Trust fund made whole with Woodsford's help
Third party litigation funding facilitated access to justice for the beneficiaries of a family trust.
In 2004, after appointing professional trustees, an elderly widow settled assets worth approximately $10m in trust for herself, her daughter and her granddaughter. Only seven years later the trust’s assets had shrunk to around $2.4m. Yes, the financial crisis might account for some losses, but the scale of the losses suggested something more fundamental had gone wrong.
New trustees were appointed and quickly understood the issue – the original trustees had maintained virtually 100% of the trust fund in a single investment house’s hedge funds. This over-concentration of the trust's assets in risky and inappropriate investment vehicles (the settlor had described her appetite for ‘investment risk’ as ‘low’) left the trust hopelessly exposed when the financial crisis struck. Further, no independent advice had been taken in formulating the portfolio, there was no obvious investment strategy and the trust’s distribution profile was not considered in the decision to continue to invest in illiquid funds.
However, the trust deed gave the trustees the widest possible protection permitted against liability for any loss caused ‘…except in the case of their wilful misconduct or gross negligence’. So the new trustees faced a difficult choice. Either:
- bring a claim and run the risk of losing it, with all the adverse costs consequences that would involve; or
- not fight and run the risk of a future claim by the beneficiaries for failing preserve the trust’s assets.
The new trustees brought in Collas Crill – ‘One of the largest dispute resolution teams in the Channel Islands with unrivalled experience in heavyweight commercial and trusts disputes’ (Chambers & Partners). They investigated the potential claim and advised, in conjunction with Counsel, that a strong claim existed, despite the apparently wide protection afforded by the trust deed.
The new trustees thus decided to bring a claim using Woodsford’s, non-recourse, own-costs funding, coupled with ATE insurance for the potential adverse costs liability. The lead partner at Collas Crill, Damian James, commented that Woodsford's funding made it economically viable for the new trustees to bring the claim despite the trust’s depleted assets and without risk if it failed, effectively saving a significant and strong claim from being stifled.
The former trustees’ Defence robustly denied any negligence and argued that management of the trust’s investments was, in fact, delegated to a third party. Nevertheless, to the relief of the beneficiaries, the proceedings were satisfactorily settled at a lengthy mediation some eight months before the trial date.
“The entire working relationship and experience has been not only a pleasure from the outset, but also a master class in professionalism.” Damian James, Partner, Collas Crill
- The original trustees had maintained virtually 100% of the trust fund in a single investment house’s hedge funds
- Trust deed gave the trustees the widest possible protection permitted against liability for any loss caused ‘…except in the case of their wilful misconduct or gross negligence’
- Proceedings were satisfactorily settled at a lengthy mediation some eight months before the trial date
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