Wester v Borland

A trustee, including a bare trustee, may retain trust property under a lien only to secure a proper indemnity for costs, expenses or liabilities arising from the trusteeship. The lien must be exercised having regard to the beneficiaries’ proprietary interests. The trustee must identify substantial grounds for exercising it and take reasonable steps to ascertain the relevant liability. A speculative or avoidable concern does not justify retaining the whole fund indefinitely. On a summary judgment application, the court assesses whether the defence or counterclaim has a real prospect of success without conducting a trial or making findings of bad faith.

The claimant and defendant were half brothers. The defendant held shares in a New Zealand company as bare trustee for the claimant. Following the company’s liquidation, the defendant received €127,500 into a Swiss bank account and retained it after the claimant demanded payment.

The claimant sought summary judgment for a declaration, an account and payment. The defendant relied on possible New Zealand tax liabilities, the Proceeds of Crime Act, and a possible claim by a company connected with the claimant. The claimant also sought summary judgment on the defendant’s counterclaim for indemnity and damages for breach of trust.

1. Summary judgment. The application was determined under CPR Part 24. The claimant had to show that the defences and counterclaim had no real prospect of success. The court did not resolve disputed facts or make findings imputing bad faith.
2. Trustee’s lien. A trustee has a right to indemnity for proper costs, expenses and liabilities incurred, or to which the trustee is exposed, by reason of the trusteeship. The trustee also has a lien over trust property in support of that indemnity. The right must be exercised with regard to the beneficiaries’ independent proprietary interests. The trustee must demonstrate substantial grounds for exercising the lien and take reasonable steps to ascertain the relevant liability. The court provisionally adopted the approach that the beneficiary must then present sufficiently compelling facts to show beyond reasonable doubt that the asserted risk would not result in liability.
3. New Zealand tax. The defendant was initially entitled to investigate his potential exposure. However, he should have done so before the proceedings began. A trustee could not retain the entire fund indefinitely while merely asserting that a tax liability might exist. The potential liabilities under sections HK 11 and 147 were either directed to the defendant in another capacity or lacked the necessary factual foundation. The claim for proper tax-advice expenses therefore remained arguable, but was limited to expenses that would reasonably have been incurred had advice been obtained in time.
4. Proceeds of crime. The evidence did not provide a sound objective basis for fearing that payment would involve an arrangement concerning criminal property. The statutory consent procedure offered a straightforward means of removing any genuine concern, but the defendant had not used it. The Proceeds of Crime Act therefore afforded no real prospect of a defence or a claim for reimbursement of related costs.
5. Orders. The defendant was declared to hold the shares and funds on trust for the claimant and was ordered to account and pay the amount found due. Summary judgment was refused on the claimant’s separate damages claim and on the defendant’s counterclaim to the extent that proper tax-advice expenses remained arguable. The defendant was ordered to pay 80% of the application costs and the claimant’s costs of the action. Counterclaim costs were reserved. Permission to appeal was refused.