Trusts - re costs.
[2021]JRC021
Royal Court
Samedi)
25 January 2021
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Before :
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J. A. Clyde-Smith OBE., Commissioner sitting
alone.
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Between
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B
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Representor
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And
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Erinvale PTC Limited
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First Respondent
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And
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C (by his delegate D)
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Second Respondent
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And
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E and F
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Intervenors
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Advocate P. C. Sinel for the
Representor.
Advocate B. J. Lincoln for the First
Respondent.
Advocate P. D. James for the Second
Respondent.
Advocate S. A. Franckel for the Intervenors.
judgment
the commissioner:
1.
The
parties apply for orders for costs arising out of a number of matters in
relation to these proceedings which have now been stayed.
2.
The
background is set out in the Court’s judgment of 15th October
2020 (B v Erinvale PTC Limited and Ors [2020] JRC 213) (“the
Judgment”), which I will take as read. By way of very brief overview, at its
heart are divorce proceedings in the Family Division between C and B in which B
is seeking ancillary relief. The divorce proceedings were commenced in May
2017, but the ancillary proceedings have yet to be determined (“the
Ancillary Proceedings”).
3.
The
unusual feature of this case is that in January 2019, B filed a representation
in the Samedi Division (2019/007) invoking the supervisory jurisdiction of the
Court over the A Settlement, a discretionary settlement established by C in
September 2012 and into which he settled the whole of his free estate
(“the Trust Proceedings”).
The trustee is the First Respondent (“Erinvale”), a private
trust company. The beneficiaries are C, his spouse and his children and remoter
issue. There is one child of their
marriage, who is therefore a beneficiary, and C has two children by an earlier
marriage, the Intervenors, represented by Advocate Franckel, who are also
beneficiaries.
4.
Because C
has settled all of his free estate into trust, both he and B are financially
dependent upon the A Settlement. C, who is Jersey resident, receives
distributions but for English tax reasons the modus operandi for payments made
to or for the benefit of B in terms of her monthly financial support and her
legal fees are accounted for by way of loan to her (see paragraph 40 of the
Judgment). Invoices from Sinel’s are submitted on a regular (usually
monthly) basis and Erinvale discharges those invoices.
5.
In the
Trust Proceedings B is seeking, inter alia, the same relief as might be awarded
to her in the Ancillary Proceedings. As the Court noted at paragraph 15 of the
Judgment, the Trust Proceedings therefore gave rise to a parallel set of
proceedings to those in the Family Division.
Addition Application
6.
Following
correspondence, B issued a summons on 18th December 2019 under the
Trust Proceedings, seeking inter alia an order that Erinvale appoint her
as a beneficiary in her own right, part of the relief sought in the
representation (“the Addition Application”). On 10th January 2020 Erinvale
resolved not to add her as a beneficiary in her own right at that time. She was, of course, a beneficiary as C’s
spouse.
7.
By a
consent order of 16th April 2020, Erinvale agreed that B’s application to
be appointed a beneficiary in her own right should be dealt with as a cause
de brièveté. The
Act of Court was clear that B’s application was made under the
representation in proceedings 2019/007 to be dealt with as a stand-alone issue
and after a significant amount of correspondence the Bailiff confirmed on 17th
August 2020 that that was the sole matter to be dealt with at the hearing.
8.
As a
consequence of delays caused by Covid 19, that matter did not come before the
Court until 3rd and 4th September 2020, when the Court
reserved judgment, and on 15th October 2020, the Court set aside the
decision of Erinvale not to add B as a beneficiary in her own right for the
reasons set out in the Judgment.
Following the handing down of the Judgment, she has now been added by
Erinvale as a beneficiary in her own right.
9.
Advocate
Sinel seeks an order that Erinvale should pay B’s costs of the Addition
Application on the indemnity basis and should be deprived of its right of
indemnity against the trust fund so that it would bear those costs personally.
He did not make any submissions about Erinvale’s indemnity in respect of
its own costs.
10. Advocate Lincoln, for Erinvale, seeks an order
that its costs should be paid out of the trust fund, pursuant to its indemnity,
a position supported by Advocate James for C and Advocate Franckel. Advocate
Lincoln also sought an order that the costs of C and the Intervenors, as
convened parties, should be paid out of the trust fund on the indemnity basis.
11. In so far as B’s costs were concerned,
Advocate Lincoln sought an order that the costs in respect of the arguments in
which she was successful, namely the setting aside of the decision, should be
paid out of the trust fund on the indemnity basis, but the costs in respect of
the arguments in which she was not successful, whilst being paid out of the
trust fund, should be borne by her personally by being added to the loan
account due by her to Erinvale, a position essentially supported by Advocate
James and Advocate Franckel.
12. Advocate Sinel’s position was
straightforward in that he said B has succeeded in the Addition
Application. The Court had found
the decision of Erinvale not to appoint her as a beneficiary in her own right
was one which no reasonable trustee could have made. That justified an order in her favour on
the indemnity basis (citing the Court of Appeal decision in Appleby Trust (Mauritius) Limited v Crociani & Ors.
[2018] JCA 136 at paragraphs 21, 57 and 58) and furthermore, it justified
Erinvale being deprived of its indemnity from the trust fund in order to meet
those costs as a consequence of its unreasonable conduct as trustee (citing In
re the Piedmont Trust and Riviera Trust [2016] (1) JLR 14).
13. Advocate Lincoln submitted that a number of plainly
bad arguments had been made by Advocate Sinel, the costs of which should be
borne by B and not by the trust estate, through those costs being added to her
loan account with the A Settlement, and thus deducted from whatever
distributions would ultimately be made to her following a final order in the
Ancillary Proceedings.
14. It is necessary to consider first the nature of
the Addition Application. Advocate
Sinel makes reference in paragraph 24 of his skeleton argument to the
categories set out in the case of In re Buckton [1907] 2 Ch. 406, which
were summarised by Hoffmann LJ in McDonald v Horn [1995] I.C.R. 685 at
696:
“First, proceedings brought
by trustees to have the guidance of the court as to the construction of the
trust instrument or some question arising in the course of administration. In such cases, the costs of all parties
are usually treated as necessarily incurred for the benefit of the estate and
ordered to be paid out of the fund.
Secondly, there are cases in which the application is made by someone
other than the trustees, that raises the same kind of point as in the first
class and would have justified an application by the trustees. The second class is treated in the same
way as the first. Thirdly, there
are cases in which a beneficiary is making a hostile claim against the trustees
or other beneficiary. This is
treated in the same way as ordinary, common law litigation and costs usually
follow the event.”
15. As the Court of Appeal said in the case of In
the matter of the JP Morgan (1998) Employee Trust [2013] (2) JLR 239 at
paragraph 30:
“The principles laid down in Re
Buckton are …principles as to the costs of beneficiaries; and in
particular, as to when they can have their costs out of the estate, despite not
succeeding in their arguments…in describing hostile litigation as a
category 3 case Kekewich J had in mind claims between rival claimants to the
fund or part of it. He was not
dealing at all with hostile claims against trustees.”
16. Having referred to the categories in Re
Buckton, Advocate Sinel did not indicate in which category the Addition
Application came. Advocate Lincoln
did not address the Re Buckton categories but having regard to the
orders he sought, by implication his position was that this came within
category 2.
17. The distinction between categories 2 and 3 is
not always easy to make, but I am prepared to accept that the Addition
Application comes within category 2 as it involved a question that arose in the
administration of the A Settlement, namely whether in the light of the divorce
proceedings B should have her status as a beneficiary confirmed independently
of her marriage to C by being named as a beneficiary in her own right. The
Trust Proceedings ostensibly invoked the supervisory jurisdiction of the Court
over trusts through Article 51 of the Trusts (Jersey) Law 1984 Law (“the
Trusts Law”) or its inherent jurisdiction over trusts.
18. Whilst B was motivated in her application by
her own interests, it is arguable, and I am prepared to accept, that
clarification of this issue was for the benefit of the trust estate. That being the case, the costs of the
beneficiaries should be paid out of the trust fund on the indemnity basis in
the usual way. Such an order is
fair in the case of C and the Intervenors as their conduct as convened parties
in this application was reasonable and proportionate.
19. In my view, there is substance in Advocate
Lincoln’s contention that B’s conduct was not reasonable and
proportionate. He has set out in
paragraph 72 of his skeleton argument the matters argued by Advocate Sinel
which were unsuccessful, which include the following:
(i) The
views of the beneficiaries were irrelevant to the decision taken by Erinvale.
(ii) [C’s]
original intention was to ensure that [B] received nothing, or very little, an
intention that was irrelevant to the decision taken by Erinvale.
(iii) Erinvale’s
interpretation of the draft judgment of the Bailiff was incorrect, and
therefore irrelevant.
(iv) What
Erinvale may or may not do upon the death of [C] was irrelevant.
(v) Erinvale
had failed to consider that, as things stand, the Matrimonial Court is
immediately disempowered upon [C’s] death.
(vi) Two
of the directors of Erinvale, [L] and [M], were conflicted.
(vii) There
was evidence of malice on the part of [C] and the directors of Erinvale and a
plan that [B] would get nothing.
(viii) The
Court could exercise the power vested in Erinvale under the trust deed to vary
the [A] Settlement and make [B] a beneficiary in her own right by way of
variation. Furthermore, the Court had the power to vary the [A] Settlement
pursuant to Article 51 of the Trusts Law and its inherent jurisdiction.
(ix) Erinvale
should have sought the consent of [D], [C’s] delegate, prior to making
the decision.
(x) The
jurisdiction of the Court under Article 51 of the Trusts Law had no limit and
the principle of non-intervention under English law could be
distinguished. This argument was
particularly surprising as it was the same argument put forward by Advocate
Sinel in the case of S v Bedell Cristin [2005] JRC 109 (a case to which
Advocate Sinel made no reference in his skeleton argument or his submissions)
and rejected by that Court, a decision followed in a number of subsequent
cases.
(xi) Advocate
Sinel referred to a number of cases concerning the Court’s power to
appoint or remove trustees, which were found to be inapposite. Advocate Sinel
also placed reliance on the Privy Council decision of Schmidt v Rosewood
Trust Limited (Isle of Man) 2003 UKPC 26, which the Court also found was
inapposite.
(xii) Advocate
Sinel’s skeleton argument stated that the application was made both under
Article 51 of the Trusts Law and Article 27 of the Matrimonial Causes
(Jersey) Law 1949 (“the Matrimonial Causes Law”), with the
skeleton argument being devoted in equal parts to both Articles. [B’s] affidavit in support of 14th
May 2020 similarly extended to the Court’s powers under Article 27 of the
Matrimonial Causes Law.
20. The Court found, in essence, that whilst
Erinvale had considered the effect on B if she were to lose her rights under
the A Settlement, it had not truly taken her position and concerns into account
and given them sufficient weight (paragraph 64 of the Judgment). It is fair to say that in all other
respects, Erinvale succeeded in its opposition to all of the arguments put
forward by Advocate Sinel.
21. Advocate Sinel’s approach at the hearing
was that the Court had an unlimited jurisdiction to intervene and appoint B a
beneficiary in her own right, an approach roundly rejected by the Court. It was the Court, assisted by Advocate
Lincoln, that identified the true nature of the issue before the Court, namely
a challenge by B as to the decision of Erinvale, which had not surrendered its
discretion, not to appoint her a beneficiary in her own right (see paragraph 60
of the Judgment).
22. Although B was successful in having the
decision not to appoint her as a beneficiary in her own right set aside, it
would not be just for the trust estate to bear the costs of the many arguments
put forward by Advocate Sinel that were of no merit, and which took up
considerable time at the hearing.
That would apply with particular force to the work that went into the
arguments under Article 27 of the Matrimonial Causes Law (to which one
half of the skeleton argument was devoted) and the alleged jurisdiction of the
Court.
23. The task of assessing how much of B’s
costs were attributable to these failed arguments will be difficult and time
consuming, involving the parties in yet more time and expense. Justice is served, in my view, by my
taking a broad-brush approach and I determine that B should have 60% of her
costs of and incidental to the Addition Application out of the trust fund on
the indemnity basis. It would be arguable that an order should be made against B
to pay 40% of the costs of the other parties on the indemnity basis, but no
such order has been sought and in the exercise of my discretion I decline to
make such an order.
24. If it is incorrect to place the Addition
Application into category 2, then it is a hostile claim under category 3 which
should be treated in the same way as ordinary common law litigation where costs
usually follow the event. However, that is where there is a clear winner, but
as stated in Watkins v Egglishaw [2002] JLR 1 it is a mistake to label
one party as the winner when the complexity or other circumstances of the
litigation do not lend themselves to such an analysis. In my view the
circumstances here do not lend themselves to such an analysis for the reasons
set out above.
25. Advocate Sinel sought an order for costs
against Erinvale personally, on the assumption that this is hostile litigation,
on the indemnity basis, citing the principles for the awarding of indemnity costs
as summarised by the Court of Appeal in Appleby Trust (Mauritius) Limited v
Crociani & Others [2018] JCA 136, and I accept his submission that the
overarching theme in awarding indemnity costs in hostile litigation is
unreasonableness of conduct in the proceedings. In support of this, he then cited the
finding of the Court as to the reasonableness of the decision reached by
Erinvale not to appoint B as a beneficiary in her own right, but he failed to
cite any evidence of Erinvale conducting the proceedings in an unreasonable
manner. It was not unreasonable for
Erinvale to seek to stand by the decision it had reached, a decision supported
by some of the beneficiaries or to oppose the many arguments put forward
unsuccessfully by Advocate Sinel. In
particular, Erinvale co-operated in agreeing in April 2020 to have this
application dealt with as a cause de brièveté and provided
valuable assistance to the Court on the applicable law.
26. In my view, the conduct of Erinvale of these
proceedings has not been such as to justify costs being awarded against it
personally on the indemnity basis, and if this was hostile litigation, I would
have awarded 60% of her costs against it on the standard basis. As it is, I
have not approached this matter on the basis that it is hostile litigation
under category 3.
27. The next and separate issue is whether Erinvale
should be deprived of its indemnity against the trust fund either in respect of
its own costs (for which Advocate Sinel did not contend) or whether it should
pay the costs of B (and presumably the other convened parties) personally. Advocate Sinel referred to the
judgment of Sir Michael Birt, Commissioner, in the case of In re the
Piedmont Trust and Riviera Trust at paragraph 16:
“16 The starting point is that a trustee is
entitled to be reimbursed for costs he has incurred. As Vos, JA said in Alhamrani v J P
Morgan Trust Co. (Jersey) Ltd (1) [2007] JLR 527, at para. 39):
‘As a matter of law,
therefore, the trustee is entitled to be reimbursed for the expenses and liabilities
that he has reasonably incurred in connection with the trust. The concept of
‘reimbursement’ implies full repayment and the authorities in
England have always made it clear that a trustee has the right to full
reimbursement of his expenditure properly incurred on behalf of the
trust.’”
28. Advocate Sinel then referred to this passage
from Lewin 19th edition at paragraph 21-64 cited with approval in the case of In
re Y Trust [2011] JRC 155A:
“A trustee may be deprived of
costs, or ordered to pay costs, not only by reason of his conduct which
occasioned the proceedings, but also by reason of his unreasonable conduct in
bringing unnecessary trust proceedings, or his conduct in the proceedings
themselves, for example by taking procedural steps which needlessly increase
costs by acting in a partisan manner to some beneficiaries against others, by
adopting an excessive role in trust proceedings by contesting claims which
ought to be contested by others not the trustees or which ought not to be
contested at all.” (his emphasis)
29. By emphasising this part of the passage from Lewin,
Advocate Sinel argues that Erinvale has acted in a partisan manner and has
adopted an excessive role in the proceedings by contesting a claim that ought
not to have been contested. He
concluded that where a trustee had been held to have acted in a manner which no
reasonable trustee would act, the trustee ought to be deprived of its indemnity
from the trust fund.
30. As Advocate Lincoln submitted, the question is
in what circumstances is it appropriate to deviate from this starting
point. In Re the JP Morgan 1998
Employee Trust [2013] JLR 239, Nugee JA stated as follows:
“The trustee’s right to a complete indemnity can of
course be lost if the trustee is guilty of misconduct. Article 26(2) only entitles the trustee
to reimburse himself for expenses ‘reasonably incurred in connection with
the trust’ and a trustee who has been found guilty of a breach of trust
is likely to find that he has to bear personally the costs of unsuccessfully
defending himself – although even then it does not automatically follow
from a finding that a trustee has committed a breach of trust, however minor,
that he will have to bear the costs: see the remarks of Jessel, MR in Turner
v Hancock (15) (20 Ch. D at 305):
‘It is not the course of the Court in modern times to
discourage persons from becoming trustees by inflicting costs upon them if they
have done their duty or even if they have committed an innocent breach of
trust.’
This remains good law in England, and the same principles are
applicable in Jersey; see In re Esteem Settlement … where the note of the
judgment in the Jersey Law Reports includes the following (2000 JLR N-67):
‘A trustee’s contractual right to costs, including the
costs of litigation, is only lost by misconduct, and not if he has fulfilled
his duties or if he has committed an innocent breach of trust.’
It is not necessary for the purposes of this appeal to explore this
particular point further or to seek to define any more closely the
circumstances in which a trustee might lose his right to an indemnity.”
31. In MacKinnon v MacKinnon [2010] JLR 508,
the Court of Appeal considered the circumstances in which a lay trustee or
executor could be deprived of his indemnity out of the trust or estate (the
principles for trusts and estates being identical). Beloff JA stated as follows:
“33. From these passages I derive the following
propositions:-
(i) Dishonesty
or fraud may be a sufficient but is not a necessary basis for either refusing
the representative payment of his own costs out of the estate or for fixing him
with liability to pay the other party’s costs.
(ii) The
basic test is whether the costs, to justify payment out of the estate, were
properly incurred.
(iii) Mere
negligence or honest mistake will not deprive the representative of payment;
but other than that what is sufficient misconduct cannot be precisely described
and will be a matter of fact and degree.
(iv) The
refusal of payment of his costs out of the estate does not necessarily entail
as its consequence the fixing of him with liability to pay the other
party’s costs, but the court may penalise him in both ways.
…
40. In
my view, Farwell J was holding only that the threshold of very gross or wholly
indefensible negligence had on the facts of that case been passed. He was not setting any minimum
threshold. Nonetheless, he does
suggest that the unreasonableness required to deprive an executor of the usual
order for payment of his legal expenses in his role as such out of the estate
is high. The Commissioner’s
conclusion … that [E] must be shown to have ‘cross[ed] the
threshold of reasonably justifiable behaviour’ seems to me to capture
well the appropriate principle.
…
42 The
Commissioner had held (ibid at para 40):
‘In my judgment, no material distinction is to be drawn in the
context of the costs of an administrative action between the position of an
executor and the position of a trustee.
Both owe fiduciary duties, either to the legatees or to the
beneficiaries, as the case may be.
The question being discretionary, it is not possible to lay down any
hard or fast rules. Nonetheless,
one can state that the executor or trustee has what might be termed a margin of
discretion. He must be free to
conduct himself and to take decisions, within the parameters of a reasonable
framework as he sees fit. It may
be, although this must be left for decision on another day, that the margin of
discretion for a professional executor or trustee who is being remunerated
should be more narrowly circumscribed.
But that is not the case here.
An unremunerated executor or trustee will not lightly be ordered to pay
the costs of litigation if he has made an innocent mistake or acted in a manner
which has ex post facto been shown to
be misguided or even careless.
At the same time, a legatee or beneficiary is entitled to expect a
reasonable level of competence, proportionality and good sense from a person
entrusted with protecting his interest.
In short, an element of intransigence or unreasonableness is, in my
judgment, required before an executor can be held liable to pay the costs of a
legatee in an administrative action.
It is not necessary to show fraud or dishonesty but the executor’s
conduct must have crossed the threshold of reasonable justifiable
behaviour.’
I would respectfully endorse his
reasoning in that passage.”
32. In Re Y Trust [2011] JRC 155A, I stated
as follows at paragraph 10:
“As a matter of general principle a trustee is entitled to an
indemnity out of the trust fund in respect of costs and expenses properly
incurred by him in connection with the performance of his duties and exercise
of his powers and discretions as a trustee but a trustee can be denied an
indemnity for its costs if it is found to have acted unreasonably. … It was accepted by Mr Robertson
that this was a high hurdle.”
33. In the case of In the Matter of the Piedmont
Trust and the Riviera Trust, Commissioner Birt, after considering the
abovementioned cases, provided the following clarification at paragraph 37:
“Although there is a similarity of language in describing one
of the tests for finding the exercise of a power of appointment invalid
(‘irrational’ or ‘outside the band of reasonable
decisions’) and the ground for depriving a fiduciary of his indemnity
(‘misconduct’ or ‘acting unreasonably’), it is mistake
to consider the tests as being the same.
They are not. As the cases
referred to above make clear, the mere fact that a trustee has been found to be
in breach of trust does not necessarily mean that he should be deprived of his
indemnity. As Beloff JA said in MacKinnon
in the passage cited at para 18(2) above, it is a matter of fact and degree in
every case. The Court must have
regard to the overall circumstances of the case and decide whether the nature
and gravity of his misconduct is such that he should lose his indemnity and/or
be ordered to pay the costs of the parties. It is very much a matter of discretion
for the Court having regard to the particular facts of the case.”
34. In this case, there are a number of reasons
why, in my judgment, Erinvale should not be deprived of its indemnity, namely:
(i)
Erinvale
had consulted all the beneficiaries on B’s request and the decision
reflected the views of some of them.
(ii) B was already a beneficiary in her capacity as C’s
spouse.
(iii) The decision was carefully considered, as
reflected in the detailed minute.
(iv) It is clear that the directors (two of whom
were de facto lay trustees) were guided in the process by legal advice.
(v) Erinvale’s conduct in general towards B
was reasonable, in that it was supporting her financially and paying her legal
fees (fees that at the time of the judgment had amounted to some £1
million). The allegation that they
were motivated by malice was rejected by the Court.
(vi) Erinvale’s conduct of the proceedings had
been reasonable and having reached a considered decision, it was reasonable for
Erinvale to defend that decision supported by some of the beneficiaries.
(vii) The directors had not been affected by any
conflict of interest.
35. In essence, there had been no finding that
Erinvale acted in bad faith or for any improper purpose or with disregard, let
alone reckless regard, of its fiduciary duties. There was no finding that it had adopted
an excessive role or acted in a partisan manner. The nature and gravity of
Erinvale’s conduct has not reached the point where it should be deprived
of its indemnity. It can,
therefore, have recourse to its indemnity to discharge its own costs and will
not be ordered to pay the costs of B or any of the other convened parties.
36. To the extent that B will not receive all of
her costs of the Addition Application from the trust fund, she will no doubt
look to Erinvale as trustee for the balance as per the current practice and
from which it would seem that B’s full costs would already have been
discharged out of the trust fund.
The costs order, however, still has relevance, because the trust fund
itself, and therefore the trust estate, will only be burdened by the amount of
the order made in her favour, namely 60% of her costs. The remainder of the costs will, as I
understand it, be accounted for by addition to her loan account and this in
exercise of Erinvale’s powers as trustee in her favour.
Further developments
37. Following the handing down of the Judgment,
there have been a number of developments in respect of which costs issues
arise:
(i)
There were
listed to be heard before me on 17th November 2020 a general discovery summons
issued by B and an application by C seeking a stay of the representation
pending the outcome of the Ancillary Proceedings (renewing an earlier similar
application).
(ii) By letter dated 8th October 2020,
Advocate Sinel gave notice that B would be making an application to remove
Erinvale as trustee and/or remove its powers under the A Settlement and by
letter of 9th October 2020, he requested that the directors resign
in favour of replacement directors.
(iii) Erinvale proceeded to consult with the adult
beneficiaries regarding these matters and some of the views received were
vehemently opposed to a change of trustee or a change of directors.
(iv) On 3rd November 2020, Erinvale filed
its own representation in the Samedi division seeking the Court’s
directions as to whether or not it should retire as trustee and/or whether or
not it would be in the best interests of the beneficiaries of the A Settlement
for the present directors to resign as directors of Erinvale. The representation was presented to the
Court on 6th November 2020 and convening orders made.
(v) On 5th November 2020, Advocate Sinel
wrote to the Court indicating that he would be making an application to amend
the representation and “to emasculate or remove the Trustee”. On the same day, Mourant responded
informing Advocate Sinel that it had filed its own representation dealing with
the position of Erinvale and its directors on which all of the beneficiaries
would be entitled to be heard, which would simplify matters.
(vi) On 6th November 2020, Advocate Sinel
circulated a summons (“the November Summons”) by which B sought:
(a) The adjournment of her general discovery
summons.
(b) Permission to amend the representation in
accordance with a draft, which was said to be annexed to the summons, but which
was not in fact annexed.
(c) The removal of Erinvale as trustee and/or the
removal of the directors and/or an order directing Erinvale to surrender its
discretion to the Court and to adopt a position of neutrality within these
proceedings and the Ancillary Proceedings, in each case with an order that
Erinvale bear the cost of the application personally (“the removal
application”).
(d) Directions in respect of the removal
application.
(vii) On 9th November 2020, the Court
abridged time in respect of the November Summons so that it would be heard at
the hearing on 17th November, but on the express basis that such
abridgement was for the purpose of giving directions only in respect of the
summons.
(viii) Accordingly, it was expected that on 17th
November 2020 the Court would hear (i) the stay application and (ii) the
November Summons for directions only, all within the Trust Proceedings.
(ix) Following exchanges of correspondence between
the legal advisers, the parties agreed a consent order which, inter alia,
vacated the hearing listed for 17th November and which provided that:
“2 Save for the discrete
applications and matters set out below within this paragraph, proceedings
2019/007, including all extant applications therein, are stayed pending the
conclusion of the Matrimonial Proceedings:
a. The costs of the application to add the
Representor as a beneficiary of the [A] Settlement (which application was
substantively determined by the judgment of Commissioner Clyde-Smith dated 15
October 2020), for which a hearing has been listed on 7 December 2020; and
b. The Representor’s application for leave
to appeal the interlocutory judgment of the Bailiff in these proceedings dated
2 September 2020, which was heard by the Bailiff on 11 November 2020 but in
respect of which judgment is awaited.
3 Costs
shall be reserved to 7 December 2020”.
38. Advocate Lincoln could see no basis for
disagreeing with the views put forward by Advocate James and Advocate Franckel
that B be ordered to pay the costs of the other parties of the stay application
and the removal application on the indemnity basis, but acknowledging that she
was financially dependent upon the A Settlement, such costs were to be
accounted for by way of set-off and deduction from any benefit she may receive
from the A Settlement upon the conclusion of the Ancillary Proceedings; in
effect, as I see it, those costs would be added to her loan account.
39. This order against B was sought for the
following reasons:
(i)
The Court
had been clear both in the Bailiff’s draft judgment of 21st November
2019, (at paragraph 59), in the Judgment (at paragraph 15) and in the
unpublished case management judgment of 11th September 2020 that the Trust
Proceedings were duplicative of the Ancillary Proceedings.
(ii) It was clear after the determination of the
Addition Application that the representation had exhausted its purpose.
(iii) The assertion by Advocate Sinel in his letter
of 8th October 2020 that the representation formed the bedrock of
the removal application was unsupportable.
(iv) When the November Summons was sent to the Court
on 6th November 2020, Advocate Sinel knew that Erinvale had filed
its own application covering the same subject matter, and he therefore knew
that his application was duplicative.
Furthermore, he made no mention of Erinvale’s own application in
his letter to the Court.
(v) From receipt of notice of the November Summons
on 6th November 2020 until the consent order, significant work had
been done on the November Summons including:
(a) providing advice to Erinvale regarding the
same;
(b) corresponding with the parties;
(c) the inclusion of a whole new layer of argument
within Erinvale’s skeleton argument for the hearing on 17th
November;
(d) when the parties eventually received a copy of
the draft amended representation, considering and advising Erinvale on it, and
(e) negotiations for the consent order between the
parties, including this added layer of the removal application.
(vi) In the light of the judicial commentary
regarding the duplicative nature of the Trust Proceedings, Advocate Sinel
proceeded to ramp them up with further applications.
40. In response, Advocate Sinel submitted there had
been no finding on the merits of the representation, the removal application or
the stay application. A stay of the Trust Proceedings had been agreed in
response to Erinvale’s own application and the decision of the Bailiff on
11th November 2020, to grant a large part of the discovery sought in the
Ancillary Proceedings. All of these applications remain relevant and necessary
for B which is why they have been stayed, rather than withdrawn or dismissed.
41. B was not served through Advocate Sinel with a
copy of Erinvale’s application until 9th November 2020 and he
did not receive the supporting documentation until 10th November
2020. The parties had been engaged in this period primarily with the hearing
before the Bailiff on 11th November 2020 on the Ancillary
Proceedings and the time involved in these matters would be de minimis
and the cost of having them taxed disproportionate.
42. In conclusion, Advocate Sinel submitted that all
of the costs in respect of these matters should be left over until determined
or withdrawn/dismissed, but if not, the costs of all the parties should be paid
from the trust fund (without allocation to any beneficiary) on the indemnity
basis.
43. It was clear from the hearing on costs that
there was a sense of grievance on the part of C, acting through his delegate,
and the Intervenors, at the way they see the costs of all of the parties being
increased by what they perceive to be the aggressive tactics of B, all to the
prejudice of the trust estate. It
is the case that at the time of the hearing in September, Erinvale had
disbursed some £2.75 million in legal fees (£1 million going to B),
an astonishing sum, bearing in mind the lack of progress in the Ancillary
Proceedings. They perceive B as
able to ramp up costs of all of the parties without the usual discipline that
goes with hostile litigation and which acts as a healthy brake on the way in
which parties conduct themselves in litigation. The legal fees of the parties are paid
out on a monthly basis and I can understand that Advocate James and Advocate
Franckel, in particular, were anxious to bring in some discipline to the
process and this by the usual costs orders, where appropriate. Previous attempts by Erinvale to bring
some accountability to the process were met with very strong resistance from
Advocate Sinel (see paragraph 42 of the Judgment).
44. At the same time, the circumstances in which B
finds herself are of understandable concern to her. This is a long marriage and the parties
have one adult child. She finds
that all of her now former husband’s wealth has been placed into a
discretionary trust, of which she was only a beneficiary in her capacity as a
spouse, leaving C with no ability to meet any order the Matrimonial Court might
make in her favour. Furthermore,
she is dealing with a private trust company, which according to its accounts
has an equity of just over £3,000 and as far as I understand it, no
insurance of any kind. It is owned
by a purpose trust established by C, which has net assets of £6,750
(being its shareholding in Erinvale) and therefore no ability to support
Erinvale in meeting its obligations.
Two of the three directors are long-standing business colleagues of C,
who are perceived by her not to be truly independent. Whilst Erinvale is administered by
Equiom (Jersey) Limited, a regulated entity, that company does not stand as its
financial guarantor. It might be
thought that for a spouse to structure the entirety of his or her wealth in
this way is likely to give rise to suspicion and concern where the marriage
breaks down.
45. Taking first the November Summons this was
placed before me for endorsement on 9th November 2020, and I agreed
to the summons being heard on 17th November 2020 for the purpose of
giving directions only. That was
the same day on which Erinvale’s representation was served upon Advocate
Sinel on behalf of B, notice of it having been given on 5th November
2020. Under express notice of
Erinvale’s application, the November Summons should have been withdrawn
from the Court or, having been collected, at least not served as it was
essentially duplicative of Erinvale’s own application. Instead, it was
served on the other parties, and as a consequence, costs were unnecessarily
incurred by them in considering and dealing with it, albeit that the issue
before the Court on 17th November would have been the giving of
directions.
46. In my view, the service of the November Summons
in the light of Erinvale’s own application and the clear indication given
by the Court that the Ancillary Proceedings should take precedence was
unreasonable conduct, and notwithstanding the fact that it has now been stayed
by consent, it should sound in costs on the indemnity basis. I do therefore order B to pay the costs
of the other parties of and incidental to the November Summons on the indemnity
basis, such costs to be accounted for by way of addition to her loan account
with the A Settlement. It is fair
that she should pay all the costs of the summons as the adjournment of the
general discovery application formed a de minimis part of it. The issue of general discovery was being
dealt in the Ancillary Proceedings before the Bailiff and her application in
these proceedings was certain to have been stayed as per Advocate James’s
application. The application to
amend (extensively) the representation was to support the removal application,
both of which formed the material part of the November Summons.
47. As for Advocate James’s stay application
issued on behalf of C, the issue is whether B should have consented to it
earlier than she did. It was issued
on 28th October 2020 and I note that it was by letter dated 12th
November 2020 that Advocate Sinel invited the other parties to a meeting to be
held on 16th November 2020 to see if they could find a way forward
on an agreed basis. That generated
immediate correspondence and at Advocate Sinel’s request, a draft consent
order was produced by Advocate Lincoln on 13th November 2020. That allowed for the stay application to
be granted but stated that B should pay the costs of both that application and
the removal application on an indemnity basis. This received a terse response from
Advocate Sinel, but it seems to me that it was the issue of costs, not the stay
itself, that occupied the time of the parties and which was finally left over
for the Court to deal with under the terms of the consent order.
48. In the circumstances, I do not regard it as
just to order B to pay for any of the costs of the stay application. I propose to make no order as to costs
in this respect on the basis that the parties would have had their costs paid
by Erinvale as trustee in the usual way.
Conclusion
49. In conclusion:-
(i)
I order
Erinvale to pay 60% of B’s costs of and incidental to the Addition
Application out of the trust fund of the A Settlement on the indemnity basis to
be taxed if not agreed.
(ii) I decline to deprive Erinvale of its right of
indemnity against the trust fund of the A Settlement in respect of its own
costs incurred in the Addition Application or to pay B’s costs
personally.
(iii) I order Erinvale to pay the costs of C and the
Intervenors of and incidental to the Addition Application out of the trust fund
of the A Settlement on the indemnity basis to be taxed if not agreed.
(iv) I order B to pay the costs of the other parties
of and incidental to the November Summons on the indemnity basis to be taxed if
not agreed and this by the amount of those costs being added to her loan account
with the A Settlement.
(v) I make no order as to costs in relation to the
Stay Application.
50. Finally, in relation to the costs of the costs
hearing, I am minded to make no order on the basis that the parties would have
had or will have their costs paid by Erinvale as trustee in the usual way.
Authorities
B
v Erinvale PTC Limited and Ors [2020] JRC
213.
Appleby
Trust (Mauritius) Limited v Crociani & Ors. [2018] JCA 136.
Piedmont
Trust and Riviera Trust [2016] (1) JLR 14.
In re Buckton [1907] 2 Ch. 406
McDonald v Horn [1995] I.C.R.
In
the matter of the JP Morgan (1998) Employee Trust [2013] (2) JLR 239
Trusts (Jersey) Law 1984 Law
Matrimonial Causes Law
Watkins
v Egglishaw [2002] JLR 1
MacKinnon
v MacKinnon [2010] JLR 508
In
re Y Trust [2011] JRC 155A
Lewin on Trusts