Jersey Unreported Judgments

Trust - reasons for declining to grant the relief sought.

[2023]JRC242

Royal Court

(Samedi)

30 November 2023

Before     :

R. J. MacRae, Esq., Deputy Bailiff, and Jurats Christensen and Le Cornu

 

IN THE MATTER OF THE Q TRUST

Advocate O. J. Passmore for the Representor

Advocate S. J. Alexander for the First Respondent

Advocate M. C. Seddon for the Second, Third and Fourth Respondents

judgment

the deputy bailiff:

1.        On 3 November 2023, we heard argument in this matter in respect of two summonses.

2.        In relation to the summons seeking case management directions, we gave our decisions at the hearing.

3.        In respect of the summons of the Representor inviting the Court to accept the surrender of its (the Trustee's) discretion as to whether or not the Trustee should make available a facility of £1 million for the purposes of staged distributions to the First Respondent from the assets of the Q Trust ("the Trust") set against her notional allocation under the Trust, and that the Trustee's costs of and incidental to this summons be met from the assets of the Trust on the Trustee indemnity basis, we declined to grant the relief sought in terms of accepting the surrender of the Representor's discretion and made further ancillary orders and reserved the Court's decision in respect of the incidence of the Trustee's costs.

4.        We now provide the Court's decision in relation to costs and give reasons for the orders made at the conclusion of the hearing.

5.        The background to this matter is set out in summary in the judgment dated 28 June 2023, a redacted version of which has been published at Representation of BOS Trustee Limited [2023] JRC 107.  The First Respondent is the Settlor's second wife.  The Second Respondent is his second daughter by his first marriage, and the Third and Fourth Respondents are grandchildren of the Settlor by his deceased son.

6.        At paragraphs 4 to 21 inclusive of the June judgment, that judgment sets out events leading to this dispute, identifies the beneficiaries of the Trust (currently the First, Third and Fourth Respondents), notes that the First Respondent was appointed a beneficiary, shortly after her marriage to the Settlor, on 18 April 2017, notes that the Second Respondent was removed as a beneficiary on 18 November 2020, some six months before the death of the Settlor on 3 April 2021, and summarises at paragraph 21 the Second Respondent's challenges to the validity of the execution of three letters of wishes, the 2020 appointment of the Third Respondent as a Protector and the removal of the Second Respondent as a beneficiary in November 2020.

7.        Importantly, as will appear from the resumé below, at no stage in the pleadings, as summarised albeit briefly in the June judgment referred to, does the Second Respondent attack or seek to set aside the Trustee's appointment of the First Respondent as a beneficiary.

8.        There were three issues before the Court:

(i)        Should the Court accept the Trustee's surrender of its discretion?

(ii)       If the Court accepts the surrender of the Trustee's discretion, should it make the distribution to the First Respondent or not?

(iii)      If the Court declines to accept the Trustee's surrender of discretion, what directions, if any, should it give to the Trustee?

The Trustee's surrender of discretion

9.        Notwithstanding the fact that the interests of the First and Second Respondents are for the most part diametrically opposed in these proceedings, they were both agreed that the Trustee should not be permitted to surrender its discretion to the Court.

10.     The First Respondent first made a request to the Trustee for a distribution to fund her ongoing legal costs on 1 February 2023.  The Trustee canvassed the request with the advocates representing the Second to Fourth Respondents, who indicated that their clients did not agree with the First Respondent's legal costs being met from the Trust. 

11.     On 11 April 2023, the Trustee wrote to the parties saying that in the circumstances the Trustee considered it would be for the First Respondent to make an application for a prospective costs order.  By way of response, the First Respondent's advocates wrote to the Trustee asking that her legal fees be paid directly by the Trustee, with such payments being treated as a capital distribution as against her notional allocation of the Trust fund. 

12.     In his letter dated 26 April 2023, the advocate for the First Respondent noted at paragraph 6 that:

"The validity of the Deed of Addition by which our client was added to the beneficial class of the Trust has not been challenged by the Second Respondent in these proceedings, and that there is therefore no question as to our client's status as a beneficiary of the Trust."

13.     He went on to say that there was "no basis" upon which the Second Respondent (who is not currently a beneficiary) nor the Third or Fourth Respondents might properly object to the request.

14.     By letter dated 15 May 2023, the Trustee noted that the Second Respondent argued in her pleading that at the time that the First Respondent was added as a beneficiary by the Trustee, the Settlor was subject to undue influence by the First Respondent and also when he executed his letter of wishes dated 6 April 2017.

15.     In the same letter the Trustee said, "It therefore follows the Trustee cannot simply conclude that your client's status as a beneficiary is unchallenged...".  This misapprehension appears to have coloured the Trustee's thinking since that time and it is fair to observe that this belief was probably reinforced by the email from counsel for the Second Respondent dated 20 June 2023 which said "[B's] [the First Respondent's] entire interest as a beneficiary is under challenge in the Representation proceedings".  He added:

"The paraphernal assets claim, which will shortly be bought by way of Order of Justice proceedings, calls into question the property of the Trust.  In broad terms, it is claimed that the paraphernal property of [D] formed, at the very least, a substantial part of the Trust property and could not validly be settled or added to form part of the Trust property."

16.     No such Order of Justice has yet been served and whether or not it would have such a material effect on the Trustee's position would depend upon its terms.

17.     The email went on to say that there was a risk that a distribution to the First Respondent would amount to "a distribution to a non-beneficiary and / or a distribution of property which, in fact, belongs to the Estate of [D]". 

18.     In fact, the points of claim and other pleadings filed on behalf of the Second Respondent at no time challenge the beneficial status of the First Respondent.  Indeed, counsel for the Second Respondent said during the hearing "The appointment of [the First Respondent] as a beneficiary is not disputed", although he did say that if the allegations against her were proved then there would be "doubts" about whether she ought to receive benefit under the Trust.

19.     Nonetheless, as stated above, the erroneous belief on the part of the Trustee that it was being invited to make a distribution in favour of a person whose status as a beneficiary was under threat has significantly influenced the Trustee's thinking.  The Skeleton Argument filed on behalf of the Trustee for this hearing stated at paragraph 5.13 that the Second Respondent:

"...seeks to challenge [the First Respondent's] appointment based on the [Settlor's] lack of capacity or [the First Respondent's] undue influence."

20.     This was incorrect and much of the Trustee's analysis that followed that assertion was consequently wrong in part.  Indeed, it was this belief that appeared to be uppermost in the Trustee's mind, as at paragraph 5.26 the Trustee said:

"Consideration of [the First Respondent's] request involves, principally, an assessment of the nature of the challenge to the status of [her] as a beneficiary and (to a lesser extent) the challenges based on incapacity and undue influence generally." [our emphasis]

21.     The Trustee reluctantly, ultimately, accepted that on the pleadings, reinforced by the submission made by counsel for the Second Respondent, the status of the First Respondent as a beneficiary is not an issue in these proceedings.

22.     Accordingly, the Trustee's submission that if a distribution to the First Respondent is made it might subsequently transpire that it had been made to a non-beneficiary, was without any foundation.

23.     The Trustee explained various matters that it had considered in respect of the First Respondent's request, namely that there were "countervailing factors" which pointed to a distribution being made, namely the status of the First Respondent as a beneficiary, the fact that a distribution in the amount that she is asking for would be only approximately 1% of the value of the Trust fund, and that it is "in the interests of the beneficiaries for there to be a properly contested resolution of the issues of capacity and undue influence for the purposes of correctly establishing the identity of the beneficiaries and the wishes of the Settlor".

24.     However, the Trustee said that it was appropriate for the Court to accept the surrender of the Trustee's discretion for the following reasons:

(i)        Strong views had been expressed by the First Respondent on the one hand, and the Third and Fourth Respondents who are beneficiaries, and the Second Respondent who challenges her exclusion in the Representation on the other.  The Trustee says, "Feelings have run high between the parties".

(ii)       The Trustee says the request requires the Trustee to "form a view on the merits of the issues of capacity and undue influence" which is a "difficult matter of judgement".  The Trustee has issued the Representation "precisely in order to resolve those issues and obtain certainty".

(iii)      It is said that for the Trustee this was not a matter of deciding upon the competing claims, but "it is unclear who the beneficiaries are" (another error in relation to the status of the First Respondent) and "how the immediate issue of the First Respondent's funding issues might be resolved".

(iv)     The Trustee says that to make a decision involves an assessment of the merits of the cases on each side, which the Trustee was poorly placed to do, and that making a decision would be difficult in circumstances where the Trustee had "sought to adopt a neutral position as between the different Respondents".

(v)      Finally, the Trustee said that there may be "a perception of conflict" because the Singaporean lawyers for the Second to Fourth Respondents had said in an email in November 2022 that employees of the bank (which owns the Trustee) might end up giving evidence.  When pressed on this, the Trustee's advocate ultimately conceded that, as far as it was concerned, there was no conflict, and that at most there was only the appearance of conflict.

25.     Counsel for the First and Second Respondents said that there was, so far as they were concerned, no question of conflict on the part of the Trustee.  They said that this was a difficult decision but not an unusual one, and certainly not one which warranted surrender of discretion, and a decision that the Trustee ought to take and that, in short, the Trustee should just get on with it.

26.     They did not agree as to how the Trustee should get on with it - counsel for the First Respondent said that it was straightforward that a distribution should be made; counsel for the Second Respondent said it was equally plain that a distribution should not be made. 

27.     We were referred to various authorities and counsel were largely agreed on the correct approach. 

The relevant legal principles

28.     It was agreed that the Court is not obliged to accept a surrender of discretion by a trustee, and a trustee is not entitled simply to hand its trusteeship to the Court. 

29.     Although the Court was concerned with trustees making recommendations when seeking directions from the Court in administrative proceedings and not surrender of discretion per se, we remind ourselves of the decision of the Royal Court in Abacus (CI) Limited, trustee of the Esteem Settlement and the No 52 Trust in the Group Torres SA litigation [2001/16A], where Birt, Deputy Bailiff said:

"It is not helpful to the Court for the trustee metaphorically to dump the problem in the Court's lap saying 'There you are, you sort it out'."

30.     It was agreed that the Court may only accept the surrender of discretion for "good reason" - Abacus (CI) Limited v Hirschfield [2001] JLR 530.  The categories of what might amount to a "good reason" are not closed and examples from the case law included cases of genuine deadlock between the trustees, cases in which the trustee is disabled by conflict of interest, and cases in which the trustee is faced with potential settlement of litigation with a third party, and where the beneficiaries take strong and opposing views.

31.     Our attention was drawn to Womble Bond Dickinson (Trust Corp) Ltd v Persons Unnamed [2022] EWHC 43 (Ch), where Deputy Master Brightwell, sitting in the High Court, said at paragraph 65:

"The trustee has in the event indicated that it wishes to surrender its discretion to the court, thus treating the application as a category (3) Public Trustee v Cooper application. There has to be a good reason for the court to accept a surrender of a trustee's discretion, and this is most commonly found where there is deadlock between trustees or where they are acting under a conflict of interest and duty. The trustee relies on (i) the practical difficulty of ascertaining the Beneficiaries, (ii) the difficulty of forming a fixed view on how to deal with this issue, and particularly (iii) its concern that it may be exposed to claims if it exercises its discretions without having been able properly to identify all of the beneficial class."

32.     The Deputy Master went on to accept the trustee's surrender of discretion in the circumstances of that case, where the trustee was uncertain as to the extent of the beneficial class and was concerned about the prospect of litigation which might flow from this uncertainty.  The Trustee in the present case relied upon paragraph 66 of the judgment in which the judge said:

"While the court will usually not accept a surrender merely because a trustee is concerned about being sued for making a decision, that concern must be seen in the context of all the circumstances I have described, together with the fact that some clarity on the most appropriate way to proceed has emerged. It is also a relevant factor that trust corporations and professional trustees should not be discouraged from assuming the trusteeship of difficult trusts. I will accordingly accept the surrender of discretion."

33.     Reliance was also placed on the decision in Abacus v Hirschfield, where the trustee sought the Court's directions as to whether or not it should enter into a settlement agreement in which various beneficiaries were involved.  The trustee submitted that the Court should accept the surrender of its discretion to decide whether or not it should enter into the proposed agreement as only it could judge the possible outcome of the litigation which it had before it and its consequent impact on the trust.  The Court accepted that it alone was in a position to judge the possible outcome of the litigation which had been before it and accepted the surrender of discretion. 

34.     As is clear from paragraph 4 of the judgment, the Court in Abacus v Hirschfield had heard evidence over a period of some days and, before the completion of the evidence, the Court was informed that a compromise had been reached which would involve the trustee taking certain steps in relation to the trust.  This led the Court to accept the surrender of the trustee's discretion as, on the facts of that case, there was clearly good reason so to do.

Discussion and decision

35.     The Respondents said that the Trustee was unable to point to authority to the effect that a "hard decision" warranted the Court accepting a surrender of discretion.  When the Court pressed counsel for the Trustee as to whether it could be said that the Court was in a better position than the Trustee to judge the merits of the competing claims between the parties, no convincing answer was made.  The parties have yet to make discovery.  This case bears no resemblance to Abacus v Hirschfield.

36.     Counsel for the First Respondent noted that the claim in relation to the paraphernal assets had been struck out and not renewed by way of Order of Justice.  He also said the fact that the parties do not agree on the distribution request did not matter.  This was the sort of dispute that happened "all the time in high value and complex cases".

37.     Counsel for the Second to Fourth Respondents said there was no question of conflict and certainly none that warranted a surrender of discretion.  There was nothing in the pleadings or the evidence as a whole which disabled the Trustee from making a decision.  He argued that the request made by the First Respondent did not involve a "deep dive" into the merits of the claims in these proceedings.  The Trustee simply needed to make a decision with all relevant factors in mind and he agreed the Court was no better placed than the Trustee to make this decision.

38.     We agreed with the submissions made by counsel for the Respondents.  Making difficult decisions is part of a trustee's job and we had no doubt that it would have been wrong to accept the surrender of the Trustee's discretion on the facts of this case.  Furthermore, we accepted the submission made by counsel for the Second to Fourth Respondents to the effect that a change of circumstances or additional requests might potentially lead to the Trustee repeatedly coming to the Court with surrenders of its discretion which would be time consuming, expensive for the Trust (and therefore the beneficiaries) and unnecessary.  Both counsel for the Respondents agreed that the Trustee should be directed to make a decision within a short timeframe.

39.     We agreed and ultimately directed the Trustee to make a decision within twenty-one days, and to inform the Respondents of the decision and the reasons therefore within that period.  In normal circumstances it might be appropriate only to disclose the reasons for such a decision to the beneficiary concerned, namely the First Respondent, but in the circumstances of this case, all the Respondents (even the Second Respondent who is not currently a beneficiary) were entitled in our view in this case to know not merely of the Trustee's decision but the reasons for it. 

40.     It is not necessary for us in the circumstances to consider the second issue, namely how the Court would have exercised its discretion had it accepted the Trustee's surrender. 

41.     However, it is necessary to make brief remarks in relation to the directions that we were asked to make having declined to accept the Trustee's surrender of discretion.

42.     It was suggested that we should give the Trustee extensive guidance, including a list of relevant factors to take into consideration.  For example, it was suggested by the First Respondent that we should direct the Trustee to take into account the views of the beneficiaries, the reasons for the request, the amount of request, the contents of any relevant letters of wishes and so on.  It was suggested on behalf of the Second Respondent that the First Respondent's failure to disclose her means, which in the opinion of the Second Respondent (who swore a short affidavit to this effect) were substantial, was fatal to her application for a distribution.

43.     The Trustee is a professional trustee.  We decline to give guidance as to how it should exercise its discretion, save that when declining to specify the factors that the Trustee should take into account when exercising its discretion, we stated that it must proceed on the footing that the First Respondent's status as a beneficiary is not challenged in these proceedings, and that the Trustee is not conflicted from making a decision. 

44.     We thought it was appropriate for us to give the Trustee directions to this effect so as to ensure that these misconceptions were not taken into account by the Trustee when exercising its discretion. 

The Trustee's costs of and incidental to the Representation

45.     The Trustee's application to the Court was rejected and, in those circumstances, both counsel on behalf of the four Respondents say that the Trustee had been acting unreasonably and, accordingly, should be deprived of its costs. 

46.     The Trustee, in response, said that it had taken advice, had proceeded carefully and cautiously, that the email from counsel for the Second Respondent had contributed to its "muddled" misconception as to the First Respondent's beneficial status, and that the Trustee was obliged to treat such correspondence seriously. 

47.     The principles upon which the Court considers such an application were recently considered at some length by the Royal Court in the Representation of Appledore Trustees Limited [2023] JRC 156, at paragraphs 29 to 40 inclusive. 

48.     The key issue for the Court was whether or not the Trustee acted unreasonably in bringing an unnecessary application to the Court. 

49.     In that case, at paragraph 52, the Court referred to the decision in Landau v Anburn Trustees Limited and Ors [2007] JLR 250, where the beneficiaries expressed concern that the trustee had incurred excessive fees unreasonably in seeking directions from the Court, but the Court had not deprived the trustee of its costs even though its application had been rejected.

50.     Although the Court rejected the Trustee's arguments, they were not hopeless.  They were pursued in good faith and not pursued unreasonably.  Trustees do have a degree of latitude in relation to the arguments that they advance, and a trustee should not generally be discouraged from seeking directions from the Court. 

51.     The facts in this case are different from the Appledore case, where the Court ultimately determined that the trustee should be deprived of its indemnity in respect of 40% of its costs.  Accordingly, the Trustee is entitled to be indemnified in respect of its costs of and incidental to the Representation on the usual basis.

Authorities

Representation of BOS Trustee Limited [2023] JRC 107. 

Abacus (CI) Limited, trustee of the Esteem Settlement [2001/16A]. 

Abacus (CI) Limited v Hirschfield [2001] JLR 530. 

Womble Bond Dickinson (Trust Corp) Ltd v Persons Unnamed [2022] EWHC 43 (Ch). 

Representation of Appledore Trustees Limited [2023] JRC 156. 

Landau v Anburn Trustees Limited and Ors [2007] JLR 250