Dorset Limited v Panagiotis Triantafyllidis

A trustee may retain trust assets until adequately indemnified for present liabilities and, in general, contingent or future liabilities. The protection required is assessed by reference to the worst case supported by reasonable, non-fanciful assumptions. A merely fanciful risk does not justify insisting on an indemnity.

On an application for summary judgment, the applicant must establish that the opposing party has no real prospect of successfully defending the relevant issue and that there is no other compelling reason for trial. Where a beneficiary seeks transfer of trust assets, the court may refuse summary judgment if the trustee has a real prospect of establishing an unsatisfied lien.

The claimant sought summary judgment for a mandatory injunction requiring the defendant to transfer shares held on trust. It proposed payment into escrow of sums for the defendant’s legal costs and possible Swiss tax liabilities.

The parties agreed that the defendant had an indemnity under Trustee Act 2000, section 31, and a lien over the shares securing that indemnity. The issues were whether the proposed provision covered future litigation costs and whether there was a real risk that the defendant might become liable for Swiss gift tax.

The Swiss authorities later confirmed that gift tax would not be levied. The remaining issue for determination was the costs of the application.

1. Summary judgment. Under Civil Procedure Rules 1998, rule 24.2, the applicant bore the burden of showing that the defendant had no real prospect of successfully defending the relevant issue and that there was no other compelling reason for trial.
2. Trustee’s indemnity and lien. The defendant was entitled to retain the trust assets until protected against liabilities for which he might become accountable. That included future costs of defending the claim and contingent tax liabilities. The relevant assessment was the worst case based on reasonable but not fanciful assumptions. The court rejected the claimant’s submission that a possible later application for security for costs was an adequate substitute for the existing lien.
3. Future costs. The claimant’s global offers did not provide for the defendant’s future budgeted costs. The defendant was therefore entitled to resist immediate transfer of the shares on that ground.
4. Gift tax. On the evidence available at the first hearing, the claimant had not shown that there was no real prospect of establishing a real risk of Swiss gift tax. The claimant’s own advice acknowledged a possible liability if the handwritten agreement reflected the beneficial arrangement, and the defendant’s advice identified a small risk. The later ruling that no tax would be levied showed only that the risk had not materialised, and did not establish that it had never been real.
5. Costs. Although the defendant had failed properly to particularise the tax basis and had overstated some liabilities, those matters were outweighed by the claimant’s ability to clarify the tax position earlier and its unreasonable refusal to provide protection against the identified risk. The claimant was ordered to pay the defendant’s costs of the application.