Protection at all costs
16 May 1995
29 August 2013
22 January 2014
24 June 2013
Direct disclosure obligations resulting from joinder of adult beneficiaries to matrimonial proceedings affecting trusts
24 February 2014
4 April 2014
Legal history was made in June 1993 when Justice Vinelott in McDonald v Horn granted a new type of costs order to beneficiaries seeking to sue among others the trustees and principal employer of their scheme, with costs met out of the fund, win or lose, at trial. That decision was upheld, and the jurisdiction defined by the Court of Appeal in August 1994. The defendants were refused leave to appeal to the House of Lords but subsequently obtained leave. That appeal is not now to proceed. The basis of the appeal was that the court had no jurisdiction to make the order.
A protective costs order is an irreversible order made in advance of trial enabling the beneficiaries of a disputed fund to litigate at the fund's expense, whatever the trial's outcome.
Justice Vinelott identified four factors relevant to the exercise of the jurisdiction: the prospect of success of the action or defence; the likely order for costs at the conclusion of the hearing; the court's perception of the justice of the case; and special factors.
In the Court of Appeal, Lord Justice Hoffman said these were "preconditions of the existence of the discretion rather than factors to be taken into account in its exercise".
The basis of the jurisdiction relied upon by Justice Vinelott was the wide discretionary power conferred on the court by s.51 of the Supreme Court Act 1981. The plaintiff beneficiaries also sought to rely on the Wallersteiner v Moir principle that a beneficiary should have the same right as a minority shareholder bringing a derivative action on behalf of a company and should obtain the authority of the court to sue as if they were a trustee suing on behalf of a fund, with the same entitlement to be indemnified out of assets against their costs and any costs they may be ordered to pay to the other party.
Lord Justice Hoffman regarded the plaintiffs as claiming this procedure imported into company law from trusts should be re-exported to trust law to cover a beneficiary suing on behalf of a fund in which they and many others have interests. He found there was a compelling analogy between a minority shareholder's action on behalf of a company and an action by a member of a pension fund to compel trustees or others to account to the fund.
However, the court decided the jurisdiction's basis was in s.51 of the Supreme Court Act 1981 and not under the court's jurisdiction over trusts.
- Other applications
The plaintiffs in McDonald v Horn were members of a pension fund. But there is every reason to suppose the courts will apply similar principles to applications bought by minority trustees. If anything, such claims would be more analogous to Wallersteiner v Moir type actions. There is clearly no reason why insured schemes should not be caught.
The case will be of interest to beneficiaries of private trusts, although the Court of Appeal attempted to exclude these on the basis such beneficiaries are volunteers whereas pension fund beneficiaries are not.
There are group actions such as in Davies v Eli Lilley (the Opren case) where the Appeal Court approved an order of Justice Hirst which allocated the costs of certain actions chosen to be tried as lead actions rateably among the 1,500 plaintiffs bringing similar actions. And an area of interest must be life offices which have missold personal pensions to large numbers of policy holders or investors whose money has been invested through any common fund mechanism, such as unit trusts.
Sean Hand is a partner at Hand & Co.