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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Gestrust SA v Sixteen Defendants  EWHC 3067 (Ch) (29 November 2016)
Cite as:  EWHC 3067 (Ch)
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B e f o r e :
(Sitting as a Deputy High Court Judge)
| GESTRUST SA
(Including three minors and one minor who has now attained majority)
Mr Robert Scrivener (instructed by McBride Wilson & Co of The Courtyard, Queen's House, 55-56 Lincoln's Inn Fields, London, WC2A 3LI) for the First Defendant.
The Second, Sixth, Seventh and Eighth Defendants in person.
Ms Georgia Bedworth (instructed by Charles Russell Speechlys of One London Square, Guildford, Surrey, GU1 1UN) for the three minor Defendants and also for the minor Defendant who has now attained majority and also for the unborns.
The other Defendants did not appear and were not represented.
(1) Thursday, 22 September 2016 and Friday, 23 September 2016.
(2) further Written Submissions (including responsive submissions) concluded by 14 October 2016.
Crown Copyright ©
Mr Edward Bartley Jones QC:
(1) an order under CPR 5.4C(4) prohibiting a non-party to this Action from exercising any rights under the general rule (as contained in CPR 5.4C(1)) to obtain copies of statements of case, judgments or orders. Such order does not, for the avoidance of doubt, extend to this judgment. But it does extend to the second and confidential judgment which I will hand down at the same time as this judgment. Such order also extends to any order made as a result of either (1) this judgment or (2) my confidential judgment; and
(2) an order under CPR 5.4B(1) prohibiting any party to these proceedings from obtaining from the records of the court, without the leave of the court, a copy of any skeleton argument, witness statement or exhibit thereto or any other document falling within the ambit of paragraph 4.2A of Practice Direction 5A, which has been exchanged confidentially as between (1) the Claimant and (2) those of the Defendants who are minors. This order, obviously, does not affect either the Claimant or the Defendants who remain minors. But I intend it to apply as from when they attain the age of 18. Further, I intend to order that my confidential judgment should not be made available to the Thirteenth Defendant (who has now attained majority) personally.
(1) as to what it should direct A Limited and B Limited to do in response to C Limited's claim against A Limited and B Limited. The directors of A Limited and B Limited are a Ms Diana Brush and Mr Marc Angst. Ms Brush is a Senior Trust Manager employed by the Trustee. Mr Angst is the Managing Director of, and 50% shareholder in, the Trustee. In her evidence, Ms Brush accepts that the Trust, through its shareholding, controls the activities of A Limited and B Limited;
(2) whether there should be a Mediation of C Limited's claims against A Limited and B Limited;
(3) if so, what should be the parameters for the stance to be adopted by A Limited and B Limited in any such Mediation;
(4) as to how (1) the costs of A and B Limited in defending C Limited's claims, (2) any potential liability of A Limited and B Limited for C Limited's costs and damages and (3) the costs of and incidental to this Action, should be apportioned as between capital and income.
All the Defendants are members of different generations of the Settlor's family. There are deep divisions within the Defendants both as to the merits of C Limited's claims and as to how any necessary monies to dispose of those claims (including the costs of this Action seeking directions) should be borne as between the capital and income of the Trust.
The Family/The Defendants
The Trust - Beneficial Interests
(1) each of the Settlor's four children was entitled to the income of their respective one quarter share in the Trust Fund for life, with a life interest thereafter in favour of the child's surviving spouse. The present life tenants are the Fourth Defendant (the widow of Child 1), the Third Defendant (the widow of Child 2), the First Defendant and the Second Defendant. The First Defendant presently has no spouse. Should the Second Defendant predecease his spouse then she will become entitled to a life interest in the Second Defendant's quarter share in the Trust Fund;
(2) neither Child 1 nor the First Defendant had any children. Accordingly, under the terms of the Deed of Appointment of 28 March 1979, following their deaths the capital of their respective shares in the Trust Fund will be held on trust for such of the Fifth, Sixth, Seventh and Eighth Defendants as are living at the date of death of the last of the Settlor's four children to die, and if more than one in equal shares absolutely (clause 4 of the Deed of Appointment of 28 March 1979). Quite how, granted the structure of the Trust which I discuss below, whichever of the Fifth, Sixth, Seventh and Eighth Defendants acquire an absolute interest in capital are actually going to receive that capital must be a matter of speculation. I do not know whether this has been addressed. If it has been addressed, it is not reflected in the evidence before me.
Structure - Discussion
(1) that the costs and damages associated with C Limited's claims against A Limited and B Limited are liabilities of A Limited and B Limited and not of the Trust. No one is suing the Trust as such;
(2) that A Limited and B Limited are separate legal entities from the Trust with their own individual legal personalities. No one had argued before me that A Limited and B Limited held the property portfolio on bare trust for the Trustee; no one had argued before me that there were any grounds or basis for piercing the corporate veil under the principles set out in Prest v. Petrodel Resources Limited  2 AC 415; accordingly
(3) the Structure must take effect according to its terms. This meant that the property portfolio, itself, was not an asset of the Trust. The property portfolio was merely an asset of the two companies in which directly, or indirectly, the Trust was the shareholder,
(1) on the facts as properly analysed A Limited and B Limited held the property portfolio on bare trust for the Trustee; or
(2) that the corporate veil should in some way be pierced in accordance with the principles set out by the House of Lords in Prest.
" Whilst I accept that in law the bank accounts are corporate and not strictly trust assets, in the circumstances of this case, I find that the interposition of a limited company does not in any material way qualify the trustees' interest in the relevant bank accounts. It does not make a difference to the duties and responsibilities of the trustees, including responsibilities to persons, who have or may have an interest in the trust assets, whether held directly by the trustees or through a company.
 Further in the circumstances of this case, the directors, when exercising their powers - including deciding what, if any, action to take relevant to the order, the bank accounts, or the in rem proceedings - cannot divest themselves of the knowledge and information obtained in their capacity as trustees, and therefore must act at all times mindful of their duties and responsibilities to persons, who have or, may have an interest in the trust assets.
 I therefore consider that to treat the companies as bodies independent of the trustees qua trustees, and to treat the latter as shareholders, would be to ignore the reality of the situation. I further consider that, bearing in mind the terms of the order, and the circumstances which gave rise to it, the bank accounts ought to be considered not only as corporate assets, but also as trust assets. Accordingly, I do not consider that I need to address Mr Farrer's alternative submissions on the piercing of the corporate veil."
(1) the deed creating the Trust contain no anti-Bartlett clause;
(2) as it seems to me the whole reasoning in Bartlett negates the proposition that the Structure in this case can be collapsed, as a matter of law, in manner suggested by Ms McDonnell and Mr Scrivener. As Brightman J said at 532B:-
"If the trust had existed without the incorporation of BTL, so that the bank held the freehold and leasehold properties and other assets of BTL directly upon the trusts of the settlement, it would in my opinion have been a clear breach of trust for the bank to have hazarded trust money upon the Old Bailey Development project in partnership with Stock Conversion."
But Brightman J did not then seek to address matters by collapsing the Structure so as to treat the bank as having held the freehold and leasehold properties directly upon the trusts of the settlement. On the contrary, he turned to the question as to what was the duty of the bank as the holder only of the shares in the two companies.
(1) the First Defendant clearly thinks that the present claims of C Limited are fully justified and that they should be borne by capital; but
(2) the Second Defendant and the husband of the Seventh Defendant (as 50% shareholders of C Limited) do not support the claims which C Limited is now bringing (but, of course, they can do nothing about it because they are not directors of C Limited). They do not wish to see capital being used to fund any resolution.
C Limited's Claims
(1) a reimbursement claim against A Limited in the total sum of £184,298,16 and a reimbursement claim against B Limited in the total sum of £22,807.03. These claims had been the subject matter of the 2009 Invoices and were broken down into various parts, such as "Thermogenesis and Newlite repair costs", other repairs, structural works, woodworm treatment, works to doors and windows, works to gardens and fences and off-street parking works;
(2) a claim against each of A Limited and B Limited for wrongful termination of the management agreements. It is said by C Limited that 12 months' notice should have been given, resulting in a claim for £164,712.53 against A Limited and £11,402.48 against B Limited;
(3) a claim for consequential loss which consisted entirely of legal fees in the sum of £80,760.21; and
(4) a claim for interest on all the above sums at the rate of 8% per annum.
"As I understand it, the practice in the [Chancery Division] is that where a trustee finds it is compelled to ask for the directions of the court as to whether or not certain proceedings should be taken, while it is proper and indeed necessary to join the parties against whom the proposed relief is sought, those parties should not be present in Chambers when the matter is debated; and they should not be furnished with the evidence upon which the court is asked to act."
Capital v. Income
(1) the costs associated with, and the sums needed to dispose of, the 2015 Action are sums payable by A Limited and B Limited and not by the Trust;
(2) the Trust's only assets are (1) its shareholding (either directly or indirectly) in A Limited and B Limited and (2) the income stream derived by way of dividend (either directly or indirectly) from A Limited and B Limited.
"Trustees are entitled to be indemnified out of the capital and income of their trust fund against all obligations incurred by the Trustees in the due performance of their duties and the due exercise of their powers. The Trustees must then debit each item of expenditure either against income or against capital. The general rule is that income must bear all ordinary outgoings of a recurrent nature, such as rates and taxes, and interest on charges and encumbrances. Capital must bear all costs, charges and expenses, incurred for the benefit of the whole estate"
On this basis, albeit on the false premise that the property portfolio was an asset of the Trust, Mr Scrivener urges on me that all sums (including costs) needed to dispose of the 2015 Action should come solely from the sale of properties, even if A Limited and B Limited presently have sufficient liquid resources to pay.
(1) the mode of funding threatened the Trustee's ability to pay to the existing life tenants the annual income which they have, historically, been receiving from the Trust; or, conversely,
(2) the mode of funding causes properties in the portfolio to be sold unnecessarily. Clearly a sale of a property or properties would not be unnecessary if required in order to enable the Trustee to comply with (1).
(1) the decision as to how to fund all sums (including costs) necessary to dispose of the 2015 Action is made bona fide in the best interests of A Limited and B Limited; and
(2) such decision does not threaten the income which, historically, the four life tenants have received from the Trust; and
(3) such decision does not involve the selling of properties unnecessarily.
Costs of this Action