England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		16 October 2006

Mr Justice Kitchin :

Introduction

1. The first claimant ("Toby") is a member of the Bonham family which owned the shares in a private company called Montpelier Properties Ltd ("Montpelier"). Following a reconstruction in 1994 Montpelier became known as Bonham Group Ltd ("Bonhams"). The assets of Montpelier and, subsequently, Bonhams comprised the well known Bonhams auction house. The second claimant, a friend of Toby, and the third claimant, Toby's ex-wife, were joined in the proceedings in March of this year in circumstances I relate hereafter.
2. In the late 1980s Toby found himself in financial difficulties and entered into an arrangement with a Mr Pinhorn to borrow various sums of money from him and also to bring about a sale of his shares in Bonhams and then to share the proceeds.
3. As part of these arrangements Toby established a trust ("the Bonham Settlement") in 1989. The then trustees ("the Original Trustees") were the second defendant ("Mr Fishwick") and a Mr Fenner who was, until April of this year, the third defendant. At that time the claims against Mr Fenner were struck out by Deputy Master Lloyd on the basis that they stood no reasonable prospect of success.
4. The heart of the present dispute concerns proceedings which the Original Trustees of the Bonham Settlement began in the High Court ("the Bonham-Cozens litigation") against Toby and his sister, Eve Bonham-Cozens ("Eve"). The first defendants ("Blake Lapthorn") were the solicitors who acted for the Original Trustees in that litigation.
5. The Bonham-Cozens litigation related to two parcels of shares in Bonhams, namely:

i) 17,266 shares registered in the name of Toby (the "Inheritance shares"); and

ii) 15,000 shares registered in the name of Eve (the "Bishop shares").

6. In the Bonham-Cozens litigation the Original Trustees alleged that Toby and Eve were obliged to transfer the Bishop shares and the Inheritance shares to them. They also alleged that in breach of that obligation Toby had, in 1997, transferred the Bishop shares to Eve. They sought inter alia:

i) specific performance of Toby's alleged agreement to transfer the shares to the Original Trustees;

ii) an injunction preventing Toby from disposing of his shares;

iii) a declaration that Eve held the Bishop shares on trust for the Original Trustees, an order requiring her to transfer them to the Original Trustees and an injunction preventing her from otherwise disposing of them.

7. Initially, both Toby and Eve defended the proceedings. Following the issue of an application for summary judgment against Toby in early 2000, the claim of the Original Trustees against Toby was settled by means of a consent order. Under the terms of that order the Inheritance shares remained outside the Bonham Settlement but were charged in favour of Mr Pinhorn and subject to an option granted in his favour.
8. That left the claims against Eve in relation to the Bishop shares. Counsel advised that, as a result of the settlement with Toby and the disclosure by Toby of an agreement he had reached with Eve under which she had agreed to sell the shares back to him, Toby now had a stronger claim to these shares than the Original Trustees. Following agreement by the Original Trustees to fund the pursuit of any such claim, Toby agreed to be joined as an additional claimant in October 2000 and an order joining him was duly made on 1 November 2000. In the proceedings as amended, Toby asserted that he had a contractual right to buy back the shares from Eve.
9. The trial of the claim of the Original Trustees and Toby against Eve in relation to the Bishop shares began on 14 November 2000 but was adjourned part heard after four days of evidence. Following the adjournment counsel acting for the Original Trustees and Toby gave advice that the judge was clearly against the claims and advised them to seek to negotiate a settlement or, if this proved impossible, to discontinue the proceedings.
10. In the result, settlement proved impossible and notice of discontinuance was served on 7 March 2001, shortly before the trial was due to resume.
11. The discontinuance of the action resulted in the Original Trustees and Toby being liable to pay Eve's costs which were assessed and paid in the sum of £74,000. In addition, the Original Trustees caused substantial sums to be paid out of the Bonham Settlement in respect of their own fees in connection with the Bonham-Cozens litigation.
12. On 16 June 2004, Toby commenced the present action against Blake Lapthorn and the Original Trustees alleging that the Bonham-Cozens litigation should never have been commenced or, having been commenced, should have been withdrawn at a much earlier stage, thereby avoiding or reducing the costs incurred by the Original Trustees and Toby in relation to the proceedings.
13. Originally Toby brought the present proceedings on his own account and in his capacity as a representative of the beneficiaries of the Bonham Settlement. This gave rise to an issue as to whether or not it was proper for Toby to run a derivative action on behalf of the Bonham Settlement. The problem was solved when, on 10 April 2006, two new trustees, namely the second and third claimants, consented to being joined in the proceedings as claimants, having confirmed that they appreciated they might incur a personal liability in respect of the defendants' costs.
14. The fundamental question which these proceedings raise is who should bear the burden of the costs and expenses of the Bonham-Cozens litigation:

i) the beneficiaries of the Bonham Settlement; or

ii) Mr Fishwick as one of the Original Trustees; or

iii) Blake Lapthorn as the solicitors acting for the Original Trustees.

15. The claimants (that is to say Toby and the current trustees of the Bonham Settlement) assert that it should be Mr Fishwick and/or Blake Lapthorn. Their primary claims are made against Mr Fishwick because, they say, if they are entirely successful as against Mr Fishwick, they will have suffered no loss and Blake Lapthorn will have no liability to them.
16. The claimants summarise their complaints in relation to the conduct of the Bonham-Cozens litigation by the Original Trustees and Blake Lapthorn as twofold:

i) The litigation was brought for an improper purpose, namely to perfect the security of Mr Pinhorn who was a creditor of the Bonham Settlement and who had entered into loans and option agreements with Toby and the Original Trustees in 1988 and 1989.

ii) The claims brought in the Bonham-Cozens litigation had no real prospect of success. As to the claim against Toby, this settled and did so on terms whereby the Inheritance shares stayed outside the Bonham Settlement, and the Original Trustees did not obtain any of the relief sought in the prayer to the statement of claim, or recover costs from Toby. As to the claim against Eve, this was discontinued and resulted in a substantial costs liability for the Original Trustees.

17. Before dealing with the details of these claims and the responses of the defendants to them I must set out a good deal of the complicated background to these proceedings.

Background

1985-1988

18. In 1985 Montpelier was a private company with the majority of the shares owned by the children of the late Mr Leonard Charles Bonham, that is to say Toby, Eve and Nicholas Bonham. For some time there was a degree of tension between Toby, Eve and Nicholas. In addition some cousins owned approximately 7% of the paid up share capital amounting to 42,771 shares.
19. At that time Toby's shareholding was divided into several batches:

i) 15,000 shares which were charged to a Mr William Bishop as security for a £5,000 loan dating back to 5 March 1985 - the Bishop shares;

ii) 114,394 shares which were charged to Barclays Bank to secure borrowings of approximately £150,000 in May 1986 (the "Barclays shares");

iii) 17,266 shares held by Toby's father's estate on trust for him until such time as Toby discharged his indebtedness to his mother and a subsidiary of Montpelier - the Inheritance shares.

20. Montpelier's articles of association contained pre-emption provisions which granted other shareholders and, in particular, family members, the right to buy the shares on any attempted sale. In the event of disagreement as to price, the auditor of Montpelier would determine a fair value.
21. The Bishop shares, the Barclays shares and the Inheritance shares together comprised some 26% of Montpelier's shares and gave Toby a power to block special resolutions of the company. This was, to Toby's mind, significant because it is clear that he did not always agree with his siblings as to how the company should be run.
22. In 1987 a number of material events occurred. First, relations between Toby and his siblings came under strain when Eve and Nicholas asked Toby to agree to a restructuring of the company. At that time Toby sought advice from Mr Fishwick, a partner in Blake Lapthorn and who had earlier advised Toby in relation to his matrimonial proceedings. Mr Fishwick accepted Toby's instructions in relation to the proposed restructuring on the basis that he could refer any technical questions to one of his colleagues at Blake Lapthorn.
23. The restructuring would have resulted in further shares in Montpelier becoming available, thereby diluting Toby's shareholding and compromising his ability to block special resolutions. Mr Fishwick was unable to satisfy himself that the restructuring would be in Toby's interests and he therefore advised him to vote against it.
24. The second event concerned the Bishop shares. On 15 May 1987, Mr Bishop's solicitors wrote to Toby demanding repayment of the £5,000 loan and interest. Toby ignored the letter and accordingly Mr Bishop executed his power of sale and sold the Bishop shares to Eve for £15,000. Mr Bishop transferred the share certificates to Eve and his solicitors wrote to Toby requiring him to execute stock transfer forms. Toby ignored the request and, in November 1987, Mr Bishop commenced proceedings ("the Bishop action") against Toby seeking an order requiring him to execute those forms.
25. Toby instructed Mr Fishwick to act for him in relation to the Bishop action. He defended the claim on the basis that it was Mr Bishop's duty, when exercising the power of sale conferred by the charge, to take reasonable steps to obtain a proper price, and that the price at which the shares were sold was a gross undervalue. He counterclaimed against Mr Bishop and Eve contending that both Mr Bishop and Eve knew or had notice of the fact that the price at which the shares were sold was not a proper price and that the sale was therefore voidable and should be set aside.
26. Finally, I should note the importance of the Bishop shares to Toby. Their loss meant that Toby's shareholding fell below 25% and meant that he no longer had the power to block special resolutions of Montpelier.
27. In March 1988 Mr Bishop sought and obtained summary judgment against Toby. Toby appealed and, on 29 March 1988, the Court of Appeal granted unconditional leave to defend on the basis that Toby paid £5,000 plus interest into court. Thereafter, and as I shall explain, nothing further happened in those proceedings until April 1989.
28. Later in that same year another partner in Blake Lapthorn, Mrs Williams, also became involved in Toby's affairs through acting for Mr Pinhorn. Mr Pinhorn was a wealthy local businessman who had been a client of Blake Lapthorn for many years. Mr Pinhorn was introduced to Toby by a mutual friend, Mr Clarke.
29. Toby wished to purchase another block of 42,771 shares in Montpelier owned by his cousins ("the Cousins shares") over which he had an option. As Mrs Williams explained in her evidence, he had a potentially significant asset in the form of his existing minority stake in Montpelier and thought that the acquisition of the Cousins shares would give him a better negotiating position in his attempts to unlock the value of his own shares. It would also, of course, increase his total shareholding to in excess of 25%. The problem was that he had no money. That is where Mr Pinhorn came in.
30. Essentially Mr Pinhorn provided Toby in excess of £147,000 to allow Toby to acquire the Cousins shares on the basis that Toby and Mr Pinhorn would then try to secure a sale of those shares and would share the proceeds. As Mrs Williams put it, Mr Pinhorn was paying for the opportunity to share in the proceeds of any eventual sale of the Cousins shares.
31. The arrangement was formulated in terms of a loan and an option. The loan agreement ("the 1988 Loan Agreement") recorded that Mr Pinhorn had lent Toby the sum of £147,132.24 in order to facilitate the purchase of the Cousins shares and that Toby had deposited with Mr Pinhorn the certificate in respect of the shares together with the transfer in blank duly signed by Toby. If a sale took place the loan would be deducted from Toby's share of the proceeds of sale.
32. The associated agreement ("the 1988 Option Agreement") involved the irrevocable grant by Toby to Mr Pinhorn of an option to purchase the Cousins shares for the sum of £3.44 per share on or before 9 May 1993. If, following the exercise of the option, Mr Pinhorn sold the shares to any person at a price in excess of the option price then he agreed to pay to Toby a share of the excess proceeds.
33. As Mrs Williams explained, the reason why the deal was structured as it was arose from the pre-emption provisions in the articles of association of Montpelier which prevented a shareholder from selling his or her shares without first offering them to the other shareholders at a fair price fixed by the company's auditor. It was feared likely that, without evidence of a third party offer, the auditor would fix the fair price at a low level having regard to the fact that there was no dividend history, the shares represented a minority holding and other recent transfers had been at a low value. This would then have given the other shareholders, and in particular the other members of Toby's family, a chance to acquire his shares at a low price which did not represent their true potential value. But for the pre-emption provisions, the arrangements between Mr Pinhorn and Toby would probably have been structured as a simple purchase by Mr Pinhorn of the Cousins shares from Toby with an agreement by Mr Pinhorn to co-operate with Toby in trying to achieve a sale, and a profit sharing agreement in the event they were to achieve such a sale.
34. It is notable that if a sale did not take place then there was, in practice, little prospect of the loan being repaid because Toby had no assets, save for his shares. Further, a clear advantage to Toby from these 1988 agreements was that he now had a shareholding above 25% and the power to block special resolutions of Montpelier.

The relinquishment letter

35. 1989 saw further action in the Bishop litigation. It seems that Eve was concerned to draw the proceedings against her to a halt. On 26 April 1989 her solicitors, Rowe & Maw, wrote a letter ("the relinquishment letter") to Blake Lapthorn, for the attention of Mr Fishwick, stating:

"Our Client has instructed us to advise you that she relinquishes her right to the shares which are the subject-matter of these proceedings and that she will submit to an order that she should pay your Client's costs of the counter-claim, which are to be taxed if not agreed. In reaching her decision, our Client has taken into full account the practicalities and expense of defending these proceedings, now that she is no longer resident in this country. She wishes to make it clear, however, that she makes no admission that your Client's claim has any validity whatsoever. Indeed, she thinks that it is wholly unjustified."

36. Mr Fishwick understood from this letter that Eve was prepared to give up all rights she had to the Bishop shares and that she was capitulating to Toby's counterclaim. He wrote to Mr Michael Katz, a solicitor who was at this time instructed by Toby in connection with Toby's dealings in his shares in Montpelier. He explained to Mr Katz that the only outstanding issue now was effectively costs, and asked for his instructions.
37. On 4 May 1989, Eve applied to Master Munrow for an order that the proceedings against her be discontinued upon terms that she would not object to any future order that the sale to her by Mr Bishop of the 15,000 Bishop shares be set aside and that she should pay to Toby the costs of the counterclaim on the standard basis, such costs to be taxed if not agreed.
38. The summons was heard by Master Munrow on 24 May 1989. It became clear during the course of the hearing that Master Munrow took a different view as to the effect of the relinquishment letter. He did not consider the letter to be a surrender to the counterclaim but rather an indication that Eve was prepared to pay the costs to date leaving her co-defendant, Mr Bishop, to run the action. In those circumstances Mr Fishwick indicated that he was not prepared to allow Eve to be released from the proceedings. The summons was adjourned generally with liberty to restore.
39. Mr Fishwick said in evidence, and I accept, that despite the Master's observations he still considered the relinquishment letter to constitute a relinquishment of Eve's interest in the Bishop shares, but he appreciated that, contrary to his initial view, Rowe & Maw's letter did not dispose of the issues as between Mr Bishop and Toby. In July of 1989 Mr Bishop died. The case was taken over by his estate and once again fell asleep, this time until 1997.

The 1989 agreements

40. Another set of developments also occurred in 1989. Early in that year Barclays Bank began to exert pressure on Toby to discharge the debt which he owed to them. Mrs Williams was by this time aware that Toby's original holding of Montpelier shares (the Barclays shares) was not only subject to a charge in favour of Barclays Bank but also subject to an option in favour of Lonhurst Ltd, a company owned by Mr Clarke. Solicitors had apparently been instructed by the bank and there was a very real possibility that the shares would have to be sold. This would not have been in the interests of Toby, Mr Clarke or Mr Pinhorn. Toby apparently approached Mr Pinhorn asking for his assistance because Mr Clarke was unable to help. Mr Pinhorn agreed to lend to Toby enough money to enable him to pay off his debts. They came to this arrangement themselves and subsequently Mr Pinhorn came to Mrs Williams to document and finalise it.
41. The basic structure of the arrangement was similar to that which the parties had agreed in 1988, in that Mr Pinhorn would lend to Toby enough money to pay off his debts and, in return, Mr Pinhorn would acquire an entitlement to share in the proceeds of sale of Toby's shares in Montpelier. There were, however, important differences.
42. First, Toby now needed several hundred thousand pounds to clear his creditors, a much larger sum than Mr Pinhorn had risked under the 1988 arrangements.
43. Secondly, in addition to the 42,771 Cousins shares, Toby claimed to be entitled to a further 146,660 shares comprising the Bishop shares, the Barclays shares and the Inheritance shares. Mr Pinhorn and Toby agreed that, in return for advancing the monies sought by Toby, Mr Pinhorn would acquire an entitlement to share in the proceeds of sale of these other shares.
44. As in the case of the 1988 arrangements, however, the agreement was formulated in terms of an option so as to provide a mechanism to assist in unlocking the value of the shares without triggering the pre-emption provisions in Montpelier's articles of association. Similarly, the commercial reality was that the loans made by Mr Pinhorn to Toby were unlikely ever to be repaid unless and until the shares were sold.
45. Further, and importantly, the 1989 arrangements involved the setting up of a trust – the Bonham Settlement - into which Toby would transfer all of his shares. The purpose of the trust was to protect the shares from Toby's creditors and to give Mr Pinhorn the comfort and security that he would henceforth only have to deal with the trustees who would be independent professional men. Mr Pinhorn thought this desirable because, although he believed that Toby was an honest man, he thought he was vulnerable to pressure from other members of his family, was interested in pleasure rather than business and prone to disappear for long periods of time. Such a trust was not thought to create a problem with the pre-emption provisions because they contained an exception in relation to the transfer of shares to a trust for the benefit of the transferor and his family. Mrs Williams explained, and I accept, that although the Bonham Settlement was intended to be a genuine trust for the benefit of Toby and his family, the commercial reality was that there was little prospect of the trust conferring any significant benefits on Toby or his family unless and until the shares were sold for a substantial value. In the meantime the trust would have no funds other than those loaned by Mr Pinhorn.
46. So, in summary, it was intended that the Bonham Settlement would hold 189,431 shares comprising:

i) 42,771 Cousins shares, the subject of the 1988 arrangements;

ii) 114,394 Barclays shares;

iii) 15,000 Bishop shares;

iv) 17,266 Inheritance shares.

47. In relation to the 15,000 Bishop shares, Mrs Williams understood from Mr Fishwick that Toby had succeeded in the Court of Appeal in setting aside the summary judgment obtained against him and that Eve had indicated that she had relinquished in favour of Toby any claim to the shares, leaving only costs as an outstanding issue. Mr Pinhorn was duly informed of these matters by Mrs Williams.
48. As for the Inheritance shares, Mrs Williams understood that these had been left to Toby subject to a direction that they not be released until Toby had repaid certain loans to his mother and Montpelier. Mr Pinhorn was therefore asked and agreed to include in the monies advanced under the 1989 arrangements sufficient sums to enable the loans to be repaid so that the shares could be released to Toby.
49. Counsel was duly instructed by Mrs Williams on behalf of Mr Pinhorn to prepare drafts of the relevant documents which were then supplied to Toby for his consideration. Toby obtained separate legal advice from Mr Katz. In the result, Mr Pinhorn provided over £450,000 to Toby to enable him to discharge his debts, the sums that he owed to various creditors and also to provide various advances to Toby for his own use.
50. Mr Fishwick agreed to become a trustee because Toby had specifically asked him to and because he understood he could turn to Blake Lapthorn for advice when necessary. His co-trustee, Mr Fenner, was a chartered accountant.
51. Against this background I must now set out the details of the four 1989 agreements, namely:

i) the settlement of 9 November 1989 ("the 1989 Settlement Agreement");

ii) the loan and charge agreement of 10 November 1989 ("the 1989 Loan and Charge Agreement");

iii) the option agreement of 10 November 1989 ("the 1989 Option Agreement"); and

iv) the transfer agreement of 9 November 1989 ("the 1989 Transfer Agreement").

52. The 1989 Settlement Agreement was entered into by Toby with Mr Fishwick and Mr Fenner (collectively referred to in the agreement as "the Trustees"). The agreement recited that Toby desired to make provision for himself and his children, had paid the sum of £10 to the trustees to be held by them on trust and subject to the provisions of the agreement and intended shortly to transfer other assets into the trust. The body of the agreement recorded, so far as relevant:

"2. THE Trustees may from time to time accept from the Settlor or at his discretion as additions to the Trust Fund any further money or investments or property but in particular they may so accept any shares in Montpelier Properties Limited (whether or not the same shall be charged to secure the repayment of any moneys to any person by the Settlor) and may do so upon terms that the Trustees shall forthwith enter into an option or similar agreement with a third party and/or with the Settlor regulating the disposal of such shares and any other matters and in such terms generally as the Settlor may specify and any such agreement shall become and be binding on the Trustees accordingly

3. THE Trustees shall during the lifetime of the Settlor hold the Trust Fund upon trust to pay the income thereof and to pay or transfer so much of the capital thereof as they may from time to time in their absolute discretion think fit to the Settlor for his own use and benefit absolutely

4. SUBJECT as aforesaid the Trustees shall hold the Trust Fund and the income thereof upon such trusts and with and subject to such provisions for the benefit of such persons as the Settlor may by deed revocable or irrevocable or by will or codicil appoint and in default of and subject to any such appointment upon trust for such of his children who have attained or who attain the age of twenty one if more than one in equal shares absolutely

5. IN the exercise of the discretion conferred upon them by clause 3 hereof the Trustees may if they think fit so to do have regard to but shall not be bound by the wishes expressed in writing by the Settlor and may regard the Settlor as the principal beneficiary hereunder and may exercise the said discretion without regard to the interests of any other beneficiary

…

8. WITHOUT prejudice to the provisions of clause 2 hereof money requiring investment or application hereunder may be invested or applied in the purchase or acquisition of or at interest upon the security of such stocks funds shares securities or other investments or property of whatever nature and wherever situate and whether involving liability or not and whether producing income or not as the Trustees in their absolute discretion think fit including the purchase and improvement of any property for use as a residence by any person who would for the time being be entitled to receive the income of the moneys laid out in such purchase or improvement

…

17. IN the professed execution of the trusts and powers hereof no Trustee shall be liable for any loss to the Trust Fund arising by reason of any improper investments made in good faith or for the negligence or fraud of any agent employed by him in good faith or by reason of any mistake or omission made in good faith by any Trustee hereof or by reason of any other matter or thing whatsoever except wilful and individual fraud or wrongdoing on the part of the Trustee who is sought to be made so liable

…

20. ANY of the Trustees (other than the Settlor or any wife for the time being of the Settlor) being an accountant solicitor or other person engaged in any profession or business may be so employed or act and shall be entitled to charge and be paid all professional or other charges for any business or act done by him or his firm in connection with the trusts hereof including acts which a Trustee could have done personally"

53. It is apparent that the 1989 Settlement Agreement specifically contemplated that the trustees might from time to time accept from Toby as additions to the trust fund any shares in Montpelier and whether or not the same were charged. This anticipated the transfer into the Bonham Settlement of the 189,431 shares.
54. Further, the trustees held the trust fund on trust to pay the income and so much of the capital as they might from time to time in their discretion think fit to Toby for his own use and benefit absolutely.
55. Subject to that the trustees held the trust fund and the income for the benefit of such persons as Toby might appoint and in default of such appointment on trust for the children who had attained the age of 21. Further, in the exercise of their discretion the trustees might but were not bound to have regard to the wishes of Toby and might regard Toby as the principal beneficiary and exercise their discretion without regard to the interests of any other beneficiaries. Clearly, therefore Toby was the principal (but not the only) beneficiary.
56. The 1989 Loan and Charge Agreement was entered into between Mr Bonham, Mr Pinhorn, on behalf of his company Solent, and the Original Trustees, Mr Fishwick and Mr Fenner (again referred to in the Agreement as "the Trustees"). It recited, inter alia,

"(1) The Trustees hold 146,660 Ordinary Shares in Montpelier Properties Limited ("the Shares") upon the trust set out in a Settlement made by Mr. Bonham on 9 November 1989 ("the Settlement")

(2) SOLENT has lent to Mr. Bonham the sum of £355,445 in order (inter alia) to repay other indebtedness and to obtain the release of a Charging Order affecting the Shares

(3) SOLENT proposes to lend other sums to the Trustees and/or Mr. Bonham in accordance with the terms of an agreement of even date herewith and made between the Trustees (1) Solent (2) and Mr. Bonham (3) ("the Option Agreement") whereby (inter alia) Solent was granted the right to purchase the Shares as therein set out ("the Option")"

57. So far as relevant, the agreement provided:

"1. THE Trustees hereby Charge the Shares as security for any sums outstanding to Solent from time to time by Mr. Bonham and the Trustees or either of them

2. THE Trustees have deposited (or will deposit) the Share Certificates relating to the Shares with Solent together with a duly executed Transfer in blank as security for the due performance of this Agreement and of the Option Agreement

3. All loans made to the Trustees or to Mr. Bonham under this Agreement or under the Option Agreement shall bear interest from the date of advance at 3% per annum above National Westminster Bank PLC base rate for the time being to the date of payment

4. IN the event of the Option being exercised the amount of all loans together with interest thereon as aforesaid shall thereupon be repayable such that the amount thereof shall be deducted from the moneys due to the Trustees under the Option Agreement"

58. At this stage the Original Trustees did not of course hold 146,660 shares. But once again the agreement contemplated the transfer into the Bonham Settlement of the Barclays, Inheritance and Bishop shares.
59. Under the 1989 Option Agreement the Original Trustees granted to Mr Pinhorn an option to purchase the 146,660 shares in Montpelier. The following points are of particular note. First, unlike the 1988 arrangements, the option continued until the later of the 9^th May 1993 and a date three months after a date upon which the entirety of the advances made to Toby had been repaid to Mr Pinhorn. Secondly, Mr Pinhorn advanced a further sum of £130,000 to the trustees and the trustees were at liberty to distribute such monies under the terms of the Bonham Settlement. Thirdly, the agreement once again contained profit sharing provisions. Fourthly, clause 18 gave Mr Pinhorn the power to require the trustees to take or defend legal proceedings for any purpose connected with the agreement subject to an indemnity:

"18. Mr Pinhorn may require the Trustees to take or defend legal proceedings before or after exercise of the option hereby granted for any purpose connected with this Agreement including without prejudice to the generality of the foregoing

a. requiring the Shares to be registered in the name of Mr Pinhorn and

b. applying to the Court by petition or otherwise for relief under section 459 of the Companies Act 1985

and Mr Pinhorn undertakes to provide the Trustees with all reasonable assistance for the purpose thereof including the payment by way of loan of fees of Solicitors Counsel and experts subject only to the provision of such security for the repayment thereof as shall be reasonably required by Mr Pinhorn. The Trustees shall not however be obliged to incur any costs or expenses of any legal proceedings unless they shall be sufficiently and to their satisfaction indemnified by Mr Pinhorn or otherwise protected against personal liability in costs to all other parties to such proceedings and they shall not be personally liable to reimburse any such advances to Mr Pinhorn."

60. Finally, I must refer to the 1989 Transfer Agreement between Mr Bonham, Mr Pinhorn and the Original Trustees. Pursuant to this agreement Toby consented to the transfer of the remaining package of 42,771 Cousins shares in Montpelier into the Bonham Settlement subject to the 1988 Option Agreement, the 1989 Loan and Charge Agreement and upon the trust declared in the 1989 Settlement Agreement. Clause 2 read as follows:

"2. The Trustees hereby irrevocably agree and undertake that:-

2.1 They will hold the Shares subject to the Option Agreement and will perform all its terms which require to be performed by Mr. Bonham

2.2 They shall not take any action or put forward any claim which would derogate from the rights granted to Mr. Pinhorn under the Option Agreement

2.3 That upon Mr. Pinhorn delivering to them the Certificate relating to the Shares they shall cause themselves to be registered as the holders thereof and then shall promptly deliver to Mr. Pinhorn the new Certificate therefor to be held by him as security as provided in the Loan Agreement

2.4 The monies advanced by Mr. Pinhorn to Mr. Bonham under the Loan Agreement shall be recoverable from the sale of the Shares as provided in the Loan Agreement

2.5 That they guarantee the payment by Mr. Bonham of sums owed by him under the Loan Agreement to the extent of the value of the assets subject to the Settlement referred to above"

61. At completion, Toby signed a stock transfer form transferring 189,431 shares in Montpelier to the Original Trustees. However, because the shares were in four batches, Mr Fishwick suggested to Mrs Williams that it might be more appropriate to submit separate stock transfer forms, so that registration could proceed batch by batch as the share certificates were received. Therefore, on 28 December 1989, she sent to Toby four further stock transfer forms for him to sign. They were in respect of 42,771, 17,000, 14,600 and 15,000 shares. She had been wrongly informed of the exact numbers of two of the holdings so that two of the transfer forms (for 14,600 and 17,000) were not in line with the actual certificates. Nevertheless, Toby signed the stock transfer forms on 11 January 1990 and returned them to Mrs Williams who sent them off to Mr Fishwick so that he could take the necessary steps to register the Original Trustees as members of the company.

Barclays and Cousins shares

62. The position in relation to the Barclays and Cousins shares can be summarised as follows. The Barclays shares were the subject of an option agreement in favour of Mr Clarke's company, Lonhurst and, as part of the overall arrangement, Lonhurst's option was assigned to Mr Pinhorn. After completion the share certificate was delivered to Mrs Williams. She also held the share certificate in respect of the Cousins shares which were already the subject of an option to Mr Pinhorn. So, by 11 January 1990, the Original Trustees were in possession of the share certificates in relation to both the Barclays shares and the Cousins shares and thought they were in a position to register them. Thereafter Mr Fishwick attempted to register both batches of shares with Montpelier but it refused to do so for a considerable period of time. One difficulty, raised in February 1990, was, however, dealt with relatively quickly. Montpelier objected to the transfer on the basis that it did not fall within the terms of article 5(9) of the articles of association which permitted transfer of shares to the trustees of a trust of which the sole beneficiaries were the transferor and his spouse, children or remoter issue. It is apparent from the 1989 Settlement Agreement that the class of beneficiaries was not so limited. Accordingly, by deed of appointment made on 1 June 1990, Toby narrowed the class of beneficiaries so as to comply with that article.
63. Despite the deed of appointment the matter remained unresolved. In 1995 a further difficulty emerged. As I explain later in this judgment, it became apparent that Toby was threatening to disregard the arrangements he had entered into in 1989 and that he intended to treat the transfer of his shares to the Original Trustees as not having taken place. He had apparently informed Montpelier, now Bonhams, that he did not wish to proceed with the transfer. The Original Trustees took advice from Ms Caroline Furze of counsel and, in January 1997, commenced proceedings against Toby and Bonhams and applied to the court for an order that the company rectify the register of members such that the Original Trustees be registered as holders of 157,165 shares, comprising the Barclays shares and the Cousins shares. By an order dated 31 January 1997 Jacob J ordered that the company rectify the register as requested.

Attempts to find a buyer

64. As Mrs Williams explained in evidence, efforts were made through the 1990s to find a buyer for the shares. A sale was the joint goal of Toby, Mr Pinhorn and the Original Trustees. Mrs Williams was involved in the process and acted as advisor both to Mr Pinhorn and the Original Trustees. She did not perceive this to be a problem because they both had the same interest, namely to achieve a sale of the shares at the highest possible price. She explained the possibility of conflicts to both Mr Pinhorn and the Original Trustees but they were not concerned and indicated they would deal with conflicts if and when they arose.
65. Finding a buyer proved very problematic. Montpelier was not doing well. Further, the shares held by the Bonham Settlement represented only a minority shareholding, with no right to appoint a director or obtain current information. These difficulties were compounded by the financial circumstances of Mr Pinhorn and his companies. First, it became apparent that the money which Mr Pinhorn had loaned to Mr Bonham in 1988 belonged to one of his companies, Solent. To regularise the position, Mr Pinhorn entered into an agreement with Solent on 27 March 1992 under which he declared that he held the benefit of the 1988 Loan Agreement and the 1988 Option Agreement on trust for Solent. However, Solent was itself in difficulties. It owed sums to the National Westminster Bank ("NatWest") which it was unable to repay. NatWest appointed receivers over Solent and they required Mr Pinhorn to take steps to recover the £147,000 loan made to Toby in 1988, secured on the Cousins shares, and to exercise the option in relation to those shares. This posed a serious problem. It would have resulted in the sale of the Cousins shares in isolation from the other shares and without the benefit of the presence of a third party purchaser. In short, the Original Trustees were highly concerned that the pre-emption procedure would result in the sale of the shares at what was described in evidence as a "fire sale" price, that is to say a substantially lower price than their true potential value.
66. Mr Pinhorn also found himself in financial difficulties. He was himself indebted to NatWest and found himself with little option but to agree to assign to NatWest the benefit of his rights under the 1989 agreements. Accordingly, on 13 June 1994, Mr Pinhorn, the Original Trustees and NatWest agreed a deed of assignment of the 1989 Loan and Charge Agreement and the 1989 Option Agreement.
67. The effect of these arrangements was that the Original Trustees and Mr Pinhorn now had to deal with NatWest and the receivers of Solent in attempting to realise the value of the shares.
68. Meanwhile the problems associated with the registration of the Original Trustees as owners of the shares supposed to be transferred to the Bonham Settlement under the 1989 arrangements persisted. NatWest insisted that if it was to postpone enforcement action then the Original Trustees had to take action to perfect their title to the various blocks of shares. This led to the action by the Original Trustees to compel Toby and Montpelier to register their title in respect of the Barclays and Cousins shares. Once that had been accomplished, NatWest remained concerned that the Original Trustees should perfect their title to the Bishop and Inheritance shares as well. I shall return to this aspect of the history later in this judgment.

The Inheritance shares

69. As I have mentioned, Mr Pinhorn's loans to Toby were intended to clear his debts, including his debts to his mother. Although Mr Pinhorn's loan meant that Toby was in a position to repay his debts, his mother refused to accept the full amount due. Nevertheless, she instructed the trustees of her husband's estate to release the shares to Toby and, on her death in May 1995, she released any further liabilities Toby had to her. Accordingly, by 13 September 1995, Toby was registered as the owner of the Inheritance shares. Nevertheless, Toby declined or refused to allow them to be registered in the name of the Original Trustees.

The conclusion of the Bishop action

70. On 1 May 1997, Mr Fishwick ceased to be a partner in Blake Lapthorn. In the same month Toby came to see Mr Fishwick and told him that he wanted to continue with the Bishop action but also wanted a proper contribution towards his costs. He repeated the same request in September 1997. Mr Fishwick was therefore rather surprised when, on 19 September 1997, Toby decided to disinstruct Blake Lapthorn and act in those proceedings in person.
71. This action by Toby caused Mr Fishwick considerable concern. In particular he was anxious that Toby might be influenced by someone who was encouraging him not to honour his agreements with Mr Pinhorn. If this happened Mr Fishwick feared that Mr Pinhorn, NatWest and the Solent receivers would call in all the loans and force the sale of Toby's shares.
72. Accordingly, Mr Fishwick wrote to Toby enclosing copies of the various agreements he had entered into and explaining their effect. He also explained to Toby that, in his view, Toby was not able to compromise the Bishop action without Mr Pinhorn's approval. In response, Toby reiterated to Mr Fishwick that he would conduct his own defence. Mr Fishwick wrote to Toby again on 11 October 1997 explaining that it was important that Toby realised that he had agreed to transfer all of his shares to the Original Trustees and warning that Mr Pinhorn would likely commence proceedings against him unless this was done.
73. Unbeknown to Mr Fishwick and Blake Lapthorn, Toby then compromised the Bishop action on the following terms. The claim and counterclaim were discontinued. The monies in court were paid out to Toby and Toby received a contribution of £10,000 towards his costs. In addition, Toby entered into an agreement with Eve pursuant to which Eve agreed to pay Toby £40,000 over a five year period and, in return, Toby registered the Bishop shares in her name.
74. These matters came to the attention of Mr Fishwick at the end of October 1997 upon inspection of Bonham's Register. In Mr Fishwick's view Toby had no right to settle the Bishop action on this basis because he had already agreed to transfer the Bishop shares to the Original Trustees.

The Bonham-Cozens litigation

75. By October 1997 it had therefore become quite clear that Toby was not prepared to transfer to the Original Trustees either the Bishop shares or the Inheritance shares. Accordingly the Original Trustees consulted with Mrs Williams.
76. I am quite satisfied having heard the evidence of Mrs Williams and Mr Fishwick that they decided that they should commence litigation against Toby for a number of reasons. First, they considered that Toby had agreed to transfer the Bishop shares and the Inheritance shares to the Original Trustees. Second, they perceived there was a real threat that Mr Pinhorn, NatWest or the Solent receivers would call in the loans made to Toby and force a fire sale of the shares to which the Original Trustees had undisputed title. Third, they considered there was an identity of interest as between the Original Trustees and Mr Pinhorn in ensuring that Toby's entire shareholding vested in the Original Trustees. The more shares they had, the better the price that could be achieved. Fourth, they had entered into arrangements with Mr Pinhorn (with Toby's agreement and consent) in relation to 189,431 shares but did not hold them. Finally, if they simply allowed Toby and Eve to retain the Bishop shares and the Inheritance shares then they might well be criticised by the other beneficiaries.
77. The Original Trustees were also in difficulty that they did not have sufficient funds to pay for the litigation. They had no cash and the shares which they held were producing little if anything by way of dividend income. So they needed the assistance of Mr Pinhorn. He agreed to advance further funds to the Original Trustees to help them fund the litigation. For his part, Mr Pinhorn was concerned that the existing holding of shares might prove to have insufficient value to pay off the monies owing to him and NatWest. If, contrary to his expectation, they did have sufficient value then he was entitled to a share in the profit derived from a sale.
78. Accordingly, in October 1997, instructions were sent to Ms Furze of counsel. She was asked to advise what steps should be taken to effect the transfer of the outstanding shares into the Bonham Settlement, who should be the applicant and whether there was a conflict of interest between the Original Trustees and Mr Pinhorn such that Blake Lapthorn could not act for them both in relation to the questions asked. There is no record of the advice which she gave. However, she drafted particulars of claim and the Original Trustees duly issued proceedings seeking, inter alia, as against Toby, specific performance of his agreement to transfer the Inheritance shares to the Original Trustees and damages for breach of his agreement to transfer the Bishop shares to the Original Trustees and, as against Eve, an order requiring her to transfer the Bishop shares to the Original Trustees.
79. In summary, the Original Trustees contended that Toby as registered holder or beneficial owner of the 189,431 shares in Montpelier agreed with the Original Trustees to transfer to them all of his shares and executed and delivered to the Original Trustees stock transfer forms. In consideration of that agreement and the execution and delivery by Toby of the stock transfer forms the Original Trustees accepted a loan from Mr Pinhorn and granted to him an option to purchase 146,660 of the shares pursuant to the 1989 Option Agreement, charged the 146,660 shares pursuant to the 1989 Loan and Charge Agreement and agreed to charge the 42,771 Cousins shares pursuant to the 1989 Transfer Agreement. In breach of that agreement and obligation Toby had wrongly failed and refused to complete the transfer of the remaining 32,266 shares to the Original Trustees or to deliver to them certificates in respect of those shares.
80. The claim in respect of the Bishop shares was somewhat complicated but can be summarised in the following propositions:

i) Prior to the Bonham Settlement the Bishop shares were registered in Toby's name. He had however charged them to Mr Bishop as security for a loan of £5,000;

ii) Mr Bishop purported to sell the shares as mortgagee in possession to Eve on or about 26 August 1987. The validity of that sale was disputed by Toby and was the subject of the Bishop litigation. Eve's purported purchase of the shares from Mr Bishop was said to have given rise to an equitable interest in those shares in her favour. However, the letter of 26 April 1989 - the relinquishment letter - relinquished that interest to Toby;

iii) subsequently Toby entered into the 1989 agreements which operated to transfer his equitable interest in the Bishop shares to the Original Trustees;

iv) in October 1997 Toby executed a share transfer of the 15,000 shares in favour of Eve but the legal estate that she received in the shares upon her registration as shareholder was subject to the equitable interest of the Original Trustees, since she took with notice of their claim;

v) since Eve held her legal estate in the Bishop shares subject to the equitable interest of the Original Trustees she should execute a share transfer form and deliver that, with the share certificate, to the Original Trustees.

81. In his defence Toby contended that the Bonham Settlement should be set aside for undue influence, that he did not give his informed consent to transfer his shares to the Original Trustees and that the option to purchase the shares was void as a clog or fetter on the mortgagor's equity of redemption.
82. For her part, Eve contended that she became the beneficial owner of the Bishop shares on 26 August 1987 and that she became the sole legal owner of the shares upon Toby executing a stock transfer form in her favour in October 1997. In reply to this defence the Original Trustees relied upon the relinquishment letter.

Peter Griffiths' opinion

83. Mr Fishwick was not impressed by the defence. He considered that the allegations of undue influence were without foundation and that the clog defence seemed hopeless because, even were the 1989 Option Agreement to be set aside, the Original Trustees were still entitled to the transfer of the shares. Further, Eve's assertion that she had purchased the Bishop shares did not concern him since it was his belief that she had relinquished all interest in those shares. Nevertheless, he was concerned about the position of the Original Trustees in the light of the allegation of undue influence and asked Blake Lapthorn to advise. They in turn recommended instructing counsel and a conference with Mr Peter Griffiths took place on 22 October 1998.
84. At that conference the principal subject matter discussed was the allegation of undue influence. Mr Griffiths apparently expressed the opinion that it was unlikely to succeed but that a strike out application would not be a good idea.
85. Mr Griffiths went on to express preliminary views on a number of other matters. In particular he expressed concern as to whether there was any binding obligation on Toby to transfer the shares to the Original Trustees, that the clog on the equity of redemption argument was likely to succeed and that there existed a conflict of interest between the Original Trustees and Blake Lapthorn.
86. Mr Griffiths summarised the advice he had given in conference in an opinion dated 4 November 1998 and in a further note of the same date. He advised:

i) there was a conflict of interest between the Original Trustees and Blake Lapthorn;

ii) it was Blake Lapthorn's responsibility to ensure that the Original Trustees did not enter into any obligations which they could not honour and they were now in that position;

iii) Blake Lapthorn were, in reality, seeking to perfect security for the benefit of Mr Pinhorn;

iv) the present litigation was primarily for the benefit of Mr Pinhorn for whom Blake Lapthorn still acted, but the risks of the litigation were being taken by the Original Trustees;

v) the Original Trustees should seek advice from someone other than Blake Lapthorn and, moreover, Blake Lapthorn were under a duty to advise Mr Pinhorn to seek independent advice.

87. In his note Mr Griffiths advised that he was considering further whether or not there was a binding contract between the Original Trustees and Toby but that his preliminary view was that there was probably no such contract and that he was fairly certain that there was no such contract enforceable by the Original Trustees.
88. Mrs Williams was decidedly unimpressed with Mr Griffiths' advice. As to whether there was a binding obligation on Toby to transfer the shares to the Original Trustees, she thought that there was an obvious obligation on Toby, a view shared by Mr Fishwick. Further, neither Toby nor Eve had denied the existence of a binding contract in their defences.
89. As to the clog on the equity of redemption, again she disagreed with Mr Griffiths but, in any event, considered that if there was a problem, it lay with the option only.
90. As to the possibility of a conflict of interest between the Original Trustees and Blake Lapthorn, she took the view that this appeared to relate to the possibility that the Original Trustees might have claims against Blake Lapthorn arising from defects in the 1989 arrangements. She had difficulty accepting this in that she did not believe there were any such defects and, in any event, Blake Lapthorn did not act for the Original Trustees in relation to those arrangements.
91. Nevertheless, she took the view that notwithstanding her reservations about the advice given, it could not be ignored. She considered that it was necessary to carry out a more detailed investigation into the facts and evidence relating to the action and then to review the claims and defences in the light of that investigation. She explained this to the Original Trustees, who agreed. She also discussed the matter with Mr Higham who was the Head of Commercial Litigation at Blake Lapthorn at the time. She was concerned about the way in which Mr Griffiths had been instructed and, as she put it, as to his grasp of the facts and law. This shook her confidence both in Mr Griffiths and in Mr Britten, the solicitor at Blake Lapthorn dealing with the matter. She therefore decided that his supervising partner, Mr Murfitt, should take over the conduct of the case.
92. Mrs Williams also explained to Mr Fishwick and Mr Fenner that the views of Mr Griffiths could not be ignored and that they should follow his advice and obtain independent legal advice. She gave the same advice to Mr Pinhorn. As Mr Fishwick explained, the Original Trustees did not consider there was a conflict in the circumstances then pertaining and, in the light of the fact that Blake Lapthorn were proposing to review the file, they decided to await further advice following the review before incurring the expense and delay of instructing new solicitors.
93. At about this time Mr Fishwick attended a meeting with Mr Pinhorn, Mr Britten of Blake Lapthorn, Toby and Mr Archer of Pitmans, the solicitor Toby had instructed in connection with the litigation. They considered together the value of the various shares already held in the Bonham Settlement and concluded that if the shares had a value of £10 or more then the Bishop shares were not required to satisfy the obligations to Mr Pinhorn. But at that time there was no suggestion that a sale at that price could be achieved.

July 1999 conference with Tom Dumont

94. In 1999 Mr Murfitt took over the conduct of the case. In the light of the concerns expressed by Mrs Williams he decided it was appropriate to brief new counsel and chose to instruct Mr Tom Dumont. Mr Dumont was sent full instructions including Mr Griffiths' opinion and note. A conference was arranged for 26 July 1999. A note of that conference reveals that:

i) he questioned why the litigation was taking place and expressed the view that there was not much point in litigating unless it would improve Mr Pinhorn's rights. Mr Pinhorn had rights against the assets of the trust and in his view the assets should be sufficient to satisfy the obligations of the Original Trustees;

ii) he thought the defence of undue influence was "far fetched";

iii) he had concerns about whether the 1989 Option Agreement was void, but that did not provide a defence to the claim for the transfer of either the Inheritance or Bishop shares;

iv) Toby had agreed to put all the shares in the hands of the Original Trustees and those trustees had provided valid consideration in paying off Toby's debts.

95. In an e mail dated 12 August 1999, Mrs Williams explained to Mr Murfitt her understanding of the need to proceed with the litigation. She explained that the Original Trustees needed to gain title to all of the shares so that they could sell them as a block. The more shares they had the better the price. Unless they knew what price they were going to obtain it could be that the shares they had would not be sufficient to cover the security.
96. By a further e mail dated 24 August 1999, Mrs Williams offered an additional explanation that the question of whether they could recover the money from the assets that they had depended upon the price per share. At the moment there was no offer which was acceptable. She said:

"1. The question of whether we can recover the money from the assets that we have i.e. short of 32,226 shares depends on the price per share. At the moment we do not have an offer which is acceptable. I will be sending you across an estimate of the amount outstanding on the loans but basically in respect of the first tranche of shares it is £147,132.24 plus interest and in respect of the second set of arrangements the interest free loan of £130,000 and then the interest bearing loan of £355,445. Interest has been rolling on for so many years that the amount is now considerable.

2. Clearly, depending on the price we may need the additional shares to top up the amount required to repay the loan. If this is not sufficiently clear perhaps we can discuss further."

97. On 27 August 1999, further instructions were sent to Mr Dumont to consider the rationale for the litigation and to revisit the issues of whether or not the 1989 Option Agreement was enforceable. He duly advised in conference on 2 September 1999 and by written opinion dated 10 September 1999. In summary, Mr Dumont advised that success on the clog point was likely to depend upon whether the court viewed the transaction as an option or a mortgage. At least at first instance he considered that it was likely to be considered as a mortgage and hence void. However the effect of the option being a clog did not affect the validity of the charge. Further, he considered it to be sensible to apply for summary judgment against Mr Bonham in relation to the Inheritance shares. These shares ought to be transferred to the Original Trustees and charged as security for the loans, whatever the arguments about the option.

Pressure from Solent

98. In the meantime Lamport Bassitt, the solicitors acting for the receivers of Solent, were pushing for progress in relation to the recovery of the balance of the shares. An illustration of this pressure is provided by a letter dated 19 August 1999 in which they wrote:

"No substantial progress has been made in realising our client's security in respect of a loan of £147,132.34. We have, on numerous occasions, been encouraged to believe that a sale of the shares was imminent but this has come to nothing.

We are concerned as to the position on the Trustees' litigation with Toby Bonham and Eve Bonham-Cozens. You have delivered the share certificates and signed stock transfer forms in respect of only 157,165 of the shares. In the absence of any information with regard to the Trustees' litigation we cannot be satisfied that the Trustees are taking all possible steps to deliver up the share certificates and signed stock transfer forms in respect of the balance of the 32,266 shares."

99. They enclosed draft particulars of claim and indicated they had instructions to commence proceedings. Blake Lapthorn continued to do what they could to buy time, thereby permitting all of the shares to be sold together and achieving a maximum price. Nevertheless, on 27 October 1999 Solent issued proceedings which were served upon the Original Trustees.
100. On 6 December 1999, the application for summary judgment was served on Toby and listed for 18 February 2000. At about the same time the prospect of selling the shares for a substantial sum first materialised. In the event, the application for summary judgment was compromised on the basis that Toby would deposit the certificate for the Inheritance shares with his solicitors, Pitmans, and that the proceeds of the sale of all the disputed shares would be held in a joint deposit account pending further order or agreement.
101. It became clear at about this time that Toby was concerned to achieve a settlement, if possible. He wrote a letter to Mr Archer on 30 March 2000, which letter was subsequently provided, with his consent, to the Original Trustees and to Blake Lapthorn. In that letter Toby recorded that at one stage he had been advised that he had only a 5% chance of success in the action, but the chance had now increased to 30%, which he still thought was very low.
102. On 5 April 2000, Toby wrote to Mr Fishwick disclosing details of his arrangement with Eve. In particular he disclosed details of an agreement he had entered into with Eve under which he could buy back the Bishop shares. He said that the Bishop shares were only sold to Eve on terms that he could buy them back by repaying the purchase price. The fact of this agreement was, he said, repeated on a number of occasions, and in front of Mr Archer.
103. It was now perfectly clear that Toby wished to settle the proceedings and, on 20 April 2000, a meeting took place between Mr Pinhorn, Toby, Mr Fishwick and Mr Archer. At that meeting the parties reached an agreement in principle to settle the claim of the Original Trustees against Toby. Toby acknowledged his indebtedness to Mr Pinhorn and agreed that all his shares, including those in the name of the Original Trustees, the Inheritance shares and the Bishop shares be charged to secure payment of the monies owing to Mr Pinhorn. Toby agreed to request the transfer back to him of the Bishop shares from Eve. He also agreed that there should be no order for costs of the proceedings, save that the Original Trustees and their solicitors should be entitled to their costs, such costs to be paid from the Bonham Settlement and charged on the shares.

The Trustees settle with Toby

104. The discussions and negotiations concerning the precise terms of the settlement agreement continued for some time. Eventually, settlement was reached on 18 July 2000 when the Original Trustees, Toby and Mr Pinhorn entered into a further written agreement. In summary, Toby acknowledged his indebtedness to Mr Pinhorn in respect of all sums the subject of the 1989 arrangements; agreed that 146,660 shares were the subject of an option in favour of Mr Pinhorn; acknowledged that all his shares were charged to Mr Pinhorn; agreed that Pitmans should be entitled to their costs from the proceeds of sale of the shares and that the shares should be charged with the costs and expenses of the Original Trustees to the extent that the trust assets were insufficient to cover them. In addition, Toby agreed to deposit the Inheritance shares certificate with Blake Lapthorn and agreed to his use best endeavours to recover from Eve the Bishop shares. Finally, he withdrew all allegations of undue influence against Mr Fishwick and Blake Lapthorn. On 31 July 2000 an order of Master Bragge gave effect to these terms of settlement.

Tom Dumont's advice of July 2000

105. On 28 July 2000 Mr Murfitt had a telephone conference with Mr Dumont. During the course of that conversation Mr Dumont made, inter alia, the following points:

i) As a consequence of the agreement reached with Toby, it was difficult to see how the Original Trustees had any status as against Eve. This arose as a consequence of the concession that the Bishop shares no longer formed part of the Bonham Settlement. The purpose of this provision may have been to save Capital Gains tax, but it removed the standing of the Original Trustees in the proceedings.

ii) The interests of pursuing Eve really remained only with Toby. In the circumstances Toby should be added as a claimant and the pleadings amended so as to plead the agreement reached between Toby and Eve.

iii) If, as seemed likely, Toby would not take up the litigation in his own name then the Original Trustees needed to review the position. If Mr Archer were to file a statement then Eve would be bound to come to the negotiating table. What the Original Trustees needed to do was to bring the proceedings to an end if at all possible without having an order as to costs.

106. Mr Murfitt endorsed Mr Dumont's advice and stressed the importance of drawing up witness statements as soon as possible. For his part, Mr Fishwick had discussions with Mr Archer and Toby as to whether Toby was prepared or wished to proceed with the action to recover the Bishop shares from Eve.
107. Thereafter much time was spent producing and finalising the witness statements ready for exchange. Mr Murfitt returned to the office at the end of August 2000, after his annual holiday, to find that it had become apparent that a sale of all the shares at a good price was looking highly likely. Nevertheless, there was no certainty that the sale would complete and the prospect of this sale meant that the focus of the Original Trustees was directed more towards the sale and less on the litigation. He therefore impressed upon the trustees the importance of continuing to progress the litigation and ensure that the case was ready for trial. In his absence Pitmans had written on the 15 August 2000 stating that Toby would not join into the litigation because he could not afford the cost. Further, Eve's solicitors had written complaining that the witness statements served by the Original Trustees raised issues extending beyond the scope of the pleaded case, including as they did allegations regarding the buy back agreement.
108. Accordingly, on 7 September 2000 Mr Murfitt wrote to the Original Trustees and Mr Pinhorn reviewing the position and providing a report on the litigation. He pointed out the difficulty of proceeding with the litigation in the light of the settlement and outlined the steps that needed to be taken. He suggested that it would be appropriate to review the position within the first two weeks of October by which time the position of the sale should be clarified. He could leave it no later because thereafter he would have to start preparing the case for trial.
109. Shortly before 20 September 2000, Pitmans telephoned Mr Murfitt to tell him that Toby had had a change of heart and would be happy to be joined provided that Blake Lapthorn dealt with the matter and the Original Trustees paid his fees. Mr Murfitt duly advised the Original Trustees and recommended a further conference with Mr Dumont.

The 10 October 2000 conference with Tom Dumont

110. Mr Murfitt and Mr Fishwick attended a conference with Mr Dumont on 10 October 2000. Mr Dumont thought that Toby had a good case based on the buy back agreement but thought it was necessary first for Toby to give notice to Eve exercising his rights under the agreement. He advised that an application be made to join Toby into the action and amend the pleadings. Mr Dumont further advised that if the claimants turned up for trial on the basis of the present pleadings, it would be a "disaster". Mr Murfitt did not understand from this that the Original Trustees did not have and had never had a good cause of action. Rather, it was important, in the light of the settlement, that Toby should be joined as a claimant because otherwise it might be said that the Original Trustees had no standing to pursue Eve. Second, if Toby wished to take advantage of the buy back agreement then it was necessary that he be added as a party.

Progress to trial and the sale of the Bonhams auction house

111. As I have indicated, Toby had agreed to being joined into the action as a claimant and accordingly Blake Lapthorn wrote to the solicitors acting for Eve, referring to the buy back agreement and explaining that Toby wished to exercise his rights under that agreement. At about the same time they also wrote indicating that an application was being issued to join Toby as claimant and to amend the pleadings.
112. On 16 October 2000, the sale was finally completed to a company called Louwmans Brooks Limited. Before the sale took place Bonhams was restructured. It was split into two separate companies: Heri Limited (which took over the auctioneering business) and Hodie Limited (which took over the various properties of the company). Heri Limited was sold for over £8 million (at a price of over £16 per share). The Bonham Settlement retained its interest in Hodie Limited. Clearly the proceeds were more than sufficient to repay the loans owing to Mr Pinhorn, NatWest and Solent. Thereafter, as Mr Murfitt explained, the litigation was now being pursued for rather different reasons, namely that it was Toby's wish and because he would benefit from the Bishop shares if they could be recovered from Eve. The Original Trustees agreed to fund the litigation because they were prepared to help him as a beneficiary of the trust.
113. Mr Murfitt also explained that if Toby had not wished the action to be pursued then the trustees would have had to decide what to do with their claim against Eve. He believed that, in those circumstances, the trustees would have sought to extricate themselves from the action on the best possible terms as to costs. However, once Toby had decided to join as claimant this course would have made no sense. To do so would have crystallised a liability for Eve's costs. Tactically it was preferable to continue with both claims, particularly given that the continuation of the trustees' claim would not add significantly to the costs of the overall proceedings.
114. On 17 October 2000, Mr Murfitt wrote to Toby with a view to formalising Blake Lapthorn's instructions to act on his behalf. He also raised the issue of funding. In the event Mr Pinhorn agreed to make further funds available by way of a loan to enable the action to proceed.

Toby joined as claimant

115. On 1 November 2000, Lawrence Collins J gave permission for Toby to be joined as an additional claimant in the litigation and for appropriate amendments to the pleadings. On 7 November 2000, Eve's solicitors served a re-amended defence, responding to the case based upon the alleged buy back agreement. She also made other amendments in relation to the case of the Original Trustees. Eve did not, however, take the point that the Original Trustees no longer had any status to sue in respect of the Bishop shares following the settlement with Toby.
116. On 10 November 2000, shortly before the commencement of the trial, a further conference took place with Mr Dumont. Mr Fishwick, Toby and Mr Murfitt were present. Mr Dumont apparently confirmed that he thought that the cases of the Original Trustees and Toby were strong.

The trial

117. As I have mentioned, on 14 November 2000, the trial began before Mr Steinfield QC, sitting as a Deputy High Court Judge. It proceeded for four days. On 17 November 2000 it was adjourned to a further date to be fixed, likely to be in March 2001. It is clear that the hearing was not a success from the claimants' point of view. Mr Murfitt and Mr Fishwick formed the clear view that Toby and Mr Archer had failed to come up to proof. At the end of the hearing Mr Dumont's opinion was that the prospects of success were now zero. They collectively formed the view that the Deputy Judge was not convinced that Toby had entered into a buy back arrangement at all. Further it was felt that the Deputy Judge was unlikely to construe the relinquishment letter in favour of the claimants.
118. This advice was confirmed by Mr Dumont in a written opinion of 31 January 2001. In that opinion he advised that the Deputy Judge had, by his reaction to the submissions, made it clear that he did not consider the trustees' claim to have any validity. As to Toby's claim, Mr Dumont thought that this would fail for a variety of reasons, including that the Deputy Judge was likely to decide there was no agreement between Toby and Eve at all.
119. In the light of this advice Toby and the Original Trustees instructed Blake Lapthorn to discontinue the action, which they did on 7 March 2001. On 12 March 2001, the Deputy Judge ordered the claimants to pay the costs of the action.

The Claim against Mr Fishwick

120. The claimants' case as originally pleaded against Mr Fishwick was that by commencing and pursuing the Bonham-Cozens litigation, Mr Fishwick acted in breach of trust. At the commencement of the trial I gave the claimants leave to amend their pleading to set out an alternative formulation of the claim. The key elements of the re-formulated claim (which also encompasses the essential elements of the original claim) are as follows:

i) Where a trustee pursues litigation without the benefit of a Beddoe order he does so at his own risk as to costs (both his own and those of the successful opposing party): Re Beddoe [1893] 1 Ch 547.

ii) Where litigation is unsuccessful, a trustee is entitled to recover the costs from the trust fund only to the extent that such costs were properly incurred.

iii) The burden is on a trustee to show that the costs were properly incurred. If he cannot do so then the liability is his. In the present case Mr Fishwick cannot do so because the Bonham-Cozens litigation was pursued for the personal benefit of the Original Trustees and/or for the benefit of other persons who were not beneficiaries of the Bonham Settlement and, moreover, the Bonham-Cozens litigation had no real prospect of success by reason of the fact that there was no binding agreement whereby Toby was obliged to transfer the shares the subject of the litigation to the Original Trustees or any basis on which the transfer of the Bishop shares could properly be impugned.

iv) A trustee who meets his own personal liability by using trust funds is guilty of misappropriating trust assets and commits a breach of trust.

v) A breach consisting of misappropriation of assets is not within the scope of an exemption clause such as that contained within clause 17 of the 1989 Settlement Agreement as the complaint is not that there has been a "loss" to the trust; rather there has been a misappropriation of trust funds, the benefit of which the trustees have no right to retain. Thus Mr Fishwick was not required to compensate for a loss. Instead, the account ought to have been falsified, and he was required to account as if the unauthorised disbursement had never been made. Further, and even if there was a loss, the circumstances reveal an instance of "wilful and individual fraud or wrongdoing" which is specifically excluded from the protection of clause 17 because Mr Fishwick knew (or ought reasonably to have known) that the liability was his and not that of the trust.

121. It was common ground between the claimants and Mr Fishwick that the Original Trustees were entitled to recover their costs from the trust fund in so far as they fell within the statutory indemnity provided by s.30(2) of the Trustee Act 1925 (superseded with effect from 1 February 2001 by s.31(1) of the Trustee Act 2000). It was also common ground that in order for expenditure to be within the scope of the statutory indemnity it is necessary for a trustee to show that the expenditure in question was properly and reasonably incurred.
122. If a trustee commences proceedings without the consent of the beneficiaries or, absent such consent, a direction of the court, then he is clearly at risk for costs if the proceedings fail. As Lindley LJ explained in Re Beddoe at 557:

"a trustee who, without the sanction of the Court, commences an action or defends an action unsuccessfully, does so at his own risk as regards the costs, even if he acts on counsel's opinion; and when the trustee seeks to obtain such costs out of his trust estate, he ought not to be allowed to charge them against his cestui que trust unless under very exceptional circumstances. If, indeed, the Judge comes to the conclusion that he would have authorized the action or defence had he been applied to, he might in the exercise of his discretion, allow the costs incurred by the trustees out of the estate; but I cannot imagine any other circumstances under which the costs of an unauthorized and unsuccessful action brought or defended by a trustee could properly be thrown on the estate."

123. I do not understand there to be any inconsistency between the principles explained by the Court of Appeal in Re Beddoe and the test to be applied under s.30 of Trustee Act 1925 or s.31(1) of the Trustee Act 2000. At the end of the day the trustee must show that the expenditure in question was properly and reasonably incurred. Where he has pursued or defended an action unsuccessfully it is likely to be only in exceptional circumstances that he will be able to establish that he falls within the scope of the statutory indemnity.
124. I should add that the beneficiaries are necessary parties to any Beddoe application and that the purpose of the application is to inform the court about the strengths and weaknesses of the case, the views of the trustees and the beneficiaries about the prospects of success and the course it is proposed to take in the action.

Three claims

125. In assessing the merits of the claims made in these proceedings against Mr Fishwick and Blake Lapthorn it is important to keep in mind that the Bonham- Cozens litigation comprised three claims, each of which must be considered:

i) Toby's claim against Eve to recover the Bishop shares under his buy back agreement with Eve;

ii) the claim of the Original Trustees against Toby to recover the Inheritance shares;

iii) the claim of the Original Trustees against Eve to recover the Bishop shares.

126. In relation to each of these claims it must be considered first, whether the claim succeeded or failed and second, if it failed, whether it was a claim which had no reasonable prospects of success or was brought for an improper purpose.

Toby's claim against Eve

127. The claimants do not now seek to recover such costs as are properly attributable to Toby's claim against Eve from the date of his joinder. In my judgment this concession was rightly made. The claim was not a trust claim but was brought by Toby for his own benefit and funded by the trustees as an advance of trust monies to him as a beneficiary of the trust.
128. I consider that the defendants also fairly emphasise that the costs of Toby's claim against Eve comprised a significant portion of the costs of the Bonham- Cozens litigation. After the settlement of the claim against Toby a good deal of expenditure arose in relation to the claim against Eve. It required an application to join Toby as claimant and to amend the particulars of claim, together with substantial disclosure and witness evidence. Further, a significant portion of the trial was devoted to the claim. By contrast, the claim of the Original Trustees against Eve essentially turned on the proper construction of the relinquishment letter.

The claim of the Original Trustees against Toby

Was the claim successful?

129. The claimants contend that the claim against Toby was plainly unsuccessful. They point to the relief sought in the prayer to the statement of claim which included specific performance of the alleged agreement to transfer the Inheritance shares to the Original Trustees and an injunction preventing Toby from disposing or otherwise dealing with those shares. Under the terms of the compromise Toby was entitled to retain the Inheritance shares and the Bishop shares, if they were recovered from Eve. The Original Trustees therefore obtained none of the relief sought in the claim.
130. In my judgment these submissions do not do justice to the substance of the terms of the settlement. Before turning to the details of the settlement itself it is important to have certain aspects of the background in mind.
131. First, it must be recalled that by 1995 none of the shares the subject of the 1988 and 1989 arrangements had been registered in the names of the Original Trustees. Their principal concern at that time was to secure registration of themselves as owners of the Barclays and Cousins shares – comprising as they did the large majority of the 189,431 shares which it was envisaged would be transferred into the Bonham Settlement. In this regard they faced not only the difficulty that Bonhams had been objecting to the registration but, in addition, a suggestion by Toby himself that he was under no obligation to transfer any of his shares. These combined difficulties led the Original Trustees to seek advice from Ms Furze in December 1995. She advised that Toby was under an obligation to transfer the Barclays and Cousins shares to the trustees. This led to further correspondence. Nevertheless Bonhams still declined to register the shares. Accordingly, in early 1997, the Original Trustees commenced proceedings against Bonhams and Toby. One of the issues raised in the proceedings was whether or not Toby was under an obligation to transfer the shares. As I have indicated, Bonhams surrendered to the claim and consented to an order for registration. It is notable that neither Bonhams nor Toby maintained the objection that Toby was under no obligation to transfer the shares.
132. In the course of the spring and summer of 1997 the Bishop action progressed in the manner which I have summarised earlier in this judgment. The Original Trustees were, at least for a time, hopeful that Toby would now cooperate in relation to the Inheritance shares and the Bishop shares. However, when it became apparent that Toby had compromised the Bishop action and, further, entered into the agreement with Eve pursuant to which he transferred the Bishop shares to her, it became clear to the Original Trustees that Toby was not going to cooperate and that they would have to take further legal action if they were to recover these outstanding two blocks of shares.
133. The Original Trustees faced a further problem. As I have mentioned, NatWest had appointed receivers of Solent and, moreover, Mr Pinhorn had, in 1994, assigned to NatWest the benefit of his rights under the 1989 agreements. Despite registration of the Original Trustees as owners of the Barclays shares and the Cousins shares, NatWest remained concerned that the Original Trustees should perfect their title to the Bishop shares and the Inheritance shares. As Mrs Williams explained in evidence, and I accept, NatWest wanted the Original Trustees to take action against Toby and Eve. Indeed, I am quite satisfied that it was only by bringing and pursuing the Bonham-Cozens litigation that the Original Trustees managed to stave off the enforcement by NatWest and the Solent receivers of their security over the shares. Against this background the Original Trustees issued proceedings in the Bonham-Cozens litigation in early 1998. In May 1998, Toby served his defence raising the various points to which I have referred to in paragraph [81] above. Thereafter the Original Trustees investigated the defences and took advice in the manner I have summarised, but otherwise took no active steps to progress the litigation until the summer of 1999 when they were faced with the mounting pressure from NatWest and the Solent receivers which I have described in paragraphs [98] and [99] above. This led to the summary judgment application and the approach by Toby to Mr Fishwick and Mr Pinhorn to try and settle the claim. I am wholly satisfied that Toby was firmly of the view that his prospects of successfully defending the claim were very bleak indeed, and that he had been so advised.
134. So I come to the terms of the settlement. Despite the terms of his defence Toby acknowledged and agreed:

i) his indebtedness to Mr Pinhorn in respect of all sums the subject of the 1989 arrangements;

ii) that 146,660 shares were the subject of an option in favour of Mr Pinhorn;

iii) the entire shareholding was charged to Mr Pinhorn; and

iv) the allegations of undue influence were withdrawn.

In short, the trust and the associated arrangements remained in place, the validity of the option was confirmed and the Inheritance shares were brought within Mr Pinhorn's security.

135. As to costs, Toby expressly confirmed that the trustees should be entitled to their costs out of the trust fund. His own solicitors were allowed to take up to £25,000 from the proceeds of the shares before payment of sums due to Mr Pinhorn. Since Toby was unquestionably the principal beneficiary with a power of appointment in his favour, he was effectively agreeing that he should bear both his own costs and those of the Original Trustees.
136. It is of course true that the Original Trustees agreed that Toby could keep the Inheritance shares outside the Bonham Settlement. But it is clear that they did so to give Toby the opportunity to argue that no Capital Gains tax should be payable on any gain arising on any sale of the shares because they always belonged to him and he was a non resident. Further, it looked increasingly likely that a sale of the company at a good price would be achieved. The interests of the Original Trustees were protected because Mr Pinhorn retained an option over 146,660 shares the subject of the 1989 arrangements (the 1988 option having expired) and because the shares released to Toby would be charged as security to meet all sums owing to Mr Pinhorn and would consequently bear the burden of such sums rateably with the other shares held by the Original Trustees.
137. In summary, I conclude that the claim against Toby in respect of the Inheritance shares did, in substance, succeed. Nevertheless, on the assumption that it may be considered to have failed because the Inheritance shares were not transferred to the Original Trustees, I will go on to consider whether or not it had no reasonable prospects of success or was brought for an improper purpose.

No reasonable prospects of success

138. The claimants contend that there were significant doubts as to the enforceability of the alleged agreement between Toby and the Original Trustees. In support of this contention they rely upon the fact that Mr Griffiths considered there was little evidence of any binding agreement and that his concerns were strengthened when he saw the reverse of the stock transfer forms which stated that the transfers of the shares to the trustees were for no consideration. Despite the concerns expressed by Mr Griffiths, I have no doubt that the claim did stand a reasonable prospect of success and that the Original Trustees always so understood. In my judgment the Original Trustees had a strongly arguable case that there was a binding contract requiring Toby to transfer the shares to the Original Trustees and that consideration was provided for this contract by Mr Pinhorn making the loans and the Original Trustees agreeing to take and provide security for the loans. Ms Furze considered this issue in relation to the original proceedings against Toby and Bonhams in relation to the Barclays shares and the Cousins shares and, despite Mr Griffiths' concerns, and following further investigation, Mr Dumont gave the same advice. Moreover, the point was never taken by Toby in his defence to the Bonham-Cozens litigation. In all these circumstances it would, I think, have been very curious to abandon or discontinue proceedings on the basis of a point which had not been taken. I conclude that the Original Trustees acted reasonably in taking the view that Toby was under an obligation to transfer the Inheritance shares to the Original Trustees.

Improper purpose

139. In my judgment it is once again important to consider the purpose of the litigation against the background which I have outlined in this judgment. In particular, it must be recalled that the 1989 arrangements provided a substantial benefit to Toby in that they enabled Toby to clear his debts and provided a means for realising the value of his shares in Montpelier by selling them to a third party. They also provided a means for both Toby and Mr Pinhorn to share in the potential profits derived from any such sale. As I have explained, the 1989 arrangements were designed to facilitate the sale of the shares and the purpose of the trust was to protect the shares from Toby's creditors and to give Mr Pinhorn a means of dealing with independent professional men. The trustees understood that they should concentrate on finding a buyer for the shares. However the Original Trustees were faced with a far from easy task in that the block of 189,431 shares represented a minority shareholding in a company which was not prospering. In consequence the trustees spent some 10 years trying to find a buyer.
140. In 1995 the trustees faced two additional sets of difficulties. First of all Toby disputed that he was under any obligation to transfer any of his shares to the trustees and secondly, Solent's receivers were pressing for payment for the amount due under the 1988 arrangements. By 1997 the difficulties in relation to the Barclays and Cousins shares had been resolved and the trustees turned their attention to the Inheritance and Bishop shares. The trustees recognised that they still had 32,266 fewer shares than Toby had agreed to transfer into the Bonham Settlement. Faced with the continuing refusal by Toby to honour his obligations the Original Trustees decided to commence litigation for all the reasons which I have set out in paragraph [76] of this judgment. I have reached the conclusion that it was proper and reasonable for the trustees to begin and pursue proceedings for all of the following reasons.
141. First, the Original Trustees had a good arguable case that Toby was obliged to transfer the Inheritance shares into the Bonham Settlement.
142. Second, there was considerable doubt about the value of the shares. Despite attempts to sell the shares over very many years the Original Trustees had not found a serious buyer. It was anticipated that the shares might have a substantial value if a buyer could be found. Indeed, a value of £20 per share was pleaded in the statement of claim in the Bonham-Cozens litigation and Mr Clarke suggested in 1997 that the shares were worth some £15 each. Nevertheless, I accept the evidence given by Mrs Williams that the shares were in fact only worth what someone was prepared to pay for them, and the trustees faced the difficulty that, at that stage, they had no buyer at all.
143. Third, there was a very substantial risk that the Solent receivers and NatWest would call in their loans. As Mrs Williams explained, and I accept, if the trustees had not commenced and continued the claim then the strong likelihood was that NatWest and Solent's receivers would have enforced their security over the shares. If they had done so, forced a sale and thereby triggered the pre-emption provisions without the benefit of an external bidder to provide an alternative valuation, the shares would likely all have been sold to other members of the company at fire sale prices. This would not have been in the interests of the beneficiaries.
144. Fourth, in light of the foregoing there was a very real risk that the Bonham Settlement did not hold sufficient assets to meet the liabilities of the Original Trustees to Mr Pinhorn and NatWest. As Mrs Williams again explained, the trustees simply could not be sure that the value of the shares already in the trust would be sufficient to meet their obligations. Further, the absence of the shares exposed the trustees to a potential claim by NatWest and/or Mr Pinhorn who had entered into the 1989 arrangements on the basis that both the Inheritance shares and the Bishop shares were to be the subject of a charge and option, as Toby well knew and understood.
145. Fifth, the value of the shares was a loss to the Bonham Settlement and if the trustees simply allowed Toby and Eve to retain the Bishop shares and the Inheritance shares then they fairly anticipated that they might well be criticised by the other beneficiaries.
146. Sixth, the addition of the Inheritance shares and the Bishop shares to those already held by the Original Trustees could only enhance the value of the whole. The trustees had been trying to sell the complete package for many years and it would not have been easy to backtrack. Further, a larger stake would be more attractive to a purchaser and hence likely command a higher price and would also help to protect against the risk of dilution of the trust's shareholding.

Clause 18 of the 1989 Option Agreement

147. Blake Lapthorn advance a further reason as to why it was proper to commence the litigation. They contend that the Original Trustees were required by Mr Pinhorn to commence and pursue the claim pursuant to clause 18 of the 1989 Option Agreement. They submit that the Original Trustees therefore had no choice in the matter and it provides a complete answer to the complaints. They further submit that there is no suggestion that the trustees acted unreasonably or improperly when entering into clause 18 and that in these circumstances they were entitled to recover from the trust fund all costs and expenses incurred by them in performing their obligations pursuant to that clause.
148. I am unable to accept these submissions for the following reasons. First, the Original Trustees themselves and, in particular, Mr Fishwick, advanced no positive case that they were required to pursue the litigation by Mr Pinhorn. Mr Fishwick gave no evidence to that effect himself.
149. Second, I did not find the evidence of Mrs Williams on this point entirely consistent. At one point she suggested that Mr Pinhorn did require the Original Trustees to commence the litigation by exercising his right under clause 18. At another point, however, she indicated that the Original Trustees had decided to commence litigation but, even had they not, they would have been so required by Mr Pinhorn and NatWest. Overall, I am satisfied that Mr Pinhorn approved the commencement of proceedings and that the Original Trustees and Blake Lapthorn were extremely conscious of and indeed motivated by the concern of Mr Pinhorn and NatWest that all the shares should be gathered in. But I am not persuaded that Mr Pinhorn actually required the commencement of proceedings.
150. Third, pursuant to clause 18, the Original Trustees were entitled to refuse to commence proceedings unless they received an indemnity against their personal liability for costs and expenses. I accept the submission advanced on behalf of the claimants that there is no persuasive evidence of that indemnity having been provided at the time.
151. Fourth, on 13 June 1994, Mr Pinhorn, the Original Trustees and NatWest agreed the deed of assignment of the 1989 Loan and Charge Agreement and the 1989 Option Agreement. Mr Pinhorn thereby assigned and transferred to NatWest all of his legal and beneficial right, title and interest in the 1989 Option Agreement.
152. Pursuant to clause 4.8 of the assignment Mr Pinhorn agreed not to exercise any rights or powers conferred on him by the 1989 Option Agreement unless and until requested to do so by NatWest.
153. There was some dispute between the parties as to whether or not the assignment amounted to a legal assignment of all of Mr Pinhorn's interests. This is not, however, a matter which I need to resolve because if Mr Pinhorn retained any right or power he could only exercise it when requested so to do by NatWest. Mrs Williams certainly gave clear evidence to the effect that NatWest were at all times well aware of and approved of the action being taken by the Original Trustees against Toby and Eve. But I am not satisfied that they required or requested Mr Pinhorn or the Original Trustees to take that action.
154. In all the circumstances I do not accept the submission that the alleged exercise of clause 18 constituted a reason why it was proper and reasonable for the Original Trustees to commence and pursue the Bonham-Cozens litigation.

The supposed real reason for starting the proceedings

155. The claimants submitted that the real reason for the commencement of the proceedings was a wish by the Original Trustees to protect Mr Pinhorn's interests by perfecting his security. I reject this submission. I am quite satisfied on the evidence that the Original Trustees commenced and pursued the litigation for the reasons I have already set out in this judgment. I fully accept that Mr Pinhorn and NatWest approved of the commencement and pursuit of the proceedings because they were concerned that the trustees' existing holding of shares might prove to have insufficient value to pay off the loans. This was a matter of which the Original Trustees were well aware. However they considered, in my judgment rightly, that in this regard there was an identity of interest as between the Bonham Settlement on the one hand and Mr Pinhorn and NatWest on the other. As Mr Fishwick put it, the more shares the trust had, the better the price that could be achieved and equally, the more shares the trust had, the greater Mr Pinhorn's security. I am satisfied in the light of the evidence given by Mr Fishwick and Mrs Williams that the decision to commence and pursue the litigation was taken in the interests of the Bonham Settlement.

The claim of the Original Trustees against Eve

Was the claim successful?

156. There can be no doubt that this claim was not successful. At trial the Deputy Judge was not favourably disposed to the interpretation of the relinquishment letter urged upon him by the Original Trustees and the claim was ultimately discontinued with the inevitable consequential order as to costs.

No reasonable prospects of success

157. The claimants submit that there were never any sufficient prospects of success to justify the issue and continuance of proceedings against Eve. The correctness of the argument that she had relinquished her interest in the Bishop shares was doubted by the Deputy Judge when he heard the action and the reservations expressed by the Deputy Judge were sufficiently strong to cause Mr Dumont to re-assess the merits and advise that the claim had no prospect of success. Moreover, the difficulties in respect to the claim against Eve were compounded by the fact that the compromise with Toby deprived the trustees of title to sue her in the absence of Toby.
158. I must therefore consider first, whether or not the Original Trustees ever had any reasonable prospect of success in establishing that the relinquishment letter operated as a relinquishment in favour of Toby of any interest acquired by Eve in the Bishop shares.
159. I have no doubt that the Original Trustees and, in particular, Mr Fishwick, believed from the outset that Eve had relinquished to Toby any interest in the Bishop shares that she might have. Mr Fishwick held that view, at least in part, as a result of advice given by Mr Chapman of counsel who had acted for Toby in the Bishop action. On 9 February 1997, Mr Chapman advised that there was a strong argument that the letter did constitute a relinquishment of any interest that Eve might have (assuming she had given written authorisation for it to be written). Mr Fishwick explained his understanding to Mrs Williams. Thus, at the commencement of the Bishop-Cozens litigation both the Original Trustees and Blake Lapthorn understood the claim against Eve had reasonable prospects of success. Moreover, Ms Furze was given instructions in the circumstances that I have set out earlier in this judgment. Although she was asked to advise what steps should be taken to effect the transfer of the outstanding shares into the Bonham Settlement she did not apparently express any concern at the nature of the claim against Eve.
160. Eve served her defence in May 1998. It raised a number of defences, including the fact that she became the beneficial owner of the Bishop shares in August 1987. The relinquishment letter was relied upon in the reply served on behalf of the Original Trustees.
161. In October 1998 the matter was put before Mr Griffiths but he too was not concerned by Eve's assertion that she had purchased the Bishop shares. Similarly, Mr Dumont advised in the course of the conference in July 1999 that, in his view, the relinquishment letter did indeed operate to relinquish to Toby any interest Eve might have and that the claim should succeed.
162. In the light of all these matters I have reached the conclusion that the Original Trustees justifiably believed that the claim against Eve had reasonable prospects of success.
163. The settlement with Toby took place in July 2000 and it clearly had an important impact on the claim against Eve in that the Original Trustees agreed that Toby could keep the Bishop shares if they could be recovered from Eve. This led to the advice of Mr Dumont of 28 July 2000 that, as a consequence of the agreement, it was difficult to see how the Original Trustees had any status to proceed against Eve. Further, the interest in pursuing Eve really remained only with Toby. It is clear this was a highly material change in circumstances. However, it is important to have in mind that over the course of the summer and early autumn Toby was invited to join into the action as a claimant in the light of his assertion of the existence of the buy back agreement with Eve and, moreover, negotiations were progressing with the prospective purchaser, Louwmans Brooks. In August 2000 that purchaser entered into a memorandum of understanding that it would acquire the shares in the event that a tax clearance was obtained. The clearance was in fact obtained in September 2000 and the sale was completed on 16 October. From this point all liability to Mr Pinhorn was satisfied. In the meantime, Toby had confirmed that he wished to be joined in the action as a claimant and further, that he wished both claims to proceed.
164. On 10 October 2000, Mr Dumont advised that the trustees' case against Eve was a "disaster". That advice again reflected the fact that the claim against Toby had been settled, that Toby was not a party and the claim had not been amended to introduce the allegation based upon the buy back agreement. Further, I accept the evidence of Mr Murfitt that had Toby decided that he did not wish to be joined then the trustees would likely have sought to settle the action on the best possible terms. But once Toby had decided to be joined and indicated his wish for the action to proceed he considered it was preferable to continue with both claims. As I have indicated, following the addition of Toby as a claimant and amendment of the pleadings, Mr Dumont advised that the case was a strong one. Further, it is notable that Eve never took the point that the Original Trustees lost any status to sue by settling the claim against Toby.
165. In all these circumstances I do not believe that the Original Trustees can be criticised for prosecuting a claim with no reasonable prospects of success. Until the settlement with Toby the advice was all one way: the relinquishment letter was effective and the Original Trustees had a good claim. Once the case against Toby had settled then clearly circumstances changed. I am satisfied, however, that it was reasonable to preserve the position over the summer until Toby made up his mind whether he wished to become a party to the action and for the claim to proceed. Ultimately he decided to take that course and I do not think the trustees can be criticised for allowing him to do so.

Improper purpose

166. I can deal with this aspect quite shortly. Until the settlement with Toby the claim against Eve was pursued for the same reasons as the claim against Toby. In my judgment both claims were pursued for the same proper purposes.
167. After the settlement the Original Trustees were conscious that it had been agreed that the shares, if recovered, would be kept outside the trust. Further, it now looked increasingly likely that a sale would be achieved at a price which would enable all obligations to Mr Pinhorn to be discharged. The claim was therefore maintained until it became clear whether the sale of the company would proceed and whether Toby wished to be joined.
168. Once Toby had decided to be joined and the sale of the company completed the claim in respect of the Bishop shares was pursued solely for the benefit of Toby. The obligations to Mr Pinhorn had been discharged and if the claim proved to be successful the shares would have been delivered to Toby.
169. In all these circumstances I conclude that the claim in respect of the Bishop shares was at all times pursued for a reasonable and proper purpose.
170. Finally, and for like reasons to those given in relation to the claim against Toby, I reject the submission that the reason for initiating the claim was to protect Mr Pinhorn. Further, the defendants derive no assistance from clause 18 of the 1989 Option Agreement for the reasons I have already set out.

The application of the exemption clause

171. I have decided that the costs of the Bonham-Cozens litigation were properly and reasonably incurred and consequently the question of whether Mr Fishwick is entitled to rely upon clause 17 of the 1989 Settlement Agreement does not strictly arise. Nevertheless, I heard substantial argument on the point and accordingly I think it is right that I should set out my conclusions. It arises in the light of the claimants' re-formulated claim.
172. I should add that Mr Fenner remains a party to the proceedings in that there are unresolved Part 20 proceedings between him and Blake Lapthorn. Further, Mr Fishwick has indicated that if the claimants' re-formulated claim succeeds against him then he will issue a claim for a contribution against Mr Fenner. In those circumstances I considered it right to give Mr Fenner an opportunity to make submissions and for the claimants to respond to them. In the event Mr Fenner made submissions in writing on 16 August 2006 and the claimants responded in writing on 30 August 2006. I have taken all these submissions into consideration in arriving at my conclusion.
173. The specific question which arises is as follows. If the Original Trustees had no right to be indemnified in respect of the costs of the Bonham-Cozens litigation such that there was a breach of trust involving an unauthorised application of trust funds, does it follow there was no "loss" to the trust and therefore that the exemption contained in clause 17 of the 1989 Settlement Agreement is not engaged?
174. The claimants concisely summarised their argument as follows. Mr Fishwick's breach of trust was to pay trust monies in discharge of a personal liability. Such a breach constituted an unauthorised application of trust monies. It was not within his power to apply trust funds on the discharge of his personal liability. As a result of such breach, the trust account is liable to be falsified and the funds paid away treated as never having been paid out. Mr Fishwick must account on the basis that the funds in question were retained throughout. Therefore there has been no loss to the Bonham Settlement. Consequently, clause 17 cannot be engaged. This position is to be contrasted with the situation where by reason of an authorised but negligent application of a trust fund (such as an investment) a trustee does not obtain the return that he ought to have obtained. In such circumstances the account would be surcharged to require the trustee to account for the loss sustained by the trust through the negligent application of trust funds. In such a case, an exemption clause such as clause 17 would be capable of applying.
175. The claimants submit the difference is that in the one case the application of the trust fund is authorised whereas in the other it is not.
176. It is now clearly established as a matter of English law that a trustee exemption clause can validly exempt trustees from liability for all breaches of trust except fraud: see e.g. Armitage v Nurse [1998] Ch 241.
177. The crucial matter I have to decide is the scope of clause 17 on its proper construction. In particular, I have to decide whether the actions of the Original Trustees of which complaint is made have been excluded by the terms of the clause. In doing so I must construe the clause restrictively and anything which is not clearly within it should be treated as falling outside it. A liability can be excluded only by clear and unambiguous words. Nevertheless, trustees accept office on the terms of a document for which they are not responsible, and are entitled to have the document fairly construed according to the natural meaning of the words used: Bogg v Raper (1988/1989) 1 ITELR 267.
178. I have reached the clear conclusion that the alleged breach of trust in this case, involving as it does an allegation of unauthorised application of trust funds, does engage the exemption clause. I reach that conclusion for the following reasons.
179. First, it seems to me as a matter of clear and ordinary language that if the allegations of the claimants have substance then Mr Fishwick has acted in breach of trust by applying trust monies in an unauthorised fashion. His activities have given rise to a deficiency within the trust. That deficiency means that funds need to be restored. To my mind the trust has in these circumstances clearly sustained a loss.
180. Second, the process whereby the trust accounts are falsified is the means by which that loss is made good. The trust is restored by disallowing the payment away of the funds in issue. I accept the submission advanced on behalf of Mr Fenner that just because the account cannot be drawn so as to reflect the loss caused by the trustee's default it does not follow that the trust has not sustained a loss. The drawing of the account is the formal process by means of which the extent of the liability to reconstitute the trust is identified. It enables the parties to compare the accounts as drawn with the actual state of the trust. Following the drawing of the account, there remains an obligation to restore the deficiency, and I believe that deficiency is a loss.
181. Third, the claimants concede that if Toby was dissatisfied with the way in which the Original Trustees had carried out their obligations under the trust through, for example, negligently performing their authorised activities, then he would have been entitled to surcharge the account. They further accept that such a failure would have engaged the exemption clause. In such a case the trustees would have been required to present the account on an amended surcharged basis. I see no relevant distinction between the case where the account is presented on a surcharged basis and the case where the account is presented on a falsified basis. In both instances the fund has suffered a loss which the trustees are required to restore.
182. Fourth, a consideration of the reasonable expectations of Toby as the original settlor and the Original Trustees drives me to the same conclusion. The interpretation of the clause for which the claimants contend would mean the Original Trustees were exposed to liability for breach of trust for any unauthorised expenditure, however innocent the breach may have been. This interpretation gives rise to the illogical result that the trustees would not be protected in respect of a course of conduct which they negligently failed to appreciate was unauthorised but would be protected where the conduct was authorised but negligently undertaken. I see no justification for any such distinction.
183. Finally, I am reinforced in the conclusion I have reached by the approach adopted by the Court of Appeal in Armitage v Nurse. Clause 15 of the settlement was in the following terms:

"No trustee shall be liable for any loss or damage which may happen to Paula's fund or any part thereof or the income thereof at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud... "

184. Millett LJ, with whom the other members of the court agreed, concluded that clause 15 exempted the trustee from liability for loss or damage to the trust property no matter how indolent, imprudent, lacking in diligence, negligent or wilful he might have been, so long as he had not acted dishonestly. He also observed that breaches of trust are of many different kinds and include, for example, trustees consciously acting beyond their powers (as, for example, by making an investment which they know to be unauthorised) and that in such cases the trustees may deliberately commit a breach of trust; but if they do so in good faith and in the honest belief that they are acting in the interest of the beneficiaries their conduct is not fraudulent. In my judgment the clear implication from Millet LJ's judgment is that clause 15 would have been engaged by an unauthorised act which was not fraudulent.

Was there wilful wrongdoing?

185. I have found that clause 17 of the 1989 Settlement Agreement is capable of excluding liability for a breach of the type complained of in this case. It must then be considered:

i) whether in bringing and pursuing the Bonham-Cozens litigation or in paying monies from the settlement Mr Fishwick was acting in breach of trust; if so

ii) whether Mr Fishwick was conscious that he was acting in breach of trust or reckless as to whether he was or not.

186. For the reasons I have given I have reached the conclusion that Mr Fishwick did not act in breach of trust in bringing and pursuing the Bonham-Cozens litigation. Nor did he act in breach of trust in paying monies from the settlement in satisfaction of the costs.
187. As to wilful wrongdoing, the claimants advance two specific submissions which I must address. The first is that Mr Fishwick was advised specifically that he was not allowed to spend trust monies on the litigation without a Beddoe order. The second is that Mr Fishwick considered whether to make a Beddoe application but did not consider it necessary due to the fact that he believed that he had an indemnity from Mr Pinhorn.
188. I am satisfied on the evidence that Mr Fishwick was aware of the possibility of making an application for a Beddoe order and that he knew that unless such an order was made in his favour he would be at risk in relation to the costs arising from the Bonham-Cozens litigation. I am also satisfied on the evidence that he did not consider it was necessary to make an application for a Beddoe order because he thought he had an indemnity from Mr Pinhorn.
189. In my judgment these matters do not, however, begin to make out a case that Mr Fishwick believed that he was acting in breach of trust or was reckless for all of the following reasons.
190. First, it is apparent from the findings that I have already made that I am quite satisfied that Mr Fishwick believed throughout that his actions were taken for the benefit of the Bonham Settlement, that the claims had a reasonable prospect of success and that they were brought for a proper purpose.
191. Second, the fact that a trustee makes a deliberate decision not to apply for a Beddoe order does not, in my judgment, constitute evidence of wilful wrongdoing. Failure to apply for a Beddoe order does not constitute a breach of trust at all. The application is made for the benefit of the trustee. Further, a trustee does not need a Beddoe order so long as he can show that the relevant costs were properly incurred.
192. Third, the fact that Mr Fishwick may have believed that he had no need to make a Beddoe application because of the existence of some form of indemnity from Mr Pinhorn does not, once again, constitute evidence of wrongdoing, let alone wilful wrongdoing. It is to be noted that the indemnity which Mr Fishwick believed that he had from Mr Pinhorn was derived from clause 18 of the 1989 Option Agreement. Under the terms of that clause Mr Pinhorn could only ever have been obliged to provide the trustees an indemnity in respect of any personal liability to which they may have been exposed as a result of pursuing the Bonham-Cozens litigation. There was never any basis for suggesting that Mr Pinhorn was obliged to provide an indemnity to the Bonham Settlement against the costs of the litigation. Accordingly, Mr Fishwick cannot, in my judgment, be criticised for failing to attempt to avail himself of the benefit of such an indemnity and instead paying the costs from the funds of the Bonham Settlement.

The claim against Blake Lapthorn

193. The claimants' claim against Blake Lapthorn is put in three ways:

i) If, contrary to the claimants' primary claim against Mr Fishwick, it is found that Mr Fishwick acted properly and reasonably and the claimants are unsuccessful as against Mr Fishwick, the claimants submit that any reasonable belief of Mr Fishwick that he was acting properly was due to negligent advice from Blake Lapthorn;

ii) breach of Blake Lapthorn's fiduciary duty towards the Original Trustees as trustees of the Bonham Settlement;

iii) a free standing claim against Blake Lapthorn in negligence in that Blake Lapthorn negligently failed to advise properly in relation to the Bonham-Cozens litigation and, in particular, not to pursue the litigation.

Scope of retainer and expertise of Mr Fishwick and Blake Lapthorn and the duties of Blake Lapthorn

194. It is accepted that Blake Lapthorn were instructed by the Original Trustees to act for them in the Bonham-Cozens litigation and that Blake Lapthorn owed to the Original Trustees a contractual duty to exercise reasonable skill and care, and a like duty in tort.
195. Further, I accept that Blake Lapthorn acted for the Original Trustees from the creation of the Bonham Settlement. Mrs Williams was the responsible partner in the firm. Mr Fishwick was also a partner in the firm until April 1997.
196. Mr Fishwick's expertise in trust matters was very limited and he took on the responsibility of becoming a trustee on the basis that he could turn to Blake Lapthorn for advice in relation to all matters concerning the trust. I am satisfied that the scope of Mrs Williams' retainer by the Original Trustees was broad and that Mr Fishwick turned to Mrs Williams for advice about his powers and duties, and that he relied upon that advice.
197. I am also satisfied in all the circumstances that Blake Lapthorn's duties extended to the proffering of appropriate advice to Mr Fishwick about his powers and duties, even if not specifically requested.

The alleged breaches by Blake Lapthorn of their contractual and tortious duty of care

198. It is right to compare the acts and omissions of Blake Lapthorn with what a reasonably competent solicitor advising on trust matters would have done.
199. In summary, the claimants rely upon the following alleged breaches:

i) Blake Lapthorn's failure to advise the Original Trustees that the Bonham-Cozens litigation had no real prospect of success;

ii) Blake Lapthorn's failure to act on counsel's advice, or to advise the Original Trustees in accordance with counsel's advice;

iii) Blake Lapthorn's failure to properly review the merits of the Bonham-Cozens litigation;

iv) Blake Lapthorn's failure to advise the Original Trustees to apply for a Beddoe order;

v) Blake Lapthorn's acting for the Original Trustees in the Bonham-Cozens litigation despite conflicts of interest.

Failure to advise the Original Trustees that the Bonham-Cozens litigation had no real prospect of success

200. I have dealt with this allegation at length earlier in this judgment. For the reasons that I have given I am satisfied that the Bonham-Cozens litigation did have real prospects of success. Further, and for the reasons I have given, I believe that the claim against Toby in respect of the Inheritance shares did, in substance, succeed.

Blake Lapthorn's failure to act on counsel's advice, or to advise the Original Trustees in accordance with counsel's advice; and Blake Lapthorn's failure properly to review the merits of the Bonham-Cozens litigation

201. The claimants attack Blake Lapthorn for failing to act on counsel's advice, for failing to advise the Original Trustees in accordance with counsel's advice and for failing to review the merits, in particular in the light of counsel's advice. I have set out earlier in this judgment my conclusions in considering the claim against Mr Fishwick. I do not repeat those conclusions here but would simply emphasise the following points. It is clear that Mr Griffiths gave negative advice in relation to significant aspects of the claim. That advice was not ignored, even though Mrs Williams fundamentally disagreed with it. She put in hand investigations in relation to the various matters which he had raised, ensured that the matter was thereafter handled by a senior solicitor, Mr Murfitt, and that the merits of the points raised were reviewed. This led, in due course, to the instruction of different counsel. Thereafter advice was taken from Mr Dumont at every important stage, and that advice was duly acted upon.
202. Further, I accept the submission made on behalf of Blake Lapthorn that these allegations ultimately add nothing of substance to the claim. The claimants must show there was some defect in the claims brought in the Bonham-Cozens litigation which caused them to fail and which ought to have been appreciated by Blake Lapthorn. In the absence of any such defect, the allegations lead nowhere because the further steps which the claimants contend Blake Lapthorn should have taken would not have revealed any problems which would have altered the course that they took.

Failure to advise the Original Trustees to apply for a Beddoe order

203. The claimants submit that a reasonably competent solicitor would have advised the Original Trustees to apply for a Beddoe order and that had such an application been made it would have been unsuccessful. The result would have been that the court would have directed the Original Trustees not to pursue the claim. At this point it would have been inescapably clear to Blake Lapthorn and the Original Trustees that the Original Trustees would be personally liable for any further costs incurred and the litigation would have been brought to an end.
204. I reject this submission. In normal circumstances a trustee would be well advised to make an application for a Beddoe order. But there is no obligation upon him so to do. Such an application is essentially made for his own protection.
205. Further, for the reasons which I have given earlier in this judgment, I have reached the conclusion that the circumstances of this case are exceptional and that the claims brought were proper and reasonable.
206. The claimants also submit that as a result of the negligent failure by Blake Lapthorn to manage the litigation properly and to adhere to the procedural timetable, the Original Trustees incurred liability which they would not have incurred if Blake Lapthorn had done their job properly. In particular the claimants say that there were delays in providing disclosure to Eve's solicitors and they failed to serve David Archer's second witness statement until the trial was underway. I am not satisfied there is anything in these points. Mr Murfitt gave evidence to the effect that he repeatedly emphasised to the Original Trustees the importance of dealing with disclosure properly and promptly. Further, such failures there were have not been shown to be other than the result of the actions or inaction of Mr Archer.

Conflict of interest

207. The claimants contend that Blake Lapthorn were in breach of contract and/ or negligent by placing themselves in a position where they had an actual and/ or potential conflict of interest between the interests of (1) themselves (2) the Original Trustees and (3) Mr Pinhorn, and then later (4) Toby.
208. The claimants point, in particular, to the advice by Mr Griffiths that a conflict existed between the Original Trustees and Blake Lapthorn and between the Original Trustees, Blake Lapthorn and Mr Pinhorn.
209. Mr Griffiths was right to raise the issue of conflict. Blake Lapthorn were acting both for Mr Pinhorn and for the Original Trustees. Mr Pinhorn wished to perfect his security but the Original Trustees were undertaking the litigation with its consequent risks.
210. In my judgment there are two answers to this complaint. First, the evidence before me establishes that Mr Griffiths advised the Original Trustees to take independent advice in the course of his conference and in his written opinion. Further, the Original Trustees were subsequently given the same advice by Mrs Williams and Mr Britten. Despite this advice, they decided not to seek independent advice and instead chose to continue to be represented by Blake Lapthorn.
211. Second, the claimants have not established that Blake Lapthorn failed to look after the interests of the Original Trustees in any substantive respect as a result of the alleged conflict of interest. It has not been shown that any failure by Blake Lapthorn has caused any loss.

Breach of fiduciary duty

212. The claimants contend that Blake Lapthorn owed a fiduciary duty to the Original Trustees to act in good faith, not to place themselves in a position where their own or others' interests might conflict with those of the Original Trustees and beneficiaries of the Bonham Settlement, to act at all times in the best interests of the Original Trustees, and to advise appropriately and cease to act for one of the parties whose interests conflicted.
213. Once again the claimants submit that it was incumbent upon Blake Lapthorn to advise the Original Trustees of the existence of the conflict and that they should obtain independent advice.
214. The claimants further submit that had such independent legal advice been given, the Original Trustees would have been advised that they should not pursue the Bonham-Cozens litigation. For the reasons I have given I reject this submission. In my judgment the allegation of breach of fiduciary duty adds nothing to the other claims.

Limitation

215. The defendants plead that insofar as the claimants rely upon causes of action accruing prior to the 16 June 1998, their claims are statute barred. I can see no answer to these submissions. In my judgment the claimants cannot complain in respect of costs allegedly wrongly paid before that date.

Conclusion

216. For all of the reasons set out in this judgment these claims must be dismissed. I would add that I reach this conclusion with no regret. The 1989 arrangements were set up to provide Toby with the financial resources to pay off his debts. It was fundamental to those arrangements that Toby would transfer into the Bonham Settlement his shares in Montpelier and that the Original Trustees would try to find a buyer for those shares. That would allow Mr Pinhorn and Toby to share in the profits derived from their sale. However Toby chose not to honour his obligations. Having taken the benefit of the loans provided by Mr Pinhorn, he did not consent to the transfer of the Cousins and Barclays shares into the settlement until compelled to do so, and did not transfer the Inheritance shares into the settlement when he became free to do so in 1995. As for the Bishop shares, he sold them to Eve in 1997 without giving any notice to the trustees.
217. The Original Trustees were, for their part, trying to secure a sale of the shares and were doing so in the face of considerable pressure from the receivers of Solent and NatWest. They faced the additional difficulties that they did not hold all the shares they were trying to sell and were having great problems finding a buyer. They reached the conclusion that they had to take action to gather in the Bishop shares and the Inheritance shares which they believed Toby and Eve were under an obligation to transfer to them.
218. As I have explained, I have no doubt that had these claims not been pursued then the receivers of Solent and NatWest would have enforced their rights against the shares held by the trust and brought about a fire sale. The shares would probably have been sold to one or more of the other family members at a price fixed by the auditor. In the absence of any interest from an external purchaser that price would likely have been very low.
219. As it was, the Bonham-Cozens litigation kept the receivers and NatWest at bay until an external purchaser could be found. This benefited Toby, Mr Pinhorn and the trustees. The trustees have been left with a surplus from the sale of their shares in the company which took over the auctioneering business (Heri Limited) and they retain the shares in the company which took over the property assets (Hodie Limited) – which have a considerable value, estimated at in excess of £2.5 million. For his part Toby received a significant sum for the sale of his 17,266 shares in Heri Limited and retains that number of shares in Hodie Limited.
220. As against this, the costs of the trustees' claims in the Bonham Cozens litigation have been estimated at less than £100,000 in total; and those are costs which would not have been incurred had Toby honoured his obligations at the outset.