1st High Court Contentious Probate Trial by Videoconferencing

For the first time a contentious probate trial occurred remotely using Microsoft Teams videoconferencing.

In Coles v Reynolds & Anor [2020] EWHC 2151 (Ch) (07 August 2020): http://www.bailii.org/ew/cases/EWHC/Ch/2020/2151.html Matthews HHJ dismissed Teresa Coles’ claim that her sister Heather Reynolds exercised undue influence on their mother to procure the assignment of a half share in the family home to Mrs Reynolds, and also wrongly procured the execution of a will in her favour. The learned judge also dismissed Coles’ allegations that the deceased did not know or approve of the contents of the will.

As I conclude in my article, “Judicial-ENE and the ‘New Normal’”, which is being published by Trusts & Trustees (Oxford University Press) in the forthcoming Issue 9: https://academic.oup.com/tandt/pages/About

‘Use of [Judicial Early Neutral Evaluation] JENE as a case-management tool is likely to become routine at the first case-management conference where for example, one party has proposed JENE, and another has refused consent because he prefers mediation. Whereas mediation requires consent, JENE does not, and the court has the power at the first CMC to order a stay during which the parties must:

(i)     take stock; and

(ii)     each carry out a reality-check,

i.e. before substantial costs are incurred in preparing for trial.

JENE is also likely to be at the centre of judicial case-management long after the pandemic has ended, not because solicitors and their lay clients suddenly underwent a Damascene conversion on the way to the Rolls Building while wearing face masks, but because the benefits of the process are plain common sense.’

Where a binary outcome on liability can open the door to settlement in relation to quantum, relief, and costs, JENE should be considered.

In the context of trust and estate disputes, unless:

(i)     all pivotal issues surrounding liability have been resolved and agreed; and

(ii)     where the interests of minor and unborn beneficiaries are involved, a representation order is or can be obtained beforehand,

it is hard to imagine why a case would not benefit from JENE.

However, most Chancery judges will be wary about the evaluation of rights under a trust or estate which impacts upon the interests of unborn and minor beneficiaries who are not represented before them. Trustees have, ‘traditionally had the duty of safeguarding the interests of unborn or otherwise absent beneficiaries and can be required to present argument on behalf of them, notably in a case in which no beneficiary in a given class is willing to participate.’ (Lewin on Trusts, 20th Edition, Volume II, paragraph 39-054). In such cases, the court ‘has jurisdiction to approve a compromise of a claim about property subject to a trust in which a representation order has been made under Part 19, rule 19.7, of the Civil Procedure Rules,’ (Lewin, paragraph 53-006), and can approve the terms of any settlement which results from a JENE provided:

(i)     a representation order was obtained beforehand; and

(ii)     if it is satisfied that the settlement is for the benefit of all represented parties, CPR,r.19.7(5) and (6)

Unless a representation order can be obtained, JENE is not a practical option where the interests of minor and unborn beneficiaries are involved. Therefore, an application for JENE in these circumstances is likely to fail.

Subject to that caveat, while remote hearings are more challenging and tiring for all involved than hearings in person, I predict that JENE hearings (which can be imposed without consent) will be conducted remotely, even after the pandemic has ended, i.e. if there are costs-saving and other potential benefits in having a remote hearing.

The article also discusses FDR. Family practitioners should be vigilant, as it is possible, for the reasons argued in my article, that the foundation already exists for ordering a mandatory FDR. However, this will require a test case.

For more information about advocacy in remote hearings and trials please visit the ‘Advocacy in remote hearings’ pageat www.ihtbar.com.

About the author

LL.M (Exon), of Lincoln’s Inn and the Middle Temple, Barrister-at-law, Solicitor of the Supreme Court of England and Wales (non-practising but remaining on the Roll), TEP, SCMA Accredited Mediation Advocate, Chambers of Ian Mayes QC, 1 Essex Court, Temple, London EC4Y 9AR (www.ihtbar.com). I specialise in will, trust, and inheritance disputes. I also undertake breach of fiduciary duty, civil fraud, and professional negligence claims. I am a registered Public Access Barrister and am authorised by the Bar Standards Board to conduct litigation. I am the author of the first edition of the Contentious Probate Handbook – Practice and Precedents’ (published by the Law Society in October 2016), and of the ‘Contentious Trusts Handbook – Practice and Precedents’ (published by the Law Society in July 2020), and a member of: STEP (full member); the Chancery Bar Association; the Professional Negligence Bar Association; and of the Institute of Art & Law in London, where I am studying for a Diploma in Art Law.

Islamic law principles applicable to the administration of trusts

Islamic law principles applicable to the administration of trusts | LinkedIn

Introduction

Under English Law, a trustee who breaches any of the duties outlined below, and does not beforehand apply to the court for directions about the performance of his duties and the exercise of his powers, is exposed to a potential claim for:

  • breach of trust;
  • breach of fiduciary duty; and/or
  • negligence, and if he is a professional trustee, e.g. a bank , accountant, or solicitor, will have professional indemnity insurance cover.

This is not an academic risk, and I expect that litigation involving Islamic fiduciaries is likely to increase, unless executors and trustees are rigorous.

If of course they do not know or understand, with crystal clear clarity, what their duties and powers are under the trust, or are blissfully unaware of their potential legal liability, executors and trustees are sitting ducks. Furthermore, unless an exemption clause is valid and exonerates the breach, or the court otherwise excuses the breach, the extent of their potential liability is unlimited, and compared with commercial litigation, the court issue fees in the English court (provided it has jurisdiction), in a will, trust, and inheritance dispute, are relatively nominal.

Furthermore,

‘Trustees who are donees of a mere power are not entitled to refuse to consider the desirability of exercising the power, whether it is a dispositive power or an administrative power. They cannot simply fold their hands and ignore it. Nor must they exercise it without consideration, as by doing whatever the settlor asks them to do. They must from time to time form a judgement bone fide as to whether they should exercise the power. It follows also that they cannot release it, unless (as is common) they are authorised to do so by the trust instrument. …

Under most trusts the subsistence of the power or duty will be dependent on the existence of a given state of facts. …

In principle, the trustees must be bound to give proper consideration to the question whether the requisite state of facts exists. Where the existence of the state of facts is the precondition to the exercise of a mere power, the power being fiduciary, the duty to form a judgement on the facts is simply part of the duty to consider the exercise of the power from time to time. …

When the trustees do give consideration to the state of facts, they are under certain further duties in forming a judgement about them. The duties are:

(i) To act honestly and in good faith;

(ii) To ask themselves the correct question;

(iii) To reach a decision open to a reasonable body of trustees; and

(iv) To take into account relevant matters and only those matters. …

[These duties] attach when the trustees are forming a judgement about the state of facts, as a precondition to the exercise of a power or duty. …

If they form a judgement in breach of those duties, the court will interfere. The grounds on which it does so are restricted: the court does not interfere merely because it would itself have reached a different decision and recognises that there may be a wide area within which trustees complying with their duties could form more than one judgement. Hence it is necessary to establish a breach of one of the [following] duties.[Lewin on Trusts, Twentieth Edition, Volume 11, Sweet & Maxwell (2020) paragraphs: 29-008; 29-014; and 29-016]:

(i) honesty and good faith;

(ii) correct question;

(iii) perversity and reasonableness; and

(iv) taking matters into account.

During a visit to Harvard University in 2002, I had the great honour to meet with Professor Frank Vogel (Harvard Law School) and Professor Samuel Hayes (Harvard Business School), who very kindly provided me with access to the Baker library.

Following my visit, I wrote an unpublished research note, which I last updated in 2012, and is set out below.

Back in 2002, I was amongst two of the first postgraduate students to ever research Islamic Finance at London University (King’s College London).

I am not a Sharia expert, and the Islamic Finance industry has grown exponentially since I had to abandon my research in 2003 in order to focus upon my law practice.

While I do not discuss Islamic law and trusts in my new book, the ‘Contentious Trusts Handbook’, which was published by the Law Society in July 2020 and is now in stock in bookshops and available to purchase online (see my recent post about the book), it struck me back in 2002, that very few academics and practitioners knew anything about the plethora of exacting equitable principles that govern the existence and performance of fiduciary duties, and the exercise of powers, in the context of Islamic finance products and structures.

Islamic Finance lawyers tended to be experts in the law of Islamic Contracts, and bankers and academics were usually expert economists.

However I could count on one hand, anybody I ever met, who had a thorough grasp of the equitable principles that are at the heart of the governance and administration of Islamic Finance funds involving trusts.

This must have changed since 2002. However, I doubt that the principles have yet been fully worked out, because literature on the subject appears to be slim. It therefore appears that the doctrinal foundations of fiduciary theory in Islamic law suffers from a paucity of analysis.

As Professor Mohammad Fadel concludes in chapter 28 of the Oxford Handbook of Fiduciary Law (2019) (‘Fiduciary principles in classical Islamic law systems’), at page 543:

[There is] a vast body of rules in classical Islamic law that were reflective of fiduciary principles. Equally interesting, however, was the interaction of express contractual stipulations alongside fiduciary principles in classical Islamic legal doctrine. … the origins of fiduciary duty in a strong sense of moral duty to the vulnerable cautions against taking the comparison of fiduciary duty to contract too far: an Islamic fiduciary, above all, is supposed to be motivated by a genuine sense of moral duty and is always aware that his or her discharge of that duty is subject to divine supervision. If fiduciary duties arise as a solution to incomplete contracting, it is a unique kind of contract insofar as the fiduciary is prevented from securing his own interests. It is rather an undertaking to do one’s best in furtherance of the interests of another. This altruistic dimension of fiduciary duties in Islamic law is ultimately its most crucial feature, distinguishing it from other legal relationships.’

Duties and powers

As explain in my new book, under English Law it is now almost pure rhetoric that:

Trustees enjoy a range of discretionary powers in relation to the selection and sale of investments. The paramount duty of the trustee is to exercise his investment powers in the best interests of both present and future beneficiaries. As a minimum, the trustee must preserve the capital value of the trust fund. When selecting investments, the trustee must have regard to the principles of portfolio theory (which are embodied in the standard investment criteria). According to this theory, investors should have regard to the composition of their investments as a whole (known as the ‘portfolio’), to determine whether they are balanced and suit the needs of the particular trust. A balanced portfolio of investments will have a mixture of different types of investments and in different sectors, including sectors that are in competition with each other. Another factor in ensuring that there is a balanced portfolio of investments is through careful management of the risk of loss.

The significance of portfolio theory to the management of risk is the emphasis placed on the risk level of the entire portfolio, rather than the risk attached to each investment in isolation. Consequently, an investment that might be considered too risky for the trust when examined in isolation, might be justified when considered in connection with other less risky investments of the trust. Part II of the TA 2000 makes provision for a general power of investment by trustees and confers extensive powers of investment on trustees. The general power is a power to make any kind of investment that the trustee could make if they were absolutely entitled to the trust property, save for investments in land other than loans that are secured on land. 

The general power of investment does not apply to:

(a)    trustees of pension schemes;

(b)    authorised unit trusts; or

(c)    charitable trusts.

In exercising the general power of investment or any power of investment, the trustee is under a duty to have regard to the so-called ‘standard investment criteria’. These criteria also apply when the trustee reviews investments. There are two criteria which reflect the key principles of portfolio theory:

(a)    first, the trustee must consider the suitability to the trust of the particular investment, which requires consideration of various factors, including the:

(i)     size of the trust fund;

(ii)     anticipated length of the trust; and

(iii)    degree of risk attaching to the investment;

(b)    second, the trustee should consider the need to diversify the investments (as appropriate in the circumstances of the trust), which requires the trustee to;

(i)     consider the relative risk of loss and gain; and

(ii)     ensure that he invests in competing sectors (i.e. so that if one sector underperforms, another sector might yield a higher return).

Before:

(a)    exercising any power of investment (under statute or under the terms of the trust); or

(b)    reviewing trust investments,

a trustee is under a duty to obtain and consider proper advice about how his power should be exercised in accordance with the standard investment criteria. Advice is considered to be ‘proper’ where the trustee reasonably believes that a person is qualified to give advice because of their skill and knowledge of financial and other matters relating to the proposed investment.

Investment powers can be delegated to an agent, who will be bound by the same restrictions that constrain the trustee. An agent is not required to obtain investment advice if he is a person whom a trustee may properly consult, e.g. a financial adviser.

A trustee does not have any statutory power to acquire land abroad. When a trustee buys or sells trust property, he must obtain the best price, and not be influenced by ethical or moral considerations. There are also circumstances under which a trustee may have to act unscrupulously for the benefit of the trust, e.g. by ‘gazumping’ a buyer. The trustee’s duty to his beneficiaries outweighs his moral obligation to the purchaser.

In Buttle v. Saunders [1950] 2 All ER 193, [195], Wynn-Parry J. observed that, ‘It is true that persons who are not in the position of trustees are entitled, if they so desire, to accept a lesser price than that which they might obtain on the sale of property, and not infrequently a vendor, who has gone some lengths in negotiating with a prospective purchaser, decides to close the deal with that purchaser, notwithstanding that he is presented with a higher offer. It redounds to the credit of a man who acts like that in such circumstances. Trustees, however, are not vested with such complete freedom. They have an overriding duty to obtain the best price which they can for their beneficiaries. It would, however, be an unfortunate simplification of the problem if one were to take the view that the mere production of an increased offer at any stage, however late in the negotiations, should throw on the trustees a duty to accept the higher offer and resile from the existing offer. For myself, I think that trustees have such a discretion in the matter as will allow them to act with proper prudence. I can see no reason why trustees should not pray in aid the common-sense rule underlying the old proverb: “a bird in the hand is worth two in the bush”. I can imagine cases where trustees could properly refuse a higher offer and proceed with a lower offer. Each case must, of necessity, depend on its own facts.’

The following principles govern the selection of investments:

(a)    the investment must be permitted by the terms of the trust;

(b)    investments should be diversified;

(c)    whilst the key aim is to obtain the best return for beneficiaries having regard to;

(i)     risk;

(ii)     potential income yield; and

(iii)    potential capital appreciation,

         high risk investments should be avoided;

(d)    the trustee is not:

(i)     generally required to consult beneficiaries about the selection of investments (except as required by the trust instrument); and

(ii)     bound to act on the wishes of the beneficiaries, but should consider any comments of beneficiaries, and take them into account as and when appropriate;

(e)    because different types of beneficiary will have different interests in the types of investment made, the trustee must ensure that they have regard to the interests of those who:

(i)     are entitled to the income, such as the life tenant and

(ii)     will take in the future, i.e. become entitled to the remainder, and

(f)     therefore, the trustee is obliged to:

(i)     exercise his investment powers in the best interests of both the present and future beneficiaries; and

(ii)     to hold the scales impartially between different classes of beneficiary.

The trustee must act in the best interests of the beneficiaries as a whole. Where those interests conflict, the trustee must:

(a)    maintain a fair balance between them; and

(b)    not favour one beneficiary or class of beneficiary over another.

The duty to maintain a fair balance can be expressly or implicitly excluded by the trust instrument, i.e. where the trustee is given the power to choose between different beneficiaries or classes of beneficiary when exercising a power of appointment. Where there is a life interest, the distinction between capital and income is crucial, because the trustee has a discretion to choose whether to buy income producing investments or capital growth investments, and opting for an investment policy which lays too much stress on one objective or the other, would disproportionately favour the life tenant over the remainderman, or vice versa.

Before deciding whether a proposed course of action is for the benefit of the beneficiaries or in their best interests, the trustee must decide what:

(a)    the purpose of the trust is; and

(b)    benefits the settlor/testator intended the beneficiaries to receive.

Where trust property is capable of yielding an income, the trustee must obtain income. If the property is money, it should be:

(a)    invested at interest; or

(b)    be used to purchase income yielding assets, e.g. shares.

Where the property consists of business assets, it should be employed in the business. If the property is lettable land, it should be let for rent.

It is a breach of trust to offer a loan on soft, non-commercial terms to a person who is not a beneficiary. Therefore, when lending trust money the trustee must secure a commercial rate of interest. When selling trust property, the overriding duty of the trustee is to get the best possible price for the beneficiaries. In considering what investments to make, the trustee must disregard his own personal interests and opinions. Powers must always be exercised fairly and honestly for the purpose for which they were given, and not so as to further or accomplish an ulterior motive, whether for the benefit of the trustee, or anybody else.

When trustees find themselves in a situation of deadlock, unable to agree on how best to exercise their equitable discretion, they may make an application under CPR, Part 64, for directions.

The four main types of application that arise are:

‘i.     an application concerning whether the proposed action is within the trustees’ powers. This is a question of the trust instrument, or a statute, or both;

ii.           an application as to whether a proposed course of action is a proper exercise of the trustees’ powers. In this situation, there is no real doubt as to the nature of the trustees’ powers. Trustees agree as to how to exercise them, as the decision is particularly momentous, trustees wish to obtain the blessing of the court to the action. In this case, the trustees are not normally surrendering their discretion to the court, but frequently seeking to protect themselves from disgruntled beneficiaries;

iii.         an application for directions where the trustees are deadlocked or disabled as a result of a conflict of interest and so cannot properly come to a decision. In this case, the trustees surrender their discretion to the court who makes the decision for them; and

iv.         an application for a direction to, in effect, approve a course of action the trustees have already taken and which is being attacked.’

(Public Trustee v. Cooper [2001] W.T.L.R. 901, [923-924], per Walker J. (as he then was)).

“A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretion is always entitled to take proper professional guidance and, if so advised, to protect his position by seeking guidance of the Court. If, however, he seeks the approval of the court to an exercise of his discretion and thus surrenders his discretion to the court, he has always to bear in mind that it is of the highest importance that the court should be put into possession of all the material necessary to enable the discretion to be exercised. It follows that, if the discretion which the court is now called upon to exercise in place of the trustee is one which involves for its proper execution the obtaining of expert advice or valuation, it is the trustee’s duty to obtain that advice and place it fully and fairly before the court, for it cannot be right to ask the judge in effect to assume the burdens of a trustee without the information which the trustee himself either has or ought to have to enable him to carry out his duties personally. The court ought not to be asked to act upon incomplete information and, if it is so asked, the proper course is either to dismiss the application or to adjourn it until full and proper information is provided.’” (Lord Oliver in Marley v. Mutual Security Merchant Bank [1991] 3 All ER 198 (PC) [201]). 

An application for directions about the propriety of a particular course of action does not involve the Court determining any legal rights. The Court is solely concerned with the process by which the trustee reached the decision about whether their proposal is for the benefit of the beneficiaries.

In Cotton v. Earl of Cardigan [2014] EWCA Civ 1312 at [61] Vos L.J. said,

“In order to succeed in [a Public Trustee v. Cooper category 2 ‘blessing’] application, the trustees must, as Sir Andrew Morritt made clear in Tamlin v. Edgar … put the Court in possession of all relevant facts so that it may be satisfied that the decision of the trustees is proper and for the benefit of the beneficiaries. Moreover, it must be demonstrated that the exercise of their discretion is untainted by any collateral purpose. This process could be seen as one of “disclosure”, but I would prefer to regard it as an evidential exercise. The trustees have the burden of proof and must, therefore, give the Court all the information and disclosure that it requires to be satisfied that approval can be granted. If they fail to do so, they will not obtain the approval they seek. But the Court may, in such a case, send the trustees away to produce more evidence. Whilst the process is not inquisitorial, it is part of the inherent jurisdiction of the Court to supervise trustees. The Court would be unwilling, I think, to countenance the refusal to approve a proper, and momentous, transaction on some technical ground based upon an incidental failure to produce adequate material to the Court.”

The legal test for a Category 2 (‘Blessing’) application is, ‘would a proposed course of action be a proper exercise of the trustee’s powers?’ This involves a consideration of whether:

(a)    the trustee has formed an opinion;

(b)    the underlying conclusion is one which a reasonable body of trustees properly informed could properly have arrived at; and

(c)    the opinion is vitiated by:

(i)     any conflict of interest;

(ii)     the application of the ‘fraud on a power’ doctrine; or

(iii)    otherwise.

“In order for the court to perform its cautious, scrupulous and inquisitive review of a blessing application, the trustee must fully and frankly disclose all relevant materials. The case law is clear that it is of paramount importance that applicant trustees provide the court with all relevant facts, documents and information when making an application, and that the judge only decide after scrupulous consideration of the evidence… In certain cases , evidence of without prejudice communications might properly be adduced to assist the court to effectively exercise its blessing jurisdiction.” (‘Without prejudice privilege when seeking the court’s blessing’, by Andrew Butler and Nathaniel Walker, Trusts & Trustees, Vol 25, No.5, June 2019, pp. 539-551). Once approved by the court, the trustee’s conduct cannot be subsequently challenged by a beneficiary. The trustee is therefore, inoculated against later claims that their exercise of power was a breach of duty.

The legal test for a Category 3 (‘Surrender of discretion’) application is ‘what should the trustee do?’, i.e. what would be in the best interests of the trust. In order to prove that the decision was both proper, and for the benefit of’ the beneficiaries, a trustee should adduce evidence to show that it had:

(a)   taken into account that which ought to have been taken into account; and

(b)    not taken into account that which ought not to have been taken into account.

This is required, because:

(a)    the overall question in a category 2 case, is whether the proposed course of action would be a proper exercise of the trustee’s power;

(b)    if the propriety of the trustee’s decision-making process cannot be questioned, then a category 2 application can only be governed by the second condition (i.e. the rationality of the result) test, rendering the first and third conditions of the test virtually superfluous;

(c)    if the trustees acted in breach of duty by:

(i)     failing to take into account relevant considerations; or

(ii)     taking account irrelevant considerations,

and failure would or might have affected the decision, then after the event (but for the blessing of the Court), the transaction may be set aside under the rule in Re Hastings-Bass as modified by Pitt v. Holt;

(d)    if there has been sufficient disclosure to the Court, then the approval of the Court prevents a future challenge to the propriety of the transaction; and

(e)    the Court should not bar such a challenge by approving the transaction if it knows that the trustee’s decision has not been properly taken.

The reasons for the decision made by the trustee needs to be specified and evidenced. Once that is recognised, the need to engage the Pitt v. Holt question is apparent. That logic then sheds light on what will frequently be the similarity in the evidence actually required as to the relevant considerations (in a Pitt v Holt sense) in category 2 and 3 applications.

The test in a category 3 application is stated in quite different terms to the conditions for a category 2 application. In a category 3 application, there is no decision to ‘bless’. The Court will require the applicant trustee to place before it, sufficient material for it to be able to make the decision as quasi-trustee. Yet, the Court will need to be put in a position, in that capacity to take into account that which a trustee ought to take into account. Therefore, unless there has been a subsequent change in circumstances or knowledge, the evidential exercise in respect of the considerations to be taken into account under a category 2 application is almost identical to that required in a category 3 application. (See further, ‘Evidence in trustees’ applications: reading Public Trustee v Cooper together with Pitt v. Holt’ by Will Henderson and Jonathan McDonagh, Trusts & Trustees, Vol 23, No.9, November 2017, pp 910-915).

The orders that the Court can make include:

(a)    giving directions as to whether a power may properly be exercised;

(b)    if the matter relates to an improper non-exercise of discretion, the Court may direct the trustee to consider exercising it;

(c)    if the Court believes a past exercise of discretion was tainted, it will declare that the exercise was void from the outset and may then:

(i)     require nothing further of the trustee (where an exercise of discretion has been overturned entirely); or

(ii)     require the trustee to consider the discretion anew, or replace the trustee with another who can be relied upon to act properly.

Only in rare circumstances will the Court exercise the discretion in place of the trustee, i.e. where the trustee has:

(a)    surrendered his discretion to the Court for a proper reason; or

(b)    unreasonably refused to exercise his discretion.

In such a case, the Court may either on:

(a)    the application of a beneficiary; or

(b)    its own motion,

remove a trustee whom it believes is unlikely to exercise the discretion honestly and properly in the future.’

For the reasons set out at the top, I expect litigation involving Islamic fiduciaries to increase. In 2022, I will apply for rights of audience in the DIFC Courts in Dubai, and in Malaysia, in order to act for trustees and beneficiaries in Islamic Trust litigation.

RESEARCH NOTE

‘Islamic law principles applicable to the administration of trusts derived from the conduct of partnerships in classical Islam.’

Introduction 

Discretionary trusts are prevalent in wealth planning for private clients in the Middle East and recently the issue of trust certificates (“sukuk”) has been widely applied as a technique in Islamic finance transactions on the basis of general Sharia guidelines approved by renowned Muslim jurists (“fuqaha”). By Royal Decree No.23 of 2006 Bahrain introduced a trust law, “aimed at providing a firm foundation for trust business, which is showing a potential for growth in the Middle East,[1] and in July 2007 it was reported[2] that, “The Dubai International Financial Centre’s investment arm and Dubai Islamic Bank have joined forces to meet demand in the region for financial succession planning and other trust related-services that follow Islamic guidelines.” 

Whilst Sharia scholars (the “Ulama”) have not achieved consensus upon a general theory of trust law principles worked through for Sharia compliance, Islamic law (comprising both Sharia and Fiqh) contains principles that equate to the English law concept of fiduciary relationships, and a doctrine of equity (“istishan”). 

In this research note I briefly discuss the structure sources and methodologies underlying Islamic law and the innovation of estate planning products, and whether fiqh and the customary law that evolved out of partnerships in classical Islam, is potentially a rich vein of jurisprudence in relation to Islamic fiduciary duties. I also briefly consider whether a limited liability partnership constituted under English law can be used as a succession planning vehicle for muslims who are owner-managers and professionals. 

The structure, sources, and methodologies underlying the interpretation of Islamic law, and the innovation of estate planning products 

Islamic law must be understood to comprise the law that is revealed, the law which is taught by the different schools and sects, the law as established by customary practice, as well as law introducing an inevitable measure of foreign influence and alterations impelled by performance and the passage of time. 

It has been carried down to the present not only through transmitted practice but, more importantly, embodied in a number of texts considered to be divinely revealed. Islamic law therefore sees itself as responding primarily to a discrete number of texts, that are understood as achieving religious, moral, and ideal ends, not only practical ones. As such Islamic law stands apart from the two major sources of contract law in the Western world, the Roman and common law, whose orientations are predominantly worldly and pragmatic. 

Islamic law is not a unified system of law. Inpractice it is instanced by old decisions of Cairo Sharia courts, by official registers and private papers in places like Riyadh, Jeddah, Oman, Yemen, Damascus, and Baghdad and the much heralded manuscripts of the Cairo Geniza. 

Custom and practice

Islamic Law recognises that commercial and contract customs prevailing in the Middle East in the years of its formation provided much of its content. It therefore has normative sources. Many of its legal rules and formulations bear strong family resemblance to Jewish, Roman, and Babylonian law. 

Posing the question “What establishes a custom ?” Rayner states, that the Majella answers this question by stating that the custom must be ‘continuous’ or ‘preponderant’. “Preponderant”, means “commonly known”. She observes that this is the interpretation that has been adopted by the Civil Code of the UAE. She also notes that Fyzee states that the burden of proof lies heavily upon the party relying opon the validity of a custom as against the application of the general law. This party must firstly plead the custom. Secondly, he must clearly prove that the specific matter is governed by that custom, and not by the general law. Moreover, there is no presumption in favour, and the requirement that the custom be of long duration and not opposed to public policy, pertains to all accounts.[4] 

According to tradition, the most prevalent means of merchant practice in Pre-Islamic Arabia were firstly, by partnership agreement (Musharaka), and secondly by receiving goods on the basis of a Commenda partnership (Qirad / Mudaraba). These methods provided unlimited scope for progress: potential investors would entrust capital or merchandise to the agent merchants on the understanding that the merchant would trade with it in foreign parts, and then return the principal sum to the investor along with a previously agreed share of the profits (or alternatively, the losses). The merchant retained the surplus profit in payment for his labour but did not participate in the material losses (other than having wasted his time and effort), which were borne exclusively by the investors. Alternatively, a merchant was able to combine his capital with that of the investors in a bilateral commenda. In such an enterprise, the merchant would enjoy the total profit from his own injected capital. 

Innovation[5]

Legal rulings applied in contemporary Islamic banking and finance are generally developed using one or the other of the following techniques: 

(1)      Ijtihad 

Derivation directly from the revealed texts of the Qur’an and the Prophet’s Sunna. 

(2)      Ikhtiyar –There are various sub-categories of this method according to the criteria of choice employed: the most ambitious reverts to the Qur’an and Sunna and to basic Fiqh principles to decide which view offers the best or strongest interpretation of the revealed texts; a second evaluates an opinion by the rules of decision internal to the school which espouses it, such as the degree of support from the school’s founder or its consistency with other school holdings; a third examines which view best serves the general welfare (maslaha, of a conception including religious welfare). Sometimes, because it conforms to prevailing practices or customs. This last method follows not from revelation but from changing temporal circumstances. Scholars are permitted to combine views of different schools on different parts or aspects of transactions. 

(3)    Rulings. The adoption of a ruling on a position, even one contravening a categorical Sharia rule, when one is compelled by stark necessity (darura ), which must be of great severity – usually one of life or death (Suras 2:173, and 2:286).

This exception applies only to the extent of, and for the duration of the necessity.

A version of the doctrine holds that a mere need (haja), if it affects many may be treated like a dire necessity affecting only one. 

(4)    Legal artifice (hila ). The foundation of this method is a formalistic approach to contract, in the sense of a concern for the external form of transactions instead of the parties’ substantive intentions.

Schools vigorously differ on subversive artifices, their views falling across a spectrum: the Hanafis and Shafi’s often declare them valid although immoral (and in many cases scholars declare them not even immoral), but the Maliki’s, and even more consistently the Hanbali’s condemn them altogether. 

Clear departures from old rules are extremely rare.

Sharia Scholars rarely invent new terms, alter the definition of old ones, introduce new legal constructions, or criticize the methods or thought processes of the old scholars.

They do not systematically refer to specific intervening changes in technology, institutions, economics, or law as guides or motives to review, amend, or replace old rules.

They are mostly content to work with existing rules in ways that would be largely familiar to scholars of the past.

Devotion to basic “principles” (qawa’id) of the Islamic law lends further stability.

Qawai’id are general legal rulings, often stated as maxims, some found in Prophetic sayings, that classical scholars have identified by a process of induction from many fiqh rulings as sound generalizations about the law.

Scholars consider generalizations to be innate systematic characteristics of fiqh which can hardly be altered without changing the whole Islamic legal edifice. 

By contrast, equity does not circumscribe the rights and remedies of its supplicants seemingly because it produces a neater taxonomy. It is therefore preferable not to restrict rights and remedies in equity, and instead to leave the mutual interplays of the doctrines open, particularly when they are germane.

The new contracts that emerged in classical times, which were few, did so not from scholarly theory but from popular custom or practice.

The scholars vetted them in the usual way by analogy to the standard types.

They were not named among the basic contract types. According to the received basic structure of the sources of Islamic law custom does not figure among the usual sources.

However, when one touches upon the great scholars of Islamic law – people like Sarakhsi (d. ca 1095), who wrote a 30-volume book in the eleventh century, or Kasani a century later, the importance of custom is there for all to see. 

More recently, the study of the practice of medieval merchant families in Arabia was a source of innovation for the development of the Islamic Hedge Fund (which apparently bears close similarity with medieval Islamic merchant guilds and partnerships).[6] 

Many new contracts can survive review against these various rules and principles: among them are various solutions to novel problems arising under modern social or economic conditions, combinations of earlier contracts under a single name, or more complex implementations of standard contractual relationships.

Examples are the modern corporation (sharika), a novel mechanism developed out of the laws of partnership; the modern construction contract (muqawala) combining the sale of materials and the hire of construction services with a fixed period of performance.

Islamic contract theory

The Islamic concept of contract is much wider than that of English law, as the former conveys not only mutual contracts, but also gratuitous dispositions as well as endowments and trusts. Contracts therefore can be nominate or otherwise, gratuitous or otherwise, formal or otherwise, conditional or otherwise, collective or otherwise, binding or otherwise, and unilateral, mutual, or multilateral.

In common with most legal systems prior to the 19th century, Islamic law has no general theory of contract, but rather a theory of contracts, or a system of nominate contracts (to use the Roman term). Nor is there any general theory of obligations such as one would find in Roman law or in French law. There are laws of sale, lease, pledge, and so forth, rather than a law of contract. But a number of principles and rules cut across all contract types, such as those pertaining to riba and gharar

The 16 books of the Majella represents the earliest example of an official promulgation of the civil law principles of the Hanafi school of Islam by the authority of the Ottoman Empire. However even the Majella does not provide an explicit general theory governing obligations and contracts. 

The early jurists were more inclined to exercise subtle analyses of specific contracts rather than to formulate broad principles of theory. 

Rare attempts at a general theory are to be found among the early jurists, but they do not so much formulate watertight theories as to deduce several general principles from the libraries of commentaries and exegeses produced by their predecessors or contemporaries. 

Only by combining and generalising the rules governing the conduct of various transactions do a number of general rules for the conclusion of a valid and binding contract emerge. 

The development of Islamic contracts is the result of the method undertaken by Muslim jurists to elaborate the very broad and piecemeal doctrines of the Quran and Sunna, and to impose them on pre-Islamic norms of practice. 

Every so often among the works of the early jurists it is possible to find a solution or a rule of a certain category which a priori seems restricted to that certain type, but which, if tested on other categories, allows a principle of a certain generality to emerge. The method followed by the jurists in the development of the system of nominate contracts (al-‘Uqud al-Mu’ayyana) was by applying the process of Qiyas to already existing contracts, and by authorising the resulting category with a Hadith or other legal sources. The Muslim psychology therefore tended to treat the law as paradigmatic made up of individual solutions handed down from day-to-day in relation to the specific needs of the moment, rather than of general principles set forth a priori from which the appropriate inference will be drawn for each fresh situation. 

The system used by the jurists to categorise the nominate contracts was to determine whether, in any given contract, right passed in ownership or possession, and whether consideration passed or otherwise. 

The basic nominate contracts number four: 

(1)      Bay’ (Sale): Where right of ownership passes for consideration (Tamlik al-‘Ayn biIwad). 

(2)      Hiba(Gift):Where right of ownership passes without consideration (Tamlik al’Ayn bila ‘Iwad). 

(3)      Ijara (Hire): Where transfers or possession occurs for consideration. 

(4)      Ariya (Loan) (which is only applicable to non-fungibles. Transfer of possession occurs without consideration). 

Other nominate contracts include those of: 

(5)      Salam, (a contract for delivery with pre-payment). 

(6)      Mudaraba(already discussed).

 (7)      Sharika (Partnership).

(8)      Rahn(Mortgage). 

 (9)      Ju’ala, Wadi’a (Deposit). 

(10)    Al-Muzara’a (an agricultural contract where the landlord provides the land, seed and plants, and the worker provides the labour). 

(11)      Umra (an archaic form of an unconditional donation in perpetuity).

Freedom of contract 

According to the Qur’an, property gained from a contract is presumptively lawful if the other party has freely consented to the transaction and the Qur’an supports this result by enjoining the other party to fulfil his contract even if he is disappointed with the outcome. These two provisions seem to complement each other: together they suggest freedom and sanctity of contract similar to modern Western systems. But two major exceptions loom, Riba and Gharrar, both largely undefined by the revelation. 

In the overall result, whatever might be suggested by the Qur’an, the provisions of the Sunna create a climate inhospitable to freedom of contract, even more when the effect of such prohibitions is compounded with the revelations vehement, but irreducibly vague, prohibitions of riba and gharrar

Classical fiqh rarely discussed the idea of contractual freedom outside the standard contract types. Indeed, it is possible that, apart from a few matters the sale of which is illicit (eg., wine, and pork), all the above restrictions on freedom of contract arise solely from a desire to defend contracts from riba and gharrar. This is the assertion of the great Andalucian jurist and philosopher Averroes or Ibn Rushd (d.1198), stating that that there are four causes for the invalidity of sale intrinsic to the concept of sale: illicitness of object of sale; riba; gharrar; and “those terms that conduce to one of the last two or some combination of them” [Ibn Rushd, Bidayat al-mujtahid II 125-6]. 

Under Islamic law, no contract can be validly concluded if it is in derogation of any Islamic principle. The application of this general rule runs contrary to the doctrine of freedom of contract. Thus the parties to a private contract are not absolutely free to choose the forms and the contents of their agreements. 

Quite apart from such general limitations, Islamic law makes considerable room for intervention by the court in a contract. For instance, as provided in article 277 of the Iranian Civil Code 1983, under general principles of Islamic law the court can order a contractual debt to be paid either at a date later than the date it was originally contracted for, or to be paid by instalments. This is clearly an instance of judicial intervention in a private contract. Thus Islamic law disregards the arrangements agreed by the parties, if the court, by Islamic norms, is justified in setting aside the bargain concluded. 

Formation 

The following four principles are applicable to all commercial transactions: (1) Consent of the contracting parties; (2) Legal competence of the contracting parties; (3) A subject matter; (4) A consideration. For the purposes of evidence should litigation result, a fifth condition is added, namely the presence of qualified witnesses. No special formula is required, nor need the contract be embodied in any particular form.[7]           

Documents (sakk, written contracts) fulfil no role whatsoever; there are no transactions for which a written format is prescribed. 

In the past a written agreement and an agreement not committed to writing had exactly the same value with regard to probatory force. For both forms of agreement it was only the testimony of those who witnessed them which established their existence. Because writing was not convenient or possible during the first century of Islam, contracts were often concluded by a witnessed exchange of words and that was deemed sufficient to bind the contracting parties together.[8] 

“A written agreement per se does not give rise to any obligation, nor does it constitute competent evidence in the event of litigation. Theoretically, a written document can acquire legal force only through the verification of its contents by the oral testimony of qualified witnesses. It is the oral testimony which is the decisive factor in determining the existence and nature of an obligation. The existence of documentary evidence constitutes at best, corroborative evidence only.”[9] 

“Islamic legal theory, while persisting in its neglect of written documents, took cognisance, at a very early stage, of their indispensability and widespread use by creating a special branch of practical law, the ‘ilm ash-shurut, devoted exclusively to notarial science.”[10]

The absence of formalism is one of the characteristic features of Islamic contract law. No special words need be spoken and no specific forms or technicalities observed as a prerequisite to validity. In contracts, effect is given to intention and meaning, and not to words and phrases.

Forms of business organisation 

The only type of business organisation historically found in an Islamic economy and discussed in detail by Islamic law is partnerships.

Under the Sharia, there is no single definition that covers the different types of partnerships.

The definition of each is based on the conditions and rules that govern their relationship.

Although Islamic law does not directly address the concept of commercial corporations, it does discuss in detail the different kinds of partnerships based on factors such as responsibility, restrictions, work-scope and profit.

The “Commenda”           

“Pooling resources, whether in the form of cash, goods, skills, or a combination of these, is one of the indispensable components of any extended commercial activity. In Islamic law, the partnership and commenda contracts are the two basic legal instruments by which this can be accomplished.”[11]

Medieval long-distance trade, whether it traversed international boundaries, or whether it moved within the vast expanse of the medieval Islamic domain, required substantial investments of capital to cover the cost of acquiring goods at distant points, and of transporting them and caring for them until they were disposed of. The perilous conditions of both sea, and land travel, the arbitrariness of political and military authorities, and the unpredictable market conditions, exposed such investments to grave risks. 

In Islam, it was the partnership and commenda contracts which were the two basic legal instruments through which the economic functions of the provision of capital resources for the formation of commercial investments, and the sharing of the risks of commercial ventures could be accomplished. 

We possess no documents or actual contracts of commenda and partnership arrangements for the first three Islamic centuries.

Goitein states that in the Arabic papyri from Egypt, the term sharika-partnership-is mentioned only once, and no details concerning that particular case were furnished.

The various terms for the commenda – qirad, muqarada, mudaraba were as far he knew not mentioned at all in the papyri.

References to these arrangements in literary and historical writings of this period are scarce and sketchy.

He concludes that virtually our only source of information concerning these institutions for the early period, are the works of Islamic religious law. 

“More often than not, informal co-operation was accompanied by one or more partnerships concluded between the correspondents, frequently with additional partners. Almost any larger accounts in the Geniza contain items such as “you personally,” “I personally,” “our partnership with so and so.” Merchants appear as managers or capitalists in commenda contracts concluded with their correspondents.[12] Correspondents were sometimes in doubt whether certain goods or sums were sent on their friend’s own account or on a partnership account.”[13]

The limited liability company

The closest approximation to corporate legal entities found in Islam have been bayt al-mal (public treasury), mosque property, waqf (trusts), and Muwafada.

However, it must be noted that institutions such as bay al-mal and awqaf are essentially non economic organisations, and their features are somewhat distant from those of business orientated corporations. 

The OIC Academy has approved of share companies as long as they are not formed for Islamically invalid purposes. 

Decision 65/1/7, seventh session (1992), Fiqh Academy Journal 1:711, 712 declares that owning shares in share companies formed for unlawful purposes is entirely improper. But owning shares in companies that only sometimes engage in forbidden activities like riba is unlawful only “in principle” a term that leaves open the availability of occasional excusing circumstances. Such circumstances are the basis on which fatwas have permitted Muslims to make investments in conventional equity funds. 

This result, and apparent sea change, has required accepting two western legal concepts: artificial personality and the limited liability of investors. Finding affirmative proof for artificial personality among classical precedents is difficult. Objections stemming from religious-legal principles have proved weak and the innovation has come to be seen as little more than a practical convenience. It is now widely accepted. Limited Liability offers more serious problems. The chief argument supporting limited liability is that by law the names of such companies warn third parties of their limited capacity for liability, so that those who deal with them presumably consent to its character.[14] 

That the stock company is so common in modern Islamic Finance bespeaks the potential of the industry to adapt modern institutions to its needs. It is an example of how a major institutional and contractual innovation in Islamic law can be accepted without extended debate when no conflict is detected with basic Islamic legal principles and rules. 

Planning tools 

The absence of formalism is one of the characteristic features of Islamic contract law. By synthesising Islamic and English contract law drafting and contracting principles and practice it becomes clear that when planning an Islamic business succession strategy the toolbox includes: (1) Corporate vehicles, and hence the creation of artificial and separate legal personality with limited liability (the limited liability company being the prime example); (2) various forms of Partnership, and by extension Limited Liability Partnerships; (3) Limited Liability Companies wholly owned by a Partnership, and under English law there does not appear to be any prohibition against the beneficial shares in a privately owned company being subscribed for and held by a partnership entity (with limited liability or otherwise); and (4) Trusts[15], and in certain circumstances under English law a partnership can hold property through a trustee; (5) the application of custom and practice; and (6) endorsement through common law precedent.

Islamic law broadly permits the intervention of the court in private contracts.

The English court becomes in effect the final arbiter of the meaning and enforcement of the parties bargain as evidenced by its written terms if the parties state that their contract is governed by English law and confer jurisdiction upon the English court. 

Therefore, if a contract has been drafted following consultation with Sharia Scholars who have pronounced upon its conformity with Islamic law, whether any mention is made of this or not in the contract, it is arguable that if the English court enforce the contract on its terms as written, their decision must presumptively conform with Islamic law.

Consequently, if the parties formally subscribe to this process by executing a contract expressly stated to be governed by English Law which also states that the parties have submitted to the jurisdiction of the English court, there will be no space afterwards for arguing that the performance of the parties obligations in the manner specified by the contract is excused because the contract has stipulated the performance of obligations that do not conform with Islamic law.

Hence, any financing structure that involves any of the vehicles described above, would appear to be capable of being validly created under Islamic law, and of enforcement under English Law by the English court. 

Provided that an investment / financing instrument has been approved by a recognised Sharia scholar, which of course would also be a quality (“Kite”) mark, and provided the contract is expressly governed by English law, two outcomes are certain. First, whether any reference is made or not to the importation of Islamic law concepts, for example a reference in the preamble to “the parties entering into a Mudaraba in conformity with the glorious Sharia for the purpose of carrying out the project”, the court will interpret and apply the contract in accordance with English law. Secondly, if a code of Islamic Law principles is properly drafted and set out in the contract or incorporated as terms of the contract by reference, the court will subject to its ability to enforce such terms as written, apply those terms robustly against a party in default. Unless any English law remedies that are capable of exclusion are expressly excluded, they will be fully available to the parties.  

In the modern practice of Islamic finance[16], the modalities for equity finance are based on partnership modes (sharika). One the Modarabah, is similar to the medieval commenda. Its modalities are summarised below, one of the key drawbacks for the investor are that the entrepreneur as manager of the invested funds, is not liable for losses unless incompetent or negligent.  

The Musharaka contract however, allocates risk and reward, ie sharing of profit and losses between the partners in accordance with their investment. This mode is more akin to venture capital financing, the main drawback being the need to establish at the earliest stages whether or not the investment is sound or whether the investor is going to lose their shirt. A further problem in practice being the limited duration of these investments. An exit strategy of at least 8 years would commonly be required for a venture capital investment. Musharakas are usually of no more than 3 to 6 years in duration.  

In either case, if structured through a limited liability company, the concept of a preference share capital structure is prohibited. However, participation shares were legalised in the state of Bahrain in the late 1980’s, and on this basis, Professors Vogel and Hayes advance the argument in their book, that higher payout ratio structures are permissible. This may be a way of structuring Islamic venture capital financing through a Musharaka contract. 

I recently asked a Sharia Scholar “Could an investor structure a financing in conformity with Islamic law without dressing it up so that on its face it conformed with one of the forms of nominate contracts, and then document an arrangement in a valid and enforceable contract under the law of the jurisdiction to provide for the transfer of title upon payment of the final instalment.”  The answer was yes, and this in my opinion, confirms that a business succession planning arrangement is capable both of conforming with Islamic law and of being upheld by the English court (subject to the usual remedies and procedures available for challenge by a beneficiary), without making any reference to the underlying mode, or to the principles of the Sharia, if the substantive law governing the terms of the underlying agreements and instruments is English law. 

Musharaka (Partnership / Joint-Venture) 

These are appropriate to small ventures (as opposed to ventures eligible for capital market finance). They involve a partnership between two parties who contribute capital. Profits are shared on a pre-agreed ratio, and losses are borne pro-rata to equity participation. Each may participate in management. 

BIBLIOGRAPHY

Edge, I. Islamic Law and Legal Theory, Dartmouth.1996.

Edwardes, W. Key Financial Instruments. Financial Times, Prentice Hall.2000.

Encyclopaedia of Islam (New Edition) edited by C,E.Bosworth, E.VAN. Donzel,W.P.Heinrichs and G.Lecompte, assisted by P.J.Bearman and Mme S.Nurit.      

Goitein , S.D. A Mediterranean Society, The Jewish Communities of the Arab World As Portrayed in The Documents Of The Cairo Geniza, University of California Press, Berkley and Los Angeles. 1967.

Islamic Finance Innovation and Growth, Euromoney Books. 2002.

Karmali, M.H. Islamic Commercial law: An analysis of futures and options. Islamic Texts Society, Cambridge.

Karmali, M.H. Principles of Islamic Jurisprudence. Islamic Texts Society, Cambridge.2003.

McMillen, M. Islamic Sharia Compliant Project Finance: Collateral Security and Financing Structure Case Studies. Fordham International Law Journal, Vol 24, April 2001, at p.1184.

Rayner, S.E. The Theory of Contracts in Islamic Law, Graham & Trotman, London,Dordrecht,Boston. 1991.

Ruttley,Hilary and Chibli Mallat. Commercial Law in the Middle East, Kluwer Law International, London.1995.

Saleh, N. Unlawful Gain and Legitimate Profit in Islamic Law: Riba, Gharrar, and Islamic Banking (ed.2), London. 1992.

Schact,J. An Introduction to Islamic Law, Oxford. 1964.cf.N.J. Coulson, A History of Islamic Law , Edinburgh 1964.

Shorter Encyclopaedia of Islam. Edited by H.A.R.Gibb and J.H.Kramers (Leiden and London, 1961).

Udovich, Abraham L. Partnership and Profit in Medieval Islam, Princeton, NJ:Princepton University Press, Princeton, 1970.

Vogel, F and Samuel Hayes III. Islamic Law and Finance, Kluwer Law International, the Hague.1998.

Vogel, F. The Contract Law of Islam and of the Arab Middle East, Draft Chapter, the International Encyclopaedia of Comparative Law 1997.

[1] Abdul Rahman Al Baker, Executive director, Finacial Instituitons Supervision at the Bahrain Monetary Agency, reported www.ameinfo.com/93865.html

[2] “Dubai groups join forces to provide Shariah trusts”, by Simon Kerr in the Financial Times, July 18th 2007.

[3] To be written in 2021.

[4] Rayner (1991). P. 38

[5] this section is principally derived from Vogel and Hayes

[6] Based on a short conversation I had with Eric Meyer following his presentation at the Euromoney Annual Islamic Finance Summit in London in 2003.

[7] This rubric is common to all forms of Islamic partnership he discusses. NB Partnership and Commenda were the only forms of formal / quasi-formal business enterprises evolved by Muslim entrepreneurs in mediaeval times. Under English law a general partnership can be created with limited liability. Can a partnership per se or through a trustee be a sole member of a limited liability company? To be researched.

[8]Aqada, the verbal route of ‘Aqd – contract or transaction – means to tie, to make a knot.

[9] Udovich (1970).P. 87 – In Footnote 115 he observes that by denying validity to documentary evidence and confining legal proof to oral testimony, Islamic law deviated from an express Qur’anic injunction (2:282) and from prevalent Near Eastern legal practice which, in so many other areas, influenced the development of Muslim legal institutions. As, yet, no satisfactory explanation has been offered for this seemingly strange development.

[10] Udovich (1970).P.88. Practitioners of this legal specialty (ahl ash-shurut, ashab ash-shurut) exercised two complimentary functions, that of notary public and that of professional witness. As notaries public, they drew up documents for a variety of transactions in accordance with the precepts of the Sharia; as professional witnesses of the documents they drew up, they could provide the oral testimony required to give the written contracts their evidential force.

[11] Udovich (1970).p.3-4

[12] Goitein (1967).p.167

[13] Goitein (1967).p. 167 Remarks to this effect are common [in the Geniza Papers] , and in general such questions were treated with a certain laxity.

[14] The OIC Fiqh Academy, in its brief and highly general statement approving of the conception, noted this as the justification.

[15] Equitable principles in Islamic law (Istihsan) is discussed in Chapter 12 of Kamali (2003). 

[16] “Islamic finance is the provision of financial services on a basis that is compliant with the principles and rules of Islamic commercial jurisprudence (Fiqh Al Mu’amalat), a branch of Islamic Sharia jurisprudence. 

The focus of Fiqh Al’Mu’amalat is on contract, and it lays down what types of contract are permissible or valid and what types are impermissible or invalid. In particular, contracts are impermissible if they involve riba (interest), gharar (uncertainty or ambiguity as to subject matter, terms or conditions) or maysir (gambling or speculation).

Islamic finance involves a specific set of legal issues within Fiqh Al’Mu’amalat. These are essentially issues of contract law, which govern the Sharia permissibility and validity of different contractual forms which may be used in Islamic financial services transactions. In addition, there is the issue of the enforceability of such contracts in secular courts.” Islamic Finance Innovation and Growth published by Euromoney Books p. 3.

Remote advocacy in Cayman Islands hearings

While rights of general admission are only granted to persons resident in the Cayman Islands, as a senior, experienced and highly specialised practising member of the Chancery Bar of England & Wales, I can appear as counsel in any hearing in the Courts of Cayman, if granted limited admission on a case specific basis, i.e. as and when required, because I can add value in a complex international trust dispute.

In order to be admitted, I would need to be instructed by a local attorney who would provide a supporting affidavit about why my services are required in the case that is before the Cayman Islands Court, i.e. because of my specialist knowledge and expertise. 

While rights of general admission are only granted to persons resident in the Cayman Islands, as a senior, experienced and highly specialised practising member of the Chancery Bar of England & Wales, I can appear as counsel in any hearing in the Courts of Cayman, if granted limited admission on a case specific basis, i.e. as and when required, where I can add value in a complex international trust/breach of fiduciary duty dispute.

In order to be admitted, I would need to be instructed by a local attorney who would provide a supporting affidavit about why my services are required in the case that is before the Cayman Islands Court, i.e. because of my specialist knowledge and expertise.

The practice would appear to be the same in the courts of the British Virgin Islands.

In Australia and New Zealand I can also apply for temporary audience rights from their Law Societies.

Where the hearing takes place remotely, I can appear as an advocate working from 1 Essex Court, or at a solicitors’ office in London.

I am investigating whether the same rule applies to international trust litigation hearings in the courts of: Bahamas; Bermuda; Dubai (DIFC Courts); Gibraltar; Isle of Man; Malaysia; and Singapore. If you are a trust practitioner in any of these jurisdictions and would like to contact me to enquire about how we can work together in an international trust/breach of fiduciary duty case, please send an introductory email to carl@ihtbar.com.

As an SCMA accredited mediation advocate, I can represent a party in a virtual mediation in any of these jurisdictions, and again would only act, if instructed by a local attorney.

To view my note about ‘Advocacy in Remote Hearings’ please visit www.ihtbar.com

Where the hearing takes place remotely, I can appear as an advocate working from 1 Essex Court, or at a solicitors’ office in London.

I am investigating whether the same rule applies to international trust litigation hearings in the courts of: Australia; Bahamas; Bermuda; BVI; Dubai; Jersey; Gibraltar; Guernsey; Isle of Man; New Zealand; Singapore; and South Africa.

As an SCMA accredited mediation advocate, I can represent a party in a virtual mediation in any of these jurisdictions, and again would only act, if instructed by a local attorney.

If you are a trust practitioner in any of these jurisdictions and would like to contact me to enquire about how we can work together in an international trust/breach of fiduciary duty case, please send an introductory email to carl@ihtbar.com.

Contentious Trusts Handbook, 1st Ed, Published

I am delighted to announce the publication of my seventh book, the ‘Contentious Trusts Handbook’, 1st edition, published by the Law Society.

The details of the book are set out below, along with the Foreword, which was written by Toby Graham of Farrer & Co in London.

My article ‘Judicial-ENE and the New Normal’ (see the Abstract at the foot of this post) has also been accepted for publication by Trusts & Trustees in the forthcoming Issue 9. Trusts & Trustees (Oxford University Press) is a rigorous peer-reviewed journal, which is sold and distributed worldwide.

Book details:

ISBN-13:978-1-78446-12446-124-9.

400 pages (including 20 precedents on disc).

Ordering Links:

Law Society Bookshop: https://bookshop.lawsociety.org.uk/p/contentious-trusts-ha-1st-edition-paperback-cd/

Wildy & Sons Ltd: https://www.wildy.com/isbn/9781784461249/contentious-trusts-handbook-law-society-publishing

Price: £100.

For more information about the book please visit: https://newsite.carlislam.co.uk/contentious-trusts

I would like to thank the following individuals for their contributions:

• Toby Graham, Head of Farrer & Co’s contentious trusts and estates group, who wrote the Foreword (see below). https://www.farrer.co.uk/people/toby-graham/;

• Pandora Mather-Lees, who is a distinguished Art Historian and contributed a practice note about duties of trustees in relation to art and cultural heritage assets: https://www.artonsuperyachts.com/;

• Hector Robinson QC, who is a partner in the international offshore law firm Mourant, and is Head of the Cayman Islands Practice Group for International Trust and Private Client Litigation, who contributed a practice note about trust litigation in the Cayman Islands. https://www.mourant.com/profile/view/3559/Hector-Robinson%20QC; and

• Anthony Trace QC, 4 Pump Court, Temple, England, who won ‘Mediator of the Year’ in the Innovation & Excellence Awards 2019, who contributed a practice note about mediation in trust and estate disputes.https://anthonytraceqc.com/

Foreword 

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)

11 Januaury 2020

‘Judicial-ENE and the ‘New Normal’

  • The new normal.
  • Rationale.
  • Benefits.
  • Claims involving minors and unborn beneficiaries.
  • Powers of the court.
  • Procedure.
  • Conduct and ethics.
  • Costs.
  • FDR.
  • Conclusion.

[Abstract: The author’s premise is that JENE is the new normal. He discusses: the rationale; jurisdiction and powers of the court to order JENE; its benefits; and the procedure. He concludes that, except where a claim involves the interests of minors and unborn beneficiaries, use of this case-management tool is likely to become increasingly routine at the first case-management conference where for example, one party has proposed JENE, and another has refused consent because he prefers mediation. Whereas mediation requires consent, JENE does not, and the court has the power at the first CMC to order a stay during which the parties must:

(i)        take stock; and

(ii)       each carry out a reality-check,

before substantial costs are incurred in preparing for trial. Therefore, in an appropriate case, where a binary outcome on liability can open the door to settlement in relation to quantum, relief, and costs, JENE should be considered].

Advocacy at remote hearings

·       Virtual Hearing Protocol

·       Platforms

·       Logistics

·       Advocacy

·       Bundles

·       Annex 3 of Practice Direction 32

Virtual hearing protocol

The Civil Justice in England and Wales Protocol Regarding Remote Hearings, 26 March 2020[1], states;

‘1.      The current pandemic necessitates the use of remote hearings wherever possible. This Protocol applies to hearings of all kinds, including trials, applications and those in which litigants in person are involved in the County Court, High Court and Court of Appeal (Civil Division), including the Business and Property Courts. It should be applied flexibly.

2.      … Whilst most court buildings currently remain open, the objective is to undertake as many hearings as possible remotely so as to minimise the risk of transmission of Covid-19.

3.      The method by which all hearings, including remote hearings, are conducted is always a matter for the judge(s), operating in accordance with applicable law, Rules and Practice Directions.

Nothing in this Protocol derogates from the judge’s duty to determine all issues that arise in the case judicially and in accordance with normal principles. Hearings conducted in accordance with this Protocol should, however, be treated for all other purposes as a hearing in accordance with the CPR.

13.    Available methods for remote hearings include (non-exhaustively) BT conference call, Skype for Business, court video link, BT MeetMe, Zoom and ordinary telephone call. But any communication method available to the participants can be considered if appropriate.

14.    Before ordering a hearing by court video link, the judge must check with the listing office that suitable facilities are available.

16.    Judges, clerks, and/or officials will, in each case, wherever possible, propose to the parties one of three solutions:-

(i)      a stated appropriate remote communication method (BT conference call, Skype for Business, court video link, BT MeetMe, Zoom, ordinary telephone call or another method) for the hearing;

(ii)      that the case will proceed in court with appropriate precautions to prevent the transmission of Covid 19: or

(iii)     that the case will need to be adjourned, because a remote hearing is not possible and the length of the hearing combined with a number of parties or overseas parties, representatives and/or witnesses make it undesirable to go ahead with the hearing in court at the current time.

17.    If the parties disagree with the court’s proposal, they may make submissions in writing by email or CE file (if available), copied to the other parties, as to what other proposal would be more appropriate. On receipt of submissions from all parties, the judge(s) will make a binding determination as to the way in which the hearing will take place, and give all of the necessary directions.

18.    It will also be open to the court to fix a short remote case management conference in advance of the fixed hearing to allow for directions to be made in relation to the conduct of the hearing, the technology to be used, and/or any other relevant matters.

19.    The fact that a hearing is to be a remote hearing and, where possible, the technological method to be employed, will normally be shown in the cause list.

20.    The clerk or court official, and the parties, will all need to log in or call in to the dedicated facility in good time for the stated start time of the remote hearing. In a Skype, Zoom or BT call, the judge(s) will then be invited in by the clerk or court official.

21.    The hearing will be recorded by the judge’s clerk, a court official or by the judge, if technically possible, unless a recording has been dispensed with under CPR Part 39.9(i). The parties and their legal representatives are not permitted to record the hearing. With the court’s permission, arrangements can be made with privately paid for transcribers.

23.    The clerk, court official or the judge(s) must complete the order that is made at the end of the remote hearing. The wording of the order should be discussed and agreed with the parties.

24.    The parties should, if necessary, prepare an electronic bundle of documents and an electronic bundle of authorities for each remote hearing. Each electronic bundle should be indexed and paginated and should be provided to the judge’s clerk, court official or to the judge (if no official is available), and to all other representatives and parties well in advance of the hearing.

25.    Electronic bundle should contain only documents and authorities that are essential to the remote hearing. Large electronic files can be slow to transmit and unwieldy to use.

26.    Electronic bundles can be prepared in .PDF or another format. They must be filed on the CE- file (if available) or sent to the court by link to an online data room (preferred) or email.’   

‘HMCTS telephone and video hearings during coronavirus outbreak’[2] (18 March 2020, updated 30 June 2020) further states,

·        ‘For video conferencing we have started using Skype for Business on HMCTS and judicial systems. If you have a video hearing coming up, and you want to join using your computer, you will need to download Skype meetings app for your web browser. If you’re joining using your mobile, you’ll need to download the Skype for Business app in your mobile application store. You will receive instructions and a link to click to join the hearing, as a ‘guest’. When you click on the link, you should follow the browser’s instructions for installing Skype Meetings App. We recommend doing this as early as possible, to be prepared for your hearing. At the time of the hearing, you must go to the Skype Meetings App sign-in page, enter their name, and select “Join”.

·        We have increased capacity, undertaken testing, and are now introducing our ‘cloud video platform’ (CVP) for hearings. CVP uses Kinly video conferencing software. These videoconferencing rooms can be accessed through any laptop or video device. We can also use bridging links to communicate with fixed endpoints that use the Justice Video Service, in courts, prisons and police stations.

·        Please note, HMCTS does not currently support the use of other video conferencing applications and therefore Skype and CVP should be used.

·        Looking ahead, we are expanding the capacity of our video hearings service, which has been tested on a small-scale in specified civil, family and tax tribunal hearing types. Further testing is underway in tax and property tribunals to ensure this bespoke video hearing service is robust and can handle significant volumes of hearings, as quickly as possible. No bespoke software is needed to use the video hearings service, or join hearings in a CVP room.’

Guidance about participation in a remote hearing is set out in ‘How to join telephone and video hearings during coronavirus (COVID-19) outbreak.[3]

Platforms

The COMBAR Guidance Note on Remote hearings 12 May 2020: https://www.combar.com/wp-content/uploads/2020/06/COMBAR-Guidance-Note-on-Remote-Hearings-2nd-edition-23-June-2020-002.pdf, states:

‘19.   A number of alternative video conferencing platforms are available, but only if the Court is prepared to approve their use in advance. These include (in no particular order) Zoom, BlueJeans, Lifesize, GoToMeeting, WebEx, Starleaf and others. Details of the technical requirements for these products can be found as follows: 13 a) Zoom: https://zoom.us; 14 b) BlueJeans: https://www.bluejeans.com; c) Lifesize: https://www.lifesize.com; d) GoToMeeting: https://www.gotomeeting.com/en-gb; e) WebEx: https://www.webex.com/video-conferencing; f) Starleaf: https://www.starleaf.com. 

20.    In each case, where it is proposed to use video conferencing technology it is necessary to ensure that the video conferencing platform can be operated by every participant in the trial.  

21.    As a result, confirmation should be sought from the Court about its ability to use the particular platform. Those enquiries should extend to an enquiry as to whether the Court will need to be provided with additional hardware (e.g. a standalone laptop). Enquiries of this kind should be directed to the clerk to the Judge who will hear the case. Similar confirmation should be sought of every other participant in the hearing. If and to the extent that there are any issues with any participant’s operation of the platform, these should be identified at the PTR. 

22.    Effective operation of any video conferencing platform will depend upon the users’ internet bandwidths (both their upload and download speeds). The required bandwidth for videoconferencing varies from platform to platform and may also vary depending upon the number of concurrent users of the platform. The speed of any individual’s broadband connection (i.e. the bandwidth available to that user) will depend on factors including the time of day and the number of people in the relevant household using the internet at the same time.’

 Logistics

The generic logistical issues to address, are highlighted in the COMBAR Guidance Note on Remote hearings 12 May 2020: https://www.combar.com/wp-content/uploads/2020/06/COMBAR-Guidance-Note-on-Remote-Hearings-2nd-edition-23-June-2020-002.pdf (from which the following recommendations have been extrapolated):

•        The parties will need to test the functioning of any applicable video conferencing platform on their computer set-up in good time ahead of the hearing and it will generally be sensible to undertake a ‘dummy run’ of the relevant platform with instructing solicitors 48 hours prior to the hearing to ensure that the relevant technological requirements for the hearing can be met.

•        In addition, a dummy run should be arranged with the clerk to the Judge hearing the case.

•        It will be useful to liaise with the clerk to the Judge ahead of the hearing as to whether the Judge would specifically prefer hard or electronic copies (or both).

•        The success of a remote hearing is heavily dependent upon the relative ease with which the participants can refer to documents at the hearing.

•        Electronic bundles will therefore be the norm.

•        However, it would be sensible also for the Judge and counsel to have available to them hard copy bundles of the pleadings, and in addition the core bundle should normally be produced in hard copy for the Judge and counsel.

•        Any hard copy bundles must be identically paginated to any electronic copies of the same bundles.

•        The parties should liaise with the Judge’s clerk in good time before the hearing regarding the delivery of any hard copy bundles.

•        Experience to date suggests that skeleton arguments have taken on increased importance in remote hearings. That being so, it may be appropriate in some cases to depart from the typical page limits that apply under the [applicable] Court Guide and/or to ensure that the written submissions are provided earlier than the dates prescribed in that Guide.

•        It has been observed that “remote hearings remain court hearings and the solemnity of the occasion should be observed as closely as it is in a courtroom. Within this context, and insofar as is possible, the decorum of a court hearing should be maintained commensurate with the gravity and seriousness of the issues being decided in a formal legal arena. Steps should be taken to avoid matters that detract from the ordinary gravitas of a court hearing”.

•        In keeping with these requirements, advocates should dress as if they were attending Court, should ensure (to the extent possible) that the background visible on screen is appropriate for a Court hearing and should ensure that they are not interrupted or distracted during the course of the hearing. The use of in-ear headphones is permitted and encouraged if they assist with audibility.

•        Useful guidance on advocacy at remote hearings (and as to common technological mistakes) has been published by the Inns of Court College of Advocacy, https://www.icca.ac.uk/wp-content/uploads/2020/04/Principles-for-Remote-Advocacy-1.pdf.

•        Technical issues may arise in remote hearings. To the extent possible, steps should be taken ahead of the hearing to agree how notification is to be provided of the occurrence of a technical issue. For example, it may be agreed that the participants and the Court will be alerted to the problem by telephone, text or email.

•        Judges and other participants have observed that using technology to conduct hearings is unusually tiring. In addition, participant may have caring or other responsibilities that may create difficulty in attending during normal court hours. Careful thought should, therefore, be given to the appropriate timing and length of each hearing day and to the breaks that are required throughout the day. It will normally be sensible to take a short break mid-morning and mid-afternoon – and it will be necessary to do this where stenographers and/or interpreters are involved.

•        Counsel will need to be able to maintain a separate line of communication with other members of the counsel team and their instructing solicitors. The manner in which this is done is not a matter of concern for the Court, but care will need to be taken to ensure that the method of communication does not interfere with the hearing (for example, through noisy notifications) and that the communications are kept confidential.

•        Counsel should also ensure that their separate line of communication does not result in “unauthorised transmission of an image of, or sound made by, another person while the other person is viewing or listening to a broadcast” of a remote hearing, contrary to Section 85B of the Courts Act 2003 (as amended by the Coronavirus Act 2020).

•        Moreover, the normal etiquette of a Court hearing must be observed. You, your solicitors or your clients may not be able to control whether or not their behaviour is visible or audible – but, in any event, the fact that a hearing is taking place remotely is not an excuse for behaving differently than you would were you in Court. Please remember that the advocate can be seen at all times (even when he or she is not making submissions).

Advocacy

Help the judge to navigate his way around the contents of the electronic bundle.

When presenting your submissions, your Skeleton Argument is your map:

‘Don’t read from it.

But do quote from it.

Begin your argument by capturing the bull’s-eye point in a neat opening sentence.

Then identify what you say are the facts, pointing out where you have mentioned them in your Skeleton Argument.

Now develop where you say there is an argument with your opponent on the facts, and why you should win it.

Explain how you suggest the law fits the facts as you suggest they are. Identify where the arguments lie, and explain why your argument beats the other side, reminding the judge of what is in the skeleton.

Take your time.’ (‘The Devil’s Advocate, by Iain Morley QC (2009), Sweet & Maxwell, p.106).

In a virtual hearing, facial expressions and gestures are even more apparent to the judge than they are in the court-room. Advocates should therefore remember at all times, that ‘Human beings are far more video than audio. The way we collect most of our information is through our eyesight … Intent listening is something we do with surprisingly rarity … What most lawyers ask the [Judge] to do in court is to use [his] second best device for gathering understanding. And [Judges] do it: on the whole they do it well. But since we don’t tie blindfolds on them, they don’t switch off their best information gathering device… People who have studied the psychology of communications have some terrifying statistics for us lawyers. Examples:

•        60% of a message is conveyed by body language and visual appearance generally.

•        30% of the message is conveyed by tone of voice.

•        Only 10% of a message comes through the words used.

•        Only 10% of what people hear gets remembered. If, on the other hand they see something connected with what they are hearing, as they are hearing it, they remember 50%.

Lawyers tend not to know these statistics, just as they don’t seem to realise that they are operating all the time in the Video dimension.’ (Common Sense Rules of Advocacy for Lawyers (2004), by Keith Evans. The Capitol.net, p.8).

The following general guidance is set out in ‘Principles for remote advocacy’, published by the Inns of Court College of advocacy 2020:

•        Judges and advocates who already have experience with this practice consistently remark that effective remote advocacy depends not on new skills. It rewards the bedrock skills: a clearly articulated and logical case, supported by selective use of authority and documents, and focused examination of witnesses. With careful preparation and attention to those core skills, it is possible to make remote hearings, in appropriate cases, highly effective.

•        As far as possible the online hearing should emulate a traditional hearing. This advice applies to advocates and witnesses alike.

•        Establish a speaking protocol at the outset. This may involve participants, when introduced, acknowledging the introduction by raising their hand rather than speaking. This is preferable to a brief nod which may be imperceptible on small thumbnail videos.

•        You must not record a hearing but be prepared to remind the judge to record the hearing.

•        When not speaking, press mute. All participants should do this when not speaking.

•        When it is your turn to speak, remember to unmute your microphone. Speak directly into the microphone.

•        Where multiple devices are in use, all should be muted and only one un-muted when required.

•        Advocates should avoid using headsets (combined over ear headphones and microphone), since online hearings should emulate in-person hearings as closely as possible. However, the use of discrete in-ear headphones is usually permissible and can assist with preserving the confidentiality of proceedings. When in doubt seek the guidance of the court or tribunal in advance.

•        Avoid setting your device to the highest volume, since this is likely to cause feedback when you are speaking.

•        Encourage participants to raise their hand when wishing to interrupt a speaker, or otherwise use the facility to do this on the software provided.

•        Maintain eye contact with the camera. This will ensure you appear to be looking at your audience. The thumbnail image of the person you are speaking to may be at the bottom of the screen, when the camera in your device is above the screen. If so, this will give the appearance that you are looking down or away from your audience.

•        Ensure that you are clearly visible by maintaining a reasonable distance from the camera, to show your head and upper body. Too close in your image may blur and fill the screen, too far and you will appear distant and detached from the hearing. Some cameras zoom in and out depending on the movement of the subject. This should be avoided.

•        Advise everyone to be mindful, if using Skype for Business that the camera records a wider area than one sees on one’s own screen.

•        If you are using the camera on your laptop, typing when you are visible is liable to cause the camera (in your image) to shake. Try to use a separate keyboard or a separate camera mounted away from the laptop.

•        Remember that others are watching even if you cannot see them. In cases involving multiple participants, thumbnail video images may appear on screen, but these thumbnails often move off screen to allow participants to see the face of the person talking, or the document being shared. Observers may also be present. As such, often there are people present at the hearing who are not visible.

•        Ensure that you are well lit by natural or artificial light. Avoid sitting with your back to a window or other light source. This can result in only your silhouette appearing on the screen.

•        Dress professionally, but not in robes unless specifically asked to do so, and appear as if attending the court or tribunal in person.

•        Most hearings take place with parties seated. If in doubt, check with the court. If you prefer to stand, adjust your camera accordingly.

•        Download an app to enable you to mark up the bundle such as Acrobat DC or PDF Expert.

•        Save and keep all your work (including prep and bundles) in a GDPR-compliant cloud not on your device. Whichever cloud you use, it is important to store documents systematically so you can find them easily. Keep a clean duplicate of your bundle, so that you have one clean bundle and one that is marked up. This way, if the judge asks for a document to be handed up, you have a clean copy.

•        The numbers on the pagination can be quite small. Before a hearing, it helps to expand them (and change them to a bright colour) so that you can see them more clearly and move around the bundle more quickly.

•        Use an agreed indexed electronic bundle of documents which can be referred to between relevant parties by section, page and paragraph number without the need to share the document on the screen or to hold up physical documents.

•        Minimise the size of the hearing bundle. It is tempting, since the bundle is electronic, to include anything at all that might conceivably be relevant. Resist that temptation. Big files are harder to handle and cause all sorts of other problems (e.g. rejection by email filters). That goes for authorities, too, of course.

•        Make sure you can find documents you need at speed. Advocates are advised to have a list of key documents, or a hyperlinked index. Bookmark critical documents. Make sure all references in your notes are absolutely accurate and precise and that references in the skeleton argument are to the pages in the electronic bundle, not some historic paper version.

•        You must be able to provide, without delay, the reference to the documents to which you want to refer. Always give the reference, not just a description, and give people time to find the document.

•        Make sure you can access two documents simultaneously (e.g. on different devices or windows). You often need both to follow a document that someone else is referring to and find another document for your own purposes.

•        Do not let the difficulty in handling documents deflect you from using documents effectively. In civil cases, documents are often very important. If you have a point to make about the document you nearly always need to make sure that you, the witness, and the judge all have that document in front of them. Summaries are never effective.

•        If you unexpectedly need to share a document with the court or tribunal which is not in the electronic bundle, but which cannot be made visible to all observers by sharing on screen, agreement must be reached as to the appropriate channel of communication to be used, e.g. sending the document to the court or tribunal by email.

•        Beware that it is likely that rather more weight will fall on the written argument than it does in typical hearings.

•        Use the written argument to provide a clear roadmap of the key issues and how you expect to approach them.

•        Use the written argument to provide a way of finding any key document, especially if you are dealing with a complex body of evidence. Recognise that it is harder to follow a remote presentation, and that the judge may well need an aide memoire that can be consulted before and after the hearing.

•        Do not, however, be tempted to shoehorn a mass of material of secondary importance into the written argument. If anything, this is even worse when the oral hearing is compressed, because it is likely to leave your written argument disconnected from your oral presentation.

•        Give careful thought to which parts of the argument will require oral presentation expansion, and how you are going to do that.

•        Mark documents in arguments for ease by agreeing a key with the other side e.g. [1/1/1] = bundle 1, tab 1, page 1.

•        Your preparation needs to be more meticulous than it would be for a normal hearing. In remote hearing, time is at a premium. Remote communication has less impact and less subtlety than face-to-face communication.

•        Write a more detailed script for submissions and cross-examination questions than you usually would.

•        Anticipate questions that the judge is likely to raise, or points that your opponent may develop orally, and discuss them with your team in advance.

•        Simplify your arguments as much as you possibly can, remembering that if you “lose the judge” you are less likely to notice that you have done so than you are in court.

•        A loss of non-verbal communication (and aspects of ”style”) are lost when working remotely. Concentrate on the substance.

•        Brevity and precision are key. In the event that either sound or video quality is interrupted during a question or submission, repetition may be required, a process far easier to complete with succinct questions or submissions.

•        Aim to present your case in a low-key courteous and measured way. Be careful not to have too much mental overload during a hearing.

•        Be prepared for the fact that remotely conducted hearings are more taxing than a conventional hearing. Do not be shy of asking for breaks.

•        In a remote hearing, a brief delay typically occurs between the video image of the person speaking and their voice being heard by the court/tribunal and witness. This connection delay may lead participants to believe a person has finished speaking before they have, in fact, done so and is liable to result in participants inadvertently speaking over one another.

•        Do not interrupt. Let a speaker finish before speaking. Be especially careful not to interrupt a witness’s answer or a judge’s question.

•        When you are speaking, allow pauses for judicial questions. You may even want to invite them.

•        If you are speaking and become aware that someone else is trying to speak, pause to allow them to do so.

•        Do not fill pauses. Gaps between speakers (e.g. while waiting for a witness to answer) are more common with remote communication than when you are together in court.

•        If you feel compelled to interrupt and “get to your feet”, you may want to raise your hand to the tribunal as an indication of wanting to do so.

•        If you share your screen, be careful. When you share your screen, everything is visible online, including pop-up notifications, screensaver photographs etc. For safety’s sake, ensure your screen is clear and that notifications are disabled. Documents can be shared without sharing your screen or (best) referred to in an agreed bundle.

•        You will probably want to communicate with your own team but consider how this is best done. Receiving a steady stream of emails and WhatsApp messages from many different people is not helpful. Agree how your team will communicate but ask for communications to be limited to what is really necessary and consider channelling all communications through a single team member who can act as a filter.

•        When leaving a hearing, even if going to another room, ensure that the microphone is muted, and the video disabled until you return. Alternatively, you should sign out of the meeting and sign in again upon returning.

Bundles

The COMBAR Guidance Note also states:

‘If the bundles are to be produced electronically, it is essential that appropriate thought is given to the use of those bundles at the hearing. In particular (taking account of guidance issued by the Supreme Court), the following approach is recommended in all cases in which .pdf bundles are proposed:

a)      only essential documents should be included in the electronic bundles;

b)      the electronic bundle should (unless unusually voluminous) be a single .pdf file which is capable of being word-searched;

c)      the .pdf file should be prefaced to by an index which contains hyperlinks to the relevant documents and, where appropriate, relevant parts of documents;

d)      the electronic bundle should be paginated from first to last page, regardless of whether multiple documents have been combined together (and inclusive of any indices);

e)      the default display size of all pages must always be 100%;

f)       wherever possible, text on all pages of the .pdf must be capable of being selected and highlighted. Pages of text should not be formatted as images

[which may require scanned documents and images within a PDF to be processed
using appropriate Optical Character Recognition (OCR) software before the final
version of the PDF bundle is saved. Some PDF management software solutions
come with OCR capabilities inbuilt]

;

g)      the “bookmarks” function must be used to delineate the location of different documents within the .pdf file. The bookmarks should be labelled both to identify the relevant document and to show the page number. Bookmark labels should be neutral and descriptive only;

h)      the resolution on the bundle should be reduced to about 200 to 300 dpi to prevent delays whilst scrolling from one page to another;

i)       to the extent possible, hyperlinks should be used within the electronic bundle and between skeleton arguments and the bundle;

j)       where both hard copy and electronic bundles are produced, identical pagination should be used in both bundles. This may mean in the hard copy bundles, paginating indices etc. that appear at the beginning of the bundle.

Where a .pdf bundle will be used in a hearing, advocates should consider obtaining and using .pdf management software enabling search and personalized highlighting, annotation, bookmarking and indexing of the .pdf bundle. Pdf management software solutions, with features relevant to the creation of .pdf bundles including pagination and bookmarking, are available for purchase: Examples include Adobe Acrobat Pro DC (for MacBook’s and Windows machines) and PDF Expert version 7 (for MacBook’s and iPads). Please note that all Judges of the Commercial Court have the basic version of Adobe Acrobat which allows for searching, selecting, and highlighting text. They do not have Adobe Acrobat Pro.’

Annex 3 of Practice Direction 32

The taking of evidence from witnesses by video link is addressed by the Practice Direction to CPR Part 32.

Annex 3 of the PD states:

VIDEO CONFERENCING GUIDANCE 

This guidance is for the use of video conferencing (VCF) in civil proceedings. It is in part based, with permission, upon the protocol of the Federal Court of Australia. It is intended to provide a guide to all persons involved in the use of VCF, although it does not attempt to cover all the practical questions which might arise. 

Video conferencing generally 

1.      The guidance covers the use of VCF equipment both (a) in a courtroom, whether via equipment which is permanently placed there or via a mobile unit, and (b) in a separate studio or conference room. In either case, the location at which the judge sits is referred to as the ‘local site’. The other site or sites to and from which transmission is made are referred to as ‘the remote site’ and in any particular case any such site may be another courtroom. The guidance applies to cases where VCF is used for the taking of evidence and also to its use for other parts of any legal proceedings (for example, interim applications, case management conferences, pre-trial reviews).

2.      VCF may be a convenient way of dealing with any part of proceedings: it can involve considerable savings in time and cost. Its use for the taking of evidence from overseas witnesses will, in particular, be likely to achieve a material saving of costs, and such savings may also be achieved by its use for taking domestic evidence. It is, however, inevitably not as ideal as having the witness physically present in court. Its convenience should not therefore be allowed to dictate its use. A judgment must be made in every case in which the use of VCF is being considered not only as to whether it will achieve an overall cost saving but as to whether its use will be likely to be beneficial to the efficient, fair and economic disposal of the litigation. In particular, it needs to be recognised that the degree of control a court can exercise over a witness at the remote site is or may be more limited than it can exercise over a witness physically before it.

3.      When used for the taking of evidence, the objective should be to make the VCF session as close as possible to the usual practice in a trial court where evidence is taken in open court. To gain the maximum benefit, several differences have to be taken into account. Some matters, which are taken for granted when evidence is taken in the conventional way, take on a different dimension when it is taken by VCF: for example, the administration of the oath, ensuring that the witness understands who is at the local site and what their various roles are, the raising of any objections to the evidence and the use of documents.

4.      It should not be presumed that all foreign governments are willing to allow their nationals or others within their jurisdiction to be examined before a court in England or Wales by means of VCF. If there is any doubt about this, enquiries should be directed to the Foreign and Commonwealth Office (Legalisation Office) sopenquiries@fco.gov.uk with a view to ensuring that the country from which the evidence is to be taken raises no objection to it at diplomatic level. The party who is directed to be responsible for arranging the VCF (see paragraph 8 below) will be required to make all necessary inquiries about this well in advance of the VCF and must be able to inform the court what those inquiries were and of their outcome.

5.      Time zone differences need to be considered when a witness abroad is to be examined in England or Wales by VCF. The convenience of the witness, the parties, their representatives and the court must all be taken into account. The cost of the use of a commercial studio is usually greater outside normal business hours.

6.      Those involved with VCF need to be aware that, even with the most advanced systems currently available, there are the briefest of delays between the receipt of the picture and that of the accompanying sound. If due allowance is not made for this, there will be a tendency to ‘speak over’ the witness, whose voice will continue to be heard for a millisecond or so after he or she appears on the screen to have finished speaking.

7.      With current technology, picture quality is good, but not as good as a television picture. The quality of the picture is enhanced if those appearing on VCF monitors keep their movements to a minimum.

Preliminary arrangements

8.      The court’s permission is required for any part of any proceedings to be dealt with by means of VCF. Before seeking a direction, the applicant should notify the listing officer, diary manager or other appropriate court officer of the intention to seek it, and should enquire as to the availability of court VCF equipment for the day or days of the proposed VCF. The application for a direction should be made to the Master, District Judge or Judge, as may be appropriate. If all parties consent to a direction, permission can be sought by letter, fax or e-mail, although the court may still require an oral hearing. All parties are entitled to be heard on whether or not such a direction should be given and as to its terms. If a witness at a remote site is to give evidence by an interpreter, consideration should be given at this stage as to whether the interpreter should be at the local site or the remote site. If a VCF direction is given, arrangements for the transmission will then need tobe made. The court will ordinarily direct that the party seeking permission to use VCF is to be responsible for this. That party is hereafter referred to as ‘the VCF arranging party’.

9.      Subject to any order to the contrary, all costs of the transmission, including the costs of hiring equipment and technical personnel to operate it, will initially be the responsibility of, and must be met by, the VCF arranging party. All reasonable efforts should be made to keep the transmission to a minimum and so keep the costs down. All such costs will be considered to be part of the costs of the proceedings and the court will determine at such subsequent time as is convenient or appropriate who, as between the parties, should be responsible for them and (if appropriate) in what proportions.

10.    The local site will, if practicable, be a courtroom but it may instead be an appropriate studio or conference room. The VCF arranging party must contact the listing officer, diary manager or other appropriate officer of the court which made the VCF direction and make arrangements for the VCF transmission. Details of the remote site, and of the equipment to be used both at the local site (if not being supplied by the court) and the remote site (including the number of ISDN lines and connection speed), together with all necessary contact names and telephone numbers, will have to be provided to the listing officer, diary manager or other court officer. The court will need to be satisfied that any equipment provided by the parties for use at the local site and also that at the remote site is of sufficient quality for a satisfactory transmission. The VCF arranging party must ensure that an appropriate person will be present at the local site to supervise the operation of the VCF throughoutthe transmission in order to deal with any technical problems. That party must also arrange for a technical assistant to be similarly present at the remote site for like purposes.

11.    It is recommended that the judge, practitioners and witness should arrive at their respective VCF sites about 20 minutes prior to the scheduled commencement of the transmission.

12.    If the local site is not a courtroom, but a conference room or studio, the judge will need to determine who is to sit where. The VCF arranging party must take care to ensure that the number of microphones is adequate for the speakers and that the panning of the camera for the practitioners’ table encompasses all legal representatives so that the viewer can see everyone seated there.

13.    The proceedings, wherever they may take place, form part of a trial to which the public is entitled to have access (unless the court has determined that they should be heard in private). If the local site is to be a studio or conference room, the VCF arranging party must ensure that it provides sufficient accommodation to enable a reasonable number of members of the public to attend.

14.    In cases where the local site is a studio or conference room, the VCF arranging party should make arrangements, if practicable, for the royal coat of arms to be placed above the judge’s seat.

15.    In cases in which the VCF is to be used for the taking of evidence, the VCF arranging party must arrange for recording equipment to be provided by the court which made the VCF direction so that the evidence can be recorded. An associate will normally be present to operate the recording equipment when the local site is a courtroom. The VCF arranging party should take steps to ensure that an associate is present to do likewise when it is a studio or conference room. The equipment should be set up and tested before the VCF transmission. It will often be a valuable safeguard for the VCF arranging party also to arrange for the provision of recording equipment at the remote site. This will provide a useful back-up if there is any reduction in sound quality during the transmission. A direction from the court for the making of such a back-up recording must, however, be obtained first. This is because the proceedings are court proceedings and, save as directed by the court, no other recording of them must be made. The court will direct what is to happen to the back-up recording.

16.    Some countries may require that any oath or affirmation to be taken by a witness accord with local custom rather than the usual form of oath or affirmation used in England and Wales. The VCF arranging party must make all appropriate prior inquiries and put in place all arrangements necessary to enable the oath or affirmation to be taken in accordance with any local custom. That party must be in a position to inform the court what those inquiries were, what their outcome was and what arrangements have been made. If the oath or affirmation can be administered in the manner normal in England and Wales, the VCF arranging party must arrange in advance to have the appropriate holy book at the remote site. The associate will normally administer the oath.

17.    Consideration will need to be given in advance to the documents to which the witness is likely to be referred. The parties should endeavour to agree on this. It will usually be most convenient for a bundle of the copy documents to be prepared in advance, which the VCF arranging party should then send to the remote site.

18.    Additional documents are sometimes quite properly introduced during the course of a witness’s evidence. To cater for this, the VCF arranging party should ensure that equipment is available to enable documents to be transmitted between sites during the course of the VCF transmission. Consideration should be given to whether to use a document camera. If it is decided to use one, arrangements for its use will need to be established in advance. The panel operator will need to know the number and size of documents or objects if their images are to be sent by document camera. In many cases, a simpler and sufficient alternative will be to ensure that there are fax transmission and reception facilities at the participating sites.

The hearing

19.    The procedure for conducting the transmission will be determined by the judge. He will determine who is to control the cameras. In cases where the VCF is being used for an application in the course of the proceedings, the judge will ordinarily not enter the local site until both sites are on line. Similarly, at the conclusion of the hearing, he will ordinarily leave the local site while both sites are still on line. The following paragraphs apply primarily to cases where the VCF is being used for the taking of the evidence of a witness at a remote site. In all cases, the judge will need to decide whether court dress is appropriate when using VCF facilities. It might be appropriate when transmitting from courtroom to courtroom. It might not be when a commercial facility is being used.

20.    At the beginning of the transmission, the judge will probably wish to introduce himself and the advocates to the witness. He will probably want to know who is at the remote site and will invite the witness to introduce himself and anyone else who is with him. He may wish to give directions as to the seating arrangements at the remote site so that those present are visible at the local site during the taking of the evidence. He will probably wish to explain to the witness the method of taking the oath or of affirming, the manner in which the evidence will be taken, and who will be conducting the examination and cross-examination. He will probably also wish to inform the witness of the matters referred to in paragraphs 6 and 7 above (co-ordination of picture with sound, and picture quality).

21.    The examination of the witness at the remote site should follow as closely as possible the practice adopted when a witness is in the courtroom. During examination, cross-examination and re-examination, the witness must be able to see the legal representative asking the question and also any other person (whether another legal representative or the judge) making any statements in regard to the witness’s evidence. It will in practice be most convenient if everyone remains seated throughout the transmission.’

[1] https://www.judiciary.uk/wp-content/uploads/2020/03/Remote-hearings.Protocol.Civil_.GenerallyApplicableVersion.f-amend-26_03_20-1-1.pdf.

[2] https://www.gov.uk/guidance/hmcts-telephone-and-video-hearings-during-coronavirus-outbreak.

[3] https://www.gov.uk/guidance/how-to-join-telephone-and-video-hearings-during-coronavirus-covid-19-outbreak#joining-by-cvp-skype-or-bt-meet-me.

Reversing the burden of proof against an insurance company at trial

The Insurance Act 2015, Section 13A provides:

‘(1)      It is an implied term of every contract of insurance that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time.

(2)      A reasonable time includes a reasonable time to investigate and assess the claim.

(3)      What is reasonable will depend on all the relevant circumstances, but the following are examples of things which may need to be taken into account—

(a)      the type of insurance,

(b)      the size and complexity of the claim,

(c)       compliance with any relevant statutory or regulatory rules or guidance,

(d)      factors outside the insurer’s control.

(4)      If the insurer shows that there were reasonable grounds for disputing the claim (whether as to the amount of any sum payable, or as to whether anything at all is payable)—

(a)      the insurer does not breach the term implied by subsection (1) merely by failing to pay the claim (or the affected part of it) while the dispute is continuing, but

(b)      the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached and, if so, when.

(5)      Remedies (for example, damages) available for breach of the term implied by subsection (1) are in addition to and distinct from—

(a)      any right to enforce payment of the sums due, and

(b)      any right to interest on those sums (whether under the contract, under another enactment, at the court’s discretion or otherwise).’

It is therefore an implied term of an insurance contract that a valid claim will be paid within a reasonable time following notification of loss, including any consequential loss that is not too remote, e.g. loss of use.

Where prima facie, a valid claim has been properly notified, unless the insurance company can prove that Section 13A(4) of the Insurance Act is engaged, then by parity of reasoning, they are liable for breach of contract in refusing indemnity, because they have no technical defence to breach of Section 13A(1) of the Insurance Act 2015, and in these circumstances, it is axiomatic that a refusal of indemnity is a material breach of Contract. That is because a contract of insurance is a contract of indemnity.

In other words, in proceedings where breach of s.13A has been alleged, the onus of proof will shift to the insurance company to prove that there were reasonable grounds for disputing the claim. If the insurance company cannot discharge the burden of proof at trial on that issue, unless grounds exist for vitiating the contract, their defence to the entire claim will fail. 

In which case, in addition to damages and interest, an order for costs to be awarded against the Defendant insurers on the indemnity basis, may reasonably be sought where the court finds that insurers did not have:

  • a valid ground for disputing the claim; and
  • any reason to believe that the claim was invalid, i.e. because they were incompetent in their investigation of the claim and in consequence had proceeded upon a false assumption, or e.g. by refusing to comply with a pre-action protocol, had behaved with cynicism, in material breach of the CPR.

This issue has arisen in a commercial case in which I am appearing for the claimant.