Civil litigants in England and Wales can lawfully be compelled to use alternative dispute resolution (ADR), according to a new report by the Civil Justice Council (CJC).

Mandatory (alternative) dispute resolution is lawful and should be encouraged: Mandatory (alternative) dispute resolution is lawful and should be encouraged | Courts and Tribunals Judiciary

See also:

Compulsory ADR: Civil-Justice-Council-Compulsory-ADR-report-1.pdf (judiciary.uk)

A move towards compulsory ADR? (newlawjournal.co.uk)

“Parties should be encouraged to accept mediation, for example by imposing sanctions on those who refuse to enter into it, the report advocates. It suggests sanctions could be ‘to prevent the claim or defence continuing, either by making the commencement of proceedings conditional on entering ADR, or empowering the court to strike out a claim/defence if a party fails to comply with a compulsory ADR order at a later stage in the proceedings.’ It adds that any strike-out could be set aside if there was a valid reason for non-compliance.

Evaluative appraisals in the form of early neutral evaluations and financial dispute resolution (FDR) hearings in the Family Court would be candidates for compulsory mediation, the report indicates. FDR is already a standard and compulsory part of the procedure to be followed when a party makes an application for a financial remedy under Part 9 of the Family Procedure Rules 2010, and usually takes place following the first directions hearing. Both parties must attend the FDR unless the court orders otherwise.

‘ADR should no longer be viewed as an “alternative” but as an integral part of the dispute resolution process,’ commented Vos. ‘That process should focus on “resolution” rather than “dispute”. This report opens the door to a significant shift towards earlier resolution.’”

Extract from STEP Industry News 15.07.2021.

Therefore, if an application is made for JENE to be followed by Chancery FDR/Mediation, the court can grant the application without the consent of an opposing party. Since ADR is to be encouraged, a party should not be penalised for making an application if the application has merit.

This is timely, as I am training to qualify as a Civil Mediator in 9 days time.

For more information please visit ‘Will Trust & Probate Disputes’ – https://newsite.carlislam.co.uk/contentious-probate

and,

www.ihtbar.com – ‘Mediation of Art & Cultural heritage Disputes’

See also my article published in Trusts & Trustees – ‘Judicial ENE – The new normal’ on the publications page at www.ihtbar.com

In the Article I argued: 

‘By analogy, following Lomax (supra) can the court order a Chancery FDR without consent, i.e. after imposing a JENE? Arguably, yes, because:

i. CPR, r.3.1(2)(m) does not expressly exclude FDR—what it does is to illustrate the application of the underlying principle by reference to ‘Early Neutral Evaluation’;

ii. the issue that was before Mrs Justice Parker in the

High Court in Lomax,6 was whether the court had the power to order either ‘an Early Neutral Evaluation Hearing (‘ENE’) or Financial Dispute Resolution Hearing (and by extension give directions for it) in the absence of consent pursuant to amended Civil Procedure Rule (CPR) 3.1(2)(m.)’;

iii. at paragraph 111 of her judgment, Mrs Justice Parker concluded, ‘on the finest of fine balances’ that she could not order either, and that this conclusion ‘may well be wrong, and overly cautious’;

iv. Mrs Justice Parker further observed that: ‘FDR cannot be considered just a sub-species of ENE’ (paragraph 118); and ‘the current Rules are insufficiently precise in their formulation for me either to conclude, or be confident that the Rule makers intended . . . that the term ENE in the amended Rule is intended to govern FDR as well’ (paragraph 119);

v. the learned judge urged, ‘the Rules committee (a) to clarify whether ENE is to be considered compulsory and (b) to give consideration to providing a clear route to compulsory FDR in appropriate civil proceedings a prime example in my view being Inheritance Act litigation. The arguments for the court having power to do so are strong and the experience in the Family Division of court-controlled intervention presents a very favourable picture’;

vi. in Lomax (supra), Lord Justice Moylan stated:

Looking at the issue more generally, as I have already described, the great value of a judge providing parties with an early neutral evaluation in a case has been very well demonstrated in financial remedy cases. Further, the benefits referred to above have been demonstrated not only in cases where the parties are willing to seek to resolve their dispute by agreement and are, therefore, willing to engage in an FDR. In my experience and that, I would suggest, of every other judge who has been involved in financial remedy cases, the benefits have also been demonstrated frequently in cases in which the parties are resistant or even hostile to the suggestion that their dispute might be resolved by agreement and equally resistant to the listing of an FDR. As Norris J said in Bradley v Heslin [2014] EWHC 3267 (Ch):

‘24. I think it is no longer enough to leave the parties the opportunity to mediate and to warn of costs consequences if the opportunity is not taken. In boundary and neighbour disputes the opportunities are not being taken and the warnings are not being heeded, and those embroiled in them need saving from themselves.’

(Paragraph 29) . . .

If the intention had been to require the parties to consent, it would have been very easy to make this clear by expressly providing for this. In my view, the absence of any such express requirement is a powerful indication that consent is not required (Paragraph 30); and vii. while the comments made by Lord Justice Moylan in paragraphs 14 and 29 of his judgment, were made obiter, in paragraph 32 of his judgment, the learned judge found, ‘In conclusion, I see no reason to imply into subparagraph (m) any limitation on the court’s power to order an ENE hearing to the effect that the agreement or consent of the parties is required’, therefore his conclusion about the meaning and scope of CPR, r.3.1(2)(m) is an integral part of the ratio in Lomax, and by analogy applies to FDR.

The stage is therefore set, for either a test case, or the Rules committee to clarify whether FDR (including Chancery FDR) can be ordered without consent.

The author argues that on a wide interpretation of CPR, r.3.1(2)(m), and subject to compliance with any other procedural requirement, for example, where the interests of minor and unborn beneficiaries are involved, that the court has the power to make any direction ‘for the purpose of managing the case and furthering the overriding objective’ that it sees fit to order.’ 

A review of my book the ‘Contentious Trusts Handbook – Practice and Precedents’ published by the Law Society in July 2020 has been published in the current edition of Trusts & Trustees by Oxford University Press (08.06.2021):

https://academic.oup.com/tandt/advance-article/doi/10.1093/tandt/ttab015/6295144?guestAccessKey=8284bd51-4496-4454-ab8c-999ca62b9d56

The Review was written by Jacob Meagher, and I would like to take this opportunity to thank him for undertaking and writing this review.

J. J. Meagher Review of Carl Islam Contentious Trusts Handbook: Practice and Precedents (Law Society, London, 2020)

‘There are a few key texts often found within easy reach of every contentious trusts or estates practitioner, be they barrister or solicitor. Often you will find the Chancery Guide, a copy of Lewin or Snell (depending on one’s preference), usually a book on Drafting Trusts and Will Trusts (perhaps by Kessler QC), then one of the texts on the laws of probate, and a copy of the White Book. In terms of the actual practice of and preparation for the contentious area of Chancery litigation, specifically practice and precedents one would then turn to Chancery Practice and Procedure or Chancery Litigation Handbook, published by Jordans in 2001 and 2005.1 Now, a much needed and updated text has been commissioned by the Law Society and authored by barrister Mr Carl Islam of 1 Essex Court, Contentious Trusts Handbook: Practice and Precedents.2 This soon to be indispensable new work is sure to be staple not only for the preparation of contentious matters, but also for those who wish to pre-empt and ward-off problems arising in the administration of trusts and the relationship with beneficiaries and the courts supervisory jurisdiction.

As explained by Toby Graham, who provides the forward to this work, the publication of Mr Islam’s text reflects the fact that the risk of trustees, beneficiaries and their advisors ending up in court is ever on the rise. Of necessity “[t]his handbook provides the busy practitioner with a practical overview of themes that are commonly encountered. It will guide them through every stage of proceedings, from pre-action action protocols through discovery to settlement and trial”.3 What is perhaps even more valuable, is that the work provides the tools to head-off and anticipate potential contentious proceedings as well as to litigate and manage them, thus this work proves itself to be both a guide in times of crisis and gives the non-contentious private client practitioner the benefit of hindsight before the event. Examples of this forward-thinking analysis can be found at various stages throughout the text, which sets out in plain language the equitable principles and the leading cases which may be cited in reliance to further your cause. This handbook can also be used as a guide for trustees to take action (or to take pause) but also to draft from the included CD of precedents.

The chapter on Claims4 covers areas which other texts do not, and is exceedingly thorough in its coverage and application. For example, under the heading ‘Declaration of a Beneficial Interest in Property’5 the author considers the various constructive trust claims and how they can be made out—this is a results focused text. Equally useful, and under the discussion of a claim for removal of trustee appears the heading ‘Trap for the unwary’ along with the warning that “removal [of a trustee] does not automatically ensure that the trust property will be vested in the remaining and any new trustees”.6

The chapters on Equitable Remedies, Litigation, Costs, ADR and Settlement, are particularly relevant to private client and contentious trust practitioners as they place those subjects within the context of trust and Chancery practice—something which general texts do not. That is, “The particular features of trusts can make it difficult to analyse whether privilege attaches to any given communication”,7 those features are then analysed along with a discussion of Dawson-Damer v. Taylor Wessing LLP. Costs are always a factor of concern, to both trustee clients, and or beneficiaries in distress, the work clearly outlines the cost implications to all parties in the context of a trust dispute and it is useful to see the cost implications of Beddoe orders spelt out clearly along with reference to the accompanying precedent.8

For some this text will hold value in its specialised precedents which for the purposes of this area of practice are in my mind superior to more general works on precedents and pleadings.9 These stretch from Beddoe application, Calderback offers (equitable compensation), all the way to a Confidential note to the mediator, Particulars of Claim for: Breach of Trust, Tracing, Breach of Fiduciary Duty, Accessory Liability, as well as TOLATA applications. The work also includes specialist notes by experts Pandora Mather-Less on Art and heritage assets and the duties of trustees, Hector Robinson QC on Trust litigation in the Cayman Islands, and A meditator’s view by Anthony Trace QC.

Mr Islam concludes his preface by observing that “[t]he bridge that fuses the traditional technical skill set of company and commercial lawyers with that of trust lawyers (who in solicitors’ firms used to live in separate boxes) is, however, a relatively recent phenomenon outside of the Chancery Bar.” The author hopes that his text will be of value to all “who need to apply first principles when confronted with complex and novel facts that engage the ‘super-highway’ of equitable remedies and principles, when proceedings are issued” or contemplated.10 I can indeed confirm that his Contentious Trusts Handbook fits that description and is sure to be a staple text found within easy reach of every Equity and Trusts practitioner.’

Footnotes

1. Chancery Litigation Handbook (2005, Jordans, London); Chancery Practice and Procedures (2001, Jordans, London).

2. (Law Society, London, 2020) – available for £100, CD of precedents included.

3. Ibid., xiii

4. Chapter 7.

5. 115.

6. At 7.6.10: the author goes onto explain the deed requirements under the TA 1925 s40(1).

7. 208.

8. At 11.2.3 per Green v Astor [2003] EWHC 1857 (Ch).

9. Included in hard copy in the Appendices and also included on CD.

10. xv.

Jacob J. Meagher is a barrister and academic, a Partner at Aria Grace Law and a Lecturer in Law at the University of Brighton. Specialising in contentious chancery matters, banking & finance, and governance he is a TEP, FGP, MCIArb, Ch MCSI, Ch ALIBF, Ch MCBI. Jacob also mediates and arbitrates civil and commercial disputes and can be contacted professionally at jacob.meagher@aria-grace.com or academically at j.j.meagher@brighton.ac.uk

In late July I am undertaking the Bar Council Mediator Foundation course. Successful completion results in:

• Certification as a Society of Mediators recognised mediator;
• Accreditation as a Civil Mediation Council civil and commercial mediator; and
• Recognition by the Chartered Institute of Arbitrators.

For Mediation Strategies I have specifically designed for Probate, Trust and Court of Protection disputes, see:

• Contentious Probate Handbook Chapter 10 – BAM (Barrister Assisted Mediation) and Guided Settlement: Wildy & Sons Ltd — The World’s Legal Bookshop Search Results for isbn: ‘9781784460600’
• Contentious Trusts Handbook Chapter 12 – BME Mediation: Wildy & Sons Ltd — The World’s Legal Bookshop : Islam, Carl
• Mediation in a Testamentary Capacity Claim – ‘The Advocate and the Expert in a Testamentary Capacity Claim’: Layout 1 (carlislam.co.uk)
• Mediation in a Court of Protection dispute – ‘The Advocate and the Expert in the Court of Protection’, Co-authored with Dr Hugh Series of Oxford University: The Advocate and the Expert in the Court of Protection | Expert Witness Journal
• As a SCMA accredited mediation advocate and practising Barrister I also offer a fixed fee early settlement service. For more information please visit the ‘Mediation of Will Trust & Probate Disputes’ page of my website: www.ihtbar.com

Under English Law, the elements of the criminal offence of misfeasance in public office are:

• a public officer acting as such; 
• wilfully neglects to perform his duty and/or wilfully misconducts himself; 
• to such a degree as to amount to an abuse of the public’s trust in the office holder; 
• without reasonable excuse or justification.

Attorney General’s Reference No 3 of 2003 [2004] EWCA Crim 868.

See, ‘Misconduct in Public Office’:

Misconduct in Public Office | The Crown Prosecution Service (cps.gov.uk)

Misfeasance therefore occurs where there is an individual failure, i.e. by a civil servant or minister.

Can it also occur where there is a systemic failure with the actual knowledge of an individual, i.e. by acquiescence?

Arguably Yes, if the duty breached is also a fiduciary duty, see my article;

‘Breach of Fiduciary Duty Claims and the Quiet Fiduciary Thesis’ published in Trusts & Trustees by Oxford University Press, February 2019:

Abstract:

https://academic.oup.com

Article:

https://academic.oup.com

In which case a criminal conviction can result in a civil claim, or vice-versa.

In the case of a systemic failure, the bridge is a finding of ‘negligence’ by an individual with the acquiescence of another individual, which results in the systemic failure, i.e. breach of a duty of care that causes a recoverable loss.

‘It is almost a truism that “public offices” are “public trusts”. The notion that public officers act as agents or trustees – both fiduciary offices – for subject-beneficiaries was common in Greco-Roman political thinking, in English political philosophy, and in American political theory at the founding. These fiduciary concepts are well developed in private law. The Law of trusts arose to ensure that those with discretionary power over the legal and practical interests of beneficiaries would exercise that power in ways that ensure appropriate exercises of discretion. Likewise, public law norms seek to constrain uses of the discretionary power inherent in public offices. In both public and private law, the central normative fiduciary principles are that the fiduciary should not abuse her power and that beneficiaries interests should guide the fiduciaries deliberation and action in specific ways.’ Fiduciary Principles and Public Offices by Ethan J Lieb and Stephen R. Galoob, Chapter 16 of the Oxford Handbook of Fiduciary Law (2019).

Has the time come to put this proposition to the test in court in England?

At the core of much of positive fiduciary law is the prohibition on fiduciaries making decisions under conditions of a conflict of interest. The no conflict rule is one proscription to which all fiduciaries whether private or public are bound.

‘For fiduciary political theorists, the principle of loyalty fundamentally requires that public officials avoid betraying their beneficiaries. This requirement has several implications that captured the imagination of fiduciary political theorists. … Public officials should not engage in corruption or self-dealing. … In private law settings, the duty of care is important because of the beneficiaries’ vulnerability and the difficulty of monitoring the fiduciaries actions. The beneficiaries fate relies on the fiduciary’s efforts. These efforts can change not only how the beneficiary fares but also what she is permitted or required to do. The duty of care arises because the normative significance of the fiduciaries actions invites the possibility of domination and violation of the beneficiaries independence. … For example, a fiduciary who acts recklessly (say, unnecessarily or irrationally risking the interests of the principal) violates the principle of care, regardless of whether this risk is eventuated. In assessing politics, the principle of care holds that decision-makers should act in ways that advance the public good and should not unnecessarily or unjustifiably risk it.’ Fiduciary Principles and Public Offices by Ethan J Lieb and Stephen R. Galoob, Chapter 16 of the Oxford Handbook of Fiduciary Law (2019).

Two former trustees of a charity set up to help people living in poverty in Afghanistan intentionally abused the charity for criminal purposes, the Charity Commission has concluded.

In a report published today, the regulator finds that two former trustees of Afghan Poverty Relief mismanaged the charity and stole hundreds of thousands of pounds intended for those the charity was established to help. They were ordered by the courts to repay over £400,000 to the charity.

The inquiry opened in 2011, following a referral from the Metropolitan Police, to investigate concerns about the charity’s governance and management, and specifically to examine the charity’s finances. The regulator was concerned about transactions between the two trustees and the charity and that it appeared the charity was being misused for personal gain.

During its investigation, the regulator analysed the charity’s bank accounts, as well as personal and business accounts associated with two of the charity’s former trustees. It found that during the 4 years to 2011, over £254k was withdrawn from the charity’s accounts, and over £215k was paid into personal and business accounts linked to two of the charity’s former trustees.

As part of its investigation, the Commission found that the charity’s trustees failed to keep adequate records; it found, for example, that many of the receipts and records it scrutinised were undated, and that it was not possible to reconcile donations recorded as having been received by the charity with deposits into the charity’s accounts.

One trustee was also found to have breached an order of the Commission, including not to accept donations from members of the public on behalf of the charity.

The Commission supported the Metropolitan Police’s investigation and this information, alongside witness statements provided to the courts by Charity Commission officials, helped secure the conviction of the two trustees in 2014. One trustee was found guilty of theft and sentenced to 5 years; the other was found guilty of one count of theft and four counts of fraud and sentenced to 3 years in prison. As a result, both are disqualified from serving as charity trustees or from holding an office or employment in a charity with senior management functions.

In 2014, and following the former trustees’ convictions, the Commission appointed an interim manager (IM) to identify the charity’s assets and liabilities, represent the charity during confiscation proceedings brought by the police following the trustees’ convictions and to determine the charity’s future.

The IM has wound the charity up, transferring remaining assets to another charity for the purposes of funding an orphanage in Ghazni, Afghanistan, which had previously been supported by the charity.

Tim Hopkins, Assistant Director of Investigations and Inquiries at the Charity Commission, said:

Charity represents the best of human characteristics – that’s why the behaviour and conduct of those involved in charities matters. This charity was set up to support vulnerable and disadvantaged people, including orphans in Afghanistan. Instead of ensuring donations received by the charity were applied for charitable purposes, two of its then trustees abused and exploited it for criminal purposes. In doing so, they committed criminal offences, breached charity law and exhibited behaviours which fell far below the legal and public expectations of how trustees should behave.

I am pleased that our investigation has helped bring those individuals to justice, and that, together with the Police and the interim manager, we have ensured significant sums, that would otherwise have been lost, were returned to charity”.

The Commission acknowledges the long-running nature of the inquiry. This results from complexities experienced by the IM in transferring the charity’s remaining assets, and then winding the charity up.

The full inquiry report is available on gov.uk.

See: Poverty charity ‘intentionally abused for criminal purposes’ by two of its trustees, investigation finds – GOV.UK (www.gov.uk)

Proving breach by taking an account

‘As a general rule the High Court has jurisdiction to enforce the observance or redress breaches of all trusts, charitable as well as private. The jurisdiction in the case of charities is more extensive than in the case of private trusts, where the trust is charitable, the court has jurisdiction not only to enforce it and to redress all breaches, but also, in certain circumstances, to make schemes for the administration of the charity and to alter or modify the trust to a greater or less degree by virtue of the cy-pres doctrine.’ (Halsbury’s Charity Law (2020), paragraph 10.23).

Thus, if it is established that the stated objects of a charitable gift fail, either:

·       the property can be applied cy-pres; or

·       the whole gift fails, giving rise to a resulting trust in favour of the donor.

The duties of trustees of charitable trusts do not differ in principle from those of non-charitable trustees. Their primary duty is to execute the trust in accordance with its terms, and with the general law, in the interests of the intended beneficiaries, i.e. the ‘objects’ of the charitable trust. See HMG Guidance – The essential trustee: what you need to know, what you need to do:

The essential trustee: what you need to know, what you need to do – GOV.UK (www.gov.uk)

Charity trustees who use trust money for their own purposes, or for purposes not in accordance with the trust, or who negligently allow others to misappropriate it, are strictly liable to make good any deficiency or loss, and the court is severe with trustees who willfully, corruptly or negligently misapply trust property.

It is a breach of trust for trustees to divert a charitable fund given for one object to another not contemplated by the Donor.

The assets owned by a charity cannot be used to indemnify a person injured by a breach of trust committed by a trustee of the charity.

A threatened application of charity property for non-charitable purposes may be restrained by injunction.

With the exception of exempt charities and charitable companies, charity trustees must ensure that accounting records are kept which are sufficient to explain all of the charity’s transactions, and which are such as to:

·       disclose at any time, with reasonable accuracy, the financial position of the charity at that time; and

·       enable the trustees to ensure that where any annual statements of account are prepared by them, those statements comply with the statutory requirements.

The primary personal equitable remedies available in relation to breach of fiduciary duty are:

·       rescission;

·       equitable compensation;

·       an account of funds;

·       an account of profits; and

·       injunctions.

In contrast to proprietary remedies, personal remedies operate against the person of the defendant wrongdoer irrespective of whether he retained property that may have been the subject of the claim.

‘Taking an account is simply a process that can be employed in order to assess the state of the trust fund. In this respect, the taking of an account can enforce the trustees’ primary duty to provide information … and keep accurate accounts of the trust. All express trustees owe a primary duty to account for their administration of the trust fund, including all receipts, investments, and distributions. Taking an account may lead to the enforcement of primary or secondary obligations. When an account is taken, two principal problems may be revealed: the trustees may have misappropriated assets from the trust fund, for example by making unauthorised investments; or alternatively, the trustees may have breached their duty in failing appropriately to safeguard the value of the fund, which will be the case, for example, where they have negligently failed to diversify the types of assets held by the trust. In the first situation, a

[claimant]

might falsify the unauthorised disbursement; in the second, the account might be surcharged to bring its value up to the appropriate level. Significantly, the trustee will be liable to compensate the trust fund from their own resources whether the account is falsified or surcharged.’

(Davies, Paul and Graham Virgo (2019). Equity & Trusts – Text, Cases And Materials. Third edition. Oxford University Press, p.806).

‘Where the beneficiary complains that the trustee has misapplied trust money, he falsifies the account, that is to say, he asks for the disbursement to be disallowed. If, for example, the trustee lays out trust money in an unauthorised investment which falls in value, the beneficiary will falsify the account by asking the Court to disallow both the disbursement and the corresponding asset on the other side of the account. The unauthorised investment will then be treated as having been bought with the trustee’s own money and on his own behalf. He will be required to account to the trust estate for the full amount of the disbursement – not for the amount of the loss. That is what is meant by saying that the trustee is liable to restore the trust property; and why common law rules of causation and remoteness of damage are out of place … Where the beneficiary elects to falsify the account, the unauthorised investment is not shown as an asset, the disbursement is disallowed, and the trustee is accountable in every respect as if he had not disbursed the money. He is liable to restore the money to the trust estate; as notionally restored it remains subject to all the trust’s powers and provisions of the trust as if it had never been dispersed; and the account is taken accordingly. …

If the beneficiary is dissatisfied with the way in which the trustee has carried out his trust – if, for example, he considers that the trustee has negligently failed to obtain all that he should have done for the benefit of the trust estate, then he may surcharge the account. He does this by requiring the account to be taken on the footing of wilful default. In this context “wilful default” bears a special and unusual meaning: it means merely lack of ordinary prudence or due diligence. The trustee is made to account not only for what he has in fact received, but also for what he might with due diligence have received. Since the trustee is, in effect, charged with negligence, and the amount by which the account is surcharged is measured by the loss occasioned by his want of skill and care, the analogy with common law damages for negligence is almost exact. Although he is a fiduciary, his duty of care is not a fiduciary duty. In this context it must be right to adopt the common law rules of causation and remoteness of damage to their fullest extent. The trustee’s liability is enforced in the course of taking the trust account rather than by an action for damages, but the obligation of skill and care is identical to the common law duty of care.’ ‘(‘Equity’s Place in the Law of Commerce’ by Lord Millett, (1998) 114 LQR 214, 225-7).

As a general rule accounts are to be taken against the trustees from the date at which the misapplication commenced. Where the misapplication has been innocent, accounts are usually directed from the commencement of the action. However, they may also be ordered from;

·       the date at which notice was given to the trustees questioning the propriety of the application; or

·       the date of the decree declaring the application improper.

Where a charity trustee uses trust funds for trading purposes, he is accountable to the charity for any profit made, or for interest at the rate of 5%.

Since the decision of the House of Lords in Sempra Metals Ltd v. IRC [2007] UKHL 34, the Court has had the power to make an award of compound interest where that is necessary to achieve full restitution.

‘Questions relating to charities may be compromised and the terms of the compromise confirmed by the court. Trustees for charities have power to compromise claims under the Trustee Act 1925. In addition, a compromise may be approved by the Charity Commission under the Charities Act 2011. Where the Attorney General is a party to any legal proceedings affecting a charity, no compromise can be enforced without his sanction. The Attorney General is a necessary party to all charity proceedings, other than any commenced by the Charity Commission, and must be joined as a defendant if he is not a claimant. In proceedings, other than charity proceedings, which concerned the interests of the charity, the Attorney General, if not the claimant, should generally be made a defendant. … Thus where proceedings are necessary to test the validity of an alleged charitable gift, even where the class to benefit is a foreign community, or to determine whether a claim to the benefit of a charity is properly founded, or to enforce the execution of a charitable purpose or to remedy abuse or misapplication of charitable funds, or to administer a charity, the Attorney General is generally a necessary party, and is normally the proper claimant. He represents the beneficial interest, in other words the objects, of the charity. Even if all the subscribers to a charitable fund are made claimants, a claim for the regulation of the charity is defective unless the Attorney General is also a party.’

(Halsbury’s Charity Law (2020), paragraphs 11.13 and 11.15).

A small unregistered charity (see s.275 Charities Act 2011) must comply with Charity Law and is subject to the regulatory powers of the Charity Commission. Therefore, the jurisdiction of the High Court applies with equal vigour.

‘The UK Supreme Court unanimously dismissed an appeal in the ‘midnight deadline’ case of In Matthew & Ors v Sedman & Ors [2021], in which the current trustees of a will trust are suing its former professional trustees for failing to lodge a compensation claim against a third party before the bar date had expired. ‘The case turned on whether a complete undivided day following the expiry of the six-year statutory time limit for actions founded on tort should be included when calculating the limitation period’. (STEP UK News Digest 24.05.2021).

Lord Stephens  (with whom Lord Hodge, Lady Arden, Lord Sales and Lord Burrows agreed) stated:

‘14.   The relevant limitation periods are set out in materially identical terms in the Limitation Act 1980 for each of the causes of action in these proceedings. Section 2 provides a time limit for actions founded on tort: “An action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued”. Section 5 makes provision for a time limit for actions founded on simple contract: “An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued”. Finally, section 21 makes provision for a time limit for actions in respect of trust property. It is common ground that the relevant time limit is contained in subsection (3) which, in so far as material, provides that “an action by a beneficiary … in respect of any breach of trust, …, shall not be brought after the expiration of six years from the date on which the right of action accrued” (emphasis added to each).

47.     I consider that the reason for the general rule which directs that the day of accrual of the cause of action should be excluded from the reckoning of time is that the law rejects a fraction of a day. The justification for that rule is straightforward; it is intended to prevent part of a day being counted as a whole day for the purposes of limitation, thereby prejudicing the claimant and interfering with the time periods stipulated in the Limitation Act 1980. However, in this case it was, in my opinion correctly, submitted that in a midnight deadline case even if the cause of action accrued at the very start of the day following midnight, that day was a complete undivided day. I consider that it would impermissibly transcend practical reality if the stroke of midnight or some infinitesimal division of a second after midnight, led to the conclusion that the concept of an undivided day was no longer appropriate. In that sense this would not only be impermissible metaphysics but also, in this context, such a minimum period of time does not cross the threshold as capable of being recognised by the law. Whether the issue is framed in terms of metaphysics, which the common law eschews, or of the principle that the law does not concern itself with trifling matters, the conclusion is the same: realistically, there is no fraction of a day. That being so, the justification in relation to fractions of a day does not apply in a midnight deadline case. During oral submissions Mr Cousins QC, in answer to an enquiry from Lady Arden seeking to identify the rational justification for excluding a whole indivisible day from the calculation of the reckoning of time, sought to do so based on continuing the application of the rule, as he submitted it had been understood since the 18th century, so that in relation to something as important as limitation there should be continuity of interpretation. I reject the premise to that submission. As I have indicated there is no long-standing authority which excluded a whole indivisible day. Furthermore, I consider that the premise is undermined by the decision of Channell J in Gelmini. So, I reject this argument as a sufficient justification for excluding a whole day from the reckoning of time in a midnight deadline case. Rather, I prefer to consider the impact of holding that a full undivided day in a midnight deadline case is to be excluded from the reckoning of time. If that day were excluded from the computation of time then the limitation period would be six years and one complete day. I consider that would unduly distort the six-year limitation period laid down by Parliament and would prejudice the defendant by lengthening the statutory limitation period by a complete day.

48.     I also consider that the impact of excluding 3 June 2011 can be seen by applying the criteria suggested in Radcliffe of imagining a limitation period of one day. If in this case 3 June 2011 were excluded from the computation and if the limitation period were a single day, then the impact would be to allow two complete days within which to commence an action (see para 36 above).

49.     I consider that Gelmini is an exception to the general rule so that any part of a day (but not a whole day) happening after the cause of action accrues is excluded from the calculation of the limitation period for the purposes of the provisions of the Limitation Act with which this appeal is concerned. The 3 June 2011 was a whole day so that it should be included in the computation of the limitation period.’

Matthew & Ors v Sedman & Ors [2021] UKSC 19 (21 May 2021) (bailii.org)

Pleading Fraud/Dishonesty

The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him.

There are two distinct and separate rules that apply to pleading allegations of fraud/dishonesty. The allegations must be both:

(i) clearly pleaded; and

(ii) particularised.

If a pleading is ‘equivocal’, i.e. it permits an innocent explanation, it is bad in law, because it is not open to the trial judge to make a finding of fraud.

In Mullarkey & Ors v Broad & Anor[2007] EWHC 3400 (Ch), Mr Justice Lewison stated the primary rules as follows: 

‘Pleading and proving intentional wrongdoing

41.   In Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. [1979] Ch. 250, at 268 Buckley L.J. said:

“An allegation of dishonesty must be pleaded clearly and with particularity. That is laid down by the rules and it is a well-recognised rule of practice. This does not import that the word ‘fraud’ or the word ‘dishonesty’ must be necessarily used. The facts alleged may sufficiently demonstrate that dishonesty is allegedly involved, but where the facts are complicated this may not be so clear, and in such a case it is incumbent upon the pleader to make it clear when dishonesty is alleged. If he uses language which is equivocal, rendering it doubtful whether he is in fact relying on the alleged dishonesty of the transaction, this will be fatal; the allegation of its dishonest nature will not have been pleaded with sufficient clarity.” …

43.   In Paragon Finance plc v D B Thakerar & Co he said on the question of pleading:

“It is well established that fraud must be distinctly alleged and distinctly proved, and that if the facts pleaded are consistent with innocence it is not open to the court to find fraud.”’

Striking Out

The court can strike out a Defence under CPR, r.3.4(2)(a) – if it ‘discloses no reasonable grounds for defending the claim’. 

The legal test for striking out a statement of case for non-compliance with these special pleading rules (which is a power the court may exercise at a CMC of its own initiative), was stated by Sir Julian Flaux (who is now Chancellor of the High Court) in JSC Bank of Moscow v. Kekhman and others [2015]: JSC Bank of Moscow v Kekhman & Ors [2015] EWHC 3073 (Comm) (29 October 2015) (bailii.org) at [20]

‘The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence. As Lord Millett put it, there must be some fact “which tilts the balance and justifies an inference of dishonesty”. At the interlocutory stage, when the court is considering whether the plea of fraud is a proper one or whether to strike it out, the court is not concerned with whether the evidence at trial will or will not establish fraud but only with whether facts are pleaded which would justify the plea of fraud. If the plea is justified, then the case must go forward to trial and assessment of whether the evidence justifies the inference is a matter for the trial judge.’

If a Defendant [‘D‘] (whose Defence is based upon an allegation of e.g. deceit by the Claimant), has refused to reply to specific allegations in the Particulars of Claim, and instead pleaded a ‘bare‘ or ‘blanket’ denial, it follows that:

(i) D is deemed under CPR, r.16.5(5) to have admitted the facts to which he has failed to reply; and

(ii) the Defence may be struck out under CPR, r.3.4(2)(a), because D has failed to plead a complete defence to the Claim, by failing to advance an affirmative case.

Blackstone’s Civil Practice 2021, at para 33.7, ‘a defence may be struck out if it consists of a bare denial or otherwise fails to set out a coherent statement of facts, or if the facts set out, even if true, do not amount in law to a defence to the claim. Many institutional defendants have been in the habit of filing short defences making blanket denials without stating any positive case. These defences ought to be a thing of the past.’ 

The approach of the court

The power to strike out is exercised sparingly. An alternative strategy is to apply for JENE (see below).

In Three Rivers District Council v. Governor and Company of The Bank of England [2001] UKHL 16, Lord Hope of Craighead stated:

‘106. … the overriding objective of dealing with cases justly includes dealing with them in a proportionate manner, expeditiously, fairly and without undue expense. … each case is entitled only to an appropriate share of the court’s resources. Account has to be taken of the need to allot resources to other cases. … The most important principle of all is that which requires that each case be dealt with justly. It may well be that the claimants, on whom the onus lies, will face difficulties in presenting their case. They must face the fact that each and every allegation of bad faith will be examined rigorously. A trial in this case will be lengthy and it will be expensive. There is only so much that astute case management can do to reduce the burdens on the parties and on the court. Nevertheless it would only be right for the claim to be struck out if it has no real prospect of succeeding at trial. I do not think that one should be influenced in the application of this test by the length or expense of the litigation that is in prospect. Justice should be even-handed, whether the case be simple or whether it be complex. It is plain that the situation in which the claimants find themselves was not of their own making, nor are they to be blamed for the volume and complexity of the facts that must be investigated. I would hold that justice requires that the claimants be given an opportunity to present their case at trial so that its merits may be assessed in the light of the evidence.

    107. I have taken one other factor into account. The decision which your Lordships are being asked by the Bank to take is to give summary judgment in its favour on the entire claim. It would only be right to strike out the whole claim if it could be said of every part of it that it has no real prospect of succeeding. … I think that that is too big a step to take on the available material. Conversely, I consider that if one part of the claim is to go to trial it would be unreasonable to divide the history up and strike out other parts of it. A great deal of time and money has now been expended in the examination of the preliminary issues, and I think that this exercise must now be brought to an end. I would reject the Bank’s application for summary judgment.

Lord Hutton further stated:

113. The Court of Appeal (Auld LJ dissenting) upheld the decision of Clarke J and delivering the joint judgment of himself and Robert Walker LJ, Hirst LJ stated [2000] 2 WLR 15, 101F:

“… The tort alleged is a tort of dishonesty, and the plaintiffs’ claim must be rigorously assessed on their pleaded case and the evidential material shown to be available to support it.”

In his dissenting judgment, at p 180F, Auld LJ stated:

“As the authorities to which Hirst and Robert Walker LJJ have referred indicate, it is normally only in clear and obvious cases that a court should strike out a claim as incapable of proof at the interlocutory stage and before full discovery. In cases, such as this, of great legal and factual complexity, it requires a justified confidence that the plaintiffs’ case is and will remain incapable of proof and most exceptional circumstances to justify stifling it at an early stage. For the reasons that I have given, I do not consider that the court can be confident that all the evidence material to Clark J’s conclusion about the Bank’s state of knowledge has been gathered in or, which is as important, properly tested.”

    117. The 1999 White Book stated at 18/19/10 with reference to r 19(1)(a):

“A reasonable cause of action means a cause of action with some chance of success when only the allegations in the pleading are considered (per Lord Pearson in Drummond-Jackson v British Medical Association [1970] 1 WLR 688; [1970] 1 All ER 1094, CA). So long as the statement of claim or the particulars (Davey v Bentinck [1893] 1 QB 185) disclose some cause of action, or raise some question fit to be decided by a judge or a jury, the mere fact that the case is weak, and not likely to succeed, is no ground for striking it out (Moore v Lawson (1915) 31 TLR 418, CA; Wenlock v Moloney [1965] 1 WLR 1238; [1965] 2 All ER 871, CA); “

Therefore if a plaintiff would be entitled to judgment if he were successful in proving the matters alleged in his pleadings, the statement of claim could not be struck out under rule 19(1)(a) on the ground that he had no prospect of adducing evidence to prove the matters which he alleged. …

    118. In the present case when Clarke J struck out the action he did so on the ground that even with all the proposed re-re-amendments the plaintiffs’ claim was bound to fail and that in those circumstances it would be an abuse of the process or vexatious or oppressive to allow the action to proceed (see paragraph 6 and 7 at p 172 of his third judgment).

    119. The applications before Clarke J and the Court of Appeal were governed by the Rules of the Supreme Court but those Rules have now been replaced by the Civil Procedure Rules. I think that rule 3.4 (2)(a) of the new Rules corresponds in a broad way to Ord 18, r 19(1)(a) and rule 3.4 (2)(b) and rule 24.2 (a)(i) correspond in a broad way to Ord 18, r 19(1)(b) and (d). Rule 3.4(2) provides:

“The court may strike out a statement of case if it appears to the court—

(a) that the statement of case discloses no reasonable grounds for bringing or defending the claim;

(b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings;”

Rule 24.2(a)(i) provides:

“The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if—

(a) it considers that—

(i) that claimant has no real prospect of succeeding on the claim or issue. … 

    122. Bad faith is an essential element in the tort of misfeasance. In accordance with a well established rule it is necessary that bad faith (or dishonesty – the term used in some authorities) should be clearly pleaded. In Davy v Garrett (1878) 7 Ch D 473, 489 Thesiger LJ said:

“There is another still stronger objection to this statement of claim. The plaintiffs say that fraud is intended to be alleged, yet it contains no charge of fraud. In the Common Law Courts no rule was more clearly settled than that fraud must be distinctly alleged and as distinctly proved, and that it was not allowable to leave fraud to be inferred from the facts. It is said that a different rule prevailed in the Court of Chancery. I think that this cannot be correct. It may not be necessary in all cases to use the word ‘fraud’ – indeed in one of the most ordinary cases it is not necessary. An allegation that the defendant made to the plaintiff representations on which he intended the plaintiff to act, which representations were untrue, and known to the defendant to be untrue, is sufficient. The word ‘fraud’ is not used, but two expressions are used pointing at the state of mind of the defendant – that he intended the representations to be acted upon, and that he knew them to be untrue. It appears to me that a plaintiff is bound to show distinctly that he means to allege fraud. In the present case facts are alleged from which fraud might be inferred, but they are consistent with innocence. They were innocent acts in themselves, and it is not to be presumed that they were done with a fraudulent intention.”

I would observe that the last two sentences in this passage have to be read together with the sentence which immediately precedes them.

In Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch D 250, 268 A-C Buckley LJ stated:

“In the present case, do the facts alleged in the statement of claim suffice to bring home to the defendants or any of them a charge that (a) the object of the alleged conspiracy was a dishonest one; and (b) that they actually knew, or must be taken to have known, that it was so?

“An allegation of dishonesty must be pleaded clearly and with particularity. That is laid down by the rules and it is a well-recognised rule of practice. This does not import that the word ‘fraud’ or the word ‘dishonesty’ must necessarily be used: see Davy v Garrett, 7 Ch D 473, 489, per Thesiger LJ. The facts alleged may sufficiently demonstrate that dishonesty is allegedly involved, but where the facts are complicated this may not be so clear, and in such a case it is incumbent upon the pleader to make it clear when dishonesty is alleged. If he uses language which is equivocal, rendering it doubtful whether he is in fact relying on the alleged dishonesty of the transaction, this will be fatal; the allegation of its dishonest nature will not have been pleaded with sufficient clarity.”

    124. In Armitage v Nurse [1998] Ch 241, 256G Millett LJ said:

“It is not necessary to use the word ‘fraud’ or ‘dishonesty’ if the facts which make the conduct complained of fraudulent are pleaded; but, if the facts pleaded are consistent with innocence, then it is not open to the court to find fraud.”

Later in his judgment at p 259G the learned Lord Justice said:

“I am of opinion that, as at present drawn, the amended statement of claim does not allege dishonesty or any breach of trust for which the trustees are not absolved from liability by clause 15.”

In Taylor v Midland Bank Trust Co Ltd (unreported, 21 July) 1999 Buxton LJ referred to the first observation of Millett LJ at p 256G and said:

“That, however, was an observation about pleading, not about substance. If (unlike the pleader in our case) the claim does not expressly allege dishonesty, but stands on facts alone, those facts on their face will meet the requirement of a specific allegation of dishonesty only if they can bear no other meaning.”

But in the present case, unlike in Armitage v Nurse, the pleader does expressly allege bad faith because paragraph 37 pleads that “the motives of the Bank in acting as pleaded above were improper and unlawful and in the premises the Bank acted in bad faith” and the paragraph sets out particulars in support of that allegation. In my opinion those particulars are not consistent with mere negligence.

    125. I further consider that if a plaintiff clearly alleges dishonesty or bad faith and gives particulars, the statement of claim cannot be struck out under rule 3.4(2)(a) because the facts he pleads as giving rise to an inference of dishonesty or bad faith may at the trial, after a full investigation of the circumstances, be held not to constitute proof of that state of mind. If a defendant applies to strike out an action on the ground that the plaintiff has no prospect of adducing evidence at the trial to establish the case which he pleads the application should be brought under rule 3.4(2)(b) or rule 24.2(a)(1).’ 

JENE

If D refuses to mediate, then as part of his/her active case-management role, i.e. inherent judicial function, a procedural judge at a CMC, has the power to order a JENE. This does not require an application where the proposal is made in the Claimant’s Proposed Directions, or the procedural judge grants leave to the parties to make representations about JENE. I submit, that even in the County Court, JENE is arguably beneficial, proportionate and will involve a sensible use of the the court’s resources, where a case has been allocated to the Multi Track, i.e. because of the complexity of the: legal; procedural; and evidential issues in the case and consequently the length of the trial. That is because a JENE judge can reality-test the actual litigation risks that will confront the parties at trial, resulting in a re-calibration by each party of their litigation risk calculus, which should focus their minds and those of their legal advisors, upon settlement, rather than going to war. Hopefully, cooler minds will then prevail! See my article:

 ‘Judicial-ENE and the New Normal’, published by Trusts & Trustees (Oxford University Press), 14 December 2020 on the ‘Publications’ page at www.ihtbar.com

• Abstract: https://academic.oup.com/tandt/advance-article-abstract/doi/10.1093/tandt/ttaa096/6034053
• Article:Judicial-ENE and the ‘New Normal’ | Trusts & Trustees | Oxford Academic (oup.com)PDF: OP-TANT200101 1..9 (silverchair.com)

 Recent authorities about pleading fraud/dishonesty

See Civil Fraud – Law, Practice & Procedure, edited by Thomas Grant QC and David Mumford QC (2018), published by Sweet & Maxwell, paragraphs 1-008 to 1-017 [The Decision to Allege Fraud].

Recent cases include:

1.        McEaney and Other v. Ulster Bank Ireland Ltd and others [2015]: McEneaney & Ors v Ulster Bank Ireland Ltd & Anor [2015] EWHC 3173 (Comm) (09 November 2015) (bailii.org)

‘It is an ingredient of a claim in fraud that the person making the false representation intended his statement to be understood by the representee in the sense in which it was false (see Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd, [2011] EWHC 484 (Comm) at para 221) and, as it used to be put, there must be “moral obliquity”: (per Lindley LJ in Angus v Clifford, [1891] 2 Ch 449, 468, and see Maple Leaf Macro Volatility Master Fund v Rouvroy, [2009] EWHC 257 (Comm) at para 327). That was not originally alleged.’ Mr Justice Andrew Smith at para 54.

2.        JSC Bank of Moscow v. Kekhman and others [2015]: JSC Bank of Moscow v Kekhman & Ors [2015] EWHC 3073 (Comm) (29 October 2015) (bailii.org)

‘2.     CPR 3.4(2) gives the court power to strike out a statement of case which discloses no reasonable grounds for bringing or defending a claim or a statement of case which is an abuse of process. Where, on the material before the court, there are disputed issues of fact, the court should not strike out a claim unless certain it is bound to fail: see per Peter Gibson LJ at [22] in Colin Richards & Co v Hughes [2004] EWCA Civ 226. The test is similar but not identical to that for summary judgment where the court will not grant summary judgment, here in favour of a defendant, unless the claim has no real prospect of success. It is well established that where it is clear that there are disputed issues of fact between the parties, the court should not engage in a mini-trial of the merits at an interlocutory stage …

14.            However, Mr Swainston QC for Mr Kekhman submits that in a case where fraud is alleged (as is the case with both the original conspiracy plea and the proposed plea of fraudulent misrepresentation) there is an anterior question as to whether fraud is properly pleaded at all, in other words whether the requirements imposed by the rules of Court and as a matter of law in respect of pleading fraud have been satisfied. In that context, Mr Swainston QC relies upon the principles as to the pleading of fraud restated by the House of Lords in Three Rivers District Council v Bank of England[2001] UKHL 16; [2003] 2 AC 1.

15.            At [55]-[56], Lord Hope of Craighead stated the principles as follows:

“As the Earl of Halsbury LC said in Bullivant v Attorney General for Victoria [1901] AC 196, 202, where it is intended that there be an allegation that a fraud has been committed, you must allege it and you must prove it. We are concerned at this stage with what must be alleged. A party is not entitled to a finding of fraud if the pleader does not allege fraud directly and the facts on which he relies are equivocal. So too with dishonesty. If there is no specific allegation of dishonesty, it is not open to the court to make a finding to that effect if the facts pleaded are consistent with conduct which is not dishonest such as negligence. As Millett LJ said in Armitage v Nurse [1998] Ch 241, 256G, it is not necessary to use the word “fraud” or “dishonesty” if the facts which make the conduct fraudulent are pleaded. But this will not do if language used is equivocal: Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250, 268 per Buckley LJ. In that case it was unclear from the pleadings whether dishonesty was being alleged. As the facts referred to might have inferred dishonesty but were consistent with innocence, it was not to be presumed that the defendant had been dishonest. Of course, the allegation of fraud, dishonesty or bad faith must be supported by particulars. The other party is entitled to notice of the particulars on which the allegation is based. If they are not capable of supporting the allegation, the allegation itself may be struck out. But it is not a proper ground for striking out the allegation that the particulars may be found, after trial, to amount not to fraud, dishonesty or bad faith but to negligence. …

 16.      At [160] Lord Hobhouse stated:

“Where an allegation of dishonesty is being made as part of the cause of action of the plaintiff, there is no reason why the rule should not apply that the plaintiff must have a proper basis for making an allegation of dishonesty in his pleading. The hope that something may turn up during the cross-examination of a witness at the trial does not suffice. It is of course different if the admissible material available discloses a reasonable prima facie case which the other party will have to answer at the trial.”

17.      The fullest statement of the relevant principles upon which Mr Swainston QC relied is that of Lord Millett from [184] onwards:

184.  It is well established that fraud or dishonesty (and the same must go for the present tort) must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake 7th ed (1952), p 644; Davy v Garrett (1878) 7 Ch D 473, 489; Bullivant v Attorney Genera; for Victoria [1901] AC 196; Armitage v Nurse [1998] Ch 241, 256. This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.

185.  It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means “dishonestly” or “fraudulently”, it may not be enough to say “wilfully” or “recklessly”. Such language is equivocal. …

186.  The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.”

20.      … The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence. As Lord Millett put it, there must be some fact “which tilts the balance and justifies an inference of dishonesty”. At the interlocutory stage, when the court is considering whether the plea of fraud is a proper one or whether to strike it out, the court is not concerned with whether the evidence at trial will or will not establish fraud but only with whether facts are pleaded which would justify the plea of fraud. If the plea is justified, then the case must go forward to trial and assessment of whether the evidence justifies the inference is a matter for the trial judge. This is made absolutely clear in the passage from Lord Hope’s speech at [55]-[56] which I quoted above.’

The Honourable Mr Justice Flaux (who is now Chancellor), at [12] –[23].

The European Commission has officially announced its opposition to the UK’s application to join the Lugano Convention 2007.

‘In view of the nature of the Lugano Convention (see below, section 2.1.) and the existing framework of judicial cooperation with third countries (see below, section 2.2.), the Commission considers that the EU should not give its consent to the accession of the United Kingdom to the Lugano Convention.’

1_en_act_en.pdf (europa.eu)

Brussels, 4.5.2021 COM(2021) 222 final COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Assessment on the application of the United Kingdom of Great Britain and Northern Ireland to accede to the 2007 Lugano Convention 

‘Experts at London law firm Dentons say that ‘UK accession to the Lugano Convention is a significant issue because membership would enable more judgments to be swiftly recognised and enforced across borders.’ They note that ‘the Lugano Convention is wider in scope than the Hague Convention, the main difference being that the Lugano Convention applies to contractual relationships governed by non-exclusive and asymmetric (one-sided) jurisdiction clauses, as well as exclusive jurisdiction clauses.’

Law firm Farrer & Co has expressed the view that enforcement of foreign judgments abroad could become an uphill struggle and UK courts could be a ‘less attractive venue for international litigation’ if the UK’s application to accede is rejected.’ STEP Industry News Bulletin 06.05.2021.

The instruments that prior to Brexit determined governing law,Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I) and Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations (Rome II), were implemented in UK domestic law and continue to apply post-Brexit. 

Articles 3 and 4 of Rome I lay down the basic rules, namely that a contract is generally to be governed by the law chosen by the parties – this choice may be express or clearly demonstrated by the terms of the contract or the circumstances of the case. In the absence of choice of law, the law of the contract will be that of the habitual residence of the seller of goods or the provider of services. There are exceptions to this rule, such as if the contract relates to immovable property (whereby the Lex Situs rule will apply). 

The choice of law in a tort claim is governed by the Rome II regulation. Under article 4 of Rome II, the law applicable to non-contractual obligations arising out of a tort will be the law of the country where the damage occurs. This will be irrespective of the country in which the event giving rise to the damage occurred, or where the indirect consequences of the tort may be felt. However, where both parties to the dispute have their habitual residence in the same country at the time the damage occurs, the law of that country shall apply, and where the tort is manifestly more closely connected with another country, the law of the other country will apply. 

Under English Law, in a contract or tort action ‘in personam‘ (i.e. against a person), the English court has residual jurisdiction in three situations:

(i)     where the defendant has been served with the statement of claim whilst in England;

(ii)     where a person who might otherwise be excluded, submits to the jurisdiction; or

(iii)    if the case comes within CPR, r. 6.20, where discretionary leave is granted for service of proceedings outside of the jurisdiction. 

Following Brexit, The doctrine of Forum non conveniens also applies.

The post-transition period trade deal now in force does not provide for any other civil justice regime. 

For cases commenced after 1 January 2021, if there is an exclusive jurisdiction agreement and the chosen court is a contracting party to the Hague Convention, the 2005 Hague Convention will apply. In the absence of this, decisions on jurisdiction and enforcement will fall to domestic law.

My seventh book, the ‘Contentious Trusts Handbook’ was published by the Law Society in July 2020, and can be ordered from the Law Society and Wildy’s Bookshop in London online.

Contentious Trusts Handbook – Law Society Bookshop

Wildy & Sons Ltd — The World’s Legal Bookshop : Islam, Carl

Book Reviews

‘This practical overview of contentious trusts sets out a clear route from letter before claim to costs orders. Its logical and helpful structure enables readers to find what they want to know exactly where they would expect to do so. The case analyses are cogent and commendably concise. The reviews of the law on liability for ‘dishonest assistance’ and Beddoe orders are models of their kind. The author is to be commended on succeeding in providing a portable reference work covering all aspects of the law and practice governing trust disputes in the English courts.’

Ian Mayes QC, Head of Chambers, 1 Essex Court, London EC4Y 9AR

‘Carl Islam has an impressive set of credentials and has much experience in advising on all aspects of contentious trusts. In his work Contentious Trusts Handbook, he has produced a practical reference guide for practitioners, enabling them to undertake litigation in this complex and specialist area of law. As a practical and comprehensive reference work for busy practitioners, the author is to be commended.’

Henry Frydenson LLB MBE TEP CTAPS

‘This book gives the reader what they need to know when arguing – or defending – a contentious case. Overall, the book admirably meets the authors aims. It fills a clear need for a simple guide to the principles and conduct of trust litigation and should be a welcome addition to all practitioners’ libraries.’

Richard Dew, Barrister, Ten Old Square.

Contentious Trusts Handbook – Law Society Bookshop

For more information about the book and purchasing links please visit the ‘Contentious Trusts Handbook’ page at www.ihtbar.com

A book review is also scheduled for publication in the next edition of Trusts & Trustees (Oxford University Press): Trusts & Trustees | Oxford Academic (oup.com) This journal is sold and circulated by OUP to trust practitioners, academics, and judges, worldwide.

My next in-depth article which I am planning to co-write with a leading trust law academic at Cambridge University in the Summer will be about ‘Executors and Trustees Duties and Powers in relation to investments and property’.

Foreword to the Contentious Trusts Handbook (2020)

‘Sir John Baker explains that the publication in 1837 of “A Practical Treatise on the Law of Trusts” authored by Thomas Lewin signified a shift away from perceiving trusts as principally an adjunct of conveyancing of land towards an institution in their own right. Trusteeship shifted from being a relatively passive office ancillary to landed settlements towards a more general and demanding role. Trusts ceased to be the exclusive preserve of the aristocracy also becoming a vehicle for the wealth of Victorian England’s middle classes. The book is now known as Lewin on Trusts. It continues to dominate the English texts.

Similar observations might be made of the Contentious Trusts Handbook commissioned by the Law Society and written by Carl Islam (who like Thomas Lewin is a leading barrister practicing in the field). This is because its publication reflects the unfortunate fact that the risk of trustees becoming involved in court proceedings appears to be on the increase. Such proceedings are increasingly hostile and hard fought. This handbook provides the busy practitioner with a practical overview of themes that are commonly encountered. It will guide them through every stage of proceedings, from pre-action protocols through discovery to settlement and trial. It contains a detailed discussion of mediation and arbitration and it is accompanied by a set of useful precedents and contributions from an art expert (Pandora Mather-Lees), an expert in trust litigation in the Cayman Islands (Hector Robinson QC) and a mediator (Anthony Trace QC).

The handbook will enable practitioners to anticipate and head off problems, thus hopefully reducing the risk of litigation, as well as providing guidance if and when proceedings are necessary. As with its non contentious cousin, authored by Gill Steel, Mr Islam’s handbook will become a well established staple on our bookshelves. The author and the publishers are to be congratulated.’

Toby Graham

Partner and Head of the Contentious Trusts and Estates Group at Farrer & Co LLP

Co-editor of Trust & Trustees (Oxford University Press)

To read reviews of my book the ‘Contentious Probate Handbook’ please visit the ‘Publications’ page at www.ihtbar.com

I would like to take this opportunity to thanks each of the reviewers for their time in reading and reviewing my new book.

With my kindest regards,

Carl

‘As a general rule the High Court has jurisdiction to enforce the observance or redress breaches of all trusts, charitable as well as private. The jurisdiction in the case of charities is more extensive than in the case of private trusts, where the trust is charitable, the court has jurisdiction not only to enforce it and to redress all breaches, but also, in certain circumstances, to make schemes for the administration of the charity and to alter or modify the trust to a greater or less degree by virtue of the cy-pres doctrine.’ (Halsbury’s Charity Law (2020), paragraph 10.23).

Thus, if it is established that the stated objects of a charitable gift fail, either:

·       the property can be applied cy-pres; or

·       the whole gift fails, giving rise to a resulting trust in favour of the donor.

The duties of trustees of charitable trusts do not differ in principle from those of non-charitable trustees. Their primary duty is to execute the trust in accordance with its terms, and with the general law, in the interests of the intended beneficiaries, i.e. the ‘objects’ of the charitable trust. See HMG Guidance – The essential trustee: what you need to know, what you need to do:

The essential trustee: what you need to know, what you need to do – GOV.UK (www.gov.uk)

Charity trustees who use trust money for their own purposes, or for purposes not in accordance with the trust, or who negligently allow others to misappropriate it, are strictly liable to make good any deficiency or loss, and the court is severe with trustees who willfully, corruptly or negligently misapply trust property.

It is a breach of trust for trustees to divert a charitable fund given for one object to another not contemplated by the Donor.

The assets owned by a charity cannot be used to indemnify a person injured by a breach of trust committed by a trustee of the charity.

A threatened application of charity property for non-charitable purposes may be restrained by injunction.

With the exception of exempt charities and charitable companies, charity trustees must ensure that accounting records are kept which are sufficient to explain all of the charity’s transactions, and which are such as to:

·       disclose at any time, with reasonable accuracy, the financial position of the charity at that time; and

·       enable the trustees to ensure that where any annual statements of account are prepared by them, those statements comply with the statutory requirements.

The primary personal equitable remedies available in relation to breach of fiduciary duty are:

·       rescission;

·       equitable compensation;

·       an account of funds;

·       an account of profits; and

·       injunctions.

In contrast to proprietary remedies, personal remedies operate against the person of the defendant wrongdoer irrespective of whether he retained property that may have been the subject of the claim.

‘Taking an account is simply a process that can be employed in order to assess the state of the trust fund. In this respect, the taking of an account can enforce the trustees’ primary duty to provide information … and keep accurate accounts of the trust. All express trustees owe a primary duty to account for their administration of the trust fund, including all receipts, investments, and distributions. Taking an account may lead to the enforcement of primary or secondary obligations. When an account is taken, two principal problems may be revealed: the trustees may have misappropriated assets from the trust fund, for example by making unauthorised investments; or alternatively, the trustees may have breached their duty in failing appropriately to safeguard the value of the fund, which will be the case, for example, where they have negligently failed to diversify the types of assets held by the trust. In the first situation, a [claimant] might falsify the unauthorised disbursement; in the second, the account might be surcharged to bring its value up to the appropriate level. Significantly, the trustee will be liable to compensate the trust fund from their own resources whether the account is falsified or surcharged.’

(Davies, Paul and Graham Virgo (2019). Equity & Trusts – Text, Cases And Materials. Third edition. Oxford University Press, p.806).

‘Where the beneficiary complains that the trustee has misapplied trust money, he falsifies the account, that is to say, he asks for the disbursement to be disallowed. If, for example, the trustee lays out trust money in an unauthorised investment which falls in value, the beneficiary will falsify the account by asking the Court to disallow both the disbursement and the corresponding asset on the other side of the account. The unauthorised investment will then be treated as having been bought with the trustee’s own money and on his own behalf. He will be required to account to the trust estate for the full amount of the disbursement – not for the amount of the loss. That is what is meant by saying that the trustee is liable to restore the trust property; and why common law rules of causation and remoteness of damage are out of place … Where the beneficiary elects to falsify the account, the unauthorised investment is not shown as an asset, the disbursement is disallowed, and the trustee is accountable in every respect as if he had not disbursed the money. He is liable to restore the money to the trust estate; as notionally restored it remains subject to all the trust’s powers and provisions of the trust as if it had never been dispersed; and the account is taken accordingly. …

If the beneficiary is dissatisfied with the way in which the trustee has carried out his trust – if, for example, he considers that the trustee has negligently failed to obtain all that he should have done for the benefit of the trust estate, then he may surcharge the account. He does this by requiring the account to be taken on the footing of wilful default. In this context “wilful default” bears a special and unusual meaning: it means merely lack of ordinary prudence or due diligence. The trustee is made to account not only for what he has in fact received, but also for what he might with due diligence have received. Since the trustee is, in effect, charged with negligence, and the amount by which the account is surcharged is measured by the loss occasioned by his want of skill and care, the analogy with common law damages for negligence is almost exact. Although he is a fiduciary, his duty of care is not a fiduciary duty. In this context it must be right to adopt the common law rules of causation and remoteness of damage to their fullest extent. The trustee’s liability is enforced in the course of taking the trust account rather than by an action for damages, but the obligation of skill and care is identical to the common law duty of care.’ ‘(‘Equity’s Place in the Law of Commerce’ by Lord Millett, (1998) 114 LQR 214, 225-7).

As a general rule accounts are to be taken against the trustees from the date at which the misapplication commenced. Where the misapplication has been innocent, accounts are usually directed from the commencement of the action. However, they may also be ordered from;

·       the date at which notice was given to the trustees questioning the propriety of the application; or

·       the date of the decree declaring the application improper.

Where a charity trustee uses trust funds for trading purposes, he is accountable to the charity for any profit made, or for interest at the rate of 5%.

Since the decision of the House of Lords in Sempra Metals Ltd v. IRC [2007] UKHL 34, the Court has had the power to make an award of compound interest where that is necessary to achieve full restitution.

‘Questions relating to charities may be compromised and the terms of the compromise confirmed by the court. Trustees for charities have power to compromise claims under the Trustee Act 1925. In addition, a compromise may be approved by the Charity Commission under the Charities Act 2011. Where the Attorney General is a party to any legal proceedings affecting a charity, no compromise can be enforced without his sanction. The Attorney General is a necessary party to all charity proceedings, other than any commenced by the Charity Commission, and must be joined as a defendant if he is not a claimant. In proceedings, other than charity proceedings, which concerned the interests of the charity, the Attorney General, if not the claimant, should generally be made a defendant. … Thus where proceedings are necessary to test the validity of an alleged charitable gift, even where the class to benefit is a foreign community, or to determine whether a claim to the benefit of a charity is properly founded, or to enforce the execution of a charitable purpose or to remedy abuse or misapplication of charitable funds, or to administer a charity, the Attorney General is generally a necessary party, and is normally the proper claimant. He represents the beneficial interest, in other words the objects, of the charity. Even if all the subscribers to a charitable fund are made claimants, a claim for the regulation of the charity is defective unless the Attorney General is also a party.’

(Halsbury’s Charity Law (2020), paragraphs 11.13 and 11.15).