Mahme Trust Reg & Ors v Lloyds TSB Bank Plc

A managing committee authorised only to give instructions concerning investment management cannot direct a trustee bank to transfer trust assets to another bank. A bank is not a de facto trustee merely because it controls, or appears able to control, the formal trustee. Liability requires interference in the transaction affecting the formal trustee’s decision.

Where damages are claimed for breach of contract or statutory duty, the claimant must show recoverable loss and therefore a sufficient possibility of damage before an inquiry will be ordered. Costs incurred in separate proceedings are assessed by reference to costs recoverable on the standard basis.

The Shake Trust, a Liechtenstein trust enterprise, pursued claims against Lloyds TSB Bank arising from the management and custody of its assets. The surviving claims concerned refusal to transfer 20 per cent of the assets to Goldman Sachs, payments to Landglaze Holdings, foreign exchange transactions, and fees paid to ATU and its associated lawyers.

The claims were advanced principally under Liechtenstein law and Swiss law. Several wider claims and claims by individual beneficiaries had been withdrawn or released. The court therefore determined whether the Bank had breached its duties and whether the Trust had established recoverable loss.

1. Goldman Sachs transfer. The Managing Committee was not an organ of the Shake Trust. Under the applicable statutes and by-laws, its authority to give written instructions concerning asset management meant investment management, not the power to transfer the Trust’s account to another bank. The Trustees’ opposition therefore prevailed.
2. De facto trusteeship. Under Liechtenstein law, control of a formal trustee is insufficient by itself to make a person a de facto trustee. The person must have interfered in the particular transaction so as to affect the decision taken by the formal trustee. The Bank had acted as a conduit for information and as banker honouring authorised transfer orders; it had not interfered in the Landglaze payments.
3. Bank mandate. In the absence of bad faith or knowledge that the required authorisation was missing, the Bank was entitled to rely on Primeway’s authorised signature. The contractual claim concerning the Landglaze payments therefore failed.
4. Loss and damages. The Trust had not shown that it suffered loss from the refusal to transfer assets, the foreign exchange transactions, or the fees paid to ATU and others. A damages claim cannot succeed merely by showing fees received by the defendant. An inquiry requires evidence of a real possibility of loss.
5. Costs of other proceedings. Following British Racing Drivers Club Ltd v Hextall Erskine & Co [1996] 3 All ER 667, the recoverable amount of litigation costs claimed as damages is the amount that would be allowed on assessment on the standard basis.
6. All four surviving claims failed. The court also considered, although it was unnecessary to decide, that the 2000 Settlement Agreement strongly supported implying the Shake Trust as a party and releasing its claims.