BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

Jersey Unreported Judgments


You are here: BAILII >> Databases >> Jersey Unreported Judgments >> In the matter of Vistra Corporate Services Ltd re: Ennismore Fund Management Ltd EBT [2023] JRC 222 (09 October 2023)
URL: http://www.bailii.org/je/cases/UR/2023/2023_222.html
Cite as: [2023] JRC 222

[New search] [Context] [Printable version] [Help]


Trust.

[2023]JRC222

Royal Court

(Samedi)

9 October 2023

Before     :

M. J. Thompson, Esq., Commissioner, and Jurats Le Heuzé and Berry

IN THE MATTER OF THE REPRESENTATION OF VISTRA CORPORATE SERVICES LIMITED

AND IN THE MATTER OF THE ENNISMORE FUND MANAGEMENT LIMITED EMPLOYEE BENEFIT TRUST

AND IN THE MATTER OF ARTICLES 51 AND 53 OF THE TRUSTS (JERSEY) LAW 1984

Advocate A. Kistler for the Trustee

Advocate J. Harvey-Hills for Ennismore Fund Management Limited

and J

Advocate M. J. Davies for Mr Arne Vigeland

Advocate M. P. Cushing as the representative of the beneficiaries and future beneficiaries of the Trust (excluding Mr Vigeland and J and any spouse and any and all children and grandchildren of either of them)

judgment

the commissioner:

Introduction

1.        This judgment contains the Court's decision whether or not to bless a decision of Vistra Corporate Services Limited (the "Trustee") in principle to make a distribution from the Ennismore Fund Management and Employee Benefit Trust (the "Trust") for the benefit of Mr Arne Vigeland ("Mr Vigeland").

Relevant Trust Terms

2.        The Trust was established by a Deed of Settlement dated 21 December 1999 between Ennismore Fund Management Limited ("Ennismore") and the Trustee (then known as Charwell Trustees Limited).  The Trust established is an employee benefit trust.

3.        Clause 1 contains the following relevant definitions:

""Employee" means a director or any person for the time being employed by the Company or a Subsidiary or a former Subsidiary under a full or part time contract of service....

"Beneficiary" means any Employee any former Employee any spouse of any Employee or former Employee any child or grandchild (including any adopted child) of an Employee or former Employee and any person who is in the opinion of the Trustees a dependent of an Employee and the personal representatives of a deceased Employee in their capacity as personal representatives and "Beneficiaries" shall be construed accordingly;

"Subsidiary" means any company directly or indirectly controlled by the Company or a Financially Associated Company which with the consent of the Trustees agrees to contribute and be subject to the provisions of this Deed;..

"A Financially Associated Company" means any company in which the Company owns, or has owned directly or indirectly 10% of its ordinary share capital as defined by section 832 of the United Kingdom Income and Corporation Taxes Act 1988."

4.        Clause 3 states as follows. 

"3. (1) The Trustees shall subject to the provisions of sub-clause (2) of this clause hold the income of the Trust Fund upon trust to distribute the same to or for the benefit of the Beneficiaries or any one or more of them exclusive of the other or others in such shares and proportions as the Trustees shall think fit;

(2) Notwithstanding sub-clause (1) above the Trustees may accumulate and capitalise all or any part or parts of the income of the Trust Fund."

5.        Clause 4(1) of the Deed contained the primary power of the Trustees to make distributions as follows:

"The Trustees may at any time or times pay transfer or apply all or any part or parts of the capital of the Trust Fund to or for the benefit of the Beneficiaries or any one or more of them exclusive of the other or others in such shares or proportions upon such trusts and with such powers and in such manner generally as the Trustees may in their absolute discretion think fit."

6.        Clause 4(2) was the clause of the Deed upon which significant argument turned and provides as follows:

"In exercising the Trusts in sub-clause (1) of this clause the Trustees shall have regard principally to the contribution to the success of the Company (or a Subsidiary as the case may be) made by the Employees."

7.        Clause 6.1 provided that the "validity construction and effect and administration of this settlement ("the Proper Law" shall be governed by the laws of Jersey".  Accordingly, the Royal Court has jurisdiction to hear this application pursuant to Article 5(a) of the Trusts (Jersey) Law 1984 as amended.

8.        Ennismore provided a Memorandum of Wishes to the Trustee in 2000 as follows:

"We recognise that these, our wishes, are not binding on the trustees nor do we wish to fetter their discretion in any way but the following notes are intended to explain the aims which we had in mind in setting-up the settlement.

Overall Aims

To provide a trust fund for the benefit of all the present and future employees of the company and their dependants.

Income and Distribution

We express the hope that:

1. THAT the trustees shall consider retaining and investing all income arising and for distributions of such to be made in consultation with the directors of the company to recognise the contribution individual employees have made towards the success of the company.

2. THAT the trustees shall consider distributing such sums of capital to employees as we may from time to time request.

3. THAT should the trustees wish to consult generally with someone close to the company with regard to any decisions affecting the beneficiaries, the following directors should be approached: Gerhard Schöningh and [J]"

Trust Assets

9.        The assets of the Trust include cash and shares.  The shares included shares in two Ennismore funds namely the Ennismore Smaller Companies Fund (which we are informed was known by Ennismore as "OEIC") and the Ennismore European Smaller Companies Hedge Fund (known by Ennismore as "HF").  There were also investments in two other funds as well as cash and cash equivalents held by the Trustee at a bank account in Jersey.  The total value of the trust fund as at the end of 2022 comprised holdings in various funds of approximately £5.8 million and EUR4 million, cash of around £1 million and a loan receivable from Ennismore of just under £500,000. 

Procedural history

10.     The Trustee originally presented a Representation to the Royal Court on 28 October 2022 where the Court convened Mr Vigeland, Ennismore and ("J") and ordered that five other beneficiaries, ("D"), ("E"), ("F"), ("G") and ("H"), be notified of the proceedings.

11.     At a further directions hearing on 25 November 2022, Advocate Cushing was appointed to represent the interests of all the beneficiaries and future beneficiaries of the Trust, apart from Mr Vigeland and J and any spouse or children or grandchildren of either of them.

12.     The Court also set a timetable for the filing of evidence. The Representation was supported by the first affidavit of Paul Le Marquand, a director of the Trustee, sworn on 25 October 2022.  Mr Vigeland filed an affidavit in response on 22 February 2023.  Ennismore filed affidavits in response from Mr Blair and J, D, G and F(redacted) all filed affidavits in respect of their interests as beneficiaries of the Trust.  The other persons notified did not file any separate evidence. 

13.     The Representation as presented to Court initially sought a blessing of a decision taken by the Trustee on 30 June 2020 (the "original decision").

14.     However, in light of the evidence filed by Ennismore, the Trustee realised that it had overlooked certain relevant information which resulted in it taking the wrong starting point when calculating the amount it proposed to distribute.  The Trustee therefore took the view that it was required to reconsider the original decision.  The Amended Representation pleaded that this was "to determine whether any of this information should affect or cause it to make any adjustment to its initial decision which is the subject of its application" (paragraph 5 of the Amended Representation).

15.     A revised decision was taken on 4 and 5 April 2023 when the Trustee resolved as follows:

""IT WAS ACCORDINGLY RESOLVED THAT the Trustee should make a final distribution to Mr Vigeland from his notional allocation under the Trust of a total of 1,744.24 shares in the EHF (Ennismore Hedge Fund), such distribution to be subject to the approval of the Royal Court of Jersey, and subject to the deduction and withholding prior to transfer to Mr Vigeland of a sufficient amount to meet any tax liability that may arise."

16.     It is the revised decision in respect of which the Trustee now seeks a blessing.

17.     By the time the matter came before Court it was common ground that, if the revised decision was approved by the Court, the Trustee would withhold a percentage of the proposed distribution in order to discharge the liability to income tax and national insurance contributions that would fall upon Ennismore in respect of the proposed revised distribution.

18.     The Trustee proposes to give effect to the revised distribution, if approved, by redeeming the appropriate number of HF shares held by the Trustee and transferring the cash proceeds to Mr Vigeland.  The Trustee holds enough HF shares to do this but does not hold enough HF shares to pay a sum representing the tax liability that will arise on a distribution to Mr Vigeland.  Accordingly, the Trustee proposes to make a transfer out of cash reserves held by it to Ennismore to meet the tax liability.

19.     Subsequent to the revised decision, the Trustees served Mr Le Marquand's second affidavit.  Ennismore filed a fourth affidavit in response by Mr Blair. 

Mr Vigeland's relationship with Ennismore

20.     Mr Vigeland is a beneficiary of the Trust initially by virtue of the fact that he was employed by Ennismore between November 2001 and 24 June 2004 under a full time contract of service with Ennismore. 

21.     On or around 24 June 2004, this position changed when Mr Vigeland returned to live in Norway.  Following his relocation, Ennismore engaged Fenris Consulting Limited ("Fenris"), a company incorporated in Belize, the sole director of which was Mr Vigeland, to provide consultancy services to Ennismore.  It was common ground that this arrangement in practice was essentially on the same terms as Mr Vigeland's previous contract of service. 

22.     The consultancy services agreement between Ennismore and Fenris was terminated by Ennismore on 5 February 2009, with effect from 5 April 2009, following Ennismore giving two months' notice of termination as required under the consultancy services agreement.

Relevant litigation

23.     The termination of the consultancy agreement between Ennismore and Fenris led to the following proceedings.

24.     In February 2009, Ennismore commenced proceedings before the Courts of the Cayman Islands.  In those proceedings, Ennismore sought recovery of redemption proceeds of certain shares held by Fenris which Ennismore alleged were due to it pursuant to a clawback agreement entered into between Ennismore and Mr Vigeland in around April 2006 ("the Clawback Proceedings").  On 27 February 2009, the Cayman Grand Court granted Ennismore an injunction against Fenris, prohibiting Fenris from transferring, assigning or dealing in any manner with various shares or redemption proceeds of various funds held in the name of Fenris.

25.     Judgment at first instance was given by the Grand Court of the Cayman Islands on 7 February and 16 February 2012.  The judgments found in favour of Ennismore. 

26.     Fenris appealed leading to a judgment dated 16 April 2014 of the Court of Appeal of the Cayman Islands (the "Cayman Court of Appeal") when the Cayman Court of Appeal set aside the orders made by the lower court (the "First Cayman Appeal"). 

27.     Ennismore appealed the First Cayman Appeal to the Judicial Committee of the Privy Council.  The Privy Council handed down its decision on 19 April 2016 and dismissed Ennismore's appeal.

28.     In or around October 2016, Fenris commenced separate proceedings against Ennismore in the Cayman Islands seeking an enquiry into the damages which Fenris alleged it had suffered as a result of the injunction being granted in favour of Ennismore in 2009 (the "Damages Proceedings").

29.     On 19 March 2019, the Grand Court handed down its judgment and determined that compensation was payable to Fenris.  A further hearing finalised the figures due in respect of compensation leading to the Grand Court of Cayman in April 2019 ordering Ennismore to pay EUR 5,354,601.07 plus interest to Fenris. 

30.     Ennismore appealed this decision to the Cayman Court of Appeal which gave its judgment on 15 April 2020 pursuant to which the amount of compensation was reduced by around 90% (the "Second Cayman Appeal").

31.     The Second Cayman Appeal was also appealed to the Privy Council, this time by Fenris.  The Privy Council dismissed Fenris' appeal on 27 June 2022. 

32.     In addition to the litigation in Cayman, in early December 2010 Mr Vigeland commenced proceedings before the High Court of England and Wales against Ennismore and the Trustee (the "English Proceedings").  In relation to the Trustee, Mr Vigeland had, earlier in 2010, requested that the Trustee make a distribution to him in relation to bonuses awarded between 2002 and 2004.  The Trustee in response had resolved to take a wait and see approach and in particular to await the outcome of the litigation in Cayman. Mr Vigeland took issue with that approach in the English Proceedings.  On 7 November 2012, the High Court of Justice ruled in favour of the Trustee's approach.  That decision was not appealed.

33.     We refer to relevant extracts from these decisions later in this judgment.

Remuneration of employees and the Trust

34.     This part of the judgment is based on the evidence set out in the first affidavit of Mr Blair at paragraphs 21 to 38 which was not disputed and can be summarised as follows. 

35.     Employees of EFML received remuneration in three parts: (a) a basic salary, (b) a cash bonus and (c) a contribution to the Trust described in contemporaneous documents as an "EBT contribution". 

36.     The bonus and EBT contribution elements of remuneration were based on the return the employee in question made on their portfolio. Ennismore would consider what return each employee made to the funds where that employee was acting as a portfolio manager.  Funds could have more than one portfolio manager.

37.     In schedules provided to each employee at the end of each year, the return an employee made for a fund was described as "value added".  Value added was also described as the employee's return.  Ennismore took a performance fee based on this value added of 20%.  It appears to have been the practice that 50% of this performance fee would be allocated to the employee's bonus and EBT contribution.  Mr Blair gave an example at paragraph 23 of his affidavit as follows:

"For example, if an employee made a return of GBP 1 million, EFML would take a performance fee of 20%, a proportion of which (typically 50%) would be allocated to the employee's cash bonus and EBT Contribution. Using the example, the cash bonus and EBT Contribution would amount to GBP 100,000. GBP 50,000 would be paid in cash to the employee immediately, and a contribution of GBP 50,000 would be made to the EBT. The latter was subject to clawback (which is explained further below)."

38.     If an employee generated a negative value added or return, so that no performance fee could be charged, any prior EBT contributions in respect of the employee's performance during the course of the previous three years would be subject to clawback.  Again, Mr Blair gave the example that based on a negative return of £1 million by an employee, that employee would be subject to clawback in the amount of £100,000 because Ennismore would have lost a performance fee of 20% of the negative return. 

39.     The scheme was said to have been derived in this way to allow for remuneration based on individual performance with accountability for under-performance. 

40.     In respect to the EBT contribution, the amount of the contribution would be notionally allocated in units of OEIC or HF. 

41.     However, where an EBT contribution was made there would often be no actual matching transfer of funds from Ennismore to the Trust. Early on in the life of the Trust, monies were transferred by Ennismore to invest in OEIC or HF as assets of the Trust reflecting EBT contributions awarded by Ennismore.  In later years, Mr Blair explained there would be no actual movement of funds provided that the investment holdings in the Trust exceeded the total of the notional allocations made by Ennismore.  Those notional allocations were managed and tracked by Ennismore (through Mr Blair) using a schedule in the form of an Excel spreadsheet.

42.     Mr Blair further explained that the schedule was not shared with Vistra for three main reasons:

"(a) First, it was more efficient. As the employer, EFML was clearly in the best place to advise Vistra as trustee in relation to any requests for distributions and it expected the trustee to consult with it fully in relation to any request for a distribution that it made for the benefit of an employee or which an employee might make directly to the trustee. Ordinarily, employees would make requests to EFML which would then make a recommendation;

(b) Secondly, it was consistent with the nature of the EBT Contribution and the fact that an EBT Contribution in respect of a particular employee simply represented a notional allocation from which they might in future benefit if their performance warranted it. Such a notional allocation could, therefore, be changed to reflect EFML's changing assessment; and

(c) Thirdly, it was to protect individual employees from any potential risk that the assets might be treated as 'earmarked' for tax purposes. I am not a tax expert but I understand that 'earmarking' takes place where a fund is set aside for an employee, for example through the creation of a sub-fund in the EBT.  This can result in a tax charge being imposed before an employee has necessarily had any benefit from the fund and would undermine the purpose of establishing the EBT."

43.     We interject to say that while we accept the first and third of these reasons, we do not make any determination on whether the second reason was one for not sharing the schedule because to do so would require an evaluation of the performance of other employees which is not necessary for the purposes of our decision.

44.     Mr Blair also explained that once an EBT contribution was free from clawback, an employee could make a request for a distribution for some or all of that amount.  Mr Blair explained that on occasions Ennismore made the payment itself from its own resources and then reduced or cancelled the notional allocation in the spreadsheet it was maintaining of EBT contributions to the Trust.  This was done in respect of small payments so as to avoid the Trust incurring costs associated in making formal distribution.  A second way of making payment was by way of an exercise of discretion by the Trustee out of assets held within the Trust. 

45.     In relation to a situation where a clawback arose in respect of an EBT contribution because of a negative return resulting from the employee's portfolio management, Ennismore would not make a request to the Trustee to return funds from the Trust.  It could not do so as Ennismore was not a beneficiary.  Such funds would be left in the Trust as surplus for future and notional allocations.  Instead, the clawback was applied by making a change to the notional allocation in the schedule maintained by Ennismore. 

46.     If an employee did not have enough units in their notional allocation to the meet the amount of clawback, they would be classed as "underwater" and would have to generate enough return in future years to cover the amount of the clawback before they would be entitled to any further cash bonus or another EBT contribution. 

47.     After expiry of the three year period, an employee could seek a distribution from the Trust as noted above.  It was common ground that the exercise of discretion was a matter for the Trustee, having regard to Ennismore's wishes.  How far the Trustee should have regard to any wishes expressed by Ennismore is one of the matters at the heart of the Trustee's application for a blessing and Ennismore's opposition to that application. We therefore address this issue later in this judgment. 

48.     Finally, Mr Blair explained that many employees did not request distributions when EBT contributions became free from clawback.  Instead they left any such funds invested through the Trust in Ennismore funds.  This was firstly because it was more tax efficient to do so as any tax charge only arose on distributions and, secondly, from Ennismore's perspective employees had "skin in the game", i.e. an interest in the long-term performance of Ennismore's business.

Awards in favour of Mr Vigeland/Fenris and requests for distributions

49.     In relation to Mr Vigeland and then Fenris, taking the approach described in the previous section of this judgment, the following relevant awards were made to Mr Vigeland / Fenris.

50.     In a document described as 'Proposed Bonuses and Salaries 31 December 2004' (Case Centre page G66), Mr Vigeland was awarded a cash bonus of £393,007 and an EBT contribution of the same sum, with his total bonus plus EBT contribution being in the sum of £786,015.

51.     The same documents described Mr Vigeland's "EBT interests as at 31 Dec 04" as follows:

"Proposed Bonuses & Salaries 31 Dec 04

                                                                                            AP

 

                        Current salary                                                                   [Redacted]

                        Salary increase                                                                 [Redacted]

 

                        New salary                                                                      [Redacted]

 

                        FM Bonus (50%)                                                              393,007

                        Other bonus

                        Bonus RPL                                                                      _______

                                                                                                              393,007

 

                        EBT Contribution (50% of FM bonus)                                393,007

                        EBT Contribution (50% of other bonus)              

 

                                                                                                              _______

                        Total bonus plus EBT contribution                                    786,015

 

                        Pension                                                                            20,400

 

                                                                                                              _______

                        Total bonus + EBT + Pension                                           806,415

 

                        FM Bonuses                                                                       AP

 

                        OEIC                                                                           

                        Value added after benchmark charge                              5,206,000

                        Less allocated costs                                                      (246,527)

                                                                                                            ________

                        Value added                                                                  4,959,473

 

                        HF (GBP)                                                                     

                        Value added after benchmark charge                              5,083,099

                        Less allocated costs                                                      (217,387)

                                                                                                            ________

                        Value added                                                                  4,865,712

 

                        Performance fee at 20% on VA after cost allocation        

                        OEIC                                                                              991,895

                        HF (GBP)                                                                        973,142

                                                                                                            ________

                                                                                                            1,965,037

 

                        FM Share (%)                                                                         40%

                        FM share (£)                                                                   786,015

 

 

                       

                        Proposed Bonuses & Salaries 31 Dec 04

                                                                                                              AP

                        EBT contributions (subject to clawback)             

                        OEIC - FM performance                                                 198,379

                        OEIC - Other

                        HF - FM performance                                                    194,628

                        HF - other

                                                                                                            _______

                        Total EBT Entitlement                                                    393,007

 

           

                        EBT Interests as at 31 Dec 04

                        OEIC

                        Free (no of shares)                                                        8,771.53

                        Subject to clawback (no of shares)                                  8,489.74

                                                                                                            ________

                        Total no of shares                                                          17,261.27

 

                        Free (value - GBP)                                                        [Redacted]

                        Subject to clawback (value - GBP)                                 [Redacted]

                                                                                                                ________

                                                                                                              [Redacted]

           

                        HF

                        Free (no of shares)                                                            817.06

                        Subject to clawback (no of shares)                                      930.30

                                                                                                            ________

                        Total no of shares                                                            1,747.36

 

                        Free (value - GBP)                                                        [Redacted]

                        Subject to clawback (value - GBP)                                 [Redacted]

                                                                                                            ________

                                                                                                            [Redacted]

                                                                                                            ________

                        Total EBT holding (value - GBP)                                    [Redacted]"

52.     The note to the document stated the following:-

"(1) Allocations subject to clawback become free of clawback after 3 years;

(2) Any distributions from the EBT will be made after deducting Employers National Insurance from the distributions.

(3) (Not relevant)

(4) Distributions are ultimately at the discretion of the Trustees."

53.     The total value of the shares not subject to clawback was therefore [Redacted] for OEIC plus [Redacted] for HF, i.e. £430,124.30.

54.     On 25 February 2005 at Mr Vigeland's request, a payment of £430,124.30 was made to Fenris. This represented the value of the free shares in OEIC and HF as at 31 December 2004. 

55.     In the English Proceedings Mr Vigeland unsuccessfully sought to argue that the amount paid on 25 February 2005 was a cash bonus and not a cash payment representing free shares which were no longer subject to clawback. This assertion was rejected by Mrs Justice Asplin who held that Mr Vigeland already received the cash bonuses (see paragraphs 118 to 132 of the English judgment).

56.     For the year ended 31 December 2005, a spreadsheet headed 'Bonuses and Salaries 31 December 2005' was provided to all Ennismore fund managers including Mr Vigeland. In relation to Mr Vigeland, the spreadsheet was summarised at paragraph 11 of the judgment in the First Cayman Appeal, where the cash bonus figure for Mr Vigeland was recorded as totalling £1,526,891, with the same figure representing an EBT contribution.

57.     This award was payable to Fenris in respect of Mr Vigeland's services with £1,526,891 being retained as an EBT contribution.

58.     On 6 April 2006, Ennismore, Fenris and Mr Vigeland entered into a Clawback Agreement. The meaning of the Clawback Agreement was considered in the Clawback Proceedings and is summarised later in this judgment.

59.     For the year ending 31 December 2006, Mr Vigeland received a cash bonus of [Redacted] and the equivalent EBT contribution.

60.     As at this date, he was described as holding 8,489.74 free shares in OEIC with a value of [Redacted], and 930.30 free shares in HF with a value of [Redacted].

61.     Although this spreadsheet and the 2005 summary referred to Mr Vigeland, contractually the awards were payable to Fenris 50% as a cash sum and 50% of which had to be invested into EFML funds.  In both cases, the non-cash element was subject to the terms of the Clawback Agreement.

62.     Also, in October 2006, the Ennismore Vigeland Fund ("EVF") was incorporated in the Cayman Islands.  While this fund was managed by Ennismore, it was provided with investment advice solely by Mr Vigeland through Fenris which acted as the sole portfolio manager.

63.     In relation to the prospectus describing EVF, the documentation contained a letter to investors dated 20 September 2006 from Mr Oldfield which contained the following statements about Mr Vigeland:

"Arne joined Ennismore in November 2001 and started managing money in June 2002. I first met him in 1995 when on a business trip in Oslo and my contact at Elcon Securities, a local Norwegian brokerage house, introduced me to Arne who was undertaking a summer internship. His passion and love of investing was obvious then, as was his in-depth knowledge of the oil industry. Firsthand experience over the last five years has verified Arne's ability to translate those qualities into excellent investment results. In my opinion he remains as passionate and focused on investing as he was eleven years ago. Most importantly, he has a traditional margin of safety investment approach, along with the experience that age brings.

....

I believe that Arne has the ability and capacity to manage additional assets without adversely affecting his investment performance. The simplest way of achieving this would have been to open the existing funds and allocate the capital to Arne. We chose to launch the EVF instead, however, for a number of reasons."

64.     The letter also contained the following statements about EVF:

"Whilst the single manager structure, with its different risk and reward profile, is likely to provide a greater exposure concentration by country and sector, we believe that this may prove an attractive investment opportunity for certain clients.

.....

To summarise, the EVF will be a concentrated single manager absolute return fund. Whilst I expect returns to be more volatile than in our existing funds I believe Arne will generate excellent long term performance for his investors."

65.     In 2007, the portfolios within OEIC and HF managed by Mr Vigeland, and EVF, all suffered significant losses.  This gave rise to the question as to whether Ennismore was entitled to clawback these losses from Mr Vigeland.  These issues were explored extensively in the English Proceedings at paragraphs 133 to 153.  In summary, the English Court held that on 31 January 2008, Ennismore and Mr Vigeland reached an agreement that Ennismore was entitled to clawback a total amount of £1,257,980. 

66.     Following this clawback, Mr Vigeland's notional allocation was 8,489.74 free shares in OEIC and 724.42 free shares in HF.

67.     On or around 30 January 2008, Mr Vigeland requested to have these shares switched from OEIC and HF to shares in EVF.  Accordingly, Ennismore made a recommendation to the Trustee to make an investment in EVF equivalent to Mr Vigeland's notional allocation.  The shares in OEIC and HF were not however redeemed or reallocated by Ennismore. How they were reallocated by Ennismore is not material to our decision. 

68.     On 27 February 2008, the Trustee, as trustee of the Trust, accepted Ennismore's recommendation and purchased 9,598 EVF shares at a price of [Redacted] per share, making a total of [Redacted].

69.     In a letter dated 30 January 2009 from Fenris to Mr Blair signed by Mr Vigeland, Mr Vigeland seemed to accept that the notional allocation had been used in 2008 to purchase shares in EVF in requesting a distribution as follows:

"On a separate point, Mr. Arne Vigeland would personally like full disbursement of his Employees Benefit Trust ("EBT") entitlement earned as an EFM employee prior to becoming a consultant to EFM in 2004. Mr. Vigeland's EBT entitlement is held as shares in the EVF and should now have a value of approximately [Redacted]. Please instruct Ennismore's EBT to pay Mr. Vigeland through the UK PAYE system so that appropriate UK personal taxes can be deducted. Mr. Vigeland can substantiate the existence of his entitlement and the de facto discretion with which the directors of EFM control the EBT disbursements by means of witnesses, documents and recorded telephone conversations between Mr. Vigeland and directors of EFM."

70.     In 2008, significant losses were again suffered in the portfolios managed by Mr Vigeland for OEIC and HF.  Mr Blair described these losses as generating significant negative returns of 30.3% and 41.3% (see paragraph 59 of his first affidavit).

71.     In relation to EVF, Mr Blair described 2008 as being disastrous for EVF, with its valuation shrinking from £100 million at inception to £26 million due to investment losses and consequent redemptions by investors.  We record that it was never explained to us what proportion of this reduction represented investment losses and what proportion represented redemptions by investors. 

72.     On 15 December 2008, EVF was liquidated. In the resulting liquidation, the shares in EVF representing Mr Vigeland's notional allocation were redeemed resulting in a value of [Redacted] ([Redacted] at then the prevailing exchange rate).  These monies were used to buy shares in HF.  We refer to the detail of this transaction later in this judgment in the section setting out the Trustee's Revised Decision.

73.     A further 2,399.735 shares were redeemed on 13 November 2009, realising a value of [Redacted] ([Redacted] at then the prevailing exchange rate).  This cash was held by the Trustee as part of the assets of the EBT.

74.     The total value redeemed was therefore [Redacted].

75.     As noted above, on 5 February 2009, Ennismore gave Fenris two months' notice of termination of the consultancy agreement.  At some point after this date, as recorded in a spreadsheet dated November 2010, Ennismore recorded Mr Vigeland's notional allocation as being zero because of the losses suffered in OEIC and HF which were described as significant, and the losses in EVF which resulted in the latter's liquidation. 

76.     Subsequent to the termination of the arrangement between Ennismore and Fenris, Mr Vigeland, through his English solicitors, Judge Sykes Frixou in a letter dated 6 April 2010, requested a distribution from the EBT.  This request was based on the statement dated 31 December 2004.

77.     This led to Mr Blair producing a note dated 18 May 2010 explaining why the value of the notional allocation recorded by Ennismore for Mr Vigeland had been reduced to zero.  The note read as follows:

"Mr Vigeland's portfolio management generated positive returns up to and including 2006. In late 2006 a new Cayman Island domiciled fund, the Ennismore Vigeland Fund, was established for which EFML was the Investment Manager and Mr Vigeland the sole portfolio manager (he continued to manage sub- portfolios for our other funds). This fund was launched in November 2006 with approximately Eur 100m under management. As a result of investment losses and consequent investor withdrawals its net asset value had fallen to Eur 26m by 30 Nov 2008 and the fund was subsequently placed into voluntary liquidation. This performance seriously damaged the reputation of EFML and had an adverse impact on the company's profitability.

During both 2007 and 2008 Mr Vigeland's portfolio management resulted in significant losses to the funds (2007: approx €23m; 2008: approx £48m) and, under the terms of the agreement between EFML and Mr Vigeland's company, following the end of 2008 EFML was entitled to be repaid part of the fees that it had paid to that company based on positive investment performance in 2005 and 2006. The amount due back to EFML was approximately £2.1m. Mr Vigeland has refused to pay this amount to EFML and EFML has started proceedings to recover it in the Cayman courts - the trial is now scheduled for September 2010. This legal action has resulted in significant legal costs for EFML (which will not be fully recoverable) and wasted significant amounts of management time."

78.     On 28 September 2010, Carey Olsen, for the Trustee, replied to Judge Sykes Frixou for Mr Vigeland stating that the Clawback Proceedings were a material consideration stating:

"Therefore we cannot accept your assertion that those legal proceedings are entirely discrete from your client's request as our client company is obliged to take into account the performance of your client (as the principal of Fenris) during the totality of his time as an employee of EFML."

The English Proceedings

79.     The position adopted by the Trustee in 2010 led Mr Vigeland to issue proceedings against Ennismore and the Trustee.  Mr Vigeland's primary claim against Ennismore was summarised at paragraphs 5 to  8 of the judgment in the English Proceedings as follows:

"5... It is Mr Vigeland's case that upon the expiry of the three year period and assuming that no legitimate clawback in respect of negative investment returns applied, he was entitled absolutely and unconditionally to the EBT bonus element of the Annual Performance Bonus and he asserts that Mr Oldfield told him this.

6. He also contends that he was told that if he chose to invest the cash element of his bonus in the EBT, it too would be available to him were he to call for it, or rather the investments representing it, at any time.

7. Mr Vigeland claims therefore, that he is entitled to the value of the investments representing a sum of £40,000 which he says was the EBT element of his bonus for 2002 which he was told had been invested in the EBT. In the same way he claims in respect of the EBT element of his bonus for 2003 which was $300,000 and is now free of any clawback. In respect of 2004 he claims both the cash element of his bonus being originally £393,007 which he reinvested in the EBT and the EBT element the value of which was also originally £393,007.

8. Mr Vigeland's primary case is that these matters were orally agreed. In the alternative he contends that terms should be implied into the Bonus Agreement. They are that EFM would deposit the EBT contribution or deferred element of the bonus in a structure which would confer on Mr Vigeland absolute and unconditional rights to the EBT element after the expiry of the clawback period, insofar as clawback was not applied, that in the event that Mr Vigeland chose to invest the cash element of his bonus in the same structure, the structure would entitle to him absolute and unconditional rights to the investments purchased with the cash sum, that EFM would provide him with reasonable assistance in asserting his rights to the investments representing the contributions to the structure and would not impede his claims to them."

80.     The claim against the Trustee was that it should exercise its discretion and distribute any EBT contributions made in favour of Mr Vigeland which were free of clawback .

81.     The position of the Trustee was summarised at paragraphs 16 and 17 as follows:

"16. Vistra's position is quite straightforward. It maintains that the EBT is a valid, properly established and constituted discretionary trust which it administers in accordance with Jersey law and its obligations as a trustee. It holds the trust fund on trust for the beneficiaries in accordance with the provisions of the Deed of Settlement of the EBT. Its powers are wide and in addition to providing sums equivalent to remuneration or bonuses, also include for example, power to make provision for maintenance, education or advancement of any beneficiary and death benefits.

17. Under a discretionary trust no beneficiary has a right to all or any part of the trust fund and since the discretion is vested in the trustee it is the trustee which decides whether or not to make a beneficial distribution and if so, the extent of that distribution and the assets to which it relates. Such a decision is made by a trustee in a fiduciary capacity and it is obliged to act in good faith only in the interests of the beneficiaries. It must take account of relevant and disregard irrelevant factors. It follows that a beneficiary compel a trustee to make a particular distribution to him."

82.     The Trustee therefore explained that it had taken a wait and see approach.  By the time of the judgment in English Proceedings, judgment at first instance in the Clawback Proceedings had been given but the outcome of the First Cayman Appeal was pending.

83.     In the English Proceedings, Ennismore alleged that Ennismore possessed a general discretion to reduce the EBT contribution even after the three year clawback period had expired (see paragraph 75).  The evidence of Mr Blair and Mr Oldfield on this issue was rejected by the judge at paragraph 76. 

84.     Mr Vigeland's claim in his proceedings against Ennismore were otherwise rejected, leading to the finding that an agreement was reached in January 2008 as summarised at paragraph 65 above.

85.     In relation to the Trustee, firstly, the judge, in assessing whether Ennismore through Mr Blair had represented to Mr Vigeland that the latter was absolutely entitled unconditionally to EBT contributions following expiry of the three year clawback period, made the following observation at paragraph 110:

"110. In my judgment, given Ms Breusch's candid evidence as to instructions and the lack of any example of Vistra ultimately having refused a recommendation from EFM, it is more likely than not that EFM expected Vistra to accede to its requests which no doubt on occasion were phrased more like instructions. However, there is no evidence to suggest that the EBT was not properly administered and discretions considered properly by Vistra and I accept Mr Blair's evidence that he did not represent that Vistra did as instructed."

86.     In relation to the claim bought by Mr Vigeland against the Trustee, Vistra's position was summarised at paragraphs 190 to 193:

"190. Vistra's position in this regard is in accordance with Ms Breusch's evidence. It states that all distributions are subject to the discretion of the trustee and in this case it has taken account of the wishes of EFM and in particular, the Cayman proceedings in which judgment was obtained against Fenris. Vistra states that it considers the outcome of the appeal to be a relevant factor in its exercise of discretion and accordingly it awaits the outcome of the appeal before making any decision. It is denied that a decision has been made.

191. Mr Hochberg on behalf of Vistra submits that "principally" in clause 4(2) means just that and does not mean "exclusively" and that former employees can have contributed to the success of the company and adversely affect it for example if they are bad leavers. He drew the analogy of a disgruntled former employee who intentionally damaged his company car or set fire to premises. He pointed out that after June 2004 Mr Vigeland was both a former employee and had accepted that he was treated as a quasi-employee.

192. Mr Hochberg accepted that when exercising its discretion the trustee is acting in a fiduciary capacity and is required to act in good faith in the interests of the beneficiaries of the trust and that it must take account only of relevant factors. He also emphasised that it is the duty of the trustee to exercise its discretion and it is only in exceptional circumstances where there can be no doubt as to the proper basis for a distribution that the court may direct a distribution: Re Baden's Deed Trust [1971] AC 424 at 456-7.

193. He also referred me to Re Esteem Settlement [2004] WTLR 1 at paragraphs 165-7 in which it is made clear that in a well-run trust it would be expected that there would be a harmonious relationship between settlor, trustee and beneficiary and in those circumstances, where the settlor makes a reasonable request as to how the trustee should exercise its discretion, it would be exceptional for the request to be refused. Likewise it would be proper for the trustees to take into account a non-binding letter of wishes such as that to which I referred at paragraph 33. Mr Hochberg submitted that this logic should also apply to employment benefit trusts. He says that in this case Vistra did not act robotically and in the case of the payment of national insurance took its own advice and that its independence arises from the very trust structure itself."

87.     The Trustee, through its counsel, also submitted the following at paragraph 196:

"....He reiterates that the conduct of a former employee is something which can be taken into account particular in the circumstances in which the relationship with Mr Vigeland and EFM was seamless and the change to the use of a consultancy company was not of EFM's choosing."

88.     The judge's conclusions are found at paragraph 197 and 198 as follows:

"197. In my judgment, there is no evidence to suggest that the EBT has been administered in a way which is other than proper. Furthermore, it was clear from her evidence that Ms Breusch, a professional trustee involved in the administration of a number of employee benefit trusts is fully aware of her fiduciary duties. Furthermore, I accept that it is common practice when an onshore settlor establishes an offshore trust that the trustee obtains relevant information from the settlor and once it is aware of any hostility should also obtain and receive information from the beneficiary him or herself. I consider that the comments of the Special Commissioners in the Dextra case which I have set out apply equally in this case. There is no basis upon which to argue that Vistra has acted merely as a cipher for EFM and in fact, Mr Vigeland does not contend that that is the case. In the context of an employment benefit trust it is hardly surprising that it has acceded to reasonable requests by EFM in the past.

198. Furthermore, with regard to clause 4(2) I accept Mr Hochberg's submissions. Whilst it is quite clear that clause 4(2) requires Vistra to take account principally of the contribution of an Employee to the company, a principal consideration does not prevent other relevant matters from being considered. It is entirely correct to point out that the definition of "Employee" does not include "former employee" nor for that matter "quasi employee'. However, in my judgment that cannot prevent a trustee with an absolute discretion from taking account of relevant matters post-employment when considering the exercise of its discretion."

89.     The judge also stated the following at paragraph 200:

"200. I should add that I note that the 13 June 2012 resolution recording Vistra's decision to postpone the issue and reconsider a distribution to Mr Vigeland after the outcome of the Cayman appeal is known makes no mention whatever of Mr Vigeland's contribution to EFM whilst an employee. This is something to which Vistra is required to have principal regard when exercising its discretion to make a distribution."

90.     The judge then made it clear that the postponement by the Trustee until the outcome of the first Cayman Appeal was a step a reasonable trustee would be entitled to take.

The First Cayman Appeal and Privy Council findings

91.     These appeals concerned construction of a clawback agreement entered into on 6 April 2006 between Ennismore, Fenris and Mr Vigeland.

92.     At first instance, the Grand Court of the Cayman Island interpreted the clawback agreement as being based on or related to individual performance of Mr Vigeland in the management of particular portfolios for which he was responsible.  He rejected Fenris' argument that the clawback agreement related to and was qualified by performance of Ennismore and specifically in its own performance fee.

93.     The First Cayman Appeal overturned this decision.  The Court of Appeal's conclusion was set out at paragraph 28 as follows:

"28. As I have said, the Clawback Agreement addresses four distinct matters: (i) what funds are subject to clawback; (ii) what conditions give rise to the right to clawback; (iii) what is the amount of the clawback; and (iv) in what order of priority is clawback is to be applied. I hope it will not be thought lacking in courtesy to the judgment in the Grand Court, or to the arguments advanced by counsel on this appeal, if I say at this stage that I take the view that the meaning and effect of the Clawback Agreement in relation to those matters is not open to doubt. In summary:

(1) The funds subject to clawback are that part of the discretionary fees paid by Ennismore to Fenris in any given calendar year which are so paid (whether by agreement between them or otherwise) upon terms that they will be subject to clawback.

(2) The requirements that must be satisfied if the right to clawback is to arise are (i) that net investment losses have been sustained by the Fenris portfolios and (ii) that there has been a reduction in the performance fee earned by Ennismore, attributable to the net investment losses sustained by the Fenris portfolios. Net investment losses means the amount by which the value added to the Funds by the performance of the Fenris portfolios falls short of the benchmark figure.

(3) The amount of the clawback is the product of the relevant percentage rate applied to the reduction in the performance fee earned by Ennismore.

(4) Clawback is made from funds subject to clawback retained from earlier years before funds subject to clawback retained from later years."

94.     The Court then continued at paragraph 29 as follows:

"29. It is important to appreciate that "the reduction in the performance fee earned by the Company" attributable to the net investment losses sustained by the Fenris portfolios must mean the reduction in the overall performance fee earned by Ennismore as Investment Manager of the two Funds: that is to say, the amount by which the performance fee earned by Ennismore as Investment Manager of the two Funds is less than it would have been if net investment losses had not been sustained by the Fenris portfolios. The expression cannot have been intended to mean "the reduction in the contribution made by the Fenris portfolios to the performance fee earned by Ennismore"."

95.     The Court of Appeal also stated the following:

"66. ....The judge had to decide whether entitlement to clawback arose only in circumstances where Ennismore had suffered a reduction in its own overall performance fees which was attributable to a shortfall in the performance of the Fenris portfolios. The operation of clawback did not require that Fenris should compensate Ennismore in circumstances where Ennismore had suffered no loss attributable to a shortfall in the performance of the Fenris portfolios. The issue for determination was whether the clawback was calculated as a percentage of the "reduction in performance fees earned by the Company" attributable to the adverse effects of the investment advice given by the fund manager. It was never in issue that the clawback was based on the fund manager's performance.

....

69.... I accept that submission as correct. It seems to me fatal to the judge's conclusion that all the fund managers, including Mr Vigeland, understood the principles of clawback: no-one, on the evidence, had ever had to address the question whether Ennismore could exercise the right to clawback in circumstances in which it had suffered no loss attributable to the under-performance of the portfolios for which an individual fund manager was responsible....

70. It was submitted on behalf of Fenris that the use in the Clawback Agreement of the phrase "reduction in performance fees earned by the Company" - in both sentences B(1)(iii) and C(1)(iii) required Ennismore to demonstrate that the shortfall in the year 2008, relative to benchmark, in the performance of the Fenris portfolios (if established) had reduced the performance fees earned by Ennismore as Investment Manager of the Funds before it could claim to be entitled to clawback the funds retained. I accept that submission as correct. I accept, also, the submission that Ennismore led no evidence to show that there had been such a reduction.

71. For those reasons I am satisfied that the judge was wrong to make the order that he did. He ought to have concluded that Ennismore had misunderstood the effect of the Clawback Agreement; and that, basing its claim on that misunderstanding, it had failed to plead or to establish either (i) that a right to clawback against Fenris arose in respect of the year 2008 or (ii) that the amount that could be clawed back in the exercise of that right (if any) was the amount claimed in these proceedings."

96.     The Privy Council dismissed Ennismore's appeal against the First Cayman Appeal.  Although the Privy Council expressed some reservations about the construction of the clawback agreement by the Court of Appeal in the First Cayman Appeal, the critical question was summarised by the Privy Council at paragraph 19:

"19. The critical question of construction is whether clawback depended upon a reduction in Ennismore's own performance fee or whether clawback applied if the individual fund manager's portfolio generated a loss regardless of the effect on Ennismore's performance fee. That that is the critical question is not in dispute. In para 9 of Ennismore's case it is said that a more concise articulation of the question (than that in para 12 of the judge's judgment) was this. Was the CICA correct to find that clawback payable by Fenris is tied to Ennismore's performance fee, whether pursuant to the clawback agreement or for any other reason?"

97.     The Privy Council accepted those submissions (see paragraph 21) and noted the following at paragraph 24:

"24. The judge ignored the requirement that Fenris' investment losses must be causative of "a reduction in Ennismore's performance fee"."

The Second Cayman Appeal

98.     The Second Cayman Appeal concerned the claim for damages by Fenris against Ennismore as a result of an injunction being granted in favour of Ennismore in relation to the Clawback Proceedings.

99.     At first instance, damages were assessed in the sum of €5,354,601.07 plus interest.

100.   On appeal, the judge's decision was set aside and the Court of Appeal made its own assessment of losses sustained by Fenris in the sum of €515.394.90.  The Court of Appeal therefore awarded Fenris less than 10% of the amount awarded at first instance.

101.   The Privy Council, on 27 January 2022, dismissed Ennismore's appeal and maintained the order made by the Court of Appeal in the Second Cayman Appeal.  The question before the Privy Council was whether, having set aside the judge's conclusion on causation (where there was no appeal), was the Court of Appeal correct in its assessment of loss.

Requests for distributions

102.   Following determination of the First Cayman Appeal by the Privy Council, on 22 April 2016, Mr Vigeland repeated his request that the Trustee make a determination for a distribution "as a beneficiary of the Trust and a significant contributor to the success of Ennismore in the period 2001 - 2004". 

103.   Mr Blair, following a phone call with an employee of the Trustee in May 2016, on 17 May 2016 emailed the Trustee in response to Mr Vigeland's request for a distribution making the following points:

(a)       EVF had suffered significant investment losses and investor redemptions;

(b)       The scale of losses in 2007 and 2008 meant that, in aggregate, Mr Vigeland's portfolios lost money for investors;

(c)       Mr Vigeland / Fenris had been paid substantial sums by Ennismore, in excess of £6 million;

(d)       Losing the money for the investors had had a significant detrimental impact on the business of Ennismore;

(e )      Significant time and effort had been incurred in dealing with Mr Vigeland's unsuccessful claims in the English Proceedings.

104.   The email concluded as follows:

"The Board of EFML believe that Mr Vigeland, both directly and via Fenris, has already been more than adequately rewarded for any contribution that he may have made to EFML's business. Consequently, we would recommend the Trustee not to make a distribution from the EBT for his benefit."

105.   In a letter dated 21 September 2016 from Mr Vigeland to the Trustee, Mr Vigeland specified the precise amount of shares in respect of which he was seeking a distribution, namely 8,489.74 shares in OEIC and 930.30 shares in HF.  This letter relied on the spreadsheet dated 31 December 2006.  It did not therefore take into account the subsequent switching of shares from OEIC and HF into EVF as described at paragraphs 67 and 68 above. 

106.   Mr Vigeland's position was that the switch was discussed but not finally agreed or executed.  Mr Vigeland also argued that his relative and absolute returns were substantially above those of other Ennismore fund managers during the period.

107.   Ennismore's position was set out in an email dated 14 December 2016 to the Trustee.  Mr Blair also informed the Trustee that Mr Vigeland had commenced the Damages Proceedings. 

108.   The Trustee therefore again resolved to take a wait and see approach as it had done with the Clawback Proceedings.  This decision was taken in a meeting held on 22 March 2018.  It is not clear why it took between the end of 2016 and 2018 for the Trustee to make this decision but nothing appears to turn on this delay.

109.   Following the decision at first instance in the Damages Proceedings, Mr Vigeland, in a letter dated 21 April 2019, again repeated his request for a distribution.  This was followed by a letter from Ogier on his behalf to the Trustee dated 28 June 2019.  The Trustee replied on 24 September 2019, which letter included the following statements:

"13. As you note, clause 4(2) of the Settlement provides that Vistra shall have regard principally to the contribution to the success of Ennismore made by the employees. Again, as such, we would reiterate that it is therefore unsurprising that Vistra should engage with Ennismore in relation to distributions made to beneficiaries from the Settlement.

....

16. In terms of what appears to us to be the central thrust of the Distribution Question, we are prepared to state: however that Mr Vigeland's situation is unique in terms of the breakdown in his relationship with Ennismore, and! that all distributions from the EBT since 2012 have been made to beneficiaries in respect of whom their relationship with Ennismore has not broken down.

17. We accept that the Distribution Request remains outstanding. In this respect we are able to advise you that we intend to convene a meeting of the directors of the Trustee to consider your client's request before the end of 31. October 2019. We shall revert to you with the news of the Trustee's decision in due course."

110.   At a meeting on 19 March 2020, the Trustee resolved to seek further information from Ennismore.

111.   The enquiries of Ennismore led to an email dated 25 May 2020 from Mr Blair to the Trustee which included the following statements:

"Just considering his litigation against the company and the Trustees in the High Court: this resulted in the company incurring unrecoverable legal costs (both our own and Vistra's), professional fees for Vistra's time of £85,000 and a large amount of our senior management time being distracted from our core business activities. The distraction of our management time was compounded by his failure to comply with the Costs Orders requiring us to take enforcement action in the Norwegian Supreme Court.

As previously advised the investment portfolios for which Mr Vigeland was responsible suffered significant losses in 2007 and 2008. In the Cayman litigation Mr Vigeland did dispute the amount of the losses in 2007 and 2008 that we stated were attributable to the investment portfolios that he was responsible for. It was a finding of fact at the trial that these losses were attributable to his portfolios and, while Fenris disputed this at the CICA appeal hearing, the finding of fact was not overturned. Unfortunately, the CICA decided that notwithstanding the losses attributable to Mr Vigeland's portfolio's the precise terms that would trigger a repayment to us were not met in 2008 and that the calculation of the repayable amount should not have been based directly on the investment losses. In the continuing litigation regarding quantification of the damages arising from the injunction Mr Vigeland quoted, without challenge, the negative rates of return we were reporting for his portfolios."

112.   The same email also referred to the judgment issued by the Court of Appeal in the Second Cayman Appeal with costs remaining to be determined.  Subsequently a costs order was made in favour of Ennismore with the Court of Appeal also ruling that Ennismore was entitled to set off this costs order against the damages awarded to Fenris. 

113.   Finally Mr Blair's email made this point:

"I would suggest it is relevant to see if Fenris, under the direction of Mr Vigeland, complies with any costs order in our favour in assessing "his contribution to the success of [Ennismore]" and that would continue to be the situation should he pursue an appeal to the Privy Council."

The original decision

114.   Following the exchange of correspondence leading to Mr Blair's email of 25 May 2020, the Trustee, on 30 June 2020, reached a decision in relation to Mr Vigeland's request for a distribution.

115.   The minute of the original decision contains the following:

"It was also noted that Ennismore Fund Management Limited (EFML) had a clear position that no settlement was due to Mr Vigeland, irrespective of any court judgement, and any decision by the Trustees could result in further legal action against the trustees from either party if not in their favour.

.....

Trustees further noted the decision not to put Mr Vigeland or Ennismore on notice of the trustees meeting, as there was no obligation do to so and that the position of each party was effectively known....

....

The Trustees, with support from KD noted that the Cayman Islands appellate court overturned the lower court's finding of tact, but for the injunction, Mr Vigeland would have invested the frozen monies in the European Small Caps Funds as pleaded. The damages suffered by Mr Vigeland as a result of the injunction imposed on him where reduced by around 90% from first court's assessment Euro 5,354,601 (plus interest of Euro 339,320) to Euro 515,394 (plus in interest of Euro 42,640).

The Trustees further noted that the judgement did not say anything specific about Mr Vigeland's performance (or alleged lack thereof) during his time with Ennismore.

The Trustees noted Andrew Blair's emails of 25 May 2020 which are material considerations, that the many years of litigation had been a drain on Ennismore's business both in terms of actual cost and lost management time. Approximate figures of £285,000 for Ennismore professional tees and an estimate of £215,000 being Vistra's estimate of Ennismore's "lost" senior management time. Also whilst acknowledging that Privy Council ultimately sided with Mr Vigeland, it should be noted the way in which he pursued claims against Ennismore and/or failed to satisfy various cost orders made against him in a timely fashion and/or at all, adversely affected Ennismore.

Trustees agreed to consider any unwarranted and unjustified post- employment drain on Ennismore business that may have been caused. Taking these factors into account the Trustees agreed that a decision was required, whilst also noting again estimated costs from Andrew Blair email 25 May 2020, Vistra's own estimate and Mr Vigeland's conduct and impact on the business. Whilst Mr Vigeland had ultimately been successful in court and court documents/ruling was a claim for specific number of units in specific underlying holdings within the Trust, with a fluctuation price dependent upon the price at that time. After due consideration IT IS RESOLVED THAT the Trustee approves a final distribution in specie of 75% of the requested shares, being 6,367.30 shares in the Ennismore Smaller Companies Fund (GBP Class A) and 597.72 shares in the Ennismore Smaller Companies Hedge Fund and that this would be communicated in writing to Ogier and EFML."

116.   The first affidavit of Paul Le Marquand, a director of the Trustee, included the following statements in respect of the meeting of 30 June:

"76.2. Due to the length of time that had passed since that request was first made, the Representor had a duty to act and any further delay may result in legal action against it from either party. The position of EFML, namely that no settlement was due to Mr Vigeland, irrespective of any court judgment, was noted.

......

78. It was resolved that the Representor approved a final distribution in specie of 75% of the requested shares, being 6,367.20 shares in the Ennismore Smaller Companies Fund (GBP Class A) and 697.72 shares in the Ennismore Smaller Hedge Companies Fund, and that this would be communicated to Ogier and EFML in writing. The decision to make a distribution in specie so as to avoid a dispute as to the value of the shares.

79.... It was the Representor's view that the number of units which Mr Vigeland had requested ought to be reduced by 25% to take account of: (a) the costs which the Representor as trustee of the EBT had incurred in relation to dealing with Mr Vigeland's Distribution Request (i.e. the time costs and legal fees which had been borne by the EBT); and (b) costs which EFML had unfairly incurred as a result of the way in which Mr Vigeland had conducted himself generally in the ongoing litigation between those two parties.

.....

81..... However, the Representor had a more extensive knowledge of the background and factors relevant to this request than could be comprehensively recorded in those minutes of 30 June 2020. The following further factors were taken into account by the Representor as being relevant to the Representor's Decision:

....

81.3. The views of EFML. It is proper and compliant with its duties as trustee that the Representor takes the views of EFML (as settlor of the EBT) into account as a material factor in its decision- making in respect of the Distribution Request. The Representor has done so....

81.4. That clause 4(2) of the Trust Instrument requires the Representor, when administering the EBT, to "have regard principally to the contribution to the success of [EFML) made by the Employees". The EBT was intended to provide performance related benefits to the employees of EFML and to reward such employees and former employees for contributions made to the business of EFML. Mr Vigeland has maintained to the Representor that he made significant positive contributions to the business of EFML between 2001-2004 and was consequently awarded bonuses by EFML, as reflected in the document entitled "Proposed Bonuses & Salaries 31 Dec 04" (p.19) which was prepared by EFML. Mr Vigeland's Distribution Request is said to be reflective of those bonuses, Mr Vigeland having not (to date) received funds in respect of those bonuses. The Representor therefore considers that the Distribution Request is being made for a proper purpose in accordance with the aims and objectives of the EBT.

....

81.6. That Mr Vigeland has never received a distribution or appointment from the EBT. The Representor observes in this regard that there have been several instances where certain beneficiaries of the EBT have received substantial distributions or appointments from the EBT with values in excess of GBP 900,000. The value of the Distribution Request is therefore not unusual or disproportionate in the context of the EBT when compared against previous distributions or appointments to other beneficiaries.

81.7. In reaching an in-principle decision to award only 75% of the shares requested by Mr Vigeland pursuant to the Distribution Request, rather than the totality of those shares, the Representor has had regard to the following factors:

81.7.1. EFML's view, as expressed to the Representor on numerous occasions, that Mr Vigeland has already received adequate reward for his contribution to the business of EFML. EFML has further notified the Representor that the investment portfolios for which Mr Vigeland was responsible suffered significant losses in 2007 and 2008.

....

81.7.3. EFML has maintained to the Representor that Mr Vigeland has undermined the success of EFML by his conduct in the litigation. In this regard, the Representor has taken into account the fact that substantial costs were incurred in connection with: (i) the litigation in England (which was commenced by Mr Vigeland) by EFML and the Representor; and (ii) the protracted litigation in the Cayman Islands by EFML. The Representor has also taken into account that Mr Vigeland thereafter failed to comply with costs orders made against him in the UK proceedings which resulted in EFML requiring to take enforcement action in the Norwegian Courts."

117.   We note that the affidavit of Mr Le Marquand was sworn on 25 October 2022, some two and half years after the Trustee's meeting.  On 20 July 2020, the Trustee wrote to Ogier informing them of the original decision.  By an email dated 31 July 2020 in reply, Ogier informed the Trustee that Mr Vigeland was "minded to accept the offer".

Events post the original decision.

118.   On 22 September 2020, a senior trust officer of the Trustee sent an email to Mr Blair referring to and attaching a letter dated 20 July 2020 from the Trustee to Ennismore.  The author informed Ennismore through Mr Blair of the Trustee's original decision.

119.   Mr Blair and Ennismore do not appear to have received this letter in July 2020 and only became aware of it when the Trustee followed up on it, not having heard from Ennismore.  Ennismore was not happy with the decision leading to a call on 25 September 2020 where Mr Blair sought to understand the Trustee's reasons for its decision.  The Trustee was however unwilling to share the detail of those reasons.  The Trustee did make it clear that its decision was subject to obtaining appropriate tax advice. 

120.   While agreement has ultimately been reached on what deductions should be made for appropriate tax liability, this process took the whole of 2021, with Mr Vigeland agreeing the tax advice obtained in a letter dated 5 November 2021 and Mourant Ozannes agreeing for Ennismore in a letter dated 24 January 2022.

121.   On 24 February 2022, Ennismore requested that the assets of the Trust be distributed and the Trust wound up and terminated.  The letter requested that the assets of the Trust be distributed in the following proportions:

 

AKO Fund Ltd investment proceeds

 

[J]

 

100.00%

 

 

Polar Capital European Forager Fund investment proceeds

 

 

[J]

 

100.00%

 

All other assets

[J]

90.45%

 

[D]

3.14%

 

[E]

3.14%

 

[F]

1.76%

 

[G]

1.01%

 

[H]

0.50%

 

 

100.00%

122.   The same letter stated that there should be no distribution to Mr Vigeland.  In relation to this request, subject to resolution of the Trustee's Representation, we were informed that the Trustee is minded in principle to agree to the Trust being wound up although it has not yet made a specific decision to that effect.  Ennismore, as recorded at paragraph 205 of Mr Blair's first affidavit, stated that it would assume responsibility for making discretionary payments in relation to the existing notional allocations within the Trust. 

123.   Mr Blair, in his fourth affidavit at paragraphs 53 to 55, explained the detailed mechanisms of how a winding up would work.  In summary, Ennismore, if assets were appointed out as it had requested, would make appropriate adjustments to current notional allocations to reflect assets awarded out to beneficiaries.  This would lead to corresponding adjustments in Ennismore's own balance sheet which recorded as a liability a percentage allocation of EBT contributions which were in excess of any assets held in the Trust. 

124.   The Trustee presented its Representation to the Royal Court in October 2022 leading to the filing of evidence as described at paragraph 12.  This led the Trustee to take a revised decision on 4 and 5 April 2023 as summarised at paragraphs 14 to 15 above.

The revised decision

125.   The parties were informed on 29 March 2023, by a letter from Carey Olsen for the Trustee, that the Trustee intended to revisit the original decision.  The letter included the following statements:

"On reviewing the evidence that has been filed, the Trustee has identified matters that it wishes to consider further in order to determine whether they should affect, or cause it to make any adjustment to, its decision which is the subject of these present proceedings. These include, in particular, the following matters addressed in Mr Blair's affidavit:

1. Mr Blair's email of 15 May 2019 and the finding of the High Court of England that an oral agreement was reached between Ennismore and Mr Vigeland on 30 January 2008 in relation to clawback; and

2. the agreement reached between Ennismore and Mr Vigeland that Mr Vigeland's notional allocation would be invested in holdings in the Ennismore Vigeland Fund.

Each of these matters has potential relevance to the Trustee's decision in respect of a distribution to Mr Vigeland.

The Trustee wishes to consider these matters with the benefit of any evidence that Mr Vigeland in particular may file in reply to Mr Blair's affidavit by 31 March 2023 in accordance with the timetable. To the extent that these matters do affect, or cause it to make any adjustment to, its decision, it wishes to address this in its reply evidence."

126.   The minute of a meeting held on 4 and 5 April 2023 where the trustee took the revised decision recorded the following:

"ADDITIONAL RELEVANT INFORMATION:

However in light of certain additional information drawn to the attention of the Trustee by the Company in its evidence, in particular the affidavits I: of Mr Blair, it appears that Mr Vigeland should have requested a lesser amount of shares, namely 8,489.74 free' shares in the OEIC (as set out above) and 724.42 shares in the Ennismore European Smaller Companies Hedge Fund ("EHF"), comprising the original 930.30 'free' shares, reduced in accordance with an oral agreement dated 30 January 2008, which the English High Court found had been entered into between Mr Vigeland and the Company. It has also been drawn to the attention of the Trustee by the Company that in early 2008, at the request of Mr Vigeland, the notional allocation within the EBT in favour of Mr Vigeland was invested in the new Ennismore Vigeland Fund (the "EVF"), which was the fund that had been established and was being run by Mr Vigeland, via his consultancy company Fenris Consulting Limited, in 2007 to 2008, and which collapsed and was wound up by EFML at the end of 2008. Following the liquidation of the EVF, the shares in the EVF in Mr Vigeland's Notional Allocation were redeemed as follows: (a) 7,199.205 shares were redeemed on 31 December 2008, realising a value of [Redacted] ([Redacted] at the then exchange rate of GBP 1: EUR 1.03); (b) the remaining 2,399.735 shares were redeemed on 13 November 2009, realising a value of [Redacted] ([Redacted] at the then exchange rate of GBP 1: EUR 1.12); and (c) the total value redeemed was therefore [Redacted] (which had a GBP equivalent value of [Redacted])." Of this amount, the funds referred to at (a) were used by the EBT to purchase 1,796.61 shares in the Ennismore Hedge Fund (the "EHF"), but no specific use was made of the funds referred to at (b), which were held as cash within the EBT."

127.   In the Discussion and Decision section, the Trustee decided to revisit the entire original decision as can be seen from the following:

"DISCUSSION AND DECISIONS:

Having reviewed the evidence filed by the parties, including the: additional relevant information referred to above, the correspondence referred to above under "Purpose of the Meeting", and the Carey Olsen Memorandum, the Trustee discussed whether it should revisit the original decision and concluded that it should do so, as the original decision had been reached without taking into account the above- mentioned additional information, which the Trustee considered was relevant to the Trustee's decision in respect of whether a distribution should be made to Mr Vigeland, and if so, in what amount."

128.   The Trustee then asked itself whether a distribution should be made to Mr Vigeland at all, noting that Ennismore remained of the view that no distribution should be made to him, listing eleven factors including the following:

"ii. Mr Vigeland's overall contribution has been negative, whereas the Trust was intended to reward contribution to the success of the business.

....

ix. Mr Blair refers to the losses suffered by EFML - investment losses (save as covered by a clawback agreement), irrecoverable costs, lost management time, and reputational damage."

129.   The Trustee's conclusion was at sub-paragraphs 1b and c as follows:

"b. Following discussion and having considered and taken the above-mentioned matters into account, the Trustee decided that it should nevertheless, in the exercise of its discretion, continue to make a distribution to Mr Vigeland in respect of his notional allocation within the Trust.

c. To that extent, therefore, the Trustee's original decision was unchanged."

130.   The Trustee further concluded in relation to the quantum of the proposed distribution that this should reflect the shares held in HF following liquidation of EVF.  The Trustee also considered however that the cash resulting from the redemption in November 2009 (see paragraph 73 above) should also have been invested in acquiring shares in EHF noting, by reference to the share price on 30 November 2009, that a further 529.05 shares could have been acquired.

131.   In section 3 of the minutes, the Trustee then revisited its reduction to take account of the detriment caused to Ennismore's business by Mr Vigeland's conduct, deciding:

"...it remained appropriate for the Trustee to apply a reduction against Mr Vigeland's notional allocation, to take account of the detriment caused to the business of the Company, both in terms of irrevocable costs, lost management time and damage to the reputation of the Company, and that a reduction of 25% of the total claimed remained an appropriate amount."

132.   Finally, the Trustee resolved to make a distribution in specie.

133.   The Trustee's decision to make a distribution to Mr Vigeland was subject to approval by the Royal Court.

134.   In relation to the revised decision, Mr Le Marquand filed a second affidavit.  Paragraphs 10 to 17 dealt with the revised decision. 

135.   Paragraph 10 firstly noted the views of Ennismore, including the following:

"10.1. EFML has not made a recommendation to that effect, and indeed has recommended against, in circumstances where the Trustee has never previously made a distribution otherwise than in accordance with a recommendation.

10.2. Mr Vigeland's overall contribution has been negative, whereas the Trust was intended to reward contribution to the success of the business.

10.3. Mr Vigeland had received significant remuneration already (especially since the Fenris clawback failed).

10.4. The beneficiaries of the Trust do not have any absolute entitlement to their notional allocations, which are subject to change in a spreadsheet operated by EFML.

10.5. Mr Vigeland had agreed that his allocation should be reduced pursuant to an oral agreement entered into between Mr Vigeland and EFML (in the person of Mr Blair) dated 30 January 2008.

10.6. For the Trustee to make a distribution to Mr Vigeland in these circumstances would be inconsistent with the treatment of other beneficiaries/leavers.

10.7. Mr Blair makes a comparison between Mr Vigeland's performance and that of other fund managers over the period from 2002 to 2019.

10.8. Mr Blair makes the point that the Cayman litigation, of which the Trustee had been awaiting the outcome, was ultimately irrelevant.

10.9. Mr Blair refers to the losses suffered by EFML - investment losses (save as covered by a clawback agreement), irrecoverable costs, lost management time, and reputational damage.

10.10. The Trustee had proposed that Mr Vigeland should receive shares in various Ennismore funds in specie, and Mr Blair makes the point that in EFML's view, he should not get the benefit of a windfall arising from the increase in value of his fund due to the success of other EFML investment managers.

10.11. Finally, other beneficiaries will be prejudiced if he receives a distribution from the Trust, as there will be less available for them."

136.   Mr Le Marquand, having noted the submissions, made the following observations.  He noted at paragraph 12 that the power to make distributions was discretionary and he quoted clause 4(2) of the Trust Deed.  This led him to then state the following:

"Nevertheless, and notwithstanding everything that Mr Blair has said in his communications with the Trustee and in his affidavit, it remains the Trustee's view that once that three year clawback period was at an end, EFML had no further entitlement or ability to claw back the notional allocation within the Trust which it had made in favour of Mr Vigeland."

137.   This conclusion was confirmed by paragraph 52 of the judgment in the English Proceedings.

138.   Mr Le Marquand said they also noted that the English Court had rejected the argument put forward by Ennismore that they had an additional discretion over and above the three year clawback period which the Trustee regarded as being a relevant factor to take into account.  This led Mr Le Marquand to conclude at paragraph 15:

"...only losses/detriment to EFML taking place within the three-year clawback period were intended to be relevant."

139.   Mr Le Marquand also expressed a belief at paragraph 16 that had Mr Vigeland requested a distribution in 2004, then it would have been likely that Ennismore would have recommended such a distribution.

140.   Paragraph 17 then set out the fact that the Clawback Proceedings found that Ennismore was not able to recover bonuses paid to Fenris under the clawback agreement, leading to this observation:

"However, whilst EFML might wish to be able to recover by means of a re- allocation within the Trust what it regards as its losses caused by Fenris's actions, from the sums notionally allocated to the Trust for the benefit of Mr Vigeland in 2002 to 2004, since the Cayman Court has ruled that it cannot recover them from Fenris, it remains the Trustee's view that this is neither permissible nor equitable."

141.   The affidavit then explained the Trustee's position in relation to transfer of assets into and out of EVF. 

142.   Mr Le Marquand concluded that the shares acquired in HF in February 2008 must have represented the redemption proceeds of shares invested in EVF although the Trustee was not aware of this at the time.  The position was summarised at paragraph 50.4.3 as follows:

"Following the liquidation, the amount of [Redacted] was used by the EBT to purchase 1,796.61 shares in the EHF, but no specific use was made of the balance of [Redacted] which was held as cash within the EBT. The Trustee considers that the cash resulting from the November 2009 redemption should also have been invested in acquiring shares in the EHF at the then prevailing price (which shares could have gone up or down in value over the period they were held, as with any investment), and that it is fair and reasonable for a distribution to be made of further EHF shares accordingly. According to FT.com, the share price on 30 November 2009 [Redacted], so that a further 529.05 EHF shares could have been acquired at that time."

143.   In relation to the tax position, in its letter dated 25 April 2023, the Trustee proposed to distribute to Mr Vigeland 1,744.24 shares in HF.  Based on the tax advice received from PWC, this represents approximately [Redacted] of the distribution approved by the revised decision.  The balance of [Redacted] is to be retained to meet tax payable.  The Trustee's position is that this will be funded from remaining HF shares held by the Trustee or other Trust assets.

Submissions

The Trustee

144.   Advocate Kistler firstly submitted that the hearing should be in private, which submission was accepted.  The question however of whether the judgment resulting from the Trustee's application should be in public or private was left over until the handing down of this judgment as this requires an analysis of how much information is already in the public domain and how much information being provided by the Trustee is private (see HSBC v Kwong [2018] (1) JLR 332 at paragraphs 33 to 36).

145.   In relation to the relevant legal principles, Advocate Kistler relied on the test set out in Kan v HSBC International Trustee Limited [2015] JCA 109, [2015] 1 JLR Note 31, cited in the recent case of In The Matter of the Piedmont and Riviera Trust [2021] (2) JLR 135. The pertinent paragraphs of Kan are paragraphs 14, 18 and 19 which read as follows:

"14. Where a trustee has made a momentous decision, that is a decision of real importance for the trust, and seeks the court's approval for the decision, the legal test to be applied by the court is well established in this jurisdiction. As explained in Re S Settlement [2001] JLR N 37, the court must satisfy itself (i) first, that the trustee's decision has been formed in good faith, (ii) second, that the decision is one which a reasonable trustee properly instructed could have reached, and (iii) third, that the decision has not been vitiated by any actual or potential conflict of interest. A similar approach is taken in England:- see Public Trustee-v-Cooper [2001] WTLR 901.

.....

18. When the court is to give approval for a momentous decision the court needs to be satisfied as to the rationality of the decision; the lengths to which the court must go in examining the process by which the trustee arrived at the decision must depend upon the particular decision, In some cases the decision may be a difficult and doubtful one, requiring fine judgment in the face of competing considerations; in others the decision may be obvious. In the former cases the quality of the decision-making process will be more important than the latter. For that reason, we do not consider that the additional requirement for which Madam Kan contends should be introduced to the law of this jurisdiction, even if it were to be adopted in England.

19. That is not to suggest that the court should take a lax approach, or that it should approve any trustee's applications without due consideration. There is a threshold that must be crossed: the court is required properly to scrutinise the proposed exercise of the trustees' power on the evidence. As was pointed out in Re Y Trust [2011] JLR 464 (citing with approval Lewin on Trusts (18th ed.), at paragraph 29-299) (a similar approach is taken in Guernsey: see Re The Trusts (Guernsey) Law 2007 and [AAA] Children's Trust, Royal Court, 8th January 2014 [2015] WTLR 683) the result of the court giving its approval is that the beneficiaries will be unable thereafter to complain that the exercise is a breach of trust, or to set it aside as flawed. Furthermore, when trustees are seeking approval for a decision they have already reached, the beneficiaries are unlikely to have the same advantages of cross-examination or disclosure of the trustees' deliberations as they would have in proceedings to challenge the exercise of the power once made. For that reason, the trustees should put before the court all relevant considerations (supported by evidence) and they should explain their reasons for reaching the decision, even though they are not otherwise obliged to make such disclosure to the beneficiaries. But the process by which the trustees satisfy the court that the legal test has been met should not be confused with the substance of the test itself. Furthermore, each case will need to be decided on its own facts, and the degree of detail that is required from a trustee cannot be uniform in all circumstances. In some cases, a trustee's decision may come out of the blue, and if so it may require both the beneficiaries and the court to be given the background and the context in considerable detail: in other cases, such as this, a trustee's decision may emerge from a situation that is well known to the interested parties, and that is likely to have an impact on the degree of detail required from the trustee by the court."

146.   In relation to the consideration to be given to a settlor's wishes, in Piedmont the Court summarised the position in paragraph 63 of the judgment as follows:

"63 In our judgment, the position can be summarized as follows:

(i) It has often been said in the past that trustees are entitled to take a settlor's wishes into account; see for example In re Esteem Settlement (4) (2003 JLR 188, at para. 215). However, the better view nowadays is that a settlor's wishes are a relevant consideration and trustees are therefore bound to take them into account pursuant to their duty to take relevant matters into account. As Lord Walker of Gestingthorpe said in Pitt v. Holt (13) ([2013] 2 AC 108, at para. 66): "The settlor's wishes are always a material consideration in the exercise of fiduciary duties." See also Investec Co-Trustees (Jersey) Ltd. v. Kidd (8) ([2012]JRC066, at para. 63) and Lewin on Trusts, 20th ed ., at 29-046 (2020).

(ii) However, a letter of wishes is not binding upon trustees. They must make up their own mind and are free to depart from the settlor's wishes. As this court said in In re Rabaiotti 1989 Settlement (14) (2000 JLR at 189):

"The letter is, of course, not binding. If trustees slavishly follow a letter of wishes, their decision can be quashed on the grounds that it is not, in truth, the decision of the trustees. The trustees must make up their own minds as to how they should exercise their discretion in the best interests of one or more of the beneficiaries."

This observation is entirely consistent with the statement of Lord Walker in Pitt v. Holt (13) ([2013] 2 AC 108, at para. 66) where, in a passage which immediately follows the sentence quoted at (i) above about the materiality of the settlor's wishes, he said: "But if [the settlor's wishes] were to displace all independent judgment on the part of the trustees themselves . .. the decision-making process would be open to serious question."

(iii) The position is conveniently summarized by Lewin in the following terms (op. cit ., para. 29-049, at 86-87):

"Trustees, however, must form their own view when exercising their dispositive powers and must not unthinkingly act as ciphers for the settlor, whether alive or dead; to do so is a breach of trust and leaves their decision open to challenge."

To like effect is the decision of this court in In re A & B Trusts (1), where the court removed a protector from office inter alia on the ground that he had exercised his role in good faith but under the mistaken belief that one of his principal duties was to ensure that the trusts were administered in accordance with the settlor's wishes. Page, Commr. said (2012 (2) JLR 253, at para. 6):

"6 It can be no part of the function of a protector with limited powers of the kind conferred on S by the trust instruments to ensure that a settlor's wishes are carried out any more than it is open to a settlor himself to insist on them being carried out. A trustee's duty as regards a letter of wishes is no more than to have due regard to such matters without any obligation to follow them. And a protector's duty can, correspondingly, be no higher than to do his best to see that trustees have due regard to the settlor's wishes (in whatever form they may have been imparted). From the moment of his acceptance of the office of protector his paramount duty is to the beneficiaries of the trust." [Emphasis in original.]

(iv) Advocate Robertson submitted that before trustees can depart from a settlor's wishes in connection with a dispositive power, there must be "objectively justifiable grounds" for such departure. We reject that submission. In a discretionary trust, the discretionary dispositive powers are conferred upon the trustees and are not retained by the settlor. Whilst, as we have just summarized, the settlor's wishes are always a material consideration, trustees must make up their own minds. None of the authorities or textbooks to which we have been referred mention the need for "objectively justifiable grounds" and we do not think that it is a helpful expression; on the contrary, it is liable to lead to endless argument as to whether the trustees' reasons for departure are "objectively justifiable." If a settlor establishes a discretionary trust, he and the beneficiaries have to accept that, whilst his views will be a material consideration, the decision is now for the trustees. Provided that their decision is not outside the band of decisions which a reasonable trustee, properly instructed, could reach, the court will, on the assumption that it is a momentous decision which is reached in good faith and is not vitiated by any actual or potential conflict of interest, approve the decision. (Emphasis added)

(v) Trustees may decide to place little or no weight on a settlor's wishes if they are satisfied that such wishes are based upon an unreasonable animus against a particular beneficiary. Thus, in G.B. Trustees Ltd. v. Stock (5), this court (Clyde-Smith, Commr.) said ([2021]JRC048, at paras. 68- 69):

"68. Whilst it is appropriate for G.B. Trustees to seek the views of John William Dick I as the economic settlor of the trusts (he is not a beneficiary), Advocate Preston agreed that an element of caution was required when considering his views about a member of the family with whom there had been a complete breakdown in their relationship with feelings running deep on both sides. Furthermore, they were currently engaged in litigation in the US involving allegations of fraud and wrongdoing.

69. The wishes of a settlor are always a relevant consideration, but the trustee must guard against the possibility that a particular settlor's wishes are based upon an unreasonable animus against a particular beneficiary because if so, the trustee might conclude that little weight should be given to those wishes as against other factors. In the circumstances here, the wishes of John William Dick I as to Tanya Stock's exclusion had to be considered with caution.""

147.   The Piedmont case also referred to the issue of how a trustee should approach questions of a conflict of interest at paragraphs 48 and 49.  Advocate Kistler referred to this issue because one of Ennismore's challenges to the Trustee's application was that the Trustee was under a conflict of interest.  In response, the Trustee's position was that there was no conflict, but if there was, the Trustee was unaware of it and therefore it did not vitiate the Trustee's decision.

148.   The Trustee's position was that it had power to make the distribution and it carefully explained its approach in the first affidavit of Mr Le Marquand.  The Trustee had further explained the evolution of its knowledge.

149.   In relation to the revised decision, by this stage the Trustee had sworn evidence from the parties, which additional material the Trustee took into account.  The fact that the Trustee was willing to acknowledge its earlier mistake in relation to the original decision confirmed that it was approaching matters in good faith with the Trustee exercising its own independent judgment. 

150.   In relation to the Trustee's ability to make distributions, the discretionary nature of the power was recognised by all parties.  However, it was not a freewheeling discretion because the Trustee, by reference to Clause 4(2) of the Trust Deed had to have regard to Mr Vigeland's contribution to the success of Ennismore.  The rationale for the Trust was to give effect to a tax efficient bonus scheme.  The Trustee's exercise of its discretion was therefore influenced by matters agreed between employee and employer. 

151.   The Trustee had not been aware of any internal allocations being made by Ennismore, including the zero allocation.  The latter was influenced by the clear hostility between Ennismore and Mr Vigeland where there was a serious breakdown in relations.  The Trustee was faced with a situation that, whatever decision it made, it was facing the threat of legal action.

152.   In relation to losses in subsequent years, Ennismore was not entitled to clawback EBT contributions once any clawback period had expired or did not apply.  The Trustee had however taken into account everything said about such losses and the position of Ennismore was clearly known to the Trustee having been repeated on a number of occasions and referred to in both the original decision and the revised decision. 

153.   In relation to these losses, it was relevant that Mr Vigeland was not at fault.  Ennismore's approach would allow it to negate the benefit of an EBT contribution due to market performance rather than an employee being at fault. 

154.   Leaving free shares in the Trust was for the benefit of both employer and employee.  The employee got a tax benefit and from an employer's perspective, employees had 'skin in the game'.  The context of awards and the mutual benefits of both therefore was relevant to the discretion to be exercised by the Trustee.

155.   The Trustee was not looking at how others were treated because that did not sit with Clause 4.  Rather, they were focusing on Mr Vigeland's contribution.  The poor relationship between Ennismore and Mr Vigeland was not therefore determinative of the Trustee's decision to distribute. 

156.   The fact that the Trustee had not followed Ennismore's wishes did not mean that the Trustees had not taken the views of Ennismore into account.  Those views were taken into account in relation to "the detriment caused to the business of the company" as explained in section 3 of the minutes quoted at paragraph 131 above. 

157.   In relation to the effect of the decision on other beneficiaries, the Trust was discretionary in nature which meant that, whenever a discretion was exercised in favour of one beneficiary, then other beneficiaries would lose out.  However, this was not a reason not to exercise a discretion in favour of one beneficiary. 

158.   As was clear from Mr Blair's own evidence, Ennismore, in respect of some EBT contributions, had made payments itself and had stated that it would do so in the future.

159.   In relation to the request to terminate the Trust, while no decision had been made, if termination happened then the vast majority of the assets would go to shareholders, not to beneficiaries to reflect their notional allocations.  This meant that the exercise of discretion in relation to Mr Vigeland was not at the expense of other employees/beneficiaries, because it would be Ennismore who would meet any other outstanding awards made for the benefit of those other employees. However, the request to wind up the fund was not part of the rationale taken into account by the Trustee. 

160.   In relation to the rationality of the decision, the decision was a difficult one given the hostility between Ennismore and Mr Vigeland.  The decision taken was one that a reasonable trustee could have reached.  It was not arbitrary, absurd or capricious, or perverse.  Advocate Kistler, in that regard, referred to Section 29-036 in Lewin on what was meant by rationality and reasonableness.

161.   In relation to quantum, the value of the shares held could have gone up or down.  In addition, because of the zero allocation, Mr Vigeland was not asked whether he wished for any notional allocation to remain in the HF fund.  The Trustee therefore had to determine as best it could what was a fair approach to take.

162.   In relation to the question of conflict, this was said to be by reference to the Trustee failing to ask whether the cash distributed in November 2009 (see page 7, paragraph 73 above) should have been invested in shares in EF.  Advocate Kistler relied on the fact that the investments of the Trust did not reflect the notional allocations being made by Ennismore.  Ennismore had also made a zero allocation for Mr Vigeland and therefore had a request been made to acquire shares in HF for the benefit of Mr Vigeland this would have been refused.  It was also not for the Trustee to manage assets to reflect notional allocations.  There was therefore no conflict of interest. 

163.   In any event, the Trustee in 2009 wrote to Mr Blair on 8 July by email, informing Mr Blair that the cash held at that stage would be held on deposit unless the Trustee heard otherwise from Mr Blair.  Mr Blair did not indicate that such cash should be invested in shares of HF.  Mr Blair said himself that a certain amount of cash was always held in the Trust (see paragraph 40 of Mr Blair's first affidavit).

164.   In any event, to the extent it was alleged, the Trustee denied any gross negligence which was required to establish liability.  On similar grounds, if a claim for breach of trust could have been brought for a failure to acquire HF shares, the limitation period had long since expired. 

165.   The Trustee was also not seeking a blessing of earlier decisions it had made.  If therefore a claim could be brought, approval by the Court of a proposed distribution would not affect any such claim. 

Mr Vigeland

166.   Mr Vigeland was supportive of the Trustee's decision to make a distribution, although there were certain aspects of the evidence filed that he disagreed with. 

167.   Mr Vigeland was critical of the stance of Ennismore as being threatening and hostile.  He contended that Ennismore was "blinded by the animosity which it holds towards Mr Vigeland" (paragraph 64 of Mr Vigeland's skeleton).  He argued that Ennismore's position was influenced by the fact that it ultimately lost both sets of proceedings in the Cayman Islands and was therefore seeking to frustrate a distribution from the Trust in his favour. 

168.   Mr Vigeland also drew a distinction between his position as an employee up to 2004 and his relationship through Fenris Limited after that date.  He argued that the shares free of clawback in respect of which he was seeking a distribution represented a successful period where he was an employee of Ennismore.

169.   In relation to Ennismore's wishes, this did not give rise to any consent of Ennismore being required for the Trustee to make a distribution.  There were no reserved powers in favour of Ennismore and it was not necessary for Ennismore to agree to the decision because the Trust was a discretionary trust.  Advocate Davies also emphasised that the basis of remuneration in relation to Fenris was different. 

170.   He also referred to the Privy Council's observations at paragraph 32 of its decision dismissing the First Cayman Appeal that "Ennismore had never ended up with a cataclysmic event which caused most fund managers to earn nothing".  This led the Privy Council to observe that "no one had ever had to address the question whether Ennismore could exercise the right to clawback in circumstances in which it had suffered no loss attributable to the under-performance of the portfolios for which an individual fund manager was responsible".

171.   Advocate Davies then referred to the transcript at first instance in the Clawback Proceedings where Mr Blair accepted in cross-examination that Mr Vigeland was not at fault.  Mr Blair stated, "I would still see it as disappointing performance in that period but not as fault" (Case Centre page G499).

172.   In relation to the litigation between Ennismore and Mr Vigeland / Fenris being protracted, Mr Vigeland disputed this but nevertheless observed, through Advocate Davies, that the effect of the litigation on Ennismore had been taken into account by the Trustee in making its decision, which he was not challenging.

173.   This was also not a decision taken out of the blue.  Mr Vigeland first made a request for a distribution in 2010.  The Trustee had engaged in detailed correspondence with Ennismore. The position of both parties was understood which meant that the Trustee, in reaching its decision, did not have to go into chapter and verse.

174.   Fundamentally, the objection of Ennismore was that the Trustee had not agreed with Ennismore.  That was not a failure to take relevant matters into account. 

175.   Advocate Davies also emphasised that there had been significant other distributions made out of the Trust since Mr Vigeland first made his request in 2010.  By reference to the table at page 40 of Mr Blair's first affidavit, over £8.5 million had been distributed since March 2014.  The Trust was therefore a depleting fund. 

176.   It was Ennismore who kept records of how it treated assets in the EBT and whether it met EBT contributions itself or through the EBT.  Yet Ennismore was now suggesting the Trustee faced a conflict because of a failure to invest certain funds in shares of HF.  It was difficult to see how the Trustee could do so when Ennismore was controlling what assets were transferred into the Trust and how EBT allocations were met.

177.   In relation to the tax position, Mr Vigeland accepted the approach in principle as long as he had sight of what was happening.  It would therefore be appropriate for Ennismore to advise the Trustee and Mr Vigeland when settlement between Ennismore and HMRC had occurred and the terms of that settlement.  This was so that, if any funds were not used to meet the tax found to be due, they could be distributed to Mr Vigeland.

Ennismore

178.   Ennismore's submissions were that the Trustee's decision should not be approved because the Trustee had either failed to take into account relevant considerations or had made a decision that was irrational.  The fundamental objection of Ennismore was that Mr Vigeland's record as an investment manager was one of failure because during his time with Ennismore he achieved negative returns and lost approximately £5.8 million for investors and EVF had to be liquidated.  Furthermore, the litigation between Ennismore and Mr Vigeland caused significant damage to Ennismore.

179.   Ennismore was also critical of the Trustee's approach to making an in specie distribution because this was to the prejudice of other beneficiaries. 

180.   Ennismore also argued that if there was an obligation to invest any part of any notional allocation, it was the Trustee's responsibility to do so, because the power to invest lay with the Trustee.  The Trustee, having failed to invest, was therefore in a position of conflict which it had failed to address in its decision making process.

181.   In terms of the impact on Ennismore's business, this was described at paragraphs 176 to 179 of Mr Blair's first affidavit.  The impact was summarised as a reduction in performance fees, and because it became more difficult to raise replacement money and to recruit good portfolio managers. 

182.   While Ennismore accepted that the Trustee was not bound by its wishes, the Trustee had to have good grounds not to follow those wishes.

183.   The question of whether Ennismore was entitled to clawback losses from Mr Vigeland was separate from the Trustee analysing the contribution Mr Vigeland had made towards the success of Ennismore.  Advocate Harvey-Hills accepted that clawback could be taken into account as part of an overall assessment by the Trustee, but clawback could not deal with catastrophic losses.  In such a scenario, the Trustee, as a matter of discretion, can refuse to make distributions of assets.

184.   In relation to the performance of EVF, this created a debt spiral between losses and redemptions.  This was why the net asset value of EVF fell from €100 million when it was established in November 2006, to €26 million by 30 November 2008.  Mr Oldfield and Mr Fiesser, in their affidavits, both were clear that no distribution should be made given Mr Vigeland's performance.

185.   Advocate Harvey-Hills suggested that the Trustee took the right approach in its letter of 28 September 2010 to Mr Vigeland's then English solicitors, Judge Sykes Frixou, where Advocate Dixon stated, "Our client company is advised to take into account the performance of your client (as the principle of Fenris) during the totality of his time as an employee of EFML".

186.   In relation to the English proceedings, Advocate Harvey-Hills referred to the defence filed by the Trustee which, at paragraph 35, said that the Trustee was entitled to take into account in the exercise of its discretion the outcome of the Clawback Proceedings in the Cayman Islands.

187.   This was the position advised by Mr Daniel Hochberg KC, English Counsel to the Trustee, in a conference dated 2 April 2012.  The conference noted the findings of the Cayman Court at first instance, that the losses suffered by EVF in 2007 and 2008 were solely attributable to Mr Vigeland.  The same note also advised that the Trustee had to consider the findings of the Cayman Court, given its pleading in the English Proceedings.  The conference in 2012 led to the letter of 12 September 2016 referred to above.  The outcome of the English Proceedings therefore defined what approach the Trustee should take. 

188.   Advocate Dixon, in his letter dated 12 September 2016 to the Trustee at paragraph 16, also stated that Mr Vigeland's contribution whether as an employee or through Fenris should be looked at.  There was no pushback from the Trustee in relation to this advice which appears to have been accepted as set out in an email from Simon Morgan, a director of the Trustee, dated 25 August 2016 (Case Centre reference G353). 

189.   However, looking at the minutes of the original decision and the revised decision and the second affidavit of Mr Le Marquand, the Trustee had failed to assess the overall performance of Mr Vigeland.  The Trustee's decision therefore went against the legal advice it had received.  This meant that the Trustee failed to ascribe any value to the later performance of Mr Vigeland. 

190.   If the Trustee was minded not to follow Ennismore's recommendation, then it should have gathered further information.  It did not do so and therefore it failed to assess Mr Vigeland's contribution and instead concluded that there was a presumptive entitlement to benefit. 

191.   Ennismore also relied on a spreadsheet produced by Mr Blair setting out the performance of all portfolio managers between 1999 and 2018.  This was sent to by Ennismore through Mr Blair to the Trustee on 28 October 2019. 

192.   In relation to the original decision, Advocate Harvey-Hills suggested that the original minute did not take into account investment losses because there was no reference to investment losses in the minute.  The minute should have stated why the Trustee had discounted investment losses but did not do so. Ennismore contended therefore that the Trustee had erroneously given no weight to the question of investment losses.

193.   In relation to the revised decision, again it was contended that no weight had been given to the catastrophic performance of Mr Vigeland. 

194.   To the extent that explanations were offered in later affidavits, Advocate Harvey-Hills suggested that the Court should rely on the minute rather than anything said some two and a half years later.  This led to the submission that no weight should be attached to evidence in the affidavits.

195.   While Advocate Harvey-Hills accepted that the Trustee could go it alone, it needed to assess any conflict between employer and employee and to what extent this was affecting the views of the employer.  The Trustee should also have considered how far a distribution would affect relationships between other employees and Ennismore.  There was no assessment of these issues.

196.   Ultimately, Ennismore's position was that losses were either looked at fleetingly and the advice given by Mr Hochberg and Advocate Dixon had been forgotten.  The Trustee had only looked at the question of a discount for costs, not investment losses.

197.   In relation to the revised decision, all the Trustee did was to reconfirm its original decision with the same erroneous starting point, therefore leading to the same result. 

198.   What Mr Le Marquand was saying in paragraph 11 of his second affidavit was that investment losses through Fenris were irrelevant. 

199.   What was also clear from paragraph 17 of the second affidavit was that, by describing Ennismore's approach as not being permissible, the Trustee was disregarding a factor it had previously accepted was relevant, namely investment losses throughout the entire period.

200.   The fact that Mr Blair may have accepted in cross-examination in the Cayman Islands that Mr Vigeland was not at fault was irrelevant.  The investment business was a results-driven game and, if there were losses, they were a relevant factor. 

201.   The Court of Appeal judgment in the First Cayman Appeal did not alter the criticisms of the Cayman Court at first instance. Rather, it was a decision based on construction.

202.   Advocate Harvey-Hills was also critical of the Trustee's assumption that funds would have been left in HF when Mr Vigeland had left Ennismore.  This gave rise to a conflict which was not identified and not considered by the Trustee.

203.   Advocate Harvey-Hills also contended there was no obligation to invest both by reference to the terms of the settlement and because Mr Vigeland was no longer an employee.  As the Trustee was not advised to invest, it was therefore not logical to apply an uplift for something the Trustee was not obliged to do.

204.   In relation to the conflict, the position was considered in In Re H [2018] JRC 171 at paragraphs 46 and 47, and in the Piedmont decision [2021] 2 JLR 135. The criticism of the Trustee was that it did not go through the Re H process. Ennismore's difficulty was that if the decision of the Trustee's distribution in specie was approved then Ennismore could not challenge that as being in breach of trust. 

Advocate Cushing

205.   While Advocate Cushing was appointed to represent the interests of all the beneficiaries and future beneficiaries of the Trust, apart from Mr Vigeland and J and any spouse or children or grandchildren of either of them, he considered that it was the interests of the employee beneficiaries that were most directly engaged in this case.  He had therefore spoken to each of the employee beneficiaries and they were all of the view that Mr Vigeland should not receive a distribution, with three of the beneficiaries having filed affidavits confirming their position.  In relation to two of the employees notified, F and E, they were no longer employees of Ennismore and so greater weight could therefore be attached to their views.  

206.   Each of the employees had an expectation of benefit and they were also of the view that the structure was to recognise overall performance.  A distribution to Mr Vigeland should not therefore be approved. 

207.   In relation to losses made by Mr Vigeland in 2007 and 2008, these were relevant losses to be taken into account.  Yet the original decision minute did not refer to the performance of Mr Vigeland.  The only factor the Trustee did have regard to was the question of wasted costs in dealing with litigation, not investment performance.  This was clear from an email from Mr Clive Wright, a director of the Trustee dated 9 July 2020. 

208.   There was therefore no deduction for investment performance which was not a rational decision when looking at unprecedented losses and the collapse of a fund. 

209.   The second issue raised by Mr Cushing was that because Ennismore reduced the notional allocation to Mr Vigeland to zero, the net effect of this would appear to be that any assets after 31 December 2008 would have been treated by Ennismore as either being unallocated within the Trust or notionally allocated by Ennismore to other employee beneficiaries.

210.   A distribution to Mr Vigeland therefore reduced assets otherwise available for other beneficiaries.  Mr Cushing's criticism was that the Trustee failed to consider the potential impact on other beneficiaries of making the proposed distribution to Mr Vigeland, i.e. whether the effect of such a distribution would reduce materially the assets available to the Trustee to make distributions to other beneficiaries.  The Trustee had also not explored whether Ennismore would make up any shortfall.

The Trustee's reply.

211.   Advocate Kistler in reply made the following points.

212.   The Trustee was acutely aware of investment performance concerns of Ennismore and did take this into account.  This was clear from both the minute of the decision itself where Ennismore's clear position was noted and where there was express reference to Mr Blair's email of 25 May 2020.  This email did not just refer to wasted costs but also losses suffered by the investment portfolio for which Mr Vigeland was responsible.

213.   The email of 25 May was not out of the blue because Mr Vigeland had been making requests for distributions for a number of years and Ennismore had consistently opposed these requests by reference to Mr Vigeland's investment performance.

214.   The Trustee had not ignored the advice of Mr Hochberg KC or Advocate Dixon.  Rather, the Trustee had made enquiries based on that advice. 

215.   The Trustee also looked at distributions made to other beneficiaries as was clear from paragraph 81.6 of the affidavit of Mr Le Marquand.

216.   Advocate Kistler accepted it was a difficult decision.  What the Trustee hoped was that its decision would be accepted. Mr Vigeland did accept the decision, but Ennismore did not.

217.   It was important to the Trustee that Mr Vigeland was not at fault in what led to the losses in the funds where Fenris acted as portfolio manager in particular EVF.  The Trustee was also aware of the financial crash and its impact on hedge funds generally.

218.   The totality of the evidence met the test in Kan at paragraph 19.  Even if criticisms could be made of the evidence, any criticisms that might be made should not be confused with the substance of the test itself.

219.   In relation to the revised decision, the Trustee's position was that the minute could only be construed as showing that Ennismore's objections were considered by the Trustee.  This was confirmed by the second affidavit of Mr Le Marquand.  Paragraph 15 was the Trustee having regard to the arrangements reached between employer and employee.  Paragraph 15 was not saying that only the three year period was relevant; rather, paragraph 15 was referring to the common intention of Mr Vigeland and Ennismore as employee and employer.

220.   The Trustee was entitled to conclude that, although the clawback agreement did not operate in the way Ennismore intended, this did not mean that it was for the Trustee to consider whether it could find a different route to make a clawback.

221.   Ultimately, the decision was one for the Trustee.  The advice of Advocate Dixon was no more than legal advice; it was not a road map.  The Trustee had the benefit of that advice and then sought and obtained relevant information.  That advice did not however say that later losses were determinative.  Nor did it say they were a significant factor.  The advice simply said that they could be taken into account.

222.   As Piedmont noted at paragraph 63(iv), it was for the trustee to make their own mind up.  The Trustee did not have to justify why it did not follow a letter of wishes as long as those wishes were taken into account. 

223.   While Ennismore complained about the impact of losses on its business, there was no direct evidence of this impact and the extent of the losses suffered.  Yet the Trustee, in its email of 12 May 2020, asked a series of questions including "whether Ennismore is privy to any information or facts which Vistra ought to be made aware in relation to Mr Vigeland's request generally".  All the Trustee could do was proceed on the basis of the information it had received. 

224.   In relation to losses suffered by Mr Vigeland, EVF had been terminated with no chance of recovery, although equities rallied in 2009.  The decision to wind up EVF was therefore made at the worst possible time.  The position might have been different had the fund not been wound up at that time. 

225.   In relation to the uplift question, this was within the Trustee's discretion.  It was not irrational for the Trustee to have proceeded on the basis of a distribution in specie when the majority of the proceeds from the liquidation of EVF had been invested in HF.  It was also not irrational to take the same approach for the remaining cash received in the November 2009.

226.   The Trustee's decision was simply looking at what ought to have happened because the proceeds returned from the liquidation of EVF were free assets. 

227.   The Trustee had not failed to have regard to the position of other beneficiaries.  It was clear from Mr Blair's affidavit that Ennismore would meet any notional allocations due to other beneficiaries.  A distribution would not therefore have any effect on the decision Ennismore had made to meet such allocations. 

228.   The effect of making a distribution was also on shareholders, not beneficiaries if a winding up occurred.  The effect on beneficiaries (apart from J who now owned Ennismore) was limited as they would only receive less than 10% of one fund. 

229.   The Trustee was also not facing any requests from any other beneficiaries for a distribution and therefore could only deal with the request from Mr Vigeland.

230.   In relation to the conflict question, the conflict question was only raised when the fourth affidavit of Mr Blair was filed on 28 April 2023.  It was only raised after the revised decision had been taken.  The question of any conflict was not therefore considered by the Trustee because it was not, and could not have been, taken into account.  Nor could it have influenced the Trustee because the Trustee was not aware of such a conflict.

Discussion and decision

231.   We start by emphasising that the decision we are asked to bless is the revised decision taken on 4 and 5 April 2023.  However, because the revised decision revisited the original decision, it is also necessary for us to review the original decision.

232.   The relevant legal principles to be applied are those set out in Kan, which we have quoted at paragraph 145 above.  The issues at the centre of the application are the application of the second and third limbs of Kan, namely whether the revised decision is one which a reasonable trustee properly instructed could have made and, secondly, whether the decision has been vitiated by any actual or potential conflict of interest.  We say this because no suggestion has been put forward by any party, in particular Ennismore, that the Trustee did not make the revised decision in good faith. 

233.   The starting point for consideration of the revised decision are the minutes of that decision and the original decision.  We consider however that we can also have regard to the affidavits filed.  Although there was a lengthy gap between the original decision and the first affidavit of Mr Le Marquand, which is less than ideal, the gap between the revised decision and the second affidavit of Mr Le Marquand being filed is less than two weeks.  We do not therefore accept the submission by Advocate Harvey-Hills that we should disregard anything in the affidavits, in particular in the second affidavit of Mr Le Marquand which was sworn shortly after the revised decision and when matters discussed by those present at the meeting will have been fresh in his mind. 

234.   Nevertheless, we wish to emphasise what was said in Kan at paragraph 19 and the obligation on trustees to put before the Court all relevant considerations supported by evidence.  In our view, any trustee making a decision where a blessing is required should prepare a contemporaneous note recording its decisions for reaching the decision.  The fact that a trustee might not be obliged to disclose such a document to beneficiaries should not be confused with the obligation to record reasons. It does not matter that a trustee creates a document to record the formal decision (which might be a minute or board resolution) while preparing a record of its reasons in a separate document.  The obligation on the trustee to be able to explain its reasons is clear: the best way to do that is to capture the discussions and the reasoning either at the time or immediately after the discussion takes place.  If a record of reasons is only produced some time later, that increases the possibility of that record being attacked or memories being affected by subsequent events.  Trustees facing the sort of situation that the Trustee faced in this case should appreciate that the reality of a decision requiring Court approval, because the decision is momentous, is that a trustee's reasoning will be scrutinised and may well become known to beneficiaries.  It is in a trustee's own interests therefore to record its own deliberations so that the Court has before it all relevant material to consider blessing a trustee's decision.  In the present case, the Trustee has not helped itself by producing relatively short minutes of its original decision and its revised decision without creating in the case of the original decision, a contemporaneous document recording the Trustee's reasoning. 

235.   It is also pertinent in reviewing both the original decision and the revised decision, to appreciate that this was not a decision that came out of the blue.  The request for a distribution had first been made by Mr Vigeland in 2010.  The interested parties had therefore been engaging in correspondence for ten years by the time the original decision was taken, and for thirteen by the time of the revised decision.  In our view, this is one of those decisions which arose from a situation well known to both parties.  While the Trustee, as we explain later in this judgment, could have made its position clearer at times, given that the positions of Ennismore and Mr Vigeland were well known to each other and to the Trustee in this case, this allows the Trustee a greater latitude than might arise in other cases where it is said that a trustee's decision is irrational and should not be approved.  The length of time that had passed (due to the time it had taken for the appeals in the Cayman proceedings to be concluded) also meant that the Trustee had to make a decision.

236.   Turning now to the original decision itself, it is first clear that the Trustee considered Ennismore's position that nothing was due to Mr Vigeland because this is recorded in the minute as set out at paragraph 115 above. 

237.   The same minute also noted Mr Blair's email of 25 May 2020.  That email both discussed the impact on Ennismore's business in terms of irrecoverable legal costs and management time, but also repeated the fact that the investment portfolios for which Mr Vigeland was responsible suffered significant losses in 2007 and 2008.

238.   In deciding to make a deduction, the Trustee looked at legal and wasted costs and the impact on the business with the minute expressly repeating the reference to Mr Blair's email of 25 May 2020.  The Trustee therefore clearly had this email in mind when reaching its original decision.

239.   Also in relation to the original decision, the first affidavit of Mr Le Marquand at paragraph 81.3 noted the obligation on the Representor to take into account the views of Ennismore and stated that it had done so.  We accept that evidence.  The only obligation on a trustee is to have regard to wishes and explain where a blessing is sought from the Court why it has departed from those wishes.  To the extent Advocate Harvey-Hills implied that a trustee had to follow a letter of wishes unless there were good grounds not to, that is not the relevant legal test and puts the bar too high.  The correct approach a trustee should take is set out in In the Piedmont Trust [2021] (2) JLR 135 at paragraphs 63 cited above.

240.   Likewise, the Trustee reminded itself of the terms of Clause 4.2 of the Trust Instrument.  The approach taken by the Trustee was to focus on the contribution made by Mr Vigeland leading to the EBT Contribution leading to its conclusion that the request was made in accordance with the objectives of the EBT.  In our view, this was not an irrational approach. 

241.   Similarly, it was not irrational for the Trustee to note that other beneficiaries had received significant distributions.  As noted by Advocate Davies for Mr Vigeland, over [Redacted] had been distributed to other beneficiaries since March 2014.

242.   In reaching the original decision, the Trustee clearly took into account that the investment portfolios for which Mr Vigeland was responsible had suffered significant losses in 2007 and 2008.  This is clear from paragraph 81.7.1 of Mr Le Marquand's first affidavit and the email of 25 May 2020 referred to in the original minute.  This was in addition to taking into account Mr Vigeland's conduct of the litigation.

243.   In relation to the revised decision, the Trustee clearly considered matters afresh and reminded itself of Ennismore's objections.  Although its original decision was unchanged, we are satisfied that the revised decision was not just the Trustee looking at the quantum of the original decision.  It was also the Trustee deciding whether its original decision should stand at all because of the affidavits that had been filed by that point.  This is clear both on the face of the minute itself and from the second affidavit of Mr Le Marquand. 

244.   The second affidavit also sets out Ennismore's objections (see paragraph 135 above) to the original decision.  The Trustee was also clearly aware of the terms of Clause 4(2), as it had been for the original decision.

245.   It is also clear from the quotation set out at paragraph 136 above, that the Trustee looked at the employment relationship between Ennismore and Mr Vigeland and what they had agreed.  The Trustee's approach was to take the award made by Ennismore as employer and to conclude that this award reflected the contribution to the success of Ennismore made by Mr Vigeland at the time the award was made.  They then noted that any relevant clawback period had expired and concluded that it was inappropriate for the Trustee to exercise its discretion to clawback what Ennismore could not. 

246.   We do not regard it as irrational for the Trustee to have focused on the fact that any EBT contribution and / or notional allocation was subject to a three year clawback period only.  In our view, this was the Trustee looking at the contribution of Mr Vigeland as an employee as it was required to do by Clause 4(2). Pursuant to that Clause, the contribution by an employee leading to an award is clearly the principal matter the Trustee should look at and it clearly did so.

247.   The Trustee was also clearly aware from its involvement since 2010 of the animosity between Ennismore and Mr Vigeland.  It concluded that it was therefore entitled not to follow Ennismore's wishes and to regard those wishes as a further attempt by Ennismore to clawback the benefit of the awards made previously in favour of Mr Vigeland where the clawback period had expired.  We consider this is clear from paragraph 17 of the second affidavit where the Trustee describes Ennismore's approach as neither permissible nor equitable.  We therefore agree with the submission of Advocate Kistler that the Trustee was entitled to conclude that because the clawback agreement did not operate in the way Ennismore intended, this did not oblige the Trustee to consider whether it could find a different route to make a clawback.

248.   We also cannot regard the revised decision as the Trustee failing to have regard to the overall contribution of Mr Vigeland.  It did make a deduction as the minute notes, not only in terms of irrecoverable costs and lost management time, but also for "damage to the reputation of the company" even though it refused to apply the clawback that Ennismore wanted.  The Trustee therefore did take into account the wider impact of losses suffered in 2007 and 2008.  While we consider that the Trustee could have expanded upon this in more detail to be clearer in explaining its thinking when arriving at a deduction, it should be remembered that the decision taken by the Trustee and the evidence produced in support of that decision should not be construed as if it were a judgment or a statute.  As the headnote of Kan states "The process by which the trustee satisfies the Court that the legal test has been met should not, however, be confused with the substance of the test itself".  What is clear is that the losses in 2007 and 2008 were taken into account by the Trustee and part of the discount was intended to reflect their impact on the business. 

249.   In relation to the substance of the test, we are satisfied that the decision is one which a reasonable trustee properly instructed could have made.  In our view, the Trustee in this case was faced with a position that, whatever it did, Ennismore or Mr Vigeland would have criticised it and would have objected to its decision.  The Trustee was faced with two irreconcilable positions; Mr Vigeland wanted the entirety of the award and Ennismore wanted Mr Vigeland to receive nothing.  Whatever the Trustee decided was likely to leave one or other unhappy.  A trustee faced with such a situation should be allowed a margin of discretion or appreciation.  A decision also does not become unreasonable simply because a different trustee might have reached a different decision.  In that regard, we found the definition of rationality quoted in Lewin as being helpful:

"... A test of rationality, by comparison, applies a minimum objective standard to the relevant person's mental processes. It imports a requirement of good faith, a requirement that there should be some logical connection between the evidence and the ostensible reasons for the decision, and (which will usually amount to the same thing) an absence of arbitrariness, of capriciousness or of reasoning so outrageous in its defiance of logic as to be perverse."

250.   In our view, there is a logical connection between the issues raised for the Trustee to consider and the Trustee's conclusions.  We cannot say that the Trustee's decision is arbitrary, capricious, or so defies logic as to be perverse so that we should refuse to bless it.

251.   We also do not consider that the Trustee failed to follow the advice of Mr Hochberg KC or Advocate Dixon.  Their advice was that the Trustee should look at the entire contribution of Mr Vigeland.  We are satisfied the Trustee did so for the reasons we have given based on the material before it.  The advice did not say that the later losses meant that a distribution in favour of Mr Vigeland was not possible, only that they were a factor to be considered (see paragraph 16.3 of Advocate Dixons' advice of 12 September 2016). In that regard Ennismore could have provided a lot more information about the impact of the losses on Ennismore's business but did not do so. Paragraphs 176 to 180 of Mr Blair's first affidavit are very short on detail.  This left the Trustee having to make a decision based on the evidence before it in the context of a request that had first been made 13 years earlier which clearly needed a resolution.  In our view the approach of making a decision and reaching a conclusion on the facts of this case rather than seeking more information was one open to the Trustee to take and was not irrational.

252.   The one area where we cannot definitively say the Trustee took into account was the question of whether or not Mr Vigeland was at fault in relation to the losses and the evidence given by Mr Blair (see paragraph 171 above).  While we consider it likely that the Trustee would have been aware of the impact of the 2008 financial crash in investment managers and on investment performance generally, it is not clear to us how far this was taken into account by the Trustee and so we cannot place any weight on it.  However, the lack of evidence on this issue both in the minutes and the affidavits of the Trustee does not matter because the Trustee was aware of the obligation to look at Mr Vigeland's performance as a whole and did take into account the objections of Ennismore in reaching its conclusion. If we are wrong in this conclusion, the lack of fault of Mr Vigeland would have been a factor further supporting the Trustee's decision.

253.   We next turn to consider the criticisms of Ennismore and Mr Cushing in relation to the Trustee making a distribution in specie. 

254.   First it is clear from the chronology set out in the section headed 'Awards in favour of Mr Vigeland / Fenris' that Mr Vigeland's notional allocation in 2007 was invested in EVF (see paragraphs 67 to 69 above).  It is also clear that proceeds from the liquidation of EVF were received by the Trustee.  We also agree with the analysis that Mr Le Marquand recorded at paragraph 142 above that the redemption proceeds received by the Trustee in February 2008 from EVF were used to acquire shares in HF. 

255.   Although Ennismore later reduced the notional allocation to zero, this does not affect the analysis carried out by the Trustee as to what happened to assets it believed it was holding as a notional allocation for Mr Vigeland as part of the revised decision.  In relation to the decision to distribute these proceeds, we cannot see that the Trustee has fallen into error by regarding this as the correct starting point and correcting its original decision. 

256.   In relation to the balance of cash received in November 2009, in reaching its starting point the Trustee has been properly instructed about what happened.  We are also of the view that this starting point is one that a reasonable trustee properly instructed could have adopted.  The intention behind the EBT was for there to be notional allocations for employees from which they might benefit depending on an exercise of discretion by the Trustee.  The analysis by the Trustee in calculating the notional allocation based on shares acquired in HF is one a reasonable trustee properly instructed could have reached.  We are also of the view that the deemed allocation of shares in HF is an approach that a reasonable trustee, properly instructed, could have reached.  The funds received clearly also came from investment in EVF of Mr Vigeland's notional allocation.  What the Trustee's decision does is to continue that approach. 

257.   The fact that the Trustee does not hold 2,325.66 shares in HF does not matter because it holds sufficient shares to make a distribution to Mr Vigeland and it holds sufficient other assets which can be used to meet the tax payable by Ennismore for Mr Vigeland's benefit as a result of the distribution.

258.   We accept in one sense that this is to the detriment of other beneficiaries.  However, this detriment is not sufficient for us to refuse to bless the Trustee's decision for the following reasons.

259.   Firstly, an exercise of discretion in favour of one beneficiary is always to the detriment of another and so of itself is not enough to interfere with a trustee's exercise of discretion, or a ground to refuse to bless the same.

260.   Secondly in this case, Ennismore has stated that it will meet all awards due to other beneficiaries in any event.  They will not therefore suffer any detriment as a result of a distribution in favour of Mr Vigeland. 

261.   Thirdly certain of the beneficiaries have received significant benefit from other awards made in their favour as already noted.  In addition no other employee had ever been refused an award either by the Trustee or Ennismore if the latter settled the award direct (see paragraph 37 of the first affidavit of Mr Blair).

262.   Fourthly, although no decision has been made yet, the Trustee is minded to accede to the request of Ennismore to wind up the EBT.  Mr Cushing therefore suggested the distribution meant there was less available to distribute to other beneficiaries.  However, as is clear from the table set out at paragraph 121 above, the vast majority of the proceeds will be distributed to J, [Redacted].  It is only less than 10% of part of the assets of the EBT that will be distributed to other employees or ex-employees.  The impact of the distribution on recipients of these assets is therefore relatively small as Advocate Cushing accepted.  This is not a basis to refuse to bless the Trustee's decision.

263.   In relation to the question of a conflict of interest, the approach to be taken is set out in The Piedmont Trust to which we have referred at paragraphs 47 and 48 as follows:

"47.    At the adjourned hearing, the daughter, supported by Advocate James, submitted that, as a result of the report from Frank Hirth, the Trustees were now in a position of conflict of interest which disabled them from taking the decision in question; they should therefore surrender their discretion to the Court.  We shall turn to the grounds for the suggested conflict of interest shortly but first we need to remind ourselves of the applicable legal principles in relation to a conflict of interest.

48.      The impact of the existence of a conflict of interest where a trustee seeks the Court's blessing of a momentous decision was considered in Hawksford Jersey Limited v A [2018] JRC 171.  We would quote the following paragraphs:

"46.    .....The existence of a conflict of interest does not of itself mean that trustees may not take a decision or that the Court will not bless such a decision.  As Lewin put it at para 27-077 (when considering a blessing application):-

"The court may also entertain an application where the trustees have a conflict of interest, without requiring them to surrender their discretion, and if the power might rationally be exercised in many different ways, that course may save the expense of evidence and argument on the way in which the court should exercise the discretion."

47.      The issue of conflict of interest was also helpfully addressed in Representation of Centre [2009] JRC 109 where, at para 30 of his judgment, Clyde-Smith, Commissioner quoted with approval the observation of Hart J in Public Trustee -v- Cooper (2001) WTLR 901, which was as follows:-

"Where a trustee has such a private interest or competing duty, there are, as it seems to me, three possible ways in which the conflict can, in theory, successfully be managed.  One is for the trustee concerned to resign.  This will not always provide a practical or sensible solution.  The trustee concerned may represent an important source of information or advice to his co-trustees or have a significant relationship to some or all of the beneficiaries such that his or her departure as a trustee will be potentially harmful to the interests of the trust estate or its beneficiaries.

Secondly, the nature of the conflict may be so pervasive throughout the trustee body that they, as a body, have no alternative but to surrender their discretion to the court.

Thirdly, the trustees may honestly and reasonably believe that, notwithstanding a conflict affecting one or more of their number, they are nevertheless able fairly and reasonably to take the decision.  In this third case, it will usually be prudent, if time allows, for the trustees to allow their proposed exercise of discretion to be scrutinised in advance by the court, in proceedings in which any opposing beneficial interests are properly represented, and for them not to proceed unless and until the court has authorised them to do so.  If they do not do so, they run the risk of having to justify the exercise of their discretion in subsequent hostile litigation and then satisfy the court that that decision was not only one which any reasonable body of trustees might have taken but was also one that had not in fact been influenced by the conflict."

48.      We are satisfied that the conflict in this case falls within the third category.  It is not so pervasive as to disable the Trustee from taking the decision in question and require it to surrender its discretion to the Court.  However, where there is a conflict of interest and a trustee subsequently seeks the blessing of the Court to the decision which it has taken, it is of fundamental importance that the trustee address the conflict issue and be seen to do so.  Thus, in the present case, we would have expected to have seen minutes in which, when reaching its decision, the Trustee acknowledged the existence of the conflict but went on to explain why, despite the conflict, it was nevertheless in the interests of the beneficiaries/trust estate that the Property be sold.

49.      But the Trustee's application is completely silent about the conflict of interest.  Neither the representation itself nor the affidavit of Ms Miller makes any mention of it.  Both documents do of course disclose the existence of the Trustee's outstanding fees but that is not the same point.  What is important is that the Trustee should be seen, when making its decision, to have been aware of its conflict of interest, to have taken it into account and to have considered clearly why, despite the conflict, it is nevertheless in the interests of the trust estate/beneficiaries to reach the relevant decision.

...

51.      Where there is a conflict of interest, the Court will give heightened scrutiny to the decision for which approval is sought.  We are not to be taken as laying down a rule that, where a conflict of interest has not been acknowledged and disclosed, the Court will invariably refuse its approval.  The decision may be so obviously appropriate that the Court should nevertheless approve it.  However, failure to disclose and acknowledge a conflict of interest when reaching a decision, is likely to make it much more difficult for the Court to be satisfied that the decision has not in fact been influenced by the conflict.""

264.   In the present case, we agree with Ennismore that a conflict of interest exists.  This is because the Trustee should have appreciated that making a distribution in specie when it had not acquired assets in HF for the proceeds of liquidation received in November 2009 was likely to lead to the threat of litigation.  However, we also accept that the Trustee did not in fact realise that it was subject to a conflict of interest and took its decision in good faith without having regard to the possibility of the threat of litigation.  While the Trustee, unlike in Piedmont, has not acknowledged the existence of a conflict, this is because it made its decision totally unaware of the possibility of any conflict. In our view, this is not a basis on the facts of this case to set aside the Trustee's decision.

265.   We wish to also add that the approval of this decision does not prevent a claim being made alleging a failure to invest the proceeds received in November 2009.  Whether such a claim might succeed or whether it is prescribed, although addressed in the relevant submissions made by Advocate Harvey-Hills and Advocate Kistler, is a matter for another day and it is inappropriate for us to comment on any such claim because the threat of proceedings remains a possibility. 

266.   The final issue we should deal with is the tax position.  While we do not propose to lengthen this judgment any further to set out how the parties ultimately arrived at agreement, we agree with the submission made by Advocate Davies on behalf of Mr Vigeland that he should be kept informed of the detail of payments to HMRC and that if the tax payment due is settled for a lower figure than is anticipated based on the advice received, then the balance of any sums not used to meet the relevant tax liability should be distributed to Mr Vigeland.  We hope that the Trustee and Ennismore will keep Mr Vigeland informed accordingly. 

Authorities

Trusts (Jersey) Law 1984.

Lewin.

HSBC v Kwong [2018] (1) JLR 332.

Kan v HSBC International Trustee Limited [2015] JCA 109.

Kan v HSBC International Trustee Limited, O. Poon, K. Poon and Franckel [2015] 1 JLR Note 31.

In The Matter of the Piedmont and Riviera Trust [2021] (2) JLR 135.

In Re H [2018] JRC 171.


Page Last Updated: 19 Dec 2023


BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/je/cases/UR/2023/2023_222.html