Offshore Litigation

Contributors

Jonathan Addo
Jonathan Addo
  • Jonathan Addo

  • Partner
  • British Virgin Islands
Lisa Akiri
Lisa Akiri
  • Lisa Akiri

  • Senior Associate
  • London
Janeen Al-Jadir
Janeen Al-Jadir
  • Janeen Al-Jadir

  • Associate
  • Cayman Islands
Pavlos Aristodemou
Pavlos Aristodemou
  • Pavlos Aristodemou

  • Partner
  • Cyprus

The importance of Beddoe relief and the rights of non-beneficiary third parties in Beddoe applications

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In the case of X (as Trustee of the A Trust) v Y (as Beneficiary of the A Trust) (unreported) 15 March 2017, the trustee (the Trustee) of a Cayman Islands trust (the Trust) who had been joined as defendant in English proceedings sought directions from the Grand Court to defend the English proceedings, and Beddoe relief for adverse costs arising from that litigation. The third party that joined the Trustee in the English proceedings (the Third Party) claimed damages against the Trustee for breach of contract and in tort for deceit. The Third Party was given informal notice of the Trustee’s Beddoe application and contended in a response letter that it should have received formal notice of the application and be allowed to make written submissions to the Court, and that the Trustee should not be given Beddoe relief. In this case, an adverse judgment in the English proceedings would result in the complete loss of the Trust’s only realizable asset. It was held that the Trustee acted properly in seeking Beddoe relief from the Court prior to proceeding with litigation. Smellie CJ summarized Lindley LJ in Re Beddoe [1893] 1 Ch 547 by saying: “where a trustee pursues or defends an action unsuccessfully without having the protection of an order obtained pursuant to the Beddoe dictum, it is likely to be only in exceptional circumstances that he will be granted an indemnity by the Court.” Chief Justice Smellie found that there was no need for the Third Party to be provided with formal notice of the Beddoe application in circumstances where the Third Party was not a beneficiary to the Trust and simply a third party asserting a putative, contingent and non-proprietary claim against the Trustee. However, because the Third Party could potentially be affected by the administration of the Trust pending resolution of its claim, Smellie CJ held that the Third Party had a sufficient interest to be informally notified (which it was) so as to make representations to the Court (which it did by way of the response letter). The Court granted the Trustee Beddoe relief on the basis that if the Third Party’s claim was not defended, the Trust would likely be wiped out and the beneficiaries would not derive any value from the Trust. The Court held that the Third Party’s putative, contingent and non-proprietary claim did not outweigh the interest of the beneficiaries, and therefore was no basis for denying the Trustee its Beddoe relief. Important takeaways from this judgment are that trustees should ensure: (i) they seek Beddoe relief before bringing or defending claims in relation to trust assets; and (ii) informal notice of Beddoe applications should be given to third parties whose interest in trust assets would be adversely affected by the outcome of any litigation. For any more information, please contact Jo Verbiesen, Jessica Williams or Johime Lee.

The importance of Beddoe relief and the rights of non-beneficiary third parties in Beddoe applications

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