The Prime Minister, the Trustee and the Rogue Banker

The fallout from the “Lescaudron Affair” continues as the Court of Appeal of Singapore provides guidance on the appropriate forum to hear breach of trust claims

(Ivanishvili, Bidzina and others v Credit Suisse Trust Ltd [2020] SGCA 62).

After nearly three years of wrangling, on 3 July 2020, in the final jurisdictional skirmish in a dispute between a trustee and the beneficiaries of a trust governed by Singapore law, consisting of the former Prime Minister of Georgia, Bidzina Ivanishvili and his family, the Court of Appeal of Singapore has allowed the beneficiaries’ appeal from the High Court and lifted the stay of proceedings over their claim against a Singapore trust company, Credit Suisse Trust Ltd (Singapore). The trust company operates independently from the bank, Credit Suisse, but forms part of the Credit Suisse Group, and the assets of the trust were invested by the Geneva branch of the bank.

This is just one of a number of claims in multiple jurisdictions against Credit Suisse (and its trust companies and associated entities) by various high net worth former clients precipitated by the discovery of Patrice Lescaudron’s much publicised fraudulent misconduct at Credit Suisse’s Geneva branch. Mr Lescaudron was an employee of Credit Suisse on its Russia desk and operated as the portfolio manager for the trust. Towards the end of 2015, Mr Ivanishvili discovered “tremendous losses” to the trust caused by Mr Lescaudron’s actions. Following a criminal complaint in Switzerland by the bank, Mr Lescaudron was convicted of embezzlement, forgery and misappropriation by a Geneva court in February 2018 and received a sentence of five years.

Since the claim was issued in Singapore in 2017 , the proceedings have been mired in establishing the appropriate forum to hear the claim. In related proceedings, the New Zealand High Court deemed Switzerland to be the appropriate forum for a similar claim by the beneficiaries against Credit Suisse and the trustees of a different trust settled by Mr Ivanishvili. Further connected proceedings are ongoing in Bermuda.

In a majority decision, the Court of Appeal allowed the beneficiaries’ appeal and dismissed the trustee’s jurisdiction challenge on the grounds that Singapore was the appropriate forum to determine the breach of trust claims against the trustee. However, in doing so, and providing some useful guidance to trustees and trust lawyers, the Court rejected the argument put forward by the aggrieved beneficiaries that a clause of the trust instrument designating the Courts of Singapore as the “forum for the administration” of the trust meant that Singapore had exclusive jurisdiction for the settlement of all disputes. Instead, the Court held that clauses of this nature are intended to refer to the court or jurisdiction which would settle questions arising in the “day to day” administration of the trust, and to denote the supervisory and authorising court for actions the trustee might need to take which were not specifically covered by the trust deed or where its terms were ambiguous, rather than function as an exclusive jurisdiction clause for the settlement of disputes between trustees and beneficiaries.

Mr Ivanishvili, who is thought to be Georgia’s richest person, may now pursue the substantive issues in the dispute against the trustee, principally, its alleged breach of trust for its failure to prevent losses to the trust caused by Mr Lescaudron’s misconduct. However, it is apparent from the judgment of the Court of Appeal that Mr Ivanishvili had an active role in investment decisions, including appointing himself as an “investment manager” for the trust, and was in regular contact with Mr Lescaudron on the management of the trust assets. It therefore seems that a notable case on a trustee’s liability for investment losses and a trustee’s ability to delegate such asset management and investment powers will follow in due course.

The case to-date provides a stark reminder to those involved in high-value litigation involving multiple jurisdictions of the significant battles and delays that can arise with regards to jurisdiction before getting anywhere near dealing with the substantive issues in a dispute.

If you require further information about anything covered in this briefing, please contact Tom Williams, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2020