Gestrust SA v Sixteen Defendants

A trustee must respect the separate legal personality of companies in which a trust holds shares. Corporate assets cannot be treated as trust assets merely because the companies are trust-owned. The structure may be disregarded only on established grounds such as bare trusteeship, sham, or piercing the corporate veil.

The trustee’s duty is instead to exercise its shareholder powers prudently and in the best interests of the trust. Intervention may be required where appropriate, but directors must remain free to comply with their duties under the law governing the companies. A bona fide decision by company directors about funding litigation does not ordinarily require intervention unless it threatens established trust income or involves unnecessary property sales.

The claimant was the professional trustee of an English-law family trust. The trust held shares, directly or indirectly, in two offshore companies which owned a substantial residential property portfolio. One former property manager had brought claims against those companies concerning unpaid expenditure and termination of its management agreements.

The trustee sought directions concerning the conduct and possible mediation of those claims, the exercise of its shareholder powers, and the allocation of associated costs between trust capital and income. The central issues were whether the companies’ property could be treated as property of the trust and what duties arose under the trust’s shareholding.

1. Separate corporate personality. The property portfolio belonged to the two companies and was not an asset of the trust. The court would not collapse the structure merely because the trust owned shares in the companies. No bare trust, sham, or basis for piercing the corporate veil had been established. Poyiadjis [2004] WTLR 1169 was confined to its particular circumstances and, insofar as it was said to establish a general contrary principle, was not followed. The approach was consistent with Prest v Petrodel Resources Limited [2013] 2 AC 415.
2. The trustee’s shareholder duty. Applying Bartlett v Barclays Bank Trust Co Limited [1980] Ch 515, the trustee had to familiarise itself with the companies’ affairs and take appropriate action to safeguard the trust’s investment. This could include seeking to influence or, where lawful and necessary, replace directors. The trustee could not require directors to act unlawfully or in breach of their duties under Guernsey or British Virgin Islands law.
3. Funding the companies’ litigation. The directors were entitled to make a bona fide decision, in the companies’ best interests, about how to fund the claims. The trustee was not required to intervene under the Bartlett duty unless the funding decision threatened the income historically paid to the life tenants or involved unnecessary sales of properties.
4. Costs and privacy. The costs of the directions application were costs of the trust and initially had to be paid from its dividend income, since the trust held no other immediately available source of funds. The court applied the Chancery Division practice concerning exclusion from confidential directions hearings, while holding that open justice required publication of an anonymised judgment. The judgment was therefore made public, with orders protecting confidential documents and the identities of minors.