Guernsey Law Reports 2009-10 GLR 377
INTERNATIONAL COMMITTEE OF THE RED CROSS v. THOMMESSEN and BUTTERFIELD TRUST (GUERNSEY) LIMITED
ROYAL COURT (Collas, Deputy Bailiff): March 8th, 2010
Trusts—costs—prospective costs—no prospective costs order if court not aware whether prospective beneficiary intends to take passive or hostile stance in substantive proceedings—not to fetter final discretion to order costs unless satisfied that only proper exercise of discretion at end of proceedings is to award costs out of trust fund
The applicant organization, a prospective beneficiary under a trust, sought an order for prospective costs to be made on a full indemnity basis out of the assets of the trust, in respect of costs it had or would incur in proceedings by the respondents (the settlor and the trustee) concerning the reorganization of the beneficial interests under the trust.
The Mischca Trust
A dispute arose as to whether the applicant was intended to be a beneficiary under the Mischca Trust. The economic settlor of the trust was a successful stage designer who had established the trust (via the first respondent as the nominal settlor), naming three beneficiaries—the economic settlor herself (who died in 2002), her mother (who died in 2004) and the applicant organization. The wide discretionary power to add beneficiaries had not been exercised and the applicant therefore remained the only named beneficiary. A further provision appointed, as ultimate beneficiaries in the event of the failure of the trust, the persons who would be entitled to succeed to the settlor’s personalty under the Guernsey law on intestacy.
The respondents maintained that it was never the intention of the economic settlor that the applicant should benefit from the Mischca Trust and that it had been named purely as the “default” beneficiary. The “default” clause in the trust ensured that another beneficiary would always exist.
The applicant submitted in reply that (a) not only was it named as a beneficiary under the trust but there were good reasons for this—the economic settlor was herself a refugee who had benefited from the work of the applicant and her great-grandfather had supported the nomination of the applicant’s founder for the first Nobel Peace Prize; (b) there was no indication that its interest was to be postponed until after the death of the
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economic settlor and her mother; and (c) the economic settlor had given no indication that the family of the nominal settlor was intended to benefit from her work—indeed, he was Norwegian, not domiciled in Guernsey and Guernsey law would therefore not govern the distribution of his estate.
The matter was further complicated because, although the applicant wished to ensure that such rights as it had would be preserved, it would give no indication of what rights it believed it had or how it proposed to pursue them. An affidavit sworn on its behalf in Switzerland stated positively that, although the applicant had sufficient funds to instruct an advocate if it wished, “given [its] mandate and the source of its funding it [was] inappropriate to use those funds to participate in litigation.” The general charitable interest was therefore represented by a Crown Advocate acting in the role of partie publique.
The International Foundation for Arts & Sciences (IFAS)
IFAS was founded by the second respondent (as trustee of the Mischca Trust) in 1995 to enable the economic settlor to give effect to her charitable intentions. The trustee purported to add IFAS as a beneficiary of the Mischca Trust (though the validity of that action remained in issue in the present proceedings). The applicant was a named beneficiary and was also the ultimate default beneficiary, and a number of other beneficiaries had also been added in the discretion of the trustee.
The trustee sought the court’s approval for a number of past and proposed actions. These included the creation of IFAS, or alternatively approval of the legality of the payments made by the Mischca Trust to IFAS, and, in the future, the transfer of all the assets of both trusts to an English charity created for the purpose of receiving them.
The nominal settlor opposed this application, seeking a declaration that IFAS had been unlawfully added as a beneficiary of the Mischca Trust, and an order that the trustee be replaced as trustee of the Mischca Trust by another (named) trustee company.
Held, refusing to order prospective costs:
(1) Since the court did not know what part the applicant organization intended to play in the substantive proceedings—in particular whether it would behave passively or take an active, hostile stance to preserve its apparent rights as a beneficiary under both trusts—it would be wrong to make a prospective order which would fetter the exercise of its discretion to award costs at the end of the hearing. It would make such an order in ordinary trust litigation only if it were satisfied that at the end of the proceedings it would be able to exercise its discretion properly only by ordering that the applicant’s costs be paid out of the trust fund (paras. 25–28; para. 37).
(2) Moreover, since the court was unable to decide whether the applicant was intended to receive any benefit from the Mischca Trust without hearing evidence—and was unwilling to consider the merits of the situation in principle for fear of expressing a view that would trespass
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upon the Jurats’ responsibility at the trial—it would defer further consideration of the matter until the trial. (In the event, it was advised that the substantive proceedings had been settled subject to the approval of the court.) (para. 12; para. 38).
(3) Given the unusual circumstances of the case, the role of the partie publique was necessarily limited. The applicant, as a prospective beneficiary, clearly fell within the category of charitable interests the partie publique was entitled to protect—but, although it had sufficient funds to instruct an advocate if it wished, it had been indicated that it would be “inappropriate to use those funds to participate in litigation.” If it were therefore not represented and not able to advance its own case, counsel representing the partie publique would himself have difficulty in doing so and his role would then have been limited to having discussions with the applicant in the hope that he would be able to make its views known to the court without advancing any special case (paras. 31–32).
Cases cited:
(1) Alsop Wilkinson v. Neary, [1996] 1 W.L.R. 1220; [1995] 1 All E.R. 431, referred to.
(2) Beddoe, In re, Downes v. Cottam, [1893] 1 Ch. 547; (1892), 62 L.J. Ch. 233; 68 L.T. 595, referred to.
(3) Buckton, In re, Buckton v. Buckton, [1907] 2 Ch. 406; (1907), 76 L.J. Ch. 584; 123 L.T. 274, applied.
(4) McDonald v. Horn, [1995] I.C.R. 685; [1995] 1 All E.R. 961; [1994] Pens. L.R. 155, dicta of Hoffmann, L.J. applied.
(5) Middlebrook, In re, Royal Ct., November 22nd, 2005, unreported, distinguished.
(6) National Anti-Vivisection Socy. v. Duddington, English Ch. D., The Times, November 23rd, 1989, unreported, applied.
(7) Public Trustee v. Cooper, [2001] 1 W.T.L.R. 901, referred to.
J.P. Greenfield for the applicant;
C.H. Edwards for the first and second respondents;
P.N. Nicol-Gent, Crown Advocate, for the partie publique.
1 COLLAS, DEPUTY BAILIFF: This application by the International Committee of the Red Cross (“the applicant”) relates to proceedings that commenced in August 2006 with an ex parte application by Butterfield Trust (Guernsey) Ltd. (“the respondents”) as trustee of both the Mischca Trust and the International Foundation for Arts and Sciences (IFAS). That application was later replaced by a revised application dated August 21st, 2009.
2 The respondents’ application is opposed by the named settlor of the Mischca Trust, Olaf Michael Thommessen (“the settlor”), who brought his own application dated December 21st, 2006 that he later replaced with a revised application dated September 18th, 2009.
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3 On March 14th, 2008, on the application of the applicant and with the consent of counsel on behalf of the settlor and the respondents, the court ordered that the applicant be joined as a party to both the respondents’ application and the settlor’s application. The court also ordered that certain documents be disclosed to the applicant. The third limb of the applicant’s application, whereby it sought an order that the first respondent pay the applicant’s costs on an indemnity basis, was adjourned sine die.
4 The applicant now seeks the following orders (by application dated September 18th, 2009):
“1. That the applicant be indemnified on a full indemnity basis out of the assets of the [Mischca] Trust (or of IFAS) in respect of all costs which have been, or will be reasonably and properly incurred by the applicant (to be taxed if not agreed) as a result of or as incidental to the foregoing proceedings [i.e. the applications of the settlor and the respondents] and any attempt to settle the various applications.
2. That the applicant be indemnified on a full indemnity basis out of the assets of the [Mischca] Trust (or of IFAS) in respect of all costs reasonably and properly incurred by the applicant (to be taxed if not agreed) as a result of or incidental to this application.
3. Such other orders or directions as the court shall see fit.”
I have previously advised the parties that I have refused to grant the order sought in the first limb of that application. This judgment contains my reasons for that decision.
5 The Mischca Trust was settled by the settlor on December 29th, 1987 at the request of a successful stage designer, Maria Bjornson (“Maria”). The settlor was only the named settlor. The trust funds have been settled by Maria, derived principally from royalties paid to her in respect of her stage set designs for the highly successful musical, Phantom of the Opera.
6 There were three named beneficiaries of the Mischca Trust (named in the Third Schedule to the settlement): Maria, her mother, and the applicant. Maria died on December 13th, 2002 and her mother died on June 9th, 2004. The Mischca Trust bestows wide discretionary powers on the trustees and the trustees have the power to add beneficiaries but none has been added, so the applicant is presently the only member of the class of beneficiaries.
7 There is a further provision, in cl. 5(e) of the Mischca Settlement, appointing as ultimate beneficiaries, in the event of failure of the trust, the persons who would be entitled to succeed under the Guernsey law of intestacy to the personal estate of the settlor.
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8 One of the areas of factual dispute that the present application has highlighted is whether the respondents are correct when they say that it was never intended that the applicant should receive benefit from the Mischca Trust.
9 In his sixth affidavit, Paul Hodgson, the managing director of the second respondents, states that there is no evidence that Maria wished the applicant to benefit from the trust. He says it was named purely as a “default” or “long-stop” beneficiary.
10 The applicant denies that it was only intended to be a default beneficiary. It draws attention to the default provisions in cl. 5(e) which are sufficient to ensure a beneficiary will always exist. On its behalf, Advocate Greenfield described the provisions of that clause as “rather odd.” The settlor is not the economic settlor of the trust funds and there is no indication that his family were intended to benefit from Maria’s work. Furthermore the settlor is Norwegian; he is not domiciled in Guernsey and hence Guernsey law will not govern the distribution of his estate. He argued that the existence of the default provisions in cl. 5(e) demonstrates that the applicant was not intended to be merely a “default” beneficiary.
11 Advocate Greenfield submitted that further evidence that the applicant was intended to benefit from the Mischca Trust is to be found in the settlor’s fourth affidavit describing links between the applicant and Maria. Her mother was a Romanian refugee. Also, her great-grandfather supported the nomination of Henry Dunant (the founder of the applicant) for the very first Nobel Peace Prize.
12 I am unable to decide whether the applicant was intended to receive benefit from the Mischca Trust without hearing evidence. Advocate Edwards encouraged me to indicate what I might consider to be the merits of the argument. I will not do so as I do not want to run the risk of expressing a view on a matter that will be for the Jurats to decide at the trial.
13 The IFAS was formed by the second respondent pursuant to a declaration of trust dated December 20th, 1995 (made during Maria’s lifetime). The objective was to enable Maria to give effect to her charitable intentions. She did not enjoy a lavish lifestyle, she had no dependants other than her mother, and the income earned from her work vastly exceeded her own modest needs.
14 The IFAS declaration of trust bestowed wide discretionary powers on the trustee. The applicant is a named beneficiary and it is also the ultimate default beneficiary. There is a discretionary power to add beneficiaries, a number have been added and have received benefit from the trust.
15 The IFAS has purportedly been added as a beneficiary of the Mischca Trust although the validity of that addition is one of the issues to be
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resolved in these proceedings. There are a number of other entities in the trust structure but there is no need for me to describe them in this judgment.
16 In the respondents’ applications dated August 21st, 2009, they seek a number of orders to approve past and proposed actions. Such past actions include approving the creation of the IFAS or, alternatively, approving that payments made from the Mischca Trust to the IFAS were lawfully made. In terms of future actions, the respondents seek the approval of the court to transfer all of the assets in both trusts to an English charity that has been created for the purpose of receiving such funds, known as the Maria Bjornson Memorial Fund.
17 The respondents’ application is opposed by the settlor who, in his revised application, seeks the following: an order that the first respondent be replaced as trustee of the Mischca Trust by EFGCI Trust Co. Ltd.; a declaration that the IFAS was unlawfully added as a beneficiary of the Mischca Trust; and a number of orders in respect of related and ancillary matters.
18 There is much common ground between the parties as to the legal principles that govern this present application. They also agree that it is not an application for a “Beddoe order” (In re Beddoe (2)) but an application for a prospective costs order by a beneficiary or prospective beneficiary.
19 Both parties have referred me to the classic categorization of applications of this nature in the judgment of Kekewich, J. in his well-known decision, In re Buckton (3). They agreed we are not dealing with his first category (applications by the trustee to construe the trust instrument or to determine a question that has arisen in the administration of the trust).
20 Advocate Greenfield argued, on behalf of the applicant, that we are dealing with the second category (applications by a beneficiary to resolve some difficulty of construction or administration). He said that is the substance of the proceedings if one ignores the hostility between the settlor and the respondents in the conduct of this litigation.
21 In support of that submission, he relied upon my reported judgment on an application by the settlor for specific discovery of certain documents at an earlier stage in these proceedings. I agreed (2009–10 GLR 102, at para. 17) that the proceedings fell within the second category of applications identified by Hart, J. in Public Trustee v. Cooper (7) ([2001] 1 W.T.L.R. at 923):
“[W]here the issue is whether the proposed course of action is a proper exercise of the trustees’ powers where there is no real doubt as to the nature of the trustees’ powers and the trustees have decided
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how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers.”
Having re-read that decision I do not find that, by reason of the conclusion I came to on the specific discovery application, I am bound to hold that the participation of the applicant in these proceedings will not be hostile as between it and the respondents.
22 Advocate Greenfield also drew my attention to Lewin on Trusts, 18th ed., paras. 21–81 – 21–83, at 724–726 (2008) as to the circumstances in which the court will make prospective costs orders in favour of a trustee or beneficiary.
23 In my view it is important to look at the reasons why the applicant wishes to be represented in the proceedings. As I have said, it does not accept the respondents’ view that it was never intended to receive any benefit from the trust funds. It wishes to ensure that such rights as it may have, if any, are preserved. To do so, I understand that it will argue against the respondents’ application and in favour of the settlor’s application. To my mind, that has the potential to become hostile. One of the most hostile acts a trustee can commit towards a beneficiary is to exclude it from any benefit to which it is lawfully entitled.
24 Whether there will be hostility between the applicant and the respondents in these proceedings will depend on how the applicant’s case is presented at trial. Advocate Greenfield has not specified the benefit, if any, that the applicant claims it is entitled to receive from the trusts. It may be that at the hearing the applicant will accept that it is not entitled to any benefit. At this stage I do not know. Indeed one of the difficulties in dealing with the present application is that, as Advocate Edwards pointed out, the applicant has not said what it is proposing to do if it is represented at the hearing. I therefore have to allow for the possibility that the applicant will argue that the respondents are wrongly seeking to exclude it. If so, we would be closer to the third than the second of the In re Buckton (3) categories.
25 Advocate Edwards submitted that I should have regard to the factors identified by Mummery, J. (as he then was) in National Anti-Vivisection Society v. Duddington (6) as relevant to the court’s jurisdiction to make pre-emptive costs orders:
(a) The prospects of success of the claim. As I have already said, I do not consider it would be proper for me to form a view on the prospects of success.
(b) That unless the judge is satisfied that it was likely that the court would after trial make an order that the costs be paid out of the trust fund,
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it was not in general right to make such an order before trial. I will come back to this issue.
(c) A pre-emptive order should not be made if there was a real possibility it would operate unjustly. I am not persuaded that it would operate unjustly. Advocate Edwards’ main argument seemed to be that it would be unjust because the respondents do not have a similar order in their favour. I am not convinced that is a sufficient reason to hold that an order in the applicant’s favour could operate unjustly.
(d) Other special factors apply. Examples of such are when one beneficiary, e.g. a member of a pension fund, brings a claim on behalf of others or that may benefit others. There are no such special factors in this case.
26 It is the second of those factors which is the most relevant to the present application. Advocate Edwards argued that the second factor was tightened by the Court of Appeal in McDonald v. Horn (4), as followed by Lightman, J. in Alsop Wilkinson v. Neary (1) ([1996] 1 W.L.R. at 1226). In McDonald v. Horn, Hoffmann, L.J. (as he then was) said ([1995] 1 All E.R. at 971):
“. . . I would be inclined to put the matter rather more strongly. I think that before granting a pre-emptive application in ordinary trust litigation or proceedings concerning the ownership of a fund held by a trustee or other fiduciary, the judge must be satisfied that the judge at the trial could properly exercise his discretion only by ordering the applicant’s costs to be paid out of the fund. Otherwise the order may indeed fetter the judge’s discretion . . .”
27 I consider those decisions of the English courts to be persuasive in this jurisdiction and representative of the law of Guernsey.
28 As I have already said, I do not know how the applicant proposes to advance its case at the trial and, therefore, I cannot say whether it will fall within the second or the third of the In re Buckton (3) categories. If it argues strongly that it was intended to benefit from the trust funds and adduces evidence and advances legal arguments to that effect, I might consider that it would be inappropriate to allow the applicant to recover all its costs from the trust funds.
29 I was referred to directions given by Carey, Lieut. Bailiff on November 22nd, 2005 in In re Middlebrook (5), which counsel believed to be the only case in which the Royal Court had previously made a prospective costs order. The case concerned an application to rectify a will of realty in circumstances where it was alleged that there had been a clear drafting error. The court ordered that two prospective beneficiaries be joined as a party to the application and required that they be legally represented in
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order to ensure that the matter was fully argued before the court with the conflicting points of view being adequately presented.
30 It appears from the directions given by the Lieutenant Bailiff that there was a possibility that the beneficiaries would not benefit from the eventual outcome of the case and I assume he was concerned that if they could not be guaranteed to have their legal fees paid, they might play no part in the case. In those circumstances, I am of the view that the case can clearly be distinguished on its facts. It therefore does not assist me in establishing the principles that govern the jurisdiction to make prospective costs orders.
31 Another factor to consider is the role of the partie publique who has been appointed to represent the general charitable interest. The applicant undoubtedly falls within the general scope of the general charitable interests that Crown Advocate Nicol-Gent represents. I accept his view that he cannot be expected to put forward a positive case on behalf of the applicant. However, he will be able to discuss the matter with the applicant if it is not otherwise represented and may be able to make its views known to the court without advancing any special case on its behalf.
32 The applicant has sufficient funds to instruct an advocate to represent it in the proceedings if it so wishes but does not consider that would be an appropriate use of its funds. Nicholas P. Didisheim, a Swiss advocate instructed by the applicant, has sworn an affidavit in which he has declared (para. 1.8) that, “given the ICRC’s mandate and the source of its funding it is inappropriate to use those funds to participate in litigation.” I do not consider that the applicant should be treated as if it were impecunious. I am not persuaded that there is any other reason to treat the applicant differently from any other prospective beneficiary of trust funds who makes an application of this nature.
33 During the hearing of the present application, Advocate Greenfield suggested that if the application is successful, the applicant would instruct new counsel to represent it. That came as a surprise to me and to the other advocates involved.
34 When the applicant first indicated it wished to participate in these proceedings, the advocates for the respondent and Crown Advocate Nicol-Gent raised issues as to whether it could properly be represented by Carey Olsen whilst they are also acting for the settlor. At that time, Advocate Greenfield said he was satisfied there was no conflict and that he could represent both parties. That view appears to have been maintained by Advocate Didisheim in an affidavit sworn in support of the present application in which he said it was unlikely that there would be any conflict of interest with the settlor’s position that would require the applicant to change counsel.
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35 During the hearing of the present application, after Advocate Greenfield had indicated that if this application is granted the applicant would seek separate representation, he was pressed to say whether that was because of a conflict of interest. He again denied that there was any conflict and said he did not envisage the applicant would play an active part but it would wish to make its own submissions at the conclusion of the case and he was of the view that such submissions would be more effective if made by an advocate who was not also representing the settlor.
36 I do not believe that is a sufficient reason to justify the appointment of new counsel at this late stage (the hearing is due to commence on March 8th) nor to justify the cost of an advocate sitting through a two-week hearing in order to make submissions at the end of the hearing. It leaves me a little suspicious as to exactly what are the true intentions of the applicant and the extent to which it intends to advance its own case at the trial. However, those thoughts have not influenced my decision, which would be the same whether separate counsel were needed or not.
37 In conclusion, I do not know what part the applicant intends to play in the substantive proceedings. It may adopt a passive stance but it is not obliged to do so. If it presents a case that argues there was always an intention that it should benefit from the Mischca Trust and if that argument is unsuccessful I might be persuaded, at the end of the hearing, that I should make a costs order against the applicant. It would therefore be wrong for me to make an order now that would fetter the exercise of my discretion later. If I decide it is appropriate that the applicant should recover its costs in full, I will make such order at the end of the hearing.
38 By way of postscript, I note that after preparing this judgment in draft, I have been advised that the substantive proceedings have been settled subject only to the sanction of the court.
Order accordingly.
2010
Law Report
None
Guernsey Law Reports 2009-10 GLR 377