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Battle of the Trusts: Meritus Trust Co. Ltd v. Butterfield Trust

Earlier this month, the Bermudian court ruled in the case of Meritus Trust Co. Ltd v. Butterfield Trust (Bermuda) Ltd [2017] SC (Bda) 82 Civ.

Butterfield had been removed as Trustee of two Bermuda Trusts, with Meritus being appointed in its place. Claims against Butterfield were threatened in respect of its management of the trust funds. Butterfield asserted that it was entitled to retain sufficient trust assets against which to enforce its indemnity in relation to the contingent costs liability (which Butterfield estimated at $5 million) in respect of its defence of the threatened claims. It was argued on behalf of the trusts that there was no such right of retention of the trust assets in law (and further argued that even if such a right did exist, Butterfield’s proposed retention was grossly overestimated). Butterfield further asserted that it was entitled to a contractual indemnity, and again Meritus argued that that no such entitlement existed. The court concluded Butterfield was neither entitled to retain any part of the trust assets as security for its equitable indemnity as former trustee nor to a contractual indemnity. It is accepted that an outgoing trustee is entitled to an equitable indemnity out of the trust assets, but this, of course, can be very difficult to enforce, particularly if there has been a change of jurisdiction. This being the primary reason outgoing trustees seek contractual indemnities.

The decision in part turned on the Bermudian statutory provisions which require an outgoing trustee to take all steps necessary to vest the whole trust assets in the incoming trustee. However the judgment will have application across other jurisdictions. In particular, statutory provisions identical to those applicable in Bermuda are contained in the Cayman Trusts Law as revised (sections 6(d) and 9(1)(b)) and BVI Trustee Act as revised (sections 38(d) and 41(1)(b)). The position in the Channel Islands can, however, be contrasted as both jurisdictions have legislation which entitles an outgoing trustee to obtain “reasonable security” against liabilities before transferring assets to the new trustee.

 

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