Two recent cases on Beddoe relief: What happens if you forget to apply and Beddoe relief for appeals

The Grand Court of the Cayman Islands and the High Court in England and Wales have recently considered two unusual applications for Beddoe relief: an application by a trustee for retrospective Beddoe relief after the conclusion of proceedings; and an application by a trustee for Beddoe relief in respect of bringing an appeal in the Supreme Court of England and Wales. These two cases are discussed below.

Beddoe Relief

An application for Beddoe relief (see Re Beddoe [1893] 1 Ch 547) enables a trustees to obtain directions from the court approving its participation in litigation in its capacity as trustee and ordering that the trustee will be indemnified in respect of the costs of the litigation from the trust funds.

The key question for the court in relation to Beddoe relief is whether or not it is in the interests of the beneficiaries as a whole for the proceedings to be commenced, defended or continued. The decision of the court is discretionary, and there are no limits on what the court may consider as relevant to its decision.

Help! I forgot to apply for Beddoe relief in advance – may I still have it?

In the matter of the Stingray Trust (Grand Court, Cayman Islands)

Background

In January 2019, the Grand Court of the Cayman Islands heard an application for Beddoe relief by the trustee of the Stingray Trust. The Stingray Trust was settled on 5 July 2005 by two Italian citizens: "CDF" and his sister "IDF". The beneficiaries of the Stingray Trust were CDF, IDF and a charity ("MF").

CDF passed away and IDF began to suffer from ill health. A Public Guardian (the "Guardian") was appointed on behalf of IDF. Shortly after the Guardian's appointment, she began to ask questions of the trustee of the Stingray Trust and eventually issued proceedings (on behalf of IDF) against the trustee in Switzerland (the "Swiss Litigation"). In the Swiss Litigation, the Guardian alleged that the Stringray Trust was not valid and sought a) delivery up of the trust assets to IDF; and b) an order preventing the trustee from making any decisions in relation to the Stingray Trust. As part of the Swiss Litigation, the Guardian sought urgent injunctive relief against the trustee.

The trustee sought legal advice in Switzerland and proceeded to successfully defend the Swiss Litigation, which was dismissed both at first instance and on appeal. The trustee had not sought Beddoe relief prior to participating in the Swiss Litigation.  This was so, it said, because of the urgency of the injunctive relief application.  For this reason it sought retrospective Beddoe relief in respect of the Swiss Litigation.

However, before the application could be determined, the Guardian issued similar claims in the Court of Milan (the "Milan Litigation"). The trustee once again sought legal advice on how to defend the claims, but was able to first make an application for Beddoe relief in respect of the Milan Litigation.

The Decision of the Grand Court

The Grand Court heard both of the Beddoe relief applications together; the retrospective application in relation to the Swiss Litigation, and the application in relation to the Milan Litigation, and granted the relief sought in both instances.

1.The Retrospective Application relating to the Swiss Litigation

The Grant Court held that it was reasonable of the trustee to have decided to defend the Swiss Litigation on the basis that the claims went to the centre of the Stingray Trust's existence because the validity of the settlement was disputed. In addition, the Grand Court took into account the fact that the other beneficiary (MF) was not a party to the proceedings, and so there was a substantial risk that the trust assets would have been transferred to the Guardian had the trustee not decided to defend the claims. The Grand Court decided that in these circumstances it was proper for the trustee to have defended the claims and made an order that the trustee may be indemnified against the reasonable costs of defending the Swiss Litigation.

In relation to the timing of the application, the Grand Court considered that although it was unusual for a trustee to make an application for Beddoe relief after proceedings have concluded, the trustee had acted in a reasonable manner due to the urgency of the injunctive relief sought by the Guardian, and made a Beddoe relief order in favour of the trustee.

2. The Milan Litigation

In the Milan Litigation, the other beneficiary (MF) had been served with proceedings but had decided not to participate. The Grand Court held that again, there was a significant risk of the trust assets being transferred to the Guardian if the trustee did not defend the claims, and made an order for Beddoe relief.

However, the Grand Court decided to limit the relief to only cover permission to pursue, and claim costs for, a jurisdictional challenge in the Milan Court. The Grand Court directed that if the trustee's jurisdictional challenge should fail, it may make a further application for directions from the Grand Court.

What about appeals to the Supreme Court – can trustees have Beddoe relief for them?

Airways Pension Scheme Trustee Limited v (1) Mark Owen Fielder and (2) British Airways Plc [2019] EWHC 29 (Ch) (High Court of England and Wales)

Background

The application for Beddoe relief was made by the trustee of the Airways Pension Scheme (the "Scheme") in relation to a pending appeal to the Supreme Court of England and Wales (the "Appeal") (to be heard in July 2019).

The original claim was brought in 2013 by British Airways Plc ("BA") against the trustees (the "Trustees") at the time of the Scheme, seeking to challenge two decisions made by the Trustees: a) a decision to exercise a unilateral power of amendment to provide trustees with the power to augment the members' benefits by award of discretionary increases (the "First Decision"); and b) a decision to use this power to make a discretionary increase of 0.2% (the "Second Decision") (together the "Decisions").

At first instance, Morgan J dismissed BA's challenges to the Decisions. On appeal, the Court of Appeal held that the First Decision was invalid on the basis that the amendment had been made for an improper purpose, and it therefore followed that the Second Decision was equally invalid. The Court of Appeal granted the trustee of the Scheme (the "Trustee") permission to appeal to the Supreme Court, and the Trustee subsequently filed a Notice of Appeal with the Supreme Court.

The Beddoe Proceedings

In relation to the first instance proceedings, the Trustee had made an application for Beddoe relief (the "First Beddoe Proceedings") which BA strongly objected to, despite the trust deed containing an indemnity for the Trustees which arguably included circumstances such as the first instance proceedings. The Court gave directions that the Trustee was entitled to Beddoe relief in relation to disclosure and inspection, and BA subsequently conceded liability under the indemnity in the trust deed. The First Beddoe Proceedings were therefore stayed and a consent order was made by the Court. After judgment was given in the first instance proceedings, this order was extended to cover the Trustee's response to BA's appeal to the Court of Appeal.

The Trustee then made a separate and new Beddoe application to the High Court seeking directions to approve pursuing an appeal to the Supreme Court and an indemnity in respect of costs of such appeal from the Scheme. The application was supported by Mr Fielder, a representative member of the Scheme, and opposed by BA. The Trustee and Mr Fielder both provided the High Court with counsel's opinion as to the merits of the Appeal prior to the application being heard.

The Decision of the High Court

Arnold J described this application as being made in "unprecedented" circumstances because Beddoe relief had not previously been awarded specifically for the purposes of a trustee pursuing an appeal to the Supreme Court. Despite the novelty of this case, Arnold J approved the Trustee pursuing the appeal and held that it was entitled to an indemnity in relation to its reasonable costs from the Scheme funds.

In coming to this conclusion, Arnold J analysed the case law, holding that there was no inflexible rule against awarding Beddoe relief in such circumstances (despite BA's assertions that this was the case). Arnold J held that the Trustee would be entitled to Beddoe relief if the Trustee was acting in the best interests of the trust as a whole, stating that "The advantage of the Beddoe jurisdiction is that it enables the trustee to obtain the court's assessment of whether an appeal would indeed be in the interests of the trust as a whole".

Arnold J placed weight on the following factors in determining that the Trustee would be acting in the interests of the Scheme as a whole:

1. The Appeal had a good prospect of success, evidenced by the opinions from counsel and the fact that the Court of Appeal had given permission to appeal to the Supreme Court;
2. The Appeal would benefit the vast majority of the members of the Scheme: 90% would benefit from the Second Decision and 97% would benefit if the power derived from the First Decision was exercised after 2018 (causing no cost to the other beneficiaries of the Scheme);
3. The costs of the appeal would be a small fraction of the amount at issue as a result of the First and Second Decisions;
4. The decision of the Court of Appeal had not clarified and had in fact cast doubt on the circumstances that the Trustees could properly use their power of amendment under the Scheme (which was used in relation to the First Decision and found by the Court of Appeal to have been used for an improper purpose) and it would be for the benefit of the Scheme for the Supreme Court to clarify this;
5. The Trustee is the only party practically capable of bringing the appeal. The Trustee was the Defendant in the underlying proceedings and the "natural party" to have conduct of the appeal; and
6. The order sought by the Trustee may result in significant costs to BA as it may be required to make contributions to the Scheme, but these costs are justified by the above reasons.

However, Arnold J was not willing to provide a limitless indemnity to the Trustee against costs of the appeal. This was due to the significant costs already incurred in relation to the appeal by all parties, and the large cost estimate for the appeal provided by the Trustee in the sum of £1.24m compared to the slightly lower estimate provided by BA in the sum of £1.03m. Consequently, Arnold J capped the costs that the Trustee is entitled to an indemnity from the Scheme to £1.03m.

Comment

For trustees, the Beddoe jurisdiction is an essential element of bringing, defending or continuing in proceedings as it provides not only financial protection for the trustee but also sanctions any decisions made by the trustee to continue acting in a litigation.

These two cases demonstrate the courts are willing to be flexible in granting Beddoe relief to trustees, as long as the trustees are found to be acting in the best interests of the trust as a whole when taking steps in a litigation. Although this is a positive finding, it should not be assumed that trustees will always be entitled to indemnity costs from the trust, but rather signifies the importance of taking comprehensive and specialised legal advice prior to trustees taking any steps in litigation.