The beneficiaries of four trusts (the "H Family Trusts") sought the removal of one of their cotrustees, Verite Trust Co Ltd ("Verite"), on the grounds of conflict of interest, arising from Verite's trusteeship of eight other trusts (the "J Family Trusts"). H and J (the primary beneficiaries of their respective trusts) were brothers, and their family trusts between them held 89% of the shares in the family company, which operated a successful business. The H Family Trusts owned a minority shareholding. J was the chairman and chief executive of the company.

In 2006 a dispute arose between H and J concerning the affairs of the company, which reached the point where H considered bringing a minority shareholders' petition in his own name before the English High Court. Accordingly, H's English solicitors wrote to Verite to explain that litigation appeared to be a very real prospect and that the interests of the primary beneficiaries under the family trusts were in actual conflict. The conflict was explained in some detail. The trustee sought further information; but it was pointed out by the beneficiaries that the amount of information that could be provided to Verite about the potential litigation was limited because Verite was trustee of the J Family Trusts and therefore under a duty also to act in J's best interests.

Verite responded by seeking directions from the Royal Court. In early 2007, Verite withdrew their Representation, because H had failed to provide funds to Verite to meet the costs of the Representation. H and the settlors of the H Family Trusts then brought a second representation, seeking the removal of Verite as trustee, primarily because of alleged conflicts of interest. Ultimately Verite agreed to resign unconditionally on 13 May 2008. However, Verite sought its costs. The Royal Court was therefore required to determine the question of who should bear the costs of the parties, which required it to consider the position of a trustee who is requested to resign, and the law on conflicts of interest.


The Royal Court applied the English case of Bristol & West Building Society v Mothew [1996] 4 All ER 698. The Court noted the distinguishing obligation of a fiduciary namely the obligation of loyalty, giving rise to the "double employment rule", the duty of good faith, the "no inhibition principle" and the "actual conflict rule". The Court also considered its powers to remove trustees [Eiro v Equinox Trustees Ltd and Lewin on Trusts] and particularly where a trustee has failed to recognise a conflict of interest [Hunter v Hunter 1938] NZLR 520]. Applying the law to the facts, the Court found that:

  • Verite was in breach of the "double employment rule" from April 2006: as a result of the dispute between H and J, their respective trusts were in conflict yet Verite was trustee of both. Verite was therefore in a position where its duty to one principal conflicted with its duty to the other.
  • Verite was also in breach of the "no inhibition principle" because it listened to the concerns of strangers to the H Family Trusts and considered the effect of its retirement from the H Family Trusts on the beneficiaries of the J Family Trusts.
  • Verite had all the information in 2006 that it needed to recognise that it had no choice but to retire.

In considering the chronology of events, the Royal Court noted four key dates that proved pivotal for the purposes of determining costs, as follows:

  1. from April 2006 onwards, Verite was in an impossible position because of the dispute that had arisen between H and J causing a conflict in Verite's position. Verite should have realised this conflict, and retired, without needing to apply to the Court for directions, because the conflict was so plain and obvious. The first Representation was accordingly unnecessary.
  2. Whilst it should have retired earlier, it became unreasonable for Verite not to retire upon consideration of a letter from Ogier of 18 July 2006, setting out, in what the Court felt was compelling form, the reasons why Verite had to retire.
  3. Allowing time for Verite to consider the letter of 18 July 2006, the Royal Court considered it right to penalise Verite for unreasonably failing to have retired from 25 July 2008.
  4. The date on which Verite finally agreed to resign without conditions was 13 May 2008. Therefore Verite was ordered to pay the costs of the other parties in connection with the first Representation on the standard basis and it lost the right to an indemnity from trust assets for its legal and other costs and its remuneration in connection with the first Representation.

Regarding Verite's legal costs after 25 July 2006 in connection with the issue of whether it should retire, Verite was not to be indemnified. Verite was also not entitled to charge remuneration for its time spent on that issue. The Court decided that in respect of the second Representation, brought about only because Verite unilaterally withdrew the first Representation, there was no justification for the withdrawal, and thus the decision to withdraw warranted H and the settlors' costs being paid by Verite on the indemnity basis, up to 13 May 2008. Thereafter, costs were to be paid by Verite on the standard basis.


This judgment is a useful clarification by the Court of duties owed by fiduciaries, and when conflicts of interest arise. It also highlights the need for a trustee to consider carefully when to make an application for directions. Where the steps that a trustee must take are so plain and obvious, this judgment makes it clear that a trustee may be said to have acted unreasonably if it seeks the Court's directions, with adverse costs consequences. The Court did stress that it did not want to discourage trustees from applying to Court but a trustee must be able to show that grounds exist which justify use of the Court's jurisdiction.

Finally, this judgment serves as a useful reminder to the trust industry to be alert to conflicts of interest especially where professional trustees "wear two hats" (which can occur in many scenarios), and to have a clear understanding of the rules in Bristol & West v Mothew, so that any potential conflicts can be dealt with appropriately at the earliest opportunity. This could include, at the stage a structure is set up, considering drafting appropriate provisions to address potential conflicts, where structures hold family businesses or family assets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.