Jersey Unreported Judgments

Trust - application for the removal of the Trustee

[2023]JRC165

Royal Court

(Samedi)

15 September 2023

Before     :

A. R. Binnington Esq., Commissioner, and Jurats Christensen and Entwistle

 

IN THE MATTER OF THE REPRESENTATION OF ACCURO TRUST (SWITZERLAND) SA

AND IN THE MATTER OF THE O TRUST

AND IN THE MATTER OF ARTICLE 51 OF THE TRUSTS (JERSEY) LAW 1984 (AS AMENDED)

Advocate M. P. Renouf for the Representor.

Advocate S. C. Thomas for the Respondent.

judgment

the COMMISSIONER:

1.        The Court sat, on 31 March 2023, to hear an application brought by way of Representation, seeking the removal pursuant to Article 51 of the Trusts (Jersey) Law 1984, as amended ("the 1984 Law") of Primafides (Suisse) SA ("Primafides") from its position as Trustee of the O Trust.  At the conclusion of the hearing we ordered Primafides to resign and made certain ancillary orders.  The following is the Court's detailed reasons for its decision.

The background

2.        The O Trust is an irrevocable discretionary trust, the proper law of which is the law of Jersey, established by B, who died in 2020, and the original trustee, Pentera Trustees Limited ("Pentera") on 11 October 2007.  The present beneficiaries of the O Trust comprise B's daughter C and her three children (D, E and F) and their issue.

3.        Primafides is a subsidiary of Stonehage Fleming SA based in Switzerland.  Primafides was appointed Trustee of the O Trust on 16 July 2021 in place of Pentera.  By an instrument dated 17 February 2023 C, as Protector of the O Trust, appointed Accuro Trust (Switzerland) SA ("Accuro") as a co-Trustee.  Accuro is a trust and company administration business based in Switzerland.

4.        The O Trust owns all of the shares in a BVI company, Company A.

5.        Primafides is also the Trustee of three trusts, established in 1990 subject to the laws of the British Virgin Islands, known as the L Trust, the M Trust and the N Trust (together "the BVI Trusts").  All three BVI Trusts were established for the principal benefit of B during her life with each BVI Trust being also for the benefit of one of B's three daughters and their issue (L Trust for C, M Trust for G and N Trust for H).  B was the protector during her lifetime and each daughter became protector of their respective Trust upon her death.  B provided a letter of wishes in relation to the L Trust indicating her wish to be treated as the principal beneficiary during her lifetime, with her children only benefitting thereafter.  Accuro understood that similar letters of wishes were given to the Trustees of the M and N Trusts.

6.        Primafides was appointed Trustee of the L, M and N Trusts on 15 April 2021 in place of a subsidiary of HSBC.  As Trustee, Primafides owns the shares of a BVI company, Company B as to one-third each for each of the L, M and N Trusts.

The dispute

7.        The circumstances that gave rise to C's appointment of Accuro as co-Trustee of the O Trust were what she regarded as a fundamental conflict of interest on the part of Primafides leading to a complete loss of trust and confidence in the Trustee by the beneficiaries of the O Trust.  This arose as a result of Primafides' proposed course of action in relation to a transaction that had been carried out in 2008.

8.        In February 2008, Company B had transferred shares ("the D Shares") in a fund called D Fund ("the D Transfer") to Company A which, at that time, was owned by B.

9.        Accuro's understanding of the D Transfer was that it was made pursuant to a request from B (as principal beneficiary and protector) to the then Trustees of the BVI Trusts to make a distribution to her of the D Shares and that the request was acceded to, resulting in the transfer of the D shares to Company A.  B subsequently settled the shares of Company A onto the Trusts of the O Trust.

10.      It would appear that very little formal documentation has been located in relation to the transfer save for a Form of Transfer of the D Shares, signed on behalf of Company B on 20 February 2008, and countersigned by Company A on 5 March 2008.  The individual who was likely to have been primarily involved in the transaction was J who acted for B in various capacities during a period of over thirty years.  J passed away shortly after B in 2020.

11.      By the end of July 2021, Primafides was the sole Trustee of the BVI Trusts and the O Trust, becoming a co-Trustee of the latter with Accuro, as we have already noted, on 17 February 2023.

12.      G and H have recently objected to the distribution of the D Shares.  In a letter to Primafides dated 16 December 2021, written by Mourant on their behalf, it was alleged that the D Transfer appeared to have been authorised by J, as a director of Company B, despite it not being for the benefit of G or H.

13.      On 13 September 2022 Primafides advised Advocate Renouf, acting for C, that they proposed instructing counsel in London to advise the trustees of the three trusts in relation to a possible maladministration claim against the former trustee.

14.      Primafides suggested to C that it would be advantageous to obtain advice from leading counsel for the following reasons:

(i)        The advice might focus potential liability upon those who requested or authorised the 2008 transfer, which might serve to remove or reduce any suggestion of impropriety between the three sisters.

(ii)       By involving all the family members, the advice would address the issues generally rather than looking to "point fingers".

(iii)      The advice would confirm that even if a claim against those who authorised the 2008 transfer was identified, it would not necessarily follow that an accompanying claim would exist against the O Trust.

(iv)      Obtaining the advice would not trigger any further consequences; rather, obtaining advice was only being sought in order to confirm whether a claim might exist, further to which an informed decision might be made regarding any future steps.

15.      In a letter to Primafides dated 30 September 2022, Seymour, on behalf of C, confirmed their client's objection to the proposal, suggesting that nothing "at fault" had been done by anyone.  They asserted that "the settlor, B, requested, as was her right, that a distribution be made to her.  The then trustee, GZ Trust Corporation, agreed to her request and made the distribution, enabling B to settle the assets distributed on a new trust, primarily for her own benefit and, thereafter, for C and her issue".  They suggested that there was nothing in that sequence of events that constituted a wrongdoing.  They went on to say that "We therefore cannot see, on the basis of the lack of any explanations so far provided, how a neutral trustee could properly proceed to spend trust monies purely aimed at trying to find a claim where none is at all apparent.  That would amount to little more than a fishing expedition and would be wholly speculative".

16.      Given C's objection to the Trustee's suggested approach leading counsel was therefore instructed by Primafides only in its capacity as Trustee of the M and N Trusts.

17.      The advice was provided on 20 December 2022 and a copy was sent to C on 13 January 2023. Leading counsel advised that i) there was an "arguable case that matters were not dealt with correctly in the past"; ii) that Primafides, in its capacity as Trustee of the O Trust and owner of Company A, faced competing claims to Trust assets; and iii) that Primafides should bring proceedings in the English courts for the purpose of determining the ownership of the D shares.  Leading counsel advised that such proceedings should be brought not only in Primafides' capacity as Trustee of the M and N Trusts, but also in its capacity as Trustee of the O Trust and that, as Trustee of those Trusts, Primafides should use its position to cause not only Company B, but also Company A, to join it in those proceedings as joint claimants.  The proposed defendants to those proceedings were to be the beneficiaries of the Trusts, principally the three sisters, C, G and H.  Primafides was advised that it should then step back from the proceedings, and cause Company B and Company A to do the same, leaving it to the three sisters to fight the matter out between themselves.

18.      Accuro, subsequent to its appointment as co-trustee, formed the view that this proposal was wrong in a number of respects:

(i)        It maintained that there was no basis for any claim against Company A and any conceivable claim against it would be statute-barred.  Moreover, leading counsel's opinion wrongly elided Primafides and Company A despite the D Shares being owned by Company A alone and not being directly held Trust assets.  In Accuro's view Primafides owed no duties as legal owner of the Company A shares.

(ii)       It would be a clear misuse of Primafides' position and a breach of trust for it to involve the O Trust and Company A, irreversibly, as claimants in the proposed proceedings in the English court (which appeared to have no obvious connection with the matter).  The proceedings served no interest of the O Trust beneficiaries and would directly prejudice those interests (a point that appeared to be tentatively acknowledged by Primafides' own counsel).  It was further suggested that no independent Trustee of the O Trust could ever properly rely on advice obtained, on behalf of persons who were not beneficiaries of its Trust, for the express purpose of attacking the O Trust's wholly owned subsidiary, Company A.

(iii)      The proceedings would serve no purpose: given what Accuro regarded as Company A's complete limitation defence, nothing could be achieved by a determination that Company B was the owner of the D shares.

19.      In relation to the purpose of the proposed proceedings it was Accuro's view that there seemed to be only two possibilities, neither of which were in its view proper purposes for a Trustee of the O Trust to pursue:

(i)        That the purpose of the proceedings was, by some means, to circumvent the limitation defence.  Accuro suggested that it would be a breach of trust for Primafides, as Trustee of the O Trust, to take or permit any steps which might result in Company A losing its limitation defence.  Although leading counsel's instructions included advising on limitation there was no advice on that point in the opinion.

(ii)       It was suggested that there was the further purpose of putting pressure on C, in complete contradiction to the previously asserted desire to repair, or at least avoid, further disputes between the three sisters.  The threatened English proceedings would involve Primafides placing the entire matter on the shoulders of three elderly sisters and leaving it to them to fight it out.  No justification for this had been articulated and the situation would be made all the worse by those proceedings being brought, without obvious justification, in the English courts, guaranteeing that they would be heard under the full glare of publicity.

20.      Although Primafides had suggested that it was adopting a neutral position, it was argued on behalf of Accuro that that was simply not the case given that:

(i)        Neither the opinion of leading counsel nor Primafides' instructions were at all "neutral", and neither could they be, given Primafides' obligations as Trustee of the M and N Trusts. Counsel was instructed specifically on behalf of the M and N Trusts and the opinion was directed to searching out hostile claims against Company A, amongst others.

(ii)       If Primafides were to bring the threatened English proceedings, their very commencement would cause irreparable harm to the O Trust and its beneficiaries.

21.      By a letter of 17 February 2023 Accuro, through its advocates, wrote to Primafides informing it, in detail, of the beneficiaries' objections to the threatened proceedings in England and of the beneficiaries' complete loss of trust and confidence in Primafides.

22.      The letter enclosed a copy of a deed of removal of Primafides and appointment of Accuro as Trustee of the L Trust that had been executed the same day by C, as Protector, together with a deed of appointment of Accuro as co-Trustee of the O Trust.

23.      The letter further enclosed a copy of the Representation, which had been presented to the Royal Court that day, seeking the removal of Primafides as Trustee of the O Trust.  However, the letter requested that Primafides resign as Trustee.  The letter offered an indemnity to Primafides, based on the indemnity which Primafides had granted to its predecessors.  The letter also indicated Accuro's willingness to co-operate with Primafides if it wished to obtain the protection of an order of the Royal Court, either approving its resignation or ordering its removal.

24.      On 20 February 2023, Advocate Renouf was notified by Baker & Partners by email that they had been instructed by Primafides to act on their behalf in the matter and, as they had not yet received the relevant papers, requesting that no further steps be taken until they had responded.

25.      Advocate Renouf responded on the same day, notifying Baker & Partners that whilst the Representation was issued on behalf of Accuro, his firm was also instructed by C and her three children, collectively the adult beneficiaries of the O Trust.  That letter also dealt with various matters in relation to the proceedings and repeated the suggestion that Primafides might prefer to resign rather than be removed.

26.      In a letter dated 6 March 2023, the day before the directions hearing in relation to the Representation, Baker & Partners advised Accuro that Primafides "will not oppose a direction for its removal if that is what the court approves".  Primafides has not put forward any objections to its removal as Trustee or to the appointment of Accuro.  Accuro has taken issue with the assertion in Primafides' skeleton argument that it "has offered to resign", suggesting that at no stage has it done so.  Primafides, on the other hand, suggests that a resignation without the Court's approval risks potential liability for breach of trust given that leading counsel had advised that the only reason for removing Primafides as Trustee would be to treat the D Shares as freed from any potential claims to them from the L Trusts.

27.      In response, Accuro confirmed that it has no intention that there be any change in the present trust and corporate structure or in the jurisdictions involved, following Primafides' retirement, nor is there any intention to make distributions substantially beyond the levels of previous years.  We were informed that an Accuro group company, Company C, which would become the director of Company A, was willing to procure that Company A would undertake to the Court that it will maintain this position for a period of three months from the date of the Court's order.

The law in relation to removal of a trustee

28.      One of the leading authorities in relation to the removal of a trustee by the court is the decision of the Privy Council on appeal from the Supreme Court of The Cape of Good Hope in Letterstedt v Broers (1884) 9 App Cas 371, which was cited with approval by the Royal Court (Herbert, Commissioner) in Trilogy Management Limited v YT Charitable Foundation (International) Ltd [2014] JRC 214 at para 143.

29.      In the Privy Council, Lord Blackburn, delivering the advice of the Board, stated (at page 386):

"If it appears clear that the continuance of the trustee would be detrimental to the execution of the trusts, even if for no other reason than that human infirmity would prevent those beneficially interested, or those who act for them, from working in harmony with the trustee, and if there is no reason to the contrary from the intentions of the framer of the trust to give this trustee a benefit or otherwise, the trustee is always advised by his own counsel to resign, and does so.  If, without any reasonable ground, he refused to do so, it seems to their Lordships that the court might think it proper to remove him... In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries... It is quite true that friction or hostility between trustees and the immediate possessor of the trust estate is not of itself a reason for the removal of the trustees.  But where the hostility is grounded on the mode in which the trust has been administered, where it has been caused wholly or partially by substantial overcharges against the trust estate, it is certainly not to be disregarded."

30.      In Trilogy Management Limited v YT (supra) at paragraph 143, the Royal Court pointed out that whilst the Letterstedt decision made clear that the court has jurisdiction to replace a trustee if the beneficiaries of the trust have lost confidence in the trustee by reason of its administration and management of the trust, the passage to which we have referred made clear that loss of confidence alone is not enough.  The Royal Court did however note that:

"A breakdown in relations between an executor and a beneficiary will be a factor to be taken into account, in the exercise of the court's discretion, if it is obstructing the administration of the estate, or even sometimes if it is merely capable of doing so.  This was explicitly apparent in a more recent application of the Letterstedt authority: Kershaw v. Micklethwaite [2010] EWHC 506, a decision of Newey J."

31.      We were referred by Advocate Renouf to the decision of the Royal Court (Birt, Deputy Bailiff) in Re E,L,O and R Trusts [2008] JLR 360, a case in which the respondent was the trustee of twelve family trusts which owned shares in a company, which was the sole asset of the trusts.  H and his family were the beneficiaries of four of these trusts and H's brother, J, and his family, were the beneficiaries of the remaining eight trusts.  A dispute arose between H and J in relation to the company and litigation was contemplated.  All the beneficiaries of the H trusts requested the respondent to resign as trustee, but it refused to do so until shortly before the hearing.  The Deputy Bailiff set out a summary of certain key aspects of the nature of a fiduciary's duty, drawn from observations of Millett L.J. in the English case of Bristol and West Building Society v Motthew [1996] 4 All ER 698.  The Deputy Bailiff had this to say:

".... (iii) the distinguishing obligation of a fiduciary is the obligation of loyalty.  The principal is entitled to the single-minded loyalty of his fiduciary.

(iv) This duty of loyalty gives rise to certain specific obligations:

(a) A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other.  This is sometimes described as "the double employment rule".  Breach of the rule automatically constitutes a breach of fiduciary duty.

(b) Even if a fiduciary is properly acting for two principals with potentially conflicting interests (i.e. because he has their consent) he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other.  This is "the duty of good faith".  But it goes further than that.  He must not allow the performance of his obligations to one principal to be influenced by his relationship with the other.  He must serve each as faithfully and loyally as if he were his only principal. Conduct which is in breach of this duty need not be dishonest but it must be intentional.  An unconscious omission which happens to benefit one principal at the expense of the other does not constitute a breach of fiduciary duty, though it may constitute a breach of the duty of skill and care.  This is because the principle which is in play is that the fiduciary must not be inhibited by the existence of his other employment from serving the interests of his principal as faithfully and effectively as if he were the only employer.  Millett LJ referred to this as "the no inhibition principle".

(c) The fiduciary must take care not to find himself in a position where there is an actual conflict of duty so that he cannot fulfil his obligations to one principal without failing in his obligations to the other. If he does, he may have no alternative but to cease to act for at least one and preferably both.  The fact that he cannot fulfil his obligations to one principal without being in breach of his obligations to the other will not absolve him from liability.  This can be referred to as "the actual conflict rule"."

32.      Applying these principles to the facts in E.L,O and R and the principles applicable to an application to remove a trustee, the Deputy Bailiff held that:

"32. [The trustee] found itself in a position of plain and obvious conflict of interest and it should have retired without seeking an order from the court.  Its decision not to do so was wrong to the extent that it can properly be characterised as unreasonable.

....

34.  However, for the reasons we have given, this was an elementary case of a plain and obvious conflict of interest.  The brothers were in dispute, there were complex negotiations on the future of the company where the interests of the trusts were obviously adverse, and there was the real prospect of litigation under the Companies Act, where the H family trusts and the J family trusts were likely to be on opposite sides of the fence."

33.      We note that paragraph 34 of the E,L,O and R judgment refers to a fact pattern which is not entirely dissimilar to that in the present case.

Our decision

34.      Accuro made no criticism of the decision by Primafides to seek advice from leading counsel in relation to the position in which it found itself when G and H questioned the D Transfer. We agree that that was an appropriate step for a trustee to take.  However, once the advice was provided, on 20 December 2022, it should have been clear that the Trustee was in a position of conflict.  Indeed, leading counsel expressly pointed out in his advice that Primafides was conflicted, albeit that he did not "see any problem arising" out of it provided that it acted neutrally as between the competing interests.  We do not share leading counsel's optimism.  Leading counsel was, of course, only instructed by Primafides in its capacity of the M and N Trusts and his instructions were to advise Primafides in that capacity "as to whether it has any claim (and, if so, against whom)" in connection with the D Transfer.  Ingenious as his proposed solution may have been from the point of view of his instructing Trustees, it failed, in our view, to give sufficient weight to the fact that there were issues such as possible limitation defences and choice of, and submission to, jurisdiction where Primafides, as initiator of the proposed proceedings, would find itself having to take decisions where the views and interests of the beneficiaries of the Trusts involved were not aligned.  C, as a beneficiary of the O Trust and L Trust, was clearly opposed to the proposed steps and whilst the stated ultimate purpose was to ensure that the beneficiaries "advance their competing positions" this was at a stage where there was little in the way of an articulated claim or supporting evidence.

35.      Advocate Thomas, for Primafides, acknowledged that were the Trustees of the M and N Trusts to issue proceedings against the Trustees of the O Trust then it would be in a position of conflict and would have to resign.  However, in the circumstances we regard the position of obvious conflict in which Primafides found itself, as Trustee of the O Trust, following receipt of leading counsel's advice to it in respect of its trusteeship of the M and N Trusts, as being such as to make its resignation as Trustee entirely appropriate.  It is clear that the delay in such resignation has led to a breakdown in its relationship with C such as to justify its removal as Trustee by this Court which is, as previously noted, not opposed by Primafides.

36.      We accordingly ordered that Primafides resign as Trustee of the O Trust within two weeks of the date of the hearing.

Consequential orders

37.      In its skeleton argument Primafides, in anticipation of its removal as Trustee of the O Trust, requested that the court consider making certain orders for disclosure.

38.      Firstly, given that these proceedings were held in private, an order that they be at liberty to disclose the contents of the Representation and any judgment made upon it to the beneficiaries of the BVI Trusts and, in the event that Accuro as Trustee of the O Trust decides not to make an application to Court along the lines of the steps suggested by leading counsel, to disclose that decision to the M and N beneficiaries.  Secondly, a similar request was made in respect of any application that Primafides might make to the BVI courts in relation to the validity of its removal as Trustee of the L Trust.

39.      Primafides' concerns in relation to disclosure illustrate the difficulties caused by its conflict of interest.  We declined to make any orders for disclosure at this stage although we indicated that should there be a requirement for disclosure of any documents confidential to these proceedings to the BVI court, for the purposes of an application in respect of the L Trust, we would entertain a further application should that be appropriate.  However, at present it is difficult to see what aspect of these proceedings would be relevant to such an application.

40.      In relation to disclosure to the beneficiaries of the M and N Trusts it would appear that the beneficiaries are already aware of Accuro's appointment as co-Trustee, the information having been disclosed by Primafides' Jersey lawyers (without the benefit of a Court order) to the beneficiaries' Jersey lawyer in a letter dated 24 March 2023.  To go beyond that would be to reveal matters that are confidential to a trust in respect of which they are strangers.

41.      We were requested by Accuro, and we agreed, to make certain ancillary orders to ensure the swift and efficient transfer of Trust assets and documents to it as sole Trustee.

Costs

42.      Although Accuro was critical of the position taken by Primafides in respect of its conflict of interest and retirement, we do not regard Primafides' stance to have been so unreasonable as to disentitle it to the usual trustee indemnity.  We accordingly ordered that the costs of both parties be paid from the Trust fund of the O Trust on the usual trustee basis.

Authorities

Trusts (Jersey) Law 1984, as amended. 

Letterstedt v Broers (1884) 9 App Cas 371. 

Trilogy Management Limited v YT Charitable Foundation (International) Ltd [2014] JRC 214 at para 143. 

Re E,L,O and R Trusts [2008] JLR 360. 

Bristol and West Building Society v Motthew [1996] 4 All ER 698