In the recent case of In the Matter of the F Charitable Trust [2017] JRC 142 the Jersey Royal Court (Court) provided guidance to the trustees as to what it expected from them when they plan to engage in litigation on behalf of the trust and what will the Court consider in order to bless such a trustee decision.
The case concerned a charitable trust established in Jersey. The trustee sought to recover a substantial debt and for that reason it engaged in foreign legal proceedings. The trustee applied for Beddoe relief asking the Court to sanction the following:
- The trustee’s steps taken so far in the proceedings; and
- Permission to the trustee to continue to pursue the proceedings either to conclusion or to conclusion of the discovery process (whichever is to occur earlier)
Interestingly, since the trust was a charitable trust the Attorney General (AG) was joined to the application as the party representing the public interest.
The Court’s role was limited in that the trustee had not surrendered its discretion to the Court in respect of its decision to engage in litigation. Therefore the Court only needed to satisfy itself that the exercise of the trustee’s discretion was lawful and did not contravene its fiduciary duties.
The Court confirmed that where there is a risk of exposure of the trust to litigation, it will exercise more direct and interrogative role in readiness to form a binding view as to whether or not it is reasonable for the trust to be exposed to the risks related to litigation.
The Court also noted that it was appropriate for it to see the basis on which the trustee had made the decision to engage in litigation. This involved the Court seeking to consider the legal advice the trustee had received on the prospects of litigation. The Court also confirmed that it would need to have a good reason not to bless the trustee’s decision to litigate where that decision was based on such advice.
The AG made several comments and observations on the matter which can be summarised as follows:
- The trustee should have been much more proactive in negotiating the fees for various professional advisors and indeed in budgeting for the cost of litigation, to include the cost of any potential appeal or enforcement proceedings; and
- The fact that the sole beneficiary of a trust is a charity should not make the trustee complacent when it comes to the requirement to negotiate better or discounted professional fees
The Court agreed with the AG and noted that the trustee should ensure that it obtains formal budgets for the work to be done in the relevant billing period and that as far as possible the trustee should ensure that the number of lawyers retained to advise is restricted to that which is necessary for the purposes of the claim which is brought. Finally, the Court noted that professional trustees ought to be able to reach agreement with professional lawyers on matters of professional fees without recourse to Court.
This decision and comments from both the Court and the AG show that professional trustees should act commercially at all times. In particular, the trustees should not be content with legal or professional bills submitted to them for payment without properly scrutinising those against work actually done. Finally, when it comes to trust litigation, the trustee should agree budgets and be able to estimate (and received advice on) the litigation’s success and risk factors, also taking into account the size of the trust fund.
By Mirek Gruna, Managing Director
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