Trust - application by the Representor seeking Beddoe relief.
Before : |
W. J. Bailhache, Esq., Bailiff, and Jurats Pitman and Morgan |
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Between |
B Trustee Limited |
Representor |
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And |
D |
First Respondent |
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And |
E |
Second Respondent |
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IN THE MATTER OF THE C SETTLEMENT
Advocate E. C. P. Mackereth for the Representor.
judgment
the bailiff:
1. The Court sat in private on 7th February, 2017, to consider the representation of the Representor which is the trustee of the C Settlement ("the Trust"). The trust was created by an instrument dated 9th July, 1987, between the late F ("the Settlor") and Mr G and H Limited as trustees. The Representor was appointed as trustee on 5th December, 2012, and is the sole trustee.
2. The Settlor died on 17th August, 2000. The principal beneficiaries of the Trust are the children of the Settlor by his second marriage, the First and Second Respondents, and K, the son of the First Respondent ("K") who is 20 and therefore of age. The nature of the Representor's application was to seek Beddoe relief, namely the approval of the Court to a proposed compromise of proceedings brought against the Representor as trustee of the Trust by one Mr L.
3. The representation was brought to the Royal Court by the Representor on 11th March, 2016. In it, the Representor sought directions as to how it should deal with a claim brought against M Investments by Mr L. M Investments is a wholly owned asset of the Trust. It holds various investments including property, cash and trading companies. The assets of the Trust are very substantial indeed. The Court ordered that the First and Second Respondents should be convened to the Representor's application, and on 24th March, 2016, the Respondents not having appeared, the Court ordered that the Representors should authorise M Investments to fund the defence of the claim of Mr L as far as the completion of disclosure and inspection and directed that the representation be brought back to Court once disclosure had been reviewed.
4. In so far as the proceedings against M Investments are concerned, pleadings have closed, and although directions for disclosure have been made, the action was stayed in order to allow the parties to attempt alternative dispute resolution. A mediation took place on 29th November, 2016, when a compromise was agreed. In summary, that compromise involves the payment by the trustee to Mr L of £350,000. The Representor now seeks an order from the Court which would approve its actions in entering the settlement agreement, and authorise and indeed order it to proceed with the performance of the obligations required of it under the terms of the settlement agreement. Although the Court is sitting in private, the order would enable the Representor to disclose to Mr L and his advisers the fact of these orders having been made.
5. Advocate Mackereth reminded the Court of the background to the present proceedings. It was essentially that the Trust had suffered very significant losses indeed while under the control of previous trustees, including at one stage Mr L. The Representor had been authorised to bring proceedings ("the main proceedings") seeking compensation for those losses, and ultimately a settlement agreement was made with the Court's approval as a result of which some compensation for the losses to the Trust was paid. Both the Representor and Mr L were parties to that settlement agreement which contained provisions relevant to the current application at paragraph 3.10:-
"Nothing in this settlement agreement prevents, restricts or otherwise inhibits:
(a) Mr L or his successors, assignees, personal representatives as the case may be from assigning, transferring or otherwise disposing of the Employment Claims as hereinafter defined;
(b) Mr L or his successors, assignees, transferees, personal representatives as the case may be from bring any claim arising out of the agreement between (i) P Limited and (ii) M Investments and (iii) Mr L dated 4th September 2000 and/or the agreement between (i) WRL and (ii) Mr L dated 11th February 2010 and/or the agreement between (i) M Investments and (ii) Mr L dated 7th December 2010 and/or his employment by any Settlement-owned Company against that Settlement-owned company ("the Employment Claims") ..."
6. Put simply, although most settlement agreements contain provisions which are intended to compromise all the different issues between the parties at the date of those agreements, this settlement agreement deliberately left open the possibility for Mr L of bringing the employment claims. Advocate Mackereth told us that if the Representor had not agreed to this provision, the main proceedings would not have been settled as they were.
7. The main proceedings were settled by a compromise agreement dated 8th August, 2014, and the Order of Justice was issued by Mr L on 29th September, 2015. In it Mr L makes claims against M Investments in the total sum of £1,894,558.40.
8. We do not think it is necessary to go into the detail of the different parts of the claim which Mr L has brought and it is adequate for the purposes of this judgment to set out the salient features. Mr L was employed by M Investments under a contract dated 7th December, 2010. He was summarily dismissed on 24th June, 2013, and brought the claim for wrongful dismissal as a result. The basis of summary dismissal was that the Trust had suffered some very significant investment losses, and that in one or other capacity, Mr L was responsible for them. The question as to whether such responsibility could arise solely under the employment contract or as a personal trustee or subsequently a director of a trustee company would be a live question in any such proceedings. The Representor's position as trustee, on behalf of M Investments its solely owned company, is that the conduct of Mr L in relation to the different investments amounted to gross negligence and therefore justified his immediate dismissal. What however is transparently clear from even that summary is that not only are there difficult issues of the different responsibilities of Mr L as employee, director or trustee engaged, but also it is true that the issues which would have arisen in the main proceedings in relation to the claim for damages for investment losses would be substantially the same issues as would arise in handling the wrongful dismissal claim arising out of those losses. One of the features of the argument on the Beddoes application in relation to the settlement of the main proceedings was the extent of the documentation which arose in the main proceedings and the length, uncertainty and cost of proceedings as a result, and it follows that the same extent of documentation would of necessity arise in the proceedings brought by Mr L for wrongful dismissal.
9. At all events, the Representor obtained advice both from Mr Gavin Mansfield QC and also from Messrs Ogier in relation to Mr L's claim. Perhaps unsurprisingly that advice indicated that there were strengths and weaknesses in different parts of the case. In other words there was some litigation risk. The advice which the Representor received was that Mr L's claim was likely to fail but there was perhaps a 30% chance that it might succeed.
10. If Mr L's claim were to succeed then the losses which would be incurred by the Trust would be some £3 million, given that Mr L's claim was for approximately £2 million, to which needed to be added the costs payable by M Investments both to its own lawyers and to the Plaintiff. Albeit calculated on a different basis, that costs exposure was thought to be approximately £1 million. Even if the claim were to be successfully defended by M Investments, there was a significant question mark over whether the costs awarded by the Court could be enforced against Mr L, and whether they could or could not be so enforced, there would be substantial irrecoverable costs both on the part of the lawyers and in administrative terms by M Investments and therefore the Trust. Accordingly on an arithmetic basis, a settlement figure of £350,000 against a claim of £2 million looked a more than reasonable basis for settlement as far as the Trust is concerned, particularly taking into account wasted management time and lost investment opportunities in relation to the legal costs which were being incurred and/or on any monies which had to be disbursed in the event of M Investments failing at trial.
11. The Representor put an additional factor into the equation. The First Respondent in particular had been actively involved in the investigation of investment losses in the Trust and in the litigation which led to the main proceedings. She was one of the principal beneficiaries of the Trust and had invested a very large amount of emotional energy in retrieving for the Trust a significant proportion of the losses which had been sustained. Although she was not directly a party to the proceedings, there was a continued emotional cost for as long as the proceedings continued.
12. For all these reasons, Advocate Mackereth contended that the Court should bless the proposed actions of the Representor in causing M Investments to settle the proceedings brought by Mr L, notwithstanding that there was thought to be a 70% chance of winning them, and notwithstanding the particular anxiety that not only was Mr L considered to be one of those seriously at fault in causing the investment losses overall, but also he had not made any contribution himself to the settlement figure by which some of those losses were recovered by the Trust. The Representor was therefore taking in Advocate Mackereth's submission a responsible and clear-headed approach to a piece of litigation notwithstanding the positive reasons why it might be successfully defended, and notwithstanding that, even if not successfully defended, the overall losses to the Trust in damages, costs and expenses would be a relatively small percentage of the overall Trust assets.
13. The test which the Court applies to a Beddoe application of this kind is not quite that of Re the S Settlement [2001] JLR Note 37. In that case the Court had approved the English approach set out in Public Trustee v Cooper, English Chancery Division, 20th December 1999 unreported, where essentially three questions were asked:-
(i) Is the proposed action within the trustee's powers?
(ii) If so, is it a proper exercise of that power in the sense that the trustee's opinion has been formed in good faith and has not been vitiated by any actual or potential conflict of interest; and
(iii) Is the Court satisfied that the proposed action by the trustee was reasonable?
14. Unless the trustees surrendered their discretion to the Court, the Court would approach Beddoe applications in this way. That approach has been adopted by this Court on many occasions.
15. Advocate Mackereth accepted that where the subject matter of the trustee's application was the compromise or potential compromise of litigation, there was one slightly different feature. In many cases involving actions recommended by trustees, it was a fair conclusion that the trustees probably had as much if not more expertise than did the Court. However, in cases where the issue was whether or not litigation should be compromised, the Court had a special advantage, because an assessment of litigation risk and the appropriate approach to take in relation to litigation was something which courts did as part of their judicial business day in, day out. In those circumstances the discretion not to approve a proposed course of action would be slightly wider and, as Advocate Mackereth put it, a trustee was entitled to ask the Court whether it was doing the right thing.
16. In answering that question, the Court would normally have regard to any views expressed by the principal beneficiaries of the Trust. In the instant case, two of the three principal beneficiaries had expressed their views - both the Respondents had been in touch with the Representor to confirm that the settlement of Mr L's claims as proposed was in their view in the interests of the Trust and the right course to follow.
17. Having reviewed all the papers put before us, we have no doubt in adopting the approach of the Representor. There is always some litigation risk, in this case assessed at some 30%, and in purely arithmetic terms, the mediated settlement appears to be advantageous to the Trust. When, however, the extraneous factors are considered in addition to the purely arithmetic calculations, the case for accepting the mediated settlement becomes very strong indeed - we have in mind here doubts over whether a costs award in favour of the Trust would be recoverable and the emotional impact on the First Respondent in particular, but also the fact that the continued litigation over the employment claims would be likely to have a numbing effect on the Representor's overall performance as trustee for as long as the litigation continued - the management of litigation documents would be an administrative nightmare and a great distraction to say the least.
18. There was only one issue which caused us to hesitate. This relates to K, who has been given no notice of the present proceedings and whose voice has not been heard, even though he is recognised to be of full age and a principal beneficiary. We now turn to those features in more detail.
19. As reflected earlier in this judgment, the representation was served only on the First and Second Respondents. It was not served upon K, at the request of the Representor, endorsed by the First Respondent, K's mother. In similar fashion, the Beddoe application in relation to the settlement agreement in the main proceedings was also not served upon K. In his affidavit sworn on 10th March, 2016, Mr Q, a director of the Representor said this:-
"49. As regards K, he is now 19 years old. In relation to the Beddoe hearing for the approval of the settlement of the breach of trust claims, at which time K was 18 years old, D provided an affidavit to the Court which stated as follows (page 522):
I have told K about the existence of the trust and that he is a beneficiary of it. I have also told him about the claims against the former trustees and their advisers. I have not told him about the total value of the claim, the amount of the proposed settlement or the likely size of the trust following the proposed settlement. If the proposed settlement goes ahead, the trust will have nett assets worth more than £75M. I do not want K to be aware of the full size of the trust until he is 21. I think it would be a harmful and damaging burden for him to learn of the trust's size only days after his 18th birthday.
50. This was accepted by the Beddoe Court at the time and for the same reasons and also in accordance with D's wishes as set out in her letter referred to above, the trustee does not wish to burden K with the details of these proceedings."
20. This leaves the Court in an unusual position. K is of age, and like other principal beneficiaries who are of age, he might expect to have been consulted in relation to the proposed actions of the Representor in settling with Mr L. By not convening him to the proceedings, the Court has effectively prevented him from making submissions which might have been inconsistent with those of the other principal beneficiaries. He might have taken the view that, at the end of the day, it was more likely that he would have an active interest in the trust fund than would his mother or uncle; or that while they were prepared to give up £350,000, he was more than willing to take a risk on the larger sum involved in the litigation, firstly because the Trust could afford it, and secondly because he took a rather stricter view of Mr L's lack of entitlement to any sort of payment than did his family.
21. We ought to add for the avoidance of doubt that we have considered our obligations under the Human Rights (Jersey) Law 2000, and K's rights under Article 6, 8 and 14 of the Convention and Article 1 of the First Protocol. We do not think the rights are strictly engaged and we think therefore there is no difficulty in proceeding as we have under the 2000 Law, but even if the rights were engaged, we think that in terms of proportionality and overall fairness, we are right to proceed as we have. Nonetheless, in case this judgment should ever come to K's attention in due course we would like to add the following comments.
22. Unless there is any other reason for removing such capacity, the law confers capacity on people when they attain the age of 18. The unusual feature about the exercise we are now considering is that the trustee is coming to the Court to seek guidance as to what it should do as a trustee, and the Court is well aware that, when exercising trustee discretions, the trustees frequently do not approach matters purely in terms of the legal age of capacity. They have regard to the best interests of the beneficiaries, and sometimes the beneficiaries may be of an age or character, or there may be some other special reason, why the trustees reach the conclusion that it is not in the interests of the beneficiaries to receive a distribution or to have knowledge of the terms of what might be their ultimate entitlement. Occasionally that might be seen as the exercise of a paternalistic approach, but even so it seems to us to be one which in some circumstances can be justified. Whether it is or is not will depend upon the facts of the particular case.
23. It is well known amongst professional trustees, and in the courts that trust arrangements are frequently expressed so as to confer a benefit on particular beneficiaries when they attain an age which is later than the age of majority - whether that is 21, 25 or sometimes even 30. That occurs where the settlor or trustee has reached the view that either for those particular beneficiaries or as a matter of general principle, it is better that the beneficiary does not have detailed information about any entitlements which he or she may have under a trust deed. There are many good reasons for a settlor or trustee to reach that view - if he knew of the wealth to come, the beneficiary may not complete his tertiary education, or may not bother to seek employment. He or she may decide instead upon a life of party-going or riotous living, or become reliant upon alcohol or toxic substances, or cause difficulty with siblings or other members of his family not benefitting under the trust in question. The view may be reached by settlor or trustee that such a reaction to knowledge of the details of potential benefit will be less likely when the person in question has achieved greater maturity.
24. As long as it is objectively reasonable, we do not think that such a conclusion should necessarily be criticised. The knowledge that one has completed tertiary education or obtained a reasonable job and supported oneself or generally has a useful contribution to make to the community in which one lives is important for self-respect. When sitting in criminal matters, this Court sees regularly the consequences of feelings of lack of self-worth in the defendants before it. We are quite sure that in theory this is an objectively sensible concern for trustees to have - it is right that trustees consider what is in the best interests of their beneficiaries.
25. Here we have a case where the trustee aligns itself with K's mother in reaching the conclusion that it is not in K's interests to learn at this stage of the enormously substantial trust of which he is a principal beneficiary. To have such knowledge might upset the balance in his life at a time when he is still maturing. This Court has every sympathy with that approach and considers that the views of the trustee and K's mother should be respected.
26. We add that we are fortified in our approach to this issue by our conclusions generally about the trustee's application, which seems to us to be entirely appropriate. In other words, the probability of a different approach by the Court on the substance of the application seems to us to be slim. This emphasises in our view where the best interests of K as a principal beneficiary lie.
27. Accordingly the Court approves the proposed course of the Representor.
28. Order accordingly.
Authorities
Re the S Settlement [2001] JLR N 37.
Public Trustee v Cooper, English Chancery Division, 20th December 1999 unreported.
Human Rights (Jersey) Law 2000.