Jersey Unreported Judgments

Trust.

[2024]JRC013

Royal Court

(Samedi)

18 January 2024

Before     :

A. R. Binnington, Esq., Commissioner, and Jurats Cornish and Blampied

 

IN THE MATTER OF THE REPRESENTATION OF VG TRUSTEE LIMITED

AND IN THE MATTER OF THE B TRUST

AND IN THE MATTER OF ARTICLES 51 AND 53 OF THE TRUSTS (JERSEY) LAW 1984, AS AMENDED.

Advocate F. J. Littler for the Representor

Advocate J. Harvey-Hills for the First to Third Respondents

Advocate D. James for the Seventh to Ninth Respondents

judgment

the commissioner:

1.        On December 2023, the Court gave judgment in relation to two Representations, both concerning the B Trust of which the Representor is the trustee.

2.        In Representation 2023/154 ("the Settlement Application"), the Representor sought the Court's approval of a conditional agreement dated 26 July 2023 ("the Proposed Settlement") to compromise claims made by the Representor and companies owned by the Representor as trustee of the Trust ("Directly Held Companies") against the previous trustees of the Trust and directors of the Directly Held Companies.

3.        In Representation 2023/152 ("the English Beddoe Application"), the Representor sought a Beddoe direction permitting it to continue to cause ("Y") Investments Limited (a Jersey company wholly owned by the Representor as trustee of the Trust) to pursue proceedings in England to recover sums said to have been wrongly paid away by the directors of (Company 1), a company in which Y has a 50% interest. 

4.        At the conclusion of the hearing, we granted the orders sought and ordered that the costs of the Representor be paid out of the trust fund on the trustee basis and those of the Seventh to Ninth Respondents be paid out of the Trust fund on the indemnity basis.  However, the Seventh to Ninth Respondents objected to a similar order being made in respect of the costs of the First to Third Respondents.  The Representor took a neutral position in relation to the objections raised by the Seventh to Ninth Respondents.

5.        We heard argument on this issue and reserved judgment, which we now give.

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21.     Advocate James suggested that there were exceptions, both in the manner in which particular Beddoe-type applications might be categorised in the Buckton sense, and in how the Court might deal with the parties' costs.

22.     He pointed out that whilst the costs of convened beneficiaries are entirely at the discretion of the Court, pursuant to Article 51(3) of the Trusts (Jersey) Law 1984 as amended and Article 2 of the Civil Proceedings (Jersey) Law 1956, there are exceptions to the general rule that the costs of convened beneficiaries should be paid out of the trust fund.  In support, he referred us to Lewin on Trusts (20th edition, at 48-054) where the following example is given:

"In a case where a trustee makes an application for directions in consequence of the conduct of a disaffected beneficiary intent on disrupting the administration of the trust, the beneficiary is at risk at least of being deprived of his costs and at worst of being ordered to pay all the costs of the application which was made necessary by reason of his conduct."

23.     The footnote to that comment refers to the decision of the Chancery Division in Green v Astor [2013] EWHC 1857, which concerned a disaffected beneficiary's hostility towards, and obstruction of, a fiduciary (in that case a personal representative) in the context of her settlement of claims brought against third parties, thereby necessitating an application by the personal representative for Court approval.

24.     In Green v Astor, the Court considered that the disaffected beneficiary's conduct meant that the application did not fall neatly within the Buckton categories and took it closer to hostile litigation.  In ordering the beneficiary to pay the costs of the application, the court (Roth J) said this (at paragraph 54):

"Where unreasonable conduct by a beneficiary is responsible for generating substantial costs on the part of a trustee or personal representative as regards an application to the court, it is appropriate that the burden of those costs should be borne by that beneficiary and not fall on the trust or estate and thus the beneficiaries as a whole..."

25.     The extent to which Mr Astor had generated unnecessary costs in relation to the application can be illustrated by the following comments made by Roth J in his judgment:

"It is a striking feature of the present case, where the argument on the substance of the issues lasted less than a day and where the proceedings involved only a few previous case management hearings, that the total costs including those which I was informed had been incurred by the first defendant (the only defendant to oppose the application) are over £900,000. Moreover, I was told that out of that total the claimant's costs amounted to over £400,000. Albeit that was based on an expected five-day hearing whereas the application was disposed of in two days, this is nonetheless a staggering figure for an application of this kind, especially where the aspect of the estate at issue, while not small, was less than (and possibly significantly less than) £8 million."

26.     Advocate James submitted that the principle expounded by Lewin was relevant not only in a Green v Astor situation or in a situation of misconduct by a beneficiary in the course and context of the directions application itself, but that it was also relevant where the directions application is necessary as a consequence of, and in order to recover, trust losses arising from actionable misconduct by the beneficiary.

27.     Green v Astor was referred to in the decision of the Royal Court (Clyde-Smith, Commissioner) in In the Matter of the Representation of Erinvale PTC Limited [2022] JRC076 in which the Representor ("Erinvale"), a private trust company and trustee of a settlement ("the A Settlement"), brought a representation before the Court seeking directions as to whether or not it would be in the interests of the beneficiaries of the settlement for it to retire as trustee or for its directors to resign.

28.     The Commissioner asked himself (at paragraph 37):

"Is this a case akin to Green v Astor, with the Second Respondent showing an intent to disrupt the administration of the A Settlement in the same way that Mr Astor grossly interfered with the administration of the estate by Mrs Green?"

29.     The Commissioner went on to say (at paragraph 42):

"I am dealing with the costs of and incidental to Erinvale's Representation and whilst I can have regard to the background to some extent, I am concerned with the conduct of the parties in this application and not with the conduct of the parties in the matrimonial and trust proceedings more generally and the enormous costs that have been incurred overall; those are issues that the matrimonial court may take into account when considering any financial award in favour of the Second Respondent."

30.     In our view, Green v Astor, as applied in Re Erinvale, supports the proposition that unreasonable behaviour by a beneficiary in the context of an application for directions itself, may result in a beneficiary being deprived of their costs of the application, but does not support the proposition that in a Beddoe application regard should also be had to the behaviour of the beneficiary in relation to the claim that is the subject of the application.

31.     In support of his proposition that a fiduciary may lose his or her right to an indemnity and/or be ordered to pay the other parties' costs of a directions application where the underlying conduct of the fiduciary places the trust in jeopardy and necessitates the application, Advocate James referred us to the decision of the Royal Court (Birt, Commissioner) in In re Piedmont [2016] JRC016.

32.     In Piedmont, the costs that were being considered related to applications brought by trustees which resulted in a declaration that appointments of new trustees and of new protectors in relation to two trusts were invalid.  Commissioner Birt was initially of the view that the applications fell within the Buckton 3 category but went on to say (at paragraph 42):

"However, just as in Buckton itself Kekewich J retreated from his initial impression that it was a category 3 case and concluded in the end after having heard the case that it was a category 2 case, I have concluded, having now heard the case, that it is more properly to be considered as a matter falling within category 2 (i.e. an administrative matter but one brought by a beneficiary) rather than hostile proceedings. It follows that, with the benefit of hindsight, I would not have ordered that it be held in public. It follows from my analysis as to the nature of the proceedings that, to the extent that any party is convened in his or her capacity as a beneficiary, that party is entitled to his or her costs out of the Trusts on the indemnity basis save to the extent that such party has behaved unreasonably. On this basis, the daughter is therefore clearly entitled to her costs out of the Trusts."

33.     At paragraph 38 of his judgment, Commissioner Birt, referring to the position of the Protector (referred to as "the father" in the judgment) who had exercised the power to appoint new trustees which was subsequently set aside said:

"The father was misguided in the appointment of Kairos.  He failed to have regard to relevant factors and took into account irrelevant factors as described in the September judgment.  However there is no finding, for example, that he acted in bad faith or for any improper purpose or with reckless disregard for his fiduciary duties. These are of course not to be taken as the only circumstances where a fiduciary may be deprived of his indemnity or ordered to pay the costs of another party but, in the circumstances I do not consider that the nature or gravity of his conduct has reached the level where it is appropriate to deprive him of his indemnity.  Nor do I consider that his conduct in connection with the actual litigation was unreasonable.  In the circumstances I agree that he should be indemnified out of the Trusts for his costs and should not be ordered to pay the costs of any other party."

34.     Advocate James submitted, on the basis of the dicta in Re Piedmont, that whilst the Court will not lightly make an order against a fiduciary depriving them of their costs it may do so in cases where, for example, the fiduciary acts in bad faith or for an improper purpose or with reckless disregard for his/her duties.  He argued that if a fiduciary may lose his or her indemnity in such circumstances, it stands to reason that a beneficiary who acts knowingly and dishonestly against a trust so as to cause trust losses, and thereby necessitates directions applications as part of the process of recovery of such losses, ought to be deprived of any otherwise presumed entitlement to costs of the applications.

35.     It should however be noted that the applications that were the subject of the costs orders in Piedmont resulted in a final determination of the matters in issue.  Whilst there may be similarities between Beddoe applications and more general applications by trustees for directions (usually referred to as Public Trustee v Cooper applications) they are separate jurisdictions, albeit that the decision as to whether or not to commence proceedings might also be regarded as a momentous one which the Court is required to "bless" in the Public Trustee v Cooper sense.

36.     The Beddoe jurisdiction considerably pre-dates the Public Trustee v Cooper line of cases.  Its focus is whether the proposed action by the trustee in commencing, defending or continuing legal proceedings is reasonable and, accordingly, whether the trustee may be indemnified out of the trust fund in so doing.  The beneficiaries, who may or may not be party to the contemplated proceedings, clearly have an interest in the application given their interest in the trust fund and are therefore usually made parties so that the court may hear their views.  The application is heard by a Court constituted differently from the court hearing the proceedings in question.

37.     Advocate Harvey-Hills, for the ("C") beneficiaries, referred to a decision of Commissioner Birt in In the Matter of the Piedmont Trust and Riviera Trust [2021] JRC 250, in which the Court had to make orders in respect of the costs of an application to bless the decision of the Representor to terminate the Piedmont and Riviera Trusts that had been the subject of the proceedings in 2016 (to which we have referred above) by distributing all the assets of both trusts.  He pointed out that the behaviour that was the focus of the Court was the beneficiary's behaviour in the directions application itself. The Commissioner said:

"As the Court said in In re Dunlop Settlement [2013] JRC 123 at para 27 - in a passage specially approved by the Court of Appeal in JP Morgan at para 44 - it will often, and probably usually, be the case that a beneficiary puts forward a stance that he considers will be to his benefit, but this does not take the matter outside the normal order whereby a beneficiary is entitled to his costs on the indemnity basis.  The whole point of convening beneficiaries to an administrative application by trustees is that those beneficiaries should have the opportunity of putting forward their submissions on the proposal of the trustees.  It is regarded as part of the good administration of a trust and the costs incurred are regarded as being for the benefit of the trust estate.  It would be completely contrary to this underlying principle if a beneficiary were to be deprived of his costs simply because he had made an argument to the Court which the Court had not accepted. If a beneficiary makes unreasonable submissions or otherwise behaves unreasonably in connection with the proceedings, then of course he may be deprived of his costs out of the trust fund or may even be ordered to pay or contribute towards the costs of other parties.  But in my judgment, there is no question of any of the points put forward by the daughter or Advocate James on behalf of the daughter's child being categorised as unreasonable points."

38.     This was, as we have noted, an application for the blessing of a momentous decision and not a Beddoe application.  The focus of the Court was the behaviour of a beneficiary in the context of the application before it but, in our view, there is no reason why a similar consideration should not apply in relation to a beneficiary's conduct in a Beddoe application.

39.     Thus, if a beneficiary behaves unreasonably in relation to the Beddoe application itself, for example by raising unreasonable points or unnecessarily prolonging the proceedings, they may be deprived of their indemnity from the trust fund of the costs of the application.  However, in the Beddoe application before us, the C beneficiaries adopted a neutral position given that C is a defendant to the proceedings, ("E") is a director of Company 1, and both she and F are directors of ("Company 2").  That was, in our view, an entirely proper position to take.  They did however highlight to the Court certain points that they felt might be relevant to the Court's decision, which was of assistance to the Court.

40.     In the present case whilst there are serious allegations made against C (the validity of which he denies) those allegations will not be determined in this application but will only be determined at the conclusion of the English proceedings.

41.     Advocate James drew our attention to a comment in Lewin (supra) in the context of bona fide claims by beneficiaries (at 48 to 157) that:

"A beneficiary who makes a bona fide claim against the trustees in third-party proceedings should not, it is thought, be deprived of costs (nor be ordered to pay costs) of the Beddoe application, by reason only that he has commenced the claim and therefore necessitated the Beddoe application."

42.     He submitted that such a bona fide beneficiary claim against trustees was "worlds away" from the situation that presents itself here in which, he suggested the beneficiary's dishonest conduct has caused trust losses which the trustee must recover, including by suing the beneficiary personally. However, that essentially pre-judges the issue for determination by the English court.  In order to meet that objection, the Seventh to Ninth Respondents had suggested that rather than making an immediate determination as to the costs of the C Beneficiaries, the Court should in effect postpone the decision until after the conclusion of the English proceedings by giving them twenty-eight days from that date to apply to this Court.

43.     In the Court's view, to make the costs order dependent on what might or might not happen in other proceedings is clearly unsatisfactory.  Not only would it prolong the Beddoe proceedings, but it would ultimately require the Beddoe Court to make decisions as to the culpability of the relevant beneficiaries without having heard the evidence in the main proceedings.

44.     A Beddoe application has important consequences for beneficiaries: in particular, if the relief sought is granted, they will not be able to complain if the trustee is unsuccessful in the litigation and the costs are paid from the trust fund.  Furthermore, it is important that the Court is able to hear the views of the beneficiaries as they may well be able to identify points that may have been overlooked or omitted by the trustees.  Those are all important matters for the proper administration of the trust. A beneficiary who is convened to the application, which is for the benefit of the trustee and in the interest of the trust as a whole, should not, in the circumstances of this case, be deterred from appearing by a risk either of an adverse costs order or of being denied their indemnity as to costs.

45.     The C Respondents were convened to the UK Beddoe application in their capacity as beneficiaries of the Trust and we see no reason why they should not have their costs in relation to the Representations paid out of the trust fund on the usual indemnity basis.

46.     Accordingly, we so order.

Authorities

Trusts (Jersey) Law 1984.

Civil Proceedings (Jersey) Law 1956.

Green v Astor [2013] EWHC 1857.

Matter of the Representation of Erinvale PTC Limited [2022] JRC076.

In re Piedmont [2016] JRC016.

In the Matter of the Piedmont Trust and Riviera Trust [2021] JRC 250.

Lewin.