X (Trust) 01-Oct-12

CourtRoyal Court
JudgeThe Deputy Bailiff
Judgment Date01 October 2012
Neutral Citation[2012] JRC 171
Date01 October 2012

[2012] JRC 171




W. J. Bailhache, Q.C., Deputy Bailiff, andJurats Le BretonandCrill.


First Respondent
Second Respondent
Third Respondent
Fourth Respondent

Advocate E. C. P. Mackereth for the Representors.

Advocate B. R. Lincoln for the First Respondent.

Advocate A. D. Hoy for the Fourth Respondent.


Trusts (Jersey) Law 1984.

Wallersteiner -v- Moir (No. 2) [1975] 1QB 373 .

Foss -v- Harbottle [1843] 2 Hare 461 .

McDonald and Others -v- Horn and Others [1995] 1AER 961 .

Smith -v- Croft [1986] 2AER 551 .

Schmidt -v- Rosewood Trust Limited [2003] UKPC 26 .

Schmidt -v- Rosewood Trust Limited [2003] 3AER 76 .

Re Internine and the Intertraders Trusts [2004] JLR 325 .

Bastiaan Broere Trust and the Cornelis Broere Trust [2004] JLR N 2 .

Internine Trusts [2006] JLR 195 .

O'Rourke -v- Darbishire [1920] AC 581 .

Re Londonderry's Settlement [1965] CH 918 .

Alsop Wilkinson -v- Neary 1 WLR 1220 .

Trust — application by the representors for a direction that they may prosecute breach of trust claim against the first respondent and others.

The Deputy Bailiff

This is an application by the representors for a direction that they may prosecute a breach of trust claim which they have issued against the first respondent and others in effect at the expense of the trust fund itself. The first respondent is currently the sole trustee of the X Trust. The representors are principal beneficiaries of the X Trust and the first representor acts also as guardian ad-litem of her minor child who is, too, a principal beneficiary of the Trust. The second and third respondents have been served with these proceedings. There is some doubt as to whether they are likely ever to receive benefit from the Trust, but the first respondent asserts that depending upon movement in stock values in the underlying investments, this is far from impossible, and they should be treated as potential principal beneficiaries. They have not appeared before us today, but they have been in touch with the first respondent, which has confirmed that if they wish to make submissions in relation to the current application, they should appear either personally or through an advocate. We consider their absence does not cause us any particular difficulty as their interest is very similar to that of the representors in the sense that if the action succeeds, it will be to their possible benefit, but it is different in that if it fails, the reduction in value of the corpus of the Trust fund from which they are currently not expected to benefit, will not damage them. The fourth respondent has in effect a fixed interest, although being ostensibly a discretionary object of the Trust, and Advocate Hoy who appeared on her behalf told us that her interest was unlikely to be affected by this litigation and his instructions were to remain neutral in it.


The Trust is a discretionary trust, governed by the proper law of Jersey, and the trustees have wide powers of appointment and of investment. There seems no doubt that there have been some substantial losses in the value of the Trust due to a number of factors – relevant to this application is that the share price in relation to a publicly quoted company in which the Trust has invested has plummeted. No claim against the defendants in the hostile trust proceedings has been made in this respect, but the investment is relevant for reasons we will come on to later in this judgment. There are however other investments which the defendants are alleged to have made which have resulted in substantial losses of just under £100m. The defendants in those proceedings deny liability, we are told, but are not due to file their defence until 5 th September.


The representors have to date funded their claims from distributions which they have received from the Trust. These distributions have been made by the first respondent as trustee without reference to the Court. However the first respondent now takes the view that there is potential prejudice to the Trust from the maintenance of the proceedings against it. For this reason, it is not persuaded that it should continue to make distributions to the representors. For their part, the representors assert they do not have any alternative source of funding, nor can they borrow money to see them through the litigation, because they get no benefit directly from it. They will not themselves have the benefit of their success in the form of an order for damages in their favour, because theirs is akin to a derivative action, in that if they are successful in it, the defendants will be charged to replenish the trust fund rather than pay damages to the representors.


The letter from Advocate Lincoln to Advocate Mackereth sets out the first respondent's position this way:-

“… the Trustee believes that the proceedings that your clients have brought could be damaging to the Trust's assets, a belief that is supported by independent expert evidence obtained by the Trustee. The Trustee does not see how, in those circumstances, it can agree to make a distribution to your clients to fund the very proceedings that it regards as potentially damaging. Nor does it consider that “the ship has sailed” in this respect – it is of course true that proceedings have now been commenced and therefore are, in theory, in the public domain; however, as matters stand, all that has happened is that the names of the parties have appeared on the Table; so far as we are aware, the substance of the allegations is not yet a matter of public knowledge .

On the other hand, the Trustee could be criticised for refusing to make the distributions when it is clearly also in its personal interests not to fund the claims against it .

We do not see how this situation can be managed appropriately other than by way of an application to Court. In all the circumstances and, in particular, in light of the position of conflict in which the Trustee finds itself, we consider that the most appropriate way to deal with this would be for your clients to make the application, to which our client would be convened but would remain neutral (its only role being to ensure that all matters are appropriately drawn to the Court's attention).”


It appears to us that this approach, which was followed by Advocate Lincoln in his submissions before us, was a proper one for the trustee, the first respondent, to adopt. Assuming that we have a jurisdiction to do what is being asked of us by the representors, the first question we are therefore called upon to consider is whether the independent report which the first respondent has put before us raises such concerns that we should conclude that it is not in the interests of the Trust that the payments be made out of the trust fund to the representors to enable them to continue the hostile litigation. Advocate Mackereth has put before us a draft order which also raises the issue of a Beddoe style protective costs order.


Although the hearing on this matter was in private, this judgment is being published, albeit with anonymity applied, because the jurisdiction to make these orders has not, we are told, previously been a matter considered by the Royal Court in a published judgment. Indeed it has not, apparently, in terms, been considered in absolutely comparable circumstances in England and Wales either. Put shortly, the Court is asked to make an order that because the representors bring the hostile proceedings against the trustee in a derivative action to recover monies for the benefit of the trust fund, the Court should order that their expenses be paid out of the trust fund and that they be protected against costs orders which might be made against them in favour of the first respondent, the trustee and/or other defendants in the main proceedings, if they should be successful. In order words, the representors are, it is said, acting as a form of trustee and should have the same protection a trustee would have. Advocate Mackereth submitted there was an alternative jurisdiction under Article 51(3) of the Trusts (Jersey) Law 1984 to authorise payments to be made to the representors as beneficiaries on the basis that such payments were for the benefit of the Trust and were properly made. On that alternative approach, Advocate Lincoln made it plain that the trustee would surrender its discretion to the Court in the context of any exercise of power to make distributions from the fund, because it had an obvious conflict of interest.


We are satisfied that Article 51(3) of the Trusts Law 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 have 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.


The starting point for the analysis is the case of Wallersteiner -v- Moir (No. 2) [1975] 1QB 373. That case involved a counterclaim by the defendant, a minority shareholder in two companies, seeking payment of some £500,000 by the plaintiff to the two companies. The defendant joined the companies to the action. It is plain that the defendant's counterclaim was in effect a derivative action brought under the exceptions to the rule in Foss -v- Harbottle [1843] 2 Hare 461. The Court of Appeal agreed that the defendant's counterclaim was in effect a claim brought on behalf of the companies in question. The Court of Appeal held that it was open to the court in a minority shareholders action to order that the company should indemnify the...

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