing, the trustee committed a breach of trust; or

(b)       The trustee’s representative capacity was undisclosed and unknown to the third party; or

(c)       The contract so provides;

(2)       For a tort committed in the course of trust administration, or for an obligation arising from the trustee’s ownership or control of trust property, only if the trustee is personally at fault.”

a)                 The whole Board has, rightly, rejected the idea that article 32(1)(a) operates to cap the trustee’s liability to a third party. But the majority argue that article 32(1)(a) confines the third party, when it comes to enforcing that liability, to taking advantage (in particular by subrogation) of any right of indemnity which the trustee may have to the third party. That creates an unusual legal situation, which may require attention in another case. Judgment is given against the trustee for the full amount, but execution is in some way confined by reference to whatever right of indemnity the trustee may possess. The majority judgment leaves unexamined the evident unfairness to the creditor of leaving him to rely on a claim through the trustee, when the trustee may, due to his own breach of trust in relation to the relevant or some past transaction, have no right of indemnity of which the third party can take advantage. In the United States context, this is addressed by para 106 of the American Law Institute Restatement on Trusts, but article 32(1)(a) contains no such qualification. Is it to be implied into article 32(1)(a), as the majority construe it, that the trustee will not by his own breach of trust have deprived the third party of a right of subrogation to be indemnified out of the trust assets which the trustee would, but for such breach, have had? Again, the law governing the relationship between the trustee and third party can no doubt achieve such a result, as can the law of the forum by mandatory rule. But I see no principled basis for categorising any of such issues as anything other than issues regarding third party liability.

b)                 The Board also accepts that article 32(1)(a) is confined to liabilities arising from “some pre-existing relationship to which the trustee can be said to be a ‘party’” (para 61(1)). But it is suggested that this would include a claim in tort, eg for negligent misrepresentation. This may be the logical consequence of the Board’s majority judgment, but it is in my view also indicative of its weakness on this present issue. What is being suggested is that common law rules of characterisation would treat as a matter of status or capacity an issue arising from the tortious misleading, whether negligent or presumably deliberate, of a third party by a known trustee, acting “as such”, and would, under article 32(1)(a), leave the third party without any remedy against the trustee personally or against the trust directly. The same would, presumably, have to apply to a trustee who mixed third party assets with the assets of the trust. However, in all these cases, the tort, even if merely negligent, would also (subject at least to any term in the trust deed) constitute a breach of trust depriving the third party of any right of subrogation. Again, this will, I think, benefit by further consideration on some future occasion.

“Enforceability of foreign trusts.

65. (1) Subject to subsection (2), a foreign trust is governed by, and shall be interpreted in accordance with, its proper law.

(2)       A foreign trust is unenforceable in Guernsey to the extent that -

(a)       it purports to do anything contrary to the law of Guernsey,

(b)       it confers or imposes any right or function the exercise or discharge of which would be contrary to the law of Guernsey, or

(c)       the Royal Court declares that it is immoral or contrary to public policy.”

Subject to the addition of a further (but presently irrelevant) head of unenforceability relating to trusts purporting to apply directly to immovable property in Jersey, article 49 of the TJL is in like terms.

Reasonably incurred

Conclusion

“… the time has come to recognise that as a general rule the common law will recognise and give effect to limitations of liability which arise under an entity’s constitutive law by reason of the particular status or capacity in which its members or officers assume an obligation.”

Critically, they apply this principle not only to entities which do have separate legal personality, but also to trusts, which do not, and which may not really be entities at all: see paras 88-89 of the main judgment. It is implicit in their reasoning that this analysis would apply to the private international law of England and Scotland, as much as to Guernsey, Jersey and other common law jurisdictions whose domestic law already recognises the limited liability of trustees, as a matter of their trust law.