1. Fiduciary and Trust litigation: How to avoid it
5 April 2019 – Step Mauritius
Fiduciary and Trust litigation: How to avoid it
Peter Gillis, Stephenson Harwood LLP

2. Different types of trust dispute
Introduction
Different types of trust dispute
Guidance for trustees facing each type of trust dispute and how they may be able to protect themselves
Recent cases in 2018

3. Types of trust dispute
‘Trust’ dispute – dispute about the terms or administration of the trust
Questions regarding the construction of the trust instrument
How should the trustee exercise its powers?
‘Hostile’ trust disputes
‘Beneficiary’ dispute – dispute arising from a beneficiary alleging misconduct/breach of trust
‘Third party’ dispute – bringing or defending claims from/against third parties

4. Type 1: ‘Trust’ disputes
How to approach a ‘trust’ dispute
Main concern is the risk of acting in breach of trust
Possible options for the trustee are:
1. Go ahead and act
2. Obtain the consent of the beneficiaries
3. Obtain directions from the court
England – Civil Procedure Rules
Mauritius – Section 62 of the Trusts Act 2001

5. Type 1: ‘Trust’ disputes
Directions of the court
Questions of construction of the trust instrument
Guidance to the trustee in the exercise of its powers:
‘Blessing’ applications – where there is no real doubt, but a decision is ‘momentous’
Court is principally concerned with:
Rationality
Honesty
Surrender of discretion cases

6. Type 1: ‘Trust’ disputes
Recent cases from 2018
South Downs Trustees Ltd v GH [2018] EWHC (Ch) – England and Wales
Trustee held 73% of the shares in a holding company
Trustee received an offer to purchase underlying business
Offer was a better outcome for beneficiaries than if business remained in trust and the trustee decided to accept
Trustee sought judicial blessing of decision
Court granted the application
The court found the trustee had taken a “structured and logical” approach
Potential conflict of interest was carefully investigated and managed

7. Type 1: ‘Trust’ disputes
Recent cases from 2018
Re H Trust [2018] JRC Jersey
Trust asset was a residential property in London worth £1m
Illiquid with £112k of outstanding management fees owed to the trustee
Trustee wanted to sell property and distribute proceeds
Trustee applied to court for directions – it was opposed by all beneficiaries
Court found:
Trustee had not dealt with the conflict of interest – this was fatal to the application
Trustee had not obtained tax advice
Trustee needed to give reasonable time to beneficiaries to identify an alternate funding proposal

8. Type 2 ‘beneficiary’ disputes
Hostile disputes between the Beneficiaries and the trustees founded on allegations of misconduct
Examples include:
Negligent management of trust assets
Not acting impartially between beneficiaries
Distributing funds to someone not within the beneficial class
Acting without taking tax advice

9. Type 2 ‘beneficiary’ dispute
How to protect against a ‘beneficiary’ dispute
Prevention is better than cure
Ensure there are adequate protections in the trust deed:
Exoneration provisions
‘Anti-Bartlett’ clauses
Duty to diversify assets
‘Undo’ transactions in breach of duty using doctrines of:
Equitable mistake
The ‘Re Hastings Bass’ Principle

10. Type 2 – ‘Beneficiary’ disputes
‘Undoing’ transactions
Mistake: Transaction may be set aside where there is a discrepancy between the trustee’s intentions and the effect of the transaction
Re Hastings Bass: Transaction may be set aside where:
The Trustee has done something within the terms of its power
The trustee has failed to take relevant considerations into account - this must amount to a breach of duty
Doctrine narrowed following English Supreme Court decision in Pitt v Holt [2013] UKSC 26

11. Type 2 – ‘Beneficiary’ disputes
Recent cases from 2018
M v St Anne’s Trustees Ltd - Guernsey
Beneficiary borrowed from trust to fund a divorce payment
Beneficiary repaid loan with transfer of companies to the trust worth more than the loan
Trustee made balancing payment which triggered significant income tax liability
Trustee sought to set aside the transaction under the Re Hasting Bass principle

12. Type 2 –’Beneficiary’ disputes
Recent cases from 2018
M v St Anne’s Trustees Ltd - Guernsey
First Guernsey case following English Supreme court decision in Pitt v Holt
First instance court refused application on basis it would be “unconscionable”
Guernsey Court of Appeal:
Proceeded on assumption that Guernsey law would follow Pitt v Holt
No “unconscionability” requirement
Codification in other jurisdictions

13. Type 3 - ‘third party’ disputes
Issues for the trustee in a ‘third’ party dispute
Trustee bringing or defending claims against third parties
Main issue for trustee is to ensure that it is indemnified
Normal cost rules will apply in litigation (loser pays)
Indemnity from the trust?
Apply to court for a “Beddoe” order to protect the trustee
Procedure is a mini trial
Normally made before the third party claim is started

14. Type 3 – ‘third party’ disputes
Recent cases from 2018
The Stingray Trust 2018– Cayman
Proceedings attacking trust issued in Switzerland
The trustee defended the claim
Shortly after the Swiss proceedings were dismissed the trustee applied for “Beddoe” relief
Before it could be heard similar proceedings were issued in Milan
Court granted “Beddoe” application:
It was necessary to defend the application as there was a substantial risk to the trust – although sanction was not open ended
Failure to apply prior to defending Swiss proceedings was understandable

15. Type 3 “third party” disputes
Recent cases from 2018
Investec Trust (Guernsey) Ltd v. Glenalla Properties Ltd [2018] UKPC 7
Mauritius – Section 36(1) Trusts Act 2001

16. Fiduciary and Trust litigation: How to avoid it
Peter Gillis
Stephenson Harwood LLP