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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> HR Trustees Ltd v German & Anor [2010] EWHC 321 (Ch) (26 February 2010) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2010/321.html Cite as: [2010] EWHC 321 (Ch), [2010] 3 Costs LR 443, [2010] Pens LR 131 |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
In the Matter of the IMG PENSION PLAN HR TRUSTEES LIMITED |
Claimant |
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- and - |
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(1) PETER GERMAN (2) INTERNATIONAL MANAGEMENT GROUP (UK) LTD |
Defendants |
____________________
Keith Rowley Q.C. and Elizabeth Ovey (instructed by Macfarlanes LLP) for the Second Defendant
Hearing date: 18 February 2010
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Crown Copyright ©
MR. JUSTICE ARNOLD :
Introduction
Previous case law
"The classic statement of the principles upon which the court acts is by Kekewich J., who was acknowledged in his time as a master of Chancery procedure, in Re Buckton [1907] 2 Ch 406 at 413–415. While warning that it was 'well nigh impossible to lay down any general rules which can be depended on to meet the ever varying circumstances of particular cases', he said that trust litigation could be divided into three categories. First, proceedings brought by trustees to have the guidance of the court as to the construction of the trust instrument or some question arising in the course of administration. In such cases, the costs of all parties are usually treated as necessarily incurred for the benefit of the estate and ordered to be paid out of the fund. Secondly, there are cases in which the application is made by someone other than the trustees, but raises the same kind of point as in the first class and would have justified an application by the trustees. This second class is treated in the same way as the first. Thirdly, there are cases in which a beneficiary is making a hostile claim against the trustees or another beneficiary. This is treated in the same way as ordinary common law litigation and costs usually follow the event."
"The court may sometimes feel sufficiently confident that the case is clearly within the first or second category to be able to make a prospective order that parties other than the trustees are to have their costs in any event. … This is not an interference with discretion because it is clear that the discretion can only be exercised in one way. …
I think that before granting a pre-emptive application in ordinary trust litigation or proceedings concerning the ownership of a fund held by a trustee or other fiduciary, the judge must be satisfied that the judge at the trial could properly exercise his discretion only by ordering the applicant's costs to be paid out of the fund."
"If one applies these principles to the instant case, they do not in my judgment assist the plaintiffs. … This is hostile litigation if ever there was. … I do not think it likely that if this were ordinary trust litigation and the plaintiffs are unsuccessful, the judge would order their costs to come out of the fund. They therefore cannot rely upon Ord. 62 r. 6(2) as extended to beneficiaries by the principles in Re Buckton."
"a minority shareholder bringing a derivative action on behalf of a company could obtain the authority of the court to sue as if he were a trustee suing on behalf of a fund, with the same entitlement to be indemnified out of the assets against his costs and any costs he may be ordered to pay to the other party. The court said that the minority shareholder could make a Beddoe application in the same way as a trustee and so secure an assurance that he would not be personally liable for any costs."
".. if one looks at the economic relationships involved, there does seem to me a compelling analogy between a minority shareholder's action for damages on behalf of the company and an action by a member of a pension fund to compel trustees or others to account to the fund. In both cases a person with a limited interest in a fund, whether the company's assets or pension fund, is alleging injury to the fund as a whole and seeking restitution on behalf of the fund. And what distinguishes the shareholder and pension fund member, on the one hand, from the ordinary trust beneficiary, on the other, is that the former have both given consideration for their interests. They are not just recipients of the settlor's bounty which he, for better or worse, has entrusted to the control of trustees of his choice. The relationship between the parties is a commercial one and the pension fund members are entitled to be satisfied that the fund is being properly administered. Even in a non-contributory scheme, the employer's payments are not bounty. They are part of the consideration for the services of the employee.
Pension funds are such a special form of trust, and the analogy between them and companies with shareholders is so much stronger than in the case of ordinary trusts, that, in my judgment, it would do no violence to established authority if we were to apply to them the Wallersteiner v Moir (No 2) procedure. Mr Sher QC, who appeared for the defendants, said that this court had no jurisdiction to do this. He referred us to the statement of the limits of the court's inherent jurisdiction over trusts in the decision of the House of Lords in Chapman v Chapman [1954] AC 429. But I say that the jurisdiction is to be found in s. 51 of the Supreme Court Act 1981, which is subject only to rules of court and established principles. For the reasons I have given, I think that no such rule or principle would be violated."
"The judge identified various factors which he regarded as material to the exercise of the discretion. He said that in the case of a pension fund the trust beneficiaries were not mere volunteers. They had contributed to the fund and had a moral right to be satisfied that it was being properly administered. The plaintiffs were bringing an action on behalf of the trust estate and should therefore enjoy the same right to an indemnity out of the fund as if they were trustees. As appears from what I have already said, I think that these are the features which, in combination, enable the case to be brought within the Wallersteiner principle. They are pre-conditions of the existence of the discretion rather than factors to be taken into account in its exercise"
"But I do not regard that difference as ruling the applicants out of court on their present application. The complaints to the Pensions Ombudsman can, in a sense, be regarded as the equivalent of a successful claim by the applicants in proceedings in the Chancery Division, and the present appeals can be regarded as the equivalent of appeals to the Court of Appeal by the trustees and NGC against the orders made in such proceedings. If the applicants could have obtained pre-emptive costs order to pursue an action for the benefit of the pension fund, I cannot see why in principle they could not equally apply for a like order so as to enable them to resist an appeal against the judgement they had obtained in such action. I understood both counsel to accept that they could."
"The court has an exceptional jurisdiction in hostile litigation to make an order at an early stage in the proceedings regarding the ultimate incidence of costs. For the purpose of this application, all parties are agreed that the relevant principles are sufficiently set out in the judgment of Mary Arden Q.C. (sitting as a deputy High Court judge in the Chancery Division) in Re Biddencare Ltd [1994] 2 BCLC 160 and that the four relevant considerations for this purpose are (1) the strength of the party's case; (2) the likely order as to costs at the trial; (3) the justice of the application; and (4) any special circumstances. I would only add that since the decision of the Court of Appeal in McDonald v Horn, the second requirement has been tightened up and (save the presently recognised exceptions namely derivative actions and actions relating to pension funds), it must appear that the judge at the trial could properly exercise his discretion only by ordering that the applicants' costs be paid out of the trust estate."
"However, as Mr Warren says, in the Buckton type of case the same considerations do not normally apply to an appeal. He referred me to what was said in Re Earl of Radnor's Will Trusts (1890) 45 ChD 423. The Master of the Rolls at 423 referred to the right of the trustees in that case to seek the opinion of the judge as to what was right to be done, but he continued:
…. but when they appeal to this court from him, being absolutely protected as trustees by his decision -- I do not say they are wrong in appealing, but they appeal to this Court under the ordinary conditions of Appellants, and they fail in the appeal; therefore this appeal must be dismissed with costs.
So one sees that where there is a genuine difficulty, trustees, and by analogy beneficiaries, may be able to seek authoritative guidance of the High Court at the expense of the fund, but once such guidance has been obtained from the High Court's decision, then in the absence of some special circumstances, such for example as difficulties arising from that decision itself, the parties have the authoritative guidance they need. The fact that they do not like it is not a reason for litigating further at the expense of the fund. That principle would apply equally in this case. The judgment provides the sort of clear guidance which is required under the Buckton approach, and the fact that some of the parties do not like it would not justify the cost of the appeal."
"Although that was based partly on a concession, no-one before me has argued that Rimer J's approach was wrong. Having reached that point, at least in the National Grid case, it seems to me impossible to argue that the McDonald principle is as narrowly confined as Mr Warren submits. Furthermore, once it has been decided that the case is of the kind which justifies a McDonald order at the first stage, it cannot be right, in my view, for the jurisdiction of the court (as opposed to the exercise of its discretion) to continue that order at a later stage depends on who won or lost. That, it seems to me, must depend on the nature of the case, and the circumstances will differ widely."
"Mr Nugee helpfully referred to the first class of cases as 'external' and the second as 'internal'. In each the same principle applies namely that the trustees are indemnified out of the estate because they will be acting properly for and on behalf of and for the benefit of the estate as a whole."
"The guiding principle is that the special entitlement of the trustee to be indemnified out of the estate is extended to third parties where, in substance, they are performing the same function as the trustees or are assisting them to do so. Where that is the case, the third parties' costs are treated as necessarily incurred for the benefit of the estate."
"Similarly in McDonald v Horn itself, the principle was extended to actions for breach of trust brought by members of a pension scheme against the trustees. In such cases it is clear that if the members' allegations are true, the trustees themselves will not bring the proceedings on behalf of the estate. The members are therefore taking action for and on behalf of the estate and may be viewed as standing in the shoes of the trustees."
It may be noted that Laddie J did not quote, or refer to, Hoffmann LJ's reasoning which I have quoted in paragraph 17 above.
"As I have pointed out above in relation to litigation commenced by trustees on behalf of the trust against third parties, it is prudent, but not essential, for the trustees to seek a pre-emptive indemnification. That is part of the Beddoe application. Similarly, the fact that a third party may be entitled to indemnification does not, of itself, determine whether he should be entitled to it pre-emptively. This subject was addressed by Hoffmann LJ in McDonald v Horn [1995] 1 All ER 971d–972a: …"
He then set out the passage from which I have quoted in paragraph 14 above. It may be noted that Laddie J did not quote, or refer, the passage of Hoffmann LJ's judgment which I have quoted in paragraph 15 above.
"55. It follows that a pre-emptive order indemnifying a third party should only be made where the court hearing the costs application is satisfied that no other order could properly be made by the court which is to hear the proceedings in respect of which the costs order is sought.
56. The question I have to decide is how the above principles apply to a case where what is sought by a group of beneficiaries is a pre-emptive costs order in respect of an appeal. Taking the last point first, for me to make such an order now it must be clear that an order for indemnification of the beneficiaries out of the fund, even if they lose the appeal, is the only order the Court of Appeal could make. I cannot be so satisfied. Although it is possible that the Court of Appeal may exercise its discretion to make such an order, I do not consider it to be inevitable or even particularly likely for the reasons set out below.
57. This case started life as an application by the trustees of BTPS for guidance as to how to interpret some of the rules of the scheme. All the parties agree that it was, as such, a classic Buckton 1 application in which it was appropriate to indemnify not only the trustees but also the representative defendants out of the fund. But the trustees have now received guidance from Jonathan Parker LJ. They have no desire nor need to take the matter further. They happen to believe that the judge was correct in his analysis. So the position now is that there is no requirement that further guidance be given by the court. It might be that such guidance would be necessary if the judgment was clearly and indubitably wrong, but Mr Topham goes nowhere near making any such suggestion. If that is right then even the trustees cannot assume that any appeal brought by them would be on the basis of an indemnity out of the fund (see In re Earl of Radnor's Will Trusts (1890) 45 Ch D 402, 423). If they were to appeal it would be at the risk of being ordered to pay the costs personally. The fourth defendant cannot be in a better position. On the contrary, the fourth defendant's position is worse. He cannot argue that the appeal has been rendered necessary by clear error of the judge, nor does he or can he say that he should be funded for any such appeal because the trustees' refusal to appeal is unreasonable or contrary to the interests of the beneficiaries of the scheme as a whole. These factors illuminate why the fourth defendant wants to appeal. It is to secure an interpretation of the rules of the scheme which would be more advantageous to a group of members, which happens to be small in number compared to the total number of members of the scheme. It is not to clarify the meaning of the rules for the benefit of the scheme as a whole. Any such appeal is most like hostile litigation of the Buckton 3 type.
58. It seems to me, with respect, that the approach adopted by Carnwath J in Laws v National Grid plc [1998] PLR 295 is correct and applies here as well: …"
Laddie J proceeded to quote the last paragraph of the passage which I have quoted in paragraph 24 above. It may be noted that he did not quote, or refer to, the remainder of Carnwath J's judgment. Nor did he refer to Rimer J's earlier judgment.
What is the correct approach?
How should the discretion be exercised?
i) The merits of the proposed cross-appeal.
ii) The fact that there will be an appeal to the Court of Appeal anyway, in respect of which IMG had agreed to pay Mr German's costs. Thus this application only relates to the increased costs of the parties having to argue the cross-appeal as well.
iii) The fact that Mr German is only cross-appealing because IMG appealed. If IMG had accepted this Court's judgment, so would have Mr German.
iv) The issues on the cross-appeal are closely related to, although distinct from, those on the appeal. In particular, the factual background is the same.
v) Success on the cross-appeal could result in a substantial financial benefit for a substantial number of members.
vi) If the order was not granted, Mr German would not be in a position to pursue the cross-appeal.
i) Success on question 5 would not necessarily result in increased benefits for the members. Two points were left undecided in the first judgment (see [208] and [209]). Moreover, by agreement a further issue as to whether the members were barred by contract or estoppel had been carved out of the trial and would then require to be decided.
ii) The extra costs of the cross-appeal were likely to be substantial.
iii) IMG is a company of relatively modest resources. It would be unfair that IMG should have to pay for the risk of being saddled with a substantial liability, whereas the members could gamble on obtaining a substantial benefit at no cost to themselves.
iv) The order sought exposed IMG to immediate liability, whereas an eventual order for the costs of the cross-appeal to be paid out of the Plan assets would have a reduced impact on IMG's cash flow.
v) It had not been shown that the members could not find an alternative means of funding the cross-appeal.
Conclusion