The Serious Fraud Office & Ors. v Litigation Capital Limited & Ors.

In the preface to the fourth edition of Meagher Gummow & Lehane’s Equity: Doctrines & Remedies (2002), the editors suggested of one jurisdiction that the prospect of “any principled development of equitable principles seems remote”, a state of affairs they sought to attribute to the “misguided endeavours” of one judge. They observed:

This is now the fourth occasion in this litigation in which, as a commercial lawyer sitting in the Commercial Court, I have found myself neck-deep in the doctrines and principles of trusts law and equity, and I am concerned that my own endeavours (misguided or otherwise) may be provoking a similar reaction. However, as the Part 8 Claim which raises these issues was transferred into the Commercial Court from the Chancery Division, I have done my best to navigate unfamiliar legal pathways, and acknowledge with gratitude the assistance given by “expert guides” in the form of Ms Jones KC and Ms Reed KC, who have attempted to prevent me straying too far from equitable orthodoxy.

The present set of disputes arises from a trust (the Harbour Trust) created in connection with the provision of litigation funding by Harbour Fund II LLP (Harbour), for proceedings to be brought by Mr Thomas, Mr Taylor and Orb ARL (Orb) against Mr Andrew Ruhan (the Orb Litigation). Those proceedings were settled, on terms which (at least on my findings, albeit subject in important respects to a judgment expected from the Court of Appeal following a hearing on 5 and 6 October 2022) involved the transfer of various rights and assets. Disputes have arisen as to how those assets should be administered and/or distributed pursuant to that trust, and those disputes have generated the following applications:

There were also two further applications:

The full background to these applications appears in the judgment at [2021] EWHC 1272 (Comm), the Directed Trial Judgment. However, it may be helpful to recap some of the salient facts which were either common ground or the subject of findings in that judgment.

As I have indicated, Harbour provided litigation funding to the claimants in the Orb Litigation. The terms on which they did so were set out in a contract called the Harbour IA, to which Harbour and each of the Orb claimants were parties. Pursuant to the Harbour IA, Harbour agreed to invest up to £5,280,000 to meet “the Claimants’ Legal Costs” (as defined), according to an “Agreed Budget and Timeline” (clause 2.1). That amount was to be paid directly to the legal representatives acting for the Orb claimants, defined as the Legal Representatives, who were identified in the Harbour IA, and could only be changed with Harbour’s written agreement (which was not to be unreasonably withheld) (clause 4.2(e)).

It was the Orb claimants who had the right to conduct the Proceedings, defined as “any legal proceedings, arbitration, mediation or other steps taken in contemplation of [the same] in relation to any of the Causes of Action” (clause 6.2), with an obligation to keep Harbour informed of material matters (clause 3 and elsewhere). Harbour’s control of the litigation process comprised:

Clause 8 was headed “Declaration of Trust” and provided:

“Proceeds” was defined as:

As Ms Jones KC noted, one of the difficulties with this definition of ‘Proceeds’ is that it seeks simultaneously to address two issues:

Clause 9.1 provides that the Orb claimants will apply or instruct the Legal Representatives to apply any Proceeds “received as a result of Success in the Proceedings and which it holds on trust” in a particular order:

Clause 9.2 provides that:

Schedule 2 provides that Harbour’s “entitlement to Proceeds as a Trust Beneficiary” would be “as set out in the table below and shall be paid in cash in pounds sterling”. The figures quantified Harbour’s entitlement by reference to a percentage of the Proceeds capped at £40,000,000, the percentage varying dependent on the date of receipt, with a further entitlement to 10% of the Proceeds in excess of £40,000,000 up to £80,000,000, and 5% of the Proceeds in excess of £80,000,000, whenever received. Schedule 2 continues:

As I explained in the Directed Trial Judgment, in March 2014 what has been referred to as the IOM Settlement was entered into, which led to legal title in various (largely non-cash) assets being transferred to Dr Gail Cochrane and SMA, a Marshall Island company, by way of what was contended to be the recovery of assets claimed in the Orb Litigation. Neither Dr Cochrane nor SMA were parties to the Harbour IA.

In an apparent effort to address this issue, and to deal with the fact that the assets transferred under the IOM Settlement did not take the form of cash, in October 2014 the Harbour Deed was entered into between the parties to the Harbour IA, Dr Cochrane, Stewarts and various other interested individuals, including Messrs Cooper and McNally who had procured the transfers (but not SMA). The Harbour Deed referred to the IOM Settlement, noting that neither the Orb claimants nor the defendant in the Orb Litigation were parties to it. The Deed sought to ensure that assets transferred under the IOM Settlement fell within the ambit of the Harbour Trust by agreeing that:

At the Directed Trial, it was submitted that the Harbour Deed had not been effective in overcoming the issue in [14] above, not least because SMA had not been party to it. I found that Dr Cochrane and SMA had not received the assets and rights acquired under IOM Settlement Agreement beneficially, but on bare trust for the Orb claimants.

At [538] of the Directed Trial Judgment, I found as follows:

Against that background, issues have arisen as to the nature and management of the trust or trusts created by the Harbour IA and the transfers to Dr Cochrane and SMA. In particular:

The Part 8 Claim form asks the Court to determine:

In addition, the Part 8 Claim Form sought a declaration that Mr Ticehurst had been properly appointed under s.36(1) of the Trustee Act 1925 in place of Orb on 8 March 2022 or alternatively asks the court to confirm that appointment under the court’s inherent jurisdiction or s.41 of the Trustee Act 1925 or otherwise. Finally, and (inevitably), the Part 8 Claim Form sought:

As the Part 8 Claim Form records, the court is concerned in the first instance with the interpretation of the Harbour IA, against the background of relevant provisions of the Trustee Acts 1925 and 2000. Having, on the basis of that analysis, determined what powers and duties the Trustees have, it is necessary for the court to determine which powers have been validly exercised. Finally, against that background, it is necessary for the court to determine what orders it should make in the particular circumstances of this case.

So far as the interpretation of the Harbour IA is concerned, I was referred to the following observation by Lord Neuberger in Marley v Rawlings [2014] UKSC 2, [19]:

The Trustee Acts 1925 and 2000 presumptively grant trustees various powers. Amongst those which have been referred to in the course of this application are:

Section 69(2) of the Trustee Act 1925 provides:

In In re Delamere’s Settlement Trust [1984] 1 WLR 813, 822, Slade LJ described the issue for the court when considering the operation of s.69(2) as being whether the application of the statutory provision would be “inconsistent with the purport of” the trust. He cited with approval the observations of Lord Evershed MR in Inland Revenue Commissioners v Bernstein [1961] 1 Ch 399, 412-13:

I was also referred to various authorities relating to the concept of a “bare trust”. That is not a defined term, and I accept that the obligations owed by a “bare trustee” will ultimately depend on the terms and context of the particular trust, rather than that “bare” description. In support of that proposition, Ms Reed KC referred me to Lewin on Trusts (20^th), [1-028], a reference where she submitted “all good trust arguments start”. This provides:

At [1-038] to [1-039], the editors note that “the Court of Appeal has described a bare trustee of shares in a company as a ‘dummy’”, but the editors doubt whether the function of a bare trustee, pending transfer, is simply to do what it is told to do by the beneficiary (albeit a bare trustee is bound by directions to transfer the property as the absolute beneficiary directs).

Finally, I was reminded by Ms Jones KC of the circumspection which must be adopted before applying the full panoply of trusts law to trusts which arise in a commercial context. In Target Holdings Ltd v Redferns [1996] 1 AC 421, 435, Lord Browne-Wilkinson noted:

In AIB Group (UK) plc v Mark Redler [1996] AC 421, [70]-[71], Lord Toulson observed that:

In the present context, in which the trust created is ancillary to the terms of a commercial contract, intended to secure the performance of the contractual rights of one of the parties, it is the terms of contract which are the predominant consideration.

At first sight, the trust created by the Harbour IA appears to be of the most limited kind, its purpose to provide some form of security interest for Harbour in relation to the amounts recovered through the funded litigation. In the core case which the drafters of the Harbour IA appear to have had firmly in mind – one in which a sum of money is paid by the defendant to the funded claimant in settlement of the funded proceedings or satisfaction of a judgment debt – the trust would have a very brief life and the role of the Orb claimants as trustees would have been largely ministerial in nature:

In particular, the Orb claimants were not under any duty to “get in” trust property, nor were they entitled to use “Proceeds” to do so:

It is also clear that Harbour’s funding obligations are limited to the amounts in the “Agreed Budget and Timeline” for the relevant stage of the Proceedings and in total, and that the Orb claimants had no right to use any recoveries in the Proceedings for the purpose of funding them, save to the extent of any amount which reached them at the bottom of the clause 9 waterfall:

There were also provisions which addressed the settlement of the Proceedings:

Finally, the designation of the Orb claimants as trustees did not come about because they were regarded as appropriate persons or entities to exercise the powers of a conventional trustee in respect of assets in which a wider group of beneficiaries were interested. The Orb claimants were essentially self-selecting as trustees, because they were the persons with the causes of action, to whom any payments in satisfaction or settlement of those causes of action would, in the ordinary and expected course, fall to be made.

In this case, the unanticipated form which the IOM Settlement took, and the amendment effected by the Harbour Deed in an attempt to address the position, undoubtedly complicate the position. It involved the acquisition of Settlement Consideration which took the form not simply of cash but, more significantly in terms of value, shares in various “holding companies” which held shares in a variety of companies with assets and in some cases businesses of their own. And it involved legal title being transferred to Dr Cochrane and SMA. However, I am not persuaded that the amendment effected by the Harbour Deed fundamentally changed the very limited nature of the Harbour Trust, so as to impose on the Orb claimants qua trustees an obligation to take steps to “get in” trust property, and the right without Harbour’s consent to use Harbour Trust funds to do so. That remains fundamentally incompatible with the nature of the bargain which the Harbour IA represents:

I accept that the only provision of the Trustee Act 1925 which was expressly included by the Harbour IA was the power of advancement under s.32 (excluded by clause 1.7). However, the very limited commercial trust created by the Harbour IA is so fundamentally different an animal from the traditional trusts at which the Trustee Act 1925 is principally aimed, that I cannot accept that this limited exclusion provides a sufficient basis for otherwise importing the full panoply of Trustee Act powers, however ill-suited they might be to the particular instrument under consideration.

For these reasons, I am not persuaded that the Orb claimants’ role as trustees extended much beyond holding “Proceeds” on the terms of the Harbour Trust, and certainly did not extend to investigating, initiating and compromising litigation, for the purpose of collecting assets in as suggested by the Trustees. Given the conclusions I have reached as to the other orders which it is appropriate to make, it is not necessary to address each of the specific powers mentioned in the Part 8 Claim Form, beyond the observation that the role, and powers, of the Orb claimants as trustees of the Harbour Trust was much more limited than the Part 8 Claim assumes.

Section 36(1) of the Trustee Act 1925 provides:

It is common ground that Orb is no longer fit or capable of discharging the office of trustee. As I have stated, it is en désastre as a matter of Jersey law. The unchallenged evidence of Ms Nicole Langlois, an Advocate of the Royal Court of Jersey, is that the effect of Article 24(2) of the (Jersey) Désastre Law is that Orb cannot hold any “public or private office” while en désastre, which includes holding the office of trustee (Article 24(1)). It follows, and is common ground, that Orb is “incapable of acting” as a trustee of the Harbour Trust for the purposes of s.36(1) of the Trustee Act 1925.

In these circumstances, in reliance on s.36(1) of the Trustee Act 1925, on 8 March 2022, Messrs Thomas and Taylor purported to appoint Mr Rupert Ticehurst as a replacement trustee. Mr Ticehurst is a solicitor who was formerly a partner and Head of the Trust Department at two major city firms, and who is currently a partner and Head of Dispute Resolution at Maurice Turner Gardner LLP. He has extensive experience of acting as a professional trustee. It is the stated intention of Messrs Thomas and Taylor to resign as trustees once Mr Ticehurst’s appointment as a trustee is confirmed (on the assumption, as I explain below, that there is a single trust, of which Messrs Thomas, Taylor and Ticehurst are all trustees).

The Settlement Parties challenge the validity of Mr Ticehurst’s appointment on a number of grounds:

It is right to record that, until the service of their skeleton argument, the Settlement Parties had throughout these proceedings referred to the Harbour Trust as a single trust, and my judgments and orders have proceeded on the same basis. While the Settlement Parties’ skeleton for this hearing stated that “the court order of 8 July 2022 which appointed Mr Ticehurst as interim trustee … proceeds on the basis of the misapprehension that there is a single ‘Harbour Trust’”, the terms of the order were prepared by the representatives of the Settlement Parties, and were consistent with the way in which the Harbour Trust had been referred to at that hearing, and indeed all previous hearings.

While the terms of the Harbour IA contain the usual provision that “except where the context otherwise requires, words denoting the singular include the plural and vice versa”, the convention of referring to the Harbour Trust as a single entity is also adopted in the Harbour IA, in the definitions of “Trust” (“the trust created under clause 8 and any other applicable provision of this Agreement”) and of “Trust Beneficiaries” (“the beneficiaries of the Trust”), in clause 8 (“the Claimants as trustee of the Trust”) and in clause 12 (“part of the Trust created under clause 8”).

There are other indicia in the Harbour IA that it contemplates a single trust in which the recoveries of each of the Orb Claimants fall to be administered as a single fund:

The only potential contra-indication is to be found in Schedule 7, the required form of notice and irrevocable direction to the Legal Representatives, whereby “each of the Claimants hereby gives notice … that such Claimant holds all Proceeds as Trust Property”. However, that can also be read as a notification by each Claimant of its position as one of the trustees of a joint fund, and the fact that there was a joint and several obligation to serve a single notice on behalf of all three Orb claimants lends support to that interpretation.

Having regard solely to the terms of the Harbour IA, therefore, I am satisfied that the case convention of referring to a singular Harbour Trust is consistent with the better interpretation of the Harbour IA. Ms Jones KC’s riposte to that conclusion was that it was not legally tenable, because each trustee could only declare a trust over their own property. However, the effect of the Harbour IA was not simply to create a series of bilateral obligations between each Orb claimant and Harbour, but also obligations between the Orb claimants inter se. I am satisfied that clause 8.1 takes effect as a binding agreement by the Orb claimants to jointly settle their respective recoveries on the single trust created by the Harbour IA, with each Orb claimant a trustee of that single trust. I would have taken some persuading that if, as I have concluded, that was the intention of the parties to the Harbour IA as ascertained from their agreement, there was some inherent structural limitation in the law of trusts which prevented its fulfilment.

There was some suggestion on the part of the Settlement Parties that I had already reached the contrary conclusion by reason of the underlined words in the Directed Trial Judgment, [538]:

However, as I have stated, the Directed Trial was conducted throughout on the basis that there was a single Harbour Trust, but without any argument (or decision) on the point. If, as I have concluded, the effect of the Harbour Trust was that assets were pooled so as to be held on a single trust at a point of receipt, there is nothing in [538] which is inconsistent with that state of affairs. The effect of the Harbour Deed was that the proceeds of the IOM Settlement were held on the basis of the trust created by the Harbour IA, the effect of which I have set out above.

It follows that I reject the Settlement Parties’ first ground of challenge to the appointment of Mr Ticehurst.

As I have noted, the Orb claimants were trustees of the Harbour Trust because they were the parties bringing the Cause of Action with the benefit of the funding provided by Harbour, with the power of settlement, to whom, in the ordinary course, any settlement payment or discharge of the judgment would fall to be made. The Orb claimants would stand to benefit from any Proceeds once the prior claims under clause 9.1 had been discharged, but were to receive no remuneration for the discharge of their role as trustees. Harbour had various contractual rights against the Orb claimants, with whom it chose to enter into contractual privity, and had obtained certain security rights in relation to them (referred to in the Harbour IA as “the Security” and defined as “the fixed and floating charges created over the assets of the Claimants by instruments of deed dated the date hereof”).

Further, the relationship between the Orb claimants inter se was not such that it might have been anticipated that, in some eventualities, the other two Orb claimants would get to decide who should hold the position of trustee originally held by the third (or indeed one of them in relation to the position of the other two).

The replacement of one of the Orb claimants as trustee by someone who did not have any of those attributes and was not in contractual privity with Harbour with the associated rights under the Harbour IA and the Security, to be chosen exclusively by the other two trustees, would involve a very significant departure from the position outlined at [51] and [52]. It would, almost inevitably, involve the appointment by the other two trustees of someone who would have to be remunerated for performing the role because they would have no interest in any Proceeds, and someone who would want to have an indemnity against trust assets, in circumstances in which the Harbour IA makes no provision for any such remuneration to be paid, did not provide the Orb claimants with any indemnity in respect of their role as trustees, and where the existence of any such remuneration or indemnity would be inconsistent with the clause 9 waterfall.

I am satisfied that the terms and nature of the Harbour IA, and the relationship of the Orb claimants, are wholly inconsistent with the existence of some “intra-trust” power of replacement of this kind to be exercised by one or both of the other trustees. The Trustees’ argument that two of the Orb claimants have the right to devolve the rights and obligations of trustee (such as I have found them to be) on a stranger to the Harbour IA, and to do so without the need for Harbour’s consent, would also sit uneasily with clause 22.1, which emphasises the personal nature of the obligations and rights under the Harbour IA by providing that “the Claimants are not entitled to assign and/or transfer any of their rights and/or obligations under any of the Transaction Documents”.

It follows that I accept the Settlement Parties’ contention that the power of replacement in s.36 of the Trustee Act 1925 was excluded in this case, with the result that the purported appointment by Messrs Thomas and Taylor of Mr Ticehurst as trustee was invalid and of no effect. If a replacement trustee was required, it was necessary to apply to the court under its inherent jurisdiction or under s.41 of the Trustee Act 1925.

In order to address these issues, it is necessary to deal with certain events which are the subject of outstanding applications which are not before me today. These include a committal application issued by the Enforcement Receivers and an application to challenge the jurisdiction of the court in respect of the Settlement Parties’ Part 20 Claim, issued by persons who claim to have authority to act on behalf of SMA, but whose entitlement to do so is very much in dispute. For that reason, I have dealt with these allegations with some caution.

On 3 March 2021, Messrs Cooper and McNally commenced proceedings in the Marshall Islands against SMA (the RMI Proceedings), the basis of those proceedings being that the assets which I have found that SMA held on bare trust, and which were ultimately held on the terms of the Harbour Trust, should be available to meet their claim. Messrs Cooper and McNally have been found to have acted dishonestly:

On 21 June 2021, the Enforcement Receivers asked LCL (a company I found to be ultimately beneficially owned by Dr Smith, his brother, Mr Anthony Smith, holding shares as nominee on his behalf: [498] and [610] of the Directed Trial Judgment) to transfer the shares in SMA to them. LCL relied upon the proceedings commenced by Messrs Cooper and McNally as a reason for not doing so.

On 9 August 2021, LCL purported to appoint a company called BKV Limited (BKV) as director of SMA. An individual called Mr Atik Miah has held himself out as the principal of BKV. Mr Miah is a known associate of Messrs Cooper and McNally, strongly suggesting that Dr Smith (through LCL) and Messrs Cooper and McNally (through BKV) are co-operating in attempts to prevent the Enforcement Receivers from gaining control of SMA, including to protect the Arena Companies on behalf of the Harbour Trust. On 5 August 2021, LCL had purported to assign rights under a document called the LCL Funding Agreement (whose authenticity was strongly challenged in the Directed Trial, although in the event it was not necessary to determine that question) to BKV.

In the course of August 2021, Mr Thomas began taking steps by reference to his capacity as a trustee of the Harbour Trust. On 30 August 2021, Mr Thomas informed the Settlement Parties that he and Mr Taylor had resolved to take steps to “collect in the Orb Claimants’ assets in the Joint Trustees’ names” and to undertake discussions with Mr McNally and BKV, and on 17 September 2021, Mr Thomas and Mr Taylor resolved to seek a stay of the RMI Proceedings with Mr Cooper and Mr McNally “to enable settlement negotiations to occur”.

On 3 and 6 September 2021, Mr Thomas wrote to LCL asking for the shares in SMA to be transferred to Orb, Mr Thomas and Mr Taylor, and it is clear that LCL provided them with purported share certificates (Mr Thomas informing the solicitors for the Settlement Parties on 9 September 2021 that the share certificates were now in the Orb claimants’ names). As I have stated, LCL had previously refused to comply with a request by the Enforcement Receivers for the transfer of the shares in SMA to them (see [58] above).

On 27 September 2021, Mr Thomas informed the Viscount that he intended to seek appointment to the board of SMA and to seek stays of litigation in the Marshall Islands and the Isle of Man involving Messrs Cooper and McNally. On 30 September 2021, there was a purported appointment of Mr Thomas to SMA’s board by BKV. On 6 October 2021, Mr Thomas wrote to the lawyers who the Enforcement Receivers had instructed in the Marshall Islands Proceedings, purporting to instruct them to stay the proceedings to allow negotiations with Messrs Cooper and McNally to be conducted.

On 1 December 2021, Messrs Thomas and Taylor applied for a stay of execution in respect of the costs order I had made against them on 21 October 2021 in the Directed Trial requiring them to pay £335,000 within 42 days.

On 15 December 2021, persons claiming to be entitled to act on behalf of SMA filed an application in the Eastern Caribbean Supreme Court in SMA’s name. Mr Thomas provided an affidavit in support of that application which (i) supported BKV’s contention that it was a director; and (ii) contended that SMA was entitled to an indemnity on assets held on trust (i.e. the position adopted by Messrs Cooper and McNally in the Marshall Islands Proceedings, which was, at first sight at least, detrimental to the interests of those who claimed to be interested in those same assets under the Harbour Trust).

On 26 January 2022, BKV and Mr Thomas filed a notice seeking to intervene in the Marshall Islands Proceedings, challenging the Enforcement Receivers’ right to act on SMA’s behalf, and Mr Thomas applied to stay the proceedings to allow for settlement discussions with Messrs Cooper and McNally.

By this point, therefore:

It was against that background that Messrs Thomas and Taylor had purported to appoint Mr Ticehurst as trustee of the Harbour Trust, following which Payne Hicks Beach LLP (PHB), acting for the Trustees, demanded that all proceeds from the IOM Settlement be handed to the Trustees. There was no attempt to consult with Harbour and Orb about the proposed appointment.

On 10 May 2022, the Trustees, acting through PHB, issued the Part 8 Claim Form. On 15 July 2022, Mr Ticehurst issued an application seeking to stay applications which might have the effect of dismissing a claim to a “Pigott Order” which Messrs Thomas and Taylor wished to seek.

It will be apparent from the above summary that Mr Thomas, in particular, had been engaged or involved in a significant amount of legal activity. It was Mr Thomas’ own evidence, filed in support of his application for a stay of execution of the costs order, that he has no funds of his own, and that these costs have been met by a funder who he was not willing to name. The funder was also meeting the costs of PHB and Mr Ticehurst, and also the solicitors and counsel separately instructed by Messrs Thomas and Taylor to advance the stay of execution application.

Requests by the Settlement Parties’ solicitors for the disclosure of the funder’s identity were made on 27 July 2022 (to Mr Thomas and Mr Taylor’s solicitors), 18 August 2022 (to PHB and again to Mr Thomas and Mr Taylor’s solicitors and also to Mr Ticehurst) and 21 September 2022 (to PHB and Mr Ticehurst).

These requests finally received a response on 14 October 2022, when PHB stated that Messrs Thomas and Taylor had borrowed the funds from two lenders whose identity had been provided to PHB on a confidential basis, and that “all appropriate KYC/AML checks have been completed”.

On 17 October 2022, Minardi (an entity which I have previously found to be under the control of Mr Ruhan, who has also been found to have committed serious and sustained acts of dishonesty in my judgment in HPII & Anr v Ruhan & Stevens [2022] EWHC 383 (Comm)) wrote to the JLs intimating various claims, and seeking to constitute a creditors committee of various of the Arena Companies. Minardi proposed that Mr Ticehurst should be a member of the creditors committee. On the basis of my findings, Mr Ruhan is the ultimate beneficial owner of both Phoenix and Minardi, who advanced competing claims against those of the parties interested in the Harbour Trust at the Directed Trial. A letter sent by Minardi on 11 October 2022 was signed electronically by Mr Ruhan and copied to Mr Ruhan’s email address. In a letter to the Enforcement Receivers of 21 October 2022, Minardi asserted that Mr Thomas and BKV were SMA’s only lawful directors (to that extent, at least, making common cause with Mr Thomas and with Messrs Cooper and McNally).

On 24 October 2022, Mr Thomas contacted the Settlement Parties’ solicitors suggesting that they have a discussion. That discussion took place on an open basis the following day. On 27 October 2022, Mr Thomas wrote to Mr Zoubir of the Settlement Parties’ solicitors effectively offering to broker a deal which would resolve all of the competing claims in return for “an agreed consideration”:

In the Trustees’ skeleton argument for the hearing, prepared on Mr Ticehurst’s instructions, it was suggested that the question of who was funding Mr Ticehurst was “not obviously relevant to the issues in [the Part 8 Claim], save indirectly as regards enforcement of costs orders”.

At the hearing, I indicated my unhappiness that the identity of the party funding the Trustees, and Messrs Thomas and Taylor in respect of their own activities, had not been disclosed to the court. As a result, on the evening of the first day, Mr Ticehurst filed a witness statement to assist the court disclosing the following:

I have already referred to previous findings concerning Mr McNally and Mr Anthony Smith. I should also add that:

The circumstances set out above raise a strong prima facie case that Mr Thomas with Mr Taylor’s support has been co-operating with parties whose interests would at least appear to be directly opposed to those of the beneficiaries under the Harbour Trust, with Mr Thomas’ actions being funded by those parties. The funding entities are closely connected to individuals against whom prior findings of dishonesty have been made (and in the case of Dr Smith, someone who has twice been convicted and imprisoned for fraud). Given:

It would have been open to Messrs Thomas and Taylor to seek to answer that strong prima facie case by comprehensive and candid evidence addressing their dealings with the funders and the funders’ role in their activities. However, no such evidence has been provided (and indeed there are no statements from Messrs Thomas and Taylor at all).

In these circumstances, and on the basis of the evidence before me, I have concluded that any power of appointment was not exercised for a proper purpose, and would have been void for that reason as well (on the basis set out in Lewin, [30-066]).

This issue does not arise for determination. In any event, Mr Ticehurst informed the court that if his continued involvement was likely to be a source of difficulty, he would resign from the office of trustee. The circumstances of Mr Ticehurst’s appointment, the source of his funding, and the manner in which that funding came to light would, in my view, have made his continuing involvement unhelpful, and a likely source of ongoing dispute and distrust. There is also the fact that, as the principal source of instructions in the Part 8 Claim, he has positively argued for an interpretation of the scope of the Harbour Trust and the powers of the trustees of that trust which conflicted with that for which Harbour and Orb contended, and which I have rejected. Had matters reached this stage of the analysis, therefore, I would have been grateful for Mr Ticehurst’s pragmatic offer to step down in order to reduce the potential for dispute going forward.

For essentially the same reasons, I have concluded that it would not be appropriate to exercise the court’s power under s.41 of the Trustee Act 1925 to validate Mr Ticehurst’s appointment as trustee now. Any such appointment is strongly opposed by Harbour and Orb, for reasons which cannot be described as capricious or insubstantial.

As I have indicated, Messrs Thomas and Taylor have indicated their willingness to resign. However, it is not clear to me whether that willingness will continue in circumstances in which I have held that their appointment of Mr Ticehurst was not valid.

I am satisfied that I should exercise the court’s inherent jurisdiction to remove Messrs Thomas and Taylor from the offices of trustees if they do not resign:

The court’s inherent power to remove trustees who have been guilty of misconduct is clear (Letterstedt v Broers (1884) 9 App Cas 371). In Fay v Moramba Services Pty Ltd [2009] NSWSC 1428, [24], Brereton J suggested that the question for the court is whether the due and proper administration of the trust is opposed to the trustees remaining in office, with regard to the interests of all the potential beneficiaries. I am satisfied that it is.

In these circumstances, it is necessary for the court to determine what course should now be taken. Broadly, there were three options on offer:

There are three key issues dividing the parties:

I accept that new trustees are required to perform the role of receiving and holding assets, given the conclusions I have formed and the concerns I have expressed as to the position of Messrs Thomas and Taylor.

The shares in the Relevant Companies all fall within the Harbour Trust and the companies themselves are currently within the control of the JLs. The JLs believe that it is those companies which may in due course give rise to the Arena Surplus. Legal title to the shares in the companies is held by SMA, and, as I have indicated, steps are being taken across a broad front by third parties to lay claim to the Arena Surplus, in which the ownership, control and liabilities of SMA are a significant feature. In these circumstances, I am satisfied that it is necessary for the Harbour Trust’s interest in shares in the Relevant Companies to be transferred to neutral trustees, who are under the control of the court, to safeguard the Arena Surplus and ensure that it remains available to whoever is ultimately found to be beneficially entitled to it. This aspect of the relief sought by the Settlement Parties was not challenged by the Trustees, Ms Reed KC stating that “it is common ground between the parties that it is not a good idea for the [Arena Shares] to remain vested in SMA, bearing in mind what has been going on”. The issue of whether the court should go further and order the transfer of the legal title to those shares from SMA is not an issue to be determined at this hearing.

However, I have found that the role of the trustees under the Harbour Trust is very limited, and does not extend to taking active steps to gather in assets, and to commence, conduct and settle litigation to that end. I am not persuaded that there is any need to provide the trustees who the court is asked to appoint to the Harbour Trust with greater powers than the Orb claimants had. That would be inconsistent with the terms of the Harbour IA, and have the effect of fundamentally re-writing the allocation of risks and responsibilities in that instrument. Further, the underlying companies are under the control of court-appointed officers, the JLs (the courts in question being those of the British Virgin Islands and the Isle of Man, common law jurisdictions whose judges have considerable experience of dealing with disputes concerned with the liquidation and winding-up of companies). I see no need for the JLs’ work to be “second guessed” by individuals appointed at the level of the (very limited) Harbour Trust, and doing so would involve a significant potential drain on trust a assets (particularly if those wishing to interfere in the winding-up of the Arena Companies tried to exploit the existence of such a supervisory role for their own purposes).

Ms Reed KC for the Trustees argued that if the court-appointed trustees of the Harbour Trust on terms which limited their role to receiving and holding assets, that will have the effect that there is no one looking after the interests of Messrs Thomas and Taylor as beneficiaries of the Harbour Trust, and in particular looking to maximise the recovery of any trust funds paid away in breach of trust, when it will be Orb, Messrs Thomas and Taylor who would stand to benefit from any recoveries over and above Harbour’s share, and where the Viscount (on behalf of Orb) has entered into a Settlement Agreement with the other Settlement Parties.

I am not persuaded that there is anything in this objection.

First, I am satisfied that it is open to Messrs Thomas and Taylor as beneficiaries to pursue any party alleged to be wrongfully holding trust property. Ms Reed KC challenged the assertion that it is open to beneficiaries to take steps to recover assets in which they have a proprietary interest without the involvement of a trustee, or at least said that she did not “entirely accept … that this is something that happens all the time”. In particular, she submitted that Messrs Thomas and Taylor might have difficulty in establishing their beneficial interest because they would need to show that the prior claims of Harbour did not exhaust the trust estate.

However:

Second, there is real doubt as to what other viable claims there might be:

However, if Messrs Thomas and Taylor are able to identify assets to which they believe the Orb claimants or the beneficiaries under the Harbour Trust have a claim, they could seek the approval of the beneficiaries under the Harbour Trust to use trust funds to pursue those claims, and if that was not forthcoming, seek an assignment of the relevant cause of action and pursue them themselves (as Ms Reed KC recognised).

I am satisfied, therefore, that the appointment should be on the basis of the limited powers set out in the draft order submitted by the Settlement Parties, and turn to the issue of who should be appointed. Given my conclusions as to the limited role of the trustees, I am not persuaded that it would be appropriate to appoint Mr Kirker, whose expertise lies in commercial investigations and asset tracing. As to the individuals put forward by the Settlement Parties, Ms Jordan is a partner at Taylor Wessing, heading up that firm’s contentious trusts team and Mr Graham is a partner at Farrer & Co and head of that firm’s contentious trusts and estates group. Having reviewed their curriculum vitae, both have obvious relevant expertise. Both have consented to act, and explained their charge out rates, the steps taken to clear conflicts and the arrangements for professional indemnity cover. I am satisfied that they are appropriate individuals to perform the limited role which I have identified, and I will appoint them. I will refer to them hereafter as the New Trustees.

I am also persuaded that it is appropriate to authorise reasonable remuneration for the New Trustees, and that they should be entitled to an indemnity against trust assets (on the basis of the court’s jurisdiction as referred to at Lewin, [19-043] and [20-049]. However, given the importance of securing the Harbour Trust’s interest in shares in the Relevant Companies in the current tumult, it is appropriate for Harbour and Orb to meet their remuneration and costs in the first instance, to be recovered from the Arena Surplus once received.

That leaves open the question of whether the New Trustees’ appointment should be limited to the Harbour Trust’s interest in the shares in the Relevant Companies, and, if not, what the consequence would be of there being no trustee of the Harbour Trust’s interest in those assets. I deal with this issue when considering what order I should make in respect of the Property Assets.

That leaves open the question of whether the New Trustees’ appointment should be limited to the Harbour Trust’s interest in the shares in the Relevant Companies, and, if not, what the consequence would be of there being no trustee of the Harbour Trust’s interest in those assets. I deal with this issue when considering what order I should make in respect of the Property Assets.

The issues raised by the Property Assets are rather different. The interests of the Harbour Trust are, in most instances, fractional equitable interests:

The court has a flexible power to appoint receivers under s.37 of the Senior Courts Act 1981. It is a power which is often used in the trust sphere (Lewin, [40-033] to [40-044]). While the court will be reluctant to take the management of a traditional trust out of the hands of the trustees and place it in the hands of the receiver (Lewin, [40-033]-[40-037]), that concern has limited application here, given the very limited and largely ministerial role which the trustees of the Harbour Trust have.

Having regard to the following distinct features of the Property Assets, viz:

Those receivers will, in the usual way, be entitled to remuneration and an indemnity in respect of their expenses from the receivership property, its income and proceeds.

That leaves the issue of whether I should stop at this point, when doing so would mean that in respect of the Harbour Trust’s interests in these assets, there would currently be no trustee in place (given Orb is unable to act as a trustee and Messrs Thomas and Taylor are no longer to be trustees), albeit there would remain trustees of the relevant underlying assets in the form of the legal owners of the assets in question (either the shares in Bodega or the holders of the legal estate of the relevant London properties). Lewin notes at [14-074]:

The authority cited in support of the last proposition is the decision of the Ontario Supreme Court in Gonder v Gonder Estate [2010] ONCA 172. In that case, the trustees had applied for their own removal from office as trustees of a deceased’s estate due to personal difficulties, and alternatively sought directions for the sale of the house (which was the last remaining asset in the deceased’s estate by the date of the application) and the payment of the proceeds into court. The first instance judge made an order removing the trustees from office. The Ontario Court of Appeal upheld the judge’s decision to remove the trustees, but held that he should have made alternative provision for the proper administration of the estate. It rejected the argument that it was impossible to remove the only trustee without appointing a replacement ([32]), while agreeing that a replacement trustee would ordinarily be required. At [34], the court stated:

The court in Gonder referred to two English authorities said to support its decision – Gardiner v Downes (1856) 22 Bevan 395 and Barker v Peile (1865) 2 Drewry and Smale 340. Both relate to applications for costs by retiring trustees, and it is difficult to find any statement in either of the very short judgments which bears on the issue considered in Gonder. I was also referred by the Settlement Parties to In re Smirthwaite’s Trusts (1870-71) LR 11 Eq 215, but that case is addressed to the rather different issue of whether the court could appoint a new trustee under the Trustee Act 1850 where there were no existing trustees.

The decision in Gonder is doubted in Underhill and Hayton: Law of Trusts and Trustees (20^th), [74.14]:

I accept that removal of the only trustees without replacing them will be a rare, perhaps exceptional, course, but I am not persuaded that it cannot be done. If, for example, there is a pressing need to remove the existing trustees because they are unable to act, or are unsuitable to remain in office, or some combination of the two, I am not persuaded that the court would be precluded from acting simply because it had not, at the stage of the removal application, been possible to identify a suitable person willing to assume the office of trustee. The court will exercise its power to remove trustees if this promotes the welfare of the beneficiaries and the competent administration of the trust (Letterstedt v Broers (1884) 9 App Case, 371, 386), and if the due and proper administration of the trust is opposed to the trustees remaining in office, with regard to the interests of all the potential beneficiaries (see [84] above). If these considerations require the immediate removal of the existing trustees, but do not require the immediate appointment of a replacement, then I am satisfied that the court can proceed on that basis, at least as an interim measure, while keeping the position under review.

In this case:

Accordingly, I do not propose to make any order appointing a replacement trustee of the Harbour Trust in respect of the Harbour Trust’s interest in the Property Assets at this stage. Should the court conclude that it is necessary or appropriate at some future stage to do so, consideration can be given to extending the role of the New Trustees to encompass the Property Assets to the extent that they fall within the Harbour Trust.

Finally, the Trustees object to the appointment of the Enforcement Receivers as receivers of the Property Assets. Before considering their objections, it is important to note the factors which point strongly in favour of the desirability of the Enforcement Receivers being appointed:

However, the Trustees oppose the appointment of the Enforcement Receivers on two grounds.

First, it is said that Mr Standish and the other receiver under the 2008 and 7 December 2017 Receivership Orders, Mr Milsom, have found themselves in sharp disagreement with Messrs Thomas and Taylor in relation to a number of matters concerning assets which are (or, in some respects which Messrs Thomas and Taylor have wrongly asserted are) subject to the Harbour Trust, and have issued committal proceedings against Mr Thomas. However:

Second, it is said that there may be a conflict of interest between the Enforcement Receivers, or others with fractional interests in the relevant properties, and Messrs Thomas and Taylor. This challenge breaks down into a number of allegations best considered individually.

In short, I am satisfied that the objections to the appointment of the Enforcement Receivers are essentially manufactured complaints, rather than the result of genuine concerns on the part of Messrs Thomas and Taylor relating to their legitimate interests as beneficiaries under the Harbour Trust. They do not begin to outweigh the clear and objectively demonstrable benefits of appointing the Enforcement Receivers.

No cross-undertaking in damages is required. The court is not being asked to appoint a receiver by way of equitable execution, but to realise the value of assets which are the subject of complex and fractional beneficial ownership, as determined in the Directed Trial, and hold the proceeds to further order of the court for distribution to those beneficially entitled. Further, the Enforcement Receivers are insolvency practitioners and have offered to provide security by extending their bond (which provides £5m of cover) to the court-appointed receivership. In addition, Interpath has professional indemnity insurance.

The parties are asked to draw up an order giving effect to the determinations in this judgment.

The issue of whether it is appropriate for the court to exercise jurisdiction over the claims advanced by the Settlement Parties against SMA in the Part 20 Claim and, if so, what relief, if any, should be granted, will need to be considered at a subsequent hearing, when the jurisdictional challenge which BKV and Mr Thomas have sought to issue on SMA’s behalf falls to be considered.