FMA v BBA & Anor

MR JUSTICE RAJAH: I accept that the law and the relevant principles are set out in Mr Learmonth’s skeleton at paragraphs 4-7 and I also accept that one needs to take a broad brush approach to costs in circumstances where the claim has been compromised. The parties will know that one option is for the court to say that it will not deal with costs at all where there has been a compromise and the parties are unable to reach agreement on costs as part of that compromise. If the court is going to accept the task of determining cost issues, it has to be a rough and ready exercise. That point was made by Master Clark in Sheffield v Sheffield [2018] EWHC 2360 (Ch) and that is the approach which I am taking.

I will take into account what the compromise means is the result of the case, what seems to have been the conduct of the parties and also my feel as to what would have happened if this matter had gone to trial.

So far as the terms of the compromise, both sides say that the effect of the compromise is that they have won. The reality is that neither side achieved their primary or best case. An independent trustee in place of all, is, however, one of the alternative cases which was put forward by BBA and it was not sought by FMA. I am satisfied from what I have seen, that this was not an accident on FMA’s part.

Mr Learmonth says that the real objective of FMA was to remove BBA and to have either himself or FTA in place either on their own or with an independent professional, whereas BBA’s objective was to ensure that neither of them remained as trustees of the trust. Mr Learmonth says that FTA was, at the time, FMA’s ally. There is, I am satisfied, pretty clear evidence of that from his witness statement in support of FMA’s application which was made before the application was issued.

In his evidence, he supported FMA’s proposal that BBA should be removed and said he would be willing to stay on and that chimed with FMA’s own evidence which stressed the importance of FTA staying, so as to respect the wishes of TMA. While his evidence did say that it was ultimately a matter for the court there is force in Mr Learmonth’s observation that that is a statement of the obvious. What is clear is that at no time prior to BBA raising it in her counterclaim, did FMA suggest the replacement of all trustees. All sorts of other possibilities were put forward by very experienced trust lawyers but that is the one which they did not put forward. I am quite satisfied that that was no accident.

So far as various other matters are relied on in terms of a win by one side or the other, Mr Sherwin says under the terms of the compromise BBA has to account to the incoming trustee while Mr Learmonth says there is no order as sought in the claim for the taking of an account. So both sides say that they have won in relation to it.

I do not regard this as an important point. BBA obviously has to account for the monies which she received in her capacity as trustee and she will have to do so to the incoming trustee. But there needs to be an air of reality about this. Under the terms of this trust, it is a bare trust for X. BBA is X’s mother. She has parental responsibility. The trustee’s obligation is to pay the income to her because she is the parent and the only person who can give good receipt for the money which must be paid, under the terms of this trust, to X.

So, to some extent, it is a bit of a storm in a teacup, so far as the trust issues are concerned, as to whether or not she accounts. This is because BBA simply has to account for what was or should have been received by her as trustee and then to say that she has taken those receipts on behalf of X as a person with parental responsibility for X. Thereafter, whether she has complied with her duties as parent with parental responsibility to X is a separate matter and it is of no concern to her co-trustees or the incoming trustee.

What really concerns me about this case is what the real underlying motives for it being launched were. I have been taken through the pre-action correspondence such as it is. No letter before action was sent until a matter of days before the proceedings were started. I do not think the context in which this claim was commenced can be ignored. These proceedings came in the middle of a growing dispute between BBA and FMA as to his dealings with TMA’s property in his capacity as attorney and also in relation to his dealings with TMA’s assets in Jurisdiction A, not pursuant to his power of attorney.

One of the complaints which has continued throughout these proceedings, is that BBA says that FMA was using his control of TMA’s assets to starve her and her family of funds, so as to place pressure on them. This claim comes at a time when there have been dealings, which BBA says have been improper dealings, with TMA’s assets and she has had to commence proceedings in the Court of Protection to protect those assets, including seeking the removal of FMA as TMA’s attorney. And we now know that during this period there was an occasion in January 2023 when TMA’s signature was procured to what is being called the English Agreement by FMA, pursuant to which his 40 per cent shareholding in TMA’s Jurisdiction A company was transferred to FMA and that is a shareholding which is thought to have had a value somewhere in the region of £140 million (or dollars).

So that is the context in which these trust proceedings were started. Then you have to ask yourself, why were these trust proceedings started? This is a trust for X. It holds trust property in the United Kingdom, which is worth about £20 million. What is it which required the co-trustees to suddenly decide that they needed to secure the removal of X’s mother as a trustee?

Firstly it is said, BBA is refusing to provide an account. I have pressed on this and I have not been satisfied with the answers I have been given. It does seem that if FMA and FTA wanted details of what rent was being received, they could simply have asked the property agent, as they eventually did and subsequently got that information.

The second point in relation to that, is that all they really need to know is what rent was received by BBA. The suggestion that they should know how she has spent the money is a failure to understand what their duties were as trustees because their duty was to pay it to BBA as the mother of X with parental responsibility, she giving good receipt to the trustees for the income which belonged to X.

What eventually provoked the commencement of proceedings and the urgency was a very small debt of $6,000. In the context of this family, the idea that that should have provoked a rush to court for an injunction is extraordinary. I have not seen the full communications which have passed between Citco and Mishcon de Reya. I have seen what seems to have been a message which has come presumably as part of some longer chain of communications. But the urgency is simply Citco saying, effectively that it wants to be paid, and if not paid, it is going to stop acting. There are clearly going to be consequences if that happened. That seems to me to be a self-manufactured urgency.

Although strictly Citco’s fees should be paid from the trust assets, I am told that the Citco fees had always been paid by TMA. It was clear from the correspondence which was at the time passing between the parties that TMA owed hundreds of thousands of pounds to the trust because he needed to regularise an inheritance tax issue, arising from his continued occupation of the trust property, even though he was supposed to have been excluded from benefit of it. These fees could have been discharged from TMA’s funds, in the hands of FMA, if FMA was genuinely concerned about the payment of Citco. Mr Sherwin says there are not many English assets that he could have used. That is not looking at the bigger picture. It is quite clear that some of TMA’s valuable Jurisdiction A assets were under the control of FMA. He appeared to have access and the ability to control those Jurisdiction A assets and so was in a position to discharge this really very small debt (in the context of this family and trust), if he wanted to. But instead he chose to commence proceedings and to seek an injunction.

The consequence of that supposed urgency to pay the Citco fees is that any discussion that might have resulted in an agreement or a sensible resolution were derailed and proceedings were commenced.

So far as the other point which was said as to why these proceedings were necessary, that it was necessary to get a rental evaluation for the purposes of the gift with reservation of benefit issues, I gather that the position there, is that it was a dispute as to exactly what was necessary, not a complete refusal to cooperate on the part of BBA. There was a disagreement as to whether further valuations in addition to those which were already available were necessary. That does not seem to be to be something that on its own justifies commencement of proceedings and as was observed by Mr Learmonth (relaying a point identified by Mr Mylonas) even if there was urgency in relation to the Citco debt, as to which I have to say I am extremely sceptical, there was no urgency to the claim to remove BBA as a trustee of the trust.

A number of other points are made, firstly that BBA has issued a notice under the Children Act 1989 purporting to terminate the trust which has been abandoned. I do not regard that notice as hopeless. In circumstances where there is a pure bare trust, and the automatic provisions of section 31 of the Trustee Act 1925 had been disapplied, there is no accumulation and maintenance trust as would otherwise exist in almost every other case of a bare trust for a minor. This a pure bare trust and in those circumstances, what ordinarily prevents such a bare trust being wound up is the fact that the beneficiary needs to be able to give a good receipt and is not able to do so until they attain the age of 18. It seems to me to be at least arguable that someone with parental responsibility is able to give that good receipt on behalf of the minor beneficiary and therefore to wind up the trust. I say no more about it than that but I do not accept that that notice which was served, was hopeless.

Mr Sherwin says that his client has established that BBA has misappropriated trust funds and this is because in her witness statement she accepts that she has had to use some of the rental income which she has received on household expenses. It is implicit in what she said in paragraph 91 of her statement, that she accepts that not all of this was money which was spent for the benefit of X.

The first point to make about that is that it is a matter which arises under her parental responsibility and whether she has satisfied her duties as a parent to X, rather than whether has breached her duties as trustee. If she has not spent the money for the benefit of X it is not a breach of trust, it is at best a breach of her parental responsibility duties to X. This is because she has spent the money in her capacity as a parent with the monies she has received on behalf of her daughter.

I will also add this. Even if this had been a breach of trust, in circumstances where BBA says that she has not had funds from TMA’s attorney to meet the family outgoings and so there was a necessity to apply these funds in these ways, there is a real possibility that the court would not have regarded a breach in such circumstances as justifying her removal.

Secondly, it is not clear that she does not have any defence to any suggestion of a claim for breach of trust because the court has a jurisdiction to relieve a trustee on a breach of trust, if they have acted honestly and reasonably and ought fairly to be excused. So the suggestions of misappropriation I think need to be viewed in the context of what was actually happening, which is this money was actually being used to maintain the household. It has not been stolen by BBA.

Those in my judgment are the material factors which I will be taking into account in deciding what should happen on costs. In my judgment BBA has won these proceedings. I am not satisfied there was a good reason for FMA to bring these proceedings and to seek the relief he has sought. If this matter had gone to trial, my assessment is that either the order which has been agreed is the order which the court would have made or the order would have been one in which BBA remained as a trustee, alongside somebody independent. In other words, if this case had gone to a hearing, BBA would have won it.

So far as the events which have happened since the principle of an independent trustee in place of all trustees was agreed in early 2025, that seems to have been a dispute as to the effect of the notice and whether that prevented a new trustee being appointed until BBA had unequivocally accepted that the notice was ineffective or void ab initio. That seems to me to be the wrong analysis. The notice did not have the effect of determining the bare trust while the trust property remained in the hands of the trustee. I do not regard the fuss over that notice as justifying some change in what should be the usual order in relation to costs.

There is a point which is made that there are extra costs arising from the regularisation application because the Children’s Act notice was served and proceedings were initially intended to be commenced in the Family Division. I am surprised that proceedings were intended to be commenced in the Family Division. The notice was purporting to exercise X’s right to wind up a trust, and raised questions of standing under trust law which one might have thought were suited to the Chancery Division. But Mr Learmonth says that there is authority from the Family Division which says that is the appropriate court to make that application. That is why that application was going to be made there. If that is the case, so be it. I cannot form a view that BBA’s team has acted inappropriately in pursuing that application in the Family Division.

I order FMA to pay BBA’s costs of these trust proceedings. I will exclude from that only costs which relate to the appointment of Penn Trust.

I turn to the question of each trustee’s right of indemnity from the trust fund. Trustees are ordinarily entitled to the costs they have properly incurred when acting on behalf of the trust.

So far as FMA’s costs are concerned, I am satisfied his costs have been incurred in FMA’s own interests, not in the interests of X, as the only beneficiary, or the trust as a whole. To the extent that he has not been awarded his costs, it is because they have not been properly incurred in his capacity as a trustee. He has been ordered to pay costs and those points apply to the costs he must pay as well. So he is not entitled to any indemnity in respect of his costs in these proceedings. He is not entitled to an indemnity in respect of the costs he is ordered to pay to BBA.

So far as BBA’s costs are concerned, I am satisfied these costs have in substance been incurred to protect the perceived interests of X. BBA’s interests are aligned with X’s; so too are the inferred interests of TMA. That in itself is not a reason why these costs were not properly incurred to protect the interests of X and so to the extent that BBA does not recover costs from FMA, they should be paid from the trust estate.

I am not going to order indemnity costs. This was a tactical application. In the context of hostile private client litigation, the line between what is an appropriate tactical application in a claim and what is an inappropriate tactical application is not always an easy one to determine. Was this tactical application so out of the norm as to justify indemnity costs? While the order which I have made reflects my disapproval of the course which has been taken, I do not think it justifies an indemnity costs order. It is right to say that this decision is finely balanced and if there had been clear evidence that the supposed Citco urgency had been deliberately contrived by FMA my decision would have been different.

So far as the payment on account is concerned, it will be 50 per cent of your summary total Mr Learmonth. That is making full allowance for an element of your costs which go to Penn Trust and that there is a risk that you will be taxed down on an assessment.