Summary

A trustee had acted properly and reasonably on the advice of solicitors in commencing and pursuing litigation on a trust matter as the claims in the litigation had a reasonable prospect of success. Consequently, the trustee had not acted in breach of trust by paying monies out of the trust fund in satisfaction of the costs of the action.

Facts

The claimant (T) issued proceedings against the first defendant firm of solicitors (B) and the second defendant trustee of a family trust (F) alleging that F had acted in breach of trust by pursuing litigation relating to the transfer of shares and B had negligently failed to advise F that the litigation had no real prospect of success. T was a member of a family which owned shares in a private company. T had borrowed money from a lender (P) to discharge his debts and acquire further shares in the company in return for which P would acquire an entitlement to share in the proceeds of sale of those shares. T had established a trust (the Bonham settlement) into which T would transfer all his shares and F was one of the original trustees of that trust. The trustees, acting on B's advice, had commenced, without the benefit of a Beddoe order, proceedings against T and his sister (E) alleging that T and E were obliged to transfer shares to the trustees, namely "inheritance shares" registered in the name of T and "Bishop shares" registered in the name of E. E had sent a letter to B relinquishing her right to the Bishop shares. The claim against T was settled by consent and the action against E was discontinued resulting in a substantial costs liability for the trustees. It fell to be determined whether the costs of the action had been reasonably incurred and therefore whether the claims in the litigation had had any reasonable prospect of success or had been brought for an improper purpose.

Held

(1) It had been proper and reasonable for the trustees to commence and pursue the litigation against T and E for the following reasons. Firstly, the claims had a reasonable prospect of success. The trustees had a good arguable case that T was obliged to transfer the inheritance shares into the Bonham settlement. E's letter relinquishing to T any interest in the Bishop shares had also been effective and the trustees had justifiably believed that the claim against E had a reasonable prospect of success. Secondly, there was considerable doubt about the value of the shares. Thirdly, there was a substantial risk that P's lenders would call in their loans. Fourthly, there was a very real risk that the Bonham settlement had not held sufficient assets to meet the liabilities of the trustees to P and P's lenders. Fifthly, the value of the shares was a loss to the Bonham settlement and if the trustees had simply allowed T and E to retain the shares, they might have been criticised by the other beneficiaries. Finally, the addition of the shares to those already held by the trustees could only enhance the value of the whole making it more attractive to a purchaser. (2) T had failed to show that there was any defect in the claims brought in the litigation which caused them to fail and which ought to have been appreciated by B. B could therefore not be criticised for the advice given. (3) F had not acted in breach of trust in pursuing the litigation and his decision not to apply for a Beddoe order had not constituted evidence of wilful wrongdoing. Failure to apply for a Beddoe order did not constitute a breach of trust at all. The costs of the litigation had been properly and reasonably incurred and therefore F had not acted in breach of trust in paying monies from the settlement in satisfaction of those costs.

Judgment for defendants.