Trust - reasons for decisions in relation to a summons

[2023]JRC109

Royal Court

(Samedi)

30 June 2023

Before     :

M. J. Thompson Esq., Commissioner, and Jurats Averty and Le Heuzé

 

Advocate G. C. Staal for the Representor.

Advocate P. D. James for the Second and Third Defendants.

The First and Fourth Defendants not appearing.

judgment

the COMMISSIONER:

1.        This judgment contains the Court’s reasons for its decisions in relation to a summons brought by Fort Trustees Limited and Balchan Management Limited who are the Current Trustees of the D Discretionary “A” Trust (“DDAT”) and of the D Discretionary Trust (“DDT”).  They are referred to as the Current Trustees in this judgment. Geneva Trust Company SA is the former trustee of the DDT and the DDAT and is referred to as the Former Trustee in this judgment.

2.        The summons issued by the Current Trustees seeks:

(i)        An immediate transfer of the 34,337,249 shares in Company A or the monetary equivalent to Company B, a company owned by the DDAT; and

(ii)       An immediate transfer of 370,636 shares in Company C or the monetary equivalent, again to Company B.

3.        It is common ground that these shares were sold in June 2018 and were used to pay the Former Trustees’ costs in relation to its administration of the DDT and related legal fees. 

4.        The total amount received as proceeds of sale, notwithstanding the affidavits filed, still remains unclear.  When the shares were sold was set out in a letter dated 7 March 2023 from Dickinson Gleeson at Schedule A.  That schedule is not easy to follow and a total figure for the proceeds of sales has not been set out.

5.        However, Dickinson Gleeson’s letter of 7 March 2023 did set out what invoices and expenses had been met.  In summary, these were as follows:

(i)        CHF163,423.65 representing the Trustees’ own fees of CHF 160,318 and a payment of CHF3,105.65 to Swiss lawyers;

(ii)       £273,871.63 in respect of third party legal fees plus a further £9,000 on account of legal fees.

Payments of the Former Trustees’ own invoices and legal fees took place between 16 August 2018 and 22 March 2019.

6.        It is either the shares that were sold or alternatively their monetary equivalent that the Current Trustees now seek to recover. 

Background and chronology

7.        The general background to the present dispute is set out in a judgment of the Royal Court given by Commissioner Clyde-Smith dated 20 April 2020 reported at Geneva Trust Company (GTCO SA v D and Ors [2020] JRC 063.  The Court therefore noted the following at paragraphs 4 to 7:

“4.        By way of brief background, GTC (under its former name of Rawlinson & Hunter Trustees SA) was trustee of some eleven trusts connected with D.  They are all discretionary trusts governed by Jersey law.  The relationship between GTC and D broke down in 2017 and difficulties were encountered over the terms upon which GTC should retire as trustee of all of these trusts in favour of Fort & Balchan, two Guernsey based and regulated trust companies.

5.        D exercised his power as protector of one of the trusts, the D Discretionary Trust or DDT, to remove GTC as trustee, but the purported removal of GTC as trustee of the DDAT, the F Trust and the G Trust was set aside by the Court on 31st May, 2018, for the reasons set out in its judgment of the 23rd July 2018 (Representation of Rawlinson and Hunter Trustees SA and Fort Trustee Ltd and Balchan Management Ltd [2018] JRC 131).  The Court ordered the parties to execute and deliver deeds of retirement and appointment (DORAs) for the then ten trusts drafted on the basis of the STEP standard provisions.

6.        GTC claimed that there were outstanding fees and expenses which it had incurred as trustee of all ten trusts and the Court made the following order at paragraph 5 of the Act of Court of 31st May 2018:

“5        Notwithstanding the provisions of the DORAs authorised [GTC] in respect of each of the trusts listed in schedule to the Representation, other than the DDT, to withhold the handover of the assets and the records of each trust until such time as its fees and expenses for that trust have been paid in full and until such time as it has been provided with reasonable security for its liabilities for that trust, whether existing future contingent or otherwise;”

7.         The DORAs for the ten trusts were executed on 4th June, 2018.  Each DORA contained a schedule headed “Assets Schedule” under which was set out a structure chart, which showed the corporate structure within each trust, but not the assets held in those corporate structures.”

8.        In relation to events leading to the present dispute, it is however necessary to go back a little in time prior to the Judgment of 20 April 2020 to refer to certain orders made by the Royal Court in relation to this dispute.

9.        On 8 November 2017, the Court made orders requiring the Former Trustee to retire using the STEP Standard Provisions Deed of Retirement and Indemnity (paragraph 1).  The Act of Court, at paragraph 4, set a timetable for dealing with the payment of the Former Trustees’ fees and costs.  Paragraph 5 also set out directions for the parties to file written submissions in relation to an indemnity.  This indemnity concerned a personal written indemnity said to have been given by D to cover costs incurred by the Former Trustee in certain proceedings in the UK involving the DDT.  D now denies that he is bound by that indemnity alleging he did not sign it.  The indemnity is the subject of separate Jersey proceedings which I refer to later in this judgment.

10.      The Former Trustee now claims that D was liable to meet the Former Trustees’ outstanding fees and expenses as the client or alternatively D agreed and assured the Former Trustee that their expenses for any of the Trusts they were administering could be met through the DDAT.

11.      The next relevant Act of Court is that of 31 May 2018, where the Court made the following orders:

“1. in relation to Order 1 of the Act of Court dated the 8th November, 2017, ordered that the Second and Third Respondents shall execute and deliver to Dickinson Gleeson the instruments of retirement and indemnity in respect of each of the trusts listed in the schedule to the Representation, other than the D Discretionary Trust of the 26th March, 2007, ("the DDT”) in the form of the drafts, copies of which are lodged au Greffe, ("the DORAS"), within seven days of engrossed copies being emailed by Dickinson Gleeson to Viberts and this under pain of contempt, such copies to be emailed by Dickinson Gleeson by close of business the 151 June, 2018;

….

3. In relation to Order 4 of the said Act of Court, ordered that the First Respondent shall pay or procure the payment of the Representor's fees and expenses as assessed by the Judicial Greffier, subject to the current appeal, and the Representor's further fees and expenses since its last invoices presented to the Court as agreed or failing agreement as assessed by the Judicial Greffier on the Alhamrani basis; such payments to be made within 14 days of the same becoming due;

4. in relation to Order 5 of the said Act of Court, the issue of the Representor's right of indemnity shall be referred to the Master so that case management directions can be issued by him for a hearing of that issue before the Court.

5. authorised the Representor in respect of each of the trusts listed in schedule to the Representation, other than the DDT, to withhold the handover of the assets and the records of each trust until such time as its fees and expenses for that trust have been paid in full and until such time as it has been provided with reasonable security for its liabilities for that trust, whether existing future contingent or otherwise.”

12.      Regarding the DDAT and pursuant to paragraph 1 of the Act of Court of the 31 May, the DORA provided made reference to the DDAT’s holding in Company B.  It did not make any reference to the shares in Company A or Company C held in the name of Company B.

13.      As noted above, it was subsequent to the Act of Court of 31 May 2018 that shares in Company A and Company C held by Company B were transferred into the name of GTC between 6 July 2018 and 20 August 2018. These shares were then sold and the proceeds of sale used to pay fees of the Former Trustee in relation to the DDT and legal advice obtained in relation to the DDT as set out in paragraph 5 above.  This is not disputed by the Former Trustee.

14.      Notwithstanding the Act of Court of 31 May 2018, the Former Trustee and the Current Trustees were unable to reach agreement on the amount of reasonable security required.  The Current Trustees therefore applied to the Royal Court to have the lien being exercised by the Former Trustee lifted.  This led to the hearing on 20 April 2020 where the Court making the following orders:

“2.       The Representor shall by 4pm on the date or dates described in paragraph 6 below:

a. deliver up to the Second and Third Respondents, and/or their Advocates, the trust documents, accounts and records in whatsoever form held and maintained and wheresoever kept relating to each such Trust;

b. transfer to the Second and Third Respondents, and/or their Advocates, all the trust assets of each such Trust whatsoever and wheresoever held, and to that end provide in duly executed form any and all documents necessary to enable to the Second and Third Respondents to finalise the transfer of any such assets into their ownership;

3. The Second and Third Respondents shall pay or cause to be paid to the Advocates for the Representor the following sums in respect of three of the Trusts:

a. In relation to the DDAT, the sums of CHF39,576.80; CHF6,500; and £2,000;

b. In relation to the G Trust, the sums of CHF9,776.00; CHF6,500, and £2,000;

c. In relation to the F Trust, the sums of CHF17,040.00; CHF 6,500 and £2,000.

4. The Second and Third Respondents shall within 7 days pay or cause to be paid into the client account of Collas Crill LLP the following sums:

a. In relation to the DDAT, the sums of CHF337,303.20 and £29,669.98;

b. In relation to the G Trust, the sums of CHF1,829.00 and £29,669.98;

c. In relation to the F Trust, the sums of CHF18,610.00 and £29,669.98, the said sums to be held on and subject to the terms in paragraph 5 below;

5.        As to the sums referred to in paragraph 4 above:

a. Collas Crill LLP will notify the Representor's Advocates as soon as the sums for any one or more of the DDAT, G Trust and F Trust have been received and cleared;

b. Collas Crill LLP will pay to the Representor such proportion thereof as shall be determined in each respective taxation to be due to them on account of administration fees or legal costs (as the case may be) for each such Trust, within 14 days of such determination. In the event of any appeal having been brought against the determination of the Greffier under RCR 20/2(2), such payment may be initially limited to such of the sum as is unaffected by the terms of that appeal, and upon determination of the appeal any further sums due shall be paid forthwith.

6.        The dates for delivery up and transfer referred to in paragraphs 2a and b above are:

 a. In respect of the DDAT, G Trust and F Trust, 10 working days after the otification referred to in paragraph 5a above is given pertaining to that Trust;

b. In the case of all of the remaining Trusts, 10 working days from the date of this order.”

15.      The judgment referred to above explained the Court’s reasoning in relation to its orders.  We note the following paragraphs.

16.      Firstly, at paragraph 17(1) the judgment said this:

“(i)        Fort & Balchan (and D who he also represents) are completely unsighted as to the positive side of all the trusts’ balance sheets.  D, as principal beneficiary, has never seen trust accounts or management accounts, even for the period to September 2017 in relation to which GTC’s fees have been paid.”

17.      At paragraphs 37 and 38 the Court set out the duty on GTC to provide information as follows:

“37.      As to GTC’s duty to provide information, where a trustee has retired and exercises its right under Article 43A(1) of the Trusts Law not to distribute or surrender the trust property pending provision of reasonable security for liabilities, it is not absolved of its duties as trustee in relation to those retained assets and in particular to provide information to the beneficiaries in relation to those retained assets—see Lewin on Trusts, 19th Edition, at paragraphs 23-04.  As the Court said in the case of In Re Rabaiotti [2000] JLR 173 at page 183:

“Clearly, the general principle is that a beneficiary is entitled to see trust documents which show the financial position of the trust, what assets are in the trust, how the trustee has dealt with those assets, etc. This is an essential part of the mechanism whereby the trustee can be held accountable for his trusteeship to a beneficiary”.

38.      Where, as here, a trustee has retired in favour of a new trustee, then it must follow that the new trustee is equally entitled to information about the trust in respect of which it has assumed duties as the new trustee, as made clear in Ogier Trustee (Jersey) Ltd v C.I. Law Trustees Ltd [2006] JRC 158 at paragraphs 7 and 16 and Re Bird Charitable Trust [2012] (1) JLR 62 at paragraphs 23 and 29.  That entitlement must apply as a matter of principle to any assets that are retained by the retired trustee by way of security.  Advocate Swart did not demur from this.  The reference in paragraph 5 of the Act of the 31st May 2018 to the “records of each trust” means the records, books and other papers that belong to the trust and is distinct from information about the trust.  That distinction is drawn in Lewin on Trusts, 19th Edition, at paragraphs 23-105 and 23-107 and so the Act of the 31st May 2018 would not entitle GTC to withhold information about the trust assets it had retained.  However, we make no finding as to whether there has been any material withholding of information on GTC’s part as it seems to us that the Respondents were aware of the assets held in three of the trusts, namely the DDAT, the F Trust and the G Trust and that the six remaining trusts held no material assets.”

18.      We return to these paragraphs later in this judgment.

19.      The conclusions of the Royal Court were set out in paragraphs 43 to 46 as follows:

“43.      In our view, it is not possible to deal with these nine trusts on a global basis.  As paragraph 5 of the order of 31st May 2018 makes clear, each trust has to be treated separately and we accept Advocate James’ submission that GTC’s claim for fees and expenses for each trust is payable out of the assets of that trust, unless of course it has other arrangements for their discharge.  If that trust has no assets at all, then it probably ceases to exist as a trust.  In the case of all of these trusts, GTC does hold shares in an overlying company, but if there are no realisable assets at all within the underlying corporate structure, then there is nothing to pay GTC’s fees and expenses with and GTC has to bear the loss, unless again it has other arrangements for their discharge.  Subject to that GTC cannot expect to be in a better position than it would have been had it continued as trustee or expect the new trustees Fort & Balchan to discharge its fees and expenses out of their own assets or assets procured from another source.

44.      For the three trusts that have assets, namely the DDAT, the F Trust and the G Trust, Fort & Balchan have offered what we agree is reasonable security, but GTC want that security extended over to the six remaining trusts that have no assets to meet its fees and expenses for those trusts.  In our view and as against Fort & Balchan, it has no basis in law for requiring this to be done.

45.      In the case of the six remaining trusts is GTC able, therefore, to retain the overlying shares indefinitely, having retired as trustee?  We think that is no longer administratively workable.  If a retired trustee is to exercise its lien it must have something of substance upon which that lien can bite and it becomes meaningless if there is nothing of substance to attach to.  In effect GTC has retired as trustee of six trusts that have no assets of value with which to pay its outstanding fees and expenses.  In those circumstances it is not reasonable, in our view, for GTC to retain the overlying, but apparently valueless, shares it holds.  Equally Fort & Balchan have taken on the trusteeship of six trusts which have no assets to pay their ongoing fees and expenses.

46.      The reality in relation to the six remaining trusts that have no material assets is that GTC can only expect its fees and expenses to be paid by D under paragraph 3 of the order of the 31st May, 2018, and not from the assets of the trusts as currently there are none or from Fort & Balchan.  Once those fees and expenses have been assessed, it will be a matter for GTC to pursue D by way of summons issued under its Representation, but that process can no longer justify delaying the transfer of the administration of the six remaining trusts.”  (Emphasis added)

20.      Subsequent to this decision, certain financial records were provided to the Current Trustees. It is not clear to us precisely what records were provided, but it is clear that information about the sale of shares in Company A and Company C was not provided to the Current Trustee at the time of the handover of the trusteeships.

21.      Rather the sale of the shares in Company A and Company C was only brought to the attention of the Current Trustees as a result of an enquiry made by an administrator on behalf of R20 Advisory Limited who provide legal services to the DDAT and other trusts which the Current Trustee is trustee of.  On 26 October 2022, a request was made for the Share Certificates of the shares in Company A and Company C referred to in certain financial accounts disclosed by the Former Trustee to the Current Trustees.  We were informed that these accounts were provided sometime in June 2020.

22.      On 10 November 2022, a Mr Docet for the Former Trustee responded indicating that the investments had been liquidated to meet the Former Trustee’s costs and expenses.

23.      This reply was expanded upon by Mr Rodney Hodges, a director of the Former Trustee, who has also sworn an affidavit in response to the present claim of the Current Trustees.  In his email of 25 November 2022, Mr Hodges explained:

“As mentioned the relevant shares were liquidated to meet costs incurred by GTC as Trustee or Former Trustee under its indemnity. This was also in line with the long-standing agreement with D that GTC’s costs and expenses of administering his family trusts be met through the DDAT structure.”

24.      He then provided certain information about how the proceeds of sale had been used.  However, that information was not complete.  The complete picture was only provided on 7 March 2023 by Dickinson Gleeson as set out above. 

The submissions of the Current Trustees

25.      Advocate James, for the Current Trustees, made the following submissions:

26.      Firstly, the Court was already exercising its supervisory jurisdiction in relation to the DDT and the DDAT.  Initially it was the Former Trustee who had invoked that jurisdiction.  The issue of the present summons was therefore the most straightforward way to hold the Former Trustee to account. 

27.      Secondly, the approach taken by the Current Trustees was a proportionate one having regard to the overriding objective because the shares in dispute only had a value of around £300,000.

28.      He fairly accepted that the claim was for breach of trust and that he had not made an application to serve out of the jurisdiction, but he considered that his clients’ approach was justified where the Court was already seized of the handover of the trusts.  To require, as the Former Trustee suggested, the Current Trustees to bring entirely separate proceedings was disproportionate to what was in issue.

29.      The essence of his clients’ complaint was that, without notice to anyone, the Former Trustee had expropriated trust assets for themselves and sold them to meet their own fees and those of various law firms. In relation to this conduct, he observed that this was not the first time that the Former Trustee had played fast and loose, and he referred to three examples set out at Section D of the twenty-sixth affidavit of Nicole Martin, filed on behalf of the Current Trustees.

30.      While the Former Trustee was seeking the sympathy of the Court because they had been unpaid, they had been uncooperative and uncommunicative and the fact that they may not have been paid did not justify their conduct.

31.      Paragraph 5 of the Act of Court of 31 May 2018 also made it clear that the lien that could operate for ‘each trust’ only applied until the fees and expenses for that trust were paid.  In other words, even in 2018, it was clear that each trust was to be treated on a separate basis and therefore it was not permissible to use assets of one trust to pay fees that might be due in respect of another trust.

32.      It was also clear in May 2018 that the DDT was insolvent, which was why it was excluded from the ambit of paragraph 5. 

33.      The right of lien that a retiring trustee might exercise did not permit it to sell assets, only to retain them.  This was clear from paragraphs 37 and 38 of the April 2020 judgment so that the Former Trustee, or any retiring trustee, could not resort to self-help to pay outstanding fees once they had been removed as trustee, but were only entitled to hold assets pursuant to a statutory lien.

34.      Paragraph 43 of the judgment further made it clear that each trust had to be treated separately and that that had been the position since 31 May 2018.  This was why the Court had noted at paragraph 46, in respect of any trusts that had no material assets, that it was for the Former Trustee whether they chose to pursue D for outstanding fees.

35.      In relation to some of the liabilities paid, insofar as these arose after 31 May, the Former Trustee had used fees to pay future liabilities.  This was not, therefore the Former Trustee using assets to pay existing liabilities in respect of which it had exercised its right of lien even if it could do so for past liabilities which were disputed.

36.      In relation to paying fees due in respect of DDT, as Mr Hodges recognised at paragraph 15 of his affidavit, the DDT was insolvent.  The effect of this, as noted in Commissioner Clyde-Smith’s costs judgment dated 23 July 2018 D v Rawlinson and Hunter Trustees [2018] JRC 132 at paragraph 22, was that it was for the Guernsey Court to decide what was due to the Former Trustee.  Paragraph 22 provides as follows:

“22. The fundamental point is that R & H can only claim fees and costs that are properly payable out of the trust fund of the DDT held by the joint receivers, however reasonable its fees and costs regarded in isolation might be. What is properly payable out of this trust fund can only be determined at a hearing to which the joint receivers and the other creditors are convened. It is clear that the supervision of this potentially insolvent trust and issues as to priority as between creditors has been and is being undertaken by the Guernsey court and it would be an exorbitant exercise of this Court's jurisdiction to interfere at the instance of one former trustee by determining as a discreet issue the amount payable to it out of the trust fund.”

37.      What the Former Trustee had done by selling shares and paying its own fees due in respect of DDT, was to give itself priority over other unsecured creditors.

38.      This conduct had not been drawn to the attention of the Jersey Court in 2020 when it was considering whether or not to lift any lien and was also said to be misleading the Guernsey Court.  This was because Mr Hodges, in an affidavit sworn before the Guernsey Court on 7 June 2019, had stated the following at paragraph 19:

“19. All of these invoices were presented for payment to D/Ms Martin/R20 Advisory in the usual manner. As D was prioritising other payments, they went unpaid. No challenge was raised at any stage as to amounts claimed, until after GTC had been removed as trustee. D used his "falling out' with GTC as a reason not to pay or procure payment as he had done in the past. Ms Martin has separately stated that these amounts would have to be claimed against the DDT. Ms Martin's position is reflected in a judgment of the Jersey Court of Appeal dated 23 July 2018, in an appeal by D and F&B against taxation by the Assistant Judicial Greffier of that Court of the same invoices [79-91]. At paragraph 22 of its judgment, the Jersey Court of Appeal ruled that these sums ought to be referred to the Guernsey Court [88], as is now being done.”

39.      It was therefore clear that, before the Guernsey Court, Mr Hodges recognised the effect of the judgment of Commissioner Clyde-Smith dated 23 July 2018 referred to above.  Yet at this time, the Former Trustee was transferring shares in Company A and Company C into its own name and starting the process of selling those shares to pay its own fees and legal fees incurred in relation to DDT.

40.      The fees submitted to the Guernsey Court claimed in the liquidation of the DDT were the same fees that the Former Trustee has now paid itself.  Advocate James therefore submitted that the Former Trustee  had ignored the rulings of the Royal Court in 2018 and had also misled the Guernsey Court.

41.      In relation to what a former trustee should do when found to have acted in breach of trust is set out in Lewin at 41-010 as follows:

“It was confirmed by the House of Lords in Target Holdings Ltd v Redferns, that the basic rule on the personal liability of a trustee is that he must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach of trust or failure to account properly for the trust fund, or compensation for such loss." The form of relief is couched in terms appropriate to require the defaulting trustee to restore the missing assets to the trust estate. If specific restitution of the trust property is not possible, the trustee must pay sufficient compensation to put the estate back to what it would have been had the breach not been committed.”

The Former Trustee’s submissions

42.      The arguments advanced by the Former Trustee in respect of its position were summarised at paragraph 6 of its skeleton as follows:

“6.1. This is a breach of trust claim which has wrongly been brought by Amended Summons rather than Order of Justice. F&B should plead their claim properly.

6.2. The claim is barred by limitation because the relevant events occurred over three years ago: Article 57(3B) Trusts (Jersey) Law 1984, as amended (the Law).

6.3. GTC had a longstanding agreement with the First Respondent, the primary beneficiary of the trusts, to take its fees out of the assets of the DDAT. This gives GTC the defences of concurrence and acquiescence: Articles 30(6) and 30(7) of the Law.

6.4. GTC is protected by the terms of the exclusion clause in clause 19.1 of the DDAT.

6.5. In the alternative, the Court ought to grant GTC relief pursuant to Article 45 of the Law because, in light of GTC's belief in the agreement mentioned in paragraph 6.3 above, GTC acted honestly and reasonably and ought fairly to be excused.

6.6. In the further alternative, the Court should only disallow the profit element of GTC's invoices: cf Re the Carafe Trust [2005] JLR 159, at [45]-[47] per Birt, Deputy Bailiff.”

43.      In oral submissions, Advocate Staal in particular emphasised that the Current Trustees’ claim was a separate cause of action for breach of trust and did not arise out of the existing proceedings before the Royal Court. There was also no letter before action and no application to serve out of the jurisdiction.  This was not just cutting corners; it was ignoring corners altogether.

44.      As a result of the Current Trustees not following a proper procedural route, his clients were not in a position to deal with the arguments advanced by Advocate James.  What was needed were proper pleadings, discovery, witness statements and a full trial. 

45.      In relation to the limitation question, he maintained that the proceedings were time barred because the Current Trustees had been in office since May 2018.  He further argued that any empechement was self-inflicted because there was a  duty on the Current Trustees to ascertain what the assets were and not to sit on their hands.  They could have made enquiries earlier than they did to ascertain what had occurred.

46.      As the correct procedures had not been followed the proceedings should be struck out.  If a new action was then started, it would be for the Former Trustee to determine at that stage how they wished to defend the proceedings.

47.      In the alternative, what the Court faced at this stage, if it was minded to proceed, was a conflict of evidence which required a trial for matters to be resolved.  He drew an analogy with Trico v Buckingham [2019] JRC 095.

48.      In relation to the agreement, this was set out in Mr Hodge’s affidavit at paragraph 19, where he alleged that D agreed and assured the Former Trustee that ‘GTC’s fees and expenses would be covered either personally or through the DDAT’.

49.      He also argued that this agreement amounted to acquiescence applying Re Pauling’s Trust [1962] 1 WLR 86 at page 106 to 108.  He also referred to an extract from Lewin at paragraphs 41-123 as follows:

“41-123 The courts have stated a single rule regarding the degree of knowledge required for a beneficiary to concur or acquiesce effectively in a breach of trust, and we consider that the same test applies where it is a question of releasing the trustee from liability, or confirming a transaction in breach of trust. A release, even where unlimited in its terms, will be construed in accordance with its recitals and the context in which it is made. The test has been stated in relation to concurrence as follows: "The ... court has to consider all the circumstances in which the concurrence of the cestui que trust was given with a view to seeing whether it is fair and equitable that, having given his concurrence, he should afterwards turn round and sue the trustees; ... subject to this, it is not necessary that he should know that what he is concurring in is a breach of trust, provided that he fully understands what he is concurring in, and ... it is not necessary that he should himself have directly benefited by the breach of trust.”

50.      He argued it was a matter for trial as to whether the terms of the agreement breached covered any acquiescence.  He also did not accept that the Current Trustee could sue because there were minor beneficiaries.

51.      The question whether or not the Current Trustee has acted honestly and reasonably was a factual issue which required a trial.

52.      He was unable to assist in relation to what had been said in the Guernsey liquidation of DDT.

53.      He further explained what was happening in relation to the taxations in Jersey and Guernsey by reference to paragraphs 44 to 46 of Mr Hodge’s affidavit.

54.      In relation to the defences raised in the Former Trustee’s skeleton, Advocate James made the following observations:

(i)        In relation to limitation, the accounts referring to the shares in Company A and Company C were only provided in June 2020.  The proceedings had been started within three years of this date.  However, the Current Trustees were only aware of a matter that might amount to a possible breach of trust on 7 November 2022 when they received their first response from the Former Trustee explaining that shares had been sold to pay fees. If that analysis was wrong and time started to run from May 2018 when the Current Trustees became trustee (albeit they had no trust assets and no information) an empechement clearly applied. 

(ii)       In relation to an exoneration clause, this was clearly a matter where what was in dispute was in the realms of wilful default or gross negligence.

(iii)      In relation to what had occurred, the Former Trustee had acted dishonestly and had not acted reasonably in its conduct.  He contended it would be fanciful and improbable to suggest otherwise.

(iv)      The suggestion of profit costs being retained was to give the Former Trustee a priority in relation to its claim for costs compared to other creditors in the proceedings in Guernsey. This was not justifiable.

(v)       In the Guernsey proceedings, what was relied upon in Mr Hodge’s affidavit referred to above was an indemnity from D.  There was no reference to any agreement as distinct from an indemnity. 

(vi)      There was no documentary evidence produced showing any such agreement or supportive of it.  In addition, it could have been raised as a justification for maintaining the statutory lien but it was not.  There is therefore some issue of estoppel.

Discussion

55.      In reaching our decision, we firstly accepted that the Current Trustees had commenced the present proceedings using the wrong process.  The claim brought is clearly a claim for breach of trust, which Advocate James, to be fair to him, did not dispute, and therefore should have been commenced by Order of Justice not by summons.  Such a pleading would have contained full particulars of the actions said to amount to a breach of trust, rather than these being contained in the twenty-sixth affidavit of Nicole Martin filed in support of the Current Trustees’ summons.

56.      Furthermore, the issue of proceedings should have been accompanied by an application to serve the same out of the jurisdiction as the Former Trustee is a company incorporated in Switzerland.

57.      We were not prepared to allow procedures to be ignored in the way that had occurred to try to save costs or because the Current Trustees believed they were entitled to judgment and that there was no possible defence to the claims they were advancing. These were not acceptable justifications. Procedures are there to ensure that a fair adjudication of any claim can take place and play an important role in ensuring a fair trial occurs. The approach of the Current Trustees fell foul of this important principle. 

58.      However, we were not persuaded that it was appropriate to dismiss the proceedings to require the Former Trustees to effectively start again for the following reasons:-. 

(i)        As is set out in more detail below, the complaints raised by the Current Trustee are extremely serious and there is significant force to them.  They require determination and require the Former Trustee to provide an answer to justify why it took the steps it did, it not being in dispute that those steps were taken.

(ii)       The amount at stake is in the region of around £400,000.  Having regard to the overriding objective contained in Royal Court Rule 1/6 and, given the seriousness of the issues raised, we concluded it was appropriate to correct the corners cut by the Current Trustees so that a fair hearing of their complaints could be heard.

59.      We further concluded that both permission to serve out of the jurisdiction would have been granted and should be granted as long as an affidavit in support is filed, which we directed.  This is the claim that relates to trusts governed by Jersey law and where the Former Trustee had previously invoked the jurisdiction of the Royal Court in the latter’s administrative capacity.  This is relevant because the present proceedings flow from and are tied up with previous Acts of the Royal Court.  Not only therefore are there grounds to convene the Former Trustee for a claim for breach of trust, but Jersey is also clearly the appropriate forum to determine the serious issues that require a trial.  Accordingly, the test set out in Maywall Limited v Nautech Services Limited [2014] 2 JLR 527 is clearly met. 

60.      In addition, in this case, because the Former Trustee had previously invoked the administrative jurisdiction of the Royal Court, in addition to permitting service out of the jurisdiction, an order for substituted service was also appropriate by reference to Royal Court Rule 10(1)(b).  This is a case where it was clearly appropriate to order substituted service upon Dickinson Gleeson who have represented the Former Trustee throughout in the administrative proceedings which have led to the present dispute. 

61.      We further determined that it was appropriate for us to set a timetable to proceed to a final determination.  In taking this approach, we had regard to the fact that significant evidence had already been filed setting out what had happened as set out above which is not disputed.  Rather, the issues in dispute relate to whether the conduct of the Former Trustee was justified, whether any claim is time barred, if a breach of trust is established, whether the Former Trustees should be excused, whether an exculpation clause may apply, and what approach should be taken to loss.  These are primarily legal arguments with limited further evidence being required.

62.      We therefore firstly directed that pleadings be filed so that the limits of any trial were clear and so that the Former Trustee knew, by reference to a pleading, the case it had to meet, and to file its substantive response.

63.      At the same time, we ordered the finding of any further supplemental affidavits to set out matters not already covered by the affidavits filed by both parties.  This affidavit evidence would stand as evidence in chief with cross-examination on relevant matters being for trial.

64.      We did not feel it necessary to make any order for discovery, firstly because the essential facts about what happened are known to the parties and are not disputed.  Secondly, to the extent that the Former Trustee wishes to justify what happened on the basis of an agreement with D, it is for the Former Trustee to produce any relevant documentation in support of its position. We were also conscious of the fact that trust records have been provided to the Current Trustees by the Former Trustee.  An expensive discovery exercise would therefore in large part be likely to lead to discovery of matters already in the possession of both parties and in this case is not necessary. 

65.      We further concluded that at the same time as filing its Answer and any further affidavit evidence, the Former Trustee should pay into Court the amounts referred to in paragraph 5 of this judgment.  We reached this decision by reference to the approach taken in Trico v Buckingham [2019] JRC 095 at paragraph 109 and 110 where the judgment stated the following:

“109. However, in concluding that a trial is required, under Rule 7/4(1) of the Royal Court Rules 2004, as amended, (the "Rules") I can make a conditional order which is the up to date terminology for giving conditional leave to defend. This can include under Rule 7/4(2) either requiring a sum of money to be paid into court or requiring a party to take specific steps in relation to their answer. Paragraph 24.6.6 of the 2018 Civil Procedure Guide (the "White Book") in relation to this power states:-

"This order will be made if it appears to the court that in respect of some claim or defence or issue it is possible that the claim, defence or issue may succeed but it is improbable that it will do so ... Paragraph 5.2 of the Practice Direction supplementing Pt 24 (see para.24PD.1 below) defines a conditional order as an order which requires a party:

"(a) to pay a sum of money into court; or

(b) to take a specified step in relation to his claim or defence as the case may be, and which provides that the party's claim will be dismissed or his statement of case will be struck out if he does not comply."

The court's jurisdiction to make a conditional order stems from r.3.1(3) (Deutsche Bank AG v Unitech Global Ltd [2016] EWCA Civ 119; [2016] 1 W.L.R. 3598). The scope and effect of r.3.1(3) was explained by the Court of Appeal in Huscroft v P& O Ferries Ltd (Practice Note) [2010] EWCA Civ 1438; [2011] 1 W.L.R. 939, CA, a judgment subsequently cited with approval in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corp [2017] UKSC 16; [2017] 1 W. L. R. 970, at para [44] (and see further, para.3.1.14 above). In Huscroft it was held that, before exercising the power, the court should identify the purpose of imposing a condition and should satisfy itself that the condition it has in mind represents a proportionate and effective means of achieving that purpose, having regard to the order to which it is to be attached. In summary judgment applications against a defendant the purpose of making a conditional order requiring payment into court is usually to provide security in respect of a particularly weak defence. The condition must be one which is capable of being complied with; an impecunious party should not be ordered to pay into court a sum of money which they are unlikely to be able to raise (Goldtrail Travel Ltd v Aydin [2017] UKSC 57, noted in para.3.1.4 above). However a conditional order may be made against a company which has no assets and which has ceased trading if there is evidence that it is able to raise funds when needed (Foot & Bowden v Anglo Europe Corp Ltd February 12,2000, unrep., CA).

As a general rule the court should not order the payment of a sum which may be beyond the respondent's means to pay in the absence of any evidence of the respondent's means unless it is satisfied that the respondent has been given appropriate prior notice of such an order: the notice may be given informally by letter sent by the applicant to the effect that, if summary judgment is not granted, the applicant will be seeking a conditional order along the lines set out in the letter; such notice may enable the respondent to prepare a witness statement as to means for production at the stage of proceedings when the court says it intends to make a conditional order (Anglo Eastern Trust Ltd v Kermanshalhchi [2002] C.P. Rep 36."

110. The more general power to make orders subject to conditions is also the subject of a commentary at paragraph 20.1.14 of the same guide which states:-

"In order to encourage a party to carry out their duty to help the court to further the overriding objective an order may be made subject to conditions may specify the consequences they need to comply with in order or a condition."”

66.      While Trico v Buckingham was a case about summary judgment, the overriding objective to which we have already made reference includes requiring us to identify the issues at stake at an early date.  Active case management also includes requiring the Court to decide promptly which issues need full investigation at trial.

67.      In our judgment, the summary judgment test in Rule 7 of the Royal Court Rules was relevant to this assessment because a defence to a claim that is not realistic or only has a fanciful prospect of success is not something that requires a trial, and instead the Court should grant summary judgment of its own motion (see MacFirbhisigh and Ching v CI Trustees [2017] JRC 130A at paragraphs 17 to 19).  In this case, based on the material before us for reasons we explain shortly, the defences advanced by the Former Trustee may succeed but appear to us to be improbable.  Given that the Former Trustee accepts that it sold Trust assets of the DDAT to pay its own fees and those of legal advisers due in respect of the DDT, we concluded that requiring a payment in was a proportionate and effective means of balancing the Former Trustee’s right to a trial with the very serious concerns expressed by Advocate James and our view of the strength of the arguments advanced before us.

68.      The starting point for those concerns is in Re Carafe [2005] JLR 159 at paragraph 21, which sets out a position where a trustee is exercising a lien and where the Court stated this:

“In a case such as this, where there are assets which remain under the control of the trustee and need to be administered and from which fees can ultimately be drawn, the trustee is under a continuing duty to exercise its duties as trustee to monitor and administer the assets, notwithstanding the existence of a fee dispute.”

69.      In the Matter of The Essel and Bruce Trusts [2008] JLR Note 18, the head note contains the following:

“As the trustees had accepted in June 2003 that their retirement and the transfer of administration of the trusts to a new trustee (or, as was subsequently agreed, the transfer of the trust assets to a new trust) was in the interest of the beneficiaries, they had been under a duty to cooperate fully and actively in the transfers and to transfer the assets as soon as reasonably possible subject only to their right to be provided with reasonable security for their fees and any liabilities (In re Ogier Trustee (Jersey) Limited [2006] JLR Note 35).” (emphasis added)

70.      The Ogier Trustee case in 2006 (supra) states:

“When the trusteeship was transferred the first respondent had a duty to cooperate fully and actively by making all relevant documents and correspondence available promptly to the representor as the new trustee and by giving explanations to reasonable questions.  The obligation to disclose trust information undoubtedly extended to providing full information about an underlying company which was 100% owned by the trust.”

71.      As to these authorities, it is clear that the scope of any statutory lien does not of itself permit a retiring trustee to sell shares and take matters into their own hands.  A retiring trustee only remains as trustee to enable arrangements to be made for the provision of reasonable security to that retiring trustee.  The retiring trustee is still under a duty to preserve and enhance trust assets, ideally with agreement with the successor trustee.  However, a retiring trustee, whether there is a fee dispute, cannot use any powers ordinarily available to sell assets to meet fees when it is due to retire and when the subject of any fees are under dispute or are likely to challenged.  The lien does not give any right to sell trust assets, merely to hold them.

72.      Yet it is not disputed that that is what the Former Trustee did.  There were ongoing disagreements about the extent of reasonable security and yet the Former Trustee caused assets of one trust to be sold to pay the Former Trustee’s fees claimed in relation to another trust.

73.      The defence raised by the Former Trustee in relation to this is that it was subject to an agreement with D.  As Advocate James observed, however, any details of that agreement are wholly unparticularised in Mr Hodge’s affidavit.  In Dickinson Gleeson’s letter of 7 March 2023, Dickinson Gleeson’s primary response was to state “My client acted in accordance with its right of indemnity”.  The indemnity referred to is a personal indemnity given by D referred to in the judgment of the Royal Court dated 20 April 2020 at paragraph 46.  In relation to that indemnity, directions were given for the matter to be determined by way of a trial.  However the parties have agreed to stay any such trial until conclusion of the proceedings in Guernsey in relation to the liquidation of DDT.  It is right to note that later in the same letter,  Dickinson Gleeson did state, “My client maintains that there was a standing arrangement that the DDAT was the funding vehicle for the administration of D's trusts and business interests and it was entitled to rely on that arrangement as it did at the time”. However that argument had not been raised until Mr Hodge’s email of 25 November 2022 referred to above, was wholly unparticularised both by Mr Hodges and by Dickinson Gleeson and remained so not withstanding receipt of Mr Hodge’s twelfth affidavit filed for the present proceedings.

74.      The actions of the Former Trustee are also contrary to the Act of Court  dated 31 May 2018 which made it clear that any lien, if it gave rise to a power to sell, contrary to our conclusions above, only applied for fees and expenses of the trust holding the asset. This was confirmed by Commissioner Clyde-Smith at paragraph 43 of his 20 April 2020 judgment referred to above.

75.      It was further clear from the 2018 costs judgment that any fees claimable in respect of DDT were excluded from any statutory lien.

76.      We also agree with Advocate James’ criticisms that some of the liabilities appear to have been used to pay legal fees incurred after 31 May 2018, i.e. for liabilities that arose after the Former Trustee exercised its right of lien. While at this stage we do not have an answer to this criticism, it is of concern and further justifies imposing the conditional order that we have. 

77.      Again, while we have not received any explanation about why the Former Trustee took the action it did, the concerns about inconsistent statements made to the Royal Court in Guernsey and the actions of the Trustee, further justify the monies retained to pay fees being paid into Court. We also agree with the concerns expressed by Advocate James that the sale of shares was not disclosed to the Royal Court in 2020.  Advocate Staal was unable to clarify if the sale of shares was known to those representing the Former Trustee at the time of the April 2020 hearing.

78.      In relation to the limitation arguments, we consider that the Current Trustees’ case that some form of empechement will apply is one that, as matters stand, is strong.  The Current Trustees were not aware and did not have any information to start making enquiries until June 2020.  They did not become aware of what had happened until November 2022.  While we will need to be addressed on the scope of Article 57(3B) in relation to a retiring trustee where there is a lien and when time starts to run, there are significant weaknesses in the argument that the Current Trustees should have made enquiries earlier.

79.      Likewise, while it is a matter for trial, whether any of the exculpation clauses might protect the Former Trustee if a breach of trust is otherwise found, if the Former Trustee, as is suggested, deliberately sold shares without informing anyone to pay fees due for another trust, it is clearly open to the Court at trial to conclude that such conduct amounts to wilful default or gross negligence.

80.      Similarly, while the Former Trustee in asking to be excused requires the Court to hear from Mr Hodges, again, there is force to the argument that a trustee will not be found to have acted honestly or reasonably by taking matters into its own hands. 

81.      In relation to the profit argument, this would also appear to be giving the Former Trustee a priority in respect of the liquidation in Guernsey.  Again, this is subject to final submissions at trial. 

82.      We also consider that the Former Trustee will face considerable difficulty in persuading us that a situation of acquiescence applies because, by reference to the passage in Lewin quoted at paragraph 52 above, acquiescence requires knowledge of the breach of trust. It appears to be the case that D was not aware of the shares being sold or them being used to pay fees.  It is therefore a development of the principle of acquiescence to say that someone can acquiesce in a breach of trust in advance of it occurring by giving a general waiver allowing a trustee to take certain steps. In any event, such a proposition does not appear to prevent the Current Trustees from claiming breach of trust where there are other minor beneficiaries who would not have consented to a breach of trust. The claim based on an agreement may therefore be limited to a personal claim against D only.

83.      For all these reasons we made the order of a payment into Court of CHF163,423 and £282,871.63 as the price for the Former Trustee’s being able to advance the arguments they wish to advance, notwithstanding the difficulties with them, which we have set out in this judgment.

84.      The costs of the present application were left over for determination after trial.

Authorities

Geneva Trust Company (GTCO SA v D and Ors [2020] JRC 063. 

D v Rawlinson and Hunter Trustees [2018] JRC 132. 

Lewin on Trusts

Trico v Buckingham [2019] JRC 095. 

Re Pauling’s Trust [1962] 1 WLR 86. 

Maywall Limited v Nautech Services Limited [2014] 2 JLR 527. 

MacFirbhisigh and Ching v CI Trustees [2017] JRC 130A. 

Re Carafe [2005] JLR 159

Matter of The Essel and Bruce Trusts [2008] JLR Note 18. 

Ogier Trustee (Jersey) Limited [2006] JLR Note 35