Spotting early signs of trust mismanagement

Pradeep Oliver, partner & Tristam Razzell, associate, Cripps Pemberton Greenish, 09/02/2021

The French international banking group - BNP Paribas - is facing claims of trust fund mis-management being brought by Princess Camilla Crociani, Duchess of Castro, to make the bank restore £135 million to the family trust, together with a claim for £60 million in damages.

This latest action is the culmination of a ten year dispute that has to date seen allegations thrown between the Crociani family and BNP of asset concealment, contempt of court, financial mismanagement and criminality.

Not only has the dispute been going on for over a decade, but it has been played out in a number of jurisdictions, including Jersey, Monaco and London. 

The latest act in this multi million pound international family drama is playing out to be the most-high stakes yet. However, irrespective of how the latest actions are dealt with by the courts, this piece of international theatre promises to rumble on for some time yet.

The £135 million legal action against BNP for reconstitution of the family trust highlights a number of interesting legal issues in respect to the duties owed by trustees to the beneficiaries of a trust, and if you are a beneficiary under a trust, it is worthwhile that you make yourself familiar with these issues, lest you find yourself starring in your own international family drama like the Crociani’s.

In summary, a trustee will be in breach of trust if he acts in a way that is not allowed, either by law, or by the terms of the trust documentation.  In particular, the trustees are not to invest or deal with the trust fund in a way that is not permitted by their powers of investment. 

In the present case, in 2010 BNP dissolved the family trust and moved the funds to a new trust.  The Crociani family maintain they did not have knowledge of, and certainly did not authorise this transfer of trust assets.

The Crociani family sued BNP in 2013 for mis-management of the trust, which the family won in 2017 after the court determined that BNP had indeed mis-managed the trust and restructured it in a way that was unlawful. 

Although matters have been complicated by BNP’s allegation that the Crociani family have hidden assets, this has not prevented the family from pursuing fresh lawsuits against BNP to restore £135 million to the trust, together with a claim for at least £60 million in damages. 

The Crociani family were victim to trust mismanagement. So, how can you be sure that your trustees are not mis-managing your trust?

In summary, beneficiaries have a number of powers which includes the ability to demand from the trustees financial information about a trust to ascertain and understand how the trust fund has been, and is being managed.  Even if the trustees refuse to provide this information, the beneficiary does have the power to apply to the court for an Order compelling the trustee to comply with a request for financial information.

Ordinarily, it is this information which will show whether there has been any mis-management of the trust funds.

If a beneficiary suspects there has been mis-management, but cannot determine this from the financial disclosure, then it is advisable that the beneficiary engage the services of a forensic accountant who can then undertake a more in depth review of the financial information to determine the presence and extent of any trust fund mis-management. 

More generally, when dealing with the trustees, if the beneficiary encounters delays, unclear or incomplete accounting documentation, or evasive or vague answers to basic questions, then this may indicate that the trust is being mis-managed, and the beneficiary should undertake further investigations.

But what steps can you take if you discover that a trust is being mis-managed?

The reality of many trust disputes is that often family members can find themselves on opposing sides. This does therefore immediately draw into sharp focus the desire and willingness of a beneficiary to bring a legal action; the emotional, familial and indeed financial fallout might just be considered “not worth it”.

However, legal action can result in several beneficial outcomes, for example the removal of a trustee, the replacement of a trustee or the restoration of the trust assets. 

Trust disputes are often very complicated and drawn out matters, and so it is advisable at an early stage to have open and frank discussions with the trustees, in an attempt to achieve a sensible outcome.

It is also important to keep in mind that oftentimes, a trustee may appoint a independent financial adviser or discretionary fund manager to advise on and look after the trust assets, and so if either of these professionals has provided advice on or managed the trust funds in a negligent manner which has caused a loss, then a claim may exist against the adviser or fund manager, rather than (or as well as) against the trustee.

It is advisable that any trust mis-management is investigated at the earliest possible stage, and appropriate expert advice sought from a forensic account and a specialist trust and estates solicitor. It is also important to act quickly, as you must bring any claim within six years from the date on which the right of action accrued.

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