Barclays Private Bank & Trust Ltd v McLaughlin

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 25 November 1998
• Court: Grand Court (Cayman Islands)
• Date: 25 November 1998

Grand Court

(Smellie, C.J.)

BARCLAYS PRIVATE BANK AND TRUST (CAYMAN) LIMITED

and

McLAUGHLIN (A minor, by his Guardian ad litem, McLAUGHLIN-MARZIALE), CONEJO and STERN (as Administrator and Ancillary Administrator of the Estate of OBREGON, deceased)

A.J.E. Foster for the plaintiff;

A.J. Bolton for the first defendant;

A.J. Taylor for the second defendant;

The third defendant did not appear and was not represented.

Cases cited:

(1) Aall Foundation, In re, Grand Ct., January 30th, 1998, Cause No. 277 of 1994, followed.

(2) Alsop Wilkinson v. Neary, [1996] 1 W.L.R. 1220; [1995] 1 All E.R. 431.

(3) Beddoe, In re, Downes v. Cottam, [1893] 1 Ch. 547; (1892), 62 L.J. Ch. 233.

(4) Buckton, In re, Buckton v. Buckton, [1907] 2 Ch. 406; (1907), 76 L.J.Ch. 584, applied.

(5) Cotorro Trust, In re, 1997 CILR 1, applied.

(6) Emery, In re, Emery v. EmeryELR[1923] P. 184; (1923), 92 L.J.P. 138, distinguished.

(7) Evans, In reWLR, [1986] 1 W.L.R. 101; sub nom. Evans v. Evans, [1985] 3 All E.R. 289, dicta of Nourse, L.J. applied.

(8) Hall, In re, 1994–95 CILR 456.

(9) Lemos v. Coutts & Co. (Cayman) Ltd., 1992–93 CILR 460, applied.

(10) McDonald v. Horn, [1995] 1 All E.R. 961; [1995] I.C.R. 685, dicta of Hoffmann, L.J. applied.

(11) Moran v. Place, [1896] P. 214; (1896), 65 L.J.P. 83, distinguished.

(12) National Anti-Vivisection Socy. v. Duddington, The Times, November 23rd, 1989.

(13) Parkinson (Sir Lindsay) & Co. Ltd., v. Triplan Ltd., [1973] Q.B. 609; [1973] 2 All E.R. 273, applied.

(14) Rose v. EpsteinWLRUNK, [1974] 1 W.L.R. 1565; [1974] 2 All E.R. 1065; on appeal, [1974] 1 W.L.R. 1565; [1974] 3 All E.R. 745; sub nom. In re Portman, Rose v. Epstein(1974), 118 Sol. Jo. 757, distinguished.

(15) Westdock Realisations Ltd., Re, [1988] BCLC 354; (1988), 4 BCC 192, dicta of Browne-Wilkinson, V.-C. applied.

Legislation construed:

Grand Court Rules, O.23, r.1(1)(a): The relevant terms of this sub-paragraph are set out at page 320, line 43.

r.1(4): The relevant terms of this paragraph are set out at page 321, lines 21–24.

Trusts-costs-indemnity from trust fund-pre-emptive costs-may award to impecunious minor beneficiary with separate interest to be represented in s.45 proceedings commenced by trustee-important that merits indicate costs likely to be awarded by trial judge and case to be handled cost-effectively-no order in favour of defendant challenging trust

Trusts-costs-indemnity from trust fund-pre-emptive costs-order allowing beneficiary”s participation in s.45 proceedings commenced by trustee normally to include indemnity against adverse costs order

Civil Procedure-costs-security for costs-defendant in proceedings brought by trustee under Trusts Law (1996 Revision), s.45 stands in position of plaintiff for purposes of Grand Court Rules, O.23, r.1(4) if proceedings prompted by defendant”s challenge to trust

The plaintiff trustee applied for directions under s.45 of the Trusts Law (1996 Revision).

The administrator of the trust, the second defendant, brought proceedings in the United States challenging the capacity of the settlor at the time of the creation of the trust and his paternity of the first defendant, the sole beneficiary under it. The trustee applied to the Grand Court for directions as to how to respond. Notwithstanding that the US proceedings were dismissed, the administrator raised further challenges to the validity of the settlement in the Grand Court, questioning the intentions and capacity of the settlor. The first defendant, a minor, sought a pre-emptive order that the costs of his participation in the proceedings be met in any event from the trust (including any costs which he might be obliged to pay to the second defendant), and an order for security for those costs from the second defendant.

He submitted that (a) since the proceedings had been brought for the benefit of the trust as a whole, he was entitled, as a beneficiary, to his costs of participation; (b) because of the trustee”s neutral stance, he was obliged to defend his own interest in the trust-and that of his own future issue-but, as a minor, had no funds of his own other than the trust fund, from

which to do so; (c) due to the strength of his case, it was likely that the court would award him his costs on an indemnity basis at the trial; (d) his counsel would liaise with counsel for the trustee regarding the arguments to be raised by each to avoid duplication of effort or wasted costs; (e) since the second defendant stood in the position of plaintiff vis-à-vis him, having raised the challenges to the trust, and was ordinarily resident outside the jurisdiction, an order for security for costs was appropriate.

The second defendant submitted in reply that (a) a pre-emptive costs order in favour of the first defendant would be wrong in principle, since the resulting depletion in the trust would be borne by the beneficiaries of the deceased”s estate if the challenge succeeded, rather than the party who had been defeated in the proceedings; (b) such an order would also usurp the function of the trial judge by predetermining the issues at stake; and (c) since he did not stand in the position of a plaintiff for the purposes of the Grand Court Rules, O.23, r.1(4), no order for security for costs could be made against him.

Held, making the following orders:

(1) The first defendant”s costs of participating in the trial of the issues raised by the trustee for the benefit of the trust would be paid in any event on an indemnity basis. The court was satisfied on its assessment of the merits of the case, that the likely outcome of the trial was a declaration that the assets had been validly settled on the trusts, and that costs would follow the event. Since the trustee”s position was to remain neutral in the face of competing claims by the defendants, it was desirable that the first defendant”s case (and that of any future beneficiaries) be put to the court, particularly as he was a minor and without independent means. There would be no overlap in the issues presented and no wastage of costs, as it was the intention of those parties sympathetic to the trust that only one leading counsel be instructed (page 316, line 34 – page 317, line 4; page 318, lines 2–21; page 318, line 40 – page 319, line 10).

(2) Although there might be circumstances in which a court would make a pre-emptive order covering the beneficiary”s costs alone, to avoid anticipating the trial judge”s decision on opposing costs, that would be inappropriate in this case. Accordingly, the order would include indemnity against any costs order which might be made against the first defendant, who could not realistically participate in the proceedings under the threat of a costs order which he would be unable to meet (page 320, lines 12–22).

(3) There would, however, be no pre-emptive costs order in favour of the second defendant, since his costs were not necessarily incurred for the benefit of the trust (page 320, lines 23–30).

(4) In view of (a) the court”s preliminary finding on the likely outcome of the case, (b) the second defendant”s residence and the location of his

assets abroad-the court”s usual practice being to order that security for costs be given by a foreign plaintiff-and (c) the fact that he had acted as a plaintiff within the meaning of the Grand Court Rules, O.23, r.1(4) by raising past unwarranted allegations and prompting the present proceedings, the second defendant would be ordered to give security for the first defendant”s costs and those of the trustee (page 320, line 41 – page 321, line 38; page 322, lines 18–26).

SMELLIE, C.J.:
Pre-emptive costs
This matter is before the court on the trustee”s application by way of
5	‘Beddoe-type’ proceedings and pursuant to s.45 of the Trusts Law (1996
Revision). Having brought these proceedings, the trustee now acts on the
directions of the court and so avoids the possibility of criticism that it acts
in the proceedings for its own interests or otherwise unreasonably.
Provided the trustee acts throughout the proceedings in good faith, it
10	can be assured that all its costs of so doing will be sanctioned by the court
to be met from the trust on the indemnity basis (see In re Beddoe (3)
([1893] 1 Ch. at 557–558)). There is at present no issue about the trustee”s
entitlements in this regard. The question is whether the same protection
by way of a pre-emptive costs order should now be extended to the first
15	defendant, a minor, who is the only living beneficiary of the trust. It was
noted in McDonald v. Horn (10) ([1995] 1 All E.R. at 970) that the
Chancery

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