Wester v Borland
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 15 October 2007 |
| Neutral Citation | [2007] EWHC 2484 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC06C0326 |
| Date | 15 October 2007 |
[2007] EWHC 2484 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Norris
Case No: HC06C0326
Mr Tom Montagu-Smith (instructed by Messrs Finers Stephens Innocent) appeared on behalf of the Claimant.
Mr Ian Clarke (instructed by Messrs Fox Williams) appeared on behalf of the Defendant.
Approved Judgment
This is an action about what should be done with a fund of €127,500 (some £89,000) held in a Swiss bank account. The impression that I have gained from the nature of the pleaded cases, from the evidence which has been exchanged between the parties and from the points taken in argument is that the action owes more to the personal antipathy of the Claimant and the Defendant than it does to legal merit or to commercial good sense. One has the deep suspicion that this action is really now about costs rather than anything else.
The uncontroversial facts may be shortly stated. The Claimant and the Defendant are half brothers. Prior to 1993, each of them effectively owned 50% of the shares in a New Zealand company called Santhagens Properties Limited (“SPL”). The Claimant, Mr Lars Wester's, interest was held via a wholly owned company called Westcom Pty Limited (“Westcom”). In 1993, the Defendant, Euan Borland, agreed, for consideration, to transfer his 50% shareholding in SPL to or at the direction of the Claimant. Although the consideration was paid in full, in the event the Defendant transferred only 1% of the shares to the Claimant. Although he had signed a transfer form relating to the balance of 49% and delivered that transfer form to the Claimant, the Claimant for his own reasons did not register the transfer with the company. Since 1993, therefore, 49% of the shares in SPL have continued to be registered in the name of the Defendant, but as trustee on a bare trust for the Claimant.
In February 2002, SPL was placed into voluntary liquidation in New Zealand. On 22nd March 2002, the New Zealand liquidator paid to the Defendant (by crediting the Defendant's Swiss bank account) a sum in respect of the distribution due to registered shareholders at the conclusion of the liquidation. The sum paid into the Defendant's Swiss bank account was converted into euros. It is that sum of €127,500 with which this action is concerned. It is, as I have said, common ground that it is held by the Defendant upon a bare trust for the Claimant. In March 2002, the Claimant requested that those funds should be transferred to him, but the Defendant declined to transfer the funds. They remain in his name and under his control in a Swiss bank account.
The present proceedings were commenced in March 2006. The present claim asserts that, in retaining the entirety of the fund, the Defendant is acting in breach of trust. The relief sought is a declaration that the Defendant holds the monies in respect of the shares on trust for the Claimant; an order that the Defendant account to the Claimant in respect of those funds and anything else received by the Defendant during the period 1993 to date by virtue of his legal ownership of the shares; and an order that the Defendant do pay to the Claimant the sums found to be due to him on the taking of an account, together with interest.
Although the bare trust on which the Defendant holds the funds is not in issue, the Defendant does not by his Defence admit the Claimant's claim. He asserts in paragraph 14.7 that the Claimant's behaviour in failing to effect the share transfer of the 49% gives rise to reasonable suspicions about the Claimant's conduct of the affairs of SPL and, therefore, taints the funds which were disbursed following the liquidation of SPL in 2002. He says that the Claimant's explanations as to what has gone on are contradictory and misleading, so that the Defendant harbours reasonable and real suspicions about whether the funds are tainted by criminal activity. He further says that he has no confidence in the reasons given for the initial deposit of money into his Swiss bank account or the Claimant's intentions in relation to it. The Defendant asserts that he is concerned about the Claimant's conduct, particularly that the Claimant should not have misled the New Zealand tax authorities or anyone else as to the true position so as to implicate the Defendant in potential wrongdoing and subjecting him to some form of liability.
In support of those lines of Defence, the Defendant has counterclaimed what he originally called “a right to set-off” or, alternatively, damages. He also claims his costs of and incidental to the present proceedings on an indemnity basis.
The present application was issued by the Claimant seeking summary judgment and the striking out of the Defence and Counterclaim. In essence, it is necessary to approach the application as consisting of two parts: first, summary judgment on the claim on the footing that none of the issues raised by the Defendant raises a real prospect of successfully preventing the grant of the relief sought in the claim, namely a declaration, an account and payment on the taking of the account; secondly, summary judgment on the Counterclaim on the footing that the Defendant has no real prospect of successfully claiming his set-off or damages or the costs which he seeks.
The two jurisdictions invoked by the Claimant are the jurisdiction to strike out under CPR Part 3 and the jurisdiction to grant summary judgment under Part 24. I propose to approach this case under Part 24, since a substantial part of the submissions was focused upon evidence which has been filed in support of the application and in opposition to it, not on the bare form of the pleaded cases contained in the Particulars of Claim, the Defence and Counterclaim and the Reply.
In each case, it is for the Claimant to show that there is no real prospect of success in the lines of Defence and Counterclaim advanced by the Defendant. Any hearing for summary relief is not an occasion for making any findings of fact, in particular findings of fact which impute bad faith to one party or another. I shall, therefore, approach the matter on the footing that the issues can be adjudicated upon without examining the motives of the parties involved in the actions and simply by assessing the actions themselves and their reasonableness.
The foundation of the Defendant's claim to retain possession of the bank account notwithstanding a request that he should pay it over to the Claimant is that he is exercising “a right of set-off”. In the course of this application, it has become clear that the right that it is sought to exercise is a right of lien. It is not controversial that a trustee, including a bare trustee, has a right to be indemnified against proper costs, expenses and liabilities which he incurs, or to which he is exposed, by reason of his office as trustee. Nor is it controversial that the trustee has a right of lien over trust funds in his hands in support of that indemnity.
Mr Clarke, for the Defendant, draws my attention to the decision of Mrs Justice Arden in X v A [2000] 1 All ER 490 at 493 for the convenient summary of the rule, in these words:-
“A trustee has a lien over the trust fund for his proper costs and expenses and these extend to an indemnity against future liabilities.”
I, therefore, take my guidance from that statement of principle.
It is, however, important to bear in mind that the trustee has the right of indemnity and the right of lien because he is a fiduciary who has control over someone else's property. As Mr Montagu-Smith submitted, this inevitably gives rise to a conflict of interest. I consider it well settled that where a trustee purports to exercise his power of lien over the trust fund, he must take into account the proper interests and concerns of the beneficiaries whose property it is and so exercise that right having regard to their independent proprietary interests.
My attention has not been drawn to any authority which deals in detail with the manner in which a lien should be exercised, but I consider that a burden must lie upon a trustee to demonstrate that there are substantial grounds upon which to exercise the lien and that he has taken all reasonable steps to ascertain his liability. Once he has achieved that, it is then for the beneficiaries who are claiming the right to be paid to demonstrate that the objection of the trustee can be overcome. For present purposes, I would adopt the rule, without having heard argument upon it, that it is for the beneficiary to present facts and circumstances to the court that are sufficiently compelling to persuade the court that it is beyond reasonable doubt that the risk to which the trustee adverts is not one which will bring liability home to him. Against that background, I turn to consider the three lines of defence advanced by the trustee in the instant case, the reasons why the Defendant now says that he has held on to the money notwithstanding the request for repayment and which he says, even now, entitled him to continue to hold on to it.
The first relates to the trustee's exposure to...
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