MF Global UK Ltd (in special administration), Re

The court’s inherent jurisdiction to supervise trusts permits directions enabling trustees to distribute trust property on practical assumptions where this is just and expedient. Such directions may protect trustees without varying or extinguishing beneficial interests. They may preserve a later claimant’s remedies against recipients or remaining trust assets.

That jurisdiction can support a claims and distribution procedure for a client money trust. A trustee may distribute without reserving for a rejected claim where the claimant has been given notice and a fair opportunity to challenge the rejection, provided that the order preserves the claimant’s substantive rights. The procedure must fairly balance timely distribution to established beneficiaries against protection for serious unresolved claims.

The administrators of MF Global UK Ltd, acting also through the company as trustee of its client money trust, sought directions concerning the trust’s administration and the distribution of its assets.

Client money was held under the client-money rules in the Financial Services Authority Handbook. Following the company’s entry into special administration, the administrators had agreed many claims but also faced rejected, disputed and potentially unknown claims. They could not safely make a final distribution without a process to determine which claims should participate.

They proposed a Client Money Distribution Procedure requiring claims to be lodged, allowing the administrators to adjudicate them, and requiring a dissatisfied claimant to apply to court within 21 days of a rejection. The central issue was whether the court’s inherent trust jurisdiction authorised that procedure and protected distributions made under it.

1. Application granted. The court made the order approving the Client Money Distribution Procedure.

2. The court has an inherent jurisdiction to supervise and, where appropriate, intervene in the administration of a trust. That jurisdiction does not permit a variation of beneficial interests. It does permit directions for distribution on a particular factual basis where this is just and expedient, while preserving any substantive beneficial interest and remedies available to a later-established claimant.

3. Re Benjamin [1902] 1 Ch 723 illustrated the jurisdiction in relation to unknown beneficiaries. A Re Benjamin order was appropriate for potential client-money claimants unknown to the administrators. The evidence showed that reasonable steps had been taken to identify and notify claimants, and the proposed notice procedure gave them a proper opportunity to claim.

4. Rejected claims required an extension beyond the ordinary Re Benjamin situation. The claimants were known and their claims had not finally been determined. However, the inherent jurisdiction also extends to authorising a trustee to distribute despite potential competing proprietary claims. The reasoning in Finers v Miro [1991] 1 WLR 35 supported that conclusion.

5. The procedure was fair because a rejected claimant received reasons and could apply to court within 21 days to reverse or vary the decision. If such an application was notified, the administrators had to reserve in full for the claim. A claimant who did not pursue that opportunity could be excluded from that distribution, but retained the right to establish an entitlement for a later distribution and any tracing or similar remedy. This gave practical effect to the timely-return purpose of the client-money rules without altering beneficial interests.

not stated in the judgment.