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Seven lessons on insolvency for incoming trustees from the Z Trusts litigation

Many readers will have heard about the Z Trust litigation in Jersey, which has implications for trustees in the event that the trusts that they work with become insolvent. The detailed judgments on the case are an intimidating read, but this brief note aims to provide some practical guidance on the implications of the findings for anyone considering taking on the trusteeship of an existing trust.

1. Before you agree to take on the trusteeship…

Carry out as much due diligence as you can on the possibility of a significant claim being made by an existing creditor of the former trustee. In the Z Trust litigation, the former trustee faced a claim so large that it would wipe out the value of the trust. Where this liability has been reasonably incurred, and so the former trustee will be claiming payment under its indemnity from you, be aware that the former trustee's indemnity will have a higher priority than your own indemnity from the trust assets. In other words, a former trustee may, thanks to the judgment of the Court of Appeal, "scoop the pot", leaving nothing left for a new trustee's own liabilities.

2. If you are worried about future insolvency…

If the due diligence you carry out reveals circumstances that might lead to a situation where, as a new trustee, you may not be able to meet the debts as they fall due (for example, if the trust assets are highly leveraged), investigate the feasibility of taking security over trust assets for your fees and other liabilities as part of the take-on discussions. 

3. When negotiating the "DORA"…

Consider including a clause in the relevant deed or instrument of appointment, retirement and indemnity, whereby the former trustee agrees that its ability to claim under the indemnity you are giving it will rank equally, rather than in priority, to your own indemnity and unsecured creditors. This will be a matter of negotiation in each case, but on the face of it seems a fair position.

4. Reduce your own financial exposure…

It's good practice in any event, so keep your fees paid up as much as possible. By doing so, you minimise damage to your own balance sheet in the event that a former trustee suddenly presents you with a large indemnity claim that tips the trust into insolvency, leaving no other assets remaining for your fees.

5. When incurring your own liabilities…

Always make sure your creditors know you are acting as trustee, and that any liabilities you incur, eg bank borrowing, are reasonably incurred (ie you are acting in good faith, with a view to the interests of the beneficiaries, etc). By doing so, you protect yourself because your liability to those creditors should not then exceed whatever is available in the trust to pay those liabilities. So even if a former trustee does "scoop the pot", the financial shortfall is then borne by your creditors rather than you personally.

6. Keep an eye on the money…

Monitor the financial position during the life of the trust. When insolvency beckons, you shift from considering the interests of the beneficiaries to the creditors. Working out exactly the point in time when this happens is by no means easy, but consider factors such as when the debts fall due, whether you can buy more time by restructuring the debts, seeking additional cash inflow or selling assets.

7. If in doubt, go to court…

If you think the trust is entering the "zone of insolvency" and there is a risk that you may not be able to discharge trust liabilities on a cashflow basis, seek an order from the court giving directions as to how to administer the trust in that period and if necessary imposing a process for winding up the trust (which will likely be the equivalent of a liquidation procedure with claims of creditors being assessed and assets realised). An important further benefit of seeking the assistance of the Court is that an order can be applied for protecting the payment of your fees going forwards. Such fees, assuming reasonably incurred, will then have priority over other creditors in the event that the trust has to be wound up.

The implications of the judgments for incoming trustees are significant, and should prompt a review and update of procedures undertaken when considering taking on the trusteeship of an existing trust. The seven points above set out some of the issues for consideration - please get in touch if you need advice on a particular situation you are facing.


Guidance from the Grand Court: Payments on account of costs, damages and costs in anti-suit cases

The Grand Court of the Cayman Islands, per Kawaley J, has handed down an important decision in respect of the recovery of costs and damages pertaining to an anti-suit injunction, in the case of Riad Tawfiq Al Sadik v Investcorp Bank B.S.C & Ors. The judgment follows a protracted dispute in which Mr Al Sadik's claims were dismissed at every level up to and including the Privy Council. Whilst the final appeal was being determined by the Privy Council, proceedings based on the same subject matter were issued in Dubai, leading to a successful anti-suit application in the Grand Court.

Thereafter, Walkers successfully obtained an order for the costs of the anti-suit injunction on an indemnity basis, a payment on account of costs and an order for the assessment of damages resulting from the Dubai proceedings on an indemnity basis.

Kawaley J has provided welcome to guidance to practitioners of Cayman Islands law on these issues, as follows:

  1. Where a party has obtained an order restraining foreign proceedings on the basis that they are in breach of an exclusive jurisdiction clause, or are an abuse of process, the correct approach will normally be to award the successful party its costs on the indemnity basis.

  2. Damages measured by the costs of the improperly commenced foreign proceedings are appropriate as additional relief in respect of the breach of an exclusive jurisdiction clause. Such damages may include the costs of instructing counsel in the foreign proceedings, as well as counsel in other jurisdictions who are involved in preparing for such foreign proceedings.

  3. In considering whether to order a payment on account of costs to be taxed in due course, the starting point under GCR Order 62 rule 4 (7) is an "implicit starting assumption" that a payment on account of costs should be made. The Court is empowered summarily to assess an appropriate partial costs payment by reference to a draft bill of costs or a breakdown of the costs incurred. In doing so, the Court will adopt a conservative approach in awarding the successful party an amount to be immediately paid which will allow for the balance of costs to be the subject of taxation.

The judgment in respect of points one and two above reinforces the decision of Parker J in Re BDO [2018 (1) CILR 187], and in respect of point three is the first detailed judicial guidance on the payment on account of costs rule since its introduction into the GCR in 2016.

Following Kawaley J's decision, there is much less scope for debate on these points. Litigants who expose themselves to an anti-suit injunction is respect of improperly commenced foreign proceedings, do so at their peril.

BVI Court provides welcome clarification on appointing receivers

Walkers successfully represented the appellant in a recent BVI appeal, in which the Court of Appeal overturned the decision to appoint a receiver over a BVI company.

The appeal arose out of a dispute between beneficiaries of the estate of a deceased Russian businessman and subsequent wide ranging litigation in Russia and Switzerland. The respondents had sought to have a receiver appointed over the assets of the appellant's BVI company, Grantway, in support of the Swiss proceedings and to prevent the appellant from enforcing a judgment against them in Russia.

In their written reasons, the Court of Appeal held that there was “no solid evidence showing a real risk of dissipation” and said the evidence did not reach the required threshold for the appointment of a receiver. Even if there were such a risk, the Court held that the respondents should have sought relief in Russia, where the parties and assets were located, or applied for a freezing injunction in the BVI.

The court noted Justice Bannister's 2010 refusal to appoint receivers in the Yukos case, on the basis that if claimants did not wish to approach the foreign court for relief, it seemed “illegitimate for them to obtain it by the back door by coming here and asking this court to enjoin the BVI subsidiaries”. The Court of Appeal voiced concern over the increase in applications in the BVI to appoint receivers, when the grant of less intrusive relief such as a freezing injunction would provide the defendant with sufficient protection.

The case is an important reminder that the appointment of a receiver is a draconian remedy which can only be made when it is truly just and convenient to do so, not simply as an attractive alternative to seeking a freezing injunction or interim relief in the foreign court where the substantive litigation is being fought.

Walkers Admits Two New Caymanian Attorneys in August

Walkers is pleased to announce that Dajsha Samuels and Abigail Drummond have completed their legal training, with both being called to the Cayman Islands Bar on 5 August 2019 and 6 August 2019 respectively. The applications were moved by Walkers Partners Colette Wilkins and Philip Paschalides before the Hon. Justice Williams, at the Grand Court in the Cayman Islands.

Dajsha Samuels was born and raised in the Cayman Islands where she attended Red Bay Primary, Cayman Prep and High School and Cayman International School. Dajsha undertook her LLB degree at the University of Bradford, graduating with First Class Honours in 2015. Dajsha went on to complete her LLM in International Financial Law in 2016 at King’s College in London and received a Merit pass. In 2017, she went on to complete her LPC at the University of Law Moorgate, where she also undertook an MSc in Business Law and Management. Prior to commencing her articles Dajsha worked at Walkers Fiduciary Limited for four months. Dajsha was articled to David Collins, a Partner in Walkers' Finance and Corporate Group.

Dajsha states, "The continuous support and constant investment in training and development at Walkers is truly exemplary and it has assisted me in my professional development and strive towards excellence. Most importantly, the firm has taught me to have confidence in my abilities by being trained to be an independent thinker. I am proud to say that I have done it the Walkers’ way."

Abigail Drummond was a recipient of the 2013 Walkers' Legal Scholarship. Born and raised in the Cayman Islands, Abi attended Red Bay Primary, St. Ignatius Catholic School and the United World College of the Atlantic in Wales. Abi undertook her LLB degree at the University of Bristol, graduating with Upper Second Class Honours in 2016, and then went on to complete the LPC at the University of Law in Bristol where she was awarded a Distinction. Abi has participated in three legal internships with Walkers since 2014, completing placements in the Investment Funds, Finance and Corporate and Insolvency and Dispute Resolution groups. Abi was articled to Philip Paschalides, a Partner in Walkers' Finance and Corporate Group.

Abi comments, "From my internship through to my Articles, Walkers has provided me with a great balance of amazing support and independent challenge. I am humbled by the amount of time the talented team at Walkers has invested in me. I look forward to beginning my legal career at this top-ranked offshore law firm."

Walkers' Partner and Chair of the Trainee Committee, Caroline Heal commented "We would like to congratulate Abi and Dajsha on their recent admissions to the Cayman Islands Bar and are delighted that these talented young Caymanian women will continue their career progression here at Walkers. We are committed to providing a challenging yet supportive learning environment for our articled clerks and it has been extremely rewarding to see Abi and Dajsha reach this important milestone."

Royal Court Reverses Employment Tribunal in First Review of Case Management Powers

What happens in Jersey if you fail to file a response to an employment or discrimination claim in time? There is a strict deadline of 21 days from the date the claim is sent to a respondent (not 21 days from receipt), although respondents can apply for an extension of time provided they do so within that initial 21 day period. If however, respondents fail to file a response in time, then judgment in default of a response will be made against them.

The position of the Employment & Discrimination Tribunal ("Tribunal") has been that they do not have the power to admit a response filed out of time or to set-aside a judgment that is given in default of a response. This is because the Employment and Discrimination Tribunal Procedure Order 2016 ("Procedure Order") does not contain an express provision that deals with this scenario. According to the Tribunal Annual Report for 2018, almost 8% of claims are resolved in this way. This suggests that a number of employers have been prevented from defending claims, but need not have been.

This position could give rise to serious injustice for an employer. For instance, it would be open to a claimant to provide a false address for a respondent. This would lead to an employer not being aware of a claim until after judgment had been entered against it, but would not then allow that employer to get the judgment set-aside.

In the judgment issued this week of Ladbrokes v Lawrie, the Royal Court was asked to consider the Procedure Order, in particular, notwithstanding the above gap, whether the tribunal had the power to set-aside a judgment in default. This is the first time that the Tribunal's case management powers have come before the Royal Court, and the Court took the opportunity to provide some clarification on the powers of the Tribunal.

Particular emphasis was placed on article 89 of the Employment (Jersey) Law 2003, which states: "The Tribunal shall have, as regards the attendance, swearing and examination of witnesses, the production and inspection of documents, and other matters necessary or proper for the due exercise of its jurisdiction, all such powers, rights and privileges as are vested in the Royal Court."

Those familiar with litigation in Jersey will know that the Royal Court can set-aside a judgment in default, where the defendant provides an explanation for its failure and can show that it has an arguable defence to the claim. The question for the Royal Court was whether it was necessary for the Tribunal to have a similar power.

The Royal Court held that there was a clear gap in the Procedure Order, which could lead to absurd or unjust results. As a result it found that it was a necessary part of the Tribunal's case management powers, under Article 89 of the Employment (Jersey) Law 2003, for it to have the power to set-aside a judgment in default of a response.

As the Tribunal had misdirected itself in holding that it did not have this power, and therefore did not consider what steps it should take in response to Ladbrokes' application, the Royal Court held that the matter should go back to the Tribunal for it to consider afresh. It is anticipated that the Tribunal will give directions on how it expects an application to set-aside a judgment in default to be dealt with in the future.

The Royal Court's decision brings the power in the Tribunal in line with not only the Royal Court and Petty Debts Court, but also the practice in the English Employment Tribunal.


This decision should be welcomed by employers in Jersey. Whereas previously an employer that missed the 21 day deadline would be absolutely barred from contesting the merits of the claim, in appropriate circumstances the Tribunal may now allow a response to be brought out of time and therefore set-aside judgment in default of a response. There will still be cases however, where an employer either has no justifiable reason for missing the deadline, or has filed no arguable defence. In either of these scenarios we would anticipate that the Tribunal would refuse to set-aside the judgment.

This case is a salutary reminder that correspondence from the Tribunal needs to be dealt with immediately. If you receive a claim from the Tribunal, you need to:

  1. Prepare and submit your response within the 21 day time limit;
  2. If you know you need longer, you should apply for an extension of this time limit within the 21 day period; and
  3. Although the Tribunal does have the ability to set-aside a judgment in default, it is likely that this is a power that it will use sparingly and you will need to have a good reason for not filing a response and an arguable defence.

We recommend taking legal advice as soon as possible on receipt of a claim to ensure that the necessary steps are taken in time. Walkers' specialist contentious employment law team have significant experience in advising clients on responses to Tribunal claims.


Daniel Read, Senior Counsel in the Employment Team at Walkers, acted for the Respondent on a pro bono basis due to the importance of the issues.

Walkers is the first law firm to sign Guernsey Employer's Disability Charter

Walkers is the first Guernsey law firm to sign up to the Guernsey Employment Trust's Employer's Disability Charter. The charter is an initiative to encourage employers to make positive commitments about the recruitment, training and retention of workers with disabilities, and raising awareness about disability issues within their organisations.

Sarah Ash, senior counsel in Walkers' specialist Guernsey employment law team, has been the lead lawyer in Walkers' Equality Awareness Series (run in association with The States of Guernsey).

She said: "We are focusing on advising clients about incoming multi-ground discrimination law in the Island which, in our view, will be the most significant change for Guernsey's employers in recent years.

"One of the protected grounds which has received a lot of media attention is the proposed introduction of disability discrimination legislation. We raised awareness of the charter during our Equality Awareness seminar "Disability: What does it mean in practice for Employers" and explained to our clients how signing up to the charter could assist them in becoming more disability confident within their organisations. Consequently, signing up to the charter ourselves was a natural step in demonstrating best practice.

"We have one of the biggest employment law teams in the Channel Islands, with significant experience of advising on discrimination issues in Guernsey, Jersey and in Dublin. Prior to joining Walkers' in October 2018 I spent 13 years specialising in employment law in the UK and regularly advised clients on multi-ground discrimination law and so as a team we're well placed to support clients in terms of advising on the possible impact of the proposed discrimination legislation and how they should be preparing for it." she said.

Walkers' Guernsey office has almost doubled in size since the start of 2018 as part of a strategic growth plan in the Channel Islands – the additions to the office include the lateral partner hires of Rajah Abusrewil and Kate Storey from other Guernsey firms, as well as lawyers from other Guernsey firms, London, South Africa and transfers from within Walkers' international network of offices.