Date: Mon, 19 Jan 2004 12:39:02

From: Matthew Scully

Subject: Use of trust funds to pay lawyers

This is the position as I have always understood it. I have not read this case (where is it available?) but am presuming that the claim was for a declaration of trust or some such remedy and that the injunction was granted at an interlocutory stage. As such, the decision does not determine the rights of a trustee in relation to a trust fund (since the fund has not yet been determined to be held on trust). Rather, it determines the extent that a Court will restrict a defendant's right to dispose of monies claimed from him/her at a pre-trial stage.

In circumstances where the status of the alleged funds has not been determined and they may therefore belong to the defendant, the court will not interfere with the defendant's ability to withdraw from those funds in order to pay his or her legal costs and reasonable living expenses. Restricting the scope of a freezing injunction is not the same as sanctioning the use of certain funds for a certain purpose: it simply means that, rather than preventing the defendant from using the funds, the court leaves it to the defendant to choose whether or not to use them. In other words, the Court is going for a "third way": it does not say that the defendant can use the funds or that the defendant cannot use them, it simply states that it will not, at an interlocutory stage, interfere with the defendant's freedom to spend money on legal expenses from the funds. If the defendant chooses to use them and there is a subsequent finding that the funds were held on trust for the claimant, the defendant may not have committed a contempt of court by using the funds to pay legal fees but has committed a breach of trust. Surely there is nothing uncontroversial about this?

Matthew Scully

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-----Original Message-----
From: Andrew Tettenborn
Sent: 19 January 2004 10:54
Subject: ODG: use of trust funds to pay lawyers

If I claim money in your hands is held on simple, bare trust for me, should you be allowed to use the alleged trust funds to pay your own lawyers? Logically I'd have thought the answer was no: how can a court give you permission to commit a glaring breach of trust? Yet in Brown v Rice [2003] EWHC 2155 (Ch), where this arose, a court varied an injunction against disposal and gave the defendant permission to spend £5,000 of the (£84,000) fund on her legal defence.

Am I being stupid, or is there something odd about this?

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