Contentious Trusts Estates and Family News

Costs in Jersey Trusts Proceedings

The Jersey position on costs in trust proceedings has been clarified in two recent decisions.

In Des Pallieres v JP Morgan Chase & Co the Jersey Court of Appeal considered the costs of parties acting in a fiduciary capacity and in Re Dunlop Settlement the Royal Court considered a beneficiary’s position.

In a nutshell, the principle of indemnity is paramount.

Persons exercising fiduciary functions are entitled to an implied equitable indemnity (equivalent to the trustee’s statutory indemnity) in respect of costs reasonably incurred by that person in the exercise of those functions, which provides a prima facie entitlement to recover on a full trustee indemnity basis. It can be lost where the fiduciary is guilty of misconduct or acting unreasonably.

Beneficiaries convened to trust proceedings are also prima facie entitled to their costs from the trust fund, but on the litigation indemnity (as opposed to standard or trustee indemnity) basis, which entitlement again can be lost where the beneficiary acts unreasonably.

The proceedings in des Pallieres involved an application by a beneficiary for disclosure against the settlor of an employee benefit trust – the settlor had certain fiduciary powers (removal and appointment of trustees and the protector).

It was accepted that the beneficiary could seek disclosure against the settlor in relation to the exercise of those fiduciary powers.

The disclosure sought was refused on the basis that the documents were available from the trustee or amounted to an attempt to obtain a pre-action disclosure.

The Court of Appeal upheld the Royal Court’s decision to award the settlor its costs from the trust fund on a full trustee indemnity basis, and rejected the beneficiary’s argument that the application was in reality a hostile one for pre-action disclosure (and not administrative) and therefore costs should have been awarded against him personally on a standard litigation basis.

The question of which category (under Re Buckton) the case fell into was held not to be relevant when looking at a fiduciary’s costs – the entitlement arises out of the right of indemnity, irrespective of the nature of the proceedings.

The important limiting principle is that indemnity can be lost in circumstances where the fiduciary has been found guilty of misconduct or acting unreasonably.

Re Dunlop involved a surrender of discretion by a trustee and the authorisation by the Court of the trustee to settle various claims in respect of the trust and its assets. The costs judgement related to a claim for costs out of the trust by a beneficiary who had opposed the substantive application.

The Royal Court considered the Re Buckton principles and their application to beneficiaries’ costs in trust litigation, and held that the application was an administrative one.

Therefore, the beneficiary had a prima facie right to litigation indemnity costs unless deprived of that right through her own unreasonable conduct.

For numerous reasons (including not taking part in a mediation, breaching filing orders, submitting a “palpably wrong” witness statement) the beneficiary was held to have acted unreasonably and was awarded only half of her costs.

These decisions provide clarity in terms of the approach of the Jersey Courts.

One potential area for debate in future cases will be how high the hurdle is for losing the right of indemnity or entitlement to costs.

Contested Beddoe applications in England and Wales – who should pay the costs?

During the administration of a trust or estate, circumstances may arise that require consideration as to whether trusteed should bring or defend proceedings against third parties or beneficiaries for the benefit of the trust or estate as a whole.

Beneficiaries may not always agree as to how the trustees should proceed and consequently the trustees may decide that they ought to make a Beddoe application seeking the approval of the court to their proposed course of action.

Hitherto, it has generally been thought that a warning by the trustees to beneficiaries as to the potential costs liability they might face if the court find that the beneficiary has acted unreasonably in objecting to the trustees’ proposed course of action (thus forcing the trustees to apply to court) carried little weight and that the beneficiary’s costs, as well as the trustees’ costs of the application would come out of the trust fund.

However, courts are increasingly concerned at the level of costs being incurred by parties and particularly where court time and resources are wasted by the court having to deal with matters it ought not to have had to deal with.

In the recent case of Green v Astor and Others [2013] EWHC 1857 (Ch) an issue arose as to what costs order the court should make following a contested Beddoe hearing.

As a consequence of the judgement more trustees seek an order for costs against beneficiaries who unreasonably oppose their proposed course of action thus resulting in a Beddoe application being made.

Feltham v Freer Bouskell [2013] EWHC 1952 (Ch)

A solicitor who is instructed to prepare and execute a new will has an obligation to carry out those instructions within a reasonable period of time particularly where the testator is elderly and it is foreseeable that he may not continue to live long.

Freer Bouskell were instructed by Mrs Feltham’s step-grandmother, Mrs Charlton to prepare a new will under which Mrs Feltham would become the main beneficiary. They failed to do so in a timely manner and so Mrs Charlton asked Mrs Feltham to make a new will for her instead.

Mrs Charlton died 8 days after signing her new will which was then challenged by the two main beneficiaries under her previous will.

Mrs Feltham paid £650,000 to settle that claim and subsequently brought an action in negligence against Freer Bouskell alleging that they had drafted the will as instructed it was unlikely to have been challenged.

Mr Ward, the solicitor who was instructed to draft the new will for Mrs Charlton had known her for a number of years and knew the contents of her will.

The Judge noted that Mr Ward was an honest and meticulous witness who “must have had a genuine concern that Mrs Feltham, having come on the scene at the last minute, was now seeking to take advantage of a vulnerable old lady by securing a change in her will in her own favour”.

Nevertheless, it was “entirely inadequate for a solicitor instructed by a 90 years old client to alter her will to take the view that, because he was concerned that she might be taken advantage of by the potential beneficiary under the new will, and because she did not mention the will to him when they spoke on the phone, he would take the matter no further until they spoke again”.

The Judge was satisfied that it would have been clear that Mrs Charlton had the requisite capacity to make a will at the relevant time and that her instructions could have been fulfilled in a timely manner.

He found that Mr Ward was negligent in failing to deal with the instructions to prepare a will and that he had failed to chase up the medical report he had requested so that he could satisfy himself as to her capacity before visiting her in person to discuss the proposed changes.

Mrs Feltham was awarded damages to reflect the sums she had pay by way of settlement to those challenging the will as well as the legal costs she incurred in relation to those proceedings.

The decision in Feltham v Freer Bouskell is a timely reminder of the need to act swiftly when dealing with the affairs of elderly clients, particularly where they are giving instructions for a new will.

Even where a solicitor has concerns about capacity and/or undue influence he should not delay in preparing a will on that basis.

Where there are concerns about testamentary capacity the solicitor taking instructions should either refuse the instructions or take prompt steps to obtain a medical opinion and satisfy himself of the position.

M v M [2013] EWHC 2534 (Fam)

The financial provision award of almost £54m in M v M exceeds the previous record of £48m set by Charman v Charman in 2006. The wife’s claim to a number of properties held within offshore companies was considerably strengthened by the recent Supreme Court decision in Prest v Petrodel Resources Limited [2013] UKSC34.

The parties to the marriage were both Russian nationals who had lived in England since 2005.

The couple were divorced in Russia and the wife then made an application for financial relief in the English High Court. The marital assets were held in a complex network of offshore corporate structures created by the husband.

Mrs Justice King was extremely critical of the husband’s conduct throughout the litigation saying that he had failed to comply with orders of the Court and was in contempt “many times over”.

The husband repeatedly failed to disclose his assets and did not attend the final hearing.

Nevertheless, the wife’s legal advisers had “at fabulous cost (£1.4m and counting)” been able to trace assets of £1O7m, all of which had been acquired during the course of the marriage.

Notwithstanding the husband’s failure to engage with the proceedings the Judge noted that he “remained active behind the scenes, moving company structures from offshore haven to offshore haven when the net…closed in”.

Orders were obtained in Cyprus, the BVI and the Seychelles, but the husband managed to stay one step ahead and transfer the assets into a Belize structure using a Panamanian intermediary.

At the time of the hearing the husband’s companies held the legal title to various English properties worth approximately £14m.

The issue that the Court had to determine was whether the husband had intended to retain the beneficial interest in those properties, making him entitled to them (and hence able to transfer them to the wife by way of financial provision), or whether the companies were the true legal and beneficial owners of the properties so that they were beyond his reach.

The wife argued that the various properties were held by way of a resulting and/or constructive trust for the husband and as he had at all time retained the beneficial interest in the properties it was not necessary or appropriate to seek to “pierce the corporate veil”.

The Judge agreed that the husband’s actions in relation to the properties were at all times those of a beneficial owner and found that he kept “absolute control over his empire”. Following the Supreme Court’s ruling in Prest the Judge found that the English properties were held on resulting trust by the companies for the husband and accordingly she ordered that the properties be transferred to the wife. In addition to the value of the English and Russian residential properties (which were already in the wife’s name) the husband was ordered to pay a lump sum of £38m bringing the total of the award to half of all the ascertainable marital assets.

This Publication provides general advice only is should not be relied upon when making decisions. Neither CST nor any other professional in the firm has prepared this with a view to covering any client scenario and this document is not a substitute for professional advice. It has been prepared in conjunction with firm of Boodle Hatfield see www.boodlehatfield.com

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