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A Major Inheritance Wrangle: Lessons For HNW Clients, Advisors
Sinead O'Callaghan
3 February 2021
In the latest twist between an Italian dynasty and , a saga that has run for more than a decade, Princess Camilla Crociani de Bourbon des Deux Siciles claims that the bank mismanaged the family's Jersey-based trust fund. She is pursuing lawsuits to make the bank restore £135 million ($183.3 million) to the trust and is claiming at least £60 million in damages. This article, which comes from Sinead O'Callaghan, partner at , looks at issues in play such as the story’s cross-border elements, professional negligence allegations and offshore trusts. She also advises high net worth people and their advisors on how to spot mismanagement and how best to navigate such a case to avoid legal costs. The author of the article is not involved in the case. The latest development in the seemingly never-ending saga that is the Crociani litigation will no doubt once again trigger anxiety amongst professional trustees given the extremely expensive consequences that flowed from trustee mismanagement. The case has, of course, now been ongoing for 10 years and the litigation has spanned multiple jurisdictions, including Italy, Holland, the Bahamas, Mauritius, the US and Jersey.
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By way of brief background, the Crociani litigation relates to a trust set up by Edoarda Crociani in 1987 (the Grand Trust), principally for the benefit of her two daughters, Cristiana and Camilla. In 2010, the Grand Trust was dissolved and restructured; the assets were moved to an entirely new trust. Cristiana subsequently sued the trustees including Edoarda Crociani and BNP Paribas Jersey Trust Corporation (BNP). Cristiana argued that there had been a breach of trust and that the Grand Trust should be reconstituted in the hands of new trustees.
Cristiana won the case after the Jersey Court found that BNP had mismanaged the trust and restructured it unlawfully. It ordered that the Grand Trust be reconstituted by the former trustees. Two inquiries were ordered as part of the substantive judgment in order to help quantify exactly what value needed to be restored to the trust fund. The Court not only looked at the value of any assets which had been improperly appointed out of the trust but also at the loss of growth.
However, BNP successfully argued that they should only be obliged to reconstitute Cristiana’s trust on the basis that Camilla had conspired with Edoarda to secretly redirect assets away from Cristiana. Although there was no direct evidence that any of the assets had been passed on to Camilla, the Court was persuaded that she had or would receive the majority of those assets. On that basis, it was held that it would be unfair to order the reconstitution of Camilla's trust (with certain exceptions) which could be treated as having been paid out. BNP then sued Edoarda, who was liable as a trustee for recovery of the outstanding funds.
As part of the proceedings, Camilla was required to disclose details of her mother's wealth. She signed seven affidavits which purported to disclose all of the details of her mother's assets within her knowledge. However, the Court found those affidavits were untrue and ruled that she was in contempt of court.
It seems from recent reports that Camilla and her daughters have now commenced at least two sets of further proceedings. These are said to include an appeal in the Jersey Court to overturn the finding that Camilla concealed her mother's assets and an appeal to the Privy Council by Camilla’s daughters in a further attempt to recover Camilla’s share of the trust. It is worth noting that Camilla has previously been denied permission to appeal in the Privy Council.
As learning points go, it goes without saying that the most important safeguard for trustees in respect of allegations of mismanagement and professional negligence, is to ensure that all decisions and actions taken are carefully examined, reasoned and documented (and that professional advice is taken and recorded where appropriate). Trustees should keep careful records of the split of assets and ensure that the correct entitlements are paid from the right source. Red flags to look out for will obviously include unilateral instructions to act in a way which would disadvantage others with interests in the trust. This was essentially the basis for Cristiana’s original complaint in the Crociani litigation.
From a beneficiary’s perspective, trustees obviously have a duty to account to beneficiaries for their administration of the trust and to provide financial information demonstrating how the trust has been managed. If a beneficiary suspects there has been mismanagement, they should request the relevant financial information (a red flag in this scenario may well be an absence of any such information having been regularly provided). If the trustee refuses any such request, a beneficiary can in principle apply to court for an order compelling the trustee to produce it.
If there has been mismanagement, both trustees and beneficiaries would be well advised to see if the dispute can be resolved without recourse to court proceedings. One only need look at the sheer level of time (and no doubt costs) which it will take to see through the Crociani litigation to understand why.