Jersey Unreported Judgments

Trust.

[2024]JRC185

Royal Court

(Samedi)

14 September 2024

Before     :

A. R. Binnington, Commissioner, and Jurats Christensen and Berry.

 

IN THE MATTER OF THE REPRESENTATION OF K TRUSTEES LIMITED

AND IN THE MATTER OF THE G TRUST

Advocate M. P. Renouf for the Representor

Advocate C. Hall for the First Respondent

Advocate L. Calder for the Second to Fourth Respondents

judgment

in private

the commissioner:

1.        On 17 June 2024, we heard an application made by ("F") ("the Executor"), the executor of the estate of the First Respondent ("B"), within Beddoe proceedings issued by the Representor, whereby the Executor sought the following orders:

(i)        That the trustee be ordered to settle all legal costs of the First Respondent which she incurred up to the date of her death from the Trust's assets in accordance with Direction 4 of the Act of Court dated 15 May 2023;

(ii)       That the legal costs incurred by the Executor in relation to this action 2023/029 and action 2021/026, be funded out of the Trust's assets on an indemnity basis;

(iii)      Any further or consequential order the Court thinks fit; and

(iv)     That the costs of this Summons be paid by the Representor out of the assets of the Trust.

2.        At the conclusion of the hearing we reserved judgment, which we now give.

The background

3.        On 3 June 2015, B, together with her late husband ("H"), settled a Jersey discretionary trust known as the ("G Trust") (the "Trust").  The Second Respondent was the first trustee of the Trust, but on 10 January 2020 the Representor ("the Trustee") was added as a supplementary trustee, and on 17 March 2021 the Second Respondent resigned as trustee, leaving the Trustee in its current role as trustee.  B and H were the sole beneficiaries of the Trust, but the instrument of trust provided for a class of contingent beneficiaries, being capable of benefitting only upon the death of the survivor of the two named beneficiaries. Those contingent beneficiaries were H's three nieces, the Second to Fourth Respondents.  H died on 22 September 2020.

4.        Both B and H contributed towards the Trust assets: in very broad terms, H contributed mainly bank balances and investments from the sale of his UK house and business, and B mainly contributed her Jersey property, namely her house known as ("Property 1") (in which Heather and H resided) and an office at Britannia Place, both held through a company which B owned, ("Company A").

5.        The dispute which is the subject of these Beddoe proceedings is in relation to a Representation issued by B dated 27 July 2021, concerning B's contribution of part of the Trust assets; that is, her contribution of her shares in Company A into the Trust ("the Main Proceedings"). B sought, inter alia, to set aside the transfer of shares on the grounds of undue influence and misrepresentation by H, and/or to direct the Trustee to distribute Property 1 to B.

6.        In support of her claim, B had deposed in an affidavit that on 26 September 2015, two months after signing the trust documentation, she had confided in the accountant of Company A, ("J"), that she did not understand what she had signed and questioned why none of her family would benefit after she and H had died.  After this meeting, J emailed the Advocate who had advised H and B in relation to the formation of the trust, referring to his conversation with B, and saying "rather alarmingly she protested she hadn't really understood what she was signing re the trust deed - which if my understanding is correct leaves [H's] nieces as beneficiaries following both their deaths. [B's] concern was that she has family too (although only cousins and further afield) and that they were not considered. Anyway, I am just concerned that any potential spat is headed off before it becomes an issue".

7.        Although we recognise that discovery has not been concluded and these issues have not been addressed in live evidence, it appears that little or nothing was done either by the lawyer or the former trustee in relation to the matters raised in J's email.

8.        At a hearing of the Trustee's Beddoe application on 15 May 2023, the Court made the following orders:

(i)        directed that the Trustee defend the claim commenced by the First Respondent and ordered that they be indemnified in so doing from the Trust fund on the trustee indemnity basis up to the close of discovery and exchange of witness statements;

(ii)       strongly encouraged the parties to seek to agree a settlement of the claim and expressed the view that the Trustee take the lead in those discussions;

(iii)      authorised payment from the trust fund of the costs of the First, Second, Third and Fourth Respondents in relation to the settlement discussions, both historic and up to 30 June 2023 on the standard basis; and

(iv)     authorised the Trustee to continue payment of the First Respondent's costs from the trust fund as requested.

9.        The settlement discussions that the Court had encouraged in its order of 15 May 2023 resulted in a meeting between the legal representatives of the parties on 15 June 2023.

10.     According to an affidavit filed on behalf of the Executor by Advocate John Borg, settlement terms were reached and, according to Advocate Borg:

"After the meeting, counsel exchanged emails setting out the agreed terms, which were as follows:

(a)      [B] to instruct the Trustee, by way of a Letter of Wishes, as to the identity of the beneficiary or beneficiaries that she wished to benefit from the agreement.

(b)      1/3 of the value of the Property to be attributed in accordance with [B's] wishes.

(c)      1/4 of the value of the remaining Trust assets to be distributed by the Trustee in accordance with [B's] wishes.

(d)      All fixtures and fittings, subject to paragraph e below, would be distributed by the Trustee in accordance with [B's] wishes.

(e)      Subject to valuations being obtained in respect of items (i) and (ii) below, the following items would be distributed to ["C"]:- i) The Dutch landscape painting from the downstairs hall; ii) The G Flinck portrait from the downstairs hall: (iii) The Silver candle holders from the book room; and ( iv ) The jewellery of [C's] late grandmother.

(f)       [B] would formally relinquish all of her interests in the Shares in consideration of the payment of €100,000.

(g)      All costs of [B] and the Contingent Beneficiaries already incurred and up to conclusion of the Main Proceeding, would be paid on an indemnity basis, from the Trust's assets."

11.     The terms referred to by Advocate Borg were set out in an email from Advocate Calder of Collas Crill, acting for the Second to Fourth Respondents, to the legal advisers to the other parties.  The email dated 15 June 2023, was headed "B - Agreed Settlement Terms" and began "Thank you all for attending today's meeting at which the following terms of settlement were agreed". We note that it was not headed "Without Prejudice" and concluded with the words "Please could you kindly confirm your agreement to the above and we will leave it to the Trustee to put the appropriate mechanism in place in order to formalise matters. If you think we need to have a more formal agreement prior to the Trustee formalising the agreed terms above, please let us know and we will prepare something for execution".

12.     On the following day Advocate Hall, on behalf of the First Respondent, responded by email saying, inter alia "Thank you for your two emails below which set out the agreed terms".  She then went on to deal with various items of artwork and the like which were in Property 1 and which the Second Respondent had asked to be transferred to her.

13.     It would appear that Advocate Renouf, on behalf of the Trustee, had agreed to prepare the documentation referred to by Advocate Calder as, in an email sent by Advocate Hall in response to Advocate Calder and copied to Advocate Renouf, she said:

"For my part this seems very sensible although I would wish to keep any stay to a short (albeit realistic) period as I would not wish to lose the momentum. As Mark is arranging the trust documentation, perhaps he could suggest a time period? Whilst writing Mark, as part of the documents which set out the mechanisms for settlement, are you planning to draft the WP settlement agreement? If it would assist, I am happy to take responsibility for this, just let me know."

14.     It is not for us to determine whether a binding agreement had been reached at this stage, but it would appear that at the very least there was an agreement in principle subject to conditions such as the execution by B of a letter of wishes and on 23 June 2023 Advocate Renouf confirmed by email "yes we will draft the documents for your approval, pls cc Tom in on anything relevant as he is assisting with all this".

15.     On 27 June 2023, Advocate Renouf confirmed by email that "I am making progress on the drafts but there is a degree of complexity and I doubt we will have time to agree it before the end of the month".   He went on to discuss arrangements for fixing a date for a blessing application before the Court.

16.     On 28 June 2023, Advocate Hall emailed the Bailiff's Judicial Secretary, copying in the other advisers and, referring to the earlier Beddoe hearing, saying:

"It appears that the parties may indeed have reached an agreement and the trustee is currently preparing the necessary documents. Unfortunately, we will not have signed these agreements before the end of the month, but the parties want to ensure that matters do not drift and therefore they wish to attend a date fix in order to set a date before Commissioner Binnington for a hearing to bless the settlement reached."

17.     On 4 August 2023, the parties submitted a signed consent order for the Court's approval which sought to amend the original Beddoe Order by an agreed stay of the order for the Trustee to defend the proceedings until any party gave seven days' notice to end it or further order of the Court. In the preamble, the parties stated that:

"On 15th June 2023, the parties met and agreed a settlement of all claims in principle, subject only to (1) identifying certain household effects subject to the agreement; (2) finalising the details of how to implement the terms of the settlement in relation to the Trust; and (3) the blessing of the Court as a condition precedent to implementation of the settlement in due course."

18.     On 25 August, Advocate Hall expressed her concern to Advocate Renouf at the delay in producing the draft documentation in light of B's recent admission to hospital, albeit that she was on the point of returning home.  She said that she had marked the email Without Prejudice "as [B] does not wish her hospital visit to be shared with [H's] nieces".

19.     By the first week in September no draft had been produced and Advocate Renouf agreed that Advocate Hall produce a draft, which was provided on 2 October.

20.     When providing the parties with the draft, Advocate Hall further notified them that:

"Unfortunately, whilst [B] appears to have capacity for her day to day decision making, we have formed the view that [B] is unlikely to have capacity to give us instructions to enter into this settlement and we are now waiting for the medical expert to confirm this is the case. As the parties know, [B] had provided a power of attorney to [F] in relation to the litigation some years ago but given that [F] is benefiting from the settlement we consider it appropriate for a delegate to be appointed in relation to this specific decision only. I have previously acted on a similar case where we had to approach the court to appoint a delegate in relation to a decision the client was unable to make, albeit it appeared she had general capacity."

21.     Included in the draft terms of compromise that the Court was to be asked to bless was a provision that "Following the death of [B]: (a) one third of the value of the Property; and (b) one quarter of the other assets of the Trust including those held indirectly through the Company, shall be distributed to or for such person or persons purpose or purposes as [B] may In writing direct, and in default of and subject to any such direction shall be distributed to [F]".

22.     Unfortunately, [B] passed away on 11 February 2024.  This made it impossible to fulfil the requirement that [B] execute a letter of wishes even if she had previously had capacity, which was clearly in some doubt given the comments in Advocate Hall's communication of 2 October 2023.

The law

23.     In support of the order sought by the Executor, we were referred to an opinion obtained by the Executor from English leading counsel, Robert Ham KC ("the Ham Opinion"). Mr Ham agreed with advice that the Trustee had obtained from Mr David Rees KC ("the Rees Opinion") that B ceased to be a beneficiary of the Trust on her death and that it was not therefore open to the Trustee, in exercise of the discretionary powers conferred on it by the Trust instrument, to make distributions to her - whether for legal fees or otherwise, nor to pay the costs of B's personal representatives since her death.  Mr Ham noted that Mr Rees had gone on to advise that there was no basis for the Court to direct the payment of the costs of B's estate from the Trust, and the usual costs rules for hostile litigation should apply, Mr Rees saying that "These are hostile proceedings and the argument put forward that this is a Re Buckton [1907] 2 Ch 406 category (1) or (2) case is wrong".

24.     In Re Buckton, Kekewich J held that for the purpose of considering the payment of costs in trust litigation, such litigation could be divided into three categories, these being summarised in the Rees Opinion as follows:

(i)        Proceedings brought by the trustee to have the guidance of the Court as to the construction of the trust instrument or some other question of law arising in the administration of the trust or in relation to the trusts on which the property is held.

(ii)       Proceedings in which the application is made by someone other than the trustee, but raises the same kind of point as in (i) and would have justified an application by the trustee; and

(iii)      Proceedings in which the application is made by someone other than the trustee, but differ in substance from the second category, and in substance as well as form from (i), in that they have the character of a hostile claim founded on a point of construction or law raised by someone other than a trustee to a beneficial interest in or entitlement to the trust fund.

25.     In Re Buckton, Kekewich J held that the usual costs order in the first two cases was that the costs of the parties are met out of the trust fund.  In the third case the usual costs rules applicable to hostile litigation would apply.

26.     Mr Ham did however regard Mr Rees's contention that this was a "Buckton Category 3" case, and that the usual rules as to hostile litigation should apply, as too sweeping.  He pointed out that in Buckton itself, Kekewich J had accepted that it was "well-nigh impossible to lay down any general rules which can be depended on to meet the ever-varying circumstances of particular cases".  Mr Ham suggested that the Court's discretion over costs is a broad one and is not subject to any implied limitation.  By way of example, he referred to the decision of the English Court of Appeal in McDonald v Horn [1995] ICR 685, which was a decision concerning pension trusts and which Mr Ham suggested established that the Court has jurisdiction to make what, in that case, Balcombe LJ described as a "pre-emptive" or "protective" costs order, notwithstanding the general principle that in hostile litigation costs follow the event.

27.     The circumstances under consideration by the Court of Appeal in McDonald v Horn were somewhat different to those in the present case, a point accepted by both Mr Ham and Advocate Hall.  In McDonald v Horn, the plaintiffs were beneficiaries of a "balance of cost" pension scheme, under the terms of which they contributed a fixed proportion of their earnings, and the employers contributed the balance of the cost of providing the benefits due under the rules.  The plaintiffs commenced proceedings against their employers, the pension fund trustees, and others, alleging improper use of powers in the trust deeds and breaches of trust in the investment of trust funds.  Initially the plaintiffs' action was financed by their trade union, but in due course that support was withdrawn, whereupon they applied for a pre-emptive costs order requiring that their costs, and any costs which they might be ordered to pay to the defendants, should, win or lose, be paid on an indemnity basis out of the pension fund.

28.     In delivering the lead judgment of the Court of Appeal, Hoffman J noted (at page 693E) that:

"The court's jurisdiction to deal with litigation costs is based upon section 51 of the Supreme Court Act 1981, which, with some rearrangement of the words, is derived from section 5 of the Supreme Court of Judicature Act 1890:

"(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in . . . the High Court ... shall be in the discretion of the court. ... (3) The court shall have full power to determine by whom and to what extent the costs are to be paid. (4) In subsections (1) and (2) 'proceedings' includes the administration of estates and trusts.""

29.     Whilst pointing out that the wording of the statute was broad, Hoffman J went on to refer to a dictum of Lord Goff of Chieveley in Aiden Shipping Co Ltd v Interbulk Lt [1986] AC 965, where his Lordship had said:

"The court has, so far as possible, freedom of action, leaving it to the rule-making authority to control the exercise of discretion (if it thinks it right to do so) by the making of rules of court, and to the appellate courts to establish principles upon which the discretionary power may, within the framework of the statute and the applicable rules of court, be exercised."

30.      Hoffman J went on to say:

"The discretion conferred by Section 51 is thus by no means untrammelled. It must be exercised in accordance with the rules of court and established principles."

31.     In Buckton, the Court had recognised that the jurisdiction to make a pre-emptive order that a trustee's costs be paid out of the trust fund could be extended to other parties where the proceedings fell within the first two categories described by Kekewich J.  However, Hoffman J went on to say (at page 697A):

"I think that before granting a pre-emptive application in ordinary trust litigation or proceedings concerning the ownership of a fund held by a trustee or other fiduciary, the judge must be satisfied that the judge at the trial could properly exercise his discretion only by ordering the applicant's costs to be paid out of the fund, Otherwise the order may indeed fetter the judge's discretion under Ord. 62, r. 3(3)."

32.     In the circumstances of the matter before him he concluded (at page 697D) that:

"I do not think it likely that if this were ordinary trust litigation and the plaintiffs were unsuccessful, the judge would order their costs to come out of the fund. They cannot therefore rely upon Ord. 62, r. 6(2) as extended to beneficiaries by the principles in In re Buckton [1907] 2 Ch 406."

33.     There was however another basis upon which the plaintiffs in McDonald v Horn might be entitled to a pre-emptive costs order and that was by analogy with a derivative action in relation to a company, effectively applying the principle in Wallersteiner v Moir (No. 2) [1975] QB 373 to a pension fund.

34.     In relation to this argument Hoffman J said ( at page 698B):

"If one looks at the economic relationships involved, there does seem to me a compelling analogy between a minority shareholder's action for damages on behalf of the company and an action by a member of a pension fund to compel trustees or others to account to the fund. In both cases a person with a limited interest in a fund, whether the company's assets or pension fund, is alleging injury to the fund as a whole and seeking restitution on behalf of the fund."

35.     He went on to note that:

"Pension funds are such a special form of trust, and the analogy between them and companies with shareholders is so much stronger than in the case of ordinary trusts, that in my judgment it would do no violence to established authority if we were to apply to them the Wallersteiner v Moir procedure."

36.     However, he introduced a note of caution, saying:

"The power to make a Wallersteiner v Moir order in a pension fund case should in my view be exercised with considerable care."

37.     In the circumstances of the case, Hoffman J concluded that Vinelott J, in the court below, in granting the pre-emptive costs order for a limited period, had exercised his discretion appropriately.

38.     The power of the Royal Court to award costs is expressed in similarly wide terms in Article 2 of the Civil Proceedings (Jersey) Law 1956 which provides that:

"Subject to the provisions of this Part and to rules of court made under the Royal Court (Jersey) Law 1948 the costs of and incidental to all proceedings in the Royal Court shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid."

39.     The decision in McDonald v Horn was considered by the Royal Court in In Re X Trust [2012] (2) JLR 260.  In that case, the representors were principal beneficiaries of a discretionary trust of which the first respondent was currently the sole trustee (the first representor was also guardian ad litem of her minor child, who was also a principal beneficiary).  The representors brought an action against the first respondent and others for breach of trust in respect of certain investments which had resulted in losses to the trust fund of nearly £100 million.  They sought an order that the trust fund should be restored.  The defendants denied liability but had not yet filed their defence.  The representors initially funded the claims from distributions from the trust, but the trustee formed the view that the litigation was potentially prejudicial to the trust assets and ceased to make such distributions.  The representors asserted that without funding from the trust they would be unable to pursue the claims.  They applied for orders that they could do so at the expense of the trust, on the ground that they were bringing a derivative action for the benefit of the trust fund. 

40.     The Royal Court (W J Bailhache, Deputy Bailiff) held that it had jurisdiction to make the orders sought because the representors, although beneficiaries, were in effect bringing their claims as trustees for the benefit of the trust, saying (at paragraph 7):

"We are satisfied that Article 51(3) of the Trusts (Jersey) Law 1984 does give us jurisdiction to make orders for distributions out of the trust fund, and we would have been prepared to make such orders on that basis had it been necessary to do so. However, for the reasons which we will give shortly, we consider that we also have an inherent jurisdiction to make the order in the standard Beddoe form because we accept the representors, although beneficiaries, are in effect bringing the claim as trustees for the benefit of the trust."

41.     The Deputy Bailiff went on to say (at paragraph 15):

"There seems to us to be little doubt that an important factor influencing Hoffmann, L.J. in his judgment was the possibility of beneficiaries all too easily litigating with trustees at the cost of the trust, and this to the detriment of other beneficiaries."

And at paragraph 23:

"We think a derivative action by the beneficiaries against the trustee is akin to what was described by Lightman, J. in Alsop Wilkinson v. Neary (1) ([1996] 1 W.L.R. at 1224) as a "third party dispute" where essentially it is the nomenclature rather than the nature of the action which is different. Thus, the beneficiaries in such a case are acting like trustees and the trustees are in effect a third party-if they lose, damages are payable by them to the trust and not to the beneficiaries. The identity of the potential recipient of damages is critical-Lightman, J. when considering hostile litigation in what he determines a "beneficiaries dispute" says ".... [a beneficiaries dispute] may take the form of proceedings by a beneficiary alleging breach of trust by the trustees and seeking removal of the trustees and/or damages for breach of trust" (ibid., at 1224). However, he did not go on to consider the impact of a beneficiary suing for damages not for himself but for the benefit of the trust fund as a whole. In our judgment, this takes the action out of the "beneficiaries dispute," where costs in ordinary hostile litigation usually follow the event and takes it into a "third party dispute" even though the parties are nominally beneficiaries and trustees. (para. 24) The line between authorizing the beneficiary to sue at the expense of the trust and authorizing the trustee to defend at the expense of the trust will not always be clear to see. In cases such as the present, however, it is clear that the trustee is defending itself and not the trust."

Our decision

42.     It was not disputed by the Executor that on B's death she ceased to be a beneficiary of the Trust and therefore it was not open to the Trustee, in exercise of the discretionary powers conferred on it by the Trust, to pay her costs of the current litigation, or those of her personal representatives since her death.  The Trustee had however agreed, by email dated 3 June 2024 to Advocate Hall, to pay her firm's fees up to the date of B's death.  In relation to further fees the Executor argued that it remained open to the Court, in the exercise of its discretion, to make a pre-emptive or protective order as to the costs of the Estate.

43.     The claim asserted by B in the Main Proceedings and, following her death, by the Executor, is a claim against the Trust which, if successful, would result in the Court declaring that a part of the assets of the Trust are held for B's estate absolutely.  It is therefore a claim brought for the benefit of B's estate, not for the benefit of the Trust as a whole.

44.     Although the decisions of the English Court of Appeal in McDonald v Horn and of the Royal Court in Re X Trust demonstrate that the Court has a discretion to make pre-emptive costs orders, that discretion is not, in our view, so wide as to encompass a claim such as that asserted by the Executor. In both McDonald v Horn and Re X Trust the claimants' claims, if successful, would have benefited the trust.  That is not the case in respect of the Executor's claim, and it therefore cannot be characterised as a derivative-type claim.

45.     Advocate Hall further sought to argue that, following B's death, the ownership of the assets remained uncertain.  She suggested that it is an uncertainty which must be resolved in order for the Trustee to know who its beneficiaries are and on what terms it holds assets and submitted that the costs should therefore be treated as if the main proceedings fell within categories 1 or 2 of Buckton as the Main Proceedings raise a fundamental uncertainty which must be resolved for the benefit of all parties.

46.     In our view that submission ignores the fact that the Executor's claim is only in respect of the assets transferred to the Trust by B and does not question the validity of the Trust itself.  The Trustee is in no doubt as to the terms of the Trust, such as would require it to seek the guidance of the Court as to the construction of the Trust instrument or some other question of law arising in the administration of the Trust or in relation to the trusts on which the property is held.  The Executor is seeking to redefine what should properly be considered to be a third party claim to set aside a transfer of property, into an internal dispute over trust administration, which it is not.  In our view, the Executor's claim should be characterised as a hostile claim and the usual rules that the costs of the claimant should be determined by the trial court prevail.

47.     It should be noted that B was only a party to the Beddoe proceedings as she was a beneficiary of the Trust.  Unlike the claimants in McDonald v Horn and Re X Trusts, who were beneficiaries, the Executor is not a beneficiary and therefore has no locus to become involved in future directions to the trustee concerning the conduct of the litigation and its costs.

48.     In light of the above, we dismiss the Executor's application for an order that the legal costs incurred by the Executor of the First Respondent's estate in relation to this action 2023/029 and action 2021/026, be funded out of the Trust's assets on an indemnity basis.

49.     It remains open to the Executor to pursue her claims in the Main Proceedings, but these will be at the cost of the estate until such time as liability for costs is determined in those proceedings.  We recognise that our decision may result in this claim not being fully argued before the Court in the Main Proceedings which, if correct, is a matter of some regret to us.  Nevertheless, we regard this claim as one to which the ordinary rules as to the costs of hostile trust litigation should be applied.

Authorities

Re Buckton [1907] 2 Ch 406.

McDonald v Horn [1995] ICR 685.

Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965.

Wallersteiner v Moir (No. 2) [1975] QB 373.

Civil Proceedings (Jersey) Law 1956.

In Re X Trust [2012] (2) JLR 260.