Breach of Trust
Cases
Wade, Harvey, Skinner v Collings
Supreme Court of Judicature.
Court of Appeal.
7 February 1896
[1896] 30 I.L.T.R 51
FitzGibbon, Barry, Walker L.JJ.
The Solicitor-General, Wright, Q.C., and Sandford, for the respondent.
FitzGibbon, L.J.
This action is brought by Eliza M. Collings and her six infant children against former and existing trustees of her marriage settlement for an account, and for the removal of existing trustees. The present appeal has been taken by Mr. Fry Wade, a former trustee, against a decision of the Vice-Chancellor on further consideration. The question to be decided is one of great importance under s. 8 of the Trustee Act of 1888. The proceeds of the Lewis policies were lent to the husband of Eliza M. Collings without security, and without authorisation by the marriage settlement. A mortgage of some lands was at some subsequent date taken as security from the borrower, but it proved worthless. The six shares of the Great Western Railway Company were transferred by Eliza M. Collings to Charles M. Harvey in 1884. These he sold, and is now insolvent. Mr. Fry Wade’s liability for both breaches of trust arose more than six years before the commencement of this action.
If s. 8 of the Trustee Act of 1888 is applicable *51 to the facts of the case, Mr. Wade has a good answer to the claim of Eliza M. Collings, though not against the children. An order was made against Charles M. Harvey to bring into Court within a month £79 8s., realized by the sale of the railway shares, and in the event of his default it was to be lodged in Court by Edward F. Wade and Samuel J. Skinner. Mr. Wade has brought in the £500 lent to Mr. Collings, and lost to the trust. Eliza M. Collings makes a claim for arrears of income against the existing trustees.
The first question to be determined is, do the facts of this case bring it within the exceptions of s. 8 (1)? The Vice-Chancellor held they do not, and we agree with his decision on this point. The exception applies only to dishonesty, or to retention, a conversion of the trust property. The fraud or fraudulent breach of trust of s. 8 (1) must mean actual dishonesty on the part of the trustees, otherwise any unauthorised investment by which trust property was lost would come within the exception.
The second question is, to what extent does the section operate in favour of the trustees? By s. 8 (2) no beneficiary, as against whom there would be a good defence by virtue of this section, shall derive any greater or other benefit from a judgment or order obtained by another beneficiary than he could have obtained if he had brought such action or other proceeding, and this section had been pleaded. If the shares had been held in trust for Eliza M. Collings absolutely, Mr. Wade had a good defence. But by the sub-section just quoted any argument which would prevail against her if she were sole owner must prevail when she has a co-plaintiff. The Vice-Chancellor held that she was entitled to six years’ arrears on the view that each gale gave her a separate cause of action. To hold this would be taking away the relief given by the statute. The corpus of the trust property is not replaced as far as she is concerned. The property has been replaced to meet the demands of the children when they arise. The property is simply secured in their behalf. To give her the income of it would be opposed to sec. 8 (2), for she would thus have an advantage which she would not have if she sued alone. Mr. Wade is entitled to the income of the money he has brought into Court until the children become entitled to the income of the trust property. And that portion of the order of the Vice-Chancellor which directed the payment of income to Eliza Maria Collings is discharged.
Barry, L.J., concurred.
Walker, L.J.
This case does not fall within the exceptions in s. 8 (1). No case of fraud has been made out. I concur in the judgment of FitzGibbon, L.J. The question which has arisen in this case is quite closed by the authorities.
In the matter of Scott, O’Connor, and Others
High Court of Justice.
Chancery Division.
14 February 1879
[1879] 13 I.L.T.R 139
Chatterton V.C.
Chatterton, V.C.
This question comes before me in an unusual and somewhat irregular manner, for what I am asked to give an opinion on is whether the purchaser in this case is entitled to have the written consent of the four daughters of Valentine O’Brien O’Connor, or the survivor or survivors of them, to the sale; but, that does not happen to be the real objection to the title which is relied upon—there is nothing on the face of this title that can give a right to the purchaser to have the written consent of these ladies—and the real objection is that the conditions of sale are of a character so objectionable and unusual as not to be within the authority of the trustees selling under a power of sale. That, however, is an objection, not to the title, but to the validity of the contract between the purchaser and and the trustees; and the meaning of it is this, that on account of the nature of the conditions of sale the purchaser’s title may afterwards be impeached on the ground that these conditions were of such a nature as to constitute a breach of trust.
The case has been very ingeniously put by Mr. Dillon, and although it would be hard to suppose the objections in question could be made by a willing purchaser, yet, from what Mr. Dillon says I can quite believe that they are made from a bona fide doubt as to the validity of the title. But, that cannot affect my decision upon the matter before me. If this be, as it undoubtedly is, a question involving the validity of the contract, it would be enough for me to say that such a question is excluded by the 9th section of the Vendor and Purchaser Act, 1874. But I do not think it necessary to rely upon that point; and as the case has been *140 argued upon what may be called the merits of the question, I think it right to state my opinion upon it.
These trustees have a power of sale, and that carries with it a power to give receipts for the purchase money, and such receipts would be a perfect discharge to the purchaser unless this sale were a breach of trust and beyond the powers of the trustees. It is incident to a power of sale that the trustees should be at liberty to frame any conditions of sale that they might think necessary; but the conditions should be reasonable, and not of a character to depreciate the property. If they are of a character to depreciate the property set up for sale, then those beneficially entitled have a right to stop the sale. But it is only when the conditions are so grossly improper upon the face of them as to amount to a breach of trust, that the beneficiaries have a right to set aside the contract as between the trustees and a purchaser.
Now, what are the conditions of sale objected to in this case? The 5th condition provides that the purchaser shall be at liberty to keep outstanding three-fourths of the purchase money upon mortgage. The argument put forward with reference to that condition is, that by an arbitrary rule of this Court trustees cannot lend more than two-thirds of the value of freehold property, and that therefore this is a condition which constitutes a breach of trust. There is only one way in which that condition could operate as a breach of trust, and that is by tending to depreciate the value of the property. But so far from its being of a depreciatory character, it is a condition highly beneficial to the purchasers, as it gives them an increased facility for purchasing, and in consequence must tend to increase instead of diminish the price to be paid for the property. Indeed, I am at a loss to see how a purchaser who does intend taking advantage of this condition—or who at any rate has not determined to take advantage of it for the purpose offered—should be able to take advantage of it for the purpose of setting aside the sale. I am clearly of opinion that that condition of sale could have no such effect as that relied upon by Mr. Dillon, but would have instead an exactly opposite effect.
The 6th condition, which is the other one objected to, provides that “the abstract shall commence with the conveyance of the property to the late Valentine O’Brien O’Connor, Esq., or to any trustee or trustees by his directions, and the purchaser shall not require the production of, or investigate or make any objection or requisition in respect of, the prior title to any part of the property, whether such prior title shall appear by recital or otherwise, or shall not appear at all. The purchaser shall not make any objection or requisition by reason of the non-registration of any instrument relating to the title, or by reason of any instrument of title under which the premises are now held not being stamped, or being insufficiently stamped.” I am clearly of opinion, that in the case of a sale by trustees, as well as in the case of a sale by absolute owners, there is a separate contract made between the vendors and purchasers as regards each lot set up for sale, and that the conditions must be read as if they related only to the lot sold. I cannot see how a purchaser can rely upon conditions for the purpose of avoiding his contract, except they amount to a gross breach of trust, when the conditions are good so far as they concern his own lot, though they may be objectionable as regards other lots. The instrument which commences the title of the purchaser in this case is a conveyance from the Landed Estates Court, dated the 27th of July, 1870. Therefore, when the 6th condition of sale is read in connexion with this circumstance, the condition will run in the following terms:—The abstract of title shall commence with the conveyance of the property to the late Valentine O’Brien O’Connor, made to him by the Landed Estates Court. Now, that so far from being a peculiar condition is a very common and useful one—one frequently inserted in conditions of sale settled by this Court. The conveyance from the Landed Estates Court is an absolute conveyance of the entire interest granted by the lessor of the lease of the 23rd of September, 1757, to the lessee, and it carried to Mr. O’Connor the whole estate created by that lease. What possible reason could there be for going behind the conveyance from the Landed Estates Court? That is as good a title as can be, and there can be no objection made on the ground that the devolution of the title prior to that conveyance is not traced. But, then, it has been said that this condition of sale precludes the purchaser from requiring to obtain the lease of 1757, and from making any objection that might arise on that lease. I think that is a most unreasonable construction of that condition. It merely precludes the purchaser from tracing the title of the lessee prior to the conveyance from the Landed Estates Court. If it were held to go farther and to include within it that the purchaser was to be prevented from inquiring into the lessor’s title, that would be, nevertheless, a proper condition, and one which the statute makes applicable to the case of leases for a term, and which this Court, by analogy, introduces into conditions of sale for leases of lives.
But there is another part of this condition objected to—that part which provides that the purchaser shall not object by reason of the non-registration of any instrument relating to the title, or by reason of any such instrument not being stamped, or being insufficiently stamped. In the first place, it is not pretended that this condition could apply to any instrument except a deed of disclaimer by a trustee. The non-registration of that instrument could not affect any party. The only conceivable case in which it could injure any party would be one of this description:—If a trustee first disclaimed, and after his disclaimer there was a conveyance from the remaining trustees, and then another person obtained a conveyance from all the trustees, including him who had disclaimed, and that this last was registered before the other. But I can hardly conceive such a case, nor do I think such an objection to the title could arise.
But, it is further said that there might be some other instrument affecting the title which required registration, and that the bare possibility that such an instrument existed rendered the condition a depreciatory one. Such a possibility is precluded by the very nature of this title. It commences in 1870 by a conveyance from the Landed Estates Court to Mr. O’Connor himself, who is shown to have been in possession till his death. I cannot consider this such a depreciatory condition of sale as to make its insertion in the conditions of sale a breach of trust. I am, therefore, of opinion—first, that there is nothing in these conditions to render the title doubtful; and, secondly, even if there were, they would be only of a character to affect the validity of the contract for sale between the trustees on the one hand and the purchaser on the other. Because if the contract is made in breach of trust it cannot be a valid contract, and the only way in which a purchaser could be affected would be if the cestuis que trust should come into court to set aside the contract on the ground that these commonplace conditions were inserted. Such a case as that would not be within the statute, and, therefore, I am of opinion that this application must be refused with costs.
Order accordingly
Anketell Jones v Fitzgerald and Others
High Court.
31 July 1930
[1931] 65 I.L.T.R 185
Johnston J.
Johnston, J.
The difficulty in this case—I think the sole difficulty—has arisen through the unfortunate fall in the French frane after the war and the consequent depreciation in value of French National securities. Certain monies arising from the sale of an estate in the West of Ireland having been paid to the trustees by the Irish Land Commission in 1915 were invested by Mr. Fitzgerald, the tenant for life, in the “London issue” of the French “National Defence Loan” in December, 1915, at the price of £3 4s. 0d. per 100 francs. The consent of the Public Trustee to the investment was not obtained, and the investment therefore was unauthorised and a breach of trust. Owing to the depreciation in value of the French *185 bonds a loss of about seventy-five per cent, of the whole money invested has been incurred, and the question that I have to decide in this case is who is to bear the burden of that loss—whether the trustees, or Mr. Fitzgerald, the life tenant, or his eldest son, a minor, who is entitled to the fund in remainder on the death of his father.
Charles Lionel Fitzgerald, of Turlough Park, in County Mayo, who died in 1902, left his lands in that county to Desmond Gerald Fitzgerald, his cousin, for life, and on his death to his first and every other son successively in tail. The life tenant, on the determination of a prior interest, entered into occupation in 1905, and immediately proceeded to mortgage his life estate, as well as certain policies of insurance on his life, to the Bank of Ireland to secure certain advances. He had been a sub-agent of the Bank of Ireland in Tipperary and was therefore a man of business and financial experience. A few years later he sold the lands to the tenants under the Acts of 1903 and 1909, and he agreed to pay his agent, a person called Ruttledge, a fee of two percent, upon the gross purchase money, payable out of the bonus percentage, for negotiating and carrying through the sale. The surviving trustee of the will of the settlor had died in 1908, and there were no trustees of the settlement until February 28, 1914, when Mr. Henry Moutray Anketell Jones, the original plaintiff in this action, and Mr. Edmund Hume Steele Townshend, one of the defendants, were appointed trustees of the will by the executors of the surviving trustee. I have not much information as to the circumstances under which this appointment was made. Mr. Anketell Jones appears to have been a close personal friend of Mr. Desmond Fitzgerald and the owner of landed property in the neighbourhood. I have no reason to suppose that he had had any business experience, but judging from his letters he was a man of education and of affairs. Mr. Townshend, who was in the employment of the Great Southern Railway, is a cousin of Mr. Fitzgerald, and his case is that he accepted the trusteeship on the understanding that he was not to be expected to take any active part in the trusteeship. The three parties therefore who are vitally interested in the unfortunate story that has been unfolded in the case are first Mr. Townshend and the executors of the will of Mr. Anketell Jones (who has died since the proceedings began), then Mr. Desmond Fitzgerald, the life tenant, and lastly, his eldest son, who is a minor.
The matter is slightly complicated by a second settlement, namely, one effected on January 22, 1912, on the marriage of Mr. Fitzgerald to Miss Hilda Claire Willoughby Hemans, by which the settlor covenanted to pay to the trustees (Mr Anketell Jones and Mr. Robert Powell, solicitor) the sum of £5,000 within six months of the receipt by him of the bonus percentage on the sale of his lands. This sum of £5,000 was to be held for the settlor for life, then for the wife for life, then for the children in accordance with a power of appointment, and in default of appointment, for all the children except the eldest son. Mr. Fitzgerald, having entered into that covenant three years previously, proceeded on January 1, 1915, to mortgage the bonus percentage to secure the debt owing by him to the Bank of Ireland, with the result that when the bonus percentage became payable by the Land Commission in July, 1915, amounting to the substantial sum of £9,328 6s. 9d., a sum only of £1,703 0s. 1d reached the hands of Mr. Fitzgerald, Ruttledge receiving £1,338 0s 11d., and the Bank of Ireland £6,287 5s. 9d. The sum of £5,000, which ought to have been paid by January 22, 1916, was never paid; but in June the trustees accepted from him, faute de mieux, a deed of covenant and mortgage, promising to pay the trustees the sum of £4,000 and securing that sum by a mortgage of the five life policies which had been released by the Bank of Ireland and of the mortgagor’s life estate in certain securities set out in the schedule which represent part of the capital monies arising upon the sale of the settled lands. As Mr Fitzgerald is entitled for life to the interest that would be payable in respect of the marriage settlement fund, the fact that the money has not actually been paid is, for the present, of no consequence—the loss is the life tenant’s own; and the trustees are satisfied that the mortgage of the life policies will be, if it is not already, ample security for the money, if nothing is done that will interfere with their right to have recourse to the dividends payable in respect of the securities to secure the strict payment of the premiums on the policies. I think that the arrangement, which I suppose must be attributed to the foresight of Mr. Robert Powell, who was one of the trustees of the marriage settlement, can be regarded by me as making good, with substantial if not with technical legality, the breach of trust in regard to the marriage settlement.
The difficulty that has arisen in regard to *186 the trusts of the will is of a serious character. When all the charges affecting the purchase money on the sale of the land had been paid off a sum of £11,908 12s. 4d. remained, and a draft for that amount was sent to the trustees on July 28, 1915. Subsequently, in November further sums of £65 18s 10d and sixteen shillings and eleven pence, were paid, making altogether the sum of £11,975 8s. 1d., which represented capital monies subject to the trusts of the will of Charles Lionel Fitzgerald. It is admitted that the trustees are liable to make good the whole of that sum, either in cash or in authorised securities of an equivalent amount. It was the duty of the two trustees to have invested that money with all reasonable speed, in authorised securities, following any lawful directions that the tenant for life might give them. Instead of doing this, however, Mr. Anketell Jones, to whom the draft had been sent, proceeded to wash his hands of the whole matter by indorsing the draft and sending it to Mr Fitzgerald. Why he did so I do not know, and the letter which accompanied the cheque is not forthcoming. Mr. Fitzgerald wrote to him on August 12 acknowledging the receipt of the “warrant” and stating that he was “sending it on for Townshend’s signature,” but in fact Townshend was not communicated with until November 15, when at the request of the life tenant he indorsed the cheque, and the whole of this large sum of rearly £12,000 is placed unreservedly in the hands of the tenant for life, with the power to do with it what he pleased. Apparently it was taken for granted that the investing of the money was to be carried out by Mr. Fitzgerald, who in his letter talks casually of “buying Treasury bills at 3 or 6 months so as to keep the capital intact and liquid.” He adds: “If you should happen to see your broker in London you might ask him his opinion.” There is no evidence before me that Mr. Jones did see his broker or that he made any inquiries about the matter whatsoever.
A most extraordinary thing now occurs. Mr. Fitzgerald did not invest the money in anything. He did not even cash the cheque. For nearly four months it remained in his possession—I do not know that it was even locked up in a safe—and no inquiry appears to have been made by the trustees as to what was happening, Mr. Townshend apparently relving upon Mr. Jones and Mr. Jones relying upon the tenant for life. A vigorous correspondence was going on about a small sum that was in controversy as to income tax, but no regard appears to have been had to the not unimportant fact that £50 a month was being lost through the non-investment of the money—a very clear case of straining at the gnat and swallowing the camel. It was not until November that the Land Commission, which had no interest in the matter whatsoever, sent a notice to Mr. Powell stating that the draft had not been cashed, and then Mr. Powell wrote to Mr. Fitzgerald telling him that it must be presented for payment on or before November 20. It is very significant that he thought it necessary to add this caution: “In vour own interest I think you should take immediate steps to have it invested. At any rate the draft must be cashed before the 20th.” It is difficult to believe that even after this warning the draft was not lodged for a fortnight.
It was not until November 15, as I have said, that the large cheque was sent to Townshend for signature, and the letter of that date which he received from Mr. Fitzgerald ought certainly to have stirred him up to a sense of the responsibilities of his trusteeship. It contained a draft of the Land Commission of the previous July bearing the indorsement of his co-trustee. He knew, or ought to have known, then that Mr. Fitzgerald was a very unsafe person to have the handling of money. The letter says: “Would you mind signing enclosed warrant and returning it to me by next post? It is balance in connection with sale of estate, and I should have sent it for signature long ago. When signed I will lodge it to credit of an account in Bank of Ireland to credit of yourself and Mr. Anketell Jones as the two trustees, and as it is invested you will sign cheques on a/c. The Land Commission are agitating to have it cashed. I hardly know what to invest it in Just now everything is so topsy turvy, but I am consulting a broker.” Mr Townshend was made aware by that letter that Mr. Fitzgerald proposed to get the whole sum into his own hands and that he was going to invest it without consulting the trustees, who would be only called upon to sign cheques as the money was being invested. He knew, or ought to have known, that the person entitled to this money in remainder was the eldest son of Mr. Fitzgerald, who was a minor. It ought to have been plain to him that his cousin had been acting in a most unbusinesslike way in regard to this large sum of £12,000, which he had allowed to remain uninvested for nearly four months. Knowing all this, he *187 indorsed the draft, without making any stip ilation, condition or reservation as to the investment of the money, leaving the entire matter of the investment in the hands of the life tenant.
The draft for the small balance appears to have been indorsed by Mr. Jones and by Mr. Fitzgerald as a matter of course. The letter of Nov. 25 throws further light on the way in which the trust was being administered Mr. Townshend was asked to sign an assignment of part of the trust premises—a publichouse—to a man named Durkan, which had been sold for £400. The purchase money—capital monies under the settlement of the will—had been “invested in names of myself and Ruttledge, my agent” Mr. Fitzgerald explains that this was because the money had been paid before the trustees were appointed in Feb., 1914, and yet the assignment to Durkan was not executed till Nov., 1915. The large cheque had been lodged in the bank on deposit receipt in the names, no doubt, of the trustees; but we find Mr. Fitzgerald planning to get the deposit receipt indorsed by Townshend and also to have blank cheques signed by him Apparently Mr Fitzgerald is still relying upon himself alone as to the investing of the money—“I am much exercised as to what to invest in”—and I have no evidence that Mr. Townshend objected to, or even questioned the wisdom, of this attitude.
Some time about the end of November or the beginning of December, a very attractive prospectus of a “London issue” of French “National Defence Loan,” in the shape of an issue of five per cent. rentes, fell into Mr. Fitzgerald’s hands, The prospectus had been issued from the Bank of England on Nov. 29, 1915. The price of the issue was “£3 4s. 0d. per francs 100 nominal capital, being the equivalent, at the exchange of 27.50, of francs 88, the price at which the loan is being issued in Paris.” I do not know where he got this prospectus, but I infer that he did not get any expert advice as to such an investment for trust funds. He tells me that he thought it was a trustee security, but he does not satisfy me as to his grounds for that belief. It is true that s. 38 of the Irish Land Act, 1909, empowers a trustee of settled property which had been sold under the Irish Land Purchase Acts to invest the proceeds in “any of the public stocks or funds or government securities of any foreign government or state,” if he is requested by the tenant for life to do so; but he cannot do so unless he has received the sanction of the public trustee, and that official cannot give any such sanction unless he shall “satisfy himself that there is a reasonable probability that the investment will, if realised on the death of the tenant for life or the termination of the trust, produce an amount not less than the sum invested.”
Mr. Fitzgerald tells me that before he purchased these bearer bonds to the extent of over £10,000 he consulted Mr. Anketell Jones and that the latter assented to the investment. His evidence on this point, however, was of a rather hesitating and not very convincing character, and it is curious that Mr. Jones in his letter to Mr. Powell, written on June 15, 1917, where he is dealing with other investments effected by Mr. Fitzgerald, makes no reference to French bonds. In his letter of Dec. 20 of the same year to Mr. Fitzgerald (on which the pathetic words “practically a copy” are indorsed) he makes a confession of woeful ignorance as to everything that had happened: “I find that it is over two years since I handed you the various cheques for Townshend’s signature, and I think these sums, or the balance of them, should have been transferred by this time. As I am acting as trustee for the estate and the marriage settlement, my conscience rather pricks me that I am not acting fair either to you, your wife and children or the two co-trustees. I know the matter is all right at present, but if death stepped in, and either you or Bob Powell were taken, I am afraid things would be in a muddle. So far as I know you and Bob are the only ones who have a thorough grasp of the case” He adds: “My only object is to save trouble in the future, and to relieve my conscience.”
I do not think that it is of very much importance whether Mr. Fitzgerald did or did not consult Mr. Jones before the investment was made. If such a conversation did take place—and Mr. Fitzgerald says it did—it was in some comfortable apartment either in Turlough Park or Burrishoole House and can scarcely be regarded as a serious business consultation. What is of importance is the fact that these trustees practically abdicated their fiduciary position, leaving the whole matter of the care and custody of the capital monies and the proper investment of the same, to the tenant for life of the settlement, that no expert advice was taken by any of the parties—either by the trustees or the life tenant—as to the investment of the monies, and, above, all, *188 that no regard was had to the criterion of safety, plainly set out in s. 38, a criterion which is to be applied in the case of every proposed investment of trust monies in the securities of a foreign government.
These are the circumstances, in so far as they have been proved, under which these trust monies were invested in bearer bonds of the French government. The subsequent matters can be set out more briefly. Certain other securities were purchased by Mr. Fitzgerald, and as to them no question arises. On Jan. 22, 1916. he ought to have paid to the trustees of the marriage settlement the sum of £5,000 in accordance with his covenant, but he did not do so, and Mr. Jones, who was one of the trustees of that settlement, was, or ought to have been, aware of that breach on the part of the man to whom he had delegated everything in the matter of the other trust. It is not quite clear by whom and how these bearer bonds were kept in the long interval between Dec. 1915 and Nov. 1918, and there is no evidence before me that the trustees made any inquiry as to what care was being taken of them. This was a most serious omission in the case of such a very evanescent class of security as bearer bonds. The date of the receipt of the Castlebar bank for their deposit there is Nov. 5, 1918. In the correspondence that now takes place it is plain that Mr. Jones has at last begun to feel the alarm that ought to have inspired his conduct three years previously. He received a letter from Mr. Fitzgerald dated Nov. 6, 1918, enclosing certain securities and the bank receipts for the two parcels of bonds, and on the 7th he wrote to Powell: “I went and saw Desmond last Sunday and am glad to say I got him to make a start” Later he says: “I was ashamed to be continually at him to settle up.” In a letter in reply Powell warned him that he ought to get from Mr. Fitzgerald an account of the purchase money of the Turlough estate, “because if you do not get it now you will never get it.” Mr. Fitzgerald had appropriated a parcel of French bonds amounting to 31,000 francs to the trusts of the marriage settlement, to make up the difference, I suppose, between the sum of £4,000 for which the life policies were supposed to be good security and the sum of £5,000 covenanted to be paid. On what principle this appropriation was made or from what source the money came with which the bonds were purchased is not made very clear; but in a letter to Powell of Nov. 11, Mr. Jones says: “He said in his letter to me the present value of the 31,000 francs is £1,000— £1,050, and the face value £1,200. I see French loan is going up well in stock exchange”; and in a letter of the same date to Mr. Townshend he informed him of the securities and receipts that he had received from Fitzgerald and asks him to sign an authorisation which would enable the tenant for life to be paid the dividends. Although he appears now to have been thoroughly dissatisfied with Mr. Fitzgerald’s conduct and to have had the greatest difficulty in getting him to what he calls “settle up,” he is content to accept from him what he can get, and the prudence of getting expert advice as to the legality of the investment in these foreign securities, and as to the advisability of continuing to hold them did not occur to him, whilst Mr. Townshend was content to sign any documents that he was asked to sign.
This was the position of affairs at the end of 1918, and nothing happened for several years. The trustees must have known of the colossal fall in the value of the franc and the corresponding depreciation in French securities, but I have no evidence before me that either of them stirred hand or foot for eight years to save as much as possible from the wreckage. On July 6, 1926, Mr. Townshend wrote to Messrs. Shannon & Co., who were acting for Mr. Fitzgerald, that he wished to retire from the trust, and it was this request which, after a lengthy correspondence between the solicitors, has brought the present proceeding to a head. Some of this subsequent correspondence has been relied upon by counsel for the various parties, but I do not think that it alters substantially the aspect of the facts that I have endeavoured to show. On Jan. 14, 1927. Mr Townshend writes to Mr. Jones that he has “taken no active part as trustee for many years, having signed a document empowering the bank to pay dividend warrants on your signature only,” and that he had written to Fitzgerald several times asking to be relieved of the trusteeship, “but so far I have been unable to get him to reply.” On the 16th of Jan., 1927, Mr. Jones, writing to his co-trustee in reference to Mr. Fitzgerald, says: “Of course the heavy fall of the French franc must have hit him hard. I told him at the time I thought he had put too much in it. He invested all sums himself.” This letter marks the detached attitude that Mr. Jones had taken up throughout in regard to the settlement. One would imagine from this and his other letters that he regarded “Desmond” as *189 the trustee and that he himself was only a friend giving friendly and irresponsible advice. The letter makes it plain that he had heard from Fitzgerald of the investment at any rate soon after it was made, and it is to be inferred that he disclaims all responsibility for it. Many letters were written to Mr. Fitzgerald at this time, to none of which did he reply, but at last, when the threat was made that the income of his life estate was to be stopped, he replied. In his letter of March 10, 1927, he says, “Yes, my affairs are in a mess due to myself, and I must get them straight.” It is a curious thing that never once in the course of this illuminative correspondence between Mr. Fitzgerald and the trustees is there any reference to the unfortunate boy, the real owner of all this property, who was designated in the will of Charles Lionel Fitzgerald as the object of his bounty. Mr. Townshend on March 27, 1926 (I think the date should be March 7, 1927) says to Mr. Jones: “I distinctly remember Desmond telling me that the lawyers (Bob Powell, I suppose) told him that the French bonds were trustee stock as they were guaranteed by the French government. Still I believe ignorance is not a legal excuse. I don’t quite understand why I should be one of the defendants, unless the action is taken only on account of the settlement, as you and I are in the same boat as regards the trusts.” On April 2, Mr. Jones says to the tenant for life: “I am afraid as trustee I have been rather too easy going”, and the latter writing on April 12 to Mr. Bowles in regard to the trusts of the will says: “The main funds of the above were invested in authorised securities to the best of my knowledge and were well known to my trustees.
The hearing of the action came before me on March 19 last and subsequent days and I reserved judgment. It then was indicated to me that the plaintiffs desired to make an application under s. 51 (4) of the Irish Land Act, 1903, claiming to be excused for the breach of trust in regard to the investment of part of the capital monies in French bonds, and accordingly I held over my judgment further to enable that application to be made. The first question then that I must decide is whether the plaintiffs as executors of the will of Mr. Anketell-Jones and Mr. Townshend, who joins in the application, are entitled to such an order. It is not disputed by any of the parties that I have jurisdiction by virtue of the section to give relief to the trustees if the circumstances warrant it. Jurisdiction arises “in the case of all proceedings in relation to any lands sold under the Land Purchase Acts, or any charges thereon, or any moneys realised thereby.” This is a proceeding in relation to moneys paid by the Irish Land Commission to trustees of a settlement, the settled lands having been sold to the tenants thereof under the Land Purchase Acts. The moneys were paid direct to the trustees, and there was no intervening investment which might have removed the funds from the purview of the section. Mr. Overend, on behalf of the executors, has cited to me a large number of cases decided in relation to application made by trustees under s. 3 (1) of the Judicial Trustees Act, 1896, of which s. 51 (4) is a verbatim re-enactment, but I do not think that I require the assistance of cases to enable me to apply an enactment which is perfectly plain on its face. Relief may be given to a trustee who is or may be personally liable for a breach of trust and who “has acted honestly and reasonably and ought fairly to be excused for the breach of trust” I think that cases cannot carry the matter any further than the statement made by Byrne, J., in In re Turner, Barker v. Ivimey [1897] 1 Ch. 536, that it would be impossible to lay down any general rules or principles to be acted on in carrying out the provisions of the section and that each case must depend upon its own circumstances. The section of course must be acted upon freely and fairly; but in applying it in any particular case I must say I would rather err on the side of caution than on the side of courage. However in this case there is no room for doubt. There is no question that the trustees acted honestly in the sense that there was no moral obliquity, but how could I possibly decide that they acted reasonably or that they ought fairly to be excused for the breach of trust? As I have pointed out, they practically abdicated their fiduciary position in favour, not of a paid agent who might have assisted them with his technical knowledge, but of a person who as the tenant for life of the trust property had a personal interest. They had full knowledge of the unreliable character of Mr. Fitzgerald as a business man long before the value of the securities fell. Mr. Jones knew in 1916 how he had acted in the matter of the marriage settlement, and there is evidence that Mr. Townshend knew with what degree of business capacity he had acted as trustee in regard to Mr. Townshend’s own family property. In the critical years of 1915 and *190 1916 they never questioned anything that he did. During that time they never displayed the slightest sense of responsibility for the trust. They never sought expert advice. I doubt very much even if Mr. Robert Powell was consulted in regard to this unfortunate investment. There is no suggestion of the kind in any of the numerous letters that he wrote. Even when the bank receipts for the bonds were sent to them in 1918 they showed no interest whatsoever in the matter—certainly not that active interest in the trust property that reasonable and business-like trustees ought to have shown. If I were to exercise my powers under sect. 51 (4) and excuse these trustees under such circumstances, I should be establishing a precedent that would have the most alarming consequences in the future in regard to breaches of trust by trustees. The application therefore of both the plaintiffs and Mr. Townshend must be dismissed.
I now proceed to decide the issues that are involved in the action itself. First of all, I may say that I shall give a general order for the administration of the trusts of the will if any of the parties require it, but I think that this will be found unnecessary. I shall, of course, make an order declaring that the plaintiffs as the executors of the will of Mr. Anketell Jones and Mr. Townshend are bound jointly and severally to make good the loss that has been incurred to the trust estate, by reason of the investment of portion of the capital monies in the purchase of 305,000 francs of the London issue of the French National Defence Loan of December, 1915. As between Mr. Jones and Mr. Townshend I can draw no distinction. They were, as Mr. Townshend said himself, “in the same boat.” There is authority to be found in the case of Bahin v. Hughes (31 Ch. D. 390) for saying that an honest trustee, who, knowing what is taking place and remaining absolutely passive may be even more blameworthy than an honest trustee who has acted erroneously On this point the case of Booth v. Booth (1 Beav. 125) is of importance. These bonds are, I may note, redeemable at the option of the French government on and after Jan. 31, 1931. The plaintiffs and Mr. Townshend may at their election take over the bonds and pay into court the money expended by Mr. Fitzgerald (a sum which will be ascertained in chambers if necessary) in their purchase, or they may have the bonds sold and pay the difference into court. As regards the trusts of the marriage settlement, I shall say nothing at present. I understand that a proposition is to be made to me by the trustees of that settlement, and I rather think that it is a proposition of which I will be able to approve.
I come now to the last remaining question in the case, the question of the liability of Mr. Fitzgerald to make good out of his life estate, during its continuance, by way of recoupment, the amount that the plaintiffs and Mr. Townshend will have paid into court to make good the loss. Mr. Fitzgerald seeks to escape such liability by making the case that he acted throughout merely as agent for the trustees and that, whether this was so or not, no loss was incurred by the estate until the franc fell in 1919 and that at that time the bonds were in the custody and control of the trustees and for a year previously. In other words, that the trustees when the bonds came actually under their control ought to have safeguarded themselves against loss by selling out.
The law as to the liability of a beneficiary (usually a tenant for life) who has instigated, requested or concurred in a breach of trust, to make good, to the extent of his interest in the settled property, the amount of the loss incurred by the trustees is founded upon the best principles of fair play and good sense. This principle of recoupment was first noted by Lord Hardwicke as long ago as 1747 in reference to an unfortunate investment by a trustee in south sea stock: Trafford v. Boehm, 3 Atk. 440, and the modern statement of the principle is to be first found in the leading case of Raby v. Ridehalgh, 7 De G. M. & G. 104. Here is the statement of Chitty, J., as to what was decided in that case: “The well-known case of Raby v. Ridchalgh proceeds upon the footing that each person at whose instance the trustees have committed a breach of trust is liable to recoup the subject of that breach of trust to the trustees … I hold that the law is that for the trustees to be entitled to the order which they now ask against the estate of the tenant for life, it must be shown that the breach of trust was committed at the instance and request of the cestui que trust. I make no distinction between instance and request, but it must be shown clearly that the breach of trust was instigated by them and that they were acting and moving parties in it.”Sawyer v. Sawyer, 28 Ch. Div. 595 at p. 598.
That case was followed by the statutory enactment in s. 6 of the Trustee Act, 1888, which extended the principle considerably and was re-enacted in s. 45 of the Trustee. It is clear that the exercise by the court of this very salutary jurisdiction, whether under the old equitable doctrine or the modern legislation, is discretionary, the discretion being of course exercised judicially. This is sufficiently plain from the observations of Davey, L.J., in In re Somerset: Somerset v. Poulett [1894] 1 Ch. 231, and from the judgment in Bolton v. Curre [1895] 1 Ch. 544, the actual decision of the court in French v. Graham, 10 Ir. Ch. R. 522, and many other cases.
Is this, then, a proper case in which I should exercise this discretion? Or to put it more accurately, are there circumstances in this case which should induce me to stay my hand and not to give to the trustees the relief to which under ordinary circumstances they would be entitled? I have some degree of sympathy for Mr. Fitzgerald in the contest between him and the trustees. They acted with such an utter indifference to their fiduciary capacity that the life tenant’s efforts, feeble and inept though they were, have some semblance of merit. Besides, there is not a suggestion in the case that Mr. Fitzgerald desired to get any special benefit for himself, such as a higher rate of interest or anything of that kind. I believe his sole idea was to get the money invested to the best advantage of all concerned. He was given carte blanche by the trustees, and it is a little hard upon him that having been—I won’t say invited, but certainly permitted and encouraged, by the trustees to do the work and shoulder the responsibility that was theirs, he should now be called upon to give up the whole of the income arising from his life interest for the purpose of recouping them their loss. I do not say that that is a reason why he should escape this liability, but it is an element that I must take into account.
This case differs in a very remarkable way from most of the other cases in which the principle of recoupment has been applied to make good losses arising from an unauthorised or improper investment. It will be found in most of the cases that the loss occurred through the sinking of capital moneys in some form of permanent investment, such as mortgages of land—cases in which the loss occurred contemporaneously, or nearly so, with the investment or cases in which it would have been impossible to get back the capital without a great deal of expense, uncertainty and delay. In the present case the tenant for life turned the capital into French bearer bonds, which were as near to being French currency as it could be without actually being such, and which for years after the purchase—I might almost call it exchange—could have been reconverted in a moment into sterling without any loss whatever. In 1918 when the trustees took over these bonds by accepting from Mr. Fitzgerald the deposit receipt which had been issued by the Castlebar bank and which brought the bonds under the exclusive and permanent control of the trustees, it was their duty then to have realised the amount of the capital—as they could have done without any loss—and invested it properly. The trustees got from the tenant for life the whole amount of the capital, not in the form, it is true, of specie or of bank notes or of a bank cheque, but in a form that was easily realisable. I think that the fatal breach of trust took place when they failed to turn the bearer bonds into sterling and invest the cash thereby realised. To clinch the matter, Mr. Jones wrote to Mr. Robert Powell, solicitor, on the very day that he received the deposit receipt for the bonds, namely on Nov. 7, 1918, informing him of this fact, and he wrote to his co-trustee four days later giving him all the information that was necessary. The terms of Mr. Townshend’s reply have not been proved. In a further letter to Mr. Powell, written on Nov. 11, Mr. Jones made the very pregnant statement to which I have already referred: “I see French loan is going up well in the Stock Exchange.”
Although these matters do not absolve Mr. Fitzgerald from blame—far from it—they are sufficient, in my opinion, to relieve him from the burden of having his life interest charged with recoupment of the amount paid by the trustees to make good the loss.
The life tenant, therefore, will be entitled to receive during his life the income arising from the settled property, but with this important limitation that he cannot have the benefit of the amount that the trustees will have to pay to make good the loss. That is to say, the difference between what was paid for these bearer bonds and the price realised or realisable by their sale will have to be lodged in court and invested, and the dividends arising therefrom will be paid to the trustees during the continuance of the life tenancy of Mr. Fitzgerald until the plaintiffs and Mr. Townshend have been recouped the amount that they have paid into court.
There is ample authority for the adoption of this course. Mr. Fitzgerald, in his capacity of life tenant, never sought to make the trustees liable for the breach of trust, *192 and in my opinion he would not have succeeded if he had tried to do so. In a case very like the present, In re Somerset: Somerset v. Poulett [1894] 1 Ch. 231, Lindley, L.J., at the conclusion of his judgment says: “The result will be that the appellant [the life tenant] will receive the income yielded by the trust fund which is not lost, but will not receive any personal benefit from what the trustees have to make good;” and the term of the order that I shall make in this case are outlined by Romer, L.J., in Fletcher v. Collis [1905] 2 Ch. 24, at p. 33. In this way, if Mr. Fitzgerald lives long enough—and everybody, I am sure, hopes that he will—the trustees will be repaid the whole sum that they have had to make good, and the harm that has been done will be rectified with the least possible loss to everyone concerned.
Carr and another v Connor
Supreme Court.
3 July 1929
[1929] 63 I.L.T.R 185
Kennedy C.J., FitzGibbon Murnaghan JJ.
FitzGibbon, J.
(who delivered the judgment of the Court)—This is an appeal from an order of Meredith, J., dated Oct 30, 1928, by which it was declared that the defendant had been guilty of a breach of his duty as a trustee of the will of John Carr, deceased, in allowing the tenants upon the estate of the said John Carr, deceased, after the coming into operation of the Increase of Rent and Mortgage Restriction Act, 1923, to hold as tenants of their respective tenancies at the rents which they had been paying prior to the passing of the said Act; and it was further ordered that an account be taken of the moneys which might since the date upon which the Increase of Rent and Mortgage Interest (Restrictions) Act, 1923, came into operation, but for his wilful default, have been received by Joseph Connor, the defendant, by way of additional rent from tenants upon the estate of John Carr, deceased, and the defendant trustee was ordered to pay the costs of the action. John Carr, father of the plaintiff, John H. Carr, died on Dec. 14, 1915, having by his last will, dated Dec. 1, 1915, devised and bequeathed all his property to the Rev. Patrick Flavin and the defendant as trustees upon trust for sale and conversion—with power to postpone—and, after payment of debts and funeral and testamentary expenses, for investment, and out of the income to pay an annuity of £100 to his widow during her life by equal half-yearly payments, and subject thereto, after payment of all outgoings, in the opinion of the trustees, properly chargeable to income, to pay the net income to the plaintiffs during their joint lives and to the survivor during his or her life, and after the death of the survivor to stand possessed of the capital and income for the children or child or remoter issue of John H Carr by his wife Mary or any other wife in equal shares, and in default of issue for certain charitable objects and institutions named in the will. The defendant proved the will on January 28, 1916, but the Rev Patrick Flavin renounced the executorship and disclaimed the trusts by Deed Poll dated March 9, 1920. On the 3rd of May, 1920, a Mr. Louis Monks was appointed by an order of Mr. Justice Powell to be trustee jointly with the defendant in an action commenced by originating summons in which the plaintiff, John H. Carr, was plaintiff and the defendant was defendant. The claim in that suit is deserving of consideration in view of previous and subsequent occurrences. The summons claimed an account of the personal estate of John Carr come to the hands of the defendant; an inquiry as to outstanding personal estate; a declaration that the residuary personal estate ought to be converted and invested; the appointment of some fit and proper person to act as co-trustee with the defendant, and, if necessary, administration of the personal estate of John Carr, deceased.
The summons was taken out on March 26, and on May 3 an order was made that the accounts and inquiry asked for be taken and made, that Louis Monks be appointed trustee of the will of John Carr jointly with the defendant, that the house property subject to the trusts should vest in the two trustees; further consideration was adjourned; and liberty to apply was reserved to both parties. So far as appears to us, that suit is still pending in the Court, and the liberty to apply was available for either party who desired to take advantage of it. Mr. Monks died on Oct. 27, 1924, and on January 16, 1925, the defendant, at the request of the plaintiff, *186 John H. Carr, appointed a Mr. Ed. Collins, LL.D., to be a trustee with himself of the will of John Carr. It will be seen from this epitome of the devolution of the property that from May 3, 1920, to the institution of these proceedings on Nov. 11, 1927, the only period during which the defendant was sole trustee was between Oct. 27, 1924, and January 16, 1925. This, however, cannot excuse him or exempt him from liability if he or either or both of his co-trustees committed any breach of trust. The dealings with the trust estate must now come under consideration. It appears, though the accounts directed in the former proceedings have never been taken, that the estate comprised mainly, if not entirely, leasehold house property in Dun Laoghaire, formerly Kingstown, and that of this the greatest part consisted of small holdings, rated at under £10 valuation, occupied by tenants of the working class at weekly rents. There were “three big houses on the estate,”“about six houses let in monthly tenancy,” and “the rest of the property” (that was about forty houses) “was let in weekly tenancy” at rents which varied from 10/6 or 7/6 down to as small a sum as 3/6 or even 2/6 a week It appears that the defendant only accepted the trusteeship of John Carr’s will very reluctantly and under strong pressure from the testator, who was an intimate personal friend and had complete confidence in him, and was anxious that the interests both of his son and his daughter-in-law and of the parties ultimately entitled in remainder should be protected. For a short period after the death of the testator the plaintiff, John H Carr, was permitted by the defendant to collect the rents of the property, but in January, 1918, the defendant, for adequate reasons, appointed one Roche as agent to collect the rents. It was necessary to obtain money for payment of the testator’s debts and funeral and testamentary expenses, and the defendant had wished to sell and reinvest the property in accordance with the trusts of the will, but the plaintiff, John H. Carr, considered that the present time was not suitable for realising property of the kind, and the debts and expenses were defrayed out of borrowed moneys In January, 1918, negotiations were entered into by Carr with the Yorkshire Insurance Company for a loan upon the security of a mortgage of the property, and the defendant consented to the adoption of this course. The negotiations fructified in July, 1918, when a mortgage deed was executed, the parties to which were the defendant, the plaintiffs, John H. and Mary Carr, and the Yorkshire Insurance Co.
The deed recites the will of John Carr and that in course of administration of his estate and for the purposes thereof occasion had arisen for the sum of £2,340 and in consideration of the loan of that sum, the defendant demised the trust premises by way of mortgage to secure repayment of the loan with interest at 7 per cent., reducible to 6 per cent. if paid promptly, and charged the premises with the said sum of £2,340 and interest, and John H. Carr by way of further security assigned to the mortgagees a policy of insurance for £2,500, and covenanted to pay the premiums thereon, and he and his wife covenanted to pay the interest upon the mortgage money. It was also provided that if interest on the mortgage money was in arrear the company could not be compelled to accept the premium for the time being payable on the policy, and if the power of sale should become exercisable it should be lawful for the company to cancel the policy. Upon the same day, and as part of the loan transaction a deed, the draft of which had been submitted to and approved by the respective solicitors of J. H. Carr and his wife, was entered into between the defendant, the Insurance Company and Patrick Byrne, whereby Byrne was appointed receiver over the mortgaged property to collect all rents; the tenants were directed to attorn to him, and the following important provisions—which were completely ignored in the argument on behalf of the respondents, and to which the attention of the learned judge in the court below does not seem to have been directed—were made:—
“3 The borrower, with the concurrence of the company, hereby authorises the receiver, subject to the approval of the borrower and the company, to make such allowances to and arrangements with such tenants, occupiers and other persons as he shall think fit and to give notices to quit and bring and take actions or proceedings for the recovery of possession of any of the said hereditaments for non-payment of the rent thereof or on the expiration or determination or forfeiture of any tenancy or otherwise and to re-let any of the said hereditaments from time to time to such person or persons as he shall think fit on yearly, monthly or weekly tenancies at the best rents which may be reasonably obtainable.” The deed then provides for the application by the receiver of the rents and profits received by him, and then—“6. The borrower hereby covenants with the company as follows:— (1) That the powers hereby given to the receiver shall not be revoked by the borrower without the previous consent in *187 writing of the Company, and the borrower will not do or knowingly suffer to be done any act or thing whereby the receiver may be obstructed or hindered in carrying into effect the provisions hereof during such time as any principal money or interest shall remain owing to the Company on the security of the mortgage.” Having regard to these provisions, contained in a receivership deed, which was supplemental to and for the purpose of carrying out the mortgage transaction to which the plaintiffs were parties, which provided for the payment out of the rents of the mortgaged property of the interest and premiums which they had personally covenanted to pay, it is remarkable that the plaintiffs should seek to treat the defendant, and that the decree of the court should have been made, as if he had been in absolute and unfettered control of the management of the estate and of the tenants in occupation of the mortgaged houses. The bearing of this deed upon the question of breach of trust and wilful default will have to be considered when we come to deal with the case that has been put forward against the defendant
Before I come to the evidence, I must refer to two matters which were pressed upon us, and which probably had a good deal to do with the initration of this action Owing to the death of the testator within a week or two of the execution of his will the gifts to charity, so far as the property consisted of real estate or impure personalty, failed, and the defendant was admittedly very indignant at the determination of the plaintiff, Carr, to rely upon his legal rights and to defeat the charitable intentions of his father. In his first outburst of indignation he went so far as to threaten to wreck the estate if the plaintiff would not carry out his father’s wishes. The learned Judge, who not only saw the witness but recalled him for examination by himself upon this matter, says that “his veracity is extremely high,” and came to the conclusion “that whatever the defendant might have said in his haste he did not thereafter intend to do anything to injure the beneficiaries” A careful examination of the evidence affords no ground for doubting that the conclusion of the learned Judge upon this question was correct, and we may therefore dismiss it from consideration. It was also charged that the defendant had raised the rents upon his own tenants while refusing or neglecting to raise those payable by the tenants upon the trust estate, and an attempt was made to prove that he had evicted one of his own tenants in order that he might reset the house at an increased rent, and that he had provided accommodation upon the Carr estate for the dispossessed tenant at a low rent. This charge broke down completely, for it was proved that the defendant did in fact raise the rents of these houses upon the Carr estate which were of the same class as his own houses, the rents of which were raised by him, and it was not proved that he had raised the rents of his own houses which were in the occupation of tenants of the working class. In the case of one weekly tenant of a shop and yard he had raised her rent from 12/- to 15/-. She refused to pay the increase, but as a result of an interview with Mr. Larkin and the Town Tenants’ Association she finally consentea, some time in the year 1923, to pay the increase. With this possible exception it appeared that the defendant had dealt with the Carr property exactly as he dealt with his own. That, of course, would not excuse him if he dealt with his own property in an unreasonable or improvident manner, but it acquits him of the charge, which appears to have been made recklessly and without any justification, that he was benefiting himself at the expense of his cestuis que trustent. The real questions for decision upon this appeal are whether the defendant was guilty of a breach of trust, and whether he is liable to account upon a basis of wilful default, because the rents of the great majority of the tenants upon the Carr estate were not increased under the powers conferred by all or any of the Increase of Rent and Mortgage Interest (Restrictions) Acts, and because no effective attempt was made until the year 1925 to transfer to the tenants the burden of the increased rates assessed upon the property.
It appears that there was no substantial increase in the Kingstown rates until the year 1919, and there is no evidence that any complaint or even suggestion was made by the plaintiff before that year that the rents were too low or should be increased. The plaintiff, Carr, does say that he did complain in 1919 and asked the defendant to increase the rents, and at the end of February, 1920, he requested Byrne, the receiver, to increase them. Byrne at once applied to Messrs Sheridan and Kenny, the defendant’s solicitors, for their views, and they replied that as regards the tenants of the three “big houses” the owners were entitled to raise the rents, and that the increases proposed by the plaintiff were not unreasonable In the following April Byrne by direction of the defendant, sent a list of all the tenants to Sheridan and Kenny with a request that they would fill in the legal *188 amount of increase, and this was done and the notices were served upon the tenants by Byrne in July. At this date it appears that the tenants of the three big houses had agreed to pay the increased rents demanded from them. Byrne informed Sheridan and Kenny that “some of the tenants did not receive me in a very friendly spirit, and I believe several of them discussed the matter after I had cleared out.” On August 23 he reports that “only about three of the tenants paid the increase.” On September 27 Sheridan and Kenny wrote to Byrne “As regards the weekly and monthly tenants, we are aware that the service of the notices has caused a considerable amount of agitation amongst the tenants, and before doing anything we think it would be advisable to have a conference between the trustees and the owners so that some line of action might be determined on.” On the same day they wrote to Messrs Little, Doyle and Woods, the plaintiff Carr’s solicitors, that. “The receiver has informed us that none of the tenants have so far paid the increased rent which has been demanded from them, and, as you are aware, their refusal to pay is the result of concerted action on their part.” Now it is clear from the uncontradicted evidence in the case, not only of the defendant, Byrne, the receiver, and Kenny, the defendant’s solicitor, but of officials of the Urban District Council and representatives of the tenants themselves, that there was an organised resistance concerted between the tenants on the Carr estate and those upon the adjoining properties of the Urban District Council and the Dublin Artizans’ Dwellings Company, to refuse to pay any increases and if any increase was insisted upon to withhold all payments until a settlement satisfactory to the tenants had been reached. Meetings of the tenants upon these estates, at which tenants upon the Carr estate appear to have taken the principal parts, were held. Bennett, a tenant on the Carr estate, deposed that “there was a combination amongst the tenants on the estate to resist eviction by the landlord or the increasing of the rent The minute these notices were got the tenants met and they got from the Workmen’s Club the use of a room and all went down to the room From that meeting of tenants different members were selected—tenants of the Carr estate were selected—to go to the other other tenants—I am speaking now of the Dublin Artizans Dwellings, Lord Longford’s and Lord de Vesci’s and the Urban Councils—and arrange with these people to form conditions to resist—to form a solid front against increase.” So far from the defendant having calmly acquiesced, this witness amply corroborates the defendant’s evidence that the defendant threatened him and a fellow-agitator if they did not pay the increase, but the reply to the threat was a torchlight procession which “began on the Carr estate down the main street, Dun Laoghaire, into Glasthule to the Artizans’ Dwellings and back through Lord Longford’s and Lord de Vesci’s cottages and finished up with a big meeting on the Carr estate.”“The objection was to paying increases at all.”“We did not want to pay anything except we were forced.” A fund was collected for the campaign, and when an attempt was made to hold a conference between the delegates of the tenants and Byrne, the receiver, to arrive at a settlement nothing came of it. Even after the Act of 1923 came in the tenants “were resisting any increase of rent. These were my instructions as a delegate. I brought back a detailed offer from Mr Byrne and it would not be accepted. The offer was 15 per cent. and the extra rates, but it was thrown out. There was never any counter offer, and there was no change in the attitude of the tenants up to 1925, no change at all.”
That was the situation which the defendant was called upon to face, an organised combination of all the tenants to refuse to pay any increase and if an increase was demanded to withhold all rent. The latter course was adopted by the tenants of the Urban District Council, who have not yet succeeded in collecting the arrears, and of the Artizans’ Dwellings Company. It was the duty of the defendant to act as a prudent man would in the interests of the beneficiaries. He could not excuse himself by taking and acting upon the advice of others; he was bound to exercise his own judgment, but he was entitled to consult his legal advisers and the receiver, who had, in fact, the control over the property, and without whose concurrence no notices to quit could be served and no proceedings in ejectment could be taken. Mr. Kenny, who was also solicitor for the Urban Council, describes how a mass meeting of the tenants invaded the Council chamber and imprisoned the council for some hours, that until June, 1925, when a settlement was at last reached, nothing could be got out of the tenants, that in many cases the arrears were not paid and that there is a still a considerable arrear. He advised Mr. Connor and Mr. Byrne that it would not be prudent to involve the Carr estate in any trouble with their tenants because he knew the spirit that was animating the Council’s tenants and that they were prepared to hold up payment of *189 any rent. Byrne, the receiver, says that a member of the Urban Council, who was a tenant upon the Carr estate and a ringleader of the combination, followed him round when he was collecting rents and advised the tenants in his presence to only pay the ordinary rent. He summed up his evidence by saying. “I don’t believe the tenants would ever have paid what was demanded in the notice of increase, and if I had pressed them to pay the increases I believe they would have joined up with the Kingstown people and refused to pay any rent. During the rest of the time I was receiver this dispute with the Kingstown tenants was going on. I could not do more than I did while acting as receiver if the property were my own.”“The tenants on Carr estate said they would not pay any increase in rent until Dun Laoghaire cases were settled.” If the defendant had been in unfettered control of the situation, he would have had to decide whether he would attempt to enforce payment of an increased rent, or after 1923, of the rates, by a succession of actions and possibly by wholesale evictions, pending which there would be a general cessation of all payments and an accumulation of arrears which might ultimately prove to be irrecoverable. But he had not a free hand in the matter. He had to consider the existence of the mortgage. If the rents were not paid certainly penal interest would accrue upon the mortgage, the premiums upon the policy of insurance would fall into arrear and the policy might be cancelled, and the mortgagees could not be prevented from exercising their power of sale at the most unfavourable moment for the persons interested in the property. They might have refused to jeopardise their security by directing the receiver to bring matters to a crisis Mr. Dickie says that the defendant in that event should have proceeded against them, but it appears that they could have put forward a very convincing case to any claim that could have been preferred against them, especially as not only the receiver, but the defendant and his solicitor were satisfied that it was unwise to press the tenants to extremities. The court would probably have told the mortgagors that if they wanted to carry out their own desires as regards increasing the rent and going to war with the tenants, they had better begin by paying off the mortgage. It is not unimportant to observe that Meredith, J., has decided that the defendant was not guilty of any default up to the end of 1922. But then, he says, “the situation straightened out,” and he adds that “after the Act of 1923 came into force I have not been able to get any satisfactory explanation as to why nothing was done. I have to find as a fact, and I am satisfied that if after the 1923 Act had come into force proper steps had been taken to raise the rents those steps would have been effectual. There might have been a few abortive attempts not to pay rent for a time, but I am satisfied that, even if payment was held up in certain instances, in the bulk of cases the rents would have been recovered.” Now there is really not a shadow of evidence that the attitude of the Carr tenants had been altered in the smallest degree by the passing of the Act of 1923. The plaintiff does not suggest it, the defendant says that until 1925, when the dispute between the Urban Council and their tenants was settled, it was impossible at any time to raise the rents on the Carr property, and that Mr. Monks, his co-trustee, the nominee of the plaintiff Carr, agreed with him, that he discussed the matter repeatedly with Sheridan and Kenny after the passing of the Act of 1923 and that they said the increases would not be paid, that the opposition was too strong” Triston, the Town Clerk, says that they could get nothing out of their tenants, for a long period, not even the old rent, until the settlement in July, 1925, that there was trouble all along between 1923 and 1925, and that they did not get the increased rents in the period after the passing of the Act of 1923. Brennan, the rate collector, deposed that “it would not be possible at all to get possession of any houses in the years 1923 and 1924, and Bennett, the delegate. with Dixon, of the Carr tenants, makes it perfectly clear that they were acting in concert and forming a solid front with the Urban Council’s tenants against any increase, and that this continued after the passing of the Act of 1923 and that “there was no change at all in the attitude of the Carr tenants up to 1925.” Mr. Kenny states that they got no payments from the Council’s tenants until after the series of conferences in 1925, and that the reason no attempts were made to raise the rents of the Carr tenants in 1923 and 1924 was because during all that time the trouble was pending with the Urban Council tenants. He stated to the Judge that the reason no steps were taken upon the passing of the 1923 Act was “the position at the time on the Dun Laoghaire township estate, which was immediately adjoining the Carr estate The combination of tenants was there still, active and ready to oppose any increase of rent. And I considered it advisable and a prudent thing for the trustees of the Carr estate not to take advantage of the 1923 Act till the Council had fixed up with their tenants first.”
The following colloquium took place between the learned Judge and this witness: *190
“Supposing that, as a matter of fact, in 1923 proper notices had been served, supposing that Mr. Connor had come in and said: ‘I don’t care what your advice is, I am going to do my duty, and I will issue notices in all these cases,’ and as a matter of fact you had issued notices in every one of these cases and served them. I would like you now, fairly looking back on it, to say whether you think that the estate has not, as a matter of fact, lost That is to say, if you had issued all these notices and perhaps lain out of your money for months, whether, as a matter of fact, the amount derived by the estate would in point of fact have been greater?”“Well if the trustees had decided to act, and served notices, I have no doubt whatever but that the tenants would have refused to pay all rent . Those who were willing to pay would be terrorised owing to the agitation that existed in the district.”“In 1923?”“In 1923.—The result would be there would be no rents coming in; head rents would have accrued, and rates, mortgage interest, interest on a policy that the estate had, and there was nothing to meet any of these charges.” In face of that uncontradicted testimony from an unimpeached witness of respectable character, who had special knowledge of all the circumstances it is hard to follow the reasoning by which the learned Judge arrived at the conclusion that steps taken to raise the rents immediately after the passing of the 1923 Act would have been effectual and that “in the bulk of cases the rents would have been recovered.” Taking the hypothesis put by the learned Judge, if during the process of lying out of their money for months, the mortgagees had cancelled the policy of insurance, enforced their power of sale, and realised the property upon an unfavourable market, what decree would have been made against the trustee who had defied the advice of his solicitor and the receiver? The fact is that the existence of the mortgage deed and the receiver, and the rights and powers of the mortgagees have been completely ignored in considering the actions of the defendant. He could not jeopaidise the receipt of an income from the estate which would keep down the interest on the mortgage and pay the premiums on the policy, and he could not coerce the mortgagees to act against the conviction and advice of the receiver, with whom he seems to have kept in constant touch and who was in constant communication with Mr Kenny The conclusion to be drawn from the whole evidence appears to be that all parties were anxious to enforce an increase of rent at the earliest moment at which it could be done without imperilling the whole estate by a general strike against all payment.
An attempt was made in this Court to draw a distinction between increasing the rents and extracting the rates from the tenants, and Mr Dickie suggested that it was quite a comparatively simple matter to adopt the latter course, and that all the landlord had to do was to tell the rate collector to levy on the tenants. Of course that is not the case. The burden of the rates, theretofore borne by the landlord, could only be transferred to the tenant in the manner and by the procedure prescribed in the Increase of Rent and Mortgage Interest (Restrictions) Acts The same process by way of notice to quit would have to be followed, and there is no doubt that the same opposition on the part of the tenants would have ensued. Their objection was to paying more, and it was immaterial to them whether the proposed increase was called rent or rates. As a matter of fact, the Urban Council’s tenants were resisting the imposition of rates. not the increase of rents, after 1923. Finally, there was no need for these proceedings. The proceedings instituted by J. H Carr in 1920 are still pending It was open to him to make an application in them at any time for directions, if he was dissatisfied with the inaction of his trustees. He could not, of course, have preferred charges of breach of trust or wilful default but he could have sought the direction of the Court to the trustee to do or refrain from doing anything in the execution of the trust, before any of the suggested loss could have arisen. Instead of that, he lay by till Mr. Monks, his own nominee, was dead, and till two years after Mr. Connor had been discharged from his trusteeship before commencing these proceedings In our opinion, the plaintiffs have failed to prove that the defendant was guilty even of an error of judgment, still less of any wilful default. He appears to have acted upon full consideration of every relevant circumstance, to have consulted at every turn those best qualified to advise him, and not to have committed himself blindly to their guidance but to have weighed the advice they gave in conjunction with his own experience. In our opinion there has been no breach of trust established against him, and the action, which claims no relief upon any other basis, should have been dismissed with costs.
Stacey v Branch
John Stacey (an infant suing by his mother and next friend Marie Monahan) and Marie Monahan v John Branch, otherwise John Carroll, otherwise James Carroll
1987 No. 10357 P
High Court
10 March 1995
[1995] 2 I.L.R.M. 136
(Murphy J)
10 March 1995
Murphy J
In this case the plaintiffs claim against the defendant the sum of £46,960 as damages for breach of trust.
By or pursuant to a deed of trust dated 28 July 1981, the late William Stacey vested in John Branch, the defendant herein, two holdings of registered land in County Meath on each of which a dwellinghouse had been erected, one known as ‘Fairwinds’ and the other as ‘Windswept’ on trust for his infant son, the above *139 named John Stacey, on his reaching 21 years of age subject as to Fairwinds to the right of residence for life for Marie Monahan (formerly Donoghue), the mother of the said John Stacey.
The said John Stacey was born on 8 August 1977 and accordingly will attain his majority on 8 August of this year.
The settlor died in September 1981 not long after he and John’s mother had moved from Windswept to Fairwinds. John Branch, the trustee under the settlement and the defendant herein, was a lifelong friend of the settlor and is the godfather of the said John Stacey to whom he is closely attached. Mr Branch resides and did at all material times reside in England. It is common case that he is a very successful businessman.
The deed of trust is a short document. The operative part thereof is divided into two numbered paragraphs the first of which deals with the Fairwinds property and the second paragraph with Windswept. The trust in relation to Fairwinds provides that the mother is to have a life interest therein subject to the payment of all rates, taxes and insurance and other outgoings thereon and subject thereto the trustee is to hold that property on trust for John on his attaining the age of twenty one years. No issue arises in relation to that property. It is in relation to the Windswept property that the conduct of the trustee is criticised. It is important, therefore, to set out in full the trusts declared of and concerning that property and the powers and duties conferred on the trustee in respect thereof.
Paragraph 2 provides as follows:
In relation to the property described in Folio 20138 County Meath I direct my said trustee to hold this land in trust for my infant son, John until he reaches the age of twenty one and at that stage it is to be transferred to my said son, John Stacey for his own absolute use and benefit. In the meantime my trustee shall have full power to deal with the aforesaid property as he in his absolute discretion shall think fit to include leasing the land on such conditions as the trustee shall think fit and if necessary to sell the aforesaid land. In the event of the land being sold my trustee may purchase other properties to include land in the Republic of Ireland or may invest all or any part of the proceeds of sale in investments for the time being authorised by or for the investment of trust funds and when my said son reaches the age of twenty one years the trust funds or the aforesaid land will be transferred to my son absolutely for his own use and benefit. If there is any income forthcoming out of the property described in Folio 20138 County Meath, this income or any part of the same may at the discretion of the trustees be advanced to Marie Donoghue for the maintenance and education of my son John Stacey.
The proceedings herein were instituted as far back as 11 November 1987. The statement of claim was delivered on 13 February 1991 and the defence on *140 16 July 1991. On the pleadings there appeared to be a dispute between the parties as to what constituted the trust property and the duty of the trustee to deliver accounts. Whatever problems existed in that regard they appear to have been resolved by the delivery of interrogatories and the replies thereto. The issue argued before me was whether the defendant/trustee had managed or dealt with the trust property in accordance with the powers vested in him and with the degree of care (if any) which he was required to exercise in the discharge of his fiduciary duties.
The circumstances in which that issue arose can be stated shortly. When the trust was created in 1981, the premises Windswept were unoccupied. Some months after the creation of the trust, the trustee put Mr Desmond Stacey in occupation thereof as caretaker. It was the evidence of Mr Branch and Desmond Stacey that under the caretaker’s agreement, the caretaker was to protect and keep up the dwellinghouse; to pay all outgoings thereon and to deliver up possession when required by the trustee so to do. It was envisaged that possession would be delivered up when the beneficiary attained his twenty first birthday. The document (if any) recording this arrangement was not produced in court. It is, however, common case that the caretaker was not required to pay any sum by way of rent or mesne rates. Criticism was made of certain works carried out by the caretaker in relation to the attic, the central heating system, the garage and the kitchen. However, it was not suggested that the works carried out were irreversible or that they were carried out maliciously. In general it was accepted that the premises are in a reasonably good condition and the evidence given to the effect that the same premises were in poor condition at the commencement of the trust was not disputed.
Evidence was given by Mr Alain Doyle, chartered surveyor, of the annual open market rental of these premises which are situate near the golf course in Bettystown, County Meath. The estate agent envisaged short term lettings at a monthly rent. He envisaged a succession of tenants over the seventeen years or so which would elapse before the beneficiary attained his twenty first birthday. He was optimistic that tenants could have been found and that, whilst there might have been significant gaps from time to time, in general he believed that it would have been possible to have obtained a succession of tenants paying rents which annualised at figures varying from £1,440 per annum in 1981 to £2,880 in 1994. The total rent which might have been earned in accordance with those figures was £27,060 from which some allowance would have to be made for the cost of management of the property; the collection of the rents and the renewal of the lettings. Mr Doyle gave evidence that a figure of 5% should be allowed to cover those items. It follows that a figure of approximately £25,000 could have been earned by way of rent provided that there was no gap in occupation. Even if one was to assume a 20% unoccupancy, a rental of some £20,000 might have been achieved. In calculating the loss which the beneficiary claims to have *141 sustained, a figure for interest would have to be added to the rent foregone.
It does appear that in December 1982 a contract was entered into for the sale of Windswept to a Mr Michael Vaughan (in trust) for a sum of £35,000. The transaction was not proceeded with in circumstances which were not fully explained. Mr Branch did say that he was not happy that the £35,000 represented the full value of the property but how he extricated himself from the sale is not clear. Apart from that transaction no evidence was adduced of any advice obtained by Mr Branch or any effort by him to advise himself as to the desirability of possible courses of action in relation to the trust property in the 17 years or so before the beneficiary would become entitled in possession thereto. Evidence was given that the present value of the property is in the order of £70,000 and it does appear that it is insured in the sum of £97,871. Indeed, it may be noted that Fairwinds is insured in the sum of £177,635 so that it would seem that the beneficiary and his mother will between them become absolutely entitled to properties worth approximately £275,000 in August next.
Whether the retention and preservation of the property in Bettystown was more advantageous to the beneficiary than the sale of the property in 1981 and the investment of the proceeds thereof in trust securities was not explored in any detail. Certainly it is possible to envisage a sale of the premises and an investment programme which might have a very satisfactory outcome. Presumably the investment of a sum in the order of £33,000 in 1982 on short term deposits or investments might have yielded a high return, at least in the early 1980s, but any growth in the value of the corpus of the fund would depend upon the wisdom or good fortune of the investment policy adopted. Moreover, very complex problems could arise as to the impact of income tax on the income of the fund. However, as between the letting of the property throughout the greater part of the minority of the beneficiary and merely permitting the same to be occupied by a caretaker, there is no doubt whatever as to which course would produce the greater financial return as measured in actual annual income. The only question that could arise is the extent to which the premises would be preserved and their value maintained if they were occupied by a succession of fifteen or so tenants with at least some intervals occurring between lettings from time to time. It is difficult to see that such a programme would not involve considerable wear and tear and perhaps, occasionally, malicious damage which it might not be possible to recover in full from the tenant. Undoubtedly, the danger that the premises might be left unoccupied from time to time would be disturbing. Presumably it could result in very considerable damage to which the only and perhaps necessary alternative would be the provision of extremely expensive security. These are not matters on which detailed evidence was led perhaps for the very practical reason that evidence at this stage could only deal with the matter retrospectively whereas the performance by the trustee of the duties imposed upon him could only be judged by reference to anticipated and *142 prospective considerations. I think all that can be said with confidence is that in deciding to put in a caretaker in 1981/82, the trustee must clearly have realised that he was foregoing a significant rental income and that over a period which it was anticipated would last some 17 years.
What is the nature of the duty imposed upon a trustee? A trustee must, of course, invest trust funds in the securities authorised by the settlement or by statute. To invest in any other securities would be of itself a breach of trust; but, even with regard to those securities which are permissible, the trustee must take such care as a reasonably cautious man would take having regard not only to the interest of those who are entitled to the income but to the interest of those who will take in the future. In exercising his discretion a trustee must act honestly and must use as much diligence as a prudent man of business would exercise in dealing with his own private affairs; in selecting an investment he must take as much care as a prudent man would take in making an investment for the benefit of persons for whom he felt morally bound to provide. Businessmen of ordinary prudence may, and frequently do, select investments which are more or less of a speculative character; but it is the duty of a trustee to confine himself not only to the class of investments which are permitted by the settlement or by statute, but to avoid all such investments of that class as are attended with hazard.
Neither party dissented from the foregoing views taken from the leading textbooks and based on the decision of the House of Lords in Learoyd v. Whiteley (1887) 12 App Cas 727. Counsel on behalf of the plaintiffs emphasised the matter of fact that the beneficiary was at all material times an infant in need of financial support and asserted the proposition of law based on the decision in Charles v. Jones (1887) 35 ChD 544 that a trustee is bound to set aside trust monies in such a way ‘as to be fruitful for the benefit of the persons beneficially entitled to it’. However, without necessarily accepting either proposition, I am convinced that the course adopted by Mr Branch in relation to the property at Bettystown would not have amounted to an adequate discharge by a trustee of his duties as such in the absence of special authority or provision in that behalf.
Counsel on behalf of Mr Branch draws attention to the fact that the trustee was given, in certain respects at any rate, an ‘absolute discretion’ and it is asserted that provided that such discretion was exercised honestly it was not open to review by the court or capable of giving rise to an action for breach of trust. Reliance upon a discretion expressed to be absolute can be deceptive. In Snell’s Equity , 29th ed. at p. 225 the authors comment as follows:
However wide the language of such clauses, they give the trustee an absolute discretion in appearance only; as in the case of all discretionary powers, he must act honestly and with ordinary prudence. If, therefore, he selects an investment for the purpose of making a private gain, or if at the request of an importunate cestui que trust he invests the trust funds in notoriously doubtful security, even though it may be expressly authorised, he would be liable for any resulting loss.
That quotation is perhaps misleading. It is true to the extent that words such as ‘absolute discretion’ would not necessarily relieve a trustee from his duty to exercise reasonable care and prudence. On the other hand there is no doubt that an absolute owner of property can settle his affairs in such a way and on such terms as would relieve his trustees from the responsibility to exercise the degrees of care and prudence which would otherwise be inferred (see Gisborne v. Gisborne (1877) 2 App Cas 300 and Tabor v. Brooks (1878) 10 ChD 273). At the end of the day the extent of the obligations imposed on a trustee or the degree to which he is relieved from responsibilities ordinarily assumed is a matter of the construction of the terms of the document under which the trustee is appointed.
The brief paragraph dealing with the trust of Windswept contains a number of clear provisions. First, the trustee was directed to hold the particular land in trust for John Stacey. The trustee was to hold Windswept and, subject to the exercise of any of the powers conferred on him, to transfer that property to the beneficiary as and when he attained the age of twenty one years. Secondly, no part of the trust property and in particular the trust of Windswept comprised or included liquid assets so that there was no fund available from the property as settled with which to make advances for maintenance or education or even to discharge such costs as might properly arise in the administration of the trust. Thirdly, it was expressly provided that ‘in the meantime’ — that is between the date of the trust deed and the attainment by the beneficiary of his majority — ‘the trustee should have full power to deal with the aforesaid property as he in his absolute discretion shall think fit’. The powers of dealing with the property were expressed as including leasing the land on such conditions as the trustee should think fit and selling the land but in the latter case it is to be noted that the power to sell the land only arose if a sale was, or became, ‘necessary’. Fourthly, the trusts declared of this property expressly provided that in the event of it being sold, the monies realised, to the extent that they were to be invested in funds, were required to be invested ‘in investments for the time being authorised by or for the investment of trust funds’. Fifthly, it was expressly provided that in the event of any income being derived from the property known as Windswept, the trustees might at their discretion advance the same to Mrs Monahan for the maintenance and education of her son.
There is, therefore, an extraordinary emphasis placed on the discretion conferred upon the trustee to deal with the property as originally settled. It is in relation to that, and that alone, that ‘full power to deal with’ and ‘absolute discretion’ is conferred. Cash investments are limited expressly to trust securities and the sale of the property could only be permitted to the trustee or justified to a purchaser by establishing that such a sale was ‘necessary’. The power of leasing which is included in the power ‘to deal’ is to be on conditions as the trustee ‘thinks fit’.
Further assistance may be obtained by contrasting the trusts declared of Fairwinds with those declared in respect of Windswept. In relation to the former he expressly provided for the keeping of the property in a reasonable condition have regard to its age and condition where no such provision was made in explicit terms at any rate for Windswept.
It is clear that the settlor intended that Windswept should be kept by the trustee and ultimately transferred to his son. That would necessarily involve taking some steps to preserve the property between the creation of the trust and the property vesting in possession in the beneficiary. No funds were provided for that purpose. It was in those circumstances that the settlor purported to confer on the trustee ‘full power to deal with the aforesaid property as he in his absolute discretion shall think fit’. In my view, the settlor meant what he said. He intended the trustee to have and to exercise his own honest but absolute discretion as to how this basic objective should be achieved. I am satisfied that the decision of Mr Branch to put the premises in the occupation of Mr Desmond Stacey was a decision made bona fide in pursuance of that discretion. It was not made with the dominant intention of benefiting Mr Desmond Stacey, though no doubt it did have that effect. Nor do I believe that the decision was made for the trustee’s own convenience. Whilst I doubt that any competent valuer or other expert would have recommended or approved the course adopted by the trustee, I do have some sympathy with Mr Branch’s viewpoint. He expressed his view that the sale of the property and the investment of the proceeds in shares would not necessarily have provided a good solution. He was sceptical of the wisdom of investing in shares. Likewise, he was critical of the solution which involved lettings to a succession of tenants. He is entitled to say that the property has, by and large, been well preserved over the past fourteen years and he states with confidence that it would be vested in the beneficiary on his majority in that good condition. Unusual though the trustee’s attitude has been and unsupported by expert evidence as it is, I believe that his decision was honestly made and that it was made in exercise of the discretion which the settlor conferred on the trustee and reflected the trust and confidence reposed in him. In these circumstances it seems to me that an action for breach of trust must fail and I will dismiss the claim accordingly.
Hubert Murphy v Allied Irish Banks Ltd
1984 No. 7848P
High Court
4 February 1994
[1994] 2 I.L.R.M. 220
(Murphy J)
4 February 1994
MURPHY J
delivered his judgment on 4 February 1994 saying: The plenary summons herein was issued on 15 October 1984. The wrongdoing alleged to have been committed by the defendant occurred or commenced some 20 years earlier. The plaintiff contends that the defendant bank realised certain assets, the property of his late mother, which were held by the bank by way of security and that the bank having discharged the debt due to them failed in their duty as trustees to invest the surplus for the benefit of those entitled thereto.
The matter arose in this way. Margaret J. Murphy owned the lands comprised *223 in Folio 876L in the County of the City of Dublin upon which had been erected the premises known as 84 Mobhi Road, Glasnevin, in the County of Dublin. By an instrument of charge dated 13 February 1957, Mrs Murphy charged the said premises in favour of the defendant bank (then the Munster and Leinster Bank Ltd). Mrs Murphy died on 26 December 1962. She left her surviving eight children, including the above named plaintiff Hubert Murphy and his eldest brother Patrick Murphy. Letters of administration were not extracted by the plaintiff herein until 18 February 1987 and it appears therefrom that the gross value of all of the estate of the deceased was £3,100 and that the net value thereof amounted to £2,742.
On 4 November 1965 the bank sold the property for £4,081. The bank contends that the costs of realisation and the amount due on foot of the security totalled £2,103 and that the balance of £1,980 was discharged by crediting the same to an account in the bank in the name of the deceased.
Whilst the plaintiff admitted that the security had been properly realised he disputed the amount claimed by the bank to be due on foot of the security and more particularly he contended that the bank held the balance — whatever it was — as trustee and that as such it was bound to invest it, or at any rate to ‘apply it fruitfully’ for the benefit of the estate of its customer.
The issue as to the amount due on foot of the security turned essentially on whether the bank was entitled to discharge out of the proceeds of sale certain sums due to it by a company known as Royal Candy Ltd.
The only basis on which the bank could have discharged the indebtedness of Royal Candy Ltd would be that the deceased had guaranteed the liabilities of that company. The bank were not in a position to produce any such guarantee but that is not altogether surprising seeing that the transaction is now nearly 30 years old. What is known about Royal Candy Ltd is that it had been a business in which the husband of the deceased had been engaged prior to his death in 1949. Mrs Murphy subsequently took over the business and when her eldest son Patrick left school at the age of 18 he joined her in that business. Some time later the partnership business was incorporated and both Mrs Murphy and Patrick Murphy held shares therein. It does appear from a letter dated 3 April 1968 from the Munster and Leinster Bank Ltd to Patrick T. Murphy, that the bank held a joint letter of guarantee from Patrick Murphy and his wife in respect of the liabilities of Royal Candy Ltd. If the bank had insisted on obtaining a guarantee from Mr Patrick Murphy who was a young man and a junior ‘partner’ in the enterprise (and indeed from his wife who had no interest in the business at all), surely it is at least highly probable that the bank also obtained a guarantee from his mother who was more closely associated with the business and for a considerably longer period than any member of her family. In the circumstances I am satisfied on the balance of probabilities that the bank was entitled to discharge the debts due to it by Royal Candy Ltd out of the proceeds of sale of *224 the house owned by the deceased and charged in favour of the bank. No serious challenge was made in respect of the other deductions made by the bank out of the proceeds of sale, nor was its right to sell the property disputed.
The remaining issue between the parties is whether the bank is liable to pay interest (or profits) to the plaintiff on the balance of £1,980 remaining in its hands after the discharge in November 1965 of the debts and expenses aforesaid.
The plaintiff contends that the bank were and are express trustees of the balance aforesaid. In fact it is not disputed that this is so (see the Conveyancing Act 1881 s. 21(3) and Banner v. Berridge (1881) 18 ChD 254 at pp. 260-70). What the defendant contended was that by paying the surplus into an account in the name of the deceased it had discharged its obligation as trustee. Whilst I appreciate that the bank was placed in a somewhat difficult position, I do not accept that it was entitled to discharge the obligations imposed upon it in that manner. Placing the balance in an account in the name of the deceased did not constitute payment, it was simply a procedure by which payment could be made conveniently when sought by the personal representative of the deceased.
Understandably the plaintiff relies strongly on the decision in Charles v. Jones (1887) 35 ChD 544. In that case a mortgagee sold under his power of sale and retained the surplus proceeds of sale. In those circumstances Kay J stated, and answered, the material question in the following terms at pp. 549–550:
Then the question remains as to his liability to pay interest upon the balance of purchase-money in his hands. I have never heard it doubted that where a mortgagee sells, and has a balance in his hands, he is a trustee of that balance for the persons beneficially interested. He takes his mortgage as a security for his debt, but, as soon as he has paid himself what is due, he has no right to be in possession of the estate, or of the balance of the purchase-money. He then holds them, to say the least, for the benefit of somebody else, of a second mortgagee, if there be one, or, if not, of the mortgagor. What, then, is he to do? Surely he has a duty cast upon him. His duty is to say, ‘I have paid my debt: this property which is pledged to me, and in respect of which I now hold this surplus in my hands, is not my property. I desire to get rid of this surplus, and hand it back to the person to whom it belongs’. It is said there was a difficulty in the way of his doing that, because there was no trustee of the will, and consequently no one to whom the money could be paid. But it has long since been held that a mere stakeholder may avail himself of the Trustee Relief Act and pay the money which is in his hands into court. The duty of this mortgagee was at least to set this money apart in such a way as to be fruitful for the benefit of the persons beneficially entitled to it. To that extent and in that manner he was, according to my understanding of the law, in a fiduciary relation to the persons entitled to the money.
The actual remedy afforded by the court is set out at the conclusion of the *225 judgment in the following terms:
I hold, therefore, that the defendant Jones is liable to pay interest at 4% upon the money remaining in his hands after he had paid himself his debt and costs. That amount is now known, and he must be charged with interest upon it from the date of the completion of the sale, and, as I have said, I cannot give many costs of the accounts.
It is well recognised too, that as an alternative to the payment of interest on trust monies a trustee may be required to pay the profits of a business successfully carried on by him with trust monies. That proposition is illustrated by the decision in In re Jarvis, Edge v. Jarvis [1958] 1 WLR 815. That decision is relevant also in as much as it established that the claim of a beneficiary for a share in such profits may be defeated by laches or acquiescence. However, apart from any particular defence which the bank might have to the plaintiff’s claim for a share of profits, I do not accept that the plaintiff proved or could by any possible evidence adduced on the cross-examination of a manager of the suburban branch of the defendant bank prove what profits earned by the bank during the relevant period might be attributable to the sum of £1,980.50 retained by the bank and perhaps used by it in the ordinary course of its business.
In my view the plaintiff is prima facie entitled to an appropriate rate of interest on the balance remaining from the sale of the property charged.
Evidence was given as to the amount which might have been earned if the balance in question had been invested in a given building society over the relevant period of years. I do not accept that that is a correct approach to the problem. Where a trustee is empowered and required to invest trust monies within any range of investments authorised by the deed of trust or by statute and he neglects to do so the extent of his liability can only be determined on the basis of the yield which would have accrued to the trust fund by investment in the security least beneficial to the trust fund as there is no basis for assuming that the trustee would have exercised his discretion — if he exercised it at all — in a more effective manner (see Shepherd v. Mouls (1845) 4 Hare 500). Moreover it might well emerge that if trustees did invest trust monies in prudent trustee securities or investments over the period in question in the present case that, whilst a substantial income might accrue to the trust fund, there could be a very significant loss of capital. As I understand it, a fall in capital values is the necessary economic corollary to an increase in gilt yields. It would seem to me that the correct manner of determining the rate of interest chargeable to a trustee would be either by reference to the court rate of interest or to the yield on a deposit account payable on demand with a licensed bank.
The court rate of interest would seem to provide a clear and uncontroversial figure on which to base calculations. On the other hand it is quite obvious that *226 the figure of 4% would be quite inappropriate during the 1970s and 1980s. In fact as far back as 1961 Kenny J drew attention to the fact that the court rate of interest at 4% was unrealistic and fixed the rate himself at that stage at 6% (see Law v. Robert Roberts & Co. (Ireland) Ltd [1964] IR 306). No analysis has been made of interest rates for the purpose of the present proceedings but I do note that the deposit rate paid on the account to which the balance was credited on 2 April 1981 yielded a rate of 11% from that date until 6 August 1982. This would suggest to me that the figure as determined by Kenny J may not have been appropriate in the following decade. I do not think that I will be doing an injustice to either of the parties, if on the basis of the limited information available to me, I took a rate of 8% as being appropriate. As the balance was from April 1981 invested on a deposit account in respect of which the rates of interest have been identified there is no need to adopt a notional figure in respect of that period. I would conclude, therefore, that prima facie the plaintiff is entitled to interest at 8% from the date of the realisation of the secured property to April 1981 and the rates payable for a deposit account as set out in the reply to the notice for particulars dated 6 December 1988 thereafter.
The next question concerns the application of the statute of limitations to the plaintiff’s claim herein.
For the purposes of the argument in relation to the barring of the plaintiff’s claim, the essential dates are first, 9 November 1965 when the balance of the proceeds of sale of the mortgaged property came to the hands of the defendant and secondly, 15 October 1984 when the proceedings herein were instituted. There are, however, further dates and events which may be of some significance. As already noted the bank wrote to Mr Patrick Murphy, the eldest son of the deceased, on 28 December 1966 as part of what appeared to have been a continuing correspondence acknowledging the sale of the property and setting out in the clearest possible terms the amount realised and the balance received by the bank. That letter was also significant in that it referred to the fact — subsequently agreed by all parties — that the deceased was heavily committed in respect of tax obligations. Again the letter from the bank dated 7 February 1969 is relevant to the extent that the bank invited discussion with the deceased’s family in the following terms:
Regarding your late mother’s estate I should be happy to explore the position if you would kindly arrange to have those members of your family resident in Dublin call on me for a discussion. It would not be feasible in the absence of probate to deal with the monies accruing to your mother’s estate.
It was ten years later in 1979 that the plaintiff, Hubert Murphy, at the request of his brother Patrick, contacted the manager of the Westport branch of the defendant bank and spoke to his own manager there, a Mr Dermot Bligh about *227 his mother’s estate. He enquired whether there was any residue in the estate and two or three days later the manager — presumably having contacted his colleagues in Dublin informed Mr Hubert Murphy that there was ‘a trivial amount of money — not worth pursuing’. It was clear from the evidence that Mr Hubert Murphy felt aggrieved by this conversation. He believed that he was misled by the bank though not by Mr Bligh personally who enjoyed his friendship and respect. Indeed the plaintiff clearly felt that the bank authorities were deliberately misrepresenting the position. It is difficult to understand why the plaintiff should have that impression. It is clear that the balance in the hands of the bank was less than £2,000 and, as I say, that there were very considerable tax liabilities which all parties believed would have absorbed any available balance. In addition, the reality of the matter was and is, that on an intestacy the eight children of the deceased would be entitled to equal shares so that the actual benefit to any child was hardly a matter of significance. However, even more important, as I see it, is that the bank had disclosed to Mr Patrick Murphy as early as 1966 very fully and clearly how it had dealt with their security; how it applied the proceeds and the precise balance received by it. If there was a breakdown in communications it would seem to me that the breakdown was between the members of the Murphy family and not between the bank and its customer.
The matter was next revived in 1981 when Mr Patrick Murphy and his brother Hubert happened to be driving in the Dublin area and Patrick suggested that they should go to the Drumcondra branch of the defendant bank and enquire about their mother’s estate. Notwithstanding the information then provided, the solicitors on behalf of the plaintiff wrote on 6 July 1982, to the manager of the Drumcondra branch of the defendant bank seeking particulars of the amount standing to the credit of the account and the interest accruing thereon.
Although the proceedings were instituted in 1984 letters of administration were not taken out by the plaintiff until 18 February 1987. Even then he does not appear to have sought payment of any part of the monies to which the deceased was entitled but instead maintained the existing proceedings and in addition made representations to the bank in December/January in 1992/1993 with regard to the rate of interest accruing on the deposit account standing in the name of the deceased. Whilst it is understandable that a client might be surprised to see the comparatively modest rate of interest payable on a demand deposit account at that time when very high rates were being offered on a variety of different bank accounts, it seems to me that there was nothing whatever improper in the conduct of the bank. Indeed the real question arises as to why the plaintiff having taken out — albeit belatedly — letters of administration, did not take up whatever sum was available and invest it in whatever manner he thought appropriate. The Statute of Limitations Act 1957, s. 43 provides that:
*228
… an action … in respect of any breach of trust … shall not be brought against a trustee or any person claiming through him after the expiration of six years from the date on which the right of action accrued.
That limitation is subject to the provisions of s. 44 which, like s. 8 of the Trustee Act 1888 which it replaced, provides that the limitation period aforesaid should not apply where:
(a) the claim is founded on any fraud or fraudulent breach of trust to which the trustee was party or privy, or
(b) the claim is to recover trust property or the proceeds thereof still retained by the trustee or previously received by the trustee and converted to his own use.
As the fraud required by s. 44 must amount to dishonesty (see Collings v. Wade [1896] 1 IR 340) there is no question whatever of fraud existing in the present case and secondly there is no question of the trustee/bank retaining trust property in the form of income thereon: the whole complaint of the plaintiff is that the trustees committed a breach of trust by their failure to obtain such interest and accordingly there is no question of their retaining it.
Whilst it was suggested that the limitation period might be extended by virtue of an acknowledgement alleged to have been given by the bank it was not established that an acknowledgement within the meaning and for the purposes of Chapter III of the 1957 Act had any application otherwise than in respect of a recognition of the title of a claimant to certain lands, mortgages, property and, more particularly to a ‘debt’. Apart from the absence of any recognition by the defendant that it might be liable for any breach of trust no convincing argument was made to the effect that the doctrine or rules in relation to acknowledgement had any application to an action for breach of trust. The fact that a trustee is and admits liability for trust monies and is accountable therefor does not prevent the statute running. The claim for an account or any monies which might have been due on the taking thereof in respect of any wrongdoing which occurred more than six years before the date of the claim in respect of such an account is barred subject only to the provisions of s. 44 of the 1957 Act (see How v. Earl of Winterton [1896] 2 Ch 626).
In my view, therefore, the defendant is liable to pay interest at the rate of 8% per annum on the sum of £1,980.50 from 15 October 1978 with annual rests up to 2 April 1981 and thereafter interest on the credit balance so calculated as of 2 April 1981 thenceforth at the rates of interest allowed by the bank and set out in the notice of reply to particulars dated 6 December 1988. Clearly this will involve a recalculation so as to take into account interest for a period of some four years at 8% on the sum on which the rates actually allowed by the bank should be calculated. Perhaps the actuary engaged by the plaintiff would make the appropriate calculation and submit it to the bank for confirmation by them.
In the event of disagreement the matter could be remitted to the examiner, but one must question whether the sums involved would justify the expense and delay which would be involved in any form of further litigation or administration.
O’Shea v O’Shea
High Court of Justice.
Chancery Division.
7 November 1878
[1878] 12 I.L.T.R 134
Sullivan M.R.
By an indenture, dated 22nd October, 1836, between Thaddeus O’Shea, the principal defendant in the suit, of the first part, Edward C. Quinlan of the second part, Margaret Quinlan of the third part, and Edward D. Quinlan and Henry O’Shea, trustees of the deed, of the fourth part, it was agreed, in contemplation of the intended marriage between Thaddeus O’Shea and Margaret Quinlan, that a sum of £1,500 should be transferred to the names of the trustees, in trust, and that after the solemnisation of the intended marriage, they should invest such money, and pay the proceeds thereof to Thaddeus O’Shea for his life, and after his decease to his wife, Margaret for life, and after the death of the survivor of them in trust for the children of the marriage in such shares as Thaddeus O’Shea should appoint. This deed authorised the investment of the trust fund upon “approved personal security.” Shortly after the marriage Edward D. Quinlan died, when Henry O’Shea became sole trustee. There was issue of the marriage two children, a son and a daughter, who were made co-defendants to the suit. Thaddeus O’Shea and his wife having occasion for a sum of £500, applied to, and obtained from Henry O’Shea a loan for that amount out of the trust fund, assigning as a security for the debt a policy of assurance effected by Thaddeus O’Shea upon his own life with the National Loan Fund Life Assurance Company.
In order to provide a fund for the punctual payment of the premiums upon this policy, Thaddeus O’Shea, by an indenture of the 16th of February, 1842, assigned to the trustee the yearly interest arising, during the life of Thaddeus O’Shea, from the sum of £1,000, being the residue of the trust fund of £1,500, to hold upon trust, and out of it to pay the yearly premiums upon the policy of assurance, and the balance to him (Thaddeus O’Shea). The National Loan Fund Life Assurance Company having in the year 1869 gone into liquidation, the policy of assurance was cut down, and converted into a policy for £250. Henry O’Shea died in the year 1863, having appointed his wife Catherine O’Shea, the plaintiff in the cause, the sole executrix of his will. After his death and until the date of the suit she continued to apply the annual income arising from the £1,000 under the trusts of the deed of the 16th of February, 1842, to the payment of the premiums upon the policy of assurance, and the balance to the defendant, Thaddeus O’Shea. She now sought to have the trust fund recouped by the defendant, that new trustees should be appointed, and that the assets of her deceased husband, Henry O’Shea, should be released from all liabilities in respect of the trusts mentioned.
Walsh, Q.C. (with him, S. Walker, Q.C., and E. Meares Kelly ) for the plaintiff. It is plain that a breach of trust has been committed: Keays v. Lane, I. R. 3 Eq. 1. The trustee must be recouped by the tenant for life: Raby v. Ridehalgh, 7 De G. M. & G. 104; and his interest in the trust fund should be impounded until the sum taken out of it has been made good. He, also, cited Taylor v. Taburm, 6 Sim. 281; Langston v. Ollivant, G. Cooper, 33.
Houston, for the defendants.—There has been no breach of trust, because the investment clause of the marriage settlement empowered the trustee to invest the fund upon personal security: Pickard v. Anderson, L. R. 13 Eq. 608. In Keays v. Lane (ubi sup.) it was admitted that there had been a breach of trust, and the only question raised was whether the estate of the tenant for life should be impounded. Personal security does not necessarily mean that there should be security upon personal property. The only cases where it has been decided that lending upon personal security is a breach of trust are cases where the fund has been lent to one of the trustees:_______; v. Walker 5 Russ. 6; Stickney v. Sewell, 1 Myl. & Cr. 8.
Sullivan, M.R.
I am clearly of opinion that a breach of trust has been committed. Keays v. Lane, and Raby v. Ridehalgh, are decisive on the subject. I do not think it can be held that a trustee who has power to lend money upon “approved personal security” can lend to the tenant for life, because that would be accommodation, not investment. There is no distinction between a loan to the trustee or to the tenant for life. The meaning of approved personal security is such security as would be approved of by any man of common sense. The right of the trustee is quite clear to have the fund replaced. A policy of assurance is not a good security; for instance, if the assured person committed suicide, the policy would be void. It must, therefore, be immediately sold, and the estate of the tenant for life impounded, to make up the sum of £500 lent to him out of the trust fund. The gentlemen named in the statement of claim should be appointed new trustees of the settlement. I make no order as to costs.
Dully v Athlone Town Stadium Ltd & anor
(Approved) [2018] IEHC 209 (12 April 2018)
URL: http://www.bailii.org/ie/cases/IEHC/2018/2018IEHC209.html
Cite as: [2018] IEHC 209
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Page 1 ⇓BETWEENTHE HIGH COURTDAVID DULLYANDATHLONE TOWN STADIUM LIMITEDANDFOOTBALL ASSOCIATION OF IRELAND(No. 1)[2018] IEHC 209[2017 252 S.P.]PLAINTIFFDEFENDANTNOTICE PARTYJUDGMENT of Mr. Justice Richard Humphreys delivered on the 12th day of April, 20181. This case illustrates several questions relating to trust law, particularly the question of removal of trustees. The case involves anumber of inter-related interests:(i) Firstly, Athlone Town Athletic Football Club, an unincorporated association which has existed since 1887. The club, andtherefore the members of the club, are the beneficiaries of the trust.(ii) Secondly, David Dully, the plaintiff who sues as the appointed nominee of those beneficiaries nominated in that behalfby the executive committee of the club prior to the commencement of the proceedings and in his own right. He was alsoappointed as a trustee of the club itself in 2014.(iii) Thirdly, Athlone Town AFC Company limited by guarantee, a company set up by the members of the club in 2015 as avehicle for them to act in a legal capacity.(iv) Fourthly, Athlone Town Stadium Ltd., the trustee of the trust.2. I have been assisted by Mr. John Paul Shortt S.C., and Mr. Martin Durack B.L. who addressed the court for the plaintiff, and Mr.Michael Forde S.C. and Mr. Laurence Masterson B.L. who addressed the court for the defendant. There was no appearance at thehearing by the Football Association of Ireland, the notice party.General findings of fact3. The Athlone Town Football Club was founded in 1887. It the oldest soccer club in Ireland. From 1927 onwards, St. Mel’s Park hadbeen the home of the club. Mr. Dully avers that St. Mel’s had been home to many exciting games down through the years, the mostfamous of which was the visit of A.C. Milan in 1975. The club also prosecuted two successful league campaigns in 1981 and 1983. Asof 2004, new FAI licensing regulations imposed by UEFA meant that a new stadium was required. In 2004, the defendant companywas incorporated to facilitate that. The last surviving trustee of the club, Mr. Johnny Keena, now deceased, executed a transfer ofthe St. Mel’s ground to the trustee company, the defendant, who transferred the property to Westmeath County Council in exchangefor an 8.5-acre site at Lissywollen, Folio 30190F Co. Westmeath, which is the property in question in these proceedings. The equity inthe defendant company is currently held as to 97% by Mr. Declan Molloy and as to 3% by Mr. Kieran Temple and Mr. Paddy McCaul.The company has no assets other than the trust property. It appears that the cost of the stadium was something in the order of €4.5million, funded by lottery monies in the amount of €2.5 million approximately and donations and payments in the amount ofapproximately €2 million, which includes whatever sum was put in by Mr. Molloy into the defendant company which he says is around€665,000. The stadium was completed in 2007 and the first match was played in that year. I accept the evidence on behalf of theplaintiff that it was widely reported that a “mystery donor” had cleared off the debts of the club, that everyone knew about it, thatit was widely reported in national media, social media and local media and was always discussed in terms of being a gift.4. On 23rd February, 2007 a purported lease was entered into between an officer of the club, Mr. Paddy McCaul, and the defendant.Certain provisions of this lease were contrary to the club’s de facto position regarding use of the stadium and no rent payments wereactually made. A further proposed memorandum of agreement was entered into in 2012 but no executed copy has been found. Mr.Dully believes and I accept that it was never acted upon. Mr. Dully says and I accept that the intention was that two leases were ofno legal purport and did not create a leasehold interest in favour of the club. He said that the club was incentivised into entering thelease at the request of the defendant to facilitate the defendant reclaiming VAT on the building. He says and again I accept that noaccount was ever forwarded to the plaintiff in respect of VAT repayment.5. In December, 2012 Mr. John Hayden was appointed as chairman of the club. He was concerned with the standard of maintenanceof the grounds by the defendant. Mr. Dully avers and I accept that the defendant had neglected to carry out maintenance, allowingthe stadium to fall into a state of disrepair. After the property was subjected to a flood, no reinstatement work had been undertaken.On 18th January, 2013 a letter was sent to Mr. Tom Burke, project manager of the defendant, raising some of these concerns. Theresponse was that the defendant owned the property. There was therefore a failure to acknowledge the trust. Following thecorrespondence, the club became understandably concerned as to the status of ownership of the stadium. Mr. Dully averred that theclub became concerned that Mr. Molloy had claimed a right to sell the stadium without resort to the club in early 2013. He was notchallenged on that averment. On 8th December, 2014 the club appointed Mr. Dully as a trustee.6. On 23rd April, 2015 a deed of trust was entered into, an important document in the context of these proceedings. It was executedby John Hayden and David Dully as the executive committee of the club and by the defendant. The recitals to the declarationprovided at para. B that the legal title to the property has at all times been held by the defendant on trust for the executivecommittee of the club as beneficial owner. It goes on to recite at para. C that all funding required for the development of theproperty was provided for and onto the use of the beneficial owner. The declaration then provided at para. 1 that the trusteedeclares that it holds the title on trust for the beneficial owner and will deal with the property at all times only as directed by thebeneficial owner and on behalf of the beneficial owner and will at the request of the beneficial owner convey the property to suchPage 2 ⇓persons at such times and in such a manner as the beneficial owner shall direct. Clause 2 provided that the beneficial ownercovenants “to indemnify the defendant company in respect of all present and future liabilities, actions, proceedings, claims,demands, duties and taxes and all associated interests, penalties and costs and all other costs and expenses whatsoever in respectof the property”. On the same date a 35-year lease between the parties was entered into with effect from 1st January, 2014 at arent of €10,000 per year. The plaintiff’s evidence, which I accept, is that the landlord’s outlays in respect of the stadium were thebasis upon which the rent was agreed.7. On the 20th July, 2015 the club formed a company, Athlone Town AFC Co. limited by guarantee, to which I have referred.8. On 25th April, 2016 Mr. Hayden wrote to the defendant setting out various failures of the defendant to deal with matters andrespond to correspondence and stated that the letter terminated the relationship between the defendant and the beneficial ownersand called upon the defendant to convey the property to Mr. Hayden and Mr. Dully as trustees of the club. That was not done. Aninitial payment was made of €2,500 towards building insurance by the club. On 16th October, 2016 the defendant solicitors wrotesaying that insurance had not been put in place. Correspondence was then issued to the defendant solicitors in relation to thatmatter and seeking copies of quotations and policies. That correspondence remains unanswered. On 9th February, 2017, furthercorrespondence was issued on behalf of the club calling on the solicitors for the defendant to draw up all documentation necessaryfor the purpose of terminating the trust and executing the conveyance in favour of the trustees of Athlone Town AFC. On 27th April,2017 a further letter was sent pointing out the failure of the defendant to act on that request and pointing out that therefore legalproceedings would be necessary.9. The club has secured capital sports ground funding in the amount of €200,000 for the provision of an Astroturf facility. Works hadto be completed by the end of October, 2017 to enable the drawdown (later extended to the end of September, 2018). An issuearose because the plaintiff’s interest in the property was not capable of being registered in the property registration authority andwas therefore incapable of holding a charge as was a requirement of the grant funding. Efforts between the parties to resolve thatdispute were not successful. The defendant as trustee failed to take all necessary steps to facilitate the securing of the grant. On19th May, 2017 the plaintiff was authorised by the executive committee of the club to bring the present proceedings.Procedural history10. The special summons was issued on 19th June, 2017 seeking to remove the defendant as a trustee and replacing it with anothertrustee, the company set up by the members. On 28th June, 2017 an AGM was held and passed a resolution transferring the clubaffairs to the AFC company. An application was then made to Binchy J. on 23rd August, 2017 who allowed short service of a motiondated the same date seeking an order dispensing with the requirement for the consent of the defendant as registered freehold titleowner for the registration of the lease. That led to an agreement between the parties on 30th August, 2017 that the defendantconsented to the lease being registered but that consent would not prejudice its indemnity and that it would not be estopped fromdisputing the locus standi of the plaintiff. It turns out however that the lease could not be registered and would have to be re-executed. The defendant refused to agree to re-executing the lease.11. On 12th September, 2017, O’Connor J. allowed re-entry of the matter and a motion was then issued, filed on 12th September,2017, of which only an undated copy has been included in the Book of Pleadings furnished to me, seeking to relist the motion and“clarify” the consent order. That was adjourned to the 13th and then the 15th and ultimately the 25th September, 2017. On the 25thSeptember, 2017 the motion was, according to the note on the perfected order, “adjourned” to allow the plaintiff to specify whatprecise clarifications were required and liberty was given to issue a notice of motion returnable for the Chancery list on 4th October,2017. Also liberty was given to the defendant to issue a motion but that does not seem to have been taken up and it is not clear atthis stage what that referred to.12. My intention in dealing with the matter on 25th September, 2017 was that the original motion was to be struck out in favour ofthe more detailed motion that was to be issued, although that was not in fact stated in a formal order at that time.13. The plaintiff then issued a further more detailed motion dated 28th September, 2017 seeking “such order as is deemed necessaryto provide clarification in respect of the terms of the consent order”. I dismissed that application on 6th November, 2017 because itseemed to me that (a) it went beyond the previous order made on consent so it was not a question of clarifying that order (b) itpossibly went beyond the pleadings as they then stood and (c) there was an element of substantive relief being sought in the motionrather than interlocutory relief. However, I gave the plaintiff liberty to amend the pleadings. The plaintiff then brought a motion onthe 18th December, 2017 under O.15 r.9 seeking a representative order in favour of the plaintiff. However, at the hearing of thatmotion, the plaintiff did not ultimately pursue that. In lieu of that, I made an order on 29th January, 2018 allowing a furtheramendment. The formal order on the latter date did not specifically dispose of that motion but my intention was that it be struck out.An amended special summons was then delivered dated 2nd February, 2018. The defendant then brought a motion dated 8th March,2018 seeking dismissal of the proceedings, security for costs and a pre-emptive costs order. It is agreed that I would adjourn thatmotion to the hearing of the action. On the 20th March, 2018 I gave short service to the defendant to bring a motion which wasbrought returnable for that Friday seeking discovery and particulars and seeking a vacation of the trial date. On 23rd March, 2018, onhearing that motion, I gave liberty to the defendant to cross-examine the plaintiff on his affidavit of discovery and gave liberty to thedefendant to file a further affidavit.Matters before the court14. What is before the court are the reliefs sought in the special summons and Mr. Forde’s motion to strike out the proceedings. Thetwo previous motions that I have referred to brought by the plaintiffs that were disposed of but not formally struck out so shouldperhaps be struck out now for formal purposes to clarify matters.Defendant’s preliminary objections15. After the opening of the case on 10th April, 2018 the defendant made a number of preliminary applications.16. Firstly, Mr. Forde referred to the claim at para. 1(i) of the defendant’s motion of 8th March, 2018 seeking dismissal of theproceedings because of the lack of a verifying affidavit but he indicated this was not now being pursued.17. Secondly, he objected to what he said were the plaintiff’s late affidavits, said was seeking an adjournment of the trial and that ifthey were being allowed he wanted to rely on the replying affidavits of Declan Molloy filed on 9th April, 2018 and an unfiled one swornon 10th April, 2018 and wanted liberty to file any further affidavits in the course of the trial itself “to mend my hand” as was put byMr. Forde. After some discussion it was agreed by consent that the trial would not be adjourned. The plaintiff would be allowed torely on the affidavits delivered in March and April, 2018 that the defendant could file the affidavit of 10th April, 2018 and rely on thataffidavit and the one of 9th April, 2018. It was also clarified that the defendant could cross-examine all the plaintiff’s witnesses on allof their affidavits and vice versa.Page 3 ⇓18. Finally, as regards the other objections in the defendant’s preliminary motion it was agreed that those be adjourned to the closeof the plaintiff’s case.Plaintiff’s witnesses19. Three witnesses were tendered on behalf of the plaintiff: the plaintiff himself Mr. David Dully, Mr. John Hayden and Mr. DamienMilton.David Dully20. Mr. Dully averred that he was authorised to take the proceedings as nominee of the club pursuant to resolution of themanagement committee of the 19th May, 2017 and was a trustee of the club having been appointed by deed of appointment on 8thDecember, 2014. Mr. Dully said that the club was not insolvent. He said that when Mr. Hayden came in as chair and when he came inas secretary they found that the club was insolvent but that was no longer the case. He said that the summons was correct in everyrespect. He said that he represented all the members of the club, of which there were 45 at the time of the proceedings. Since thena number of members had written letters claiming they were lifelong members. He had no information that any of them were members.Individual authority for the members was not required. He was unable to give details of members’ occupations with limited exceptions,as the club rules do not provide for recording occupations. As regards a group of seven additional people alleged to be members, hesaid that if they were members of the club then they were being represented by him. He said that honorary members are membersand therefore he represented them. The procedure in the club constitution is rule 26, that a complaint by a member should be madeand considered by the executive committee but that no such objectors had invoked this procedure. He said that if such peopleconsidered he was not acting in the best interest of the club he would be shocked. Notification of the AGM of 28th June, 2017 wasgiven on the club website and social media. It was made clear that the defendant was being sued but that was not put to a vote,there were no dissenting voices. Two of the alleged objectors were present and did not dissent. The brief minutes were not a fullreflection of a long meeting. The meeting did not pass a resolution formally authorising him to bring the proceedings as such. It wasinformed that he had already been authorised, this was discussed and nobody objected. He said that the club had been informed thatif the grant was not drawn down by September, 2018 it could be 30 years before the club could be eligible for another grant. Whenasked where was the authority for him to bring proceedings on behalf of the club he referred to rule 15 which allows business andaffairs of the club to be managed by the executive committee, rule 27 that the executive has all powers of general management, andrule 41 which allows the executive committee to deal with all matters not specifically provided for. Decisions on interpretation can beappealed to a general meeting of the club but not a court. The alleged dissenters did not so challenge the executive committeedecision. He explained convincingly why the club did not respond to a particular letter by the defendant seeking transfer to it of thegrant monies. He was cross-examined as to differences between versions of leases which were suggested removed “protections” forthe defendant as landlord and his reply was essentially that he was acting on legal advices. Mr. Dully was not challenged on a numberof fairly central matters deposed to on behalf of the plaintiff. I will come back later to his evidence in relation to the question of theindemnity. I find that he was an impressive and precise witness and having seen and heard his evidence I accept that evidence,including his affidavit evidence, in full.Damien Milton21. Mr. Milton was not cross-examined on his affidavit, and therefore I accept his affidavit in full.John Hayden22. Mr. Hayden is chairman of the club. The action is brought on behalf of all members. He again referred to the procedure under theclub constitution to raise complaints under rule 26. The club was not aware that there were complaints being made about the presentproceedings. He said it seemed extraordinary that Mr. Molloy was approached by a number of people at the same time with the samecomplaint. He said Mr. Dully was in charge of membership but neither he nor Mr. Dully were aware that there were these allegedhonorary members and had no evidence that they are. He said the costs of the proceedings duly authorised would fall on themembers including the persons who had come forward identifying themselves as honorary members, if they were members. As regardsthe alleged expenditure by Mr. Molloy, he understood that Mr. Molloy was approached by Mr. Martin Egan solicitor and asked topurchase the company. At that point the company was representing that they owned the stadium without reference to the club. Hewas not privy to what went on and is a stranger as to how the company made expenditures. He said that the affidavits submitted onbehalf of the defendant were contaminated by matters personal to Mr. Molloy. His involvement in the whole affair as with theinvolvement of other members of the club was not to get something for himself but for the children of the area and children into thefuture. Again Mr. Hayden was not challenged on a number of fairly central matters deposed to. I will come back later to his evidencein relation to the indemnity and as with Mr. Dully, I find him to be an impressive and precise witness and having seen and heard him inthe witness box I accept his evidence including his affidavit evidence in full.Defendant’s objections at the close of the plaintiff’s case23. At the close of the plaintiff’s case, Mr. Forde moved on paras. 1(ii) to 1(v) of his notice of motion of 8th March, 2018. He agreedto postpone the issue of para. 2 to a later and more appropriate stage of the proceedings if it arose. I rejected the objection havingheard his submission at that point and found that the plaintiff had authority to bring the proceedings and declined to dismiss theproceedings at the close of the plaintiff’s case and I now give reasons for doing so.Application to dismiss due to failure of the plaintiff to disclose the identities of the members or because not all membershave consented or because of a lack of a representative order.24. The entire argument challenging the beneficiaries’ entitlement to sue is in my view inconsistent with the defendant’s status as atrustee. Therefore it seems to me the very conduct of the litigation itself amounts to a failure by the defendant to act in theinterests of the beneficiaries and therefore amounts to grounds for removal or to a breach of trust. Nonetheless I will put that pointto one side for now and consider the objection on the merits such as they are.25. Mr. Forde submits that the appropriate procedure is O. 4 r. 9, that if the plaintiff sues in a representative capacity theendorsement on the summons shall show in what capacity he or she sues. However, here there is no issue under that headingbecause the plaintiff sets out his capacity in para. 2 of the special summons. Thus the type of issue that arose in Hickey v. McGowan[2017] IESC 6 [2017] 1 I.L.R.M. 293 [2017] 2 I.R. 196 where it was held that there was no basis to conclude that the first defendantwas sued in a representative capacity does not arise here.26. Mr. Forde’s submission assumes that one cannot have a representative capacity without a specific representative order under O.15 r. 9. That is not so. Where an unincorporated body sues by its trustees or management committee it is not necessary for there tobe a representative order under O. 15 r. 9. The entitlement to bring the proceedings arises from the club constitution and rules whichhave the legal status of a contract between the members.27. That is reinforced by Andrew’s English Civil Procedure (Oxford University Press, 2003) p. 990, where it notes that representativeproceedings can be commenced without the court’s permission. While that may, of course, reflect specific English law, the authorPage 4 ⇓notes that English law has allowed representative proceedings over a “long history” (p. 987).28. Mr. Forde submits that there was no authority by the members directly. That is not necessary. It is clear that the rules entrustmanagement of the club to the committee and that was a lawful decision of the committee in that regard. As a basic principle ofcontract law the committee can lawfully act on behalf of the entire membership if the rules so permit, which is the case here on thecorrect interpretation of those rules.29. Even if there was some defect in the plaintiff’s authority, a proposition which I reject, this is clearly a question of indoormanagement and the defendant has no standing to question it. I conclude that there is no defect in the plaintiff’s entitlement to sue.30. The question of setting out details of the members, of their addresses and occupations, does not arise in the absence of arequirement for a representative order. In any event, the defendant is not prejudiced by not having a list of the members nor is itprejudiced by not having descriptions of the members – in fact the defendant already has a list of the members’ names and addresses.So the point is a pettifogging and legalistic one.31. Mr. Forde relied on Zuckerman on Civil Procedure: Principles of Practice (Sweet & Maxwell, 2013) para. 13.49, to the effect that itcould be unfair on defendants if membership of the class of plaintiffs is dependent on the success of the claim. Nothing like that ariseshere. We know the class – members of the club. The defendant even has a list of the names and addresses. There is simply nothingto the point made.32. Even if there is a defect in the representative capacity of the plaintiff, which I reject, he is a beneficiary himself and he also suesin that capacity.33. Mr. Forde suggested that because he had been nominated to sue, he could not also sue on his own behalf. That does not followand is indeed entirely illogical. Here he sues in both capacities.34. Even if I am wrong about all the foregoing, I would exercise my power under O. 15, r. 13 to rectify matters in any event.Application to dismiss because of a “pattern of vexatious proceedings”35. The defendant’s notice of motion contends that the proceedings should be dismissed because of an alleged “pattern of vexatiousproceedings” by the plaintiff. There is no such pattern. The point being made is absurd. No submissions were, in fact, made tosupport the notice of motion under this heading. For the foregoing reasons, I dismissed the defence objection at the close of theplaintiff’s case.Defendant’s witnesses36. The defendant put forward two deponents, Mr. Neil McNelis, Solicitor, on purely formal matters, who was not cross-examined, andMr. Declan Molloy, the principal of the defendant company.Declan Molloy37. Mr. Molloy, Mr. Ciaran Temple and Mr. Paddy McCaul are directors of the defendant company. In his first affidavit of 23rd August,2017, he denied that the property had been held in trust for the club. But he had signed a deed of trust in April, 2015, to that effect.The only explanation he could offer under cross-examination was the totally unsatisfactory comment that “the trust was signed undercertain conditions which were never honoured”. No such conditions were set out or established.38. He entered into a strange arrangement which he was unable to clearly explain whereby he says he paid the company €665,445which was described in a document prepared by himself as “payments of share capital”. In return for this, he presumably got€665,445 worth of share capital as his own document suggests. He then stated under cross-examination, not given in his affidavit,that anything over €450,000 was “put down as a loan”. This presumably was an attempt to explain why the company then paid him€121,445, although this was described in his own document as “part repayment of share capital”.39. A further strange story was offered about the destination of a VAT repayment. The VAT was repaid on the basis that theRevenue were persuaded that the company was “entirely separate” from the club. This was a strange contention given that it isacknowledged that the land was held in trust for the club.40. The Revenue paid €312,000 on 7th March, 2012, on that basis. There was then a further strange arrangement with DeloitteTouche that it was paid half of this. The other half seems to have made its way to Mr. Molloy. He was not entirely clear in cross-examination about that but in re-examination he said he did get this. At other times, he said he only got the €121,000.41. On re-examination he said he put €665,000 into the company and €450,000 was share capital. When asked by his own counsel ifthe €215,000 was a gift to the company, he said that was correct and he would only expect to get it back if he sold the company.He then changed his evidence and said he did not know the exact term, that it was put in as a loan and he would get it back at somestage.42. On his own handwritten note, he got back €121,445 but as I say, he also said at a different point that he got back half the VATwhich would have been over €150,000.43. He said he had been approached by Martin Egan, Solicitor, who knew he had €1m to “invest”. Mr. Egan was aware of his businessdealings because Mr. Egan had represented Mr. Molloy when he came into the €1m.44. Remarkably, he said he invested in a company where the extent of the company’s indebtedness was not explained to him. Mr.Egan asked him if he had an interest in buying the stadium. €800,000 was Mr. Egan’s estimate of the company’s liabilities but he didnot go into it. Mr. Molloy thought the stadium was worth that.45. He said in his last minute affidavit sworn on Day 2 of the hearing that the stadium committee agreed with the arrangement thathe would pay the company, would be repaid in turn and that this arrangement was not reduced to writing as he trusted the stadiumc ommit t ee.46. He denied under cross-examination that any arrangements were on the basis that the stadium company was holding the lands intrust for the club and said there was no such thing. He denied that he threatened to sell the land but then admitted that he did andsaid it was a casual remark. That it seems to me is an implausible explanation. A threat by a trustee to sell property over the head ofthe beneficiary cannot be regarded as casual.Page 5 ⇓47. He then gave a further contradictory story about a personal loan to the club which was not then a personal loan because it wasmade as a director of the company and then under further cross-examination said “it would be done in a personal capacity”.48. He swore an affidavit on 12th March, 2018, para. 4 of which denies ever having claimed a right to sell the property without resort.He accepted in cross-examination that this was very different to his oral evidence and that he did so threaten but was provoked.Then in re-examination he seemed to try to wriggle out of the contradiction which he previously acknowledged under cross-examination. Having seen and heard Mr. Molloy, I find that he is an unreliable witness, that his evidence was unsatisfactory, confusedand in certain respects evasive, was riddled with contradiction, complication and unexplained or implausible propositions.49. Given that the land was held in trust, the shares in the state and company are not worth anything because the company has noassets in its own right. Clearly, Mr. Molloy’s motivation in terms of the present proceedings is that despite the fact that the land isheld in trust, he has decided that his shares and alleged loans are an investment that he wants to get back. The incompatibility ofthose two propositions has led to a great deal of the confusion and contradiction in his evidence.50. Having seen and heard him in the witness box, I reject his evidence both orally and on affidavit generally and in particular where itconflicts with that by and on behalf of the plaintiff.Defendant’s objection at the close of evidence51. Notwithstanding having objected unsuccessfully to the plaintiff’s capacity to bring proceedings at an earlier stage, Mr. Fordesubmitted that at the close of evidence that because some of the alleged beneficiaries, that is the club members, are allegedlyobjecting to the proceedings, a trustee of the club should not be allowed to obtain relief in the manner in which the present plaintiffhas brought proceedings.52. I cannot see any substantial difference between that and the objection rejected at the half-time stage, although Mr. Forde saysthere is a “vital difference in principle” and submits that if the plaintiff has locus standi, it puts the court in an impossible position ifonly one beneficiary is making the complaint.53. Unfortunately, I cannot accept that submission. This plaintiff is authorised by the club’s executive committee. If it was the casethat an individual beneficiary brought proceedings to resolve trust questions independently of an executive committee of a club, thecourt could direct notice to be given to the executive committee; but that is not a problem here.54. Whether a claim for removal of a trustee or interpretation of a trust is brought by a majority, a minority or just one of thebeneficiaries, the court can manage the proceedings and ensure any necessary parties are brought in. Here no such problems arisebecause the proceedings were authorised on behalf of the club.Defendant’s status as a trustee55. I make the following findings of fact and law in relation to the defendant’s position as a trustee. Mr. Forde suggests that I shouldfocus on the defendant’s conduct from the issuing of the proceedings to date and not on any matters before then. That is not asustainable submission. In deciding whether a trustee should be removed, regard must be had to all relevant circumstances includingconduct of the defendant prior to the proceedings.56. Mr. Dully avers that the defendant was aware at all times that it was acting as trustee for the beneficial owners. He was notcross-examined to the contrary. The declaration of trust is by its own very terms declaratory of the pre-existing position. It is clearfirstly, that there have been multiple breaches of trust and secondly, that independently of that it is in the beneficiary’s interest tohave the defendant removed as a trustee.57. The defendant denied the validity of the trust on affidavit. That amounts to a fundamental breach of trust. The defendant failedto honour the declaration of trust by failing to convey the interest in the property as required having been called upon to do so inaccordance with the declaration of trust.58. It made a threat to sell the stadium without recourse to the club. As I have said, that averment on beheld of the plaintiff was notspecifically challenged in cross-examination; such a threat is a fundamental breach of trustee’s obligations in circumstances such asthese. I find that the defendant allowed the stadium to fall into disrepair, failed to deal with the correspondence in relation toinsurance and as Mr. Dully avers placed locks upon the gates to the premises, thereby restricting the entrance for use by clubmembers.59. I accept Mr. Dully’s evidence under cross-examination that Mr. Molloy showed up at the club and “told young kids to stop trainingand put a lock on the gate”, as it was put. Mr. Dully said that the defendant forwarded correspondence to the facilities manager ofthe FAI, the purpose of which was to adversely affect the licence held by the club to participate in League of Ireland competitionsand I accept that evidence which again amounts to a breach of trust.60. Furthermore, correspondence with AP Wireless Ltd. was brought to the club’s attention whereby its interest was expressed inlocating a telecoms mast within the stadium. That was ignored by the defendant, again amounting to a breach of trust.61. I also take into account the manner in which the present proceedings were defended. It seems to me that the approach ofquerying the beneficiaries entitlement to assert their rights under the trust is not an approach that is open to a trustee and speaksvolumes about the defendant’s failure to appreciate its role as a trustee.62. The defendant’s whole approach has been obstructive and it has acted an antagonist and not a trustee in relation to a range ofmatters. It failed to facilitate the proposed development which possibly could have avoided the proceedings. I also consider themanner of the conduct of the proceedings was generally obstructive notwithstanding occasional flashes of co-operation such as theconsent order.63. One particular item in the prosecution of the proceedings which stands out is that in the course of cross-examination, Mr. Fordesuggested to the plaintiff that his house and pension were at risk of costs. It seems to me that was a gratuitous point which wasvery much of a piece with the defendant’s approach overall.64. This is clearly a case where the existing trustee must be removed. Biehler on Equity and the Law of Trusts in Ireland (Round Hall,2016) at p. 477, indicates that “the court also has an inherent jurisdiction to remove trustees where they act dishonestly orincompetently or even where their conduct is deliberately obstructive”. The discussion cites Arnott v. Arnott (1924) 58 I.L.T.R.145,where Murnaghan J. said that the power to remove a trustee should be exercised if the welfare of the beneficiaries demanded it, evenPage 6 ⇓without incompetence. A trustee may also be removed when driven by self-interest; Kirby v. Barden [1999] IEHC 129, per Carroll J.65. Reliance was placed by Mr. Forde on a single proposal put by the defendant but Mr. Dully said that was considered and havingreceived legal advice, the offer was not responded to because the trust between the company and the club had broken down. Also,there was a huge difficulty with transferring a grant given to the club to another entity. The proposal was considered, but he said heexpected the defendant to engage with the plaintiff long before and it seems to me that was an entirely reasonable conclusion.66. This offer by the defendant company goes nowhere near establishing its bona fides as a trustee. Mr. Forde put it that the club“declined to engage”. I entirely reject that characterisation. The “offer” was a non-runner and the club’s non-reply must be put in thecontext of multiple failures by the defendant in duties as a trustee.67. Mr. Forde then suggested that his client was entitled to be regarded as co-operative by agreeing to short service and agreeing tothe consent order and an adjournment. Those were absolutely minor steps in the overall context. The defendant’s obstruction isfundamental to the difficulties that have arisen in this case.68. When asked to give one reason why his company should not be removed as a trustee Mr. Molloy said “because we are the honestpeople in this case and doing what is right, holding on to what we paid for and stopping it being stolen from us”. That is clearlytotally irrelevant to the issue of removal of the trustee and involves a fundamental misunderstanding of the role of trustee. It is clearthat the trustee has allowed Mr. Molloy’s own financial regrets to influence it in the exercise of its trust functions. That is a conflictof interest apart from anything else. See Spencer v. Kinsella [1996] 2 I.L.R.M. 401, per Barron J.Indemnity Issue69. I make the following findings of fact and law in relation to the indemnity. The deed of trust states that the beneficial ownercovenants with the company to indemnify it in respect of all present and future liabilities and all other costs and expenses whatsoeverin respect of the property.70. Mr. Molloy claims this covers an alleged agreement by the company to repay him €665,000.00 approximately which was eitherallegedly loaned (although I would reject the proposition that it was in fact loaned) or invested in the company to buy shares. Hisargument is that the company has a liability to him and that that liability of the company is covered by the indemnity on behalf of thec lub.71. The difficulty with this argument is that having heard evidence from both sides I reject the argument that there was any suchagreement or liability. I reject this for a series of reasons:(i) This is contradicted on the face of the deed of trust which recites at recital C that all funding required for thedevelopment of the property was provided for and on to the use of the beneficial owner. That, it seems to me, is aconclusive answer to Mr. Forde’s case.(ii) He who asserts must prove; the defendant has not proved that there was any such agreement to repay monies paidby him and therefore the entire factual basis for his contention under this heading does not arise.(iii) I reject Mr. Molloy’s evidence generally.(iv) None of the many people who could have testified to this alleged agreement were brought forward. Mr. Egan did notput in an affidavit; the other directors did not swear affidavits.(v) I do not accept that there was any alleged loan. It seems to me that Mr. Molloy’s evidence on this point wassomewhat contradictory and contrived. He said that his purchase of shares was “put down as a loan”, a form of wordsthat suggests retrospective or at the very least artificial characterisation of it as a loan. In my view Mr. Molloy’s evidencein this regard is a reconstruction and does not reflect the reality which on the balance of probabilities was that hepurchased shares in the company and either subsequently or artificially decided to characterise some of those sharepurchases as a loan. That would be of a par with the strange and artificial way that the VAT issue dealt with.(vi) If I am wrong about that and if there was any such agreement between Mr. Molloy and the company and/or anyalleged loan, the words of the indemnity used in their context in terms of the relevant circumstances any alleged liability“in respect of the property” does not on the proper interpretation include the purchase of shares by Mr. Molloy in respectof the company or any alleged loans by him to the company.(vii) It would have been a fundamental issue if the club had taken on a liability of two thirds of a million euro. It wouldhave been unthinkable that the club would have committed to such a fundamental matter without it being specificallydiscussed and agreed.(viii) Insofar as evidence of the circumstances of entering into the declaration of trust are relevant, such mattersreinforce the conclusion I would have arrived at independently. I accept the evidence on behalf of the plaintiff that thisissue was never raised and the discussion of the declaration of trust and that the indemnity was to deal with the ongoingcosts of operation if in excess of the rent payment received. Mr. Dully said he was there when the declaration was agreedand it is to cover anything above the €10,000 rent per year. Reference was made to correspondence of 23rd June, 2016from Hugh J. Campbell solicitors regarding payment of €17,356.73. It was suggested that that was inconsistent with hiscase but it seems to me it is not inconsistent insofar as it is limited to this specific issue of the costs of the transfer.Regarding the deed of trust, Mr. Hayden’s affidavit says that at the time of the declaration of trust the recitals were “atno time … understood or referred to or purported to refer to monies of which the club had no knowledge … and inparticular the sums which are now being alleged as due and owing by the defendant which said sums are dubious”. Mr.Hayden avers specifically that the indemnity was intended to cover operational expenses. He said that the claims inrelation to Mr. Molloy’s purchase of shares or alleged loans were never discussed when the deed of trust was enteredinto. Mr. Hayden was the person who drafted the deed of trust presented to the defendant’s solicitors for approval andwas involved in meetings to discuss it. When asked if it included historical debts that the stadium may have had, theanswer was no. The reason it was put in was firstly a rates bill and secondly other charges, for example from WestmeathCounty Council. Insofar as it was historical that was for what was known and represented at the time. It is clear from Mr.Hayden’s evidence, which I accept, that it was never intended to cover costs of construction or the other claims nowbeing made. It was not put to him in cross-examination what it was so intended.Page 7 ⇓(ix) These conclusions reinforced by the fact that I accept Mr. Hayden’s evidence that the club was never formally calledupon to meet any such liabilities.(x) The plaintiff’s witnesses were not cross-examined on the premise that they agreed to the indemnity on the basis itwould cover the defendant’s purchase of the share capital or loans to the company.(xi) The unchallenged evidence of Mr. Milton that the company’s payment was publicly reported as “an amazing act ofgenerosity” does not advance its position.(xii) It also does not assist its case when one puts the contribution of €665,000 in the context of the overallapproximately €4.5 million costs, the rest of which was either grant-in-aid from the State or donations from the public. Itwould be surprising if Mr. Molloy and Mr. Molloy alone were to have some form of legal recourse to be repaid hiscontribution. Mr. Forde then falls back on general equitable and legal principles that the trustee has a right to paymentfrom the trust property for expenses properly incurred. All other things being equal I would broadly accept the propositionthat the trustee has a right to reclaim expenses properly incurred from a beneficiary unless ousted by agreement. Itseems to me that the intention of the declaration of trust was to be comprehensive and to oust any other impliedequitable or statutory right to indemnification. If I am wrong about that, the various points I made in relation to thedeclaration apply mutatis mutandis to the point under this heading. Assuming I am wrong about all of that, on the basisof Mr. Forde’s argument the company could have asserted an intention to reclaim the liabilities from the club but themajor liabilities in respect of the construction of the stadium were incurred ten or more years ago prior to 2007 and issuesof laches and limitation will arise. No such proceedings however were ever taken by the company. The rule in Hendersonv. Henderson (1843) 3 Hare 100; 67 E.R. 313 would imply that the company’s failure in these proceedings to establishthat there is any such liability is determinative. Mr. Molloy’s position can be put in the context of para. 31 of his firstaffidavit where he says that the “purported deed of trust is ineffective and a sham” and claims that €630,000 is owing tohim and says no repayments have been made by the defendant or the club. Yet in oral evidence he accepted that he goteither half the VAT which would have been €150,000 plus or €121,000 approximately, depending on which version of hisinconsistent evidence one was to accept. It seems to me that his credibility is in tatters. The situation here calls to mindthe observation of Tomlinson L.J. in Thevarajah v. Riordan [2015] EWCA Civ 41 where he referred to the situation asraised in that case: “By an order of 21st March, 2014 Mr. David Donaldson QC, sitting as a Deputy Judge of the ChanceryDivision, to use his own language at paragraph 20 of his judgment giving his reasons therefor, ordered “implementationof an arrangement lacking (as pleaded, and perhaps in fact) agreement of an important element”. In consequence heattributed to the Appellant … and to the first, second and fourth respondents, respectively … an agreement which,demonstrably, they had not made. The question which arises on this appeal is whether he was right to do so. There issomething very wrong with our legal system if the answer to that question is yes.” Similarly here, in considering thequestion of whether the club has any liability to the trustee in relation to any alleged liabilities that the defendantcompany has to repay Mr. Molloy money which he either used to buy shares in the company or allegedly lent to thecompany, to interpret an indemnity clause as covering such alleged liabilities would be to attribute to the parties anagreement which they did not make. There would be something very wrong with our legal system if the answer toquestion I have just posed is yes.Pre-emptive Order regarding costs72. As the defence fails, the point raised in para. 2 of the defendant’s notice of motion of 8th March, 2018 does not arise.Order73. Accordingly, the order will be:(i) That the plaintiff’s motion of 12th September, 2017 be formally struck out; that was my intention when dealing with iton 24th September, 2017 but no formal order to that effect was made.(ii) That the plaintiff’s motion of 18th December, 2017 be formally struck out; again that was my intention when dealingwith it on 29th January, 2018 although no formal order was made.(iii) That the defendant’s motion dated 8th March, 2018 be dismissed.(iv) That there be an order under the inherent jurisdiction of the court and/or s. 25 of the Trustee Act 1893 and/or s. 22of the Land Law and Conveyancing Reform Act 2009 that the defendant be removed as a trustee and replaced withAthlone Town A.F.C. Co. Limited by guarantee with immediate effect.(v) That there be an order under the inherent jurisdiction of the court and/or s. 22 of the Land Law and ConveyancingReform Act 2009 directing the defendant to execute an assignment or assignments of all of its interest in Folio 30190Fand entitlements under lease and any other entitlements in connection with the property such as the benefit of anymobile mass assessments or insurance policies in a form prepared by the plaintiff; and I will discuss with counsel thetimescale and mechanism for this.(vi) That there be a declaration pursuant to the inherent jurisdiction of the court and/or s. 22 of the Land Law andConveyancing Reform Act 2009 that the indemnity in favour of the defendant covers liabilities incurred at the time of itsexecution and into the future in respect of the trust property and does not cover any alleged liabilities of the companytowards Mr. Molloy to repay him any sums allegedly paid by him to acquire shares in the company or advanced by way ofalleged loans to the company.(vii) I will hear the parties further on whether the claim of an account for profits or damages is appropriate and as towhat further or other reliefs are appropriate or as regards any other consequential matters.Postscript74. By way of postscript, during the delivery of the foregoing judgment Mr. Molloy left court and thereafter was uncontactable bytelephone. Mr. Shortt suggested that this in itself was a contemptuous act, a matter in relation to which I make no finding at thepresent time. Having heard the parties, albeit recognising that Mr. Forde is thereby handicapped in his instructions, by thePage 8 ⇓defendant’s own actions, I will make further orders as follows:(i) I will order that the plaintiff present all necessary documents to the defendant by serving them by email on Mr. McNelisby 5pm on Friday 13th April, 2018, for the assignment of the defendants’ legal interest in the lands, the benefit of thelease and benefit of any other rights in connection with the property, such as insurance, mobile phone masts or any otherrights whatsoever in connection with the property; and that the defendant shall either execute the documents by 2pm on16th April, 2018 or apply to the court at that time for an order to the contrary and I will further direct that the directorsMr. Declan Molloy, Mr. Kieran Temple and Mr. Paddy McCaul do co-operate with that order.(ii) I note that the plaintiff is opting to pursue the damages claim and will adjourn that claim for further mention.(iii) I will make a mandatory order that the defendant, its directors, Mr. Declan Molloy, Mr. Kieran Temple and Mr. PaddyMcCaul, its officers, servants and agents hand over all keys at 8pm on 12th April, 2018 at the Stadium in Athlone andattend in court 24 at 12.50pm on Friday, 13th April, 2018 with all documents of title.(iv) I will make an order restraining the defendant, its directors, Mr. Declan Molloy, Mr. Kieran Temple and Mr. PaddyMcCaul, its officers, servants and agents from entering the premises prior to 8pm on 12th April, 2018 or thereafter withoutthe consent of the plaintiff or from taking any further steps in relation to the property save as specifically requested bythe plaintiff.(v) I will put the matter in for mention at 12.50pm on Friday, 13th April, 2018 to confirm compliance with the foregoing.(vi) I will give liberty to give notice of the order by phone, text message or similar message.(vii) I will adjourn the question of costs until Monday 16th April, 2018.
.
Target Holdings Ltd v Redferns (a firm)
[1996) 1 AC 421
LORD BROWNE-WILKINSON: Say, as often occurs, a trustee commits a judicious breach of trust by investing in an unauthorised investment which proves to be very profitable to the trust. A carping beneficiary could insist that the unauthorised investment be sold and the proceeds invested in author ised investments: but the trustee would be under no liability to pay compensation either to the trust fund or to the beneficiary because the breach has caused no loss to the trust fund Even where there is no difficulty in establishing that a breach of trust has produced a loss to the trust or an unauthorised gain for the trustee, the trustee might still escape liability if he can successfully raise a defence to the beneficiary’s claim. The defendant may plead statutory limitation or ‘!aches’, both of which are concerned to prevent claims being brought too long after the occurrence of the alleged breach. Appropriately worded exculpatory clauses in trust instruments may also be relied upon to defend allegations of breach. Most defences operate merely to excuse a breach of trust but defences which might be said actually to justify the breach include the advance authority of a court and the advance unanimous consent of the beneficiaries. The various defences are considered later in this chapter. We will also consider the possibility of a trustee being relieved of some or all of his liability in cases where he does not have a defence as such.
Tang Man Sit (dec’d) v Capacious Investments Ltd
[1996] 1 All ER 193,
LORD NICHOLLS OF BIRKENHEAD:… The law frequently affords an injured person more than one rem edy for the wrong he has suffered. Sometimes the two remedies are alternative and inconsistent. The classic example, indeed, is (1) an account of the profits made by a defendant in breach of his fiduciary obligations and (2) damages for the loss suffered by the plaintiff by reason of the same breach. The for mer is measured by the wrongdoer’s gain, the latter by the injured party’s loss .
Alternative remedies
Faced with alternative and inconsistent remedies a plaintiff must choose, or elect, between them. He cannot have both. The basic principle governing when a plaintiff must make his choice is simple and clear. He is required to choose when, but not before, judgment is given in his favour and the judge is asked to make orders against the defendant. A plaintiff is not required to make his choice when he launches his proceedings. He may claim one remedy initially, and then by amendment of his writ and his pleadings abandon that claim in favour of the other. He may claim both remedies, as alternatives. But he must make up his mind when judgment is being entered against the defendant. Court orders are intended to be obeyed. In the nature of things, therefore, the court should not make orders which would afford a plaintiff both of two alternative remedies.In the ordinary course, by the time the trial is concluded a plaintiff will know which remedy is more advantageous to him. By then, if not before, he will know enough of the facts to assess where his best interests lie. There will be nothing unfair in requir ing him to elect at that stage. Occasionally this may not be so. This is more likely to happen when the judgment is a default judgment or a summary judgment than at the conclusion of a trial. A plaintiff may not know how much money the defendant has made from the wrongful use of his property. It may be unreasonable to require the plaintiff to make his choice without further information. To meet this difficulty, the court may make discovery and other orders designed to give the plaintiff the information he needs, and which in fairness he ought to have, before deciding upon his remedy. In the ordinary course the decision made when judgment is entered is made once and for all. That is the normal rule. The order is a final order, and the interests of the parties and the public interest alike dictate that there should be finality. The principle, however, is not rigid and unbending. Like all procedural principles, the established principles regarding election between alternative remedies are not fixed and unyielding rules. These principles are the means to an end,not the end in themselves.They are no more than par ticular applications of a general and overriding principle governing the conduct of legal proceedings, namely that proceedings should be conducted in a manner which strikes a fair and reasonable balance between the interests of the parties, having proper regard also to the wider public interest in the con duct of court proceedings. Thus inJohnson v Agnew [1979] 1 All ER 883 the House of Lords held that when specific performance fails to be realised, an order for specific performance may subsequently be discharged and an inquiry as to damages ordered. Lord Wilberforce observed (11979] 1 All ER 883 at 894): ‘Election, though the subject of much learning and refinement, is in the end a doctrine based on simple considerations of common sense and equity.’ …
Target Holdings Ltd v Redferns
[1996] 1 AC 421
LORD BROWNE-WILKINSON: My Lords, this appeal raises a novel point on the liability of a trustee who commits a breach of trust to compensate beneficiaries for such breach. Is the trustee liable to compensate the beneficiary not only for losses caused by the breach but also for losses which the beneficiary would, in any event, have suffered even if there had been no such breach?
… the decision of the Court of Appeal in this case can only be maintained on the basis that, even if there is no causal link between the breach of trust and the actual loss eventually suffered by Target (i.e.the sum advanced less the sum recovered) the trustee in breach is liable to bear (at least inpart) the loss suffered by Target.
The transaction in the present case is redolent of fraud and negligence.But, in considering the prin
ciples involved, suspicions of such wrongdoing must be put on one side. If the law as stated by the Court of Appeal is correct, it applies to cases where the breach of trust involves no suspicion of fraud or negligence. For example, say an advance is made by a lender to an honest borrower in reliance on an entirely honest and accurate valuation. The sum to be advanced is paid into the client account of the lender’s solicitors. Due to an honest and non-negligent error (e.g. an unforeseeable failure in the solici tors’ computer) the moneys in client account are transferred by the solicitors to the borrower one day before the mortgage is executed. That is a breach of trust. Then the property market collapses and when the lender realises his security by sale he recovers only half the sum advanced. As I understand the Court of Appeal decision, the solicitors would bear the loss flowing from the collapse in the market value: subject to the court’s discretionary power to relieve a trustee from liability under s. 61 of the Trustee Act 1925, the solicitors would be bound to repay the total amount wrongly paid out of the client account in breach of trust receiving credit only for the sum received on the sale of the security.
To my mind in the case of an unimpeachable transaction this would be an unjust and surprising conclusion. At common law there are two principles fundamental to the award of damages. First, that the defendant’s wrongful act must cause the damage complained of. Second, that the plaintiff is to be put ‘in the same position as he would have been in if hehad not sustained the wrong for which heis now getting his compensation or reparation’ (see Livingstone v Rawyards Coal Co. (1880) 5 App Cas 25 at 39 per Lord Blackburn). Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applic able as much in equity as at common law. Under both systems liability is fault based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same. On the assumptions that had to be made in the present case until the factual issues are resolved (i.e. that the transaction would have gone through even if there had been no breach of trust), the result reached by the Court of Appeal does not accord with those principles. Redferns as trustees have been held liable to compensate Target for a loss caused otherwise than by the breach of trust. I approach the consideration of the relevant rules of equity with a strong predisposition against such a conclusion …
. . . The basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument, if any, and the general law. Thus, in relation to a traditional trust where the fund is held in trust for a number of beneficiaries having different, usually successive, equit able interests, (e.g. A for life with remainder to B), the right of each beneficiary is to have the whole fund vested in the trustees so as to be available to satisfy his equitable interest when, and if, it falls into pos session. Accordingly, in the case of a breach of such a trust involving the wrongful paying away of trust assets, the liability of the trustee is to restore to the trust fund, often called ‘the trust estate’, what ought to have been there.
The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts, where the only way in which all the beneficiaries’ rights can be protected is to restore to the trust fund what ought to be there. In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate (see Nocton v Lord Ashburton [1914] AC 932 at 952, 958, per Viscount Haldane LC).If specific restitution of the trust prop erty is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed (see Caffrey v Darby (1801) 6Ves 488 andClough v Bond (1838) 3My & Cr 490).Even if the immediate cause of the loss is the dishonesty or failure of a third party,the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred (see Underhill and Hayton Law of Trusts and Trustees (14th edn, 1987) pp. 734-736, Re Dawson /dec’d), Union Fidelity Trustee Co. Ltdv Perpetual Trustee Co. Ltd [1966] 2 NSWR 211 and Bartlett v Barclays Bank Trust Co. Ltd {No. 2) [1980] 2 All ER 92). Thus the common law rules of remoteness of damage and causation do not apply.However, there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz the fact that the loss would not have occurred but for the breach (see also Re Miller’s Deed Trusts (1978) 75 LS Gaz 454 and Nestle v National Westminster Bank pie [1994] 1 All ER 118).
Hitherto I have been considering the rights of beneficiaries under traditional trusts where the trusts are still subsisting and therefore the right of each beneficiary, and his only right, is to have the trust fund reconstituted as it should be. But what if at the time of the action claiming compensation for breach of trust those trusts have come to an end? Take as an example again the trust for A for life with remainder to B. During A’s lifetime B’s only right is to have the trust duly administered and,in the event of a breach, to have the trust fund restored. After A’s death, B becomes absolutely entitled. He of course has the right to have the trust assets retained by the trustees until they have fully accounted for them to him. But if the trustees commit a breach of trust, there is no reason for compensating the breach of trust by way of an order for restitution and compensation to the trust fund as opposed to the beneficiary himself. The beneficiary’s right is no longer simply to have the trust duly administered: he is, in equity, the sole owner of the trust estate.Nor, for the same reason, is restitution to the trust fund necessary to protect other beneficiaries. Therefore, although I do not wholly rule out the possibility that even in those circumstances an order to reconstitute the fund may be appropriate, in the ordinary case where a beneficiary becomes absolutely entitled to the trust fund the court orders, not restitution to the trust estate, but the payment of compensation directly to the beneficiary. The measure of such compensa tion is the same, ie the difference between what the beneficiary has in fact received and the amount he would have received but for the breach of trust. …
For these reasons I reach the conclusion that, on the facts which must currently be assumed, Target has not demonstrated that it is entitled to any compensation for breach of trust. Assuming that mon eys would have been forthcoming from some other source to complete the purchase from Mirage if the moneys had not been wrongly provided by Redferns in breach of trust, Target obtained exactly what it would have obtained had no breach occurred, i.e.a valid security for the sum advanced. Therefore, on the assumption made, Target has suffered no compensatable loss. Redferns are entitled to leave to defend the breach of trust claim.
Bristol and West Building Society v Mathew
[1998] 1 Ch 1
MILLITT LJ:… Although the remedy which equity makes available for breach of the equitable duty of skill and care is equitable compensation rather than damages, thisis merely the product of history and in this context is in my opinion a distinction without a difference.Equitable compensation for breach of the duty o’s · and care resembles common law damages in that it is awarded by way of compensa tion to e plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution …
Westdeutsche Landesbank Girozentrale v Islington LBC
[1996] 2 WLR 802
LORDBROWNE-WILKINSON:.
Compound interest in equity
It is common ground that in the absence of agreement or custom the court has no jurisdiction to award compound interest either at law or under s. 35A of the Supreme Court Act 1981. It is also common ground that in certain limited circumstances courts of equity can award compound interest. ..
In the absence of fraud courts of equity have never awarded compound interest except against a trustee or other person owing fiduciary duties who is accountable for profits made from his position. Equity awarded simple interest at a time when courts of law had no right under common law or statute to award any interest. The award of compound interest was restricted to cases where the award was in lieu of an account of profits improperly made by the trustee. We were not referred to any case where, compound interest had been awarded in the absence of fiduciary accountability for a profit. The prin ciple is clearly stated by Lord Hatherley LC in Burdick v Garrick LR 5 Ch App 233, 241:
the court does not proceed against an accounting party by way of punishing him for making use of the plaintiff’s money by directing rests, or payment of compound interest, but proceeds upon this principle, either that he has made, or has put himself into such a position as that he is to be presumed to have made, 5 per cent., or compound interest, as the case may be.
The principle was more fully stated by Buckley LJ in Wallersteinerv Moir (No. 2) [1975] QB 373,397:
Where a trustee has retained trust money in his own hands, he will be accountable for the profit which he has made or which he is assumed to have made from the use of the money. In Attomey-Generalv Alford 4 De GM & G 843,851 Lord Cranworth LCsaid: ‘What the court ought to do, I think, is to charge him only with the interest which he has received, or which it is justly entitled to say he ought to have received, or which it is so fairly to be presumed that he did receive that he is estopped from saying that he did not receive it.’ This is an application of the doctrine that the court will not allow a trustee to make any profit from his trust. The defaulting trustee is normally charged with simple interest only, but if it is established that he has used the money in trade he may be charged compound interest. … The justification for charging compound interest normally lies in the fact that profits earned in trade would be likely to be used as working capital for earning further profits.Precisely similar equitable principles apply to an agent who has retained moneys of his principal in his hands and used them for his own purposes: Burdickv Garrick.
Paragon Finance pie v D. B. Thakerar & Co. (a firm)
[1999] 1 All ER 400
MILLETT LJ: … The plaintiffs submit thats. 21(1)(a) of the 1980 Act taken with the extended definition of the words ‘trust’ and ‘trustee’ has the effect of excluding the application of any period of limitation to their claim for breach of this constructive trust. They say that it is irrelevant that the trust in ques tion had no independent existence apart from the fraud but is rather equity’s response to the fraud .
. . . The law on this subject has been settled for more than a hundred years. An action for an account
brought by a principal against his agent is barred by the statutes of limitation unless the agent is more than a mere agent but is a trustee of the money which he received: see Burdickv Garrick (1870) LR 5 Ch App 233, Knox v Gye (1872) LR 5 HL 656 and Re Sharpe, Re Bennett, Masonic and General Life Assurance Co vSharpe [1892] 1 Ch 154. A claim for an account in equity, absent any trust, has no equit able element; it is based on legal,not equitable rights: see Howv Earl Winterton [1896] 2 Ch 626 at639 per Lindley U. Where the agent’s liability to account was contractual equity acted in obedience to the statute: see Hovenden v Lord Annesley (1806) 2 Sch & Lef 607 at 631 per Lord Redesdale. Where, as in Knox v Gye, there was no contractual relationship between the parties, so that the liability was exclu sively equitable, the court acted by analogy with the statute. Its power to do so is implicitly preserved bys.36 of the 1980 Act .
Martin v Myers
[2004] EWHC1947
MR STRAUSS QC: Until the passing of s 19 of the Limitation Act 1939, which is in substantially the same terms ass 21 of the 1980 Act, only an express trustee was prevented, bys 8 of the Trustee Act 1888, from relying upon the provisions of the Limitation Acts. The effect of this is explained in an article by Mr Frank Hinks in 38 The Conveyancer p 176 entitled ‘Executors De Son Tort And The Limitation Of Actions’. As he explains, in general neither an executor nor an executor de son tort was an express trustee, and therefore both could establish title to property of a deceased person against those inter ested in the estate by adverse possession. However, in some circumstances, especially where infants were involved, the executor or the executor de son tort were regarded as express trustees. This was so, for example, where on the death intestate of her husband, the widow remained in possession of the property without obtaining grant of letters of administration; she could not acquire a possessory title to the property as against infant children entitled to an interest in the estate. This was because she was regarded as the equivalent of a guardian to the children, and therefore as an express trustee. This was apparently something which occurred quite often in Ireland. However, the position was different where all the other persons interested in the estate were adults. The widow was then not a trustee, and could establish a possessory title: see Doyle v Foley (1903] 2 LR. 95. [para 28]
… at what point time in time does the constructive trust, if there is one, arise? At least two answers are possible, namely when the occupation starts or at the expiration of the 12-year period. In Mr Hinks’s article, he seems to have envisaged that in this kind of case a constructive trust would be likely to arise at the time when title would otherwise be acquired by adverse possession: see the passage referred to earlier in which it is said that ‘whenever an executor de son tort claims title by lapse of time against his relatives’ the courts ought to consider whether to impose a constructive trust so as to prevent him from relying upon possession. Similarly, in Paragon, Millett LJ stated at 408 that a constructive trust arises [para. 38]
… whenever the circumstances are such that it would be unconscionable for the owner of property … to assert his own beneficial interest in the property and deny the beneficial inter ests of another.’
This approach has the advantage of enabling the court to take into account all the events which have occurred during the period of occupation, and to consider whether in all the circumstances then obtaining it would be unconscionable for the person who has occupied the property to acquire a pos sessory title. This seems right as a matter of principle, and it is preferable to the alternative, which may give rise to complications if the circumstances have altered over time, so that it has at some times dur ing a long period of occupation been ‘unconscionable’ for the occupier to be acquiring a possessory title and at other times not. [para. 39]
In addition, there is the difficulty that, at the beginning of the period of occupation, the occupier by definition has no title to the property but is simply in possession in circumstances in which, until letters of administration had been taken out, legal title is nowadays vested in the Public Trustee (until 1994 in the probate judge). As was said by Kekewich Jin Re Barney (1892] 2 Ch 265 at 272-273: [para. 40]
‘(l]t is essential to the character of the trustee that he should have trust property actually vested in him or so far under his control that he has nothing to do but require that, perhaps by one process, perhaps by another, it should be vested in him.’
Nevertheless, in James v Williams the Court of Appeal held that the constructive trust commenced at the beginning of the period of occupation, basing its decision principally on the failure by the brother to take out letters of administration, in circumstances in which not to do so while taking the benefit of the property was unconscionable. The fact that the brother, as one of the persons competent to take out letters of administration, was in a position to require that the property be vested in him, was sufficient to make the property trust property and to justify the imposition of a trust. However, it does not follow that the only time when a constructive trust can arise, in any case of this kind, is the time when the period of occupation begins; it is necessary to consider the question as at the end of the period as well. [para. 41]
In the present case, I do not consider that any constructive trust arose in 1977 on the death of Edward Myers. Amy Myers did nothing other than to remain in the property in circumstances in which title was vested in the probate judge. As the unmarried partner of Edward Myers, she had no standing to obtain a grant of administration, and was therefore not in a position to have the property vested in her. Even if her conduct had been unconscionable she was not in control of the property. James v Williams is clearly distinguishable. [para. 42]
In any event, the basic principle underlying the imposition of a constructive trust is that the owner of the legal interest should not be entitled to hold property, where the circumstances are such as to make it inequitable or unconscionable for him to do so. There must be factors which ‘affect his conscience’: see per Lord Browne-Wilkinson in Westdeutsche Landesbank v Islington LBC [1996] AC 669, [1996] 2 All ER 961 at 705, 709. It seems to me quite artificial to suggest that any such factors affected Amy Myers’ conscience immediately on Edward Myers’s death. She simply remained in her home, as no doubt all her children wished her to do whatever suspicions they might have held as to whether or not there had been a marriage. [para. 43]
The appropriate question to ask, in my view, is whether a constructive trust arose in April 1989 so as to prevent Amy Myers from acquiring a possessory title. I have not found it easy to answer it, but I have come to the conclusion that it has not been established on the evidence that the circumstances in April 1989 were such as to make it inequitable or unconscionable for Amy Myers to rely on her 12 years’ pos session of the house. [para. 44]
Re Sharpe
[1892] 1 Ch 154, Court of Appeal
LINDLEY LJ:. .. That staleness of demand as distinguished from the Statute of Limitations and analogy to it may furnish a defence in Equity to an equitable claim was settled at least as early as Smith v Clay 3 Bn CC 639n. The principles on which the doctrine is based will be found clearly set forth by the Privy Council in Lindsay Petroleum Company v Hurd Law Rep 5 PC 221, and in the judgment of Lord Blackburn in Erlanger v New Sombrero Phosphate Company (1878) 3 App Cas 1218. Whether these principles are applicable to the case of a company seeking relief in respect of a misapplication of its money which neither the directors nor the company could authorise or ratify has not, I believe, been decided, and need not be decided on the present occasion, for the circumstances of this case are insufficient to support a defence founded on the equitable doctrine in question. A defence based on staleness of demand renders it necessary to consider the time which has elapsed and the balance of justice or injustice in affording or refusing relief.I do not disregard, but I do not attach much importance to, the time which elapsed before Captain Bennett’s death, nor, for reasons already given, to that which has elapsed between the winding up of the company and the commencement of the action. The remaining time is about two years and a quarter, which I do not consider long .
Re Somerset v Earl Poulett
[1894] 1 ChD 231
LINDLEY LJ:… If a cestui que trust instigates, requests, or consents in writing to an investment not in terms authorised by the power of investment, he clearly falls within the section; and in such a case his ignorance or forgetfulness of the terms of the power would not, I think, protect him-at all events, not unless he could give some good reason why it should, e.g. that it was caused by the trustee. But if all that a cestui que trust does is to instigate, request, or consent in writing to an investment which is authorised by the terms of the power, the case is, I think, very different. He has a right to expect that the trustees will act with proper care in making the investment, and if they do not they cannot throw the consequences on him unless they can show that he instigated, requested, or consented in writing to their non-performance of their duty in this respect.
Armitage v Nurse
[1998] Ch 241,
MILLITT LJ:… In my judgment clause 15 exempts the trustee from liability for loss or damage to the trust property no matter how indolent, imprudent,lacking in diligence, negligent or wilful he may have been, so long as he has not acted dishonestly.
The permitted scope of trustee exemption clauses
It is submitted on behalf of [the claimant] that a trustee exemption clause which purports to exclude all liability except for actual fraud is void, either for repugnancy or as contrary to public policy. There is some academic support for the submission (notably an article by Professor Matthews, ‘The Efficacy of Trustee Exemption Clauses in English Law’ [1989] Conv. 42 and Hanbury & Martin’s Modern Equity, 14th edn (1993), pp. 473-474) that liability for gross negligence cannot be excluded, but this is not the view taken in Underhill and Hayton’s Law of Trusts and Trustees, 15th edn (1995), pp. 560-561 (where it appears to be taken only because the editor confusingly uses the term ‘gross negligence’ to mean reckless indifference to the interests of the beneficiaries).In its consultation paper Fiduciary Duties and Regulatory Rules, A Summary (1992) (Law Com. No. 124), para.3.3.41 the Law Commission states:
Beyond this, trustees and fiduciaries cannot exempt themselves from liability for fraud, bad faith and wilful default. It is not, however, clear whether the prohibition on exclusion of liability for ‘fraud’ in thiscontext only prohibits the exclusion of common law fraud or extends to the much broader doctrine of equitable fraud.It is also not altogether clear whether the prohibition on the exclusion of liability for ‘wilful default’ also prohibits exclusion of liability for gross negligence although we incline to the view that it does.
. the expression ‘wilful default’ is used in the cases in two senses. A trustee is said to be accountable on the footing of wilful default when he is accountable not only for money which he has in fact received but also for money which he could with reasonable diligence have received. It is sufficient that the trustee has been guilty of a want of ordinary prudence: see, e.g. In re Chapman; Cocks v Chapman [1896] 2 Ch 763. In the context of a trustee exclusion clause, however, such ass. 30 of the Trustee Act 1925, it means a deliberate breach of trust: In re Vickery: Vickery v Stephens [1931] 1 Ch 572. The decision has been criticised, but it is in line with earlier authority: see Lewis vGreat Western Railway Co.
{1877) 3 QBD 195; In re Trusts of Leeds City Brewery Ltd’s Debenture Stock Trust Deed, Leeds City Brewery Ltdv Platts (Note) [1925] Ch 532 and In re City Equitable Fire Insurance Co. Ltd [1925] Ch 407. Nothing less than conscious, and wilful misconduct is sufficient. The trustee must be conscious that, in doing the act which is complained of or in omitting to do the act which it said he ought to have done, he is committing a breach of his duty, or is recklessly careless whether it is a breach of his duty or not: see In re Vickery [1931] 1 Ch 572,583, per Maugham J.
A trustee who is guilty of such conduct either consciously takes a risk that loss will result, or is recklessly indifferent whether it will or not. If the risk eventuates he is personally liable. But if he consciously takes the risk in good faith and with the best intentions, honestly believing that the risk is one which ought to be taken in the interests of the beneficiaries, there is no reason why he should not be protected by an exemption clause which excludes liability for wilful default …
There can be no question of the clause being repugnant to the trust. In Wilkins v Hogg (1861) 31 LJ Ch 41, 42 Lord Westbury LC challenged counsel to cite a case where an indemnity clause protecting the trustee from his ordinary duty had been held so repugnant as to be rejected. Counsel was unable to do so. No s uch case has occurred in England or Scotland since.
I accept the submission made on behalf of [the claimant] that there is an irreducible core of obliga tions owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that these core obligations include the duties of skill and care, prudence and diligence. The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient. As Mr Hill pertinently pointed out in his able argument, a trustee who relied on the presence of a trustee exemption clause to justify what he proposed to do would thereby lose its protection: he would be acting recklessly in the proper sense of the term …
The submission that it is contrary to public policy to exclude the liability of a trustee for gross negligence is not supported by any English or Scottish authority …
At the same time, it must be acknowledged that the view is widely held that these clauses have gone too far, and that trustees who charge for their services and who, as professional men, would not dream of excluding liability for ordinary professional negligence should not be able to rely on a trustee exemp tion clause excluding liability for gross negligence. Jersey introduced a law in 1989 which denies effect to a trustee exemption clause which purports to absolve a trustee from liability for his own ‘fraud, wilful misconduct or gross negligence.’ The subject is presently under consideration in this country by the Trust Law Committee under the chairmanship of Sir John Vinelott. If clauses such as clause 15 of the settlement are to be denied effect, then in my opinion this should be done by Parliament, which will have the advantage of wide consultation with interested bodies and the advice of the Trust Law Committee.
Re Towndrow
[1911] 1 Ch 662
PARKER J:… I think that the real principle is stated by Stirling Jin Doering v Doering 42 ChD 203 where he says, ‘The law has gone to this extent, that though the breach of trust is committed after the assign ment, nevertheless, the rule applies, and the assignee or mortgagee is not entitled to any share in the estate until the default is made good. The theory on which that rule is based is that the Court treats the trustee as having received his share by anticipation, and the answer to any claim made by the trustee is this: “You have already received your share; you have it in your own hands.” ‘Therefore you must, I take it, have a defaulting trustee claiming a share in the aggregate amount of a certain fund, and the answer to him is, ‘You cannot have it; you have already had it.’ But that cannot apply to a case like the present, where the only interest which the trustee has is in another fund in which the cestuis que trust whose property has been misappropriated have no interest at all; it cannot apply so as to give them a lien on that other fund. The trustee in this case is not claiming a share in the residue, and, therefore, his default has no effect on the distribution of that residue, and, in my opinion, his assigns under the settle ment, there being no default at the date of the assignment, take clear of and are entitled to hold the set tled fund free from any equity against them …
Re Pauling’s ST (No. 2)
[1963] Ch 576
WILBERFORCE J:
As regards the statutory right, that depends on the language of s. 62 of the Trustee Act 1925, and at first sight it might look as if that right only exists in favour of a person who is actually a trustee. But, on consideration, that seems to me to be a misconstruction of the section. In the first place, the same objection against limiting the right in this way applies to the statutory jurisdiction. It seems to me an absurdity that it is required as a condition of exercising the right to obtain an impounding order, that the trustee who, ex hypothesi, is in breach of trust, must remain as trustee in order to acquire a right of indemnity.Further, it seems to me on the authorities,and, indeed, on the very terms of the section, that the section is giving an additional right, among other things, to deal with the case of a married woman beneficiary; that the statutory right is extending the equitable right and not limiting it, and that it is not right to read the section so as to apply only to a person who was formerly a trustee.The section begins with the words: ‘Where a trustee commits a breach of trust’, thereby indicating that at the time the breach of trust is committed the person in question must be a trustee.Then further down in the section there is a reference to a trustee and that appears to me to be.merely a reference back to the same person as the person who committed the breach of trust and not as an indication that the person in question must be a trustee at the date of the order.