Trustee L v Attorney General

• Jurisdiction: Bermuda
• Judgment Date: 15 May 2015
• Neutral Citation: [2015] SC Bda 41 Com
• Date: 15 May 2015
• Docket Number: CIVIL JURISDICTION 2013: No XXX
• Court: Supreme Court (Bermuda)

Between:-

Trustee L and Others

Plaintiffs

and

The Attorney General and Others

Defendants

[2015] SC (Bda) 41 Com

CIVIL JURISDICTION 2013: No XXX

In The Supreme Court of Bermuda

COMMERCIAL COURT

Mr Alan Boyle QC, Mr Jonathan Adkin QC and Mr Narinder Hargun, Conyers Dill & Pearman, for the Plaintiffs

Mr Michael Furness QC, Mr Dakis Hagen and Mr Rod Attride-Stirling, ASW Law Limited, for the Second Defendant

The other Defendants did not appear and were not represented

RULING (redacted version)

(In Chambers)

Introduction

1 This is a ruling on the substantive hearing of the Plaintiffs' application for Beddoe relief with respect to proceedings (‘the Main Action’) brought against them by the Second Defendant (‘D2’). The application was novel in several respects. So far as the Court or counsel are aware: (i) this is the first time that Beddoe relief has been sought by the trustees of a non-charitable purpose trust, albeit the purposes of the trusts in question do include some charitable purposes; and (ii) there has not previously been a claim made to trust assets of such high value as those with which the present case is concerned without any beneficiaries to defend the claim.

2 The Plaintiffs are the Trustees (‘the Trustees’) of certain Bermuda purpose trusts (‘the Trusts’) established under the Trusts (Special Provisions) Act 1989 (‘the 1989 Act’).

3 The total value of the Trust assets is very large. A substantial part of those assets consists of shares in a group of companies (‘the Companies’) founded by S and T. Both men are now deceased, although T was alive at the start of the Beddoe proceedings. They were very successful industrialists in country Z.

4 The directors of the Trustees include Child 1 and Child 2, who are children of S, and two children of T. I shall refer to them collectively as ‘the Family Directors’. The remaining director is X, a trusted senior employee who was instrumental in setting up the trust structure.

5 D2 is a child of S. D2's claim in the Main Action has gone through various iterations, including most recently a draft re-amended statement of claim. In preparing this ruling I have considered both the extant statement of claim and the proposed amendments.

6 D2 sues in D2's proposed capacity as administrator in Bermuda of S's estate (‘the Estate’); in D2's capacity as one of the heirs of S under the law of country Z (and purportedly on behalf of all the heirs); and as a person beneficially interested in the Estate.

7 D2 claims as D2's primary case in the Main Action that all the Trusts are void, or alternatively that the transfers of assets into the Trusts should be set aside, and that the assets form part of the Estate. However, if D2's challenge were successful some of the assets might also (indeed almost undoubtedly would) form part of the estate of T as well.

8 Specifically, D2 alleges that the Trusts are void for uncertainty; that they were not properly constituted; that some of the Trust assets were transferred into the Trusts without instructions; that insofar as assets were transferred into the Trusts on instruction, those instructions were not properly complied with; that S was under a fundamental mistake as to the effect of S's instructions; and that any such instructions were given as a result of undue influence exerted by Child 1 and/or X.

9 If D2's primary case in the Main Action fails, D2 claims as D2's secondary case that the Trustees should be removed due to alleged conflicts of interest and the fact that their philanthropic activities on behalf of the Trusts have been allegedly desultory.

10 D2 intends to seek leave in the Main Action to join Child 1 as a defendant. However no Beddoe relief was sought at the hearing in relation to this prospective claim.

11 There are three main issues arising on the Beddoe application: (i) whether the Trustees should defend D2's primary case in the Main Action – no Beddoe relief was sought at the hearing in relation to D2's secondary case – and have an indemnity in respect of their costs of doing so; (ii) whether the Trustees should be permitted to continue to purchase shares in the Companies in accordance with what the Trustees contend is the practice which has prevailed since the Trusts were formed; and (iii) whether pending trial the Trustees should be permitted to make certain specified charitable donations of a relatively limited character from one of the Trusts.

Directions and indemnity

The law

12 The outcome of the Trustees' application for directions authorising them to defend the Main Action and for an indemnity if they do is in part at least dependent on what test for Beddoe relief the Court adopts. The resolution of that question is dependent upon the interplay of the Court's Beddoe jurisdiction with its jurisdiction to make a pre-emptive order as to costs.

13 In Trustee 1 et al v The Attorney General et al [2014] CA (Bda) 3 Civ, which was an interlocutory appeal on a Beddoe application, Baker JA (as he then was) at para 3 of his leading judgment summarised Beddoe proceedings as:

‘ separate proceedings in which trustees are permitted to seek advice and direction from the court as to the position they should take in an action concerning the trust, including whether they should defend an action brought against a trust at the expense of the trust fund’.

14 In STG Valmet v Brennan [1999 – 2000] Gib LR 211, a decision of the Gibraltar Court of Appeal, at para 30, Waite JA described a pre-emptive costs order, at least in the context in which one is typically sought, as an order that regardless of the outcome of the proceedings a party holding the legal title to the disputed assets shall be indemnified for his costs by an order that they are to be paid out of such assets in any event.

15 There is therefore clearly an affinity between these jurisdictions, which both arise under Order 62 of the Rules of the Supreme Court 1985 (‘RSC’). The relevant provisions of RSC Order 62 are in all material respects the same as the corresponding provisions of Order 62 of the former Rules of the Supreme Court of England and Wales (EWRSC).

16 The Court's Beddoe jurisdiction derives from Order 62, rule 6(2) of the RSC. This provides:

‘ Where a person is or has been a party to any proceedings in the capacity of trustee, estate representative or mortgagee, he shall be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by him in that capacity or out of the mortgaged property, as the case may be, and the Court may order otherwise only on the ground that he has acted unreasonably or, in the case of a trustee or estate representative, has in substance acted for his own benefit rather than for the benefit of the fund.’

17 The jurisdiction takes its name from the seminal case of In re Beddoe [1893] 1 Ch 547, although that case did not in fact involve a Beddoe application. The case was concerned with Order LXV, rule 1 of the Rules of the Supreme Court 1883. This was the predecessor of EWRSC Order 62, rule 6(2). It provided:

‘ Subject to the provisions of the Acts and these rules, the costs of and incident to all proceedings in the Supreme Court, including the administration of estates and trusts, shall be in the discretion of the Court or Judge: Provided that nothing herein contained shall deprive an executor, administrator, trustee, or mortgagee who has not unreasonably instituted or carried on or resisted any proceedings, of any right to costs out of a particular estate or fund to which he would be entitled according to the rules hitherto acted upon in the Chancery Division: …’

18 The question before the Court was whether the surviving executor and trustee of the deceased's will (‘the trustee’), was entitled to retain and be paid out of the trust estate the costs of and relating to an action (‘the main action’) brought against him in the Queen's Bench Division by the tenant for life under the will. The court in the main action had given judgment for the tenant for life and ordered that the trustee should pay her costs. The trustee then issued an originating summons in the Chancery Division against a person appointed to represent the other persons interested in the residuary estate of the testatrix (‘the representative beneficiary’) in which he sought, and obtained, an order from Kekewich J that he could recover the costs which he had paid in the main action from the trust estate as costs, charges and expenses properly incurred.

19 The representative beneficiary appealed against the order of Kekewich J. Section 49 of the Judicature Act 1873 provided that as an order as to costs lay in the discretion of the court or judge, it was not subject to appeal except by leave of the court or judge who made it. The trustee maintained that as Kekewich J had not given leave to appeal against his order the Court of Appeal had no jurisdiction to interfere with his discretion.

20 The Court rejected this submission. Order LXV, rule 1 provided that the costs of the main action were in the discretion of the judge who tried that action. The Order had nothing to say about an application of the kind made by the trustee before Kekewich J, and there was therefore no bar to the representative beneficiary bringing an appeal. As Lindley LJ, who gave the leading judgment, stated at 554 – 555:

‘ It does not mean that the costs in a proceeding are to be in the discretion of the Court or Judge before whom these costs may incidentally come, upon an application to have them borne by some fund or some person not before the Court in the proceedings in which they have been incurred — that is not the meaning of the rule. Although costs are costs when they are incurred, the moment you come to ask that they shall be borne as expenses by a particular fund, or by persons not parties to the proceedings in...