Professional trustees and relief from liability: a higher bar
Crociani and others v Crociani and others [11.09.17]
Under the trusts laws of most commonwealth jurisdictions, where a court finds a trustee personally liable for a breach of trust, the court has discretion to relieve that trustee of personal liability where the trustee has been honest, reasonable and where relief from liability would be fair. This discretion can provide an important protection for trustees and their professional indemnity insurers when faced with breach of trust claims.
In exercising this discretion, the Royal Court of Jersey in Crociani v Crociani , has held that professional trustees should be held to a higher standard than a lay co-trustee, and that consideration should be had to a number of factors in determining whether conduct is reasonable.
At the centre of these complex proceedings is the Grand Trust, which was settled in 1987 by Edoarda Crociani (Madame Crociani) to create separate funds for the benefit of her daughters, Cristiana and Camilla.
Between 2010 and 2011, most of the Grand Trust’s US$180 million in assets was transferred to BNP Paribas Jersey Trust Corporation Limited (BNP Jersey) and Madame Crociani as trustees of another trust created by Madame Crociani, the Fortunate Trust, of which Madame Crociani was the sole beneficiary during her lifetime (the 2010 Appointment). Cristiana had also transferred shares in Crica Investments Limited (Crica) to the Fortunate Trust, which were later transferred to Madame Crociani.
Madame Crociani subsequently dispersed all of the assets to undisclosed locations to hide them from Cristiana and her two children.
At the time of the 2010 Appointment, the trustees of the Grand Trust were Madame Crociani, Mr. Paul Foortse, a Dutch lawyer, and BNP Jersey (the Trustees).
In 2013, Cristiana and her children brought proceedings seeking to enforce their rights as beneficiaries of the Grand Trust and to reconstitute the Grand Trust with new trustees, alleging breach of trust by the Trustees. The Royal Court found in favour of the plaintiffs and declared void the 2010 Appointment. The Royal Court also held that the transfer of the Crica shares out of the Fortunate Trust to Madame Crociani had been in breach of the bare trust of those shares in favour of Cristiana.
There were various issues that arose for determination by the Royal Court. One of those issues was whether, on finding that BNP Jersey and Mr. Foortse were personally liable for breach of trust in relation to the 2010 Appointment and in relation to the transfer of the Crica shares, the Royal Court should exercise its discretion to relieve both BNP Jersey (as a professional co-trustee) and Mr. Foortse (as a lay co-trustee) of personal liability.
Relief from personal liability
The Royal Court made the following findings with respect to the relationship between BNP Jersey and Mr. Foortse:
- It would be reasonable to expect a paid professional trustee to take the lead when acting with a lay co-trustee.
- A paid professional trustee is under a duty to keep a lay co-trustee informed of legal advice received.
- A lay co-trustee is entitled to assume that a professional trustee will not promote the exercise of a power unless it had satisfied itself that it was a valid exercise.
The Royal Court accepted that Mr. Foortse had no experience acting as a trustee and that he had taken on the role as a favour to Madame Crociani for no remuneration.
In the case of Mr. Foortse, having found that he had acted reasonably as a lay co-trustee, the Royal Court exercised its discretion in favour of granting relief, stating that the effect upon the beneficiaries of his being relieved would be minimal, and that enforcement against Mr. Foortse would probably only result in his financial ruin.
In respect of BNP Jersey, however, the Royal Court held that it had not acted reasonably, that it was a professional trustee, and that “enforcement against BNP Jersey is the only means by which the plaintiffs will, in practice, be able to achieve justice. BNP Jersey has the resources and ability to pursue Madame Crociani in order to recover the assets of the Grand Trust from her”.
In the English Court of Appeal case of Re Pauling’s Settlement , it was stated that “it is almost a matter of principle that relief [from personal liability] under Section 61 [of the Trustee Act 1925] is not open to professional trustees”.
The Royal Court’s findings in Crociani, therefore, do not depart from what appears to be a general rule, which distinguishes between a professional trustee and a lay trustee. The judgment in Crociani, however, will be of particular significance to professional trustees that have lay co-trustees, and the professional trustee should be mindful that they may be expected to take the lead when exercising trustee powers, and to ensure that they are keeping the co-trustee informed of legal advice received.