Before : THE HONOURABLE MR JUSTICE EVANS-LOMBE Between :

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1 Neutral Citation Number: [2007] EWHC 1859 (Ch) IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION Case No: HC07C00248 Royal Courts of Justice Strand, London, WC2A 2LL Date: 30/07/2007 Before : THE HONOURABLE MR JUSTICE EVANS-LOMBE Between : (1) Jennifer Hailey Bonham (2) Michael John Nicholson Steele Claimants - and - (1) David Reginald Alexander Fishwick (2) Vere Anthony Fenner Defendants Richard Wilson QC (instructed by Stewart-Moore) for the Claimants Siward Atkins QC, Simon Wilton QC (instructed by Squire & Co., Plexus Law) for the Defendants Hearing dates: 20/6/07 21/6/ Judgment

2 Mr Justice Evans-Lombe : Introduction 1. On 16 th October 2006 Mr Justice Kitchin gave judgment ( the Judgment ) in an action between Toby Bonham as First Claimant and Michael Steele and Jennifer Bonham, the Claimants in these proceedings ( the Claimant Trustees ) as Second and Third Claimants against Blake Lapthorn Linnell ( Blake Lapthorn ) a firm of solicitors as First Defendant and David Fishwick and Vere Fenner the Defendants in these proceedings ( the Defendant Trustees ) as Second and Third Defendants. In fact by the time Mr Justice Kitchin came to give judgment in those proceedings ( the 2004 Proceedings ) the claim against Mr Fenner had been struck out. The claim in the 2004 Proceedings was against the Defendant Trustees as former trustees of a settlement made by Toby Bonham in 1989 ( the Bonham Settlement ) to make good to that settlement the costs which they had incurred in pursuing two sets of proceedings on behalf of the Bonham Settlement which costs had been paid out of its assets. In the result, for the reasons set out in the Judgment, Mr Justice Kitchin dismissed the claim. 2. These proceedings were commenced on 17 th July I have had to deal with a series of applications in these proceedings. Having disposed, as far as I could, of some of those applications I reserved judgment on two of the applications by the Defendant Trustees to strike out, or alternatively to stay pending payment of certain costs orders, the Claimant Trustees claims as present trustees of the Bonham Settlement for damages or other compensation for breach of trust, against them as former trustees. Between paragraph 18 and 119 of his judgment Mr Justice Kitchin sets out a description of the complicated background of the case he had to decide. That background is also the background of the present proceedings and these applications and I gratefully adopt his description of it. I will, however, relatively briefly, set out those of the background facts which directly concern the issues before me. 3. The Defendant Trustees and the Claimant Trustees were successively, the trustees of the Bonham Settlement of which Toby Bonham was the settlor on 9 th November 1989 and by which he settled shares to which he claimed to be beneficially entitled in Montpelier Properties Ltd ( Montpelier ). At the time this company held not only properties but was the owner of the well-known auction house Bonhams. The circumstances of the making of the Bonham Settlement are set out between paragraphs 40 and 55 of the Judgment. Simultaneously the Defendant Trustees charged 146,660 shares in Montpelier, as security for advances to be made by a Mr Pinhorn to the settlement, which were to be sold and the proceeds of sale of which the trustees were to use for the purpose of paying off Toby Bonham s outstanding indebtedness. At the same time the Defendant Trustees granted to Mr Pinhorn an option to purchase the 146,660 shares in Montpelier ( the First Option ) at a certain price which option was capable of being exercised up to which ever was the later of 9 th May 1993 and a date three months after the date upon which the entirety of the advances made to Toby had been repaid to Mr Pinhorn. The making of the First Option is described at paragraph 59 of the Judgment and at paragraph 60 of the Judgment is described a Transfer Agreement whereby Toby Bonham agreed to transfer into the Bonham Settlement a parcel of 42,771 shares in Montpelier.

3 4. On 14 th January 1998 the Defendant Trustees commenced an action against Toby Bonham and his sister Eve to transfer to them 32,266 shares in Montpelier which he was alleged by them to be bound to do pursuant to the arrangements made in The proceedings were opposed and in the course of them Toby Bonham, as part of his defence served in May 1998, contended that the First Option was void because it resulted in a clog on the equity of redemption under the charge granted by the Defendant Trustees over the shares in the Bonham Settlement in favour of Mr Pinhorn. These proceedings have become known as the Bonham-Cozens Proceedings and I will hereafter refer to them under that name. They were in due course settled upon terms that a part only of the shares in question were to be transferred by Toby Bonham into the Bonham Settlement. 5. The clog on the equity defence depended on a decision of the House of Lords in Samuel v Jarrah Timber & Wood Paving Corporation [1904] AC 323. The material ruling of the House of Lords is summarised in the first sentence of the head note of the report in that case as:- A mortgagee is not allowed at the time of the loan to enter into a contract of purchase of the mortgaged property. 6. That case involved a limited company which borrowed money upon the security of the debenture stock over which the lender was granted an option to purchase the stock. 7. On 27 th October 1998 the Second Defendant through Blake Lapthorn took counsel s advice and a conference was held with counsel Mr Peter Griffiths. He subsequently wrote an opinion. Mr Griffiths advice is dealt with in the Judgment between paragraphs 83 and 93. Suffice it for the purpose of this judgment to say that Mr Griffiths was inclined to say that the clog on the equity defence had merit. Messrs Blake Lapthorn were not impressed with Mr Griffiths advice and sought the advice of Mr Tom Dumont. He gave advice in a series of conferences and phone calls which are described in the Judgment between paragraphs 94 and 97 culminating in a written opinion of 10 th September I was shown a copy of this opinion. In it, having contrasted the Samuel case with the decision of Arden J in Pye v Ambrose [1994] NPC 53, the opinion continues at paragraph 4 as follows:- The question therefore arises whether the overall transaction between Mr Bonham and Mr Pinhorn is one of option or mortgage. There are some factors which point each way: Mr Bonham wanted to raise money; he was borrowing a substantial amount, most of it at interest; he was offering the security of the shares. On the other hand, Mr Pinhorn would not have entertained the deal without the option, since it would have been far too risky. He risked locking his money in (as has happened) and had to have some reason for doing so. 130,000 was interest free. Mr Pinhorn was winding down his own business interests and looking for ventures for his capital. My impression is that provided a judge had the desire to distinguish Samuel v. Jarrah, he or she could do so, and

4 Pye v. Ambrose could be followed. But as a matter of pure analysis, it is difficult to see the transaction as more of an option than it is a mortgage. The court's approach in Rosemex v. Shellmex (1968) 20 P & CR 1 was to ask whether the transaction alleged to be a clog was one which the mortgagee would have been prepared to enter independent of the loan, following the path illuminated in Kreglinger v. New Patagonia Meat Co. [1914] AC25. It is difficult, however, to imagine the option over the Bonhams shares standing alone. In Australia, the rule in Samuel v. Jarrah has been jettisoned, as inappropriate for a modern legal system, see: Westfield Holdings Ltd v. Australian Capital Television Pty Ltd (1992) 32 NSWLR 194 (copy attached) The House of Lords in Samuel v. Jarrah themselves indicated that they could no longer see the justification for the rule, and would have overruled it if they had felt free to do so. I have no doubt that if the matter could be brought before the House of Lords now, the House would be prepared to overrule Samuel v. Jarrah. Collateral arrangements such as options could still be avoided if they were unconscionable, thus protecting improvident mortgagors. The rule is already restricted: it does not apply for instance to mortgages back to vendors: see Moore v. Texaco [1965] 50 DLR (2d) 300, or in the context of commercial arrangements between petrol companies and filling station owners: Rosemex v. Shellmex [1968] 20 P & CR At paragraph 11 Mr Dumont considered whether the Defendant Trustees could enter into a fresh option not linked to a mortgage but concluded that this route was not possible on two grounds. The first ground was that there was no power under Clause 2 of the Bonham Settlement to do this. So far as material that Clause provides:- The trustees may from time to time accept from the settlor as additions to the trust fund any shares in [Montpelier] and may do so on terms that the trustees shall forthwith enter into an option with a third party and in such terms generally as the Settlor may specify. 9. It was Mr Dumont s view that that Clause permitted the trustees to grant options immediately after receiving shares, as directed by Mr Bonham. No fresh option, granted almost ten years after the shares were transferred, where Mr Bonham is contesting the original option could ever be within the trustees power. 10. The second ground was that in granting the option the trustees would be acting not for the benefit of their beneficiaries, but for Mr Pinhorn such action would therefore be a clear breach of trust. 11. Mr Dumont concluded that the trustees should apply for summary judgment against Mr Bonham to recover one of the tranches of shares which he had undertaken to

5 transfer to the Bonham Settlement. His conclusion being that the shares ought to be transferred to the trustees and charged as security for those loans, whatever the arguments are about the option. 12. On 16 th September 1999 Mrs Williams of Blake Lapthorn wrote to Mr Pinhorn with copies to the Defendant Trustees as follows:- As promised when we met yesterday, I attach a copy of the Counsel's opinion that has just been received. The issue that the option agreement might be a "clog" was raised in the defence from Toby Bonham but the Counsel that we have had dealing with it up to now did not think that that was a point of substance. Our new Counsel has gone into the matter more deeply and as you will see does believe that there is a problem. It is a problem in so far as he has no doubt at all that the House of Lords would say that the option is valid but we have to go to the House of Lords to make that happen. I went through the opinion with David Fishwick yesterday. We have considered where this leaves us. Clearly the loan and the charge on the shares is fine. However, potentially you might be in a position where you would want to sell under the loan without waiting for the option to be confirmed by the Courts and thus accept a lower price than might be available by waiting a bit longer. At that point you and the Trustees have very different interests and we would not be able to act for both you and the Trustees. David Fishwick takes the view that having a change of advisers at this stage would be damaging and expensive and he would prefer to leave the position as it is for a couple of months. We believe that in that period there is likely to be discussion with Toby's lawyers and possibly with the Company as well to progress the matter and we can then decide how the matter needs to be dealt with, possibly by putting an appropriate matter straight to the House of Lords by some form of fast procedure. You said that you thought that would be the right way to go. As I mentioned to you, it is important that you understand that you are free to take independent advice and I have so advised the Trustees as well. I do not believe that any harm is done by leaving things for a few months in order to see what results from the discussions which I hope are about to start. What we cannot do is let the matter drift after that and I will therefore be bringing up the matter again in December so that we can decide what to do if we are not then clear that we have a straightforward deal on the table. 13. On 18 th July 2000 the Defendant Trustees entered into an agreement with Toby Bonham and Mr Pinhorn settling the Bonham-Cozens Proceedings against Toby. As set out in the Judgment in paragraph 104: in summary, Toby acknowledged his

6 indebtedness to Mr Pinhorn in respect of sums the subject of the 1989 arrangements; agreed that 146,660 shares [of Montpelier] were the subject of an option in favour of Mr Pinhorn; acknowledged that all his shares were charged to Mr Pinhorn. The paragraph then sets out further detailed provisions of the agreement. As described in paragraph 119 of the judgment the Defendant Trustees discontinued the Bonham- Cozens Proceedings against Toby Bonham s sister Eve on 7 th March On 16 th October 2000 a sale was agreed of so much of the assets of Montpelier as represented that company s auction business to a third party purchaser. Before that sale there had been a reorganisation of the business of Montpelier so that the auction business became the property of a subsidiary called Heri Limited and the properties became vested in a property holding company, Hodie Limited. On the 28 September 2000 the Defendant Trustees entered into a further option agreement ( the Second Option Agreement ) which, as the recitals to the agreement make plain, was necessary in order to persuade Mr Pinhorn to consent to the proposed sale. At Clause 2.2 the parties acknowledge that the original option remains in full force and effect save that upon completion of the reconstruction the rights and the obligations of the Trustees and Mr Pinhorn set out in Clauses 3 to 21 (inclusive) of the Original Option shall be substituted by the rights and obligations of the parties set out in this agreement. The agreement then continues at Clause 3 to grant to Mr Pinhorn an option to purchase shares in each of the transferee companies. No limit of time is placed on his right to do so. 15. On 17 th October 2000 the sale of Heri Limited having been completed realising rather more than 8 million pounds the Defendant Trustees received rather more than 2.5 million pounds for their interest in that company. They were thus able on 17 th October 2000 to repay Mr Pinhorn s loans to the Bonham Settlement and also to pay him 742, representing the value of his option rights under the Second Option. 16. The 2004 Proceedings were commenced by Toby Bonham against Blake Lapthorn and the Defendant Trustees on 16 th June On 10 th May 2005 the Defendant Trustees retired as trustees and were replaced by a Mr Stewart Moore the Claimants solicitor and a Mr Anthony Jackson. 17. On 21 st June 2005 Messrs Ralph Davies who were acting for the claimant in the 2004 Proceedings and act for the Claimant Trustees in these proceedings wrote to Mr Fenner. Having set out the events leading up to the payment to Mr Pinhorn of the sum of 742,392.92, continued:- In fact, the Option under which these payments were made was invalid and this was known to the Trustees and their legal advisers. The Option Agreement was invalid because it was a clog or fetter on the equity of redemption. Blake Lapthorn were certainly aware of this fact. At a conference with Peter Griffiths of Counsel which took place on 22 nd October 1998, Mr Griffiths is recorded by a representative of Blake Lapthorn (on page 8 of the note of the conference) as saying: They do have a good Defence a clog on equity of Defence (sic) is a good point (a copy of the attendance note of the conference with Counsel is enclosed herewith).

7 Mr Fishwick was present at this conference and must therefore have been alerted to this point. At a subsequent conference on the same matter with Mr Tom Dumont of Counsel, the question of the validity of the Option Agreement was raised again. Neither Mr Fishwick nor Mr Fenner were present at that conference. Two representatives of Blake Lapthorn were present at that conference, one being Stephen Murfitt and the other, Philip Blaxill. On the third page of the attendance note of that meeting, at paragraph 3(b), Mr Dumont is recorded as referring to: a 1904 House of Lords case which held that there can be no option as part of the mortgage. This led TD to have residual fear that the Option Agreements were invalid. TD to advise further having undertaken further work We refer to the Opinion of Mr Dumont dated 10 th September 1999 which we received from Weightmans after some six months of requesting a copy of this document in action number HC 05 C Mr Dumont makes it clear (paragraph 9) that any Court at first instance will find that the transaction between our client and Mr Pinhorn was a mortgage and that the option was therefore void. It is true that he says that the House of Lords would be prepared to overrule Samuel v Jarrah (paragraph 6) and again in paragraph 9 he advises that he would expect the Option Agreement to be upheld ultimately in the House of Lords. What is clear is that Mr Dumont is advising that in order to validate the option the Trustees would have to make new law and would have to go to the House of Lords to succeed in this. In paying the option monies to Mr Pinhorn without raising the issue of the Trustees liability to pay Mr Pinhorn, Blake Lapthorn caused a considerable loss to the Trust. Alternatively, if Blake Lapthorn did inform the Trustees of the position, or the Trustees were otherwise aware of the position as to the validity of the option, then the Trustees acted in breach of trust in authorising the payment they made to Mr Pinhorn under the Option Agreement. 18. In their defence to the 2004 Claim the Defendant Trustees pleaded the provisions of Clause 17 of the Bonham Settlement as conferring upon them a defence to the claim. That Clause provides as follows materially to this judgment:- 17. In the professed execution of the Trusts and powers hereof no Trustee shall be liable for any loss to the Trust fund arising

8 by reason of any other matter or thing whatsoever except wilful and individual fraud or wrongdoing on the part of the Trustee who is sought to be made so liable. 19. On 26 th January 2006 Messrs Ralph Davies served a re-amended particulars of claim in the 2004 Proceedings. By the proposed amendments at paragraphs 54.1 to 57 the claimant pleaded that the payment of 742, constituted a breach of trust by the Defendant Trustees because it was paid pursuant to an option agreement which was unenforceable because it operated as a clog on the equity of redemption of the Bonham Settlement Trustees. 20. On 13 th February 2006 Mr Stewart Moore resigned as a trustee of the Bonham Settlement to be replaced by Georgina Elvin. On 13 th March 2006 Mr Jackson and Miss Elvin retired as trustees of the Bonham Settlement to be replaced by the Claimant Trustees. 21. On 10 th April 2006 the 2004 Proceedings came before Deputy Master Lloyd for directions. He had a number of applications with which to deal, two of which were relevant to the application before me. 22. The first relevant application was an application by Mr Fenner to strike out the claim against him on the grounds that Clause 17 of the Bonham Settlement Trust Deed conferred on him a defence which was not circumvented by the claim as pleaded, alternatively, summary judgment against the claimant on the ground that there was no reasonable prospect that the claim would succeed against him because of the existence of that Clause. 23. Mr Wilton, who appeared for Mr Fenner before me as well as before Deputy Master Lloyd, referred the Deputy Master to a number of authorities to some of which I was also referred. The conclusions of the Deputy Master are summarised in the following extracts from his judgment:- This application is based on Clause 17 of the trust deed which limits the liability of trustees. Mr Wilton took me to the judgment of Millet LJ in Bogg v Rapier [1989] 1 ITELR 267 at paragraph 20 where the correct approach to this sort of application is set out. I must first determine the correct construction of the Clause; then I must look and see if the pleaded complaints fall within or without the ambit of the Clause once properly construed; if an allegation is so obscure that it is not clear if it falls within or outside the ambit of the Clause it should be struck out as embarrassing. Mr Wilton submits that the meaning of this Clause is clear; that is, that the Claimant can only succeed in his claim against the former trustees if he can establish "wilful and individual fraud" or wilful and individual wrongdoing. Mr Warwick says that one must ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in

9 which they were at the time of the contract (i.e. principle (1) in the judgment of Lord Hoffmann any act or omission amounting to a breach of trust on the part or the trustee who is sought to be made liable. Mr Warwick points to the fact that any other construction exposes a tautology within the Clause but I did not find that particular point at all persuasive, particularly as this is, in any event a fairly loosely drawn Clause. In my judgment, Mr Wilton's construction is clearly correct, This is a Clause where the settler is setting out to limit the scope of the liability that a person who takes on the obligations under the deed will be exposed to. In my judgment, it is clear that the words "wilful and individual" and the words "on the part of the trustee who is sought to be made so liable" govern both fraud and wrongdoing. As to the meaning of "wilful wrongdoing" I agree that this is the same as "wilful default" which Millet LJ defined in Armitage v Nurse [1998] Ch 241 at 252E as requiring conscious and wilful misconduct" i.e. a knowing and deliberate breach of duty or reckless indifference. "Individual" of course means that the trustee sought to be held liable must be personally at fault. Turning to the pleading Mr Wilton submits that by his existing and proposed pleadings the Claimant has not made, and has made a deliberate decision not to make, any allegation of knowing impropriety on the part of the Third Defendant, and therefore there is no tenable cause of action against the Third Defendant. The pleading in its original form did not support a plea of conscious impropriety in the commencement and pursuit of the 1998 action and in particular relies on a plea the trustees knew or ought to have known that it stood no treasonable prospect of success. However, Millett LJ made clear in Paragon Finance v DB Thakerar & Co. [1999] 1 All ER 400 at 407e that a pleading in that form will not do. I did not understand Mr Warwick, for the Claimant to dispute the proposition that any allegation of fraud against any of the trustees must be pleaded and in my judgment, the same applies to any allegation of wilful and individual wrongdoing on the part of the Third Defendants. However, Mr Warwick submitted that the Claimant was not in a position to know the detail of what had been going on between the trustees and, therefore, it was appropriate for him to be allowed to maintain his pleadings in the current state so that, if it transpired there had been an incidence of wilful and individual wrongdoing, then his client could recover accordingly. But that seems to me to fly in the face of the very purpose of pleadings, particularly where, as here, disclosure has taken place, albeit that there is still skirmishing as to whether or not it is complete. To borrow and adapt a quotation from Megarry V-C (Lady Ann Tennant v Associated Newspaper Group Ltd [1979] F.S.R. 298) you do not justify an inadequate pleading by putting forward a case"... that is all surmise and micawberism." In my judgment, Mr Wilton has made good points both on construction and on

10 the pleading. Indeed, I think he would be entitled to succeed in respect of his point on the pleading even if I had agreed with Mr Warwick's construction of Clause 17. In the circumstances therefore, in my judgment, there is no reasonable prospect of the Claimant succeeding against the Third Defendant and there is no other reason for the claim against the Third Defendant to proceed to trial. I therefore propose to give summary judgment for the Third Defendant on the claim. 24. The second relevant application was for permission to further amend the particulars of claim to include a claim for damages for breach of trust arising, amongst other matters, from the fact that the Defendant Trustees had authorised the payment of 742, to Mr Pinhorn pursuant to an option agreement void, or arguably void as being a clog on the equity of redemption of the trustees of the Bonham Settlement. The Deputy Master s conclusion on this application is set out at paragraph 73 of his judgment as follows:- On balance I have concluded that any saving of time and cost by the introduction of the new claims into the current action would be comparatively small and are outweighed by the risk of delay and unnecessary complication. I broadly agree with Mr Ayliffe's submissions noted at points (1) to (4) above. I therefore do not propose to give permission for the inclusion in the proposed amended pleading of the claim set out in paragraph 54 to 67. If the current trustees see fit to pursue those allegations they can do so in separate proceedings. My decision will also enable the current trustees to consider the merits of issuing a Beddoe summons in respect of those claims before they are issued, and will also contain the ambit of any Beddoe summons which is belatedly issued in respect of the current action and which must be dealt with promptly if it is to serve any real purpose 25. The 2004 Claim went to trial between 12 th and 26 th July 2006 when Mr Justice Kitchin reserved judgment. The present proceedings were commenced on 17 th July On 16 th October 2006 Mr Justice Kitchin delivered judgment in the 2004 Proceedings with the result that I have already outlined. On 31 st October 2006 Mr Justice Kitchin made various orders consequent on his judgment. Amongst those orders were orders that the claimants in the 2004 Proceedings, Toby Bonham and the Claimant Trustees, were to pay Mr Fishwick s costs of the action to be assessed on a standard basis, but with a payment of 130,000 on account, and an order that to the extent that Mr Fishwick does not recover his costs from the claimants they were to be assessed on the indemnity basis and paid out of the assets of the Bonham Settlement. Mr Fenner s costs of the claim, which had been struck out against him, were to be assessed on the indemnity basis and paid out of the Bonham Settlement. His costs of what were referred to as the additional claims included in the 2004 Proceedings were to be paid by Toby Bonham on the standard basis but to the extent not recovered

11 from him they were to be assessed on the indemnity basis and paid out of the Bonham Settlement. 26. On 16 th November 2006 the Claimant Trustees served their particulars of claim in these proceedings. In the course of the argument I suggested to Mr Wilson, who appeared for the Claimant Trustees, that he submit draft amended particulars of claim to include particulars of all matters which his clients intended to plead as entitling them to circumvent the provisions of Clause 17 as if the Defendant Trustees had filed a defence containing a plea that Clause 17 afforded them an absolute defence to the claim. This was done. Mr Fenner s application to strike out 27. I will deal first with Mr Fenner s application to strike out the claim against him. Mr Fenner basies this on three grounds. The first ground is that the proceedings were never properly served upon him. I have already dealt with this ground by rejecting it. The second ground is similar to that upon which he succeeded in striking out the claim against him in the 2004 Proceedings namely that the Claimant Trustees had not pleaded grounds to circumvent his defence under Clause 17 and were not capable of doing so or, alternatively, that he was entitled to summary judgment that the claim of the Claimant Trustees had no reasonable prospects of success in the light of the defence which Clause 17 gave to him. The third ground is that to prosecute the claim in these proceedings against Mr Fenner is an abuse of process within what is commonly referred to as the Henderson v Henderson Principle, namely, that this claim ought to have been brought forward in time to be included in the 2004 Proceedings and dealt with there. 28. I accept and gratefully adopt that Deputy Master Lloyd s approach to the construction of Clause 17 based on the judgment of Lord Justice Millett in Bogg v Rapier [1989] 1 ITELR 267 in his judgment in the 2004 action which I have set out above. It is first necessary to determine the correct construction of the Clause 17. I also accept and gratefully adopt the Deputy Master s construction of Clause 17 given at paragraphs 35, 39 and 40 of his judgment. Mr Wilson for the Claimant Trustees disclaims any intention to plead fraud against the Defendant Trustees. The allegation against Mr Fenner, as in the 2004 Proceedings, is that he was guilty of wilful wrongdoing i.e. conscious and wilful misconduct see Armitage v Nurse [1998] Ch 241 at 252E per Lord Justice Millet implying knowing and deliberate breach of duty or reckless indifference to the possibility of such breach. The inclusion of the word individual in the Clause must mean that the trustee sought to be held liable must be personally at fault. 29. Against that background I turn to consider the proposed amended Particulars of Claim and I start with a relatively minor point. Paragraph 34A pleads that the foregoing breaches of trust constituted wilful and individual fraud or wrongdoing on the part of the Second Defendant Mr Fenner in that he committed them deliberately and/or recklessly, careless as to whether he was committing a breach of trust or not. See also paragraphs 39A, 42A, 45A and 48A. As I understood the submissions of Mr Wilson on behalf of the Claimants, it is not intended to allege that the Defendant Trustees have acted fraudulently. It is intended to confine the allegation against them to an allegation of deliberate breach of trust short of fraud and so an allegation of wilful and individual wrongdoing within the provisions of Clause 17 of the Bonham

12 Settlement. The allegation of fraud in paragraph 34A, and the further paragraphs referred to in this paragraph, should therefore in any event be struck out. 30. It seems to me that the amended Particulars of Claim proceed on two misapprehensions which are repeated throughout its provisions. Those misapprehensions are well illustrated by the particulars of deliberate breach of trust given under paragraph 34A in support of the allegation that the payment of 742, to Mr Pinhorn pursuant to the Second Option was a breach of trust because that option was unenforceable as being a clog on the equity of redemption of the Bonham Settlement Trustees under the rule in Samuel v Jarrah. In those particulars it is pleaded:- i) The Second Defendant [Mr Fenner] had been advised by Caroline Williams of Blake Lapthorn as to the substance of the advice given by Thomas Dumont of Counsel in conference on 2 nd September 1999 and by an opinion dated 10 th September 1999 and by a memo dated 16 th September 1999 inter alia that: a) An option granted at the time of a loan was void by reason of the rule in Samuel v Jarrah Timber and Wood Paving [1904] AC323 b) In the light of the decision of the House of Lords in Samuel v Jarrah Timber and Wood Paving [1904] AC323 the Original Option [the First Option] was void unless and until the House of Lords reversed the said decision. c) Any application to have the question of the validity of the Original Option determined by the House of Lords would have to be made prior to the receipt of the funds from any sale of the shares otherwise such an application would not be in the interests of the beneficiaries of the Bonham Settlement d) In the circumstances that existed no granting of a new option could ever be within the Defendants powers as trustees of the Bonham Settlement and e) Even if the granting of a new option were within the Defendants power as trustees of the Bonham Settlement, by doing so the Defendants would be acting not for the benefit of the beneficiaries of the Bonham Settlement but for the benefit of Mr Pinhorn and that by doing so they would be committing a clear breach of trust. ii) Notwithstanding the foregoing the Defendants purported to grant (and did grant) the New Pinhorn Option [the Second Option] in favour of Mr Pinhorn and made payments pursuant to it. 31. The memo dated 16 th September 1999 was not in evidence. It is referred to in other documents but it has been lost and it is not possible to reconstruct what it said. I confess that I do not understand the point being made in paragraph (i)(c) but I do not think it affects this judgment.

13 32. It seems to me to be a misreading of the opinion of Mr Dumont of 10 th September that it was his view that the First Option was void and unenforceable because it constituted a clog on the equity of redemption of the Trustees for the time being of the Bonham Settlement. It is clear from the passages from that opinion which I have set out at paragraph 7 of this judgment that Mr Dumont was advising the Defendant Trustees that the rule in Samuel v Jarrah no longer represented the present law and that that case would almost certainly be overruled when the House of Lords next had an opportunity to do so. It follows that his advice was that, as the law stood at the time he wrote his opinion on 10 th September 1999 the First Option was not void but was enforceable. If its enforceability was challenged it might be necessary to take the case to the House of Lords before that challenge could be defeated but his advice was that it would be defeated. 33. The second misapprehension is that when Mr Dumont was dealing with the suggestion that a second option could, as at 10 th September 1999, be granted over the original 146,660 Montpelier shares, to replace the First Option on the assumption that it was unenforceable, that his conclusion that any such attempt would be outside the power conferred on the Trustees by the Bonham Settlement Deed and otherwise a breach of trust as being for the sole benefit of Mr Pinhorn and not the beneficiaries, was applicable to the grant of the Second Option in the course of the reorganisation of the Bonham companies in anticipation of the sale of the auction business. It is clear that the Second Option was granted over the newly-created shares in Heri Ltd and Hodie Ltd forthwith on their being issued in substitution for the Trustees previous holding of Montpelier shares. It is not in issue that as at October 2000, and assuming, as I have found, that the First Option was enforceable (and probably also by reason of his charge over the Montpelier shares which he had been given by the Trustees) Mr Pinhorn was in a position to obstruct the reorganisation of the Bonham companies necessary to effect the sale of the auction business through Heri Ltd to the purchaser. 34. Given that it must have been within the Trustees discretion to cooperate with a sale of the auction business provided that the consideration was adequate, (and it is not suggested that it was not), it cannot have been a breach of trust for them to grant the Second Option to Mr Pinhorn to open the way for such a sale to take place which would provide them with the money to repay the Trustees indebtedness to him. 35. It follows that the First Option, if Mr Dumont was correct as to its enforceability, and the charge given by the Trustees to Mr Pinhorn, would attach to the Montpelier shares acquired by the Trustees up to a number of 146,660 shares. In particular the First Option and charge would attach to the shares recovered as a result of the settlement of the Bonham-Cozens proceedings described above in paragraph 4 of this judgment. 36. It also follows that the fact that the Second Option was granted for an indefinite period, by contrast with the First Option, cannot have been a breach of trust if Mr Pinhorn was insisting, as I must assume he did, that the Second Option should have no limit on the time for its exercise. The fact that the First Option was subject to a time limit for its exercise does not lead to the conclusion that the Second Option should be subject to a similar time limit. They were independent transactions. 37. The particulars of deliberate breach of trust, delivered under paragraph 34A of the Particulars of Claim, reads as follows:-

14 (i) The Second Defendant had been advised by Caroline Williams of Blake Lapthorn as to the substance of the advice given by Thomas Dumont of counsel in conference on 2 nd September 1999 and by an Opinion dated 10 th September 1999 and by a memo dated 16 th September 1999 inter alia that: (a) (b) (c) (d) (e) an option granted at the time of a load was void by reason of the rule in Samuel v. Jarrah Timber and Wood Paving [1904]AC 323 in light of the decision of the House of Lords in Samuel v. Jarrah Timber and Wood Paving [1904]AC 323 the Original Option was void unless and until the House of Lords reversed the said decision. any application to have the question of the validity of the Original Option determined by the House of Lords would have to be made prior to receipt of the funds from any sale of the shares otherwise such an application would not be in the interests of the beneficiaries of the Bonham Settlement. in the circumstances that existed no granting of a new option could ever be within the Defendants powers as trustees of the Bonham Settlement; and even if the granting of anew option were within the Defendants power as trustees of the Bonham Settlement by doing so the Defendants would be acting not for the benefit of the beneficiaries of the Bonham Settlement but for the benefit of Mr Pinhorn and that by doing so they would be committing a clear breach of trust. (ii) Notwithstanding the foregoing the Defendants purported to grant (and did grant) the New Option in favour of Mr Pinhorn and made payments pursuant to it. 38. Once it is appreciated that if Mr Fenner had sought a copy of Mr Dumont s opinion he should have understood that he was being advised that the rule in Samuel and Jarrah was no longer good law and thus the main basis for the attack on the First Option and also the Second Option was misconceived, and once it is appreciated that the Second Option was granted in pursuance of a wholly separate arrangement from that pursuant to which the First Option was granted, in my judgment, these pleaded particulars do not constitute sufficient particulars of wilful and individual wrongdoing on the part of the Defendant Trustees to make good the claim for breach of trust pleaded in paragraph 34A in the face of the defence available to Mr Fenner under Clause 17 of the Bonham Settlement Trust Deed. In consequence it does not matter whether or not Mr Fenner was reckless in not acquainting himself with the contents of Mr Dumont s opinion as alleged in the final part of paragraph 34A.

15 39. Between paragraphs 37 and 39A of the amended Particulars of Claim it is alleged that, even if the Second Option was valid, the Defendant Trustees acted in breach of trust by entering into it because, by doing so, they conferred on Mr Pinhorn rights as holder of the option which he did not, before its creation, have because the First Option was unenforceable as a clog on the Defendant Trustees equity of redemption of the Montpelier shares. In my judgment this pleading also fails to give sufficient particulars of wilful and individual wrongdoing to meet a defence under Clause 17 of the Bonham Settlement Deed for the same reasons that I have found that the pleading under paragraph 34A fails. 40. At paragraph 42 of the amended Particulars of Claim it is alleged that in so far as the Defendant Trustees in July 2000 acknowledged that the First Option gave rise to a binding option over the Montpelier shares, the subject of that option, it created a liability to pay sums to Mr Pinhorn under the [First] Option which in turn required the Defendants to grant the [Second] Option in replacement of the [First] Option upon a subsequent reconstruction of Bonhams Group Limited. Once it is appreciated that Mr Dumont was advising that the First Option was enforceable this pleading must also fail on the same grounds. 41. At paragraph 45 of the amended Particulars of Claim it is alleged that, because at the time of the First Option the Defendant Trustees only held 114,394 Montpelier shares, the Defendant Trustees in entering into the July 2000 agreement, which acknowledged that 146,660 shares in Montpelier were held by them subject to a charge in favour of Mr Pinhorn and the First Option, were in breach of trust because to do so was beyond the powers of the Trustees in Clause 2 of the Bonham Settlement Deed. It is pleaded at paragraph 45(1) that even if (which the Claimants deny) the [First] Option was valid, the terms of the Settlement Deed did not empower the Defendants to grant (or acknowledge) any option over the shares held by them on the trusts of the Bonham Settlement unless such option was granted forthwith upon transfer of the shares to the Defendants. This pleading does not recognise that the relevant payment was made by the Defendant Trustees under the Second Option over Heri Limited shares granted pursuant to the reorganisation of Bonhams Group Limited. 42. Paragraph 45(2) of the amended Particulars of Claim pleads further that, even if (which is denied by the Claimants) the terms of the Settlement Deed empowered the Defendants to create a binding obligation by acknowledging the validity of the [First] Option in respect of the shares which were not previously the subject of a then current option in favour of Mr Pinhorn, the purported acknowledgement of such option was manifestly contrary to the interests of the beneficiaries of the Bonham Settlement in that it created a liability to pay sums to Mr Pinhorn under the [First] Option which in turn required the Defendants to grant the [Second] Option upon the reconstruction of Bonhams Group Limited. As a pleading in support of an allegation of deliberate wrongdoing I find this to be confusing and would strike it out on that ground. It is not explained why the terms of the First Option required the Defendants to grant the Second Option. 43. The particulars of deliberate breach of trust under paragraph 45A read as follows:-

16 (i) The Second Defendant was at all material times aware that only 114,394 shares were subject to the Original Option. (ii) The Second Defendant had been advised by Caroline Williams of Blake Lapthorn as to the substance of the advice given by Thomas Dumont of counsel in conference on 2 nd September 1999 and by an Opinion dated 10 th September 1999 and by a memo dated 16 th September 1999 inter alia that: (a) (b) in the circumstances that existed no granting of a new option could ever be within the Defendants powers as trustees of the Bonham Settlement; and even if the granting of a new option were within the Defendants power as trustees of the Bonham Settlement by doing so the the Defendants would be acting not for the benefit of the beneficiaries of the Bonham Settlement but for the benefit of Mr Pinhorn and that by doing so they would be committing a clear breach of trust. (iii) Notwithstanding the foregoing the Defendants acknowledged the purported validity of the Original Option thereby subjecting 32,266 shares which were not previously the subject of any option in favour of Mr Pinhorn to an option in his favour. As to sub-paragraph (ii)(a), it will be seen that these particulars repeat the misapprehension that Mr Dumont s advice as to the granting of a further option over Montpelier shares was applicable to the Second Option granted over Heri shares. As to sub-paragraph (b), as I have already said, it is not suggested, and it is certainly not pleaded, that the Second Option was other than part of a commercial arrangement which the Defendant Trustees entered into to clear the way for the reorganisation of Bonham Group Limited so that the Defendant Trustees could realise their interest in the auction business. In my judgment this pleading does not amount to a plea of wilful and individual wrongdoing by the Defendant Trustees. 44. The final allegation of breach of trust in the amended Particulars of Claim is made at paragraph 48 with particulars at paragraph 48A. It is here pleaded that it was manifestly contrary to the interests of the beneficiaries of the Bonham Settlement that the Second Option was granted for an indefinite period by contrast with the time limits placed on the exercise of the First Option. Again it is not explained why the two option agreements were interdependent so as to make this follow. The Second Option agreement was made in the circumstances in which it was necessary, as part of a commercial arrangement to clear the way for the sale of the auction business. Unless it is being said that the terms of that sale, of which the grant of the Second Option to Mr Pinhorn for an indefinite period was a constituent part, was so plainly disadvantageous to the beneficiaries as to constitute the Defendant Trustees wilfully

17 and individually guilty of wrongdoing in granting the Second Option pursuant to it, and it is not being so suggested, it seems to me that this pleading also fails to circumvent the defence available to the Defendant Trustees under Clause That is sufficient to dispose of Mr Fenner s application and makes it unnecessary for me to consider whether these proceedings are an abuse of process in the sense that this claim should have been advanced in the 2004 Proceedings and bringing it by separate proceedings commenced on 17 th July 2006 amounts to harassment of the Defendant Trustees. Since the matter has been argued I will deal with it albeit briefly. 46. The substantial basis of the present claim is the suggestion that both the First and Second Options were unenforceable as clogs on the equity of redemption of the Trustees for the time being of the Bonham Settlement under the rule in Samuel v. Jarrah. It seems to me to be of importance that the application of the rule in Samuel v. Jarrah was raised by Toby Bonham in his defence in the Bonham-Cozens Proceedings in May The Claimant Trustees are the present holders of that office after a succession of retirements which I have set out above and one of them appears to be a member of the Bonham family. They took over as trustees on 13 th March It was soon after their appointment that the application was made to amend the claim in the 2004 Proceedings to include a claim against the Defendant Trustees raising substantially the same cause of action as is raised in these proceedings. As I have already described leave to amend to include such a claim was refused by Deputy Master Lloyd and I have set out the passage of his judgment where he ruled on the point. It seems clear from what he said that he did not have in mind the possibility that any attempt to renew the claim might be met by an argument that to do so would be an abuse of process. However there was no reason why that issue should have been raised in front of the Deputy Master and it does not appear to have been raised. 47. In Johnson v. Gore Wood and Co [2AC1] at page 31 Lord Bingham defines Henderson v. Henderson abuse of process. Having said that the underlying public policy of the principle in such cases is the same as cause of action estoppel and issue estoppel, namely, that there should be finality in litigation and that a party should not be twice vexed in the same matter continues:- The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional elements such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-

18 based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. 48. In Basso v. Estry & others (unreported judgment 3 rd November 2005) Mr Mark Cawson QC, sitting as a Deputy Judge of this Court, held that:- consistent with the policy considerations behind the rule identified by Lord Bingham in Johnson v. Gore Wood at 31A-B, the rule is, in my judgment, capable of applying when a party did, as in the present case, withhold the claim within the first action until it was too late to advance it with the result that the first action was disposed of without those issues being adjudicated upon. The overriding consideration is, as I see it, that the court must be satisfied that the claims should have been raised, in the sense of being raised at an appropriate time, in the first action if they were to be raised at all. 49. In my judgment this is a case where there was no justification for failing to include the present claim in the 2004 Proceedings sufficiently timeously for the issue to be dealt with in that action. There are unsatisfactory elements to the Claimant Trustees position in this litigation. They have not paid the costs that they were ordered by Mr Justice Kitchin to pay when their claims in the 2004 Proceedings were dismissed and he ordered an interim payment of 130,000. I have already pointed to the rapid change in the Trustees of the Bonham Settlement since the Defendant Trustees retired. It follows that I would strike out the Claim under this head also. 50. When the matter first came before me Mr Fishwick had confined his application to one for a stay of these proceedings until Mr Justice Kitchin s costs order had been met by the Claimant Trustees or by Toby Bonham their co-claimant in the 2004 Proceedings. However the attractions of Mr Wilton s arguments for Mr Fenner impressed themselves on Mr Atkins, for Mr Fishwick, at an early stage and he sought leave to amend his application to ask for the same relief as sought by Mr Fenner. Since there was no apparent difference in the positions of the two Defendant Trustees, which affected the argument, before me I gave permission for this to happen. This result means that I do not have to deal with the Defendant Trustees application for a stay. 51. For the reasons which I have set out, in my judgment, the Defendant Trustees are entitled to the relief which they seek save as to a stay. 52. It follows that the Claimants application, for a stay of execution on the costs order made against them in the 2004 Proceedings, will be dismissed. 53. I will discuss with counsel the form of the order which follows from my conclusions if that cannot be agreed.