Analysis
The Trustee of a Cayman Islands trust (“the A Trust”) applied for Beddoe relief seeking directions permitting it to defend English proceedings, alleging misrepresentation and deceit, to which it had been joined as a defendant; and, in so doing, permitting it to borrow funds from another trust (“the C Trust”) to discharge the costs of defending the action, such costs to be ultimately reimbursed from the A Trust’s assets. An adverse judgement in the English proceedings in favour of the plaintiffs in the English proceedings (“Z”) would likely result in the complete loss of the A Trust’s only realisable asset to the detriment of the beneficiaries.
Z, through its local lawyers, was sent a letter informally notifying it of the Beddoe application. Z contended, in a response letter, amongst other things, that formal notice of the proceedings should be given to it to allow it to make at least written submissions of its position to the Court hearing the Beddoe application. In support of Z’s claim to be interested in the Trustees’ application, it was contended that the Trustee was seeking a pre-emptive costs order which pre-determined the incidence of costs as between Z and the Trustee in the English proceedings.
Held:
- 1) It was appropriate to direct the Trustee to defend the claim in the English proceedings, and to be indemnified from the A Trust’s assets (to be funded by a loan from the C Trust) given that, if Z’s claim was not defended, the beneficiaries were not likely to derive any value from the A Trust.
- 2) The Trustee’s application was simply for Beddoe relief as to whether the Trustees should defend the claim in the English proceedings and, if so, for an indemnity out of the A Trust’s assets. Such an application was clearly not a pre-emptive costs application. Nor was the application made in the English proceedings.
- 3) It was recognised and accepted that Z, as claimant in the English proceeding, could be adversely affected if its claim was successful and the Trustee had defended the claim at the expense of the A Trust. The costs of the defence would have reduced the value of the assets against which Z would wish to enforce its judgment. However, that consideration was no basis for denying the Trustee its Beddoe relief.
- 4) Z, being potentially affected by the way in which the A Trust was administered pending resolution of its claim, had a sufficient interest to be informally notified so that, if it wished, it could make representations to the Court, as it did by way of its response letter. However, while a contingent or putative creditor, in the position of Z, should have the opportunity to make representations to the Court as to whether a direction to defend should be given, such representations might or might not be determinative. Where they were not, as was found to be the case, the fact that the trust assets would be reduced by the defence of the substantive proceedings was not a factor that could outweigh the interest of the beneficiaries.
- 5) A contingent or putative creditor in Z’s position was not capable of asserting a proprietary claim to the trust assets. Such a creditor must take the trust assets as it finds them at the time of judgment. Z was only asserting a personal claim and a right to enforce any judgment against the assets of the A Trust, such as those assets may be from time to time in the course of the ordinary and proper administration of the A Trust.
- 6) In the unusual and uncertain circumstances confronting the Trustee, it would be unjust to allow Z’s putative contingent and non-proprietary claim to outweigh the interests of the beneficiaries.
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