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Trustees

Re Benjamin

 

A Benjamin order is an order made by the court for the distribution of assets on death when it is uncertain whether or not a beneficiary is alive. The order authorises the personal representatives of the deceased to distribute the property on the basis that the beneficiary is dead (or on some other basis).  The purpose of the order is so that the personal representatives are protected from being sued if the beneficiary is in fact alive and entitled.   Where this is the case the beneficiary can still trace the trust property . The name derives from the 1902 Chancery case Re Benjamin.

A more recent consideration arose in an application in respect of two settlements known respectively as the A Trust and the B Trust (the Trusts).  

The Trusts were established by Mr and Mrs H as settlors when they were living in Guernsey.  The settlors have four children (the siblings).

The B Trust, which is a discretionary trust, was established on 11th December, 1996, and is governed by the law of Guernsey. The  beneficiaries are settlors’ children and remoter issue o together with their spouses. 

The A Trust was established on 12th December, 1996, and is governed by Jersey law.  The settlors were the life tenants.  Following the death of the survivor, there are discretionary trusts.  These were initially in favour of charities generally but following the death of the last surviving settlor , the siblings were added as beneficiaries.  

In  2012 the Royal Court of Jersdey approved the trustee’s decision to add the settlors’ remoter issue as beneficiaries of A Trust (In the matter of A Trust).  Accordingly, the beneficiaries of the Trusts are now the same except that that the spouses of the siblings and remoter issue of the settlors are not beneficiaries of the A Trust.

During the course of the application to widen the class of beneficiaries of the A Trust referred to above, the siblings raised the possibility that some of the assets of the A Trust were not validly settled due to Mr H’s lack of mental capacity.  Penelope Reed QC provided an opinion that concluded that, on balance, a court would be inclined to find that Mr H did have the necessary capacity to settle the assets into the Trusts.

As the siblings did not waive their claims, the trustee sought a declaration that all of the assets in the Trusts had been properly settled.  

Counsel was appointed for the minor and unborn beneficiaries.

The proceedings have not been heard due to repeated stays of the proceedings in the hope that the matter could be settled by mediation or otherwise. 

A proposed settlement provides that the sum of £7.5m inclusive of costs would be paid by the Trusts to the estates of the settlors.  However, there was no agreement  as to how the figure would be divided as between the Trusts or how much would go to each estate.  

It has since been agreed in a draft settlement agreement that the sum of £7.5m will be paid as to £5m from the A Trust and £2.5m from the B Trust.      The assets of the A Trust comfortably exceed £5m, and those of the B Trust comfortably exceed £2.5m.  

This is the background to an application seeking an order that the main proceedings be adjourned sine die and that until further order:-

(i)        save that the trustee of the A Trust will at all times retain within the trust fund a minimum of £5 million in cash or investments that in normal market conditions can be sold within a month, the trustee of the A Trust shall be entitled to administer the assets of the A Trust as if free of claims; and

(ii)       save that until further order the trustees of the B Trust will at all times retain within the trust fund a minimum of £2.5 million in cash or investments that in normal market conditions can be sold within a month, the trustees of the B Trust shall be entitled to administer the assets of the B Trust as if free of claims.

These two orders have been referred to as Benjamin orders.  The effect of the orders is to ring fence the sums of £5m and £2.5m, which are expected to be payable pursuant to the settlement agreement, but leaves the trustees otherwise to be free to deal with and administer the assets of both Trusts in the ordinary way without regard to the existence of the claims brought pursuant to the Particulars of Claim.

The background to Benjamin orders is set out at [16] and [17] as follows:

16.      A Benjamin order enables trustees to administer a trust on a particular assumed factual basis in circumstances where there is a possibility that the true factual basis is different.  The relevant jurisprudence is conveniently summarised in the judgment of David Richards J in Re M F Global UK Limited (in special administration) [2013] EWHC 1655 (Ch) at paras 26 – 30 as follows:-

“26.    The inherent jurisdiction of the court does not enable the court to vary beneficial interests in trust property but, as part of the jurisdiction to supervise and administer trusts, it permits the court to give directions to trustees to distribute trust property on particular bases when the court is satisfied it is just and expedient to do so.  A well-established example of the exercise of the jurisdiction in this respect is the making of Re Benjamin orders.  In those cases where the trustees are faced with a practical difficulty in establishing the existence of possible beneficiaries or other claimants, the court will give a direction to the trustees enabling them to distribute the trust property on an assumption of fact that there is no such beneficiary or claimant.  As Nourse J explained in Re Green’s Will Trust [1985] 3 All ER 455 at 462, a Re Benjamin order does not vary or destroy beneficial interests but merely enables trust property to be distributed according to the practical probabilities.  It protects trustees but it equally preserves the right of any person who establishes a beneficial interest to pursue such remedies as may be available to them.

27.      In Re Benjamin [1902] 1 Ch 723, the trustees were given liberty to distribute the testator’s residuary estate on the basis that one of his sons, who had disappeared, had pre-deceased the testator and would on that basis not be entitled to share in the residuary estate.  In Re Guess [1942] Ch 37, a similar order was made as regards any creditors in Poland of the deceased.  Because of the war, it was impossible to advertise in Poland for claims.  Moreton J acknowledged that it would be an extension of the decision in Re Benjamin to apply it to creditors, rather than beneficiaries, but it ‘would only be following the principle of that decision’.  The basis for such orders was ‘evidence of the practical impossibility of proof of the fact or event sought to be established’.  In Re Green’s Will Trust, a similar order was made as regards the son of the testatrix who had gone missing during a war-time bombing raid and had subsequently been certified by the Air Ministry as presumed dead.  Nourse J said at page 462:-

           “I do not think that the question whether such an order should be made depends on whether or not there will be administrative inconveniences caused by the trustees retaining the fund.  I think it depends on whether in all the circumstances the trustees ought to be allowed to distribute and the beneficiaries to enjoy their apparent interests now rather than later.”

…….

29.      That part of the proposed order which would permit the administrators to distribute the client money held by them, without providing for those claims which are rejected in whole or in part but in respect of which no appeal to the court is made, would not simply be an application of the decision in Re Benjamin and the subsequent similar cases.  Those cases permit the trustee to act on a presumed fact in circumstances where it is impossible or impracticable to establish the fact one way or the other.  In the case of rejected claims, there is no doubt that the claimant exists and that they have asserted claims which have not finally been determined by agreement, withdrawal or decision of the court.  The basis of the proposed order is that the administrator should be permitted to proceed with the distribution of client money on a presumption that the only good or potentially good claims are those which have been agreed and those whose rejection is the subject of an appeal to the court.

30.      The fact that the proposed order does not in this respect neatly fit within the Re Benjamin line of cases does not mean that it falls outside the proper scope of the inherent jurisdiction of the court….”.

17.      David Richards J then went on to cite from the 18th edition of Lewin on Trusts at para 27.34.  The equivalent passage is now to be found in the 19th edition in the following terms:-

“26-032 If the claim is being pressed any distribution will generally have to await the resolution of the claim.  If the claimant is not pressing his claim, or if no claim has been made but the trustees are aware of circumstances which may give rise to a claim, the case is more difficult.  Because trustees run the risk of personal liability under the Guardian Trust principle if they distribute with notice of a claim to the trust assets, they may therefore apply to the court, either seeking leave to distribute or seeking directions as to whether they should litigate the claim.

26-033 It is the practice of the court not generally to permit a trustee to distribute without notice to a claimant.  But the court has jurisdiction to permit or direct a trustee to distribute notwithstanding the existence of claims or potential claims from third parties.  That will not have the effect of destroying any proprietary rights of third parties, but may afford protection against personal claims against the trustees from third parties….”.

Benjamin orders originally provided a jurisdiction to enable a trustee to proceed on the basis of a specific factual assumption in connection with the existence (or otherwise) of a beneficiary (a Benjamin order) but has been expanded to permit trustees to make distributions even when there is a claim against the trust assets.  As David Richards J said at [32] in M F Global “the purpose of the court’s inherent jurisdiction is to enable practical effect to be given to a trust”.  The making of such an order does not however destroy any claim.  It merely means that, if successful, the claimant will have no personal remedy against the trustees and will have to recover from any beneficiary to whom the trust property has been distributed.

The orders were made with the respect to the Trusts, notwithstanding the departure from the premise of a Benjamin order being made in circumstances where it is impossible or impracticable to ascertain a fact (e.g. whether a beneficiary is alive or dead) or where a claim to the trust assets has been threatened but not proceeded with.

The orders were granted to allow the continued operation of the Trusts without having to await the outcome of the proceedings so that it can be ascertained which assets belong to the Trusts and which assets belong to the estates.

It was noted that had the application been contested, it would not likely have been made.

References:

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