FROM BISHOPS TO BLESSINGS: momentous decisions by trustees
Alan
Binnington
The English
courts have for centuries exercised a supervisory jurisdiction over trustees
and with the development of Jersey and Guernsey as trust jurisdictions the Islands’
courts have taken on a similar role. One aspect of that role is the courts’
ability to “bless” momentous decisions of trustees. This article
examines the development of this jurisdiction by the Royal Courts of Jersey and
Guernsey and the tests that will be applied both in making the application and
receiving the court’s consent to proceed.
1 A day or two after the death of Clayton Cracherode,
the Bishop of Durham introduced himself to Clayton’s grieving sister, who
was to inherit the bulk of Clayton’s estate. He said that he was a friend
of the deceased who knew Clayton’s mind very well and that he would “assist
her in the arrangement of her affairs” and help her distribute her estate
for such objects as Clayton would have wanted. Having won her confidence he
insisted at a subsequent meeting that he be made her sole executor and
residuary legatee so that he could distribute to “such objects of
benevolence and liberality” as he in his own discretion shall most
approve of. On the day that he made this proposal he insisted on a positive
answer otherwise he “would have nothing more to do with her concerns”
whereupon he walked into the next room. The sister decided to agree as the Lord
Bishop was “a good man of high rank”. The Bishop refused to take
the executorship “on any other condition than as a trust and not for his
own benefit”. A new will was drafted with the Bishop’s assistance,
leaving what turned out to be a substantial residuary estate to the Bishop on
the terms that he had insisted upon.
2 Following the death of Clayton’s
sister, her cousin, William Morice issued proceedings seeking a declaration
that the residuary request was void for uncertainty. The Lord Chancellor held
that the intention of the testatrix was to create a trust but, that object “being
too indefinite”, the trust failed. The need for certainty of intention
(in common with the other two certainties of object and subject matter) lies in
the courts’ jurisdiction to supervise; where necessary, the court will administer
the trust. In the words of the Lord Chancellor in the Bishop of Durham’s
case—
“As
it is a maxim, that the execution of a trust shall be under the controul [sic] of the court, it must be of such a
nature, that it can be under that controul; so that the administration of it can
be reviewed by the court; or if the trustee dies, the court can itself execute
the trust.”
3 The role of the court in supervising the
administration of trust is fundamental to the trust concept. One aspect of this
supervisory jurisdiction that flourishes today is the giving of directions to
trustees in the form of a “blessing” of a momentous decision.
4 The framework for modern day
applications to bless momentous decisions was laid down in an un-named and
unreported decision of Robert Walker J (as he then was) given in Chambers in
1995 which was cited with approval by Hart J in Public Trustee v Cooper.
5 Walker J divided cases where the court
has to adjudicate on a course of action proposed or actually taken by trustees
into four distinct categories. Perhaps unfortunately for Lord Walker, sitting
in an unreported and un-named case, these are now referred to as the four
categories in Public Trustee v Cooper.
The first category is where some proposed action lies within the trustees’
powers. Given that this is essentially a matter of construing the trust
instrument, or a statute, or both, such applications would be heard in open
court.
6 The second category is the “momentous
decision” category. In such cases there is unlikely to be any doubt as to
the nature of the power, and the trustees will have decided how they wish to
exercise it, but the decision is of such a momentous nature that they wish to
seek the court’s blessing. Obvious examples would be selling a major
asset or a controlling interest in a family business.
7 The third category is where the trustees
surrender their discretion to the court. As with the second category there is
unlikely to be any doubt as to the existence of the relevant power, but there
is some reason why the trustees feel unable to exercise it, perhaps because
they are conflicted or deadlocked. Both the second and third categories would
ordinarily be heard in chambers, the difference between them being that in the
second category the court is being asked to bless a decision of the trustees,
whilst in the third category it is being asked to take the decision itself.
8 The fourth category is where the
trustees have actually taken action and that action is being attacked as
outside their powers or as an improper exercise of their powers. This is an
ordinary breach of trust claim, decided in open court.
9 In the Cooper case, Hart J pointed out that the categories may not always
be as clear-cut in practice as they appear to be in theory. A Beddoe application is an obvious
example: a decision to commence or defend proceedings could be regarded as
falling within the “momentous” category or it could be a case where
there is a risk that the trustees’ conduct may be impugned, thereby
giving rise to a conflict. Hart J referred to a decision of Lindsay J in In re Drexel Burnham Lambert UK Pension Plan,
where trustees were assumed for the purposes of the judgment to have a
potentially disabling conflict but were nevertheless authorised by the court to
exercise a dispositive power. In that case, Lindsay J drew attention to the
difference between the question “whether the trustees’ proposals
were ones which they could properly be given general liberty to carry into
effect” and “the different question of how should the court, having
the trustees’ decision surrendered to it, exercise that power”. In
Hart J’s view that illustrated precisely the difference between Robert
Walker J’s second and third categories.
10 Public
Trustee v Cooper helpfully categorised the various types of cases where
trustees were likely to seek the court’s directions in exercise of a
jurisdiction which has existed for many years. Jersey’s trust statute,
the Trusts (Jersey) Law 1984, had of course recognised that jurisdiction in art
47 which stated, at art 47(1)—
“a
trustee may apply to the court for direction concerning the manner in which he
may or should act in connexion with any matter concerning the trust and the
court may make such order, if any, as it thinks fit.”
As a result of subsequent amendments to the 1984 Law,
art 47(1) is now to be found at art 51(1). Public Trustee v Cooper was decided on
20 December 1999 and was subsequently cited with approval by the Royal Courts
of both Jersey and Guernsey.
11 In the 2001 case of Abacus (CI) v Hirschfield, the
application by the trustees for directions came in the course of litigation
involving the trustees, charitable and family beneficiaries, over the
entitlements of a widow and her sons to the property of the deceased and their
entitlement under certain trusts. After hearing evidence for three days, the
court was informed that the family beneficiaries had reached a compromise which
requested the trustee to confer on the widow a life interest in the trust
assets, applying the trust capital for her benefit and making a loan to her out
of the trust fund. The trustee sought directions as to whether or not it should
enter into the agreement and, if so, the court’s sanction for the various
steps required of it. The trustee suggested that it would be appropriate to
surrender its discretion to the court rather than ask the court to bless a
decision given that the court was alone in a position to judge the possible
outcome of the litigation which had been before it, its consequent impact on
the trust and the appropriateness or otherwise of entering into the proposed
agreement. It suggested that the application was therefore in the third
category of cases referred to in Public
Trustee v Cooper. The court noted that in order to enable the court to
exercise its discretion it was incumbent on the trustee to put the court in
possession of all the material necessary to enable the discretion properly to
be exercised.
12 Following the Cooper decision in England, it was inevitable, given the size of
Jersey’s trust industry, that the courts’ jurisdiction to approve a
trustee’s proposed course of action was increasingly likely to be
invoked. A few months after the Hirschfield
decision, the Royal Court helpfully set out the matters that should be
considered by the court in such applications, in In re S Settlement,
namely (1) is it satisfied that the trustee has in fact formed the opinion in
good faith that the circumstances of the case render it is desirable and proper
to carry out each of the steps; (2) is it satisfied that the opinion which the
trustees have formed is one at which a reasonable trustee properly instructed
could have arrived; and (3) is it satisfied that the opinion at which the
trustee has arrived has not been vitiated by any actual or potential conflict
of interest which has, or might have, affected its decision? In subsequent
decisions, a fourth requirement is often expressed, namely whether the opinion
or decision reached is within the scope of their powers, which necessarily
follows if a case is to fall within the second category in Public Trustee v Cooper.
13 The English courts have emphasised the
importance of making full and frank disclosure. Thus in Tamlin v Edgar,
Morritt J made it clear that the trustees should put the court in possession of
all relevant facts and—
“they
must satisfy the court that they considered, and properly considered, their
proposals to be for the benefit of the advancees or appointees. All this
requires full and frank disclosure to the court of all relevant facts and
documents. The court is not a rubber stamp and parties and their advisers must
be astute not to appear to treat them as such.”
Although the courts have made clear that they are not
to be treated as a rubber stamp, they have also recognised that they must not
place too great a burden on trustees who apply to them. Thus in Cotton v Earl of Cardigan,
Vos LJ had this to say—
“the
court will not approve a trustee’s decision without a proper evidential
basis for doing so. But the court should equally not deprive a trustee of
approval without good reason . . . The court is not a rubber stamp
and must be cautious to ensure that it is satisfied that the trustees are
indeed justified in proceeding in accordance with their decision. But the court
should not place insurmountable hurdles in the way of trustees in the position
of those before this court. The court has a supervisory jurisdiction that needs
to be exercised in appropriate circumstances. Caution cuts both ways.”
14 The importance of providing full and
frank disclosure and summarising the arguments for and against a proposed
course of conduct was emphasised in In re
M Trust. The trustee had applied to
the Royal Court in July 2011 for directions in relation to matrimonial
proceedings before the Family Division of the English High Court. The parties
to the matrimonial proceedings were not members of the beneficial class, which included
the husband’s mother and father, and his children and remoter issue.
Following an application by the wife to join the trustee to the matrimonial
proceedings, the trustee sought the court’s approval (i) to continue to
disclose information about the trust assets to the husband’s father in
the knowledge that he was likely to disclose the information to the husband;
and (ii) not to submit to the jurisdiction of the Family Division and therefore
not take part in the matrimonial proceedings. The court approved the trustee’s
decisions. The adult beneficiaries of the trust then applied to intervene in
the divorce proceedings. As a condition for obtaining leave, they gave an
undertaking to the Family Division to produce within 24 hours if ordered to do
so all documents that they had received in connection with the trustee’s
application for directions. They applied to the Jersey court for leave to
produce the documents as they were concerned that if they were to use them
without leave of the Royal Court they might be in contempt of that court but
if, on the other hand, they failed to produce the documents they would be in
contempt of the English court. The trustee did not object to disclosure of the
documents that had been placed before the Royal Court at the previous
directions hearing save in respect of legally privileged material and material
that disclosed the purpose of the earlier hearing or that set out the trustee’s
decision-making process. The Royal Court noted that it was very common for
trustees in Jersey to seek the directions of the court and that such
applications were an important part of the courts’ supervisory
jurisdiction over trusts. Further, a trustee making such an application had to
make full and frank disclosure and summarise the arguments for and against a
proposed course of conduct. Such applications were invariably held in private
and it was of vital importance that if they were to serve the purpose for which
they were intended, information and documents received by the parties convened
to them should be held in confidence. If the trustee considered that the
documents disclosed in such applications might be provided to persons hostile
to the trust, it would be less likely to be candid and the underlying purpose
of the procedure would be liable to be frustrated. It would be a contempt of
court were a party to disclose documents that he had only received by virtue of
being a party to such an application. The Royal Court expressed the hope that
the Family Division would take note of its concerns at preserving the
confidentiality of such documents and invited the Family Division to consider
very carefully whether it needed to order the disclosure of the material in the
divorce proceedings. Accordingly the court refused to grant consent to disclosure
of the legal advice but in the unusual circumstances of the case (whereby the
applicants had given an undertaking to the Family Division) the Royal Court
gave leave to disclose all other material should the beneficiaries be requested
to do so even after the Family Division had heard arguments to the contrary.[10]
15 In cases coming before the Royal Courts
of Jersey and Guernsey for the blessing of momentous decisions, the courts
generally regard their function as merely reviewing the decision, unless of
course the trustee has surrendered its discretion to the court, for example in
cases of deadlock or conflict. However a Jersey case, U Ltd v B (a
case which concerned a beneficiary’s request for disclosure of
information) suggested that there may be a category of cases where the trustee
is not conflicted or deadlocked but the court nevertheless exercises its own
discretion, namely cases where the matter in issue is a core obligation of the
trustee such as disclosure of information to beneficiaries.
16 In 2014, in In re Y Trust
the Royal Court had the opportunity to re-examine the stance that it had taken
in U Ltd v B. The trustees in In re Y Trust had refused to disclose
trust information requested by a former beneficiary of a trust. In notifying
the claimant of their decision, they advised that they were prepared to take
the “prudent approach and seek the approval of the Royal Court of Jersey
of its decision”. They advised the claimant’s lawyers that if they
did not confirm within a stipulated period that they accepted the trustees’
position, the trustees would reserve their right to apply to the Royal Court
without further notice. Not receiving that confirmation, the trustees applied
to the Royal Court. In response to a request to fix a date for the hearing, the
claimant’s lawyers confirmed that the client was not pursuing the request
for disclosure any further at that stage nor were they requesting or insisting
on a judicial determination of the trustees’ right to decline the
disclosure request. Notwithstanding this communication, the court proceeded to
determine the trustees’ application, the only party appearing before the
court being the trustee, through its counsel. That the court proceeded with the
hearing is somewhat surprising, given that the request for disclosure was not
being actively pursued.
17 The court referred to the three
questions that it had to answer, as set out in In re S Settlement, and declared that it was satisfied in relation
to them, declaring that it would have made the same decision as the trustees if
exercising its own discretion. Whilst that might have been the end of the
matter, counsel for the trustees had drawn to the court’s attention case
law concerning the function of the court, which appeared to be somewhat
contradictory and in particular the decision in U Ltd v B. The court in U Ltd
v B had cited with approval a passage from Lewin on Trusts, 18th edn (2008), which, having noted that the
trustees had a discretion in deciding whether or not to disclose information
went on to say—
“But if the matter is taken to the
court, whether by a beneficiary whose application for disclosure has not been
met to his satisfaction, or by the trustees who may be well advised themselves
to take the initiative in seeking directions in some circumstances, the court
will exercise its own discretion. And the function of the trustees will be to
persuade the court not to intervene against their decision or to assist the
court in reaching a decision where the trustees make the application, the views
of the trustees being no more than a factor taken into account by the court in
determining the application.”
However in the Y
Trust case the court noted that the passage in Lewin cited in U Ltd v B
had subsequently been revised to express the view that if the issue of
disclosure to a beneficiary was taken to the court it would not exercise its
own discretion unless there was a surrender.
18 Lewin’s change of view was brought about by an
English High Court decision of Briggs J in Breakspear
v Ackland, a
case concerning disclosure of a letter of wishes. Briggs J noted that a request
by a beneficiary for disclosure of a letter of wishes merely triggers an
occasion upon which the trustees need to exercise their discretion to disclose
or not. In difficult cases they may seek directions from the court but will
need to think twice as to whether the difficulty of the question justifies the
expenditure. If the matter proceeds to court he suggested that there were four
different ways in which the matter might be presented: (i) a surrender by the
trustees of their discretion which, if accepted, would require the court to
exercise its own discretion; (ii) a request to the court to bless their
refusal; (iii) an application to the court made by a disappointed beneficiary, which
would involve a challenge to the trustees’ negative exercise of the
discretion to disclose; and (iv) an invocation by the beneficiary to the court
to exercise its original discretion as part of its jurisdiction in the
administration of trusts. Briggs J had held that where there is no surrender of
discretion and where the beneficiary is unable to invoke the original
jurisdiction of the court by demonstrating that an occasion has arisen which
calls for the interference of the court, then the court will proceed on the
basis of a blessing involving a review of the trustees’ decision, as
opposed to exercising its own discretion. He held that a refusal to disclose a
letter of wishes would not ordinarily justify intervention.
19 Counsel
in In re Y Trust suggested that the
approach of Briggs J in Breakspear
was the same as the test usually applied in approval hearings, namely, has the
power been properly exercised? He submitted that the approach in U Ltd v B, namely for the court to
exercise its own discretion, gives rise to difficulties and was inconsistent
with the approach in In re S Settlement
where, in the absence of something clearly having gone wrong, the court will
not impose its own decision in place of that of the trustee. However Clyde-Smith,
Commr in In re Y Trust, although
attracted by counsel’s argument stated that—
“in the case before
us the court was content to bless the trustee’s decision as requested
because it would have reached the same decision if exercising its own
discretion. On the face of it, the unopposed submissions on behalf of the
trustee as to the function of the court were attractive but having reflected on
them we think that there are substantive contrary arguments that could be put
on behalf of beneficiaries and we wish to leave expressly open the question of
whether this jurisdiction should follow the decision in Breakspear
. . . to a future case where full argument can be heard.”
20 The
court’s principal concern was that if Breakspear
were to be followed, then in an application by trustees to bless their decision
to refuse disclosure, the court’s role would be limited to one of review
according to In re S Settlement. The
court noted that—
“If it were to
withhold its blessing, then, unless the circumstances were such as to call for
the court’s intervention, the trustees’ decision to refuse
disclosure would still stand. If the disaffected beneficiary seeking to hold
the trustees to account applied to the court, then Breakspear contemplates
the trustees being able, on Londonderry . . . principles, to
withhold the reasons for their refusal from the beneficiaries and indeed the
court, unless the beneficiaries can impugn the fairness or honesty of the
trustees’ decision. This approach could arguably represent a material
dilution of the rights of beneficiaries to have the court enforce the trustees’
fundamental obligation to account.”
21 The
court suggested that a distinction could be drawn between decisions that
related to the discharge of a core obligation and decisions representing the
exercise of powers vested in the trustees by the trust deed or by law. It
suggested that in the former cases the court should, in any application for
disclosure before it, for the proper protection of beneficiaries, reserve to
itself the exercise of its own discretion.
22 However,
the court noted that as its observations had been made without the benefit of
full argument it was likely to continue to exercise its own discretion in
relation to matters relating to the discharge of core obligations.
23 In
2017, the Royal Court had an opportunity to review the competing arguments
rehearsed in In re Y Trust, in M v W Ltd.
In this case, the representor, a beneficiary of a trust governed by Jersey law,
sought disclosure of, inter alia,
copies of all trust instruments and the latest accounts of the trust together
with the most recent financial statements for all underlying companies owned by
the trust. The court noted the discussion in In re Y Trust of the competing contentions, namely between applying
the S Settlement test or exercising
its own discretion, which would inevitably involve reaching a conclusion on a
wider basis. It further noted that whilst the court in Y Trust expressed some doubt as to whether Breakspear was to be followed in Jersey, it did not decide the
matter. Unfortunately there was little appetite on the part of the parties in M v W Ltd to continue the debate. The
trustee did not suggest that the court should merely review the trustee’s
decision on S Settlement grounds,
instead submitting that the representation specifically engaged the court’s
supervisory jurisdiction which, it was argued, would require the court to
exercise its own discretion. Counsel for five of the beneficiaries who were
party to the proceedings did not address the issue in terms but did refer in
his skeleton argument to Y Trust. The
court therefore proceeded as requested and exercised its own discretion. It did
however add that—
“if
we had been called upon to make a decision on the competing arguments which are
set out in the Court’s judgment in the matter of the Y Trust, we would have proceeded on the basis that the right
approach was that the Court should exercise its own discretion rather than
adopt the approach set out in Re S.
The main reason for that conclusion is that there is no doubt on the
authorities that a beneficiary has the right to come to court and ask the Court
to direct the trustees to make disclosure. There will be cases therefore where
the Court is faced with an adjudication which is not necessarily
straightforward; where two reasonable people might reach different but equally
reasonable conclusions. It seems to us that it would be very undesirable if the
outcome to the substantive resolution of whether or not disclosure should be
made would be dependent on whether the trustee got in first with its representation
seeking endorsement of its decision not to disclose, or the beneficiary had
successfully anticipated such a course by bringing first his own application.
In our judgment, it is not a question that the Court is usurping the role of
the trustees in exercising its own discretion, but rather that it is exercising
its jurisdiction to adjudicate upon a matter on which the beneficiary as much
as the trustee is entitled is ask for assistance. This is also consistent with
the terms of Article 51 of the Law which contains no restrictions on the powers
of a court to make an order concerning the execution or the administration of
any trust. To the extent therefore that Breakspear
provides authority for the proposition that Re
S should be applied to any question of disclosure of documents to a
beneficiary by the trustee, our conclusion is that we would not be minded to
follow it.”
24 Thus far it would
seem, the Jersey courts are leaning towards a rejection of the Breakspear approach, effectively carving
out a category of cases where the momentous decision involves core obligations
such as provision of information to beneficiaries. In such circumstances the
court is likely to exercise its own discretion.
25 There is another category of cases
where the courts will exercise their own discretion and these are cases where
the directions are sought by trustees who are contemplating, or find themselves
on the receiving end of, litigation: the so-called Beddoe application, named after the 1892 case of In re Beddoe, Downs v Cottam.
It is clear that by 1892 the process of applying to the court for directions
was already well established, Lindley LJ stating—
“But,
considering the ease and comparatively small expense with which trustees can
obtain the opinion of a judge of the Chancery Division on the question whether
an action should be brought or defended at the expense of the trust estate, I
am of opinion that if a trustee brings or defends an action unsuccessfully and
without leave, it is for him to show that the costs so incurred were properly
incurred . . . If a trustee is doubtful as to the wisdom of
prosecuting or defending a lawsuit, he is provided by the law with an
inexpensive method of solving his doubts in the interest of the trust. He has
only to take out an originating summons, state the points under discussion, and
ask the court whether the point is one which should be fought out or abandoned.”
26 Although the Beddoe
jurisdiction appears to be an aspect of the court’s supervisory
jurisdiction, it considerably pre-dates the Public
Trustee v Cooper line of cases and as such the approach of the court has
become well established. In In re F
Charitable Trust,
a Beddoe application was made in the
Royal Court in relation to a purely charitable trust in respect of the recovery
of a substantial debt. Counsel submitted that on the basis of Public Trustee v Cooper, approved in
Jersey in In re S Settlement, the
question for the court was whether it was appropriate to bless the action of
the trustees in circumstances where there was no real doubt as to the nature of
the power but the decision was particularly momentous. It was suggested that
the court’s role was a limited one; all that the court had to do was to
satisfy itself that the proposed exercise of the power was lawful and that it
did not infringe the duty to act as ordinary, reasonable and prudent trustees
might act. If the trustees could properly form the view that the proposed
transaction was for the benefit of the beneficiaries and they had in fact
formed that view, the court should not interfere because it was only concerned
with the limits of rationality and honesty. The court however disagreed,
stating that—
“[W]e think the
position, established in practice and by the cases, is slightly more nuanced
than is contended by [counsel]. In our view, it is right to have regard to the
substratum of the decision which the trustee seeks to have blessed. Frequently
this will be a decision where the court would not normally claim to have any
more expertise than the trustee, and indeed very possibly less
. . .
13 Where the substratum of the decision is the question
of litigation, however, it appears to us that the court is not in quite the
same position. One thing that can firmly be said about litigation is that it is
something with which the court is familiar, probably in most cases more
familiar than the trustee. Where the trustee therefore seeks to have a decision
to litigate blessed by the court, it should expect the court to exercise a more
direct, inquisitorial role, and be ready to form its own judgment as to whether
it is sensible for the trust estate to be put at risk by the litigation in
question.”
It is
perhaps curious that the basis of the court’s approach appears to be
predicated on whether it feels that it knows more about the subject matter than
the trustee.
27 A
decision of the Supreme Court of Bermuda, Trustee
L v Att Gen
suggests that the origin of the Beddoe
jurisdiction lay in Order LXV, r 1 of the Rules of the Supreme Court 1883.
This provided that the award of costs of proceedings in the Supreme Court lay
in the discretion of the court or judge, it being provided that—
“nothing herein contained shall
deprive an executor, administrator, trustee or mortgagee who has not
unreasonably instituted or carried on or resisted any proceedings of any right
to costs out of a particular estate or fund to which he would entitled
according to the rules hitherto acted upon in the Chancery Division . . .”
Lindley
LJ in Beddoe drew a distinction
between the jurisdiction to award costs and the jurisdiction of the court in
separate proceedings to grant an indemnity to a trustee out of a fund, the
latter being a jurisdiction to allow charges and expenses. Thus when a modern
day Beddoe application is made, the
court is considering whether the trustee’s proposed course of action is
reasonable. On this basis it is unsurprising that it is exercises its own
discretion rather than applying the more limited S Settlement tests. This would appear to be a more appropriate
rationale for the approach adopted in In
re F Charitable Trust than that suggested
by the court.
28 It
may seem obvious, but for the court to be able to bless a decision there needs
to be a decision to bless. In this connection, a case which highlights what not
to do when trustees seek the court’s blessing is the 2014 Royal Court of
Guernsey decision in In re AAA Children’s
Trust. The trustees were seeking
the court’s blessing of their decision to sell a family property which
formed a substantial part of the trust assets. The deceased settlor had
described the property in his memorandum of wishes as “the finest jewel
in the jewel box” and therefore he did not wish it to be sold other than
in exceptional circumstances “and then at an appropriately extraordinary
price such that the news will reach him even in heaven”. The difficulty
that the court found was whether or not a decision had actually been taken. At
the time the property was marketed, no decision had been taken to sell it. No
minute was produced to show when or for what reasons the property was marketed.
Although the court was satisfied that the trustees had the power under the
trust instrument to make the momentous decision, Collas, Bailiff stated that
“the
real issue is whether the Trustees have taken into account all relevant
matters, that they have taken into account no irrelevant matters and that they
have not reached a decision that no reasonable body of trustees could have
reached.”
However, in the Bailiff’s words—”it
is impossible to pinpoint a meeting of the Trustees at which the momentous
decision the Court is asked to bless was taken”. Instead it appears to
have been a
“rolling
decision taken over a long period of time, discussed in telephone conversations
. . . of which no file notes were created, or if they were recorded,
they were not disclosed. It was also considered [according to the applicant’s
counsel] in a multitude of emails exchanged between them which, again, were not
produced.”
The court’s view was that—
“such
a failure of disclosure is unforgivable, especially when the [Respondents’]
counsel had pressed the Applicant’s advocates on numerous occasions to
ask whether there had been full disclosure.”
29 The court agreed with counsel for the
minor and unborn beneficiaries that—
“it
is surprising that professional trust administrators (who are charging
substantial fees for their services) did not prepare a dossier of relevant
information for consideration by the Trustees at a meeting convened for the
purpose of considering this momentous decision and that they did not convene
such a meeting.”
The court noted that, had they done so, it would have
known what matters were considered and, assuming that they produced a thorough
and comprehensive minute of their deliberations, it would have been possible to
review the decision for the purpose of assessing its propriety. The court
concluded that in the circumstances it was impossible for it to say that the
proposed transaction should be blessed by the court. On the other hand, they
could not conclude that the decision was one that no reasonable trustee could
properly take. Its only option was therefore to decline to bless the
transaction.
30 It would appear that Guernsey trustees
took heed of the Bailiff’s criticism in AAA Children’s Trust of the poor decision-making process of
the trustee as in a case decided in April 2016 (A v R)
the court said of the trustees—
“the
documentation shows them acting responsibly and rationally throughout, with
decisions properly recorded and reasoned. Not only is their application
meritorious, but a responsible trustee could not properly have acted otherwise
on the facts available to them.”
31 As a result of the Bailiff’s reference to the
need for a “dossier” in the AAA
Children’s Trust experience suggests that it is now usual for
Guernsey legal advisers to recommend that one is prepared, which is no doubt
sound advice. However the approach of Jersey advisers, and indeed of the Jersey
courts, is less prescriptive. In In re
Poon, the Jersey Court of Appeal was
considering an appeal against the Royal Court’s decision to bless a
momentous decision by trustees to make a substantial distribution to a
beneficiary in order to enable him to make a lump sum payment to his wife (she
was also a beneficiary) in Hong Kong divorce proceedings and then to exclude
the wife as a beneficiary. On appeal the court approved the three-limb test set
out in S Settlement, namely that the
court must be satisfied (i) that the trustees’ decision has been formed
in good faith; (ii) that the decision is one which a reasonable trustee
properly instructed could have reached; and (iii) that the decision has not
been vitiated by any actual or potential conflict of interest, all of which was
consistent with the approach of the English courts following Public Trustee v Cooper. However, the
wife submitted that the English courts had developed an additional requirement,
namely that the trustee must also prove that it has given proper consideration
to the matter under scrutiny, setting out in detail the steps taken by the
trustee and the considerations which informed the trustees’ decision. In
rejecting the analysis of English case law, and hence the suggested fourth
requirement, the Court of Appeal said—
“it
is both unnecessary and undesirable to introduce a separate requirement for a
trustee to prove in all cases precisely what it has done in giving
consideration to the matter under scrutiny: a decision-maker can consider
matters carefully and still reach an irrational decision, and conversely an
entirely rational decision can be reached on the basis of superficial thought
processes.”
The
court pointed out that in some cases the decision may be a difficult and
doubtful one, in which case the quality of the decision-making process may be
more important than in cases where the decision is obvious.
32 In
the majority of cases coming before the courts the fact that a decision is
momentous is likely to be self-evident. However that is not to say that the
necessity for the application will not be questioned. In 2018 the Royal Court
of Jersey had occasion to hear a contested application in which both the need
for an application and the decision reached were subject to scrutiny.
The facts of the case were relatively straightforward. The trust in question
was discretionary in nature, the named beneficiaries being the settlor’s
widow and her three children. The only material asset of the trust was a Jersey
company which owned a property in London. The property had been used by the
beneficiaries and their families when visiting London but was falling into
disrepair and the trustee had no other assets from which to pay either for its
upkeep or for other trust expenses (including their fees). In 2016 the trustee
had suggested to the beneficiaries that the property should be sold. Whilst the
elder son agreed, the younger son and his sister wished the property to be
retained with a view to the two younger siblings purchasing the property from
the trustees. Various discussions as to the future of the property continued
over a period of time but did not produce a solution and the trustee therefore
applied to the Royal Court to bless its proposal to sell the property at the
best price that could reasonably be achieved and, following such sale to wind
up the company, the proceeds being applied by the trustee to paying various
costs and expenses with the balance being distributed to the beneficiaries. The
elder son, whilst supporting the proposal to sell the property, did not support
the application. He suggested that given the insolvency of the trust the sale of
the property was an obvious course to take and that a blessing of the decision
would prevent the beneficiaries bringing a breach of trust claim in respect of
the trustee’s inaction in resolving the matter. The remaining siblings
suggested an alternative solution, namely a change of trustee and the securing
of finance to put it into a state where it could be let to produce an income,
which in turn would service the relevant borrowing.
33 In relation to the question as to whether
this was a momentous decision the court was clear that it was, given that it
would result in the sale of the sole asset of the trust, the termination of the
trust and distribution of the entire fund . As for whether an application to
the court was appropriate the court noted, quoting from a passage in Lewin on Trusts that—
“contention amongst the beneficiaries may well turn
a decision which should otherwise be taken by the trustees without recourse to
the court into a ‘momentous’ one where it is reasonable to seek the
court’s approval.”
34 In relation to the argument that the
blessing of the decision would prevent claims by the beneficiaries for breach
of trust the court pointed out that all that is blessed is the decision
itself. Thus whilst no allegation of
breach of trust could be made on the basis that the property should not have
been sold, the blessing of the decision would not affect arguments that the
property should have been sold earlier. However, whilst rejecting the elder son’s
arguments, the court decided not to bless the decision, for a number of
reasons. The first reason was that the trustee had failed to address its
obvious conflict of interest. It had outstanding fees of £120,000 and the
sale of the property was the most obvious way in which it would be able to recover
those fees. The court recognised that the existence of a conflict did not of
itself mean that trustees may not take a decision or that the court would not
bless it. The court relied on an observation of Hart J in Public Trustee v. Cooper, cited with approval by Commissioner
Clyde-Smith in Representation of Centre, where Hart J referred to
three possible ways in which a conflict could be successfully managed, namely
i) resigning ii) surrendering their discretion to the court or iii) taking the
decision following an application to the court where any opposing beneficial
interests could be properly represented. The Royal Court, in the H Trust case, was of the view that the
application before it fell within the third category. However it noted that
neither the representation of the trustee nor the supporting affidavit made any
mention of the conflict albeit that both documents disclosed the outstanding
fees. The court stressed that—
“what is important is that the trustee should be
seen, when making its decision, to have been aware of its conflict of interest,
to have taken it into account and to have considered clearly why, despite the
conflict, it is nevertheless in the interests of the trust estate/beneficiaries
to reach the relevant decision.”
The further reasons for refusing the application were
the trustee’s’ failure to take tax advice on the tax consequences
of its decision and its failure to explore the proposals of the younger
siblings to obtain financing for the renovation of the property. The court
noted that the fact that the court had withheld its approval did not mean that
the trustee could not proceed with the sale. Instead, it meant that if it
decided to proceed, it would not have a court order to protect it from any
allegation of breach of trust in respect of the sale.
35 In a subsequent judgment the court
determined liability for the costs of the abortive application in In re H Trust. Given the decision of the
court not to bless the trustee’s decision, the elder son sought to argue
that the trustee should be ordered to bear its own costs in relation to the
application. The court noted that a trustee is ordinarily entitled to an
indemnity out of the trust fund unless he has been guilty of misconduct (i.e. he has behaved unreasonably). The
court had given three reasons for withholding its blessing of the decision to
sell, namely the failure to obtain relevant tax advice, the need to give the
siblings further time to bring forward proposals for buying out the elder son,
and the failure to deal properly with the conflict of interest. In relation to
the first two reasons the court did not regard them as reaching the “high
threshold” to deprive a trustee of its costs. However in relation to the
third, namely the conflict of interest, whilst the trustee had not sought to
hide it, its failure to deal properly with the conflict was unreasonable. Given
that it was only part of the picture, the court regarded it as fair and just to
deprive the trustee of 50% of its costs rather than the full amount.
36 Although the court’s’
supervisory jurisdiction over trusts is long established, the Royal Court of
Jersey has found itself able to exercise a similar jurisdiction to bless
momentous decisions by the council of a Jersey foundation. In In re A Ltd, the qualified member of a Jersey
foundation applied for directions under art 46 of the Foundations (Jersey) Law
2009. The qualified member sought directions that the foundation should adopt a
neutral stance in proceedings brought in Jersey by a Cypriot company whereby it
sought to recover from the foundation, inter
alia, sums that had been transferred to it by a judgment debtor of the
company. The Royal Court noted that a Jersey foundation was a statutory entity
and that the 2009 Law was the only source of law providing for the formation
and governance of foundations, equity having no role to play. The court further
noted that under art 46(1) of the 2009 Law the court could give directions if
satisfied that to do so would assist the foundation to administer its assets or
carry out its objectives or that it was otherwise desirable to do so. The court
found that the provisions of Part 5 of the 2009 Law which included art 46(1)
were intended to give the court a supervisory jurisdiction in relation to
foundations and that whilst analogies could be drawn with trust law principles
they were important but not exact. The court likened the art 46(1) jurisdiction
to the courts’ general supervisory jurisdiction in relation to trusts to—
“assist
in the interpretation of trusts and to bless (or not) momentous decisions the
trustee wishes to take and to take decisions where a trustee surrenders its
discretion to the court as analysed in Public
Trustee v Cooper . . . and as applied in In re S Settlement . . .”
The court was not however able to find that a
decision to adopt a neutral stance, which they were asking the court to bless,
had actually been made by the council. Rather, the qualified member had
proposed that the stance should be accepted by the foundation. Nevertheless the
court felt able to direct the qualified member to use its reasonable endeavours
as a council member to procure that the foundation adopt a neutral role in the
Jersey proceedings.
37 The
jurisdiction that enables the court to bless momentous decisions is a useful
one. From the point of view of the trustees it can provide protection from
beneficiaries who disagree with the decision. From the point of view of the
beneficiaries it may overcome the inertia that can sometimes arise when a
trustee is faced with a difficult or significant decision. There is however a
cost to the trust in making an application. Long gone are the days when, to use
the words of Lindley LJ in In re Beddoe,
the trustee is “provided by the law with an inexpensive method of solving
his doubts in the interest of the trust”.
38 In
a decision of the English Court of Appeal in respect of an appeal from a
decision on a Beddoe application in
2011 (Howell v Lees-Millais),
Lord Neuburger referred to the judgments of Lindley LJ and Bowen LJ in Beddoe and continued—
“the possibility that an application of that
type would involve over 12 days of court time, which require more than 3000
pages of evidence, would take some five years (or more than 18 months if one
ignores the costs issues) to resolve, and would incur the parties in costs
exceeding the equivalent of £1million in present day value, would have
seemed inconceivable to these two experienced judges. This should never happen
again.”
39 Fortunately
the Jersey and Guernsey courts have not thus far been faced with blessing
applications where the costs are as disproportionate to the gravity of the
decision. To some extent the matter is self-regulating: professional trustees
are conscious of the fact that ultimately they are paid to take decisions and
that they would be likely to lose the confidence of beneficiaries if they were
to run to court each time they were faced with a decision. In addition the
trustee’s’ legal advisers are likely to point out that a trustee
who makes a needless application is likely to face criticism by the court and
whilst judgments in such applications are usually anonymised the court may
decide to identify the trustees.
40 Although the case that gave its name to these
applications, Public Trustee v Cooper,
was a decision of the English High Court, the courts of the Crown Dependencies
and Overseas Territories have made a significant contribution to the
development of the jurisdiction to bless momentous decisions.
41 And
what of the Bishop of Durham? The Bishop’s legal skirmish was but one
event in a life of charitable endeavours. As a great friend of William
Wilberforce, he was a supporter of Wilberforce’s campaign to abolish the
slave trade and he and Wilberforce set up just under 50 charities together. At
the conclusion of the litigation, the residue of the testatrix’s estate
went to her heirs at law rather than charitable causes chosen by the Bishop of
Durham. However in the scheme of the Bishop’s charitable work it was but
a minor set-back, unwittingly enshrining his name in legal history in addition
to his reputation in the world of philanthropy.
Alan Binnington is a Jersey advocate and a private
client director with RBC Wealth Management.