How and when a proprietary estoppel might arise in relation to a trust

 In Comment

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Fielden v Christie-Miller & others [2015] EWHC 87 (Ch)

Ongoing litigation between discretionary beneficiaries under, and the trustees of,  two separate trusts has given rise to consideration of significant issues concerning how and when a proprietary estoppel might arise in relation to a trust. This hearing deals first with the  ‘unanimity principle’: if, how and when one trustee, acting alone, might bind his fellow trustees. The ‘non-fettering principle’ is then addressed: is it always a complete defence to the creation of an estoppel relating to actions taken or representations made by one or more trustees? Case Summary from LawSkills | Private Client specialist trainers

The facts

The two separate trusts to which these proceedings relate are as follows:

  1. The first is a settlement created by Charles Wakefield Christie-Miller in 1967 of land and other assets at Swyncombe in Oxfordshire (the ‘Settlement Fund’), held on discretionary trusts for a class of beneficiaries including Stephen Christie-Miller (‘Stephen’) and Samuel Fielden (‘Sam’). One of the assets of the Settlement Fund is Home Farmhouse, which has been occupied by Stephen and his family since Easter 1996. In January 2005 the trustees resolved to grant Sam a life interest in the Settlement Fund. At the same time they resolved to grant Stephen an assured tenancy of Home Farmhouse. It was to be on a full repairing basis and at a market rent, but with the amount of rent payable taking into account Stephen’s contribution to certain renovation costs. The trustees have since executed deeds of appointment conferring on Sam interests in part of the Settlement Fund, but have made no appointment of Home Farmhouse.
  2. The second is a will trust containing other adjoining land at Swyncombe and established on the death of William John Christie-Miller (‘John’) in 1999 (the ‘Will Fund’). John conferred a life interest in the Will Fund to his wife. Following her death in December 2004, Stephen has been entitled to an interest in possession of the Will Fund, subject to any appointment made by the trustees. By a deed of appointment made on 20 March 2007 (the’2007 Deed’) the trustees of the Will Fund purported to exercise the power of appointment such that, subject to the trusts declared by the will in favour of Stephen, they should henceforth hold the Will Fund and its income for Sam absolutely.

The proceedings

Disputes arose over the meaning and effect of the 2007 Deed, culminating in Sam issuing proceedings against Stephen and former and current trustees of the Will Fund. He sought (and still seeks) declaratory relief concerning the true construction of the 2007 Deed. Stephen has defended the claims made using various legal arguments, the significant one for the purposes of this hearing being a counterclaim founded on his assertion that a proprietary estoppel had been created, giving him a greater interest than that given to him under the settlements. The counterclaim pleaded (as the judge held) promises made by only one of the trustees, and Stephen sought to argue that the promise of one bound all. The trustees of the Settlement Fund contended that the pleaded case for estoppel was defective and must fail, two applications being made on this basis: first, the estoppel counterclaim (technically a Part 20 claim) should be struck out; and secondly, the court should therefore order summary judgment against Stephen on this point. The judge’s decision on these two preliminary matters contains an analysis the two issues raised concerning the application of proprietary estoppel to trusts and trustees.

Proprietary estoppel

There was no dispute over the essential ingredients of proprietary estoppel, and Sir William Blackburne cited in his judgment the case of Thorner v Major [2009]1 WLR 776:

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“…most scholars agree that the doctrine is based on three main elements, although they express them in slightly different terms: a representation or assurance made to the claimant; reliance on it by the claimant; and detriment to the claimant in consequence of his [reasonable] reliance.”

Bearing in mind those essential ingredients of proprietary estoppel, the judge examined the two challenges to Stephen’s claim that an estoppel had been created in this case.

The unanimity principle

There was, again, no dispute over the meaning of the unanimity principle. The judge referred to it being ‘conveniently set out’ in Lewin on Trusts, 19th edition in chapter 29, which states:

“The office of co-trustees of a private trust is a joint one. Where the administration of the trust is vested in co-trustees, they all form as it were but one collective trustee and therefore must execute the duties of the office in their joint capacity. Sometimes one of several trustees is spoken of as the acting trustee, but no such distinction is known to the law: all who accept the office are expected to act. If anyone refuses or is unfit to act, it is not competent for the others to proceed without him…”

The question in this case was how this principle operated where the estoppel is alleged to arise as a consequence of representations made by just one of several trustees. Stephen’s counsel submitted that representations or assurances made by one trustee will bind the others if it was reasonable in the circumstances for the person to whom they were made to rely upon them in the belief they were made by or on behalf of all of them. Sir William was unable to agree with this submission: “Elementary fairness requires that before a person can be bound by the acts of another purporting to act in his behalf, that other must have his authority to bind him in the matter. Whether he has will depend on the usual principles of agency. This applies, in my judgment, as much in the field of estoppel as it does in other contexts.”

The judge continued by concluding that for the claim of estoppel to succeed, it would be necessary for the pleading to set out, in respect of each trustee at the time of the representation which is said to ground the estoppel, what facts and matters are relied upon for saying that he was bound by the representation in question. It was not sufficient to argue that the trustee who had made the representations on which Stephen sought to rely (assuming for the moment that he had made them) would be unlikely to have made them unless he had the authority of his co-trustees. The pleaded claim should set out how he had the authority of his co-trustees.

The non-fettering principle

As with the unanimity principle the existence of the non-fettering principle was not in dispute. Lewin on Trusts, 19th edition, ch.29 again provided a useful statement of the law:

“When the power is fiduciary, the donee must exercise his judgment according to the circumstances as they exist at the time: he cannot anticipate the arrival of the proper time by affecting to release it or not to exercise it or by pledging himself beforehand as to the mode in which the power shall be exercised in the future is ineffective. Any form of undertaking as to the way in which the power will be exercised in future is ineffective.”

The question at hand was whether the non-fettering principle operated as a complete defence to a plea of estoppel founded on a representation by trustees that they would exercise their discretion in a particular way at some future date. Counsel for the trustees submitted that if a contract entered into by trustees with a potential beneficiary as to the future exercise by them of their discretion is void and unenforceable, the position cannot be any different if the beneficiary, instead of seeking to enforce a contract, raises a claim to estoppel. The non-fettering principle, he argued, prevents an estoppel from arising by preventing any assurance that may be made from being even capable of having a binding effect.

The judge did not agree with these submissions, as it left a person who in all good faith had conducted his affairs, for example by making personal or financial sacrifices, on the faith of a representation that he would one day inherit or acquire some interest, with no remedy simply because the person with whom he has dealt are trustees of that land. “This strikes me as unfair, not least when the claimant might have no idea, and no means of knowing, that the persons he has dealt with are trustees…” He therefore concluded that the non-fettering principle did not operate to defeat Stephen’s claim if the ingredients of the estoppel which he asserted were otherwise established. The effect of allowing an estoppel would not be (or need not be) to compel the trustees to exercise their power in some given way in future; it merely disabled them from exercising their power in respect of the asset in question and then only to the extent that the court had declared that the asset was to be applied in satisfaction of the equity which had been established.

Points to note

  • Practitioners should be aware of the potential problems which can arise where one of several trustees takes the lead in normal working arrangements relating to a trust. The trustees will need to understand that the ‘lead’ trustee will not bind his fellow trustees unless he is given specific authority by them (or, of course, by the terms of the trust) to do so. Sir William’s analysis of the unanimity principle makes it clear that if a claim against trustees for proprietary estoppel is to succeed it will neither be sufficient for the claimant to believe that the representor had authority, nor that the representor had the appearance of authority. One trustee can only bind the others if he acts with actual authority.
  • In this case the trustees of the Settlement Fund had passed resolutions, of which the beneficiaries were aware, but had failed to put all of them into effect. Practitioners might be in a position to mitigate against misunderstandings and disputes by encouraging trustees to act consistently, in a timely manner, and to communicate clearly with each other and third parties.
  • The litigation in this case is long and hard fought. There have already been three hearings, this being the first. The second hearing considered Stephen’s amended counterclaim and did not accept it in its present form. He was, however, given a further opportunity to amend the counterclaim. A third hearing arose after disclosure brought new documents to light that, it was argued on Stephen’s behalf, gave rise to a new cause of action which is not relevant to the principles which had been considered in this first hearing. The trial of the claim and counterclaim which have been under discussion is due to take place this year. Watch this space…

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