Latest judgment in Tchenguiz trust litigation delivered by Guernsey's Court of Appeal
Guernsey's Court of Appeal has recently delivered its latest judgment in the litigation relating to the Tchenguiz Discretionary Trust (TDT), a Jersey law discretionary trust established on 26 March 2007. The judgment upholds the Royal Court of Guernsey's finding that ITG Limited and Bayeux Trustees Limited (the former trustees of TDT) had not been grossly negligent and thus were not liable for a claim that had been valued at £200 million.
Assets owned by another trust, the Tchenguiz Family Trust (TFT), were appointed to the TDT on 24 August 2007. At the time these assets were appointed the former trustees of TDT entered into deeds of novation assuming liability for monies that the TFT owed to Kaupthing (the Icelandic bank that was a high-profile casualty of the global credit crunch in 2008), Glenalla Properties Limited (Glenalla) and Thorson Investments Limited (Thorson). On 19 December 2007 a number of BVI companies which held TDT investments were also transferred to Oscatello Investments Limited (Oscatello) to provide security for further borrowing.
Glenalla, Thorson and Oscatello were all subsequently placed into liquidation and in April 2010 the joint liquidators demanded that the former trustees of the TDT pay the outstanding loans. In July 2010 the former trustees of TDT were replaced as trustees by Rawlinson & Hunter Trustees SA (R&H).
The former trustees of TDT applied for declarations as to the validity of the loan arrangements that they had entered into in their capacity as trustees of the TDT in 2007 and that they were not personally liable for the loans. In response the joint liquidators counterclaimed for approximately £183 million plus interest for repayment of the loans. R&H also alleged that the former trustees of TDT were grossly negligent and thus personally liable for the loans.
The Royal Court found that the former trustees of the TDT were not personally liable as they had not acted in breach of trust that amounted to either wilful default or gross negligence by entering into the loans and Oscatello had a claim in restitution against the TDT.
Guernsey's Court of Appeal held that the allegations of gross negligence needed to be pleaded with specificity and they had not been. It was not unreasonable in the circumstances for the former trustees of TDT to enter into the loan arrangements and their conduct could not be described as involving a serious or a flagrant degree of negligence. The Court of Appeal also overturned the Royal Court's finding in respect of Oscatello's restitution claim and held that there had been no unjust enrichment and the former trustees of TDT had transferred valuable assets to Oscatello as part of the transaction. Finally, on a procedural point, although an unacceptable period of delay of 18 months had occurred between the end of the trial and the handing down of the judgment this did not justify allowing R&H's appeal.