Re X (Trust) [2012] JRC 171

Analysis

The plaintiff/representors (A and B) are the principal beneficiaries of X Trust, a discretionary trust governed by the law of Jersey with the first defendant/respondent (C) being the sole trustee. There are other stipendiary beneficiaries.

It is a large trust and owns shares in a public quoted company that have plummeted in value. No claim in respect of this loss has been made. However, there are other losses totalling nearly £100m and A and B wish to bring a breach of trust claim in respect of these losses.

If A and B are successful in their claim they will not personally benefit as C will be ordered to replenish the trust fund rather than pay A and B damages.

To date A and B’s claims have been funded from distributions from the trust and C made those distributions without reference to the court. C’s view then changed and, as there was a potential of prejudice to the trust from maintaining proceedings, it wished to stop distributions. A and B could not self fund the litigation and stated that they could not borrow money to fund the litigation as they would get no direct benefit from the action.

A and B applied to the court for a direction that they could bring the breach of trust claim at the expense of the trust fund itself.

C maintained a neutral position as it recognised the potential for conflict but did commission an independent report. The report highlighted the risk of the litigation becoming public knowledge. One of the directors of the public quoted company is a former trustee of the trust and a defendant. The shares could further fall in value if public confidence was lost and cause further loss to the trust.

Counsel’s opinions obtained by A and B concluded that the claims made against the trustees should be prosecuted.

Held (allowing the cost of the legal action against the trustee to be met out of the trust fund and for the pleadings to not be made available to the public):

1. (1) Statute allows the court to order distributions out of the trust fund in this case.
2. (2) The court also has inherent jurisdiction to make a standard Beddoe order as although A and B are beneficiaries they are in effect bringing a derivative action as trustees for the benefit of the trust.
3. (3) In this case it is the potential recipient of the damages that is critical – the trust itself.
4. (4) The trustees are not defending the trust but rather themselves.
5. (5) It was relevant that A and B would struggle to continue funding the litigation and such a conclusion would be unfortunate and not in the interests of the beneficiaries as a whole.
6. (6) The size of the trust fund means that even after this order the trustees will still be able to pay out to stipendiary beneficiaries but may have to reduce future distributions to A and B if their future legal action is unsuccessful. Therefore the prospect of success and risk of failure vests in A and B if the litigation is funded by the trust.
7. (7) Many external factors can determine the sale price of a company and it is not for the court to second guess market perception in relation to a particular company.
8. (8) The order is time limited to pay the costs and disbursements of the legal action until two months after discovery has been made. At that point a further court order will be needed to continue this funding.
9. (9) Any adverse cost order made against A and B are to be met from the trust fund.
10. (10) All the parties costs of this application shall be paid from the trust fund.

JUDGMENT THE DEPUTY BAILIFF: [1] This is an application by the representors for a direction that they may prosecute a breach of trust claim which they have issued against the first respondent and others in effect at the expense of the trust fund itself. The first respondent is currently the sole trustee of the X …

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