Case Study – Litigation Funding for Family Trust.
A family trust whose assets had been significantly reduced through mismanagement found the confidence to pursue justice through Woodsford’s third party litigation funding and ATE Insurance.
In 2004 an elderly widow looking to secure assets for her daughter and granddaughter’s future, appointed professional trustees to set up a trust fund on her behalf. Originally the trust received $10 million to invest, only seven years later the total assets had shrunk to just $2.4 million. Even allowing for the financial crisis of 2008, the scale of losses involved indicated something had gone spectacularly wrong with the management of the assets.
New trustees were quickly appointed and investigated just why the funds had been depleted to such an extent, the reason soon became very clear. The original trustees had invested almost 100% of the assets under their management in a single investment house’s hedge funds. This very high concentration of funds in a single company’s higher risk investment vehicles left the assets very exposed when the financial crisis struck.
The situation was made worse when it became known that no independent financial advice had been taken by the original trustees when formulating the investment strategy and portfolio selection and additionally the elderly widow had clearly indicated her ‘appetite for risk’ with the trusts investments was ‘low’. Though the case for mismanagement looked very strong, there were complications. The trust deeds created by the original trustees gave them the widest possible protection against liability for any losses in almost any scenario. The only areas where liability could be applied were in the case of either wilful misconduct or gross negligence.
The new trustees now faced a classic dilemma; at the point where funds available were lowest, they had to decide whether to proceed with a case against the original trustees with all the inherent risks that entailed in terms of adverse costs if they lost or, not take action but risk a future claim by the trust’s beneficiaries for failing to carry out their duties in properly preserving the trust’s assets. The new trustees appointed Collas Crill, one of the largest dispute resolution teams in the Channel Islands and a firm with unrivalled experience in heavyweight commercial and trusts disputes. After investigating the case and potential claim in conjunction with counsel, they advised that a strong case did exist despite the apparent protection offered by original trustee’s wide ranging trust deed. The decision was taken to proceed with the case, though the issue of protecting the remaining assets still remained.
The chosen financial solution was to bring the claim using Woodsford’s non-recourse, own costs funding combined with ATE insurance to cover potential adverse costs liability. This made it both economically viable to bring the claim and pursue it with confidence knowing there was no risk to the trust’s remaining assets.
The original trustees vigorously denied any negligence on their part and argued the management of investments was in fact not theirs but the responsibility of a delegated 3rd party. However after lengthy negotiations the proceedings were satisfactorily settled to the satisfaction of all parties some eight months before the appointed trial date.
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