Jersey Unreported Judgments

Trusts.

[2022]JRC154

Royal Court

(Samedi)

8 July 2022

Before     :

R. J. MacRae, Esq., Deputy Bailiff, and Jurats Ronge and Hughes

 

Advocate A. Kistler for the Representor

Advocate S. A. Hurry for the Settlor

judgment

the deputy bailiff:

1.        On 19^th May 2022, we heard the Representation of HSBC Trustee (CI) Limited ("the Trustee") and gave various directions.  We now give brief reasons for those directions. 

Background

2.        The Trustee is the trustee of two Jersey trusts namely the Carrot Trust and the Dandelion Trust, (the names of the two trusts have been changed for publication). 

3.        The Carrot Trust was settled by D ("the Settlor") on 23^rd October 2017.  The Settlor is the 'discretionary lifetime beneficiary' under the Carrot Trust and his children are the final or default beneficiaries under the Trust.  The Carrot Trust owns a Jersey company called [Redacted] Investments Limited ("V Ltd") the shares in which are held by entities connected to the Trustee as nominees on behalf of the Trustee.  The Settlor has extensive rights under the Trust including an entitlement to amend the Trust and exclude beneficiaries. 

4.        On 20^th December 2017, the Settlor paid or caused to be paid an amount to V Ltd, the majority of which was used to subscribe to an investment portfolio held by HSBC Private Bank (Suisse) SA on 28^th September 2019, which is the principal asset of V Ltd and indeed the Carrot Trust.  The transfer of assets into V Ltd/the Carrot Trust in December 2017 is the subject of hostile proceedings in the United States and Jersey to which we will turn below. 

5.        As to the Dandelion Trust, it was settled by the Settlor on 9^th October 2019.  The terms of the Dandelion Trust are similar to the Carrot Trust. 

6.        The Dandelion Trust owns a Jersey company called Dandelion Holdings Limited where again the shares are held by nominees on behalf of the Trustee, those nominees being corporate entities connected to the Trustee.  Dandelion Holdings Limited owns an apartment in New York.  The Trustee of the Dandelion Trust also holds cash with the [Redacted] with a balance at 31^st December 2021 of [Redacted]. 

7.        As to the assets held by the Dandelion Trust, on 28^th May 2020, the Settlor requested the Trustee of the Carrot Trust make a capital distribution of approximately [Redacted] to him which was made on 5^th June 2020, and on 12^th June 2020 the Trustee as Trustee of the Dandelion Trust resolved to accept the sum of [Redacted] from the Settlor as an addition to the Dandelion Trust; the said sum thereafter being transferred from V Ltd's bank account to the bank account held by Dandelion Trust referred to above.  As to the apartment, on 3^rd September 2020 the Settlor "granted and released" his interest in the apartment to Dandelion Holdings Limited and gifted the shares in Dandelion Holdings Limited (which had previously been owned by him) to the Trustee of the Dandelion Trust on 1^st July 2021. 

8.        On 26^th October 2021, Emirates NBD Bank ("the Bank") served Dandelion Holdings Limited with a summons and complaint dated 10^th September 2021 commencing proceedings in the Supreme Court of the State of New York seeking a restraint on disposal of the Settlor and Dandelion Holdings Limited's assets and requiring the Settlor and Dandelion Holdings Limited to appear in the New York Court and show cause why an 'order of attachment' should not be issued against them in respect of the apartment.  The claim alleges that the Settlor guaranteed a debt to another entity in favour of the Bank in 2010.  The Bank has obtained a judgment from the Dubai Court of Cassation against the Settlor for a significant sum.

9.        The Settlor is actively contesting the proceedings in New York and the Trustee of the Dandelion Trust funded Dandelion Holdings Limited's initial defence of the New York proceedings from the assets of the Dandelion Trust until this Representation could be heard, and filed an Answer in broadly neutral terms, but sufficient to prevent judgment in default being entered against Dandelion Holdings Limited.

10.      The Jersey proceedings were commenced by Order of Justice dated 24^th October 2021 and served on the Trustee and, inter alia, V Ltd and Dandelion Holdings Limited on 28^th November 2021.  In those proceedings, the Bank pleaded the same guarantee arrangements as in the Dubai litigation referred to above and alleges that after the Dubai proceedings had concluded adversely to the Settlor at first instance, the Settlor disposed of his assets by setting up the Carrot Trust and Dandelion Trust and entering into a series of connected transactions.  The Bank alleges that the Settlor arranged these transactions in order to preserve his assets from his creditors, including the Bank, and either was or became insolvent in consequence. 

11.      Again, the Settlor will actively contest those proceedings and the Trustee filed an Answer in broadly neutral terms so as to prevent judgment being entered in default against the Trustee and associated entities. 

12.      The Freezing Order granted by the Bailiff against the Trustee and an associated entity on 20^th October 2021, amended on 2^nd November 2021, notwithstanding the extent of the Freezing Order granted, provided that the Trustee was permitted to meet the 'routine costs of administration of the [Carrot] Trust [and] the [Dandelion] Trust' and also incur 'reasonable costs of legal advice and representation in connection with proceedings brought by the plaintiff in New York and Jersey against the defendants and/or [Dandelion] Holdings Limited'.

13.      In neither set of proceedings is there any suggestion of misconduct on behalf of the Trustee or its connected entities and, as we have noted in the Jersey proceedings, it is expressly provided that the Trustee may incur reasonable costs, not merely in connection with taking advice, but in representation in the proceedings brought by the Bank in New York and Jersey.

14.      It is right to categorise the claims against the Settlor as personal claims and not proprietary claims over the assets of the Trust.

15.      The Settlor was convened to the hearing of the Representation as were his three children, and one of them was appointed to represent the interests of her issue who are within the beneficial class of the Dandelion Trust, although there is some doubt as to whether or not the children received notice of the proceedings as their current addresses are not known to the Trustee and it is not known whether or not the Settlor notified his children of the proceedings as was intended and anticipated by the Court when giving directions. 

The relief sought

16.      The Trustee sought directions as to the future conduct of the New York and Jersey proceedings, and in broad terms sought directions that it continue to defend in its capacity as Trustee of the two trusts in the Jersey Proceedings and in respect of its involvement with various corporate entities referred to above which are party to those proceedings (including Dandelion Holdings Limited in the New York Proceedings) and to do so at the expense of the trusts on the Trustee basis. 

17.      Prior to the hearing, the Trustee's advocate corresponded with the advocates representing the Bank.  On 26^th April 2022 the advocates for the Bank wrote to the advocates for the Trustee confirming that the Bank had no objection in principle to the expenditure of trust funds via the Trustee in defending the Jersey and New York proceedings within the "limits of the freezing order".  However, the Bank went on to say, through its advocates, that it could not express a view as to the "appropriateness of any future costs orders against your client being met from the trust funds rather than by your client personally" and concluded "we do not suggest that your client will conduct itself in such a way as to occasion a personal liability for its costs, [but] we cannot predict how the litigation will play out and our client is not prepared to make any commitment as to what form of costs orders might be appropriate in the event that it prevails at trial". 

18.      Having regard to this stance of the Bank - sympathetic albeit uncertain - it is understandable that the Trustee has felt the need to seek directions from the Court.  In an affidavit sworn on behalf of the Trustee by Christopher Jones in support of the Representation, he states at paragraph 82 that the Trustee's involvement in each sets of proceedings is "as a result of its receipt of liquid funds and other assets originating from [the Settlor] at a time when, unknown to the Trustee, [the Settlor] was allegedly liable to [the Bank] and subject to proceedings and judgments relating to the same".  Accordingly, it is the Trustee's position that it was not aware of the 2015 Dubai judgment when the December 2017 transfer of funds took place.  The total claims against the Settlor significantly outweigh the value of the sums in trust.  [Redacted]. 

19.      Mr Jones' affidavit goes on to explain that as the Settlor will defend both sets of proceedings, the Trustee "does not consider it appropriate for it to seek to mount a proactive defence to the claims" but in accordance with the advice received in both jurisdictions to do "the reasonable minimum necessary to put [the Bank] to proof of its claims and to allow [the Settlor] to defend those proceedings as best as he is able".  The Trustee has provided and intends to continue to provide such information and documents as may be reasonably required by the Settlor and his legal representatives for this purpose. 

20.      This approach is designed to ensure that the legal and administrative costs incurred by Trustee will be kept to a minimum.  This will permit the Settlor to resist enforcement of the Bank's claims against Trust assets for the benefit of himself and for his children as beneficiaries after his death, rather than the Trustee allowing those claims to succeed by default.  However, even this approach will result in the incurring of not insignificant legal and administrative costs as follows, the Trustee having received an indication of the fees which are likely to be incurred from its New York and Jersey lawyers.  Those are as follows: 

(1)            In New York: the next step is discovery which may include the taking of depositions and take four to six months.  The costs are estimated to range between $60,000 and $90,000.  

(2)            Following discovery, it is possible that the Bank will apply for summary judgment.  The Settlor would take the lead in opposing such an application and the Trustee's fees would be between $20,000 and $30,000. 

(3)            If such an application fails and the case proceeds to trial on the assumption of a trial of three days with, if necessary, evidence being given by the Trustee but the Settlor taking the lead and opposing the Bank's claims, the fee estimate is between $50,000 and $100,000. 

(4)            As to the costs of generally liaising with the Trustee's lawyer, the Settlor's lawyer and the Jersey advocates, additional fees are estimated between the sum of $10,000 and $20,000.  

21.      As to the Jersey proceedings, the following estimates have been provided: 

(1)            Discovery.  The Trustee has already provided the Bank with the bulk, if not all relevant documents pursuant to disclosure orders made.  It will be required to carry out a further search to comply with its discovery obligations.  Fees are estimated as between £30,000 and £50,000. 

(2)            Exchange of witness statements of fact.  The Trustee may be required to provide some evidence and on the assumption that it calls one witness of fact £25,000 to £40,000 is estimated. 

(3)            Exchange of expert evidence may be required in regard to the nature of the Dubai proceedings, having regard to the way in which the Settlor has pleaded his Answer in Jersey.  The Trustee does not currently anticipate obtaining its own expert and incurring any fees in that respect.  However, reviewing the expert evidence filed by the Bank and the Settlor may result in legal fees estimated between £5,000 and £10,000. 

(4)            Costs incurred in connection with a one week trial, including preparation, drafting the skeleton argument, review of the other skeleton arguments, materials in preparation for trial, and trial are estimated between £75,000 and £100,000. 

(5)            As with the New York proceedings, further attendances with the parties and Trustee are estimated in the sum of £20,000 and £30,000.  

22.      The Trustee says that such costs estimate are reasonable and proportionate given that the alternative is the potential loss of a valuable asset of the Trust without the opportunity for the merits of the Bank's claims to be tested. 

23.      Should the Settlor cease to defend either or both sets of proceedings, the Trustee will, it says, need to assess whether to continue to defend the Jersey proceedings and the New York proceedings and the Trustee was unable to predict what decision the Trustee would reach in those circumstances and, in such circumstances, the Trustee intends to return to the Court to seek further directions, if necessary, in such a scenario. 

The legal principles

24.      The approach taken by the Royal Court to Beddoe applications such as this was recently considered in the Arpettaz Settlement [2020] JLR 119. 

25.      We agree that this is a momentous decision on the part of the Trustee, namely whether or not to participate in significant litigation in which the assets of the Trust are at stake, both in Jersey and in a foreign jurisdiction.  Accordingly, this falls within the second category of Public Trustee -v- Cooper [2001] WTLR 901 as approved by the Royal Court in Re S Settlement [2001] JLR Note 37.  As to the role of the Court in such an application, the Court made the following observations in the Arpettaz Settlement: 

"Jersey trustees submitting to the jurisdiction of foreign courts: proper approach

23. Under Article 51 of the Trust (Jersey) Law 1984 ("the Law") the Trustee is seeking an order concerning the manner in which the Trustee should act namely, in this case, for the Court to give a blessing to a decision made by the Trustee.  The decision to participate in foreign proceedings is, in this context, plainly a "momentous" one as described in Public Trustee v Cooper [2001] WTLR 901, as approved in Jersey in Re S Settlement [2001] JLR Note 37.  This application falls within the second category referred to in Public Trustee v Cooper namely:-

"(2) The second category is where the issue is whether the proposed course of action is a proper exercise of the trustees' power where there is no real doubt as to the nature of the trustees' powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers.  Obvious examples of that which are very familiar in the Chancery Division are a decision by the trustees to sell a family estate or to sell a controlling holding in a family company.  In such circumstances there is no doubt at all as to the extent of the trustees' powers nor is there any doubt as to what the trustees want to do, but they think it prudent and the court will give them their costs of doing so, to obtain the court's blessing on a momentous decision, in a case like that there is no question of surrender of discretion and indeed it is most unlikely that the court will be persuaded in the absence of special circumstances to accept the surrender of discretion on a question of that sort, where the trustees are prima facie in a much better position than the court to know what is in the best interests of the beneficiaries."

24. The well understood approach for the Court to apply considering whether to approve a momentous decision was set out by Birt DB in Re S Settlement as follows:-

"we need to consider three issues when fulfilling our role under the second category:

(1) Are we satisfied that the Trustee has in fact formed the opinion in good faith that the circumstances of the case render it desirable and proper for it to carry out each of the steps we have described earlier in this judgment?

(2) Are we satisfied that the opinion which the Trustee has formed is one at which a reasonable Trustee properly instructed could have arrived?

(3) Are we satisfied that the opinion at which the Trustee has arrived has not be vitiated by any actual or potential conflict of interest which has or might have affected its decision?"

25. We agree with the decision of the Royal Court in the matter of The F Charitable Trust [2017](2) JLR 26 where the court observed at paragraph 12 of the judgment that on Beddoe applications (such as this) the general approach derived from in Re S Settlement is "slightly more nuanced" in that the court should have regard to the nature of the decision which the trustee seeks to have blessed.  There are certain decisions, as the court observed in that case, where a trustee is in a better position than the court in terms of expertise - for example, the decision to realise a majority interest in a family company or to make an appointment of a particular member of the class of beneficiaries.  In F Charitable Trust the court said:-

"In those circumstances, there is every reason for thinking that as the settlor had conferred the relevant power or discretion on the trustee, he was satisfied that the trustee was the right person to exercise it, and it is unsurprising in those cases that the court exercises on a supervisory power in blessing a momentous decision, restricting itself to a review, as has been said in the cases, based on honesty (lack of conflict) and rationality."

26. However the court went on to observe:-

"Where the substratum of the decision is the question of litigation, however, it appears to us that the court is not in quite the same position.  One thing that can firmly be said about litigation is that it is something with which the court is familiar, probably in most cases more familiar than the trustee.  Where the trustee therefore seeks to have a decision to litigate blessed by the court, it should expect the court to exercise a more direct, inquisitorial role, and be ready to form its own judgment as to whether it is sensible for the trust estate to be put at risk by the litigation in question.""

26.      The Court in Arpettaz went on at paragraphs 27 and 28 to consider the circumstances in which it might be appropriate for a Trustee to participate in foreign proceedings.  In paragraph 29, the Court concluded by making this observation: 

"Although the H Trust involved a matrimonial case, in the view of the Court the principles are of general application - in most circumstances it is unlikely to be in the interests of a Jersey trust for the trustee to submit to the jurisdiction of an overseas court."

27.      However, as recognised at paragraph 31 of the judgment in Arpettaz, there will be cases where it is in the interests of the beneficiaries for the trustees to submit to the jurisdictions of a foreign court.  The Court approved the Trustee submitting to the jurisdiction of foreign court in HSBC International Trust Limited -v- Poon [2011] JRC 167 because if the trustee did not do so, then the Hong Kong court would have the necessary power to enforce this order against the assets situated in Hong Kong which were held in underlying companies holding 70% of the trust assets, and the trustee would be unable to prevent such enforcement. 

28.      In this case, the principal asset of the Dandelion Trust is the shareholding in Dandelion Holdings Limited which in turn holds the apartment in the jurisdiction of the New York Court and the same principle applies.  Accordingly, this is a case where the Court would be prepared in principle to approve the decision of the Trustee to fund Dandelion Holdings Limited's participation in foreign proceedings in order to protect the principal asset of the trust in question. 

29.      As to the appropriate stance to be adopted by the Trustee in such proceedings, this case falls within the third of Lightman J's three categories of disputes described in Alsop Wilkinson v Neary [1996] 1 WLR 1220, namely:

"In a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of a trustee is to remain neutral and in the absence of any court direction to the contrary and substantially as happened in Merry's case [1989] 1 Ch 306) to offer to submit to the court's directions leaving it to the rivals to fight their battles.  If this stance is adopted, in respect of the costs necessarily and properly incurred e.g. in serving a defence agreeing to submit to the courts direction and in making discovery, the trustees will be entitled to an indemnity and lien."

30.      There are, as noted by the Royal Court in the representation of VV [2011] JRC 209, instances where the trustee cannot adopt the principle of neutrality because no one else is available to defend the case.  As the Royal Court said in the final paragraph of its judgment in that case:

"None of the beneficiaries were prepared or were in a position to 'take up the cudgels' on behalf of the trusts and in the light of this advice it would not be appropriate to allow these claims to go by default.  Whilst ordinarily, we would expect VV to take a neutral stance, in these special circumstances we concluded that it was the only person in a position to defend the trusts and it was directed to do so.  We also gave VV its costs for doing so out of the trust funds."

Our decision

31.      This is not such a case, as the settlor will be and is defending the claims on their merits.  Accordingly, it is appropriate for the Trustee to adopt a neutral stance and we direct it to do so.

32.      In Arpettaz, the Court expressed concern about the level of estimated legal costs likely to be incurred on behalf of the Trustee - see paragraph 40 of the judgment.  We did not have such a concern in relation to this case where on the evidence we received the costs of defending the US proceedings are likely to be between $140,000 and $240,000, and the costs of defending the Jersey proceedings to be between £160,000 and £230,000. 

33.      Nonetheless, we did state that our approval of the Trustee taking the steps proposed was limited to the estimated costs and the Trustee would need to return to the Court, if necessary by way of a written application, seeking a variation of the caps imposed by the court on this application.  Further, we said that the upper range of the estimates provided were to be viewed as a limit and not a target. 

34.      Furthermore, we thought it was appropriate, notwithstanding the fact that the Bank was aware of the Trustee's representation and had expressed, as we refer to above, some sympathy for the Trustee's position on costs, to give the Bank the opportunity to be heard in relation to the orders that we made within a period of 21 days so that the Bank, on receipt of the Court's order, has the opportunity to object to the terms of the same if it wished to do so. 

35.      Accordingly, the Court approved the decisions of the Trustee as follows: 

(1)            As to the Jersey proceedings, the Trustee:

(a)       Continue to maintain its (and connected entities) neutral stance and non-admission of the Bank's claim in the Jersey proceedings in accordance with its pleaded answer;

(b)       Participate in and take steps in the Jersey proceedings as required by the Royal Court Rules or order of the Royal Court, or to the extent advised by his advocates and to the reasonable minimum extent necessary to allow the Bank's claims to be put to proof including the avoidance of doubt by: 

(i)           providing further information and disclosure to other parties and to the Court in compliance with obligations to provide discovery and/or to provide disclosure to the Settlor as beneficiary upon reasonable request;

(ii)           preparing one or more witness statements if so advised;

(iii)          engaging its Advocates to represent it, Dandelion Holdings Limited, V Ltd and connected entities at any interlocutory hearings and any trial in the proceedings, including to advance any evidence, cross-examination and legal submissions to allow the Bank's claims to be properly tested;

(c)      Discharge its ongoing expenses of administering the Trust Assets, pending the final determination of the Jersey proceedings insofar as they concern the Trustee, from the Trust.

The Court's approval was provided on the footing that the legal fees incurred by the Trustee under (2) above will not exceed £230,000 without further order of the Court; such further order may be applied for and determined by the Court on the papers and without a hearing. 

(2)            The decisions of the Trustee in respect of proceedings brought by the Bank in the Supreme Court of New York were approved under Article 51 of the Law, namely to: 

(a)        Fund Dandelion Holdings Limited from assets of the Dandelion Trust and to continue to maintain its neutral stance and non-admission of the Bank's claims in the New York Proceedings in accordance with its pleaded Answer;

(b)       Participate in and take steps in the New York Proceedings as required by the rules and procedure of the Supreme Court of the State of New York or order of the Supreme Court to the extent advised by its legal representatives and to the reasonable minimum extent necessary to allow the Bank's claims to be put to proof, including, for the avoidance of doubt by:

(i)           providing further information and disclosure to other parties and to the Supreme Court in compliance with any obligations to provide discovery and/or depositions;

(ii)           preparing one or more witness statements if so advised;

(iii)          engaging its legal representatives to represent it at any interlocutory hearings and any trial in the proceedings, including to advance any evidence, cross-examination and legal submissions to allow the Bank's claims to be properly tested; and

(c)       Provide disclosure to the Settlor as beneficiary upon reasonable request. 

The Court's approval was provided on the basis that the legal fees incurred by Dandelion Holdings Limited and funded by the Trustee shall not exceed $240,000 without further order of the Court; such further order may be applied for and determined by the Court on the papers and without a hearing.   

(3)            The legal costs and any adverse costs orders incurred by the Trustee and connected parties acting in accordance with the decisions approved above shall be indemnified out of the assets currently held on the terms of the Trusts and/or by their underlying companies without prejudice to any rights of recovery of the same from the Bank or any other person.

(4)            A copy of the order shall be served on the Bank, with the Bank having 21 days to show cause as to why the orders approving the decision of the Trustee in relation to the Jersey and New York Proceedings respectively should not have been made and why the orders providing costs protection to the Trustee in respect of adverse costs orders should not be binding on the Bank, including in the event that the Bank succeeds in the Jersey or New York Proceedings. 

36.      Finally, we ordered that the Trustee's costs of and incidental to the application be paid out of the assets held in the respective Trusts on the Trustee basis in accordance with Article 53 of the Law. 

Authorities

Arpettaz Settlement [2020] (2) JLR 119.

Public Trustee -v- Cooper [2001] WTLR 901

Re S Settlement [2001] JLR Note 37. 

HSBC International Trust Limited -v- Poon [2011] JRC 167.

Wilkinson v Neary [1996] 1 WLR 1220.

VV [2011] JRC 209.