Melody Munro reviews a case that exposes the delicate balance trustees have to maintain between beneficiaries’ wishes and what is best for the trust.
The claim in Brown v New Quadrant Trust Corp Ltd  started life as an injunction to stop the sale of a trust asset, on the basis it would be in breach of trust, and ended in the court blessing the trustee’s decision to proceed with the sale.
At the heart of the case lies the familiar disagreement between beneficiary and trustee about the way a trust should be managed. This is a common tension within many trusts: trustees must manage the trust for the benefit of beneficiaries but, often, their views and the differing views of the various beneficiaries will not be aligned. In these circumstances, trustees are left in a difficult position – do they take the “easy road” and simply comply with the demands of the beneficiary that shouts the loudest or do they persevere with their own decision in the confidence that it is what is best for the trust. Either way leaves them exposed to a claim.
In this case, the New Quadrant Trust Corp (the trustee) chose the latter route and had its decision to sell one of the trust’s assets, Lifetime Home Securities (LHS), blessed by the court. This blessing took place in the face of a claim by the main beneficiary, Mark Brown, for the trustee’s removal, for breach of trust and for an injunction stopping the trustee from dealing with the LHS shares.
This article will set out a reminder of the court’s power to bless trustee decisions and then explore the unusual circumstances in which it decided to do so in this instance.
The "Public Trustee v Cooper jurisdiction"
It has long been the case that the court can “bless” a decision taken by a trustee or otherwise adjudicate on their actions.
In Public Trustee v Cooper , Hart J cited with approval an earlier unreported judgement of Robert Walker J setting out four categories of case where the court may be asked to adjudicate on a course of action proposed or taken by trustees. These are:
- Where the issue is one of construction and the court is asked whether some proposed action is within the trustees’ powers.
- Where the issue is whether the proposed course of action is a proper exercise of the trustees’ powers. In this instance, there is no real doubt as to the nature of the trustees’ powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers.
- Where the trustees surrender their discretion and ask the court to make a decision on their behalf. The court will only accept a surrender of discretion for a good reason, for example the trustees are deadlocked or cannot make a decision due to a conflict of interests.
- Where the trustees have actually taken action, and that action is attacked as being either outside their powers or an improper exercise of their powers. Cases of that sort are hostile litigation.
The “blessing” cases fall within the second category. The requirement that the decision is “momentous” indicates that trustees should not rush to court over routine matters. Trustees have, after all, been put in post to manage the trust assets and should be empowered, and required, to do that job. The court should be a last resort in exceptional cases, not a substitute for routine decision making.
Because of the principle that trustees should be empowered to manage the trust, the court takes a light-touch approach when considering the trustee’s decisions. It is, quite rightly, not for the court to impose its own view of the merits of a decision but rather to consider whether the trustee’s decision is one which a reasonable trustee could properly have reached.
The court will therefore need to be satisfied that:
- The trustee has in fact formed the opinion that it should act in the way for which the court’s blessing is sought and considers its proposals to be in the interests of the trust and the beneficiaries;
- The opinion of the trustee is one which a reasonable body of trustees properly instructed could properly have arrived at – this involves considering if the trustee has properly taken into account relevant matters and not taken into account irrelevant matters, and then, given those factors, considering if the decision is one which a rational trustee could have come to; and
- The trustee’s opinion is not vitiated by any conflict of interest.
The reasonableness of the trustee’s decision is to be judged by reference to the facts as they stand when the matter comes to court rather than at an earlier point in the decision making. This is an important point to remember as there can often be a delay between the provisional decision and the hearing. For trustees, this means ensuring they stay appraised of the situation and may require the filing of supplementary evidence updating their reasons or even confirming, given any new facts, that they have considered them and their view remains the same. For beneficiaries looking to oppose an application, this delay between decision and point of assessment means a possible line of attack is drawing the court’s attention to new factors that should affect decision making but which the trustee has not shown it has considered or which undermine the trustee’s decision.
The result of the court blessing a decision is that beneficiaries cannot complain about the decision in the future or allege it is somehow a breach of trust. As a result, an important part of the trustee’s application is that full and frank disclosure of all relevant facts and documents is given to the court.
However, it is important to remember that blessing applications are generally treated in a non-contentious manner. It is the trustee that decides that material is relevant and needs to be disclosed. This is unlikely to result in the same volume and breadth of material being provided as would be if the trustee were under the general duty of standard disclosure in contentious proceedings. Generally, cross-examination is also not ordered and so the trustee’s evidence will stand untested. For the most part, blessing applications come to court after a great deal of discussion with the beneficiaries, and usually with their approval, but when decisions are not agreed the application can leave dissatisfied beneficiaries facing an unfavourable outcome without having had the trustee interrogated as much as they may have hoped.
The trustee’s decision in Brown
When appointed in 2019, the trustee took over a trust which held shares in LHS. LHS traded in home equity release mortgages and had been set up by David Brown, whose will created the trust. The intention of the trust’s original trustees had been that LHS would remain within the trust, with the residual properties gradually falling into its hands until no further properties remained, at which point LHS would be dissolved.
However, LHS was not a perfect investment. It was FCA-regulated and there was a risk of claims by LHS’s clients as a result of a recent investigation by the FCA into home equity release arrangements. It also had ageing directors (at the time of the hearing, the remaining director was 92) who were hoping to retire and would need to be replaced by someone else FCA-approved.
In July 2020, one of LHS’s directors wrote to the trustee advising them to sell the business as a going concern. The trustee therefore started exploring a sale of LHS.
As part of this process, the trustee took advice as to the marketing and valuation of LHS (including on the timing of a sale) and the relative tax benefits of maintaining it within the structure or selling it as a going concern. The trustee also took into account the need to diversify the trust fund (LHS amounted to 25 per cent of the overall portfolio) and the fact that LHS did not generate income in a conventional sense.
However, Mark was opposed to the sale – his view was that there was more to gain in the long term from keeping the shares and, in addition, was attached to it as his father had set it up.
Despite this, and balancing the relevant factors, the trustee took the decision to sell LHS and started looking for a buyer. In November 2020, the trustee was close to agreeing a sale at £1.285m but this fell through. In December 2020, they had offers for both £1.1m and £1.2m and decided to proceed with the higher offer.
Given Mark’s attachment to LHS, in 2020 the trustee had also offered to sell LHS to Mark. Mark did not respond to this offer (although at the time of the hearing he had confirmed in response to another offer to buy LHS that he did not have the funds to do so). Instead, Mark requested an undertaking that the trustee would not commit to a sale of LHS without giving him 14 days’ notice. The trustee refused to give the undertaking and this ultimately led to Mark commencing the proceedings.
Injunction vs blessing
Mark sought an injunction preventing the trustee from selling or otherwise dealing with the LHS shares until the conclusion of his proceedings. The basis on which he sought this was that the sale of the LHS shares would be a breach of trust which could not be adequately compensated with damages. His substantive proceedings went on to allege other breaches of trust and sought the replacement of the trustee with ‘fit and proper persons’.
In response, the trustee denied any breaches of trust and filed a counterclaim that the court bless its decision to sell the LHS shares. The trustee argued that the injunction and the counterclaim, ie the blessing, should be heard together.
To understand if that was appropriate, it is necessary to understand the test for injunctive relief. The court applied the principles relating to injunctive relief established in American Cyanamid Co (No 1) v Ethicon Ltd , which sets out a two-stage test:
- First, the court looks at whether there is a serious issue to be tried on the merits. This is typically considered as a relatively low bar: the court must consider whether there is any issue for which there is some supporting material and an outcome which is uncertain. It is also often described as similar to the standard of a summary judgment application.
- Then, if there is a serious case to be tried, to consider the adequacy of damages and the balance of convenience to determine whether to grant the injunction.
If the trustee had not brought a counterclaim, to determine whether Mark’s claim gave rise to a “serious issue to be tried” the court would therefore have had to look at the alleged breaches and the trustee’s conduct and decision making. This is the same, if not very similar, to the approach that a court would adopt in a blessing application.
However, Mark resisted the application for the counterclaim to be heard with his injunction application on the basis that:
- The trustee’s application should be made under CPR Part 8; and
- In substance, the trustee was seeking summary judgment on its counterclaim without the procedural safeguards.
These arguments did not find favour. Given the close connection between Mark’s claim and the blessing, the court held that it was entirely proper to bring the blessing as a counterclaim and that to start a new claim would have been duplicative. The question of bringing a blessing application as a counterclaim is interesting procedurally but also has a relevance in the substance of trustee and beneficiary relationships. Blessing applications can relate to restructuring of trusts or their assets and can take place in fraught family circumstances. In these circumstances, it is possible that a beneficiary who was not happy with the way the restructuring was headed might act pre-emptively and bring their own proceedings for removal in an attempt to stymie the blessing application. Were that to happen, a trustee could still bring their blessing application as a counterclaim, which would limit the effect of the beneficiary’s claim if it was only brought strategically.
On the question of whether the injunction and blessing should be heard at the same time, the court concluded that the substance of Mark’s injunction application was the “mirror” of the trustee’s blessing application, as both raise the same issue of whether the decision to sell the LHS shares is one that the trustee can properly take.
This was further exemplified in the judgment which looked at the various aspects of the trustee’s decision making. Mark’s specific complaints about the sale of LHS were that the trustee had failed to take appropriate specialist investment, valuation or tax advice; had not taken into account his own and the deceased’s views to a proper extent; and had taken into account certain irrelevant considerations (such as the need to replace the elderly directors or possible upcoming investigations from the FCA).
Ultimately, none of these complaints found favour. The trustee’s decision-making process was approved and Mark’s injunction failed. Having dismissed the injunction, the court then had to consider the blessing application itself.
Can a decision be blessed in the face of other criticism from the beneficiary?
The failure of Mark’s injunction application did not automatically mean the success of the trustee’s blessing application as, despite the conclusion that its decision making was reasonable, the court could still have refused to bless the decision.
The grounds put forward by Mark against the blessing were:
- A lack of full and frank disclosure;
- That he was also seeking the replacement of the trustee and alleging breaches of
- The trustee’s application was too vague.
None of these arguments gained traction, and ultimately the blessing was granted, but Brown revisits the interesting arguments around whether trustee decision making can, and should, be blessed when a breach of trust and / or removal application is on foot.
This question was considered in Jones v Firkin-Flood , where the court declined to bless a trustee decision and indicated that a blessing could be denied if the trustees had shown unfitness to be trustees of the trust. Jones was an extreme case with the court concluding there had been a “total abdication of their duties” by all of the trustees. Further, the alleged breaches of trust and examples of unfitness to act related to the decision the court was being asked to bless.
In Brown, the court felt able to bless the trustee’s decision as, having concluded the sale of LHS was not a breach, the further breaches alleged by Mark were not related to the decision in question and he did not allege a general unfitness to act.
This does not directly address the principle of whether trustees should have the comfort of a blessing when they are facing a claim for their removal and/or for breach of trust. Until that claim is determined, there is a serious question mark over whether they are the proper people to be making decisions even if they appeared to follow a proper process.
A beneficiary is entitled to have a trustee removed on the basis that they have lost trust and confidence in that trustee. In bringing that application, the beneficiary is making a statement that they do not want the trustee involved in the administration of the trust and do not trust them to make the right decision. It seems at odds with this right to seek the trustee’s removal for a trustee not only to take momentous decisions while the application waits to be determined but also for the court to sanction that decision (particularly given the light-touch approach it rightly adopts to assessing decision making).
Perhaps an approach that would both allow decision making to continue and give comfort to beneficiaries would be for the categories set out in Public Trustee to be extended so that trustees facing claims for their removal were required to surrender their discretion to the court if a particularly momentous decision needs to be taken. All interested parties – beneficiaries, trustees and settlors or protectors – could then put forward their views on the relevant considerations and the court could balance them and make a decision.
In the meantime, however, Brown confirms that trustees facing criticism can still have their decisions blessed. This should support trustees to act in a way they see as fit and proper and, like the trustee in this case, to make decisions they consider to be in the best interests of the trust as a whole, rather than bend to pressure from beneficiaries in order to have an easy life.
Conclusions for practitioners
This case is a useful reference point for understanding and clarifying existing principles and it does the following:
- Sets out clearly the principles that the court will apply when considering a trustee application for the blessing of a decision.
- Highlights the benefits of good trustee decision making. It is clear from the judgment that the trustee had actually taken and considered appropriate advice before making any decisions. This basic requirement is not always followed by trustees, at times due to incompetence but at times for understandable reasons such as time pressures. When facing complaints or breach of trust claims from a beneficiary, there is no substitute for good, proper decision making and trustees should take the time to get proper advice, consider that advice and make balanced, well-documented decisions.
- Confirms that a blessing application can be (i) brought as a counterclaim and does not need to be started separately and (ii) can be granted even if a trustee is facing a breach of trust or removal claim. When considered in the context of any bad beneficiary and trustee relationships, the conclusion should be reduced litigation and increased dialogue as:
- Trustees do not need to rush into applications to try to pre-empt a claim by a beneficiary; and
- Beneficiaries cannot rely on stopping a blessing application for a decision they do not like by pre-emptively bringing a (potentially) weak breach of trust claim or removal application. (Although the scope for obtaining broad disclosure in those claims, and muddying the waters on the trustee’s fitness to act, may still make them attractive).
- Trustees do not need to rush into applications to try to pre-empt a claim by a beneficiary; and
This content was originally published in Trusts & Estates Law and Tax Journal - January/February 2022, available to view here.
If you require further information about anything covered in this briefing, please contact Melody Munro or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2022