Introduction

Ordinarily a trustee would be expected to take a neutral position in relation to hostile litigation affecting the trust assets.  

Where, however, the Court considers that it is inappropriate for the claim on the trust assets to go undefended and there is no other party willing and able to take up the defence, the Court may direct the Trustee to defend the trust.  

Facts

A Jersey resident trustee of two trusts, which were governed by BVI law and Jersey law, sought the directions of the Court as to how it should respond in Singapore proceedings commenced by the former wife of the late settlor. The former wife claimed in the Singapore proceedings that she had been the victim of deceit and misrepresentation in relation to her divorce proceedings with the late settlor. She sought a remedial constructive trust and/or restitution from the trusts on the basis that, notwithstanding earlier directions of the Royal Court, the trustee should have been playing a neutral role in the Singapore proceedings.  

The principal beneficiaries of the trusts, C and D, both children of the former wife and of young adult age, supported their mother in seeking that the trustee play a neutral role.  

The Court accepted jurisdiction in relation to the BVI trust as well as the Jersey trust, since the trustee was resident in Jersey and the trust was administered from Jersey.  

The Law

Of the three kinds of dispute described in the English case of Alsop Wilkinson-v-Neary (1996) WLR 1220, it was clear that the Singapore proceedings, insofar as they concerned the trusts, constituted “a trust dispute”, namely hostile litigation in which it was claimed that the trustee held the whole or part of the assets of the trusts for the former spouse and not for the beneficiaries of the trusts.

The Alsop case established a principle of neutrality where there are rival claims to the beneficial interests in the trust property, subject to any alternative directions that the Court may give. However, inherent to the concept of rival claims is that there are parties able and willing to prosecute and defend the claim, thus leaving the trustee in a neutral role.

In the Jersey case of Re Bank of America (Jersey Unreported, 10 January 1995) the Royal Court considered whether the principle of neutrality in respect of a trust dispute still applied where there was no rival and, whilst on the facts of that case the court did not order the trustee to defend the trust, the court was troubled by the prospect of one-sided litigation.

In the English case of Ideal Bedding Co. Ltd-v-Holland [1907] 2 Ch. 157, the plaintiffs, who were judgment creditors, obtained against the trustees of a settlement an order declaring the settlement void as against the plaintiffs and other creditors on the ground that it “delayed, hindered and defrauded” the plaintiffs and other creditors. The Court considered whether the trustees who had defended the action ought to have his costs out of the trust estate. Kekewich J. held that "the trustee had had a duty to defend the trust as he did and that in his discretion he should have his costs".

On the facts of the case before it in Representation of VV the important question for the Royal Court was whether there was an appropriate person to contest the former wife's claim against the trust assets. Bearing in mind their ages, it was not clear that C and D were acting independently of their mother; they were certainly taking a position which was adverse to their strict financial interests.

The Court heard in confidence from Counsel for the trustee about advice it had received in Singapore as to the strength of the former spouse’s case (and counsel for the former spouse was requested to withdraw for this purpose).

The Court concluded that in the light of the advice received by the trustee, and as neither C or D were prepared to defend the trust, it was inappropriate for the claims against the trust assets to go by default and that the trustee was the only person in a position to defend the trusts. The Court as a result directed that the defence of the claim by the trustee be permitted, with its costs out of the trust funds.

Comment

Whilst ordinarily the trustee would be expected to take a neutral role, the trustee was, in the special circumstances of this case, the only person in a position to defend the trusts. The Court considered that it would not be appropriate to allow the claims of the former spouse to go by default and without defence.