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Beddoe Order, Corporate trustee, indemnity, Indmenity, Removal of trustees, Trustees, Trusts

Play nice

Geneva Trust Company v Tchenguiz is one of many judgments of the Jersey Royal Court that relate to the Tchenguiz Trusts.  In this case the Geneva Trust Company (Geneva) sought reimbursement of costs it incurred defending proceedings brought against it in the English High  Court.  A brief history of the matter is set out in the decision as follows at [2] to [3]:

2.        There is a considerable history to this matter, which for these purposes can be distilled down to the following:-

(i)        Geneva Trust Company (then known as Rawlinson & Hunter Trustees SA) was trustee of some 11 trusts associated with Mr Tchenguiz and his family, all of which are discretionary trusts governed by Jersey law. 

(ii)       The relationship between Geneva Trust Company and Mr Tchenguiz broke down in 2017, and difficulties were encountered over the terms upon which Geneva Trust Company should retire as trustee in favour of the second respondent, (“Fort”) and the third respondent (“Balchan”), two Guernsey based and regulated trust companies.

(iii)      The issue was complicated by the fact that Geneva Trust Company, acting as trustee, was a named party in extensive litigation in Guernsey, England and elsewhere, for which it had a significant costs exposure.

(iv)      On 25th October 2017 on the application of Mr Tchenguiz, the Court confirmed the appointment of Fort and Balchan as co-trustees of two of the trusts for reasons set out in its judgment of that date (Tchenguiz v Rawlinson and Hunter Trustees SA and Others [2017] JRC 178A).

(v)       On 3rd October, 2017, Geneva Trust Company was removed as trustee of one trust by Mr Tchenguiz exercising his powers as protector and on 8th November 2017, the Court made a number of orders by consent dealing with the retirement of Geneva Trust Company as trustee of the remaining trusts;  the relevant orders for our purposes being the following:-

“1.       The retirement and indemnity by the Representor from the [trusts] shall be on the basis of the STEP Standard Provisions, Deed of Retirement and Indemnity;

2.        The Second and Third Respondents shall use their best endeavours to secure the novation of all liabilities (third party costs) whereupon the Second and Third Respondents shall bear responsibility for the third party costs so that the Representor shall cease to have responsibility for them, other than in respect of adverse cost orders;

3.        The Second and Third respondents shall use their best endeavours to secure their substitution for the Representor as parties to any of the extant litigation and the release of the Representor from that litigation.”

(vi)      On 31st May 2018, the Court declared invalid the subsequent purported removal of Geneva Trust Company from three of the trusts for reasons set out in its judgment of 23rd July 2018 (Representation of Rawlinson and Hunter Trustees SA [2018] JRC 131).  The Court concluded at paragraph 38 that Geneva Trust Company had been removed from these three trusts precipitously “for the ulterior purpose of Fort and Balchan avoiding their obligations under the consent order to provide chain Indemnities and they were not, therefore, acting in good faith.”  Fort and Balchan were directed to execute and deliver deeds of appointment and retirement drawn up in accordance with the STEP standard provisions.  The Court also ordered Fort and Balchan to provide a report to the Court of the steps they had taken to comply with their best endeavours obligations.  The Court sat to consider that report on 23rd July 2018. There were numerous other matters canvassed at that hearing and directions given, but for these purposes, it suffices to say that the Court was satisfied that Fort and Balchan were then complying with their best endeavours obligations in this respect.

(vii)     Stephenson Harwood did not agree to novate its contract with Geneva Trust Company and on 12th October 2018, it wrote to Temple Bright LLP, the English solicitors acting for Geneva Trust Company, claiming its outstanding costs.  A formal claim by Stephenson Harwood against both Geneva Trust Company and Fort and Balchan was issued out of the English High Court on the same date, and particulars of claim were filed by Stephenson Harwood on 14th December 2018. 

(viii)    The total claimed against Geneva Trust Company was £3.6 million and the total claimed against Fort and Balchan was £5.6 million (which included the amount claimed from Geneva Trust Company).  Included within the particulars was an assertion that Fort and Balchan had entered into an agreement with Stephenson Harwood in March 2018 by which they agreed to and were contractually liable to pay the amounts due by Geneva Trust Company and/or to indemnify Stephenson Harwood in respect of the same, and in the premises, Stephenson Harwood claimed that it was entitled to the payment of the debt due by Geneva Trust Company by Fort and Balchan.

(ix)      Fort and Balchan filed a defence and counter-claim on 25th January 2019, raising a number of issues over the claimed letters of engagement and invoices rendered, denying that there was any liability at that time under the March 2018 agreement the precise terms of which they disputed, and seeking a stay so that the invoices could be subject to a detailed assessment by the Senior Court Costs Office pursuant to their rights under the Solicitors Act 1974. Fort and Balchan also counter-claimed against Stephenson Harwood for the wrongful termination of all of the retainers between Stephenson Harwood and Fort and Balchan on 4th June 2018.

(x)       Geneva Trust Company filed its amended defence on 13th February 2019 in which:-

(a)       It said it was unjust and oppressive for Stephenson Harwood to seek to make recovery from it without exhausting its avenues of recovery against Fort and Balchan.  It reserved its right to apply for a stay, pending the outcome of the claim against Fort and Balchan.  It subsequently applied unsuccessfully for a stay and was made subject to an adverse costs order.

(b)       It challenged the authority by which Stephenson Harwood had carried out much of the work, denying that certain invoices had been rendered and seeking an abatement or set-off in respect of work that it alleged had not been carried out properly, competently and in accordance with its duties in equity, contract and/or at common law, including the duties to avoid conflicts of interest and to exercise reasonable skill and care.

(c)       It supported Fort and Balchan’s proposal for a stay and its rationale for seeking a detailed assessment of the invoices.

(xi)      On 10th September 2019, Fort and Balchan through its representatives commenced settlement discussions with Stephenson Harwood and on 2nd October 2019, reached agreement to settle the whole of Stephenson Harwood’s claim for £3.85 million.  It was a condition of that settlement that Geneva Trust Company, which was aware of, but had not been involved in, the settlement discussions, be a party to the agreement, which Stephenson Harwood required to be completed no later than 4th October 2019.

(xii)     Geneva Trust Company was informed of this agreement early on 3rd October 2019, and was given a copy of the draft agreement that afternoon.  It was the position of Geneva Trust Company that it would not sign the settlement agreement unless its costs were paid.

(xiii)    After numerous exchanges, and the issuing by Fort and Balchan of an urgent summons requiring Geneva Trust Company to sign the settlement agreement, it was agreed that Fort and Balchan would procure the payment of the total amount of the costs of Geneva Trust Company into the client account of Collas Crill, those costs to be summarily assessed by the Court on the trustee Alhamrani basis. The agreement with Stephenson Harwood was executed on 8th October 2019.

 The costs sought to be recovered total  £195,696.74 comprised as follows:

(i)        The costs incurred with its English Solicitors, Temple Bright in a total sum of £119,791.74, which includes counsels’ fees of £66,545, courier charges, copying expenses and costs consultants’ fees.

(ii)       Provision of an extra £5,000 for Temple Bright’s fees in concluding the settlement agreement with Stephenson Harwood and with the evidence for this application.

(iii)      The costs incurred with Dickinson Gleeson of £33,405.

(iv)      Re-imbursement of the amount of £37,500 paid in discharging an adverse costs order made on the 21st June 2019 in favour of Stephenson Harwood in respect of the stay application brought by Geneva Trust Company.

Perhaps surprisingly the deed by which Geneva retired was not in evidence and reliance was made on the statutory indemnity available on the Trusts (Jersey) Law 1984, Article 26(2) of which provides that  “… a trustee may reimburse himself or herself out of the trust for and pay out of the trust “all expenses and liabilities reasonably incurred in connection with the trust.

Importantly, given that Geneva was a retired trustee, is that  the right of reimbursement and exoneration survives a trustee’s departure from office (see Lewin on Trusts).

At issue was not whether Geneva was entitled to be indemnified for its costs, but rather the extent to which its costs were properly incurred.

The result was that Geneva was indemnified for much, but not all, of its costs.  However, perhaps more significantly was the underlying subtext as to the extent to which former and current trustees must liaise and consult regarding the conduct of litigation that touches on both and the extent to which either trustee can “go it alone.”

As trust litigation grows and develops, more thought may need to be given to such matters as how to manage the incumbent and prior trustees’ costs, and when directions or a Beddoe application may be warranted to provide cost certainty.



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