BRIEFING Calling time: Royal Court clarifies limits of customary law exception in respect of time barred breach of trust claims brought by incoming trustee FEBRUARY 2014 In Michaela Walker & Ors v Paul EgertonVernon & Ors [2014] JRC 025, the Jersey Royal Court has ruled that, where a newly incorporated private trust company (PTC) recently appointed as successor trustee seeks to bring claims for breach of trust against predecessors, it will not be able to benefit from the Jersey law doctrine of empêchement d'agir (which can stop the limitation clock from running in situations of practical impossibility) where it was not in existence at the time that the deadline for bringing claims had expired. Background The First to Third Plaintiffs were beneficiaries of a Jersey law discretionary trust and had brought claims said by the Plaintiffs to be valued at around £130 million against the First to Third Defendants, as former trustees, for alleged grossly negligent investment decisions. The Fourth Defendant had been the provider of trust administration services and was being sued for breach of contract and tortious duties said to be owed to the trust and on the basis of vicarious liability for the First Defendant. The Third Defendant had retired as a personal trustee in 2007 and the First Defendant had retired in July 2009. The Second Defendant was a PTC which had continued as trustee until December 2012; its directors had included both the First and Third Defendants until the date of the PTC's retirement in favour of a new PTC, Delarose. The latter PTC had been incorporated at the behest of the beneficiary Plaintiffs just a day before assuming its role as trustee in December 2012. The beneficiary Plaintiffs had issued proceedings in March 2012 against the trustee Defendants. In November 2013, with the consent of the trustee Defendants, the Fourth Plaintiff (Delarose) was permitted to join in For more briefings visit mourantozannes.com This briefing is only intended to give a summary and general overview of the subject matter. It is not intended to be comprehensive and does not constitute, and should not be taken to be, legal advice. If you would like legal advice or further information on any issue raised by this briefing, please contact one of your usual Mourant Ozannes contacts. Contacts: Bruce Lincoln Partner, Jersey Samuel Williams Associate, Jersey For contact details, please see the end of this briefing. mourantozannes.com the proceedings but solely so as to bring claims against the Fourth Defendant. The Fourth Plaintiff then applied by summons in December 2013 to amend its pleading to add claims against the First to Third Defendants. The court determined as a preliminary point that that application should be properly characterised as a joinder application. In those circumstances it was agreed by the Plaintiffs that the doctrine of "relation back" did not apply. Legal analysis The First and Third Defendants opposed the application by Delarose to join in the Plaintiffs' claims against them on the grounds that those claims were prescribed under Article 57(3B) of the Trusts (Jersey) Law 1984. That provision specifies a prescription period of three years from the date of a trustee's retirement within which any claim for breach of trust must be brought by an incumbent trustee. This was not a point that was open to the Second Defendant to take as it had retired less than three years prior to the joinder application. Delarose argued that the claims were not prescribed because the time period had not begun to run until it became trustee, due to the application of the doctrine of empêchement: the current joinder application was therefore being brought within time. It was argued that it had been practically impossible for a trustee to bring a claim prior to December 2012 because there was no prospect of the Second Defendant issuing proceedings against two of its own directors and implicating itself in respect of joint decisions. It was also alleged that the Second Defendant had unreasonably refused to retire for a period of one year by virtue of insisting on what the Plaintiffs said was unreasonable security in respect of any continuing liability as trustee. The Second Defendant denied that it had behaved in any way unreasonably in the BVI | CAYMAN ISLANDS | GUERNSEY | HONG KONG | JERSEY | LONDON BRIEFING mourantozannes.com context of its retirement. Although Delarose had not been incorporated until December 2012, after the prescription period had expired, it was argued that the empêchement accrued to "the office of trustee" in general and its benefit was inherited by Delarose when it took office. Whilst it was accepted that it was arguable that the doctrine of empêchement could apply to claims for breach of trust (although whether the doctrine does in fact apply will be a matter for trial), the Court rejected the arguments advanced on behalf of Delarose. There was no authority to support the idea that empêchement could apply to "the office of trustee". Only a plaintiff could rely on the doctrine to avoid the application of prescription and, as Delarose had not existed, it could not have been the subject of an empêchement ie a practical impossibility preventing it from issuing proceedings. Moreover, the evidence presented to the Court demonstrated that it had not been practically impossible to bring proceedings during the period that (following the Plaintiffs' request that the Second Defendant retire) the terms of the security were being negotiated, as alternative remedies had been available: if the beneficiary Plaintiffs were dissatisfied with the time it was taking for the Second Defendant to retire, they could have applied to the Court at an earlier stage under Article 51 of the Trusts (Jersey) Law 1984 to replace it with a new trustee. Other points to note The Commissioner confirmed that the relevant test for empêchement is one of practical impossibility, which is to be applied objectively to a reasonable person in the particular circumstances in which the plaintiff was placed, applying the Court of Appeal's decisions in Public Services Committee v Maynard [1996] JLR 343 and Boyd v Pickersgill [1999] JLR 284. The party claiming to have been empêché must have been "incapable of acting at all" (Minories Finance Limited v Arya Holdings Limited [1994] JLR 149 at p.151). The Court also confirmed that, in a joinder application where the potential plaintiff's claims may be prescribed, the relevant test to apply is whether the applicant has an "arguable case" in the sense of a claim which should survive a strike-out application. The Fourth Defendant's application for strike-out was heard at the same time but was unsuccessful. Comments The judgment should be welcomed by the trust services profession as providing clarity and certainty to the legal position as established by the Trusts (Jersey) Law 1984. Incumbent trustees will not be able to bring claims against retired trustees after the three year period has expired except, possibly, in a narrow set of relatively exceptional circumstances (although it is yet to be finally decided that the doctrine of empêchement does indeed apply to breach of trust claims). From a practical standpoint the onus is firmly on dissatisfied beneficiaries to ensure, in circumstances such as those in this case, that they make every effort to remove a trustee where there has been a breakdown in the working relationship and to appoint a new trustee to bring claims within the prescription period. Note, however, that the Fourth Plaintiff has indicated that it will seek leave to appeal the judgment on these issues so this decision may be subject to review in due course. Advocate Bruce Lincoln of Mourant Ozannes acted for the Second Defendant, assisted by Samuel Williams. Contact: Bruce Lincoln, Partner, Jersey +44 1534 676 461 [email protected] BVI | CAYMAN ISLANDS | GUERNSEY | HONG KONG | JERSEY | LONDON FEBRUARY 2014