Trusts – wording of trust deed and how it can affect decision-making

 In Trusts

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South Downs Trustees Ltd v GH [2018] EWHC 1064

This case concerned the decision making capability of a set of trustees given the wording of their trust deed.

Case Summary from LawSkills | Private Client specialist trainersAn anonymous utility company created an Employee Benefit Trust (EBT) – a discretionary trust – the object of which was to encourage or facilitate the holding of shares in the utility company for the benefit of the employees. The EBT held 73% of the shares in the Holding Company of the group which controls the utility company. The trustees of the EBT entered into a sale & purchase agreement in respect of the shareholding subject to obtaining court approval.

Variation of powers – s.57 Trustee Act 1925 – The terms of the EBT trust required the trustees to exercise their discretion after consulting the Advisory Committee and taking into account some Guidelines for Benefits. This approach was intended to ensure proper consideration would be given to past and current employees.

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The Trust deed contained restrictions preventing the EBT from disposing of the entire share holding. The Court is not there to re-write the trust deed but to consider that which its creator could not have foreseen.

S.57(1) Trustee Act 1925 says:

“Where in the management or administration of any property vested in trustees, any sale….or other disposition… or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any or by law, the court may by order confer upon the trustees … the necessary power for the purpose on such terms and subject to such provisions and conditions, if any, as the court may think fit…”

The court needs to be satisfied on three matters before making an order under s.57:

  • There is no power to carry out the transaction which the trustees wish to carry out under the trust deed (or provisions governing the trust)
  • It is expedient that the trustees should be able to enter into the relevant transaction
  • The Court should consider the exercise of its discretion in order to confer the power on the trustees

The court decided on the evidence that it was expedient to grant the trustees the power they needed to effect the transaction.

In the Public Trustee v Cooper [2001] WTLR 901 a procedure was set down for obtaining court approval to a proposed transaction in advance, where what was proposed was momentous, as a means of protecting the trustees.

The trustees of the EBT had decided to sell its shares but given it is selling all its shares and would be eventually wound up the trustees seek the court’s approval. There were two elements to consider:

  • Is the decision to sell the assets of the EBT a reasonable one?
  • Is the manner in which the proceeds of sale are to be distributed reasonable?

The evidence showed that the trustees had made the decision to sell in a structured and logical manner taking into account more than just the monetary considerations. As to the distributions, again a logical approach had been adopted. In both cases the decisions taken were reasonable.

However, there must have been proper advice and no conflict of interest in reaching their decisions – whilst there was some criticism of the same firm of solicitors acting for all the parties (Macfarlanes) in this case the Judge was satisfied that each relevant group of defendants was properly represented by different members of counsel who had provided advice and evidence to the court of the their ‘client’s’ interests whilst consenting to what was proposed. The Judge decided that this was sufficient in this case but it might be better in other cases to have different law firms represent the different client interests.

Practice points

  • Whilst we may not deal with cases affected by millions of pounds of consideration every day we do act in cases where the trust deeds are wanting and powers may not be implied if excluded or omitted expressly
  • In the modern world it is not surprising that the trust drafter could not envisage every eventuality and so it is helpful to be reminded of the usefulness of s.57 Trustee Act 1925
  • In the ever more litigious world trustees operate in it is also useful to adopt the recognised procedure in Public Trustees v Cooper to seek judicial approval of the trustees’ decision in significant cases to protect the trustees from unwelcome later litigation when implementing their decisions
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