In the matter of the Representation of BNP Paribas Jersey Trust Corporation Limited ( JRC199) the Royal Court considered the position of a trustee who had received notice of an adverse claim contesting the origin of the trust assets, but in respect of which litigation had not been brought forward.
The representation concerned the PW Trust, which had been settled by a widow for the benefit of her six children. An adverse claim contesting the origin of the trust assets had been made by one of the beneficiaries of the trust who was also the protector (the seventh respondent). The nature of the claim by the seventh respondent was not entirely clear, but in general terms it asserted that the trust's assets were not the property of the settlor, but formed part of the estate of the seventh respondent's deceased father. The claim was not supported by the settlor and the other beneficiaries. In the five-year period since making the claim the seventh respondent had brought no litigation in pursuance of the claim and the trustee had made no distributions from the trust fund during that time. In addition, the trustee had been unable to obtain sufficient detail of the seventh respondent's claim to ascertain whether the claim was specious and informal attempts at mediation had failed.
The trustee brought a representation, pursuant to Article 51 of the Trusts (Jersey) Law 1984, seeking the directions of the court, among other things, in respect of the origins of the trust assets and the conflict of the seventh respondent continuing to act as protector of the trust, and seeking an indemnity out of the trust assets in respect of the costs incidental to the application.
The court confirmed that where trustees are faced with an adverse claim in respect of the trust fund, yet the claimant has issued no proceedings and appears to have no immediate intention of doing so, the trustees are at risk if any distribution is made without the approval of the court. However, the adverse claim must not be merely specious with no arguable foundation (Sinel Trust Limited v Rothfield Investments Limited  JCA 048).
On the information available to it, the court was unable to determine whether the claim by the seventh respondent was specious with no arguable foundation. Therefore, the court made no finding as to the merits or otherwise of the seventh respondent's claim. However, the court had no doubt that it was unacceptable for such an uncertain state of affairs to continue:
"equity demands that a person who has a claim brings it timeously, and does not sit on his hands making unparticularised threats or assertions and causing embarrassment thereby to a counterparty. When that counterparty is a trustee owing duties to others, that is a demand that the Courts of equity will support to the extent that they properly can."
The court also stated that it is wrong for a trustee to be hamstrung in the performance of its duties by an "unparticularised and vague complaint which has neither been substantiated by detail or taken forward by any hostile litigation". It was incumbent that the seventh respondent should bring his claims before the court for adjudication.
Therefore, the court ordered that unless the seventh respondent brought proceedings in Jersey within six months of the judgment date, seeking to set aside all or part of the original transfers of assets into the trust, the trustee would be entitled to administer the trust free and clear of all and any claims which the seventh respondent might have or purport to have to the assets of the trust (except as a beneficiary of the trust).
In order to be sure that the seventh respondent had access to justice (and, in particular, the funds to do so), the trustee was authorised by the court to pay the legal costs of the seventh respondent out of the trust fund with a cap of £50,000, provided that such costs are incurred in seeking advice on or instituting a claim before the Royal Court of Jersey challenging the original transfers of assets into the trust within the six months set, with liberty for the seventh respondent to apply to court for legal fees in excess of the cap of £50,000. The trustee was also authorised to reimburse, on the same terms, legal fees of the other beneficiaries incurred by them in relation to any proceedings brought by the seventh respondent.
In this case the court balanced the duty of the trustee to the beneficiaries to administer the trust and the interest of the seventh respondent in obtaining justice in respect of his claim. It also confirms that a trustee on notice of an adverse claim in respect of the trust fund, in respect of which no proceedings have been issued, should not make any distribution without the court's approval. However, the claim must not be specious and without foundation.
For further information on this topic please contact Josephine Howe at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email ([email protected]).