TRUST LAW; BLESSING OF MOMENTOUS DECISION; BEDDOE APPLICATION; COSTS; WHETHER FINANCIAL ASSISTANCE TO BENEFICIARY TO MEET LEGAL COSTS SHOULD BE BY DISTRIBUTION OR LOAN OUT OF THE TRUST FUND
Representation of A Trustees Limited re the ABC Trust [2024] JRC 221
The Court blessed a decision of A Trustees Limited (“the Representor”) as trustee of the ABC Trust to enter into a settlement agreement in relation to certain proceedings before the English High Court. The Court was not prepared to bless the Representor making a distribution to D to meet the legal fees he had incurred in relation to the proceedings to be settled, and certain other proceedings, but was prepared to do so by way of loan.
Held, as to the legal points:
(1) Approach to blessing; Beddoe decision
(a) The approach to the blessing of a momentous decision within the trustee’s powers was set out in the well-known case of Re S Settlement 2001/154: “(1) Are we satisfied that the Trustee has in fact formed the opinion in good faith that the circumstances of the case render it desirable and proper [to carry out the proposed decision]? (2) Are we satisfied that the opinion which the Trustee has formed is one at which a reasonable Trustee properly instructed could have arrived? (3) Are we satisfied that the opinion at which the Trustee has arrived has not be vitiated by any actual or potential conflict of interest which has or might have its decision?” These principles were confirmed and further explained by the Court of Appeal in Representation of Otto Poon Trust [2015] JCA 109.
(b) Where the Court is reviewing a decision by a trustee to engage or not to engage in litigation, it should take a more “inquisitorial approach”. This is because the Court is well placed to assess the risks of litigation which means that it is in a good position to review whether or not it was sensible for trust assets to be put at risk by engaging in the litigation in question: Lewin 20th Edition at paragraph 48140.
(2) Disposal
(a) The decisions of the trustee had clearly been formed in good faith.
(b) As regards a conflict of interest (the details of which were redacted) the Court accepted the Representor’s submission that this case fell within the third category described in Re H Trust [2018] JRC 171 at paragraph 37, namely where “the trustees honestly and reasonably believe that, notwithstanding a conflict affecting one or more of their number, they are nevertheless able fairly and reasonably to take the decision.” The Court agreed with the the Representor that the conflict in this case was not so pervasive as to disable the decisions required and to require the Representor to surrender its discretion to the Court. The possibility of a conflict did not therefore prevent either the Representor from reaching a decision or prevent this Court from blessing that decision.
(c) The Court was also satisfied that the decision of the trustee to enter into the settlement was one which a reasonable trustee properly instructed could have arrived at.
(d) In relation to the request for a distribution, the Court agreed with the Representor’s assessment that D could not meet his legal fees and that it was in the interest of the beneficiaries as a whole for trust assets to be used, in principle, to meet these fees. These were opinions formed in good faith which a reasonable trustee properly instructed could have arrived at. However the Representor did not appear to have considered making a loan to D as distinct from making a distribution to him. The Representor’s decision, notwithstanding its desire in due course to create a separate fund for the benefit of minor and unborn beneficiaries, had left the other beneficiaries, in addition to having to bear the settlement cost, also having to bear the legal costs incurred by D. The Jurats therefore concluded that a reasonable trustee properly instructed would have considered the possibility of a loan to allow the possibility of recovering monies advanced to one beneficiary to meet legal fees for the benefit of other beneficiaries.
(e) Rather than simply refuse to bless any decision with regard to D’s legal fees, the Court indicated to the Representor that it would authorise the making of a loan. In relation to the terms of the loan, it further indicated that a loan for a period of five years, unsecured and on an interest free basis, would be appropriate. The Court therefore authorised the trustee to assist D in meting his legal fees by way of loan on this basis.
Bridgeford A, WDJL 4-10 November 2024