The Privy Council considered four primary questions:

1.  Does the right of indemnity confer on the trustee a proprietary interest in the trust assets?
2.  If so, does the proprietary interest of a trustee survive the transfer of the trust assets to a successor trustee?
3. If so, does a former trustee’s proprietary interest in the trust assets take priority over the equivalent interests of successor trustees?
4. Does a trustee’s indemnity extend to the costs of proving its claim against the trust if the trust is “insolvent”, in the sense that trustees’ claims to indemnity exceed the value of the trust fund?

Two cases were considered at the same time, Equity Trust (Jersey) Ltd v Halabi and ITG Ltd v Fort Trustees Ltd (Guernsey), as they raised the same issues.

Since the 98-page judgment came out, there has been much discussion amongst trust practitioners on how this decision might impact on a New Zealand court, should the issue arise. In answer to a question on what makes this case significant, Professor Emerita Nicola Peart, General Editor of the Family Law – Property product and updating author of the Trusts Act 2019 chapter in particular, says:

“The major issue in that case is how the rights of indemnities of successive trustees should be prioritised. The Privy Council was divided. The minority favoured the default rule for dealing with competing equitable interests, which is that the first-in-time prevails if the equities are equal. The majority disagreed because the nature of the right of indemnity is different from other types of equitable interests and they thought the default rule would create unfairness. So they concluded that the rights of indemnities of successive trustees should rank pari passu. Apparently, this is the first time this question has come before the courts in the common law world, so the Privy Council was creating new law. The decision is, of course, not binding on New Zealand courts but it will be highly influential if this question arises in New Zealand. Trust practitioners are considering its implications and how the right of indemnity of earlier trustees might be protected from this ruling.”

Professor Peart has provided commentary on this important case under s 81 of the Trusts Act 2019 (Trustee’s liability for expenses and liabilities incurred, and trustee’s right to indemnity) in the latest Family Law – Property update, available online in Westlaw New Zealand now and will be with looseleaf customers soon.