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Dependencies


been considered in absolutely comparable terms in England and Wales.


The Court identified two possible bases on which it could act. First, the Court could exercise its power under Article 51(3) of the Trusts (Jersey) Law 1984 to direct the trustee to make distributions to the claimants. Alternatively, the Court had inherent jurisdiction to make the order in the standard ‘Beddoe’ form,2


as the claimants were, in effect,


bringing the claim on behalf of the beneficiaries of the trust as a whole.


The Court concluded that the claim against the trustee was equivalent to a derivative action brought by a shareholder of a company under an exception to the rule in Foss v Harbottle,3


where


the claim is brought on behalf of the company and for the benefit of the shareholders as a whole. The Court noted that the principles applicable to derivative actions, and the costs of them, had been applied to a claim by a beneficiary on behalf of a trust in the English case of McDonald v Horn,4 albeit it was central to the reasoning in that case that the trust was a pension scheme and the beneficiary was not merely a voluntary recipient of the settlor’s bounty. The Court was alive to the dangers of beneficiaries litigating at the expense of the trust and potential squandering of the trust fund on unnecessary litigation. Further, in the case of discretionary trusts, it was possible that the beneficiary, seeking to bring the claim, might never be appointed any of the trust assets. This demonstrated that it was important for the Court to consider the interests of other beneficiaries of the trust when deciding whether to make an order in favour of the applicant. The Court likened this exercise to the approach of the Jersey Courts to the question of whether disclosure of trust information should be made to a beneficiary following Schmidt v Rosewood Trust Ltd.5 No beneficiary has an entitlement to bring a derivative action at the expense of the trust fund, and it follows that there is no general principle that the costs incurred by a beneficiary in bringing such an action should always be met from the trust fund. The Court will have regard to all the circumstances and may have to balance the interests of beneficiaries between themselves, beneficiaries and trustees or, conceivably, beneficiaries and third parties. The ultimate issue is whether the order sought is in the best interests of the beneficiaries as a whole. The Court was provided with opinions from the claimants’ Counsel, which concluded that claims made against the trustee were well-founded in principle and should be maintained. The Court found that it would be unfortunate and not in the best interests of the beneficiaries as a whole if the claimants were prevented from bringing such claims through lack of funding. The Court noted that the size of the trust fund meant that the costs of the litigation would not affect the interests of beneficiaries who presently received an annual stipend from the trust. The Court concluded that the claimants should not be required to bear the costs of the claim, as the claim was essentially for the benefit of all of the beneficiaries.


WWW.STEPJOURNAL.ORG The final factor that persuaded the Court to rule


in favour of the claimants was that the claimants were the principal beneficiaries of the trust, and therefore if the trust incurred the expense of the claim, their interests in the trust would bear the cost, so the risk of litigation would be borne by the right parties. The Court considered that if a new trustee were to be appointed, and if it were to begin proceedings against the trustee for the same claims, an order that the costs of those proceedings should be funded out of the trust (i.e. a conventional Beddoe order) would likely be granted. The trustee had provided the Court with an independent report that raised concerns that the litigation, whether successful or not, could damage the assets of the trust, which included a shareholding in a public company, due to the nature of the allegations made and their bearing on market perceptions of the strength of the company. The Court held that this concern could be addressed, in part, by the Court directing the senior Court officer not to allow public access to the pleadings in the litigation.


The decision


The Court held that the right balance would be struck by making the orders sought by the claimants. The Court will review the orders made two months after discovery has been given by the parties. The Court considered that Counsel ought then be able to advise on a more informed basis on the prospects of success for the claimants’ claim. The Court will then decide whether funding should continue from the trust. The Court directed that any costs orders made in favour of the claimants, in the litigation against the trustee, should be held by them for the benefit of the trust.


An alternative to third-party litigation funding? This decision establishes that there will be instances where beneficiaries bringing a claim against their trustee are entitled to seek orders that they be funded by the trust, when it is in the best interests of the beneficiaries as a whole to do so. The beneficiaries may also be given the benefit of a protective costs order, as in this case. Litigation funding and costs insurance have recently emerged in Jersey, but beneficiaries bringing claims against a trustee may wish to consider an application of the kind made in this case as a potentially cheaper alternative. The Court’s ruling does not amount to an


invitation to beneficiaries to litigate with trustees at the cost of the trust, to the detriment of other beneficiaries. The Court will wish to see reasonable evidence that the litigation is well founded, and will benefit the trust, as is the case in conventional Beddoe applications.


1 In the Matter of X Trust [2012] JRC 171 2 An order blessing a decision to commence or defend litigation for the benefit of a trust, normally sought by a trustee under the authority of In re Beddoe [1893] 1 Ch 547


3 [1843] 2 Hare 461 4 [1995] 1 All ER 961 5 [2003] 2 AC 709


APRIL 2013 59


FOCUS ON Crown


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