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Precedent Set In Guernsey Court Over Property Tycoon's Trust Case, Claims Law Firm

Tom Burroughes

31 January 2014

A significant precedent has been set on the issue of trustee liability in a case held in Guernsey’s Royal Court involving embattled property tycoon Robert Tchenguiz and one of the offshore trust structures in which he held his assets, according to offshore law firm .

Investec, a party in the case (see below), declined to comment on the matter when contacted by WealthBriefing, which it said is ongoing.

Carey Olsen acted for Grant Thornton’s Stephen Akers and Mark McDonald, who had been appointed as joint liquidators of some of the companies involved in the Tchenguiz structure and who are now judgment creditors for over £183 million ($301 million). The case is important, Carey Olsen said, because it clarifies the rights of trustees to an indemnity from trust assets and the rights of creditors dealing with trusts.

The judgement, which was made in December 2013, stems from a case that had been held in June 2012.

The case centred over a dispute over enforcement of loans entered into by former trustees of a trust who had, on their removal, exercised a lien over the trust assets. The former trustees argued that they were only liable to the extent of the trust assets. The new trustee disputed this on the basis that the former trustees had been negligent or grossly incompetent. The new trustee argued that the former trustees were personally liable for the loans and should not, therefore, be allowed to pay the loans out of the trust assets, Carey Olsen said in a note on the case.

The court heard evidence about the Tchenguiz family including father Victor Tchenguiz and his three children: Robert, Vincent and Lisa.  The Tchenguiz family had amassed a significant fortune over many years derived mostly from property development and financial engineering. The family members enjoyed the high-life and owned a series of well-known properties in London, where they have non-domiciled status. Much of their wealth was held in the Tchenguiz Family Trust, or TFT.

Trusts

The court proceedings stemmed from the separation of Robert’s wealth from the TFT in August 2007 and into the Tchenguiz Discretionary Trust.  The TDT is governed by Jersey law but was administered by trustees based in Guernsey, Investec Trust (Guernsey) Limited and Bayeux Trustees Limited (Investec).  Robert Tchenguiz appointed himself as protector in June 2010 and was also the main beneficiary of the TDT.  

The TDT started life with relatively modest assets and these were quickly dwarfed by the heavily-geared investment portfolio operated by the TDT on the advice of its investment advisor, R20, whose directors included Robert Tchenguiz and Tim Smalley. Significant sums were borrowed from a variety of institutions to buy investments. At its height, the total borrowings in the entire TDT structure amounted to approximately £4 billion, Carey Olsen said.

During 2006 and 2007 a number of loans and overdraft facilities were entered into between Kaupthing (the Icelandic bank), the TDT and the BVI Companies.  Through 2007 to 2008 the TDT borrowed heavily from the BVI Companies, to the tune of approximately £183 million.  These borrowings were used to finance a heavily-geared investment portfolio, with Investec moving the funds around the TDT as required for the various investments.  In late 2007/2008, the TDT became increasingly dependent on third party funding to stay afloat, with Kaupthing providing millions of pounds in overdraft facilities to ensure the survival of the TDT.  In early October 2008 Kaupthing collapsed, resulting in the termination of any further credit facilities to the TDT. Grant Thornton partners Stephen Akers and Mark McDonald were appointed initially as receivers and subsequently as liquidators of the BVI Companies).

On their appointment, the Liquidators demanded repayment from Investec of the funds which the BVI Companies had lent the TDT.  In Spring 2010 Investec brought proceedings in the Royal Court regarding the loans.  However, in July 2010 Investec was removed from office as trustee of the TDT by Mr Tchenguiz and Rawlinson & Hunter in Geneva ("R&H") appointed in their stead. Investec rejected the Liquidators' claims for repayment and, following R&H's appointment, exercised a lien as trustees over the TDT assets. R&H intervened in the proceedings arguing that Investec had acted in breach of trust for creating the loans and then failing to extinguish them. They also argued that Investec was personally liable for the BVI Companies’ debts, so that the TDT's assets should not be used to satisfy the liquidators' claims.

Carey Olsen was appointed to act for the liquidators. Carey Olsen said it persuaded the court that the money claimed by the BVI Companies was owed and should be repaid personally by Investec from the assets of the TDT