The Serious Fraud Office & Ors. v Litigation Capital Limited & Ors.

A commercial trust created as security for contractual funding must be construed principally by reference to the funding agreement. Statutory trustee powers apply only so far as consistent with that instrument. Where the trust is designed to hold recoveries briefly and distribute them through a contractual waterfall, trustees may have a largely ministerial role and need not possess powers to investigate, realise or litigate for further assets.

A power to replace trustees may be excluded by the trust’s terms and commercial context. The court may invalidate an appointment made for an improper purpose, remove unsuitable trustees, appoint limited-purpose trustees, and appoint receivers to realise trust-related property where that best secures proper administration.

The judgment determined applications arising from the Harbour Trust, established under a litigation-funding agreement between Harbour Fund II LLP and claimants in the Orb Litigation. The applications concerned the nature and extent of the trustees’ powers, the validity of Rupert Ticehurst’s purported appointment under section 36(1) of the Trustee Act 1925, the position of the existing trustees, and the appointment of new trustees or receivers.

The court considered the earlier Directed Trial Judgment, [2021] EWHC 1272 (Comm), together with disputes concerning assets transferred under the IOM Settlement and Harbour Deed. The central issues were whether the trust was single or divided, whether statutory replacement powers applied, whether the appointments were made for proper purposes, and what arrangements were required for administration and realisation of the assets.

1. Nature and scope of the Harbour Trust. The Harbour Investment Agreement created a single trust into which the claimants’ recoveries were pooled. Its terms, commercial purpose and contractual waterfall showed that it was principally a security mechanism for Harbour’s contractual entitlements. The trustees’ role was therefore limited and largely ministerial. They were not obliged, or entitled without Harbour’s consent, to use trust assets to investigate, commence, conduct or compromise litigation to collect further assets.
2. Statutory powers. The powers in the Trustee Act 1925 were subject to section 69(2). The express exclusion only of the power of advancement did not require the remaining statutory powers to be imported where that would contradict the nature and terms of the commercial trust. The contractual allocation of funding, control, settlement and distribution prevailed.
3. Replacement trustee. The trust was single, but the power under section 36(1) of the Trustee Act 1925 had been impliedly excluded. Appointment of a stranger to the funding agreement by two trustees, without Harbour’s consent and with possible remuneration and indemnity inconsistent with the contractual waterfall, was wholly inconsistent with the instrument. Mr Ticehurst’s appointment was invalid and of no effect.
4. Improper purpose and removal. Independently, the purported appointment would have been void because it was exercised for an improper purpose. The evidence established a strong prima facie case that the appointment and related activities served the interests of funders and third parties opposed to the trust beneficiaries. Messrs Thomas and Taylor were removed, or were to be removed if they did not resign, because their prior and subsequent conduct made their continued trusteeship inconsistent with proper administration.
5. Future administration. Emma Jordan and Toby Graham were appointed as New Trustees with limited powers to receive and hold the Harbour Trust’s interest in specified company shares. They were entitled to reasonable remuneration and an indemnity, initially funded by Harbour and Orb and recoverable from the Arena Surplus. The court declined to appoint a replacement trustee immediately for the Property Assets.
6. Receivers. Under section 37 of the Senior Courts Act 1981, David Standish and David Pike were appointed receivers over the Property Assets, with powers to obtain possession, sell and hold proceeds to further order. Their appointment was justified by the fractional ownership, need for coordination, resistance to realisation, their existing knowledge, and their accountability to the court. No cross-undertaking in damages was required.

The judgment refers to the earlier Directed Trial Judgment of the same litigation, [2021] EWHC 1272 (Comm). This judgment determined subsequent trust-administration applications and made consequential appointments and directions.