| TRUSTS — Trustee — Duty of trustee — Exercise of trustee’s power of lien over trust fund — Manner in which lien should be exercised — Burden of proof
Wester v Borland
Ch D: Norris J: 15 October 2007
A trustee seeking to exercise his power of lien over a trust fund had to demonstrate that there were substantial grounds upon which to do so and that he had taken all reasonable steps to ascertain his liability. Once he had done that it was for the beneficiaries to demonstrate that those grounds did not exist.
Norris J so held when giving judgment summarily against the defendant, Evan Borland, on the claim by the claimant, Lars Wester, for: (1) a declaration that the defendant held a fund on trust for the claimant; (2) an order that the defendant account for the fund; and (3) an order that any sum found due on account be paid to the claimant. The claimant’s application to summarily dismiss the defendant’s counterclaim for costs and expenses incurred in relation to the fund was refused.
The defendant agreed to transfer his 50% shareholding in a New Zealand company to the claimant, for consideration. The consideration was paid but the defendant only transferred 1% of his holding since the claimant failed to register the transfer of the balance. At the time the company went into voluntary liquidation, therefore, 49% of the shares were registered in the defendant’s name as bare trustee for the claimant. The liquidators accordingly paid the defendant a sum in respect of those shares. After the defendant had refused to pay the sum to the claimant, proceedings were commenced seeking a declaration and payment of the amount found due on account. The defendant issued a defence and counterclaim seeking a set off on the ground that he was entitled to retain the sum unless and until the New Zealand tax authorities authorised its payment. The defendant submitted that the funds were tainted by criminal activity and that he could be implicated in any wrongdoing. The claimant applied for, inter alia, summary judgment in respect of both his claim and the defendant’s counterclaim.
NORRIS J said that the foundation of the defendant’s claim to retain possession of the fund was in the nature of a set off which, in turn, was a right of lien. It was accepted law that a trustee had a right to be indemnified against the expenses and liabilities properly incurred as a result of his trusteeship. That indemnity was protected by a right of lien over trust funds in his hands which extended to an indemnity against contingent future liabilities: see X v A [2000] 1 All ER 490, 493, per Arden J. However, that right of lien was given to the trustee because he was a fiduciary who had control over someone else’s property. Accordingly, where he purported to exercise his right of lien over the trust fund he had to consider the interests of the beneficiaries of the trust. Once the trustee had established that he had grounds upon which to exercise the lien, in the sense that he was at risk due to his position as trustee, it was for the beneficiaries to show that the objection of the trustee could be overcome. The beneficiaries had the burden of presenting the facts and evidence to persuade the court that, beyond reasonable doubt, the risk to which the trustee adverted was not one that would burden him with liability. In the instant case there was no foundation in the defendant’s fears that he might be liable under New Zealand tax law or under the Proceeds of Crime Act 1995 sufficient to resist any liability to the claimant. It followed that summary judgment would be given to the claimant and a declaration and orders would be made accordingly. However, the defendant did have a real prospect of success in his counterclaim for payment of the expenses he had incurred in relation to his potential exposure to New Zealand tax. He was, however, only entitled to claim any expenses that would have been incurred had he sought advice at the time he exercised his lien, and not any additional expenses incurred as a result of his delay of some five years in seeking advice.
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