The Royal Court has provided helpful guidance to trustees of charitable trusts with regard to what is expected of them when seeking to engage in litigation on behalf of the trust and as to the approach that the Royal Court will take in blessing such a momentous decision.
The case of In the Matter of the F Charitable Trust  JRC 142 concerned an exclusively charitable Jersey law trust (the Trust). The Representor Trustees had engaged in foreign legal proceedings, seeking recovery of a substantial debt (the Debt) which was owed to the Trust. The Trustees applied for Beddoe relief, seeking the Court's sanction of the steps taken by it in proceedings that had occurred to date and a direction that they be permitted to maintain and pursue the proceedings either to conclusion, or to conclusion of the discovery process, whichever was the earlier. Owing to the charitable nature of the Trust, Her Majesty's Attorney General (the AG) was joined to the application as the partie publique (which involves representing the public interest in civil matters such as proceedings concerning charities).
The Role of the Royal Court and the Test to be Applied
The decision to pursue the litigation was a momentous decision in the life of the Trust. As the Trustees were not surrendering their discretion, it was submitted that the Royal Court's role was limited, as it need only satisfy itself that the proposed exercise of the trustee power was lawful and did not infringe the duty to act as ordinary, reasonable and prudent trustees might act.
The Court accepted that the test to be applied in the blessing of momentous decisions was well-established but stressed that in all cases, it was right for the Court to have regard to the substratum of the trustee's decision. In most circumstances concerning private family trusts, the trustee will have far greater knowledge of the trust and the family circumstances than the Court and it is therefore appropriate in those instances for the Court simply to exercise a supervisory power in blessing a momentous decision, restricting itself to a review of the decision based on honesty and rationality. However, the Court held that where the subject of the momentous decision is the question of litigation, the Court will exercise a more direct, inquisitorial role and be ready to form its own opinion as to whether it is sensible to expose the trust to risk by the proposed litigation. Further, the Court noted that whilst it does not give advice to the trustee, it is entirely appropriate for the Court to have the opportunity to consider the advice obtained by the trustees as to the prospects of litigation and upon which it based its decision to proceed. Although a more inquisitorial role will be taken, the Court stressed that there would need to be good reason for the Court to refuse to bless the trustee's decision where it is based on that advice.
The need to engage with the AG
In the case of a private trust, provided that the beneficiaries are not numerous and are mainly identifiable and traceable adults, a trustee will be expected to have engaged with the beneficiaries and canvassed their views with regard to the proposed course of action.
In the case of a charitable trust, the AG submitted and the Royal Court agreed that, as guardian of the charitable interest, the Trustees should have consulted with him prior to the commencement of litigation.
The AG expressed concern at the level of costs being incurred - the Trustees did not appear to have attempted to negotiate the level of fees being charged by professional advisers, an oversight which exposed the Trust to the risk of the Trust fund being exhausted which would result in the failure of the litigation. Further, no provision had been made for the cost of any appeal or in the event that any proceedings were required to enforce any resulting judgment.
The AG submitted that a charity should not be treated as less important than any other beneficiary and that individual beneficiaries in a similar position would be astonished at the lack of effort on the part of the Trustee to drive a bargain.
The Court's decision
Having considered the evidence, the Court was satisfied that it was reasonable for the Trustees to seek to recover the Debt - the prospects of litigation at the time of the application were such that it was appropriate for the Trustees to continue with the proceedings, although the Court stressed that a review of the prospects of success at the conclusion of the discovery process was essential and directed the Trustees to return to Court with a short application seeking approval of the decision to continue or withdraw from proceedings thereafter.
The Royal Court expressed unease at the apparent lack of control over the spending of Trust assets. It accepted that, in principle, the Trustees were entitled to recover their costs of the Beddoe application and to be indemnified out of the assets of the Trust in respect of the costs incurred in pursuing the foreign proceedings; however, the Court was not prepared to endorse all of the costs orders requested. The Court stated its expectation that the Trustees seek to negotiate a proper settlement of past costs and a proper formula for incurring future costs.
Adverse litigation is an uncertain and costly process. Trustees should always be mindful of their duties to act in the best interests of the trust, which duty extends to acting in the best interests of the beneficiaries of the trust, including charitable objects.
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.