OH v Craven [2016] EWHC 3146 (QB), [2016] MHLO 52

"This brings me back to the focus of my concern. The firm of solicitors who have acted in the successful litigation will have established a relationship of trust and confidence with the claimant or the litigation friend. At the successful conclusion of the litigation the person in whom trust is reposed then suggests a further transaction out of which its associate will derive a personal benefit. The adviser suggests that a private trust is the preferable arrangement, and that its associated trust corporation should be appointed trustee and should charge for acting, although there are many other trust corporations who could fulfil the role. So the client is retained for the long term. The solicitors before me suggested that this arrangement was not about an integrated business model (whereby the litigation solicitors secure for their associate the future income stream of management fees, the size of which will be under its control, together with any transactional fees) but was an arrangement for the convenience of clients who wanted a "one stop shop" in personal injury litigation. But this is a shop that stocks only one product. The principled approach to this situation is in my judgment as follows. The law irrebuttably presumes that a solicitor has influence over his client: Etridge [2001] UKHL 44 at [18]. Vesting a large sum of money to which the settlor has recently become absolutely entitled in the settlor's solicitor upon a bare trust for the settlor (but subject to charging and other powers vested in the solicitor) cannot readily be accounted for by ordinary motives. It is a transaction that calls for an explanation (in a way that making a family solicitor the trustee of a family trust or making a partner in the will draftsman's firm the prospective executor simply do not). It gives rise to a rebuttable evidential presumption that the solicitor's influence has been undue. The burden lies on the solicitor to adduce evidence rebutting this presumption. Typically, that evidence will demonstrate that the settlor had independent advice such that the constitution of the bare trust was a spontaneous act undertaken in circumstances which enabled the settlor to weigh matters up and to exercise his or her own free will. How might that be done? In my judgment where the litigation firm proposes the establishment of a "personal injury trust" in relation to a settlement of £1 million or more where its in-house trust corporation is to be a trustee then (drawing on the established practice in applications under the Variation of Trust Act 1958 and in trust compromises) a separate partner in the firm should instruct Chancery Counsel of not less than 5 years' standing to advise the claimant or the litigation friend in writing as to the advantages and disadvantages of the proposed private trust (both as to its strategic advantages and as to its exact provisions, including the advantage of trusts other than bare trusts) and as to the trusteeship arrangements: and this should be done at the expense of the firm. The instructions to Counsel and the Opinion should be put in evidence on the occasion when the approval of a compromise incorporating such a proposal is sought, or when an application is made for a payment out of the Court Funds Office. I express the provisional view that where the Trust Fund exceeds (say) £3 million (so that the annual income may well be of the order of £75,000) serious thought ought to be given to including within the trust provisions the appointment of a suitably qualified family member or an independent professional as a "protector", whose consent would be required to (a) any alteration in the original trustee remuneration rates originally approved by the Court when approving the compromise or payment out; (b) the engagement of any investment advisers or managers and their remuneration; and (c) the exercise of any power which would deprive the beneficiary of income or capital to which he or she would otherwise be entitled as of right."

ICLR

The ICLR have kindly agreed for their WLR (D) case report to be reproduced below.

Queen’s Bench Division

OH v Craven

AKB v Willerton

[2016] EWHC 3146 (QB)

Norris J

Practice — Settlement of action — Payment into court — Sums paid into court funds office following settlement of personal injury claims — Applications for payment out to trustees of private personal injury trusts established for benefit of claimants — Whether payment out to be sanctioned — Practice to be followed by litigation firms proposing to establish personal injury trusts

In the first case the claimant, then aged ten, was involved in a road traffic accident. A personal injury claim was brought on his behalf by his mother as litigation friend, resulting in a satisfactory settlement proposal and payment into the court funds office of just under £2m. The claimant’s lack of capacity arose only from his minority and not from lack of mental capacity. In the second case the claimant, a young adult, was involved in a cycling accident. He was treated as lacking in litigation capacity and his personal injury claim was conducted by his mother as litigation friend. The settlement sum (nearly £2.5m) was approved by the court and paid into the court funds office pending the appointment by the Court of Protection of a property and affairs deputy. In the event, the medical opinions assessed the claimant as capable of managing his affairs with support. The claimants each applied for an order directing payment out of the court funds office to the trustees of a personal injury trust established, or to be established, those trustees being connected with the solicitors who had conducted the litigation.

On the applications—

Held, (1) the law irrebuttably presumed that a solicitor had influence over his client. Vesting a large sum of money to which the settlor had recently become absolutely entitled in the settlor’s solicitor upon a bare trust for the settlor (but subject to charging and other powers vested in the solicitor) could not readily be accounted for by ordinary motives. It was a transaction that called for an explanation. It gave rise to a rebuttable evidential presumption that the solicitor’s influence had been undue. The burden lay on the solicitor to adduce evidence rebutting that presumption. Typically, that evidence would demonstrate that the settlor had had independent advice such that the constitution of the bare trust was a spontaneous act undertaken in circumstances which enabled the settlor to weigh matters up and to exercise his or her own free will (para 30).

(2) Thus, where a litigation firm proposed the establishment of a “personal injury trust” in relation to a settlement of £1m or more where an in-house trust corporation was to be a trustee, a separate partner in the firm should, at the firm’s expense, instruct chancery counsel of not less than five years’ standing to advise the claimant or the litigation friend in writing as to the advantages and disadvantages of the proposed private trust (both as to its strategic advantages and as to its exact provisions, including the advantage of trusts other than bare trusts) and as to the trusteeship arrangements. The instructions to counsel and the opinion should be put in evidence when the court’s approval of a compromise incorporating such a proposal was sought or when an application was made for a payment out of the court funds office (para 31).

(3) Application in the first case adjourned. The court could not be satisfied that the support of the claimant’s litigation friend to the proposal had resulted from an unconstrained free choice. It was necessary to establish that she had been enabled to make a free choice as to the identity of the trustee and the exact terms of the trust. Once advice had been received and the litigation friend had acted on it, the matter would be restored for directions (para 34).

(4) Application in the second case granted. It was possible to ascertain that the claimant was set upon establishing a bare trust on the declared terms and did not want the opportunity to review his decision. Accordingly, the payment out to trustees would be sanctioned (para 33). Per curiam. As a provisional view, where the trust fund exceeds (say) £3m (so that the annual income might well be of the order of £75,000) serious thought ought to be given to including within the trust provisions the appointment of a suitably qualified family member or an independent professional as a “protector”, whose consent would be required to (a) any alteration in the original trustee remuneration rates originally approved by the court when approving the compromise or payment out, (b) the engagement of any investment advisers or managers and their remuneration and (c) the exercise of any power which would deprive the beneficiary of income or capital to which he or she would otherwise be entitled as of right (para 32).

Appearances:

Gregory Poole, solicitor (of Slater and Gordon) for the claimant in the first case, by his mother and litigation friend, TA.

Charles Woodhouse (instructed by Irwin Mitchell) for the claimant in the second case, a protected party by his litigation friend, JB.

Reported by: Benjamin Weaver Esq, Barrister

Citations etc

OH (a minor by his litigation friend TA) v Susan Craven - and - AKB (a protected person by his litigation friend JB) v Christopher Willerton

Case Nos: C90MA169 & B90MA009

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