Trustees
Trustees Act 1893
Authorised investments.
1. A trustee may, unless expressly forbidden by the instrument (if any) creating the trust, invest any trust funds in his hands, whether at the time in a state of investment or not, in manner following, that is to say:
(a) In any of the parliamentary stocks or public funds or Government securities of the United Kingdom:
(b) On real or heritable securities in Great Britain or Ireland:
(c) In the stock of the Bank of England or the Bank of Ireland:
(d) In India three and a half per cent. stock and India three per cent. stock, or in any other capital stock which may at any time hereafter be issued by the Secretary of State in Council of India under the authority of Act of Parliament, and charged on the revenues of India:
(e) In any securities the interest of which is for the time being guaranteed by Parliament:
(f) In consolidated stock created by the Metropolitan Board of Works, or by the London County Council, or in debenture stock created by the Receiver for the Metropolitan Police District:
(g) In the debenture or rentcharge, or guaranteed or preference stock of any railway company in Great Britain or Ireland incorporated by special Act of Parliament, and having during each of the ten years last past before the date of investment paid a dividend at the rate of not less than three per centum per annum on its ordinary stock:
(h) In the stock of any railway or canal company in Great Britain or Ireland whose undertaking is leased in perpetuity or for a term of not less than two hundred years at a fixed rental to any such railway company as is mentioned in sub-section (g), either alone or jointly with any other railway company:
(i) In the debenture stock of any railway company in India the interest on which is paid or guaranteed by the Secretary of State in Council of India:
(j) In the “B” annuities of the Eastern Bengal, the East Indian, and the Scinde Punjaub and Delhi Railways, and any like annuities which may at any time hereafter be created on the purchase of any other railway by the Secretary of State in Council of India, and charged on the revenues of India, and which may be authorised by Act of Parliament to be accepted by trustees in lieu of any stock held by them in the purchased railway; also in deferred annuities comprised in the register of holders of annuity Class D. and annuities comprised in the register of annuitants Class C. of the East Indian Railway Company:
(k) In the stock of any railway company in India upon which a fixed or minimum dividend in sterling is paid or guaranteed by the Secretary of State in Council of India, or upon the capital of which the interest is so guaranteed:
(l) In the debenture or guaranteed or preference stock of any company in Great Britain or Ireland, established for the supply of water for profit, and incorporated by special Act of Parliament or by Royal Charter, and having during each of the ten years last past before the date of investment paid a dividend of not less than five pounds per centum on its ordinary stock:
(m) In nominal or inscribed stock issued, or to be issued, by the corporation of any municipal borough having, according to the returns of the last census prior to the date of investment, a population exceeding fifty thousand, or by any county council, under the authority of any Act of Parliament or Provisional Order:
(n) In nominal or inscribed stock issued or to be issued by any commissioners incorporated by Act of Parliament for the purpose of supplying water, and having a compulsory power of levying rates over an area having, according to the returns of the last census prior to the date of investment, a population exceeding fifty thousand, provided that during each of the ten years last past before the date of investment the rates levied by such commissioners shall not have exceeded eighty per centum of the amount authorised by law to be levied:
(o) In any of the stocks, funds, or securities for the time being authorised for the investment of cash under the control or subject to the order of the High Court,
and may also from time to time vary any such investment.
Purchase at a premium of redeemable stocks.
2.—(1) A trustee may under the powers of this Act invest in any of the securities mentioned or referred to in section one of this Act, notwithstanding that the same may be redeemable, and that the price exceeds the redemption value.
(2) Provided that a trustee may not under the powers of this Act purchase at a price exceeding its redemption value any stock mentioned or referred to in sub-sections (g), (i), (k), (l), and (m) of section one [1] , which is liable to be redeemed within fifteen years of the date of purchase at par or at some other fixed rate, or purchase any such stock as is mentioned or referred to in the sub-sections aforesaid, which is liable to be redeemed at par or at some other fixed rate, at a price exceeding fifteen per centum above par or such other fixed rate.
(3) A trustee may retain until redemption any redeemable stock, fund, or security which may have been purchased in accordance with the powers of this Act.
Discretion of trustees.
3. Every power conferred by the preceding sections shall be exercised according to the discretion of the trustee, but subject to any consent required by the instrument, if any, creating the trust with respect to the investment of the trust funds.
Application of preceding sections.
4. The preceding sections shall apply as well to trusts created before as to trusts created after the passing of this Act, and the powers thereby conferred shall be in addition to the powers conferred by the instrument, if any, creating the trust.
Enlargement of express powers of investment.
27 & 28 Vict. c. 114.
38 & 39 Vict. c. 83.
43 & 44 Vict. c. 8.
28 & 29 Vict. c. 78.
5.—(1.) A trustee having power to invest in real securities, unless expressly forbidden by the instrument creating the trust, may invest and shall be deemed to have always had power to invest—
(a) on mortgage of property held for an unexpired term of not less than two hundred years, and not subject to a reservation of rent greater than a shilling a year, or to any right of redemption or to any condition for re-entry, except for non-payment of rent; and
(b) on any charge, or upon mortgage of any charge, made under the Improvement of Land Act, 1864.
(2) A trustee having power to invest in the mortgages or bonds of any railway company or of any other description of company may, unless the contrary is expressed in the instrument authorising the investment, invest in the debenture stock of a railway company or such other company as aforesaid.
(3) A trustee having power to invest money in the debentures or debenture stock of any railway or other company may, unless the contrary is expressed in the instrument authorising the investment, invest in any nominal debentures or nominal debenture stock issued under the Local Loans Act, 1875.
(4) A trustee having power to invest money in securities in the Isle of Man, or in securities of the government of a colony, may, unless the contrary is expressed in the instrument authorising the investment, invest in any securities of the Government of the Isle of Man, under the Isle of Man Loans Act, 1880.
(5) A trustee having a general power to invest trust moneys in or upon the security of shares, stock, mortgages, bonds, or debentures of companies incorporated by or acting under the authority of an Act of Parliament, may invest in, or upon the security of, mortgage debentures duly issued under and in accordance with the provisions of the Mortgage Debenture Act, 1865.
Power to invest, notwithstanding drainage charges.
10 & 11 Vict. c. 32.
6. A trustee having power to invest in the purchase of land or on mortgage of land may invest in the purchase, or on mortgage of any land, notwithstanding the same is charged with a rent under the powers of the Public Money Drainage Acts, 1846 to 1856, or the Landed Property Improvement (Ireland) Act, 1847, or by an absolute order made under the Improvement of Land Act, 1864, unless the terms of the trust expressly provide that the land to be purchased or taken in mortgage shall not be subject to any such prior charge.
Trustees not to convert inscribed stock into certificates to bearer.
26 & 27 Vict. c. 73.
33 & 34 Vict. c. 71.
38 & 39 Vict. c. 83.
40 & 41 Vict. c. 59.
7.—(1) A trustee, unless authorised by the terms of his trust, shall not apply for or hold any certificate to bearer issued under the authority of any of the following Acts, that is to say:
(a) The India Stock Certificate Act, 1863;
(b) The National Debt Act, 1870;
(c) The Local Loans Act, 1875;
(d) The Colonial Stock Act, 1877.
(2) Nothing in this section shall impose on the Bank of England or of Ireland, or on any person authorised to issue any such certificates, any obligation to inquire whether a person applying for such a certificate is or is not a trustee, or subject them to any liability in the event of their granting any such certificate to a trustee, nor invalidate any such certificate if granted.
Loans and investments
by trustees not chargeable as breaches of trust.
8.[1] —(1) A trustee lending money on the security of any property on which he can lawfully lend shall not be chargeable with breach of trust by reason only of the proportion borne by the amount of the loan to the value of the property at the time when the loan was made; provided that it appears to the court that in making the loan the trustee was acting upon a report as to the value of the property made by a person whom he reasonably believed to be an able practical surveyor or valuer instructed and employed independently of any owner of the property, whether such surveyor or valuer carried on business in the locality where the property is situate or elsewhere, and that the amount of the loan does not exceed two equal third parts of the value of the property as stated in the report, and that the loan was made under the advice of the surveyor or valuer expressed in the report.
(2) A trustee lending money on the security of any leasehold property shall not be chargeable with breach of trust only upon the ground that in making such loan he dispensed either wholly or partly with the production or investigation of the lessor’s title.
(3) A trustee shall not be chargeable with breach of trust only upon the ground that in effecting the purchase of or in lending money upon the security of any property he has accepted a shorter title than the title which a purchaser is, in the absence of a special contract, entitled to require, if in the opinion of the court the title accepted be such as a person acting with prudence and caution would have accepted.
(4) This section applies to transfers of existing securities as well as to new securities, and to investments made as well before as after the commencement of this Act, except where an action or other proceeding was pending with reference thereto on the twenty-fourth day of December one thousand eight hundred and eighty-eight.
Liability for loss by reason of improper investments.
9.—(1) Where a trustee improperly advances trust money on a mortgage security which would at the time of the investment be a proper investment in all respects for a smaller sum than is actually advanced thereon the security shall be deemed an authorised investment for the smaller sum, and the trustee shall only be liable to make good the sum advanced in excess thereof with interest.
(2) This section applies to investments made as well before as after the commencement of this Act except where an action or other proceeding was pending with reference thereto on the twenty-fourth day of December one thousand eight hundred and eighty-eight.
Part II.
Various Powers and Duties of Trustees.
Appointment of New Trustees.
Power of appointing new trustees.
10.—(1) Where a trustee, either original or substituted, and whether appointed by a court or otherwise, is dead, or remains out of the United Kingdom for more than twelve months, or desires to be discharged from all or any of the trusts or powers reposed in or conferred on him, or refuses or is unfit to act therein, or is incapable of acting therein, then the person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust, or if there is no such person, or no such person able and willing to act, then the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee, may, by writing, appoint another person or other persons to be a trustee or trustees in the place of the trustee dead, remaining out of the United Kingdom, desiring to be discharged, refusing, or being unfit or being incapable, as aforesaid.
(2) On the appointment of a new trustee for the whole or any part of trust property—
(a) the number of trustees may be increased; and
(b) a separate set of trustees may be appointed for any part of the trust property held on trusts distinct from those relating to any other part or parts of the trust property, notwithstanding that no new trustees or trustee are or is to be appointed for other parts of the trust property, and any existing trustee may be appointed or remain one of such separate set of trustees; or, if only one trustee was originally appointed, then one separate trustee may be so appointed for the first-mentioned part; and
(c) it shall not be obligatory to appoint more than one new trustee where only one trustee was originally appointed, or to fill up the original number of trustees where more than two trustees were originally appointed; but, except where only one trustee was originally appointed, a trustee shall not be discharged under this section from his trust unless there will be at least two trustees to perform the trust; and
(d) any assurance or thing requisite for vesting the trust property, or any part thereof, jointly in the persons who are the trustees, shall be executed or done.
(3) Every new trustee so appointed, as well before as after all the trust property becomes by law, or by assurance, or otherwise, vested in him, shall have the same powers, authorities, and discretions, and may in all respects act, as if he had been originally appointed a trustee by the instrument, if any, creating the trust.
(4) The provisions of this section relative to a trustee who is dead include the case of a person nominated trustee in a will but dying before the testator, and those relative to a continuing trustee include a refusing or retiring trustee, if willing to act in the execution of the provisions of this section.
(5) This section applies only if and as far as a contrary intention is not expressed in the instrument, if any, creating the trust, and shall have effect subject to the terms of that instrument and to any provisions therein contained.
(6) This section applies to trusts created either before or after the commencement of this Act.
Retirement of trustee.
11.—(1) Where there are more than two trustees, if one of them by deed declares that he is desirous of being discharged from the trust, and if his co-trustees and such other person, if any, as is empowered to appoint trustees, by deed consent to the discharge of the trustee, and to the vesting in the co-trustees alone of the trust property, then the trustee desirous of being discharged shall be deemed to have retired from the trust, and shall, by the deed, be discharged therefrom under this Act, without any new trustee being appointed in his place.
(2) Any assurance or thing requisite for vesting the trust property in the continuing trustees alone shall be executed or done.
(3) This section applies only if and as far as a contrary intention is not expressed in the instrument, if any, creating the trust, and shall have effect subject to the terms of that instrument and to any provisions therein contained.
(4.) This section applies to trusts created either before or after the commencement of this Act.
Vesting of trust property in new or continuing trustees.
12.—(1) Where a deed by which a new trustee is appointed to perform any trust contains a declaration by the appointor to the effect that any estate or interest in any land subject to the trust, or in any chattel so subject, or the right to recover and receive any debt or other thing in action so subject, shall vest in the persons who by virtue of the deed become and are the trustees for performing the trust, that declaration shall, without any conveyance or assignment, operate to vest in those persons, as joint tenants, and for the purposes of the trust, that estate, interest, or right.
(2) Where a deed by which a retiring trustee is discharged under this Act contains such a declaration as is in this section mentioned by the retiring and continuing trustees, and by the other person, if any, empowered to appoint trustees, that declaration shall, without any conveyance or assignment, operate to vest in the continuing trustees alone, as joint tenants, and for the purposes of the trust, the estate, interest, or right to which the declaration relates.
(3) This section does not extend to any legal estate or interest in copyhold or customary land, or to land conveyed by way of mortgage for securing money subject to the trust, or to any such share, stock, annuity, or property as is only transferable in books kept by a company or other body, or in manner directed by or under Act of Parliament.
(4) For purposes of registration of the deed in any registry, the person or persons making the declaration shall be deemed the conveying party or parties, and the conveyance shall be deemed to be made by him or them under a power conferred by this Act.
(5) This section applies only to deeds executed after the thirty-first of December one thousand eight hundred and eighty-one.
Purchase and Sale.
Power of trustee for sale to sell by auction, &c.
13.—(1) Where a trust for sale or a power of sale of property is vested in a trustee, he may sell or concur with any other person in selling all or any part of the property, either subject to prior charges or not, and either together or in lots, by public auction or by private contract, subject to any such conditions respecting title or evidence of title or other matter as the trustee thinks fit, with power to vary any contract for sale, and to buy in at any auction, or to rescind any contract for sale and to re-sell, without being answerable for any loss.
(2) This section applies only if and as far as a contrary intention is not expressed in the instrument creating the trust or power, and shall have effect subject to the terms of that instrument and to the provisions therein contained.
(3) This section applies only to a trust or power created by an instrument coming into operation after the thirty-first of December one thousand eight hundred and eighty-one.
Power to sell subject to depreciatory conditions.
14.—(1) No sale made by a trustee shall be impeached by any beneficiary upon the ground that any of the conditions subject to which the sale was made may have been unnecessarily depreciatory, unless it also appears that the consideration for the sale was thereby rendered inadequate.
(2) No sale made by a trustee shall, after the execution of the conveyance, be impeached as against the purchaser upon the ground that any of the conditions subject to which the sale was made may have been unnecessarily depreciatory, unless it appears that the purchaser was acting in collusion with the trustee at the time when the contract for sale was made.
(3) No purchaser, upon any sale made by a trustee, shall be at liberty to make any objection against the title upon the ground aforesaid.
(4) This section applies only to sales made after the twenty-fourth day of December one thousand eight hundred and eighty-eight.
Power to sell under 37 & 38 Vict. c. 78.
15. A trustee who is either a vendor or a puchaser may sell or buy without excluding the application of section two of the Vendor and Purchaser Act, 1874.
Married woman as bare trustee may convey.
16. When any freehold or copyhold hereditament is vested in a married woman as a bare trustee she may convey or surrender it as if she were a feme sole.
Various Powers and Liabilities.
Power to authorise receipt of money by banker or solicitor.
44 & 45 Vict. c. 41.
17.—(1) A trustee may appoint a solicitor to be his agent to receive and give a discharge for any money or valuable consideration or property receivable by the trustee under the trust, by permitting the solicitor to have the custody of, and to produce, a deed containing any such receipt as is referred to in section fifty-six of the Conveyancing and Law of Property Act, 1881; and a trustee shall not be chargeable with breach of trust by reason only of his having made or concurred in making any such appointment; and the producing of any such deed by the solicitor shall have the same validity and effect under the said section as if the person appointing the solicitor had not been a trustee.
(2) A trustee may appoint a banker or solicitor to be his agent to receive and give a discharge for any money payable to the trustee under or by virtue of a policy of assurance, by permitting the banker or solicitor to have the custody of and to produce the policy of assurance with a receipt signed by the trustee, and a trustee shall not be chargeable with a breach of trust by reason only of his having made or concurred in making any such appointment.
(3) Nothing in this section shall exempt a trustee from any liability which he would have incurred if this Act had not been passed, in case he permits any such money, valuable consideration, or property to remain in the hands or under the control of the banker or solicitor for a period longer than is reasonably necessary to enable the banker or solicitor (as the case may be) to pay or transfer the same to the trustee.
(4) This section applies only where the money or valuable consideration or property is received after the twenty-fourth day of December one thousand eight hundred and eighty-eight.
(5) Nothing in this section shall authorise a trustee to do anything which he is in express terms forbidden to do, or to omit anything which he is in express terms directed to do, by the instrument creating the trust.
Power to insure building.
18.—(1) A trustee may insure against loss or damage by fire any building or other insurable property to any amount (including the amount of any insurance already on foot) not exceeding three equal fourth parts of the full value of such building or property, and pay the premiums for such insurance out of the income thereof or out of the income of any other property subject to the same trusts, without obtaining the consent of any person who may be entitled wholly or partly to such income.
(2) This section does not apply to any building or property which a trustee is bound forthwith to convey absolutely to any beneficiary upon being requested to do so.
(3) This section applies to trusts created either before or after the commencement of this Act, but nothing in this section shall authorise any trustee to do anything which he is in express terms forbidden to do, or to omit to do anything which he is in express terms directed to do, by the instrument creating the trust.
Power of trustees of renewable leaseholds
to renew and raise money for the purpose.
19.—(1) A trustee of any leaseholds for lives or years which are renewable from time to time, either under any covenant or contract, or by custom or usual practice, may, if he thinks fit, and shall, if thereto required by any person having any beneficial interest, present or future, or contingent, in the leaseholds, use his best endeavours to obtain from time to time a renewed lease of the same hereditaments on the accustomed and reasonable terms, and for that purpose may from time to time make or concur in making a surrender of the lease for the time being subsisting, and do all such other acts as are requisite: Provided that, where by the terms of the settlement or will the person in possession for his life or other limited interest is entitled to enjoy the same without any obligation to renew or to contribute to the expense of renewal, this section shall not apply unless the consent in writing of that person is obtained to the renewal on the part of the trustee.
(2) If money is required to pay for the renewal, the trustee effecting the renewal may pay the same out of any money then in his hands in trust for the persons beneficially interested in the lands to be comprised in the renewed lease, and if he has not in his hands sufficient money for the purpose, he may raise the money required by mortgage of the hereditaments to be comprised in the renewed lease, or of any other hereditaments for the time being subject to the uses or trusts to which those hereditaments are subject, and no person advancing money upon a mortgage purporting to be under this power shall be bound to see that the money is wanted, or that no more is raised than is wanted for the purpose.
(3) This section applies to trusts created either before or after the commencement of this Act, but nothing in this section shall authorise any trustee to do anything which he is in express terms forbidden to do, or to omit to do anything which he is in express terms directed to do, by the instrument creating the trust.
Power of trustee to give receipts.
20.—(1) The receipt in writing of any trustee for any money, securities, or other personal property or effects payable, transferable, or deliverable to him under any trust or power shall be a sufficient discharge for the same, and shall effectually exonerate the person paying, transferring, or delivering the same from seeing to the application or being answerable for any loss or misapplication thereof.
(2) This section applies to trusts created either before or after the commencement of this Act.
Power for executors and trustees to compound, &c.
21.—(1) An executor or administrator may pay or allow any debt or claim on any evidence that he thinks sufficient.
(2) An executor or administrator, or two or more trustees, acting together, or a sole acting trustee where by the instrument, if any, creating the trust a sole trustee is authorised to execute the trusts and powers thereof, may, if and as he or they may think fit, accept any composition or any security, real or personal, for any debt or for any property, real or personal, claimed, and may allow any time for payment for any debt, and may compromise, compound, abandon, submit to arbitration, or otherwise settle any debt, account, claim, or thing whatever relating to the testator’s or intestate’s estate or to the trust, and for any of those purposes may enter into, give, execute, and do such agreements, instruments of composition or arrangement, releases, and other things as to him or them seem expedient, without being responsible for any loss occasioned by any act or thing so done by him or them in good faith.
(3) This section applies only if and as far as a contrary intention is not expressed in the instrument, if any, creating the trust, and shall have effect subject to the terms of that instrument, and to the provisions therein contained.
(4) This section applies to executorships, administratorships and trusts constituted or created either before or after the commencement of this Act.
Powers of two or more trustees.
22.—(1) Where a power or trust is given to or vested in two or more trustees jointly, then, unless the contrary is expressed in the instrument, if any, creating the power or trust, the same may be exercised or performed by the survivor or survivors of them for the time being.
(2) This section applies only to trusts constituted after or created by instruments coming into operation after the thirty-first day of December one thousand eight hundred and eighty-one.
Exoneration of trustees in respect of certain powers of attorney.
23. A trustee acting or paying money in good faith under or in pursuance of any power of attorney shall not be liable for any such act or payment by reason of the fact that at the time of the payment or act the person who gave the power of attorney was dead or had done some act to avoid the power, if this fact was not known to the trustee at the time of his so acting or paying.
Provided that nothing in this section shall affect the right of any person entitled to the money against the person to whom the payment is made, and that the person so entitled shall have the same remedy against the person to whom the payment is made as he would have had against the trustee.
Implied indemnity of trustees.
24. A trustee shall, without prejudice to the provisions of the instrument, if any, creating the trust, be chargeable only for money and securities actually received by him notwithstanding his signing any receipt for the sake of conformity, and shall be answerable and accountable only for his own acts, receipts, neglects, or defaults, and not for those of any other trustee, nor for any banker, broker, or other person with whom any trust moneys, or securities may be deposited, nor for the insufficiency or deficiency of any securities, nor for any other loss, unless the same happens through his own wilful default; and may reimburse himself, or pay or discharge out of the trust premises, all expenses incurred in or about the execution of his trusts or powers.
Part III.
Powers of the Court.
Appointment of New Trustees and Vesting Orders.
Power of the Court to appoint new trustees.
25.—(1) The High Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult, or impracticable so to do without the assistance of the Court, make an order for the appointment of a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee. In particular and without prejudice to the generality of the foregoing provision, the Court may make an order for the appointment of a new trustee in substitution for a trustee who is convicted of felony, or is a bankrupt.
(2) An order under this section, and any consequential vesting order or conveyance, shall not operate further or otherwise as a discharge to any former or continuing trustee than an appointment of new trustees under any power for that purpose contained in any instrument would have operated.
(3) Nothing in this section shall give power to appoint an executor or administrator.
Vesting orders as to land.
26. In any of the following cases, namely:—
(i) Where the High Court appoints or has appointed a new trustee; and
(ii) Where a trustee entitled to or possessed of any land, or entitled to a contingent right therein, either solely or jointly with any other person,—
(a) is an infant, or
(b) is out of the jurisdiction of the High Court, or
(c) cannot be found; and
(iii) Where it is uncertain who was the survivor of two or more trustees jointly entitled to or possessed of any land; and
(iv) Where, as to the last trustee known to have been entitled to or possessed of any land, it is uncertain whether he is living or dead; and
(v) Where there is no heir or personal representative to a trustee who was entitled to or possessed of land and has died intestate as to that land, or where it is uncertain who is the heir or personal representative or devisee of a trustee who was entitled to or possessed of land and is dead; and
(vi) Where a trustee jointly or solely entitled to or possessed of any land, or entitled to a contingent right therein, has been required, by or on behalf of a person entitled to require a conveyance of the land or a release of the right, to convey the land or to release the right, and has wilfully refused or neglected to convey the land or release the right for twenty-eight days after the date of the requirement;
the High Court may make an order (in this Act called a vesting order) vesting the land in any such person in any such manner and for any such estate as the Court may direct, or releasing or disposing of the contingent right to such person as the Court may direct.
Provided that—
(a) Where the order is consequential on the appointment of a new trustee the land shall be vested for such estate as the Court may direct in the persons who on the appointment are the trustees; and
(b) Where the order relates to a trustee entitled jointly with another person, and such trustee is out of the jurisdiction of the High Court or cannot be found, the land or right shall be vested in such other person, either alone or with some other person.
Orders as to contingent rights of unborn persons.
27. Where any land is subject to a contingent right in an unborn person or class of unborn persons who, on coming into existence would, in respect thereof, become entitled to or possessed of the land on any trust, the High Court may make an order releasing the land from the contingent right, or may make an order vesting in any person the estate to or of which the unborn person or class of unborn persons would, on coming into existence, be entitled or possessed in the land.
Vesting order in place of conveyance by infant mortgagee.
28. Where any person entitled to or possessed of land, or entitled to a contingent right in land, by way of security for money, is an infant, the High Court may make an order vesting or releasing or disposing of the land or right in like manner as in the case of an infant trustee.
Vesting order in place of conveyance
by heir, or devisee of heir, &c., or personal representative of mortgagee.
29. Where a mortgagee of land has died without having entered into the possession or into the receipt of the rents and profits thereof, and the money due in respect of the mortgage has been paid to a person entitled to receive the same, or that last-mentioned person consents to any order for the reconveyance of the land, then the High Court may make an order vesting the land in such person or persons in such manner and for such estate as the Court may direct in any of the following cases, namely,—
(a) Where an heir or personal representative or devisee of the mortgagee is out of the jurisdiction of the High Court or cannot be found; and
(b) Where an heir or personal representative or devisee of the mortgagee on demand made by or on behalf of a person entitled to require a conveyance of the land has stated in writing that he will not convey the same or does not convey the same for the space of twenty-eight days next after a proper deed for conveying the land has been tendered to him by or on behalf of the person so entitled; and
(c) Where it is uncertain which of several devisees of the mortgagee was the survivor; and
(d) Where it is uncertain as to the survivor of several devisees of the mortgagee or as to the heir or personal representative of the mortgagee whether he is living or dead; and
(e) Where there is no heir or personal representative to a mortgagee who has died intestate as to the land, or where the mortgagee has died and it is uncertain who is his heir or personal representative or devisee.
Vesting order consequential on judgment for sale or mortgage of land.
30. Where any court gives a judgment or makes an order directing the sale or mortgage of any land, every person who is entitled to or possessed of the land, or entitled to a contingent right therein . . . . . . . . . . and is a party to the action or proceeding in which the judgment or order is given or made or is otherwise bound by the judgment or order, shall be deemed to be so entitled or possessed, as the case may be, as a trustee within the meaning of this Act; and the High Court may, if it thinks expedient, make an order vesting the land or any part thereof for such estate as that Court thinks fit in the purchaser or mortgagee or in any other person.
Vesting order consequential on judgment for specific performance, &c.
31. Where a judgment is given for the specific performance of a contract concerning any land, or for the partition, or sale in lieu of partition, or exchange, of any land, or generally where any judgment is given for the conveyance of any land either in cases arising out of the doctrine of election or otherwise, the High Court may declare that any of the parties to the action are trustees of the land or any part thereof within the meaning of this Act, or may declare that the interests of unborn persons who might claim under any party to the action, or under the will or voluntary settlement of any person deceased who was during his lifetime a party to the contract or transactions concerning which the judgment is given, are the interests of persons who, on coming into existence, would be trustees within the meaning of this Act, and thereupon the High Court may make a vesting order relating to the rights of those persons, born and unborn, as if they had been trustees.
Effect of vesting order.
32. A vesting order under any of the foregoing provisions shall in the case of a vesting order consequential on the appointment of a new trustee, have the same effect as if the persons who before the appointment were the trustees (if any) had duly executed all proper conveyances of the land for such estate as the High Court directs, or if there is no such person, or no such person of full capacity, then as if such person had existed and been of full capacity and had duly executed all proper conveyances of the land for such estate as the Court directs, and shall in every other case have the same effect as if the trustee or other person or description or class of persons to whose rights or supposed rights the said provisions respectively relate had been an ascertained and existing person of full capacity, and had executed a conveyance or release to the effect intended by the order.
Power to appoint person to convey.
33. In all cases where a vesting order can be made under any of the foregoing provisions, the High Court may, if it is more convenient, appoint a person to convey the land or release the contingent right, and a conveyance or release by that person in conformity with the order shall have the same effect as an order under the appropriate provision.
Effect of vesting order as to copyhold.
34.—(1) Where an order vesting copyhold land in any person is made under this Act with the consent of the lord or lady of the manor, the land shall vest accordingly without surrender or admittance.
(2) Where an order is made under this Act appointing any person to convey any copyhold land, that person shall execute and do all assurances and things for completing the assurance of the land; and the lord and lady of the manor and every other person shall, subject to the customs of the manor and the usual payments, be bound to make admittance to the land and to do all other acts for completing the assurance thereof, as if the persons in whose place an appointment is made were free from disability and had executed and done those assurances and things.
Vesting orders as to stock and choses in action.
35.—(1) In any of the following cases, namely:—
(i) Where the High Court appoints or has appointed a new trustee; and
(ii) Where a trustee entitled alone or jointly with another person to stock or to a chose in action—
(a) is an infant, or
(b) is out of the jurisdiction of the High Court, or
(c) cannot be found; or
(d) neglects or refuses to transfer stock or receive the dividends or income thereof, or to sue for or recover a chose in action, according to the direction of the person absolutely entitled thereto for twenty-eight days next after a request in writing has been made to him by the person so entitled, or
(e) neglects or refuses to transfer stock or receive the dividends or income thereof, or to sue for or recover a chose in action for twenty-eight days next after an order of the High Court for that purpose has been served on him; or
(iii) Where it is uncertain whether a trustee entitled alone or jointly with another person to stock or to a chose in action is alive or dead,
the High Court may make an order vesting the right to transfer or call for a transfer of stock, or to receive the dividends or income thereof, or to sue for or recover a chose in action, in any such person as the Court may appoint:
Provided that—
(a) Where the order is consequential on the appointment by the Court of a new trustee, the right shall be vested in the persons who, on the appointment, are the trustees; and
(b) Where the person whose right is dealt with by the order was entitled jointly with another person, the right shall be vested in that last-mentioned person either alone or jointly with any other person whom the Court may appoint.
(2) In all cases where a vesting order can be made under this section, the Court may, if it is more convenient, appoint some proper person to make or join in making the transfer.
(3) The person in whom the right to transfer or call for the transfer of any stock is vested by an order of the Court under this Act, may transfer the stock to himself or any other person, according to the order, and the Banks of England and Ireland and all other companies shall obey every order under this section according to its tenor.
(4) After notice in writing of an order under this section it shall not be lawful for the Bank of England or of Ireland or any other company to transfer any stock to which the order relates or to pay any dividends thereon except in accordance with the order.
(5) The High Court may make declarations and give directions concerning the manner in which the right to any stock or chose in action vested under the provisions of this Act is to be exercised.
(6) The provisions of this Act as to vesting orders shall apply to shares in ships registered under the Acts relating to merchant shipping as if they were stock.
Persons entitled to apply for orders.
36.—(1) An order under this Act for the appointment of a new trustee or concerning any land, stock, or chose in action subject to a trust, may be made on the application of any person beneficially interested in the land, stock, or chose in action, whether under disability or not, or on the application of any person duly appointed trustee thereof.
(2) An order under this Act concerning land, stock, or chose in action subject to a mortgage may be made on the application of any person beneficially interested in the equity of redemption, whether under disability or not, or of any person interested in the money secured by the mortgage.
Powers of new trustee appointed by Court.
37. Every trustee appointed by a court of competent jurisdiction shall, as well before as after the trust property becomes by law, or by assurance, or otherwise, vested in him, have the same powers, authorities, and discretions, and may in all respects act as if he had been originally appointed a trustee by the instrument, if any, creating the trust.
Power to charge costs on trust estate.
38. The High Court may order the costs and expenses of and incident to any application for an order appointing a new trustee, or for a vesting order, or of and incident to any such order, or any conveyance or transfer in pursuance thereof, to be paid or raised out of the land or personal estate in respect whereof the same is made, or out of the income thereof, or to be borne and paid in such manner and by such persons as to the Court may seem just.
Trustees of charities.
39. The powers conferred by this Act as to vesting orders may be exercised for vesting any land, stock, or chose in action in any trustee of a charity or society over which the High Court would have jurisdiction upon action duly instituted, whether the appointment of the trustee was made by instrument under a power or by the High Court under its general or statutory jurisdiction.
Orders made upon certain allegations to be conclusive evidence.
53 & 54 Vict. c. 5.
40. Where a vesting order is made as to any land under this Act or under the Lunacy Act, 1890, or under any Act relating to lunacy in Ireland, founded on an allegation of the personal incapacity of a trustee or mortgagee, or on an allegation that a trustee or the heir or personal representative or devisee of a mortgagee is out of the jurisdiction of the High Court or cannot be found, or that it is uncertain which of several trustees or which of several devisees of a mortgagee was the survivor, or whether the last trustee or the heir or personal representative or last surviving devisee of a mortgagee is living or dead, or on an allegation that any trustee or mortgagee has died intestate without an heir or has died and it is not known who is his heir or personal representative or devisee, the fact that the order has been so made shall be conclusive evidence of the matter so alleged in any court upon any question as to the validity of the order; but this section shall not prevent the High Court from directing a reconveyance or the payment of costs occasioned by any such order if improperly obtained.
Application of vesting order to land out of England.
41. The powers of the High Court in [1] England to make vesting orders under this Act shall extend to all land and personal estate in Her Majesty’s dominions, except Scotland.
Payment into Court by Trustees.
Payment into Court by trustees.
42.—(1) Trustees, or the majority of trustees, having in their hands or under their control money or securities belonging to a trust, may pay the same into the High Court; and the same shall, subject to rules of Court, be dealt with according to the orders of the High Court.
(2) The receipt or certificate of the proper officer shall be a sufficient discharge to trustees for the money or securities so paid into Court.
(3) Where any moneys or securities are vested in any persons as trustees, and the majority are desirous of paying the same into court, but the concurrence of the other or others cannot be obtained, the High Court may order the payment into court to be made by the majority without the concurrence of the other or others; and where any such moneys or securities are deposited with any banker, broker, or other depository, the Court may order payment or delivery of the moneys or securities to the majority of the trustees for the purpose of payment into court, and every transfer payment and delivery made in pursuance of any such order shall be valid and take effect as if the same had been made on the authority or by the act of all the persons entitled to the moneys and securities so transferred, paid, or delivered.
Miscellaneous.
Power to give judgment in absence of a trustee.
43. Where in any action the High Court is satisfied that diligent search has been made for any person who, in the character of trustee, is made a defendant in any action, to serve him with a process of the Court, and that he cannot be found, the Court may hear and determine the action and give judgment therein against that person in his character of a trustee, as if he had been duly served, or had entered an appearance in the action, and had also appeared by his counsel and solicitor at the hearing, but without prejudice to any interest he may have in the matters in question in the action in any other character.
Power to sanction sale of land or minerals separately.
44.—(1) Where a trustee [1 or other person] is for the time being authorised to dispose of land by way of sale, exchange, partition, or enfranchisement, the High Court may sanction his so disposing of the land with an exception or reservation of any minerals, and with or without rights and powers of or incidental to the working, getting, or carrying away of the minerals, or so disposing of the minerals, with or without the said rights or powers, separately from the residue of the land.
(2) Any such trustee [1or other person], with the said sanction previously obtained, may, unless forbidden by the instrument creating the trust or direction, from time to time, without any further application to the Court, so dispose of any such land or minerals.
(3) Nothing in this section shall derogate from any power which a trustee may have under the Settled Land Acts, 1882 to 1890, or otherwise.
Power to make beneficiary indemnity for breach of trust.
45.[2] —(1) Where a trustee commits a breach of trust at the instigation or request or with the consent in writing of a beneficiary, the High Court may, if it thinks fit, and notwithstanding that the beneficiary may be a married woman entitled for her separate use and restrained from anticipation, make such order as to the Court seems just, for impounding all or any part of the interest of the beneficiary in the trust estate by way of indemnity to the trustee or person claiming through him.
(2) This section shall apply to breaches of trust committed as well before as after the passing of this Act, but shall not apply so as to prejudice any question in an action or other proceeding which was pending on the twenty-fourth day of December one thousand eight hundred and eighty-eight, and is pending at the commencement of this Act.
Jurisdiction of palatine and county courts.
46. The provisions of this Act with respect to the High Court shall, in their application to cases within the jurisdiction of a palatine court or county court, include that court, and the procedure under this Act in palatine courts and county courts shall be in accordance with the Acts and rules regulating the procedure of those courts.
Part IV.
Miscellaneous and Supplemental.
Application to trustees under Settled Land Acts
of provisions as to appointment of trustees.
44 & 45 Vict. c. 41.
47.—(1) All the powers and provisions contained in this Act with reference to the appointment of new trustees, and the discharge and retirement of trustees, are to apply to and include trustees for the purposes of the Settled Land Acts, 1882 to 1890, whether appointed by the Court or by the settlement, or under provisions contained in the settlement.
(2) This section applies and is to have effect with respect to an appointment or a discharge and retirement of trustees taking place before as well as after the commencement of this Act.
(3) This section is not to render invalid or prejudice any appointment or any discharge and retirement of trustees effected before the passing of this Act, otherwise than under the provisions of the Conveyancing and Law of Property Act, 1881.
Trust estates not affected by trustee becoming a convict.
33 & 34 Vict. c. 23.
48. Property vested in any person on any trust or by way or mortgage shall not, in case of that person becoming a convict within the meaning of the Forfeiture Act, 1870, vest in any such administrator as may be appointed under that Act, but shall remain in the trustee or mortgagee, or survive to his co-trustee or descend to his representative as if he had not become a convict; provided that this enactment shall not affect the title to the property so far as relates to any beneficial interest therein of any such trustee or mortgagee.
Indemnity.
49. This Act, and every order purporting to be made under this Act, shall be a complete indemnity to the Banks of England and Ireland, and to all persons for any acts done pursuant thereto; and it shall not be necessary for the Bank or for any person to inquire concerning the propriety of the order, or whether the Court by which it was made had jurisdiction to make the same.
Definitions.
35 & 36 Vict. c. 44.
50. In this Act, unless the context otherwise requires,—
The expression “bankrupt” includes, in Ireland, insolvent:
The expression “contingent right,” as applied to land, includes a contingent or executory interest, a possibility coupled with an interest, whether the object of the gift or limitation of the interest, or possibility is or is not ascertained, also a right of entry, whether immediate or future, and whether vested or contingent:
The expressions “convey” and “conveyance” applied to any person include the execution by that person of every necessary or suitable assurance for conveying, assigning, appointing, surrendering, or otherwise transferring or disposing of land whereof he is seised or possessed, or wherein he is entitled to a contingent right, either for his whole estate or for any less estate, together with the performance of all formalities required by law to the validity of the conveyance, including the acts to be performed by married women and tenants in tail in accordance with the provisions of the Acts for abolition of fines and recoveries in England and Ireland respectively, and also including surrenders and other acts which a tenant of customary or copyhold lands can himself perform preparatory to or in aid of a complete assurance of the customary or copyhold land:
The expression “devisee” includes the heir of a devisee and the devisee of an heir, and any person who may claim right by devolution of title of a similar description:
The expression “instrument” includes Act of Parliament:
The expression “land” includes manors and lordships, and reputed manors and lordships, and incorporeal as well as corporeal hereditaments, and any interest therein, and also an undivided share of land:
The expressions “mortgage” and “mortgagee” include and relate to every estate and interest regarded in equity as merely a security for money, and every person deriving title under the original mortgagee:
The expressions “pay” and “payment” as applied in relation to stocks and securities, and in connexion with the expression “into court” include the deposit or transfer of the same in or into court:
The expression “possessed” applies to receipt of income of, and to any vested estate less than a life estate, legal or equitable, in possession or in expectancy, in, any land:
The expression “property” includes real and personal property, and any estate and interest in any property, real or personal, and any debt, and any thing in action, and any other right or interest, whether in possession or not:
The expression “rights” includes estates and interests:
The expression “securities” includes stocks, funds, and shares; and so far as relates to payments into court has the same meaning as in the Court of Chancery (Funds) Act, 1872:
The expression “stock” includes fully paid up shares; and, so far as relates to vesting orders made by the Court under this Act, includes any fund, annuity, or security transferable in books kept by any company or society, or by instrument of transfer either alone or accompanied by other formalities, and any share or interest therein:
The expression “transfer,” in relation to stock, includes the performance and execution of every deed, power of attorney, act, and thing on the part of the transferor to effect and complete the title in the transferee:
The expression “trust” does not include the duties incident to an estate conveyed by way of mortgage; but with this exception the expressions “trust” and “trustee” include implied and constructive trusts, and cases where the trustee has a beneficial interest in the trust property, and the duties incident to the office of personal representative of a deceased person.
[S. 51 rep. 8 Edw. 7. c. 49 (S.L.R.).]
Extent of Act.
52. This Act does not extend to Scotland.
Short title.
53. This Act may be cited as the Trustee Act, 1893.
[S. 54 and Sched. rep. 8 Edw. 7. c. 49 (S.L.R.).]
[1 Short title, “The Trustee Act, 1893.” See s. 53. As to Judicial Trustees, see 59 & 60 Vict. c. 35, and as to the Public Trustee, 6 Edw. 7, c. 55.]
[2 As to investments in Colonial Stock, see 63 & 64 Vict. c. 62, and as to investments in Metropolitan Water Stock, 2 Edw. 7. c. 41. s. 17 (4). The powers of trustees as to investment of purchase money under the Land Purchase Acts are enlarged by 3 Edw. 7. c. 37. s. 51.]
[1 Or Colonial Stock. See 63 & 64 Vict. c. 62. s. 2.]
[1 As to liability in case of change of character of investment, see 57 & 58 Vict. c. 10. s. 4.]
[1 The High Court in Ireland has the same powers. See 57 & 58 Vict. c. 10. s. 2.]
[1 Added by 57 & 58 Vict. c. 10. s. 3.]
[2 As to jurisdiction of Court in cases of breach of trust, see 59 & 60 Vict. c. 35. s. 3.]
Cases
Re Murphy
[1957] NI 156 (High Court)
Lord MacDermott LCJ: [stated the facts substantially as set out above and continued]: This question raises a matter of general importance in this jurisdiction where land is commonly held on long lease or fee-farm grant, and where alienation by way of sublease or sub-fee-farm grant is a matter of everyday practice. I have no hesitation in accepting the evidence given by Mr Murdoch to the effect that it would be in the interests of the beneficiaries to have the vacant dwellings disposed of by the method which he has described, namely, by giving purchasers a long sub-lease or sub-fee-farm grant, as the case may be, in consideration of any appropriate ground rent and the payment of a fine. The question is whether the trustees have power in law to follow that method.
At this point it must be emphasised that if the trustees have such power they propose to exercise it as and when houses become vacant and opportunity arises to act on the advice they have received. There is no question here of dividing a specific parcel of property into suitable smaller parcels and disposing of each of the latter by way of sub-grant or sub-lease as a conveyancing expedient for disposing of the entirety. Here, we are dealing with the odd house which falls vacant on a large estate, and what the trustees want to do cannot fairly be described as a means of disposing of the entirety. Conditions may change. The entirety may never be disposed of by methods which are now profitable. The question posed must therefore be considered in relation to the odd house that has become vacant and available for sale, and not in relation to the whole estate or to such parts thereof, as are held under different titles.
Moreover, it is also to be remarked that the rent to be reserved by the trustees in the form of transaction which they now propose is not fixed as a proportionate part of the head rent to which the house for disposal is, with other premises, subject. The intention is that as the proposed sales proceed the rents reserved thereon will, in the aggregate, exceed the head rent payable in respect of the grant or lease under which the houses sold are held. It may, therefore, be taken that there is a profit element in the rents proposed to be charged, but the general design of disposal has not, so far, provided for the realisation of these rents.
I must now return to the express powers conferred upon the trustees. Of these (1) is in wide terms, but it remains a trust for sale and does not afford a plain answer to the question under consideration. (2) contains a comprehensive power of investment and all I need say of it now is that, in my opinion, it authorises investment in rents reserved by long leases and fee-farm grants, whether sub-leases or sub-grants or not: see In re Peyton’s Settlement Trust (1869) LR 7 Eq 463. (3) is a power of management. Read literally, it empowers the trustees to act as absolute owners, but I do not think this should be construed as authorising any form of alienation open to an absolute owner. I think this power must be confined to matters of management and, so read, it does not give the trustees the power they now seek. (4) is also in very wide terms, but in my view it does not help the trustees on this occasion. It provides for the making of grants or leases, with the option of taking a fine, but the power seems clearly restricted to cases in which the trustees put the grantees or lessees under an obligation to improve the land, as by building thereon or rebuilding, enlarging or repairing existing buildings.
So far, then, as the express powers are concerned we are left with – (1) the trust for sale and (2) the power of investment, to the extent to which it may affect the matter in hand. To these should be added a reference to the power conferred upon the trustees by s 13(1) of the Trustee Act 1893, which, omitting what is not material, says:
“Where a trust for sale or a power of sale of property is vested in a trustee, he may sell or concur with any other person in selling all or any part of the property … either together or in lots, by public auction or by private contract, subject to any such conditions respecting title or evidence of title or other matter as the trustee thinks fit …”
Before going further it will be convenient to note several points that may be taken as settled and that will help to narrow the issue if mentioned now.
In the first place it is clear, beyond question, that the trustees can sell in parcels or lots, such as single houses. There is no obligation on them to sell together all that is comprised in one title. This is plain from the terms of the trust for sale and s 13(1) of the Act of 1893.
Secondly, a mere power of sale will not normally import a power to alienate the property in question for some lesser interest than that held. For example, if A holds Blackacre in fee simple upon trust for sale, this does not empower A to lease for a long term of years.
But thirdly, what is essentially a sale, that is to say, what is substantially an alienation of the interest held, may be carried out by vesting in the purchaser an interest which is technically less if that is a proper conveyancing expedient for completing the transaction. The limits of this proposition have not been very precisely defined and I must now turn to the principal decisions on which it is founded.
In In re Webb [1897] 1 Ch 14, 149, part of the property held under a lease was sold by auction subject to a condition that the purchase should accept an underlease for the unexpired term less three days at an apportioned ground rent The question for decision was whether the vendor’s solicitor was entitled to a further scale charge in respect of the rent. Stirling J held that he was not on the ground that the transaction, though in the form of an underlease, was in fact a sale, and in the course of his judgment he said this:
“Then, is it a lease? In a sense, no doubt, it is a lease, but in truth it is a sale. It is described as a sale in the conditions of sale, and it is so described in the plaintiffs’ bill of costs. It is a sale carried out by an underlease, which is a well-known conveyancer’s expedient, where the property sold is held with other property under one lease, to avoid an apportionment of the rent, about which there might be a difficulty with the superior landlord.”
Then in In re Judd and Poland and Skelcher’s Contract [1906] 1 Ch 684, the Court of Appeal in England held, overruling the decision of Kekewich J in In re Walker and Oakshott’s Contract [1901] 2 Ch 383, that trustees for sale who had sold some but not all of the houses held under a single lease could validly exercise their trust for sale by granting sub-leases of the houses sold at apportioned rents. Romer LJ said [1906] 1 Ch at 690:
“I may take it that an underlease in substance is not justified, but where an underlease is a pure matter of a conveyancer’s expedient, a method of conveyancing for carrying out a sale, then I cannot see that there is any valid objection to it, especially as I have pointed out that this conveyancer’s expedient is the best known method of carrying out such a sale, and the best for the trust estate.”
Then Cozens-Hardy LJ said ibid 691:
“… I think it is a fallacy to say, because trustees for sale are not authorised to grant a lease, that they have not power in a case like this to carry out the sale by means of that which is a mere piece of machinery, viz, the grant of an underlease with a nominal reversion, which is something wholly distinct from what I have, in the course of the argument, ventured to call a real underlease.”
In Alexander v Clarke [1920] 1 IR 47, the matter was considered in this country by O’Connor MR. In that case the trustees were trustees for sale with a power of leasing for any term of years at such rent and subject to such covenants as they should think fit. It appears that much of the trust estate was held, as here, under fee farm grants and long leases and the question submitted to the court on behalf of the plaintiff, the surviving trustee, was in very similar terms to that which I have to consider in these proceedings. In the course of his argument for the plaintiff Mr Charles Murphy conceded that a trustee for sale had no implied power of leasing but that the trustee in that case had an unlimited power of leasing, and he submitted that “the plaintiff can combine these two powers, and do what is asked for in the summons.” As here, what was proposed was to carry out the sale of certain houses by granting the purchasers sub-grants or sub-leases for long terms in consideration of fines and rents which would in aggregate, exceed the head rent payable under the grant or lease by which the property was held and thus create a profit rent, which could also be sold. The Master of the Rolls was satisfied that this mode of sale was the most advantageous for the trust estate and he then addressed himself to the question whether it was authorised by the trust. He said ibid 49: “It has been decided that the ordinary trust for sale does not authorise a mere lease, and so it may be said that the making of a sub-fee-farm grant or lease is in itself not a sale: but the substance of the contemplated transaction must be considered rather than the form.” Then, after a reference to s 13 of the Act of 1893, he considered the judgment of Kekewich J in In re Walker and Oakshott’s Contract [1901] 2 Ch 383 and passed from that to the judgments of the Court of Appeal in In re Judd and Poland and Skelcher’s Contract [1906] 1 Ch 684. These, he thought covered the case before him. “The object of the trustee,” he said [1920] 1 IR at 51, “is to dispose of the entire estate of the testator. He does not propose to make sub-fee-farm grants or sub-leases for the purpose of retaining rents for the trust estate. No doubt, he will carve out sub-interests, but so far as the trust estate is concerned, these will have only a momentary existence, because the rents reserved will also be disposed of. Further, there will not be any liability cast on the trust estate.”
The facts of Alexander v Clarke [1920] 1 IR 47, take the Master of the Rolls’ decision somewhat further than the decision in In re Judd and Poland and Skelcher’s Contract [1906] 1 Ch 684. In the latter case no question of a profit rent arose as the rents reserved were apportioned parts of the head rent. In the case before the Master of the Rolls the proposal, as here, was to reserve rents exceeding in the aggregate the head rent. But then – and here so far as I can gather from the report of Alexander v Clarke [1920] 1 IR 47 is where the similarity between the case and the present ends the profit rents were to be sold. The Master of the Rolls concludes his description of the proposal before him in the first paragraph of his judgment by saying “… and thus create a profit rent, which could also be sold.” That seems vague, but later, when he is applying the decision of the Court of Appeal in England, he apparently takes it for granted that the profit rents will only be held by the trustees for the purposes of realisation because he says “… so far as the trust estate is concerned, these will only have a momentary existence, because the rents reserved will also be disposed of.” I therefore think it must be assumed that the Master of the Rolls proceeded on the basis that the scheme which was before him was a scheme for the complete realisation of the estate with any profit rent arising out of the disposal of the houses being sold as well as the houses. It may be observed that the head-note of this case refers to the trustee for sale having an unlimited power of leasing, but I would not gather from the terms of the judgment that this circumstance was one of its foundations. In the present case there is no suggestion as to when the profit rents which it is proposed to create will be sold, and I think I must proceed on the assumption that no immediate realisation is intended and that, until some occasion arises to indicate a different course, the trustees will be content to hold such profit rents as part of the estate and to apply them as income thereof.
In In re Braithwaite’s Settled Estate [1922] 1 IR 71, Wilson J held that a tenant for life, selling lands held under a fee-farm grant in exercise of the powers conferred by the Settled Land Acts, could sell in lots and carry out the sales by making sub-fee-farm grants or long leases to the respective purchasers. The decision only is reported, but it is clear from the argument of Mr Megaw, for the tenants for life, that it was an application of the principle enunciated in In re Judd and Poland and Skelcher’s Contract [1906] 1 Ch 684, and it is to be noted that the proposal before the court was different from that in Alexander v Clarke [1920] 1 IR 47, and in the present case, as the rents to be reserved on the sales of the lots were to be such as would amount to the rents reserved by the respective head fee-farm grants.
In the High Court of Eire, in Sims-Clarke v Ilet Ltd [1953] IR 39, Dixon J had to consider the nature of a transaction for the purchase of a portion of leasehold premises, to be carried out by an underlease for the residue of the term save the last day thereof. The question arose on a dispute as to costs and was resolved by a finding that the transaction was really a sale carried out by way of underlease. The learned judge thought the decision in In re Webb [1897] 1 Ch 144 ruled the matter and pointed out that the only possible distinction between that case and the case he was considering was that in the latter the rent reserved was such that, having regard to the other property contained in the head lease, there was a profit rent. Though this decision was as between vendor and purchaser, the point arose, as I have said, on a question of costs and not on a question of title. The vendors seem to have been under no restriction such as might affect trustees for sale, and for that reason the case has not a direct bearing on the matter I have to determine.
Now that it seems to me that the current of authority comes near the present case without quite reaching it. I do not think the power of the trustees can be tested merely by asking what people would call the type of transaction they propose. What they propose may well be spoken of, in common parlance, as a sale, for the testator’s interest, under that proposal, would pass substantially to the purchaser. But none of the cases raising a question of title regards that as conclusive in itself. They all rely, in addition, on being able to describe the vehicle of completion, the sub-grant or the sub-lease, as a conveyancing expedient for carrying out the sale. They show that this description will apply where what is sold is part of what is held at a head rent and completion is by a sub-grant or sub-lease at an apportioned rent. And Alexander v Clarke [1920] 1 IR 47, as I understand it, goes on to say that this description of a conveyancing expedient will still apply where the sub-rents exceed the head rent so as to create a profit rent, if the scheme of realisation provides, not for the keeping of the profit rent, but for its sale as well.
The facts of the present case are different in an important respect. The intention no doubt, includes the eventual covering of the head rents, but it goes beyond that. The proposed transactions are provident and in the interests of the trust because they will each produce a profit in the rent as well as a price that will not suffer on account of that profit element. The reality of that sort of transaction seems to me to be that the trustees will get, and get to keep at their discretion, two things for every house sold – (1) the price, and (2) an investment in the shape of a long-term or perpetuity rent. Now I am unable to see how a power or trust for sale, without more, can authorise the acquisition or holding of such an investment. Take the case of trustees with a trust for sale of five houses held under one title, and with a power of investment limited to government stock. If they hold in fee simple it is difficult to see how they could sell each house by fee-farm grant or long lease for a fine and a rent. Not only would such a course not be called for as a conveyancing expedient, but the trustees would have no power to invest in land. If, however, they themselves held in fee-farm or for a long term at a rent of, say, £10 there is no doubt that they could sell, at any rate four of the houses, for a fine and a sub-rent of £2 each. That would be a proper and recognised way of proceeding to realise the entirety. But suppose the houses can only be sold as they fall vacant and there can be no settled scheme of selling the entirety, how could the trustees sell for a fine and, say a £5 rent? Ex hypothesi, they have not the power to change from one form of landed property into another.
And so, if the trustees here had no power to put the proceeds of realisation into anything but stocks and shares. I would conclude that they had not power to do what they propose. But in fact they have power to invest in rents. Does this justify a different answer to the question posed? In my opinion it does. What they propose is (a) to use a method of alienation that is justified by the title under which they hold, (b) to dispose, not of the entirety of the testator’s interest, but of such a substantial part thereof as to warrant describing the transaction as a sale, and (c) to retain what remains of that interest for the time being as an authorised investment.
I see no sound reason why the trustees should not do that. It is a sensible way of realising what can be realised, it is beneficial to the trust estate and, as I read this will, it is authorised by the joint effect of the trust for sale and the power of investment. In short, what they propose is to carry out what is, in substance, a sale by what, in view of the title and their powers of investment, can fairly be regarded as a proper conveyancing expedient.
I would therefore answer the question submitted in the affirmative, the term sub-fee farm grant being, of course, related to property held under grant and the trustees remaining under an obligation to consider each sale on its merits and in the light of prevailing conditions.
Re Kinahan’s Trusts
[1921] 1 IR 210 (Chancery Division)
Powell J: I have no doubt whatever that I have jurisdiction to make the order, having regard to the emergency that has arisen. Romer LJ, in In re New [1901] 2 Ch 534, at p 544, says:
“In the management of a trust estate, it not infrequently happens that some peculiar state of circumstances arises for which provision is not expressly made by the trust instrument, and which renders it most desirable, and it may be even essential, for the benefit of the estate and in the interest of all the cestuis que trust, that certain acts should be done by the trustees which in ordinary circumstances they would have no power to do. In a case of this kind, which may reasonably be supposed to be one not foreseen or anticipated by the author of the trust, where the trustees are embarrassed by the emergency that has arisen, and the duty cast upon them to do what is best for the estate, and the consent of all the beneficiaries cannot be obtained by reason of some of them not being sui juris or in existence, then it may be right for the Court, and the Court in a proper case would have jurisdiction to sanction on behalf of all concerned such acts on behalf of the trustees.”
In the present case, I am satisfied that an emergency has arisen. A duty is cast on the trustees, and it is right for the Court “to sanction on behalf of all concerned” the acts proposed to be done. In ordinary circumstances the trustees would not be justified in doing what is supposed in this case, but in the circumstances I am satisfied that I have jurisdiction to make the order, and I therefore sanction the payment of this insurance premium out of capital, that is to say, out of the proceeds of the sale of the lands.
Re Boyle
[1947] IR 61; 82 ILTR 115 (High Court)
Overend J: The testator, Thomas Boyle, of “Clevedon,” Terenure Road, Rathgar, was an old man, aged about 88 years, at the date of his will, 22nd March 1941. His second wife had died some two years before and he had long retired from business. He had no family, but several nephews and nieces, and after his wife’s death a maid, Elizabeth Hayden, kept house for him and looked after him.
By his will he revoked previous wills and appointed Mr Alfred McCullagh and the defendant Charles BW Boyle, executors and trustees, and bequeathed to the former £100 for his trouble in acting as executor.
He directed his executors to sell “Clevedon” and his investments and to pay his debts, funeral and testamentary expenses.
He bequeathed the following legacies: To Elizabeth Hayden £40 free of duty, £200 each, to his nieces Jean Boyle, Alice K Wallace, the plaintiff, and Caroline Slack. £200 each, to his nephews Frederick William Sloane, Thomas Boyle Carson and James Boyle; and £100 each, to his nieces Edith Byrne and Rebecca Crick, and he appointed the plaintiff, Alice Wallace, his residuary legatee. The defendant, George A Sothern, is not referred to anywhere in the will.
Ten months later, on the 27th January 1942, the testator made a codicil whereby he revoked the appointment of Mr McCullagh as executor and also the bequest to him, and appointed the defendant, George A Sothern, in his place and bequeathed to him the sum of £50 for his trouble in acting as executor.
The testator died upon the 6th May 1943, and upon the 27th September 1943, probate was granted to the defendants, the executors named in the codicil, and duty was paid on the assets on a valuation of £4,419 odd.
The solicitor on record for the defendants is Mr Cyril A Boyle, a son of the defendant, CBW Boyle. After the son was admitted to the profession some years before the war he was employed by his father, with permission to carry on, for his own benefit, any business given to him personally, and to have the free use of his father’s office and staff for such purpose. After the outbreak of war Mr Cyril A Boyle joined the RAF and before leaving, his father agreed to act gratuitously on his behalf, as his agent, and to transact any business given him without any fee or reward of any kind.
The defendants agreed that Mr Cyril A Boyle should be employed as solicitor and the administration of the estate conducted by his father as such agent, until he should be demobilised.
The probate was extracted in Mr Cyril Boyle’s name and all subsequent correspondence and proceedings were conducted in his name though in fact carried on by his father. The plaintiff’s solicitors were all along well aware of Mr Cyril Boyle’s absence “on active service” and that the defendant, CBW Boyle, was “carrying on this matter in his son’s name and on his behalf.” (See letter 4th July 1945.) However, they raised no point or objection prior to receiving the bill of costs on the 6th July 1945, and to the end addressed their letters to Cyril A Boyle. They do not appear to have been fully apprised of the precise business arrangements between father and son and assumed they were partners until the true position was stated by the defendant in his affidavit, which is uncontroverted.
In this case the arrangement has proved inconvenient and has led to an unfortunate unreality in the correspondence and entries, in the effort to give it full effect, eg “my father tells me that,” “I have advised my father,” etc, etc, when in fact no communication had been made one way or other. Fortunately this created no misapprehension on the part of the plaintiff’s solicitors.
Having thus made the true position clear, I can refer to the “defendants’ solicitor,” which means Mr Cyril Boyle acting by his father, the defendant, as his agent.
About five weeks after the testator’s death the defendant, Sothern, furnished to the defendant’s solicitor a claim, dated 14th June 1943, for £337 10s 0d, for work and labour done, and services rendered to the testator, by his instructions, between the 5th January 1939, and 5th May 1943. (His Lordship read the claim.)
It is to be noted that there is no suggestion that the testator ever did make any payment to this defendant for his services, or every promised to pay a reasonable, or indeed any sum, beyond the statement that the work was done “on the testator’s instructions.” It is clear no figure was agreed, for the claimant says “I would consider 30s per week a reasonable sum …”
It is not suggested that the defendant ever asked the testator himself for any payment during this protracted period of almost four and a half years and it is to be noted that in January 1942, after three of those years had expired, the testator bequeathed to Mr Sothern a legacy of £50 free of duty “for his trouble in acting as executor,” but no other sum.
On the 11th August 1943, the defendants’ solicitor wrote to the plaintiff saying “Amongst the debts is a sum of £337 10s 0d, due to Mr Sothern for services rendered to the deceased from the 5th January 1939, to the 6th May 1943.” Then follows a resumé of the claim and the letter concludes “My father, who is one of the executors, tells me that he knows Mr Sothern gave all his time and attention, and sacrificed his evenings, summer and winter, looking after the deceased and shortly before the deceased died he assisted the maid and got outside help. I will be glad to hear from you that you approve of this debt being paid as I have advised my father that it is honestly due.”
This letter indicates Mr Charles Boyle’s attitude of mind at that time, viz, that he was aware of services rendered so extensive as to create an obligation to reward them. It does not appear that the testator considered Mr Sothern’s name either as a beneficiary or creditor when making his will, in 1941, and the legacy given him by the codicil is expressly given for his trouble in acting as executor. It is clear, therefore, that so far as the testator was concerned, these protracted services remained still unremunerated.
The plaintiff replied to the letter of 11th August 1943, on the 16th August. She asks did Mr Sothern make an agreement with the testator; a matter she thought unlikely? She also said she did not consent to Mr Sothern’s “debt being admitted for payment.” Mr Boyle in his letter of 19th August 1943, emphasises the personal attendance by Mr Sothern on the deceased and adds that, as he is instructed, the deceased should have had a male nurse for two years prior to his death. To this the plaintiff replied on the 28th “that the position now adopted by Mr Sothern in no way resembles the position previously mentioned” and that her question (i.e. whether there was any agreement) remained unanswered. On the 31st August, Mr Boyle replied stating there was no written agreement between the deceased and Mr Sothern.
On the 16th September 1943, the plaintiff’s solicitors wrote to Mr Cyril Boyle stating that as there was no agreement, the plaintiff instructed them to dispute Mr Sothern’s claim, unless he was able to satisfy them that the amount claimed was properly due, and giving formal notice that the plaintiff reserved the right to take action if it was paid.
It is unnecessary to review the voluminous correspondence further, in regard to this matter; it is sufficient to say that the plaintiff never receded from the position she had taken up.
The plaintiff had also required “Clevedon,” which the deceased directed to be sold, to be handed over in specie, and the executors, when sending a case to counsel in October 1943, on this point, also asked counsel to advise whether Mr Sothern was entitled, not only to claim, but to retain, his own debt out of the assets, leaving it to the plaintiff to take whatever proceedings she might be advised. To which counsel replied that if the co-executor considered the claim honest and fair this course could be adopted. (This case was put in without objection.)
Accordingly on the 7th March 1944, a cheque for £337 10s 0d, was drawn in Mr Sothern’s favour, signed by him and his co-executor.
Before parting with it, however, a further case on this point only was sent to senior counsel, who after referring to s 21 of the Trustee Act 1893, and the decision in In re Houghton [1904] 1 Ch 622, suggested (as I read the opinion) that if further and better details were furnished the defendant, Boyle, might serve the estate well by effecting a compromise, although not satisfied beyond all doubt as to the validity of the claim. I assume that counsel meant compromise as an alternative to litigation. (This case was also entered without objection.)
There is no question that an executor has power to compromise even a doubtful claim, if he bona fide believes it to be in the interest of the estate. This is clear from the use in the statute of the words “debt or claim” and again “settle any debt, account, claim, or thing whatever …” in the section itself (and see In re Warren; Weedon v Reading 32 WR 916).
Whatever the reason, the cheque was not handed to Mr Sothern until the 3rd July 1945, fifteen months later.
The plaintiff’s solicitors in March 1945, and subsequently, were pressing to have the estate wound up and on the 5th July 1945, the defendants’ solicitor furnished his costs, on the 9th the executors’ account (showing the cheque to Mr Sothern), and on the 25th July, a copy of the residuary account.
No exception seems to have been taken to the payment to Mr Sothern from the date of the receipt of the executors’ account until the issue of the summary summons on the 29th November 1945, claiming administration, and an enquiry what sums (if any) were due by the testator at the date of his death to the defendant, Sothern, and that the defendants be ordered to account for all sums paid to, or retained by, him.
The plaintiff’s counsel say that the alleged compromise is invalid because:
1.The executors had no sufficient proof of any debt legally recoverable, and they rely on the decision in Cleary v Sibley 46 ILTR 25 – that was not a case of a claim by an executor, nor of compromise or payment by an executor under the Trustee Act.
2.Want of corroboration – which they contend is essential unless the claimant’s case is supported by evidence other than the claimant’s. This is not the law if the Court is satisfied that the claimant’s evidence may be accepted as trustworthy. (See Minister of Stamps v Townend [1909] AC 633.)
3.The compromise was improper – payment in full cannot be regarded as a compromise if there is room for doubt, – Kekewich J refused to accept this view in Houghton’s Case [1904] 1 Ch 622.
The defendants’ counsel rely on s 21 of the Trustee Act 1893, the decision in In re Houghton; Hawley v Blake [1904] 1 Ch 622, and the affidavit of the defendant, CBW Boyle. He deposed that from investigations he made, coupled with his own personal knowledge, he was satisfied that the services were rendered and at the request of the deceased; that the amount claimed was less than the deceased would otherwise have had to pay for the like services, and was reasonable, and having so satisfied himself that the claim was fair, honest and sustainable, he came to the conclusion that it ought to be paid, and did so in all good faith.
This the defendants contend ends the matter. The section says: “An executor . . . may pay or allow any debt or claim on any evidence that he thinks sufficient.” Mr Boyle has done so and his affidavit is uncontradicted, and there is no suggestion that he did not act in good faith.
This appears to have been the contention put forward by Lord Warrington as counsel in Houghton’s Case [1904] 1 Ch 622, and this possible view of the Act was adumbrated by Sir George Jessel MR in Re Owens; Jones v Owens 47 LT 61 at p 64, but in my opinion it is not supported by the decision in Houghton’s Case [1904] 1 Ch 622. In that case the widow, Mrs Blake, had possession of securities to the value of £1,180 which she claimed as hers. She had produced evidence showing that she was entitled to the amount claimed, from her father’s estate or her mother’s, and receipts which showed that of this amount £820 was clearly her separate estate; as to the balance there was no evidence, apart from her own testimony, that she was entitled for her separate use. The co-executor was entitled to treat the receipts for £820 as corroboration of her entire claim. (See Minister for Stamps v Townend [1909] AC 633.)
The co-executor had admitted the widow’s claim to £1,180 and Kekewich J refused to hold he was wrong in so doing. He says he would be infringing the rule that each executor represents the estate for all purposes, if he held that one executor could not compromise the claim of his co-executor and he concludes:
“Whether I take the case simply on his executorial power, or whether I take only the last statute to which I have referred (The Judicial Trustees Act 1896), it seems to me that I must uphold this executor as having done what is right.”
I think that I may possibly be differing to some extent from the opinion of that very experienced judge, but I cannot help the feeling that he was affected by the fact that 70 per cent of the claim had been conclusively established by documents.
Co-executors are regarded in law as one individual: Bac Abr Vol 3, Tit “Executors and administrators.” D 1, p 30; Lord Eldon in Chapman v Turner 2 Eq Cas Abr 450; Vin Abr Vol 2, Tit “Executors.” D 2, p 72; Halsbury: Laws of England, Vol 14, p 235; Williams on Executors, 11th Ed, Vol 1 p 708. That is the reason one can bind all executors and can give a good discharge for a debt: Smith v Everett 27 Beav 446 or assign a term: Simpson and Others v Gutteridge 1 Madd 609. One executor therefore cannot exercise a right of retainer to the prejudice of the other, and a retainer by one can be claimed by all: Chapman v Turner 2 Eq Cas Abr 450, (and see In re Gilbert (1898) 1 QB 282; Halsbury: Laws of England, Vol 14, p 256).
Could a sole executor when called on to account by the residuary legatee justify a retainer of the amount he claimed by saying “I allowed my claim on evidence that I thought sufficient and I rely on the Trustee Act, s 21”? If so the Act would make him judge on his own cause. If there are two executors A and B can one allow the claim of the other, the two being but one individual? If so A can allow or compromise B’s claim, and B allow or compromise A’s, and the residuary legatee could not have either scrutinised or investigated. The proposition put in this way, appears to me only to require to be stated to prove its unsoundness, and I think this is the explanation of the passage quoted from the opinion of the Privy Council delivered by Sir Barnes Peacock in de Cordova v de Cordova 4 App Cas 692, at p 703, which says:
“It is unnecessary to consider whether the doctrine (ie that executors and trustees cannot deal with themselves) is applicable to a case in which several executors compromise a debt due from one of them, or how far such a compromise if beneficial to the estate will be excused and upheld by the Court …”
This was nineteen years after the passing of Lord Cranworth’s Act.
But in Houghton’s Case [1904] 1 Ch 622 the claim was against the executor of the testator who had compromised with his co-executor, the testator’s widow. He was also executor of the widow. The case was fought on the grounds that one executor cannot compromise with another, and that payment in full is not a compromise.
In my opinion the true position is clearly stated by Sir Page Wood VC in Hill v Curtis LR 1 Eq 90, at p 98 dissenting from a dictum of Lord Cottenham’s in Carmichael v Carmichael 2 Ph 101, at p 103. The Vice-Chancellor says:
“It is plain that an executor cannot discharge himself by accounting to his co-executor, because he is himself authorised, and it is his duty, to see how the assets are applied. When he has paid over the assets he is not discharged …”
An executor cannot divest himself of his office, or his duties and responsibilities, he cannot absolve himself from liability to account, except by accounting to beneficiaries entitled to call for an account. How can Mr Sothern refuse to account for the £337 10s 0d, of the assets retained by him and in his own hands? Is it enough to say “I satisfied Mr Boyle, my co-executor”? In my opinion it is not enough; it is a devastavit on the part of an executor to pay a debt which is not legally enforceable: In re Rownson; Field v White 29 Ch D 358, – subject to an exception in favour of payment of a statute-barred debt. See Halsbury: Laws of England, Vol 14, pp 251, 258. In my opinion it cannot be held to be a devastavit for an executor, acting bona fide, to pay a claim on evidence which he thinks sufficient, because he is protected by s 21, sub-s 1 of the Trustee Act 1893. Suppose for instance that an executor acting bona fide pays a claim made by his co-executor, apparently vouched by documents under the testator’s hand, will the section not protect him though the documents afterwards turn out to have been forged by the co-executor? But will it also protect the forger? I find nothing in the statute to relieve an executor from the duty of justifying a retainer made by him – though it may, and I think it does, absolve a co-executor who assents to it bona fide. It is a remarkable feature of this case that the defendant, Mr Sothern, has not himself attempted to justify the payment of £337 10s 0d to him by his own testimony. He has not deposed that he undertook to do any work for the deceased, on the basis that he would be remunerated, or that the deceased asked him to do any of the work on the understanding, express or implied, that he would be paid for it, he has not even stated on oath what work he did. He has merely made a claim and left it to his co-executor to justify his action in allowing it. It was contended that if Mr Boyle was justified in paying Mr Sothern’s claim, as I think he was, it followed necessarily that Mr Sothern was justified in retaining the money without accounting. As I have indicated I cannot share this view. If there was any debt legally payable it arose from a contract, express or implied, between the deceased and Mr Sothern. The deceased is dead, and the other party to the contract has refrained from giving any evidence. In the circumstances I can see no answer to the claim of the residuary legatee for “an enquiry as to what sum (if any) was due by the deceased at the date of his death to the defendant, George A Sothern,” and I shall direct such enquiry accordingly. This will afford Mr Sothern an opportunity of supporting his claim by his own testimony and stating the facts as to what passed between him and the testator.
This brings me to the second point raised, the objection as to costs.
As Mr Harris pointed out, the plaintiff’s solicitors at the date of the summary summons were not clear as to the business relationship between Mr CBW Boyle and his son and were under the impression that a partnership existed. This is not surprising for the names of father and son both appear on the notepaper though when looked at carefully there is nothing which would indicate partnership. Further the father annually renewed his son’s licence and did so as “Dublin Agent,” but in one year 1944, the printed alternative description was entirely struck out and the word “Partner” inserted in writing, which is not Mr Boyle’s and which he cannot identify, though “Dublin Agent” was always the prior and subsequent description.
Mr Boyle’s affidavit has now explained the true relationship and his statement has not been questioned. It seems to me a most natural thing that a father should endeavour to preserve the post-war interests of a son who, as a volunteer, was serving in that branch of the British Forces which bore the highest percentage of casualties in the last war.
That, however, has nothing to do with the case. It is fair to the plaintiff to say that some months after the copy of the bill of costs was furnished to her solicitors, and shortly before the issue of the summons, an offer was made, and on its refusal she relied on her strict rights, whatever they might be, and that is the question I have to decide, a question which it appears is entirely novel, for no similar case has been cited, nor have I been able to find one.
Mr Cyril Boyle, the solicitor on record for the defendants, may not, and probably did not, know more of the case than its name, and that his father was conducting it for his benefit. His father has done the entire work personally at his own expense. He had told his son he would do all work personal to him gratuitously, as his agent, and he had done so with his son’s acquiescence and no doubt grateful consent.
If Mr Cyril Boyle had been here and had done the work himself no question could arise; he would be clearly entitled to the costs, subject to taxation, for his father does not participate directly or indirectly in the profits of his personal work. This is clear from the decision of Wood VC in Clack v Carlon 30 LJ Ch 639. This is an even stronger case. On the other hand, if Mr CBW Boyle had acted as solicitor for the executors it is plain he could get no profit costs, for as executor he would be subject to the rule and he could make no profit from his position.
What is the law when a principal, who can lawfully make a profit employs an agent, who could not be allowed to make a profit, to do all the work?
In my opinion a principal who acts by an agent, who is under a disability, cannot claim to be in any better situation than his agent. So far as I know this is a new proposition and I propound it with some diffidence.
I think, however, that it is involved in the statement of the law as laid down by Lord Cranworth in Broughton v Broughton 5 De GM & G 160.
He says (at p 164):
“The rule applicable to the subject has been treated as the bar as if it were sufficiently enunciated by saving, that a trustee shall not be able to make a profit of his trust, but that is not stating it so widely as it ought to be stated. The rule really is, that no one who has a duty to perform shall place himself in a situation to have his interests conflicting with that duty and a case for the application of the rule is that of a trustee himself doing acts which he might employ others to perform, and taking payment in some way for doing them. As the trustee might make the payment to others, this Court says he shall not make it to himself: and it says the same in the case of agents, where they may employ others under them . The good sense of the rule is obvious, because it is one of the duties of a trustee to take care than no improper charges are made by persons employed for the estate. It has been often argued that a sufficient check is afforded by the power of taxing the charges, but the answer to this is, that that check is not enough, and the creator of the trust has a right to have that, and also the check of the trustee. The result, therefore is, that no person in whom fiduciary duties are vested shall make a profit of them by employing himself, because in doing this he cannot perform one part of his trust, namely, that of seeing that no improper charges are made. The general rule applies to a solicitor acting a trustee, and the only question is how far the circumstances of the present case take it out of this rule.”
Now in the present case the will, which I assume was drafted by the defendant, Mr CBW Boyle, refrains from authorising the executor to act as solicitor and charge the usual professional charges, a clause frequently inserted, and while both will and codicil give legacies to the person to him for his trouble in acting. Yet he has proved the will and he has undertaken the burden of acting as executor without any benefit to himself, directly or indirectly. The case is not one in which there is a conflict of duty and interest such as Lord Cranworth referred to, but in my opinion it is a case where there is a conflict of duty and duty.
His duty as agent to his son was to do all the work in connection with administration, which his son might have done if here to do the work personally; while his duty as executor was, as Lord Cranworth pointed out to keep an additional check on professional charges. The correspondence and the bill of costs, as drawn, contain a number of illustrations of the difficulty created by Mr Boyle’s dual capacities. Mr Boyle, as executor, could not also act as solicitor and be entitled to profit costs, and I do not see that his son can be in any better position. In my opinion when Mr Boyle became executor and proved the will he created in himself an inherent incapacity to earn profit costs in this administration either for himself or anyone else; therefore, when Mr Cyril Boyle agreed that his father should act for him as agent, he was employing a person who, in this particular case, was under a disability peculiar to this case, viz, that he could earn no profit costs.
It seems to me unfortunate that the plaintiff’s solicitors, who appear to have been under the impression that the father and son were in partnership, did not raise this point at an earlier stage when it would have been possible for Mr Cyril Boyle to appoint another agent to act for him in this case and to participate to some extent in the legitimate profit costs of administration when taxed. However, that point may not have occurred to them although they were aware from the first of Mr Cyril Boyle’s absence and that his father was doing the entire work, as they then assumed, as partner. That this does not amount to such acquiescence as would disentitle the plaintiff to raise the point is clear from Broughton’s Case 5 De GM & G 160 in which the solicitor executor was originally employed to do the work by the testator himself, and continued to do it at the express request of the sole beneficiary, yet Lord Cranworth dismissed his appeal, but without costs – a precedent I am much disposed to follow. However, I shall reserve the question pending the enquiry directed.
Fitzpatrick v Waring
(1882) 11 LR Ir 35 (Chancery Division)
Law C: This is an appeal from a decree of the Master of the Rolls, and involves the determination of an important though narrow question, viz whether a trustee of lands, in receipt of their rents and profits, can make an effectual letting of them from year to year. The question arises in this way:
James Waring, being owner of an estate in the county of Cavan, by his will, dated the 24th May 1836, devised it to his nephew Richard Waring in fee, upon trust out of the rents and profits thereof, or by mortgage, to raise a sum of £5000, to be paid to the trustees of the settlement executed on the marriage of the testator’s daughter Marion with the Rev Charles Waring; and subject thereto, upon trust out of the rents and profits, to raise and pay an annuity of £300 to testator’s widow for her life; and subject thereto, to hold the lands upon trust for the sole and separate use of the testator’s said daughter Marion, for her life, and, after her death, if she should have issue her surviving, upon trust for all and any of her children, as she should by deed or will appoint; and in default of appointment, for such children equally as tenants in common in fee, &c. The testator died some time in the year 1842, and thereupon Richard Waring, the trustee, entered into the receipt of the rents and general management of the estate. The testator’s widow died many years ago, and so the trust for payment of her annuity ceased to be operative: but the £5000 remained still to be raised, and the trust for that purpose, as well as for the separate use of Mrs Marion Waring, continued in force until the death of that lady in 1877, soon after which the £5000 was paid off by her son, the defendant James Waring, to whom she had, in the year 1870, duly appointed these lands in fee, subject to her own life estate and who accordingly succeeded thereto at her death. Richard Waring, the trustee seems to have died about the same time as Mrs Marion Waring, so that it may be assumed that in the year 1877 all the active trusts came practically to an end. Up to the death, however, of Mrs Marion Waring, in 1877, and the payment by James Waring of the £5000, the duties of the trustee remained subsisting. Now it appears to us that in and prior to 1872, ie whilst Mrs Marion Waring, the tenant for life, was living, James Waring held the lands here in question, with others, as tenant from year to year, under Richard Waring, the trustee, but whether at any or what rent is not shown. Being such yearly tenant, and having also the equitable fee-simple in remainder, expectant on his mother’s death, he, by lease dated the 31st January 1872, demised part of the lands to one Michael Shields, to hold for thirty-five years, from the next 1st May, at a rent of £33. In 1875, however, a notice to quit having been served on James Waring by Richard, the trustee, an ejectment was brought by him and Mr and Mrs Waring against James Waring and Shields, and judgment having been obtained, an habere issued under which James and his subtenant, were both evicted, and possession of the lands delivered to Richard Waring. The farm being then vacant, and in the hands of the trustee, he, by deed dated the 17th July 1875, demised it to the defendant James Smith, as yearly tenant, at a rent of £43, and Smith accordingly entered and held possession until January 1878, when Shield brought an ejectment to recover possession of the farm, serving James Waring and a caretaker of Smith’s, who alone resided there, but taking no notice of Smith; and the caretaker omitting to take defence, whilst James Waring gave Shields a consent for judgment, Smith was turned out of possession, and the farm re-delivered to Shields, who wisely made haste and sold it to the present plaintiff, the assignment being dated the 8th February 1879. In the following month of June, however, Smith brought another action to recover the land; and though the plaintiff filed his defence, relying on many of the points which he now raises here, Smith got a verdict and judgment in April 1880, and again obtained possession of the farm. Under these circumstances, the present proceedings were instituted by the plaintiff in the Chancery Division against Smith and James Waring, making certain charges of fraud and collusion between the defendants and Richard Waring, which were ultimately abandoned, but insisting that Richard Waring, the trustee, had no power to make an effectual letting of the lands in 1875, as he purported to do, and claiming that the lease of the 31st January 1872, should be declared valid and subsisting as against the estate of the defendant James Waring, in priority to the letting of the 17th July 1875, to the defendant Smith, and that Smith should be declared a trustee for the plaintiff of any legal estate vested in him by that letting, and for an account of the rents received by the defendants since the assignment to the plaintiff, and payment of what might be found due.
The defendant James Waring did not dispute the plaintiff’s claim. He, in fact, as I gather from his defence, is indifferent as to which of the lettings is to prevail, being willing as far as he is concerned that the plaintiff should have possession under the lease of 1872 if thought so entitled; and, on the other hand, being equally willing, if Smith’s tenancy under the letting of 1875 be established, to let the plaintiff have the benefit of the £10 additional rent during the remainder of his thirty-five years. Mr Waring’s defence seems to be that the plaintiff never asked him for either one or the other measure of relief, but commenced his action without making any such application, though, had such been made, he (Mr Waring) would at once have acceded to it.
The case is thus reduced to a simple dispute between the plaintiff and the defendant Smith as to the possession of the farm, and this ultimately depends, as the Master of the Rolls clearly shows, on the question whether Richard Waring, the trustee, had power to make the letting of July 1875, to the defendant Smith as tenant from year to year. The Master of the Rolls having considered the question decided that the trustee had not such power, and has therefore made a decree in the plaintiff’s favour with costs as against the defendant Smith, and ordered him within a specified time to deliver up possession of the lands to the plaintiff. From this decree the defendant Smith has now appealed.
There is one part of the case which I own appears to me not to have been satisfactorily explained, and that is how this controversy which was raised, or at all events might have been raised, in the action of 1879-80 in the Exchequer Division came to be re-opened forthwith by another action in this Division. However, as the Appellant did not press this strongly either here or (according to the Master of the Rolls) in the Court below, I pass it by, and deal with the case on the simple issue – can a trustee of lands holding them upon trust for raising money out of rents and profits or for paying the rents and profits over to a married woman for her separate use, let the lands from year to year, when from any cause they become vacant and so unproductive of income? But for the respect I have for the learning and sound Judgment of the Master of the Rolls, who entertains a contrary opinion, I own I should have no hesitation in answering this question in the affirmative; and having read the report of His Honour’s Judgment, which has been furnished to us, and carefully considered his reasoning, I still feel unable to concur in his views on this narrow but very important point. What, it may be asked, is a trustee to whom the management of an estate has been committed to do with premises which become tenantless from time to time? If he cannot let them even to yearly tenants, as they probably were let before, must he undertake to farm them himself, and that at no little risk in many ways? Well, the answer given is; – no, he need not assume such labour and responsibility. His proper course is to seek the aid of the Court of Chancery, by which I presume is meant that he should institute an action here for administration and execution of the trusts imposed upon him. Well, putting aside the expense and inconvenience of having to take this course merely to let a farm, I would still venture to ask if a trustee, as such, could not make any letting of even from year to year, however desirable, and for the benefit of the trust, how is it supposed that the Court of Chancery could help him? In the exercise of its jurisdiction for the administration of trusts this Court, I apprehend, has no power to make or authorize any leases or other dispositions of the trust property which the trustee could not have made himself. The Court, in such a case, whether it assumes the place of the trustee, or guides him in the discharge of his duties, is still confined within the limits of the trust as constituted by its author, and has no authority to go beyond those limits. Its business is to execute the trusts, not to alter them; and if the committing the management of an estate to a trustee did not involve giving him authority to make reasonable lettings (as I believe it does), I do not see what right the Court of Chancery would have to enlarge the conditions of the trust in that respect. That, where property is thus under the control of the Court, it constantly does make or authorize such lettings is well known, but this is simply because such a power is inherent in the trust which the Court in such case is carrying into execution. The admitted practice of the Court of Chancery, therefore, in that case, in itself making or in authorising the trustee to make, reasonable lettings, instead of showing that the trustee could not make such lettings without the aid of the Court, seems to me to prove the contrary proposition, the only use of the Court being to preclude all future questions as to whether the letting was in fact a reasonable one or not. We find, accordingly, in all the text books statements to the effect that a trustee, or at least a trustee who, in the discharge of his duties as such, is bound to receive the rents and profits of the property committed to his care, may make any reasonable demises of it. The only difficulty of the position is that he or the person taking from him must always be prepared to show, if challenged, that the demise in question was reasonable.
In the Attorney-General v Owen 10 Ves 560 Lord Eldon states the matter thus:
“Upon a devise in fee to A in trust for his infant son, to be conveyed to him at the age of twenty-one, and without imposing terms upon the trustees as to the rent, the terms, or the length of the lease, this Court would say the trustee was to do what was reasonable. The Court would (simply) put it upon the trustee and the lessee taking under him to show that the act was reasonable and done in the fair management of the estate.”
And this, be it remembered, is Lord Eldon’s language when discussing, not lettings from year to year, but leases for substantial terms. I am, therefore, not prepared to subscribe to Lord Langdale’s or Sir John Wickens’ condemnation of the decision in Naylor v Arnitt 1 Russ & M 501, where Sir John Leach had refused to set aside a trustee’s lease for ten years, which, for all that appears in the meagre report of the case, may have been under the circumstances a very reasonable letting. It is also to be observed that, in Naylor v Arnitt 1 Russ & M 501, the trusts were to receive the rents and pay thereout certain annuities – trusts which therefore involved the active management of the estate – whereas in the cases of Wood v Patteson 10 Beav 541 and Shaw’s Trust LR 12 Eq 124, before Lord Langdale and Wickens, VC, there were practically no duties to be discharged by the trustees. They were interposed merely as so much conveyancing machinery, and, besides, their immediate cestui que trusts were sui juris, and apparently themselves in possession. Under such circumstances it was quite right to decline to sanction the trustee making a sixty years’ mining lease in the one case, or even a ten years’ lease in the other, especially as in the latter the application was made, not in any properly constituted suit, but merely by way of a special case, and some of the cestuis que trust presently entitled were out of the jurisdiction.
But after all the question here is not as to the validity of a lease for ten, twenty, or any other number of years, but as to whether a managing trustee can let at all. For if he has any authority to let it, it must be competent for him to let from year to year, that being the shortest term for which any letting can be made. Now that a trustee, entrusted with the active management of an estate, may so let has, as far as I know, never before been denied. On the contrary the argument of Mr Pemberton, seeking to set aside the ten years’ lease in Naylor v Arnitt 1 Russ & M 501, was based on the assumption that it was the duty of the trustees there to let the lands from year to year. No case indeed, has been cited by counsel in which the precise point has been decided; but considering how prevalent has been the practice of trustees to make yearly lettings, the absence of any instance in which such a letting has been questioned, may not unfairly be regarded as telling strongly in favour of their validity. There is, too, one reported case in which a letting of this character would certainly have been challenged if it had been thought possible to do so with any success, that is the case of Ferraby v Hobson 2 Phi. 255; 16 LJ Ch 499 before Lord Cottenham. There a testator had died in 1832, having devised his estate to trustees for certain purposes. In 1835 the tenant of one of the farms threw it up, and the trustees, after offering it at £408 to a Mr West, who refused to take it on these terms, let it at that rent to a Mrs Rawlins, the sister of one of the trustees, as tenant from year to year. She so held it till Lady Day 1839, when the trustees having previously served her with notice to quit, and thus determined her tenancy, re-let it to her at an increased rent of £450. A bill was then filed against the trustees by a person beneficially interested in the property, charging collusion between them and the tenant, alleging that the farm had been let at a gross undervalue, and seeking to make the trustees answerable for the higher rent which they might and ought to have obtained. Sir Knight Bruce, VC, made a decree charging the trustees with £42 a-year more than they had actually got for the three years ending Lady Day 1839; and from this there was an appeal. Now, throughout the case, it was assumed and admitted by all concerned, Lord Cottenham included, that when after the testator’s death the tenant threw up the farm in question, it was the duty of the trustees to re-let it on a yearly tenancy as before, and the only question was whether in so re-letting it they had got the highest rent which could then reasonably be obtained, again it was admitted that the moment they had reason to believe that the rent at which they had thus first re-let the farm was too low, it became their duty to serve a notice to quit, and again re-let it from year to year at an increased rent. I venture to think that Lord Cottenham or Sir Knight Bruce, VC, when so holding that it was the duty of the trustees to let and re-let from time to time, so as to get the best rent obtainable for the trust property, would have been greatly surprised if it had been suggested that the trustees had in fact no power to let at all. It is, however, right to say that Mr Walker in his able argument took much lower ground than this. He frankly admitted that trustees in receipt of rent and profits could make any reasonable letting: and that this of course might be from year to year. But his contention was that the letting by Richard Waring to Smith in 1875 was not a reasonable one, because the yearly tenancy was not made determinable on the death of Mrs Marion Warinq, the tenant for life. I believe, however, we are all of opinion that such a letting would have been most unreasonable, as it would have been plainly unjust to the tenant for life, for obviously no tenant would pay the full value of a farm for a tenure so absolutely uncertain. Nor can we, I think, regard the Land Act of 1870 as having any bearing on the present question, for if trustees could make yearly lettings before 1870, as I think they clearly might, they can do so still.
On the whole then, both on principle and authority, I am of opinion that the yearly letting made by Richard Waring to the defendant Smith in 1875 was valid; that the decree appealed from should be reversed so far as regards the defendant Smith, and the plaintiff’s action be dismissed as against him with costs. If, as would appear to be the case, Mr Waring is willing to secure to the plaintiff the additional £10 a-year, this may perhaps be sufficiently provided for by the decree: but having regard to the action having been commenced without any previous application to Mr Waring, and to the unfounded charges of collusion and fraud, I agree with the Master of the Rolls that the plaintiff should pay his costs in the Court below.
May CJ: The testator James Waring the elder devised the lands in question to Richard Waring and his heirs in fee-simple, upon certain trusts, viz on trust to raise a principal sum of £5000 by sale or mortgage of the lands, and subject thereto on trust out of the rents and profits to levy an annual sum of £300, and subject thereto on trust to the separate use of Marion Waring for her life, with remainder to such of her children as she should appoint, with a further limitation over in default of such appointment. In 1870 Mrs Marion Waring made an absolute appointment of the lands to James Waring the younger, one of her sons.
It appears that Richard Waring, the trustee, demised a portion of these lands to the said James Waring the younger, as tenant from year to year; in 1879 James Waring, who was then entitled to this tenancy from year to year in possession, and was also entitled to the estate in remainder, subject to the trusts above expressed, including the estate for life of his mother, demised the lands, with which this suit is conversant, to Michael Shields to hold for a term of thirty-five years subject to the annual rent of £33. Subsequently Richard Waring determined the tenancy from year to year of James Waring by notice to quit, and recovered possession of the lands demised; and on the 17th of July 1875, demised the same lands to James Smith, as tenant from year to year, subject to the annual rent of £43. In 1877 Mrs Marion Waring died, and James Waring the younger entered into possession of the estates, and received the rent of £43, payable by the defendant James Smith. Subsequently, in January 1878, the said Michael Shields brought an ejectment on the title against James Waring and one William Mee, who was then in occupation of the premises in question, as the agent of James Smith. James Smith was not made a party to these proceedings. James Waring and William Mee let judgment go by default, and Shields recovered the possession of the lands. Afterwards, in June 1879, James Smith brought a counter-ejectment against Shields and the present plaintiff Fitzpatrick, who claimed as assignee of the interest of Shields. Shields and Fitzpatrick appeared, and filed a defence in which they relied on the equitable title as derived from James Waring the younger. The defendant James Smith recovered judgment in that ejectment; and this suit was then instituted, in which the plaintiff, as purchaser from Shields, claims to recover possession of the lands. James Waring and James Smith being made defendants. Charges of collusion between the defendants James Smith and James Waring, contained in the statement of claim, were withdrawn.
The only point apparently relied on in the Court below, as entitling the plaintiff to relief, was that the creation of the tenancy from year to year in favour of the defendant James Smith, in 1875, had no legal validity, Richard Waring, the trustee, being incompetent to make any demise of the lands binding on those beneficially entitled to the estate. The Master of the Rolls decided that such tenancy was invalid in equity, and his judgment in favour of the plaintiff rests entirely on that proposition. And this Court has to consider whether that decision can be maintained.
The question is whether it was competent for Richard Waring to demise the lands, of which he was trustee, to a tenant from year to year. This question is, I think, to be determined, having regard to the true construction, intent, and meaning of the will of 1836. It is certainly true that no express power of leasing was given to the trustee Richard Waring by that instrument. The lands were devised to him upon the trusts above referred to, and it is material to consider the nature of those trusts. In the execution of the trust to raise the sum of £5000 by mortgage it would be absolutely necessary that the trustee should be enabled, after the execution of such a mortgage, to raise the annual interest on the sum borrowed out of the annual rents and profits of the lands; and so the annuity of £300 would be prima facie receivable out of the same rents and profits, and be payable by the trustee to the annuitant; and so also the residue of the rents and profits would be collectable by the trustee for the benefit of Mrs Marion Waring entitled to her separate use. I think it may be assumed that the estates were in the hands of the tenants. Supposing any of these tenancies to determine, whether by ejectment for non-payment of rent, by efflux of time, or by surrender, and thus the possession of parcels of these lands to become vacant, how was the trustee to receive the annual rents and profits of the lands so vacated? It seems to me that the maxim, that the grant of any subject-matter includes by implication a grant of all powers necessary for the enjoyment of such grant, applies to a case such as the present, and that the will of 1836 should be held impliedly to confer on the trustee such power as was necessarily required in order to enable him to discharge the active duties imposed upon him, including, in the present case, a power to demise vacant and untenanted lands, so as to make them produce an income; and it is, I think, all important to consider the character of the trusts reposed in the trustee.
The case was in the present instance treated in the Court below as one almost closed by authority. I have examined the authorities to which the Court has been referred, and consulted other cases and the text books, and I will shortly refer to those principally relied upon as supporting the decision of the Master of the Rolls.
In the case of Naylor v Arnitt 1 Russ & M 501 Sir John Leach supported a lease for ten years, made by the trustee, as a reasonable lease. In that case the lands in question were devised to the trustee, upon trust out of the yearly rents and profits to raise two annuities of £60 and £10, and subject thereto, upon trust to permit and suffer William Naylor and his wife to receive the rents for their lives, with remainder in favour of their children. The case was argued by Mr Pemberton on the one side, and Mr Bickersteth on the other, counsel of the very highest eminence: and it apparently was assumed by the counsel on both sides that it was quite competent to a trustee under such circumstances to demise the lands from year to year. The only question was whether it was within the power of the trustee to bind the inheritance by an absolute term of ten years. It is to be observed that in that case the trustee was directed to raise the annuities out of the annual rents and profits.
In the case of Wood v Patteson 10 Beav 541 a testator devised some mining property of which he was seised in fee, subject to a term of ninety-nine years, to a trustee, on trust to divide the rents among his four daughters for life, with remainder to their children. The term of years expired, and the tenants for life found they could not work the mines with a profit. Some of the children entitled in remainder were infants. Application was made to the Court to authorize the trustee to grant a mining lease of sixty years. Lord Langdale declined to make such an order. In that case authority was asked from the Court to make the lease as being for the benefit of the minors, and the decision did not turn upon the powers of the trustee, but upon the jurisdiction of the Court to order such a lease to be made. It does not appear to me that that case bears upon the point argued before the Court.
In Re Shaw’s Trusts LR 12 Eq 124 the testator, after giving legacies and annuities, gave the residue of his estate and the annual produce thereof to trustees on trust, as to one-third, to pay the income to a nephew for his life, and after his death to his children, and the other two-thirds to two other nephews and their children in the like manner. The case came before the Court on a special case one of the questions being, whether the trustees were entitled to lease the real estate for any and what term. Vice-Chancellor Wickens doubted the decision in Naylor v Arnitt 1 R & My 501, and declined to answer this question. The Vice-Chancellor expressed no opinion as to the power of the trustees to demise the lands from year to year, and it can hardly be contended that this case can be relied on as an authority in support of the decision of the Master of the Rolls.
I can find no authority, not even a dictum, that a trustee in whom an estate is vested upon such trusts as exist in this case, cannot make valid demises of the trust property for tenancies from year to year. Such a doctrine would, I think, lead to most inconvenient consequences. I think the decision of the Master of the Rolls on this point cannot be supported.
A good deal was said in argument as to the extensive rights and interests which under the Land Acts of 1870 and 1881, had become vested in tenants from year to year. It is, I think, enough to say that this question must be determined as if the case had arisen shortly after the date of the will. If that instrument gave by implication a power to demise the lands from year to year, the trustee had such a power under it when it came into operation, and could not afterwards be deprived of it because the legislature subsequently conferred rights and privileges on tenants from year to year.
On the whole, I think that upon this point, which was the only point argued before us, the decision of the Master of the Rolls must be reversed.
Deasy LJ: Assuming that the case set up by the plaintiff is open to him after the adverse decision of the Exchequer Division in the action in which it was distinctly raised – a decision to which the plaintiff was a party, and from which he never appealed to this Court – I think it is not well founded in law. There is no authority for the proposition on which the plaintiff relies, that a trustee of a landed estate occupied by tenants cannot in any case let a part of that estate to a yearly tenant during the life of the tenant for life, so as to make that tenancy binding on the remainderman. Sir J Wickens enunciated no such proposition in Re Shaw’s Trusts LR 12 Eq 124, he simply declined to follow Sir J Leach’s order in Naylor v Arnitt 1 R. & My 501, directing trustees to grant a lease for ten years. In Wood v Patteson 10 Beav 541 the application was for an order sanctioning a mining lease which Lord Langdale declined to make.
In The Attorney-General v Owen 10 Ves 560 Lord Eldon says that trustees are bound to at lease as provident management as a provident owner. This Court would say that the trustee was to do what was reasonable. The Court would put it both upon the trustee and the tenant taking under him to show that the act was reasonable and done in the fair management of the estate.
Applying that test, is not the act reasonable and done in the fair management of the estate? This estate was in the occupation of tenants holding at yearly rents the trustee had it vested in him upon trust to receive the rents and pay them to a married woman for her separate use. He was in the actual receipt of the rents through his agent, and he appears to have made lettings of other parts of the estate. He had recovered the possession of this part in an ejectment founded on a notice to quit, and was put into the actual possession of it by the sheriff. What was he, then, to do with it? He could not allow it to remain unproductive. He could not be expected to farm it himself. That might involve a loss both to himself and to the trust estate. He could not make a demise of it for less than a yearly tenancy, for that is provided against by the 69th section of the Land Act of 1870. It may be said that he might have made the yearly letting determinable at the death of the tenant for life, but that would be a very improvident arrangement to make. It could not be expected that as high a rent could be got for it as upon an ordinary tenancy from year to year, and the tenant holding by that uncertain tenure would have an interest in getting as much as possible out of the land, and putting as little as possible into it in return. It would, I think, be dangerous to hold that a trustee of an estate held by occupying tenants can never make a yearly letting of any part of it which will be binding upon the parties beneficially entitled.
I concur with the Lord Chancellor and the Lord Chief Justice that the decision of the Master of the Rolls should be reversed.
FitzGibbon LJ: I fully concur in the opinion that the authority of an acting trustee of the legal fee must include the power to make reasonable lettings of lands which at the inception of his trust he finds in the hands of tenants, and which during the trust come into his possession. If empowered to let at all, his power must at least extend to the creation of a tenancy from year to year in an agricultural holding, at all events where the holding had been previously so held. There is no authority to the contrary. The cases cited seem to recognize such a power, and without it I do not see how the trusts of landed estates could in many cases be executed. Is the trustee to leave the land unproductive, or to embark upon farming at the risk of his trust fund? The Master of the Rolls says he may come to the Court “for a receiver.” If “receiver” is here strictly used, it implies that rents are to be received, and so that lettings are to be made; if it means “manager,” it implies that the Court would sanction a trustee’s undertaking the actual management of lands previously let to tenants, which I do not think it ought; if it means that the trustee should bring the administration of his trust into Chancery, it leaves the matter where it was, for a trustee may at least do out of Court what the Court would sanction if administering the trusts. The Court ought to sanction only what a trustee could do out of Court. It cannot be laid down that lands can be let only through the machinery of the Settled Estates Acts or of statutory leasing powers, and it remains as the only and, I think, as the necessary conclusion, that an acting trustee of the legal fee may make reasonable lettings of vacant tenantable lands.
It remains to apply this power to the present case, and here I confess I am not altogether satisfied that the defendant’s case has been made out. A reasonable letting must be one reasonably necessary for the due execution of the trust on behalf and in the interest, not of one, but of all the cestuis que trust. It further rests upon the person alleging a tenancy under such a letting to show its reasonableness, having regard to the whole scope of the trusts. Here the lands were let by the remainderman from year to year, and he had bound himself by a lease which would operate, not only on his legal tenancy from year to year, but also on his equitable estate in remainder. The trustee’s duty and authority were to act reasonably for all the cestuis que trust, and did not enable him to make a letting even from year to year, which would unreasonably involve the remainderman in liability, and which his previous lease forbade the remainderman to make for himself, unless it was reasonably necessary in the interests of the other cestuis que trust to disregard the special interest of the remainderman. I am not satisfied that the defendant has given sufficient proof that, having regard to James Waring’s position, it was reasonable to determine his tenancy from year to year, and, when re-letting the lands, to omit a provision that the new tenancy from year to year should determine on the death of the tenant for life so as to leave James Waring’s estate in remainder free to meet the lease by which he had bound it. Still I am not so confident upon this as to warrant me in dissenting from the other members of the Court, especially as the letting to the defendant certainly brought in an increased rent, and was of the same character as that for which it was substituted, as a provision for determination must to some extent have diminished the value of the tenancy, and so pro tanto diminished the rent receivable by the tenant for life, and lastly as the great importance of the tenancy from year to year now, as against the plaintiff and the remainderman, has arisen from legislation subsequent to its creation, and not from any unreasonableness in the letting itself.
I wish to add that I am entirely unable to understand why the points at issue in this suit were not fully discussed and finally decided in the action brought in 1879.
Re O’Flanagan and Ryan’s Contract
[1905] 1 IR 280; 39 ILTR 87 (Chancery Division)
Porter MR: This is a summons under the Vendor and Purchaser Act brought by the vendors, asking that it may be declared that a good title has been shown, in accordance with the particulars and conditions of sale, to the premises mentioned in the summons, a licensed house and premises, at Thurles, in the county Tipperary. I shall take the will and deed under which the premises are held as read.
The gift to the widow of the testator is “in trust for herself and the children of our marriage, to be applied by her as she shall deem most expedient.” Whatever may be the exact effect of these words, it is clear that some trust is imposed upon the widow, and that she is thus a trustee for herself and the children of the marriage, though with wide discretionary powers. The case is not like Lambe v Eames LR 6 Ch 597, for there is a trust; nor Haley’s Trusts 23 LR Ir 130, for the widow takes some beneficial interest. (In that case the majority of the Court of Appeal held that the legatee took none, though it was not necessary to decide that point, as she died before the testator.) Perhaps it most closely resembles Crockett v Crockett 2 Ph 461. At any rate it is clear that there is a trust; and that the cestuis que trustent are the widow and the children of the marriage, and no one else. It is possible, too, that, as the shares (when settled on) could only be worked out by a sale of the property and distribution of the proceeds, the widow, who is also executrix, may have an implied power of sale. I think that this is so. Obviously, however, any such sale ought to be made in perfect good faith for the benefit of the class interested, and no one else. What took place in 1891, on the occasion of the second marriage of Mrs Maher, was not a sale; nor was it authorised by anything in the will. Mrs Maher had no right to convey away the assets to any delegated trustee. Had she died soon after the execution of the deed of 23rd January 1891, all the assets would have vested in a stranger, subject only to £1000 charged on them for the children, and to £200 left to the son of the testator’s first marriage. The transaction was apparently entered into not for the benefit of the entire class, but for her own benefit mainly if not exclusively by securing for her a second husband. It is not necessary, nor would it be proper, to decide this, but it is needful to refer to it as, at least, an extremely serious difficulty in the way of upholding the transaction, even if it were not plain, as it is, that Mrs Maher had no right whatever to assign away her trust and the trust estate. Indeed her doing so was in fact a complete breach of trust, independently altogether of the question whether a provision of £1000 for the children was under the circumstances a bona fide discharge of her duty to exercise, as trustee, an impartial discretion. The vendors claiming under the deed could not give no valid discharge for the property of the minors; and the offer made subsequent to the sale to procure Mrs Maher’s, or rather Mrs Rahill’s, concurrence in the conveyance to the purchaser was no more than a proposal to obtain her ratification of her own improper dealings with the property. The purchaser would have to pay Patrick O’Flanagan and Martin Rahill for property which did not belong to them, and for which they could give no valid receipt. All this is plain, and in great part, admitted.
But Mr Wilson’s argument is that the purchaser is bound by the conditions of sale, so as to be precluded from raising the question, relying on Scott v Alvarez [1899] 2 Ch 611 and cases of that character. But in Scott v Alvarez [1899] 2 Ch 61 1, and all the decisions of similar import, the question has arisen upon the effect of positive restrictive conditions, in terms binding the purchaser to admit certain facts or to forgo inquiry or investigation of title before a particular period or the like; whereas no such condition forms part of this contract. The only colour for this contention in the present case is the sixth condition, which is as follows:
“By his will the said William Maher bequeathed (inter alia) the said premises to his wife in trust for herself and her children to be applied as she should deem most expedient. To give effect to the trust contained in the said will, Mrs Maher, on the occasion of her re-marriage, vested (inter alia) the said premises to trust to raise by sale or mortgage the sum of £1000 for the benefit of the said children, and in pursuance of this trust for sale the vendors are now selling the said premises, and shall convey the same to the purchaser in their character as trustees and not otherwise, and shall not be bound to obtain the concurrence of any other parties to such conveyance as conveying parties.”
This, it is said, fully states the facts, and informs the purchaser of what he is to buy; and as it discloses the title which the vendors are prepared to give, no objection founded upon those facts can be admitted. It states correctly enough the sentence of the will, in reference to the matter in hand, and it shows that title is to be made under the deed of 1891. If that title is bad, it is, at least, the title which alone the vendors are prepared to give, and thus the purchaser is precluded from raising the question.
In my opinion this argument is founded on a fallacy. A purchaser under such a condition is entitled to assume that he is getting a good title if it be possible consistently with what is stated that the title may be a good one; and it is plain that, consistently with what is stated, the title here might be a perfectly good one. He is told that the deed of 1891 was made “to give effect to the trust contained in said will,” and that by it Mrs Maher “vested the premises in the vendors in trust,” &c. Anyone reading that condition would be entitled to assume, and would assume, that there was some provision in the will, or in some other instrument of title, enabling Mrs Maher to make a settlement on the occasion of a future marriage in the way stated; that the transaction in short was (as it is affirmed to be) a giving effect to the trusts of the will, and not a breach of them. When the will came to be examined, the purchaser would expect to find at least some power enabling Mrs Maher to appoint subsidiary trustees, with authority to give receipts for purchase-money. Had this been the case, the difficulty would not have arisen. As it is, if the title were forced upon the purchaser, he would raise the question against him at some future time, when, being fixed with notice of a breach of trust, he would or might be practically defenceless, being constructively a trustee for the persons entitled under the will, and bound to justify a transaction of the merits of which he would know nothing personally, and which is illegal on the face of it. The will contains no other provision, and no other authority is shown, enabling this thing to be done.
If, then, on the conditions of sale, he was entitled to assume that a power to do what was done would be shown, the meaning of that is that he was entitled to have this by the contract, and as he has not got it, a good title has not been shown pursuant to the conditions of sale.
There must be a declaration accordingly, and the vendors must pay the costs of the purchaser. If it is desired, I shall state on the face of the order that the deed of 1891 was a breach of trust. This will enable Mrs Maher to call upon the trustees of that deed to re-convey the property to her, and place her in the same position as she was before .
The order, which was made on January 20th 1905, was as follows:
“THE JUDGE, being of opinion that the execution of the said indenture of settlement constituted a breach of trust on the part of the said Kate Maher, the settlor, who was a trustee under the said will of William Maher, doth declare that a good title has not been shown by the said vendors, in accordance with the said particulars and conditions of sale; and doth order that the said purchaser’s costs of this application and order be paid to him by the said vendors, when taxed and ascertained.”
Edmond O’Reilly and Thomas O’Reilly v Edmond O’Reilly and Attracta O’Reilly
The High Court
4 April 1973
[1973 No. 51 Sp.]
[1975] 108 I.L.T.R 121
Kenny J.
Kenny J. in the course of his judgment said that having regard to the provisions of the settlement and in particular those referring to the carrying on of the common farming enterprise the words “as if they were beneficially entitled thereto” were wide enough to include a power for the trustees to borrow on the security of the lands the subject-matter of the trusts of the settlement
It will be necessary for the trustees to have regard to the right of the tenant-for-life in the exercise of this power of borrowing under thee Settled Land Act, 1882 (45 & 46 Vic. c. 38) section 56.
The repayment of any sums borrowed should be secured by deed of charge. It is highly undesirable for trustees to borrow money secured by equitable deposit of title deeds or Land Certificate.
Costs of all parties to be paid out of the trust fund.
Greene v Coady
[2014] IEHC 38
Judgment of Mr Justice Charleton delivered on the 4th of February 2013
1.0 The plaintiffs are beneficiaries or potential beneficiaries of the pension fund of Element Six Limited at Shannon Industrial Estate in County Clare. The defendants are the trustees of that fund. The plaintiff beneficiaries claim damages against the defendant trustees for breach of trust in accepting, on 25th of November 2011, an offer of €23.1 million (plus €14 million outside that fund) from Element Six Limited, as the contributor of the pension fund, to close its liability to contribute from the end of 2011. Instead, the plaintiff beneficiaries claim that the defendant trustees should have made a contribution demand for €129.2 million, or more, to make up the funding deficit to the pension fund and that their failure to do so was a wilful default. The trustees divided equally on the issue: the three company nominees voting in favour and the three worker nominees voting against with the chairman Danny Coady exercising his casting vote in favour. That vote is alleged by the plaintiff beneficiaries to have been vitiated by conflict of interest, to have taken into account irrelevant matters, to have ignored relevant issues and to be a decision that no reasonable body of properly informed trustees could have taken. Of the six defendant trustees, three came from company management; Danny Coady, Siobhán Duffy and Dermot Tuite. They gave evidence in this action. Three others came from the operations side; Danny Murphy, Thomas O’Brien and Gerard O’Sullivan. They did not give evidence. Danny Coady, Siobhán Duffy, Gerard O’Sullivan and Dermot Tuite were at the time of the decision active members of the pension scheme, meaning eligible members of the payroll, while Danny Murphy had taken voluntary redundancy in 1993 as had Thomas O’Brien in 2008.
1.1 Pension funds have come under severe strain over the last seven years. With the national banking crisis of 2008 and the context of bank failures in the United States of America, the European Central Bank has set historically low rates of interest. A hidden subsidy from ordinary people to the poor performance of financial institutions is the paltry rate that any bank will now pay a depositor. Deposit rates depend largely on loan rates. Current loan rates are in contrast to what were predicted in business circles in 2006 to be interest rates for bank loans that would rise from already quite high levels. If an income on a fixed capital sum is sought through the banking sector, to now generate a return through a bank deposit equivalent to that of 2006 requires, perhaps, double or more. With the financial turmoil has also come a less certain return on business investments and the capital value of many pension funds has dropped. In addition, those buying into any annuity fund on retirement these days can expect to live for several years longer than their parents’ generation.
1.2 The sixth element in the periodic table of elements is carbon; hence Element Six Limited as the name of the company which was the funder of this defined benefit pension scheme. The company is part of a worldwide multi-national conglomerate that deals in diamonds, including the De Beers companies in South Africa. The Shannon entity used to manufacture diamonds from other forms of carbon in high-pressure presses. The plant was started in 1961. At its height, in 1988, it employed over 1000 people. Since then employment has declined. In 2001 the equipment for manufacturing was moved by the group away from Ireland and other European locations to South Africa; presumably for reasons of cost. This was a big blow to the sustainability of the Shannon plant which was then left with administration and the finishing and distribution of raw industrial diamonds. In 2009, the head company in the group, Element Six Abrasives SA in Luxembourg, announced the closure of the Shannon plant. Apparently this must have been qualified since a plan of survival was quickly put together by the Shannon management. This involved about 300 redundancies and other savings amounting to some €30 million off operating costs. It resulted in the plant being saved. The group then publicly announced that it was in Shannon for sustainable employment into the long term. On the evidence, there are now some 359 employees of Element Six Limited in Shannon of whom about 270 are involved in factory work involving finishing raw industrial diamonds and coating and preparing these for various uses. The rest of the staff members are administrative, management and distribution workers.
1.3 Some employees of the Shannon plant gave evidence. They described it as a very pleasant place to work with good conditions and an uplifting sense of comradeship. Part of the remuneration package up to 2001 was a defined benefit scheme. That is the pension trust in issue here. A defined benefit scheme is one where people work on a promise that on retirement they will get a fixed percentage of their wages. This is in contrast to a defined contribution scheme, where each individual builds up a pot of money by contributions over their working life and it is that pot which is used to fund a pension on retirement; the amount dependent on the vagaries of the market. A defined benefit scheme can be seen, and was presented during this hearing by the plaintiff beneficiaries, as part of the ongoing remuneration of a worker, albeit deferred. From 2001 on, workers joining the Shannon plant could not join the defined benefit scheme. Instead they were entered into a defined contribution scheme. This fixes contributions by the employer as part of the remuneration package and by the employees out of wages towards the build up of an invested fund that can be used to buy a retirement annuity on the open market, or to otherwise encash the fund on payment of appropriate tax. The contributions here were 5% from wages and 5% from the employer. As markets go up and down, there is little certainty as to how well anyone’s defined contribution fund will do, so there is no guaranteed income when they come to retire or when they die and their spouse inherits the benefit. People also retire at different ages from paid employment. With the redundancy package of 2009 tempting many people into finishing paid work early, many people are awaiting their 65th birthday, the current age for eligibility, before the benefit of their work flows as a pension. From 2009, even for employees in the Shannon plant from prior to 2001, the defined benefit fund was shut to future increases. Instead, such employees kept their defined benefit, as then earned, but could not add to their entitlements in that regard; being put as regards future gains in potential pension into the defined contribution scheme for as much as they would contribute from then until retirement.
1.4 On the defined benefit scheme, there are 173 active working members, 258 pensioners and 375 people who have retired under 65 but whose entitlement to their pension is deferred until age 65.
1.5 Pensions are regulated by the general law, by specific statutory provision and, inevitably also, by a trust deed.
The trust deed
2.0 Central to this litigation is the consolidating deed and rules governing the trust of 20th of May 1994. The deed traces its origins back to 21st of June 1961. It provides that the plan for defined benefit is to be administered in accordance with the deed and with the rules attached. The main purpose of the plan is to provide relevant benefits for directors and employees of the company and any associated employees who are admitted to membership in accordance with the rules. The plan was classified as a retirement benefits scheme as defined by section 14 of the Finance Act 1972 and is stated to be an occupational pension scheme as defined by section 2 (1) of the Pensions Act 1990, as amended. Under the deed, the trustees jointly and severally covenanted with the employer to manage and administer the plan, to comply with the provisions of the trust deed and rules, to keep confidence on the trust’s business affairs save as provided for by law, to keep confidence in respect of members and beneficiaries and, on resignation, to execute such documents as are necessary to the functioning of the trust in accordance with decisions made by the trustees. The trustees’ duties are set out in accordance with the Pensions Act 1990 and include receiving contributions, investing these properly, making arrangements for the payments of benefits, keeping records, registering the plan with the Pensions Board, complying with legislation and giving proper notices. The powers of the trustees are set out in paragraph 7. These include powers of delegation, to employ staff and experts, to engage assistance in life assurance, and “to decide all questions or matters of doubt arising under this Trust Deed or the Rules and every such decision… shall so far as the law permits be conclusive…” All quotes which follow remove inappropriate capital letters. Clauses 7 (v) and (vii) should be quoted in full as it enables the trustees with the following:
(v) Power, in addition and without prejudice to all powers conferred upon the trustees by this Trust Deed and by law, to settle, compromise or submit to arbitration any claims, matters, disputes or differences arising out of the Plan or otherwise in connection therewith and which have not been disposed of under the provisions of sub-clause (iv) above, and to commence, carry on or defend proceedings relating in any way to the Plan or relating to any rights of the Members or others therein.
…
(vii) Power in relation to this Trust Deed and the Rules to rely upon the advice or opinion, whether or not obtained by them, of any lawyer, banker, broker, actuary, accountant, medical practitioner, assurance company or pension consultants of good repute or other professional person as the Trustees see fit and the Trustees shall not be responsible for any loss occasioned thereby. The cost of obtaining by the Trustees of any such advice opinion shall form part of the expenses incurred by the Trustees in connection with the Plan.
2.1 Clause 8 provides for meetings and for the chairman’s casting vote to be decisive in the event of equality of ballot.
2.2 Central to this litigation has been the issue of conflict of interest. Therefore central to the resolution of this dispute is clause 9 of the trust deed:
(i) No decision of the exercise of power by the Trustees shall be invalidated or questioned on the ground that the Trustees or, in the case of the Trustees or any of them being a body corporate, any Director of such body corporate, or any individual trustee or trustees had a direct or personal interest in the result of any such decision or in the exercise of any such power.
(ii) Any of the Trustees or any director of corporate trustee who is a Member may retain any benefits payable to him from the Plan for his own benefit absolutely and may participate in any discussion in respect of and vote on any resolution which affects or may affect any benefits payable to him from the Plan in any way whatsoever.
2.3 Any issue as to the remuneration of trustees or their expenses has not formed part of this case but it is provided for in clauses 11 and 12. An actuary may be appointed under clause 13. The covenants by the employer are set out in clause 14 and the termination of the liability by the employer to make payments is set out in clause 15. These are quoted in turn:
14. The Principal Employer hereby covenants and any Associated Employer shall, by Deed of Adherence, covenant jointly and severally with the Trustees and each of them:-
(a) to observe and perform such of the provisions of this Trust Deed and the Rules as are hereunder to be observed and performed by them;
(b) to pay to the Trustees upon the written demand of the Trustees such contributions as are payable under the rules subject to the provisions of Clause 15 hereof.
15. The Principal Employer or any of the Employers may at any time terminate its liability to contribute to the Fund by giving no less than one month’s notice in writing to the trustees but without prejudice to its liability to pay any contributions or expenses which have become payable prior to the expiry of such notice or to pay any expenses which will arise in connection with the determination of the plan in accordance with Clause 23.
2.4 Clause 16 deals with investment and borrowing. Clause 17 deals with transfers from other schemes and 18 to other schemes. Clause 19 deals with assignments of benefit. The scheme may be terminated by notice, as set out above, or upon the winding up of what is called the associated employer or if an association between the principal employer and the associated employer ceases to be satisfactory, in which case there is a provision for the application of the relevant funds. The principal employer may be substituted under clause 21. Pursuant to clause 22, the plan may be determined upon “the termination by the principal employer of its liability”; by the “failure of the Principal Employer at any time to pay to the Trustees any sum or sums due under” the trust deed of the rules; by the trustees exercising a power of winding up under clause 21; by the trustees deciding to determine the plan following a deferral; through the expiry of the trust period less one year. Clause 22 (b) provides:
Upon the Fund being wound up the liability of each of the Employers and, where appropriate, the members to contribute thereto if not already terminated under paragraph (i) of sub-clause (a) of this Clause, shall terminate and the fund shall be held upon the trusts declared by Clause 23 hereof.
2.5 Pursuant to clause 23, on dissolution the trustees are to notify each of the members in writing and to apply a scheme of priorities. Other clauses in the deed provide for such things as receipts and payments, deduction of tax, assignments of benefits, amendment of the trust deed and referral to arbitration; which did not happen here. Clause 24 requires to be quoted in full because it is, along with the conflict of interest clause at 9, central to this litigation concerning, as it does, trustees’ liability:
(a) The Trustees (and where the Trustees comprise of or include a corporate body, the officers and employees of any such body) shall not be responsible, chargeable or liable in any manner whatsoever including negligence for or in respect of:-
(i) any loss of, any depreciation or default upon any of the investments, shares, debentures, securities, stocks or policies or any other property in or upon which the monies and assets of the Fund or any part thereof may at any time be invested pursuant to the provisions hereof;
(ii) any delay which may occur from whatsoever cause in the investment of any monies belonging to the Fund;
(iii) the safety of any securities, documents of title or other investments relating to the Fund deposited by the Trustees for safe custody;
(iv) any payment or payments to any person or persons erroneously made or caused to be made by the Trustees;
(v) the exercise of any discretionary power vested in the Trustees by this Trust Deed and Rules or otherwise including any act or omission by any committee, agent, employee or delegate appointed by the Trustees; or
(vi) by reason of any other matter or thing;
PROVIDED ALWAYS that any of the Trustees and any officer or employee of a corporate trustee shall be liable for wilful default on his part but such liability shall not extend to the remaining Trustees.
(b) A trustee who is engaged in the business of providing a trusteeship service for payment shall be liable for negligence.
(c) The Trustees shall not be obliged to bring or defend any legal proceedings in relation to the Plan and shall not be chargeable for any breach of trust in any way in connection with any such omission.
2.6 The rules do not have to be referred to in detail. They provide for membership, contribution, the calculating of pensions and the date on which these are due and then such matters as people who go in and out of the scheme. Members can make additional voluntary contributions to secure better benefits but this has not been germane at the hearing. The liability of the employer to make contributions has been emphasised so the relevant rule at 3(b) should be quoted:
(i) Each Employer shall, from time to time, make such contribution to the Fund as shall be determined by the Appropriate Authority to be required, together with the contributions of the Members… To enable the trustees to provide the benefits of the Plan, PROVIDED THAT the Employer will at Normal Pension Date have borne not less than one-sixth of the total cost of the benefits being provided for each Member by all of the Employer’s retirement benefits schemes.
(ii) The Employers’ contributions shall be calculated on the basis agreed between the trustees and the principal employer and shall be subject to review at intervals of not more than five years.
(iii) Each Employer shall, in respect of any Member employed by it whose benefits are being augmented or who is receiving an additional benefit in accordance with rule 4(b), pay such contributions to the Fund, in addition to the contributions specified in paragraph (i) as shall be required in accordance with the provisions of Rule 4(b).
2.7 Reference has been made to adhering employers throughout the rules and in the trust deed. It is not necessary to consider any liability that might arise to the defendant trustees in that regard. The expert witnesses on behalf of plaintiff beneficiaries and on behalf of the defendant trustees have all agreed that some pension plans may involve a conglomeration or group of companies joining to provide pension benefits in respect of each of their respective set of employees but in circumstances where if one drops out through insolvency it may be possible under the terms of the trust deed to call in aid of the assets of another adhering company. That does not arise here on the evidence available to the trustees as of 25th of November 2011 and at the hearing no adviser was saying that such a call was possible. In evidence, the expert on behalf of the plaintiff beneficiaries rightly conceded that any such prospect was remote. In any event, it is barely mentioned in the relevant documents and was not seen as a viable prospect.
Review of a decision of trustees
3.0 In making any decision as to the liability of trustees it is not for the court to be cleverer or better informed or more astute or more enquiring or better in its judgment than the trustees. The court must also avoid the temptation to listen to the evidence and to make its own conclusion as to what should have been done by the trustees on the date of the impugned decision. Naturally, the court will have gone into the matter in greater detail; the court will have the benefit of live evidence as opposed to the usual expert reports that are often the most trustees can expect; the court will have heard the merits and demerits of any decision argued out at length. Frequently, too, the court will have time to consider its decision, will be used through long experience to inevitably having to disappoint one side or the other and may have analytical experience beyond that of the majority of trustees. In probate cases, courts have often referred to the testator’s armchair principle: that in construing a will the court should put itself into the same mindset as the deceased when drawing up the will. A similar approach is mandated in pension cases; but there the position of a trustee can often be far less comfortable. The hot seat of a trustee is where the court should place itself and on the basis of what the trustees knew or ought to have known and should look at the decision through the vision of the trustees informed by the same material and by the same relevant considerations that were properly to have been then considered. A measure of appreciation is by law to be applied. Trustees must take all relevant matters into account; trustees must exclude irrelevant matters; trustees must direct themselves properly in law and in interpreting the provisions of a trust deed and rules. Two of these three rules derive from the English decision in Re Hastings-Bass [1975] Ch 25 that were affirmed after a proper review of the authorities in Sieff v Fox [2005] EWHC 1312 (Ch), [2005]1 WLR 3811. As such, they are no more than a restatement. According to Lloyd LJ, at 3847:
Where trustees act under a discretion given to them by the terms of the trust, in circumstances in which they are free to decide whether or not to exercise that discretion, but the effect of the exercise is different from that which they intended, the court will interfere with their action if it is clear that they would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account.
According to Keane, commenting on this case in Equity and the Law of Trusts in the Republic of Ireland, 2nd ed, (Dublin, 2011) at 10.49 – 10.50:
There is also English authority on the question as to whether in the last mentioned cases the decision will only be set aside if it can be shown that the trustee would have acted differently had he taken into account the relevant matters or will even be set aside if he might have acted differently. In Sieff v Fox, Lloyd LJ, sitting as a first instance judge, held that where the trustees had chosen to exercise a discretion, but were mistaken as to the fiscal consequences, the court could set aside their decision on the ground that, if not mistaken, they would have exercised their discretion differently. The learned judge distinguished that situation from cases where the trustees were obliged to exercise discretion, as where they were trustees of a pensions trust, and it was sufficient to show that they might have decided differently. There is a dearth of Irish authority in this area, but it would seem reasonable that the threshold for intervention should be lower in cases such as pension trusts where the right to benefit has been hard earned.
There have also been English cases concerned with pension schemes in which the courts have upheld challenges to the exercise of the discretionary powers on the ground that no reasonable body of trustees could have arrived at the particular decision and it could accordingly be characterised as ‘perverse’. This approach was influenced by the principles adopted in modern judicial review cases, and while its application in such cases may have been justifiable, it has to be remembered that public law concepts such as ‘natural justice’ or (in Ireland) ‘fair procedures’ are not necessarily applicable in private law contexts, such as trusts.
3.1 This is a case where once an offer was made by the company of a sum in full and final settlement of their obligations under the defined benefit scheme, the trustees had an option to serve a contribution demand but had no option but to make a decision. Vernon Holgate, a professional trustee, and the expert witness on behalf of the plaintiff beneficiaries, gave evidence that in England the test to be applied was that if the decision was one which no reasonable body of trustees could have made it was to be overturned. No argument was presented to differentiate a pension trust, where as in this case the plaintiffs have all worked for their benefits on a promise which is part of their remuneration package in employment, from any other kind of trusts such as that under a will. There is no warrant whereby a different test is to be applied in pension cases, as Keane suggests, which would effectively enable the court to substitute its own judgment for that of the trustees. Appreciating that counsels of perfection cannot be applied to the decisions of trustees, it seems appropriate that the principle that the court should put itself into the same chair as the trustees and arm itself with the same knowledge, should require that once trustees are shown to have acted honestly and in good faith after having taken account of all relevant considerations and excluded all the irrelevant considerations that only decisions which are properly to be characterised as being ones that no reasonable body of trustees could have made may in law be condemned. Nor is there any authority for claiming that a pension trust is to be differently reviewed to trusts set up by a family in favour of children or a charitable trust to benefit disadvantaged people. All of these kinds of trusts are important and all are subject to the same rules.
Relevance and weight
4.0 Once a consideration is relevant, it is a matter for the trustees as to how factors are to be weighed in the balance in the exercise of their discretion. A court in looking back at a decision might have given a particular factor more or less weight and a different body of trustees might have decided the balance of considerations somewhat differently. It can always be argued that a re-measurement of the importance of the elements leading to a decision might have resulted in a different outcome. It is easy to rebalance factors so that the result can be different. It is not the task of a court to do that. Once a consideration can truly be regarded as part of what should be weighed in the exercise of discretion, it is for the trustees to give as much weight or as little import to that factor as they see fit in the light of the information and advice available to them. In this regard, once the standard of interference is set at the test of perversity, shorthand for where the decision is identified as one which no reasonable body of trustees properly informed and considering the decision could have made, the court should not decide that too much or too little weight had been given to a particular factor unless this is, firstly, based on tenable evidence and not mere speculation and, secondly, the measure of appreciation inherent in the reasonableness test brings that decision outside those parameters. Whereas Keane has argued in the passage quoted above that a judicial review standard of reasonableness may not be appropriate since trusts are not subject to the other forms of scrutiny based on fair procedures and the right of, for instance, beneficiaries to be heard, it should also be remembered the trustees are selected for their level-headedness, sometimes for their expertise, are entitled to receive representations from beneficiaries and often, as in this trust deed, have the benefit of expert analysis paid for by the fund. It therefore seems relevant to quote the public law decision of McMenamin J in Kildare County Council v An Bord Pleanála [2006] IEHC 173, (Unreported, High Court, MacMenamin J, March 10th, 2006). At paragraphs 49 and 50, he emphasised that any question of weight, other than the perverse inflation or deflation of a particular factor, was a question for the decision maker:
The weight which ought to be attached to the objectives in the context of the Board’s assessment of the proposed road development plan is a matter for the Board. Thus while relevance is a matter of law for the court weight is a matter of discretion for the decision maker. In Tesco Stores Limited v. Secretary of State for the Environment (1995) 1 WLR 759 Lord Keith stated:
“It is for the courts if the matter is brought before them to decide what is a relevant consideration. If the decision maker wrongly takes the view that some consideration is not relevant, and therefore has no regard to it, the decision cannot stand and must be required to think again. But it is entirely for the decision maker to attribute to the relevant consideration such weight as he thinks fit, and the courts will not interfere unless he has acted unreasonably in the Wednesbury sense … regard must be had to (material consideration) … but the extent, if any, to which it should effect the decision is a matter entirely within the discretion of the decision maker”.
In the same case Lord Hoffman commented
“The law has always made a clear distinction between the question of whether something is a material consideration and the weight which it should be given. The former is a question of law and the latter is a question of proper judgment which is entirely a matter for the planning authority. Provided that the planning authority has regard to all material considerations, it is at liberty, (provided that it does not lapse into Wednesbury irrationality) to give them whatever weight the planning authority thinks fit or no weight at all. The fact that the law regards something as a material consideration therefore, involves no view about the part, if any, which it should play in the decision making process. The distinction between whether something is a material consideration and the weight which it should be given is only one aspect of a fundamental principle of British planning law, namely that the courts are concerned only with the legality of the decision making process and not with the merits of the decision. If there is one principle of planning law more firmly settled than any other, it is that matters of planning judgment are within the exclusive province of the local planning authority or the secretary of state”.
(See also City of Edinburgh Council v. Secretary of State for Scotland [1998] 1 All ER 174; and R. v. Director General of Telecommunications ex parte Cellcom Limited [1999] COD105.)
Moreover I think that the language used by the applicant at paragraph 22 of its statement of grounds underlines an essential and fatal aspect to this part of the case. It asks the court to decide that the Respondent should have afforded more weight to one aspect of the statutory plan. This is precisely what the court should not be asked to do: the question of weighing evidence is only and solely a matter for the statutory decision making body. Were the position otherwise, the court would be making the determinations of facts and evidence which the legislature has consigned to a specialist statutory body. It would constitute the court as an appellate body therefore, as opposed to a reviewing tribunal.
4.1 This authority is directly relevant since as it is appropriate not to interfere save for decisions which are plainly unreasonable, it must remain within the ambit of the powers of trustees to weigh one factor more heavily and another less. To otherwise analyse a decision of trustees would be for the court to substitute its own judgment. This principle is inherent in the law relating to trusts. In Edge v Pensions Ombudsman [2000] Ch 602 where Chadwick LJ deprecated any approach, to decisions by the pensions ombudsman, that asked whether there was sufficient weight put on a particular factor to justify a decision. At 619, the correct principle is set out:
He had asked himself whether, in the light of those matters, he thought the decision was “fair”. The correct approach was to ask whether the matters were irrelevant; so that the trustees could be said to have acted irrationally or improperly in taking them into account. If the trustees were entitled to take these matters into account, then it was for the trustees – and not for the ombudsman – to decide what weight these matters should be given. In particular, it was for the trustees to decide whether the fact that pensioners were already adequately provided for by past increases in benefits and by index-linking was a sufficient grounds for excluding them from further benefits. The fact that the pensioners were already adequately provided for (which was not challenged) could not be dismissed as irrelevant. The trustees’ decision to give weight to that fact could not be categorised as irrational or improper. Further, the trustees were bound to have regard to the fact that the employers’ consent had to be obtained. But it was for them to decide how far the employers could be pressed in negotiation. It was not for the ombudsman to substitute his own judgment for that of the trustees on a matter of this kind.
4.2 Therefore, once a factor can be taken into account, unless the weight attached to that factor can be analysed as being outside the range of what any reasonable body of trustees would give to it, the decision of the trustees must stand.
Conflict of interest
5.0 Since trusts deal with other people’s property and since trustees must be faithful to deal properly with trust funds, trustees owe to the trust, and thus to the beneficiaries, a duty of good faith and fidelity. Trustees are not entitled to put themselves into a situation of conflict of interest whereby they may be influenced by how they themselves may profit from any decision which the body of trustees may make. The classic statement of the rule comes from Bray v Ford [1896] AC 44. There a solicitor acted as the trustee of a school while at the same time charging for services as a solicitor. This resulted in a scandalous letter from a concerned individual to the board of governors upon which he sued for libel. The House of Lords, through the judgment of Lord Herschel, defined the duty of a trustee to avoid any conflict of interest in terms of ‘lead us not into temptation’ rather than ‘deliver us from evil’. The advantage of the rule thus stated is that once a conflict of interest is shown to have been entered into by the trustees, this suffices to upset their decision and it is not necessary to show an actual breach of the duty of fidelity. At page 51 the matter was put thus:
It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the respondent’s, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and a duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule. But I am satisfied that it might be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrong-doing.
5.1 The modern formulation of the rule is expressed, minus footnotes, in Snell’s Equity, 32nd ed (London, 2010) at 7-018 thus:
The rule applies even where the fiduciary’s personal interest “possibly may conflict” with his duty, but only if a reasonable person “looking at the relevant circumstances would think that there was a real sensible possibility of conflict.” Thus, if there is no non-fiduciary duty in the circumstances, there can be no conflict between duty and interest.
5.2 The Trustee Handbook issued by the Pensions Board warns trustees to be aware of conflict of interest. The valuable advice provided at page 50, minus headings, includes the following:
Trustees appointed directly by the employer may include members of the board of the company or senior executives. Such persons may experience a conflict of interest between their duties to the company and their duty as trustees towards the scheme members – current employees, early leavers and pensioners. This could arise, for example, in situations where the company is experiencing financial difficulties and where consideration is being given to a proposal of a loan to the company or the action to be taken in relation to contributions owed to the scheme by the company.
Conflict of interest may also arise in the case of trade union officials acting as trustees, where they could believe they are appointed to represent a particular faction or group. Professional pension consultants acting as trustees may experience a conflict of interest if remunerated by the employer.
Trustees may also include members of the scheme. Such persons may experience conflict of interest in relation to the payment of benefits where the trustees have discretion in these matters under the trust deed and rules of the scheme.
Conflict of interest should not necessarily prevent trustees acting in good faith in situations where trustees are conscious of a possible conflict of interest it may be necessary, before a decision is taken, to obtain legal, actuarial or other professional advice, as appropriate.
5.3 It is argued on behalf of the defendant trustees that the rule against conflict of interest may be overcome in three ways. Firstly, by informed consent; secondly, by the conflict of interest not arising from the action of the trustees but through the natural operation of the scheme upon which the trust was founded; and thirdly, through express provision in the trust deed.
5.4 As to informed consent, it is clear that a trustee may proceed to act in a situation where duties potentially conflict, or duty and interest conflicts, provided there is a fully informed consent from the principles. This does not require the disclosure of all information which is material to the transaction and the conflict, provided that the consenting party is aware of all material facts and is enabled to make a decision to retain the trustees notwithstanding; Snell’s Equity, 7-038. In the course of argument, and in the course of the evidence of Vernon Holgate expert witness on behalf of the plaintiff beneficiaries, it arose as to how an issue of conflict would have been dealt with under the statutory regime in England and Wales. It is of little assistance to analyse that situation. The law there has been refined. It was clear, however, that with the rule as strict as that of conflict in a trustee, that some amelioration must be possible. In re Drexel Burnham Lambert UK Pension Plan [1995] 1 WLR 32, that issue came up at the end of the judgment of Lindsay J at page 43 where he said:
I have heard no argument and I do not attempt to rule on the subject, identified by Vinelott J as difficult, of whether the general rule can be overcome by express provision in the trust deed, although I do note in Bray v Ford [1896] AC 44, 51, Lord Herschel, in a closely related point, included the words “unless otherwise expressly provided.” But, even if the difficulties can be so overcome, there will be trust deeds which do not have such a provision and there will also be trust deeds which cannot be amended to include it. The position of conflict in the trustee beneficiaries of pension schemes is hardly conveniently left if it is only after going to court in each separate case that matters can safely proceed. Many lay men would see the fact that a man is both trustee and, as an employee, a beneficiary is not only not a bar but as a downright advantage to the man or woman in undertaking his or her important duties. The Report of the Pension Law Revision Committee, Chairman: Professor Roy Goode, vol. 1… recommends… that most schemes should have scheme members on the board of trustees and, at p. 20, recommendation 49, suggests that employers should be under a duty to give active member-trustees adequate paid time off to attend meetings. The report, at p. 268, paragraph 4.5.54 says:
“In the modern world, conflicts of interest cannot be avoided. They can, however, be managed. As long as trustees are aware of the potential for conflict and know what is required of them as trustees, they will be able to carry out their trustee duties to the best of their abilities.”
If the “managing” of conflicts is frequently to involve, as it has done here, argument before and a decision of the court, time and money will be spent on legal processes which many would, with some justice, think unnecessary and undesirable. When the legislature considers how far and on what terms to embody the report of Professor Goode and his colleagues into law or otherwise to reform the law in this area, I commend to it consideration of the creation of a clear exception to the so-called “general rule of equity” so that in appropriate cases the administration of pension trusts by trustee-beneficiaries might safely proceed without the expense and delay of proceedings.
5.5 Here in this trust deed, clause 9 is designed to overcome the strictures of conflict of interest. It is argued by the plaintiff beneficiaries that it does not apply; that it is designed for minor conflicts of interest and not for the major ones that arise on the facts of this case; that it is not designed for conflicts of duty; and that, purposively construed, no exemption can arise.
5.6 One matter is clear. On setting up a trust, the funder and the beneficiaries have an expectation that can never be departed from in law: that the trustees will pursue the aims of the trust honestly and in good faith. Clarity of conscience and ability to think both clearly and objectively is thus required on any decision that impacts on the management of the trust for the benefit of those for whom it was set up. No matter what is said in a trust deed, this fundamental obligation can never be departed from. If there exists probable evidence that a decision was taken out of, or influenced by, an improper motive, that is a breach of trust. An obvious example would be a deliberate scheme by trustees to bypass a proper investment in favour of a decision which assists their own financial or professional interests. While dishonesty is almost always required for such a result, it may be that it might stand alone; as where trustees conceal their own wrong rather than make an honest account of the trust business to the beneficiaries. What is inherent in the duty of trustees, no matter what exemption be provided in a trust deed, is that the trust should function. In the context of conflict of interest, an exemption may be provided under a trust deed, but the purpose of entering into the office of trustee is to fulfil the objects of the trust; and this cannot happen if a conflict of interest or duty is such as to paralyse or even influence any trustee so that he or she cannot rationally and objectivly approach and decide on a problem. Unlike the straightforward application, sometimes unfair because of its strictures, of the rule that a trustee must not in any sense be conflicted, to allege that a trustee was, notwithstanding exemption from the rule, unable to or did not function objectively and for the benefit of the trust is to take on the burden of proving that as a fact.
5.7 As to the argument that clause 9 is solely designed to exempt trustees from the strictures of being in a conflict of interest situation, this is contradicted by the manner in which conflicts of duty and of interest are generally treated as being on the same footing in the leading texts. The principle guarding against conflicts between interest and interest applies equally to clashes between duty and duty. The principle must be the same; otherwise the law would be illogical. Snell, minus footnotes, puts the matter thus at 7-036:
A fiduciary who acts for two principal to whom he owes conflicting duties, without the informed consent of both, acts in breach of fiduciary duty.
In many of the earlier cases regarding conflicts between inconsistent duties the fiduciary was a party to the impugned transaction, although in a representative capacity, so that the general principle prohibiting conflicts between duty and interest could be applied. The courts recognised that the concern about temptation where a fiduciary has a personal interest in a transaction also applies, in a moderated form, where a fiduciary is involved in the transaction on behalf of another party:
“if the principle be, that the Solicitor cannot buy for his own benefit, I agree, where he buys for another, the temptation to act wrong is less: yet, if you could not use the information he has for his own benefit, it is too delicate to hold, that the temptation to misuse that information for another person is so much weaker, that he should be at liberty to bid for another… That distinction is too thin to form a safe rule of justice.”
Over time, this concern led the courts to develop a separate principle, prohibiting a fiduciary from acting where there was a conflict between duties owed to multiple principles at once, even where the fiduciary was not a party to the transaction. Thus, modern fiduciary doctrine requires a fiduciary to avoid acting, but only where there is a conflict between duty and interest, but also where there is a conflict between duties owed to multiple principles.
5.8 Further, almost any conflict of interest can be analysed so as to turn out as a conflict of duty: the trustee owes a duty of care and fidelity to the trust but is a director of the company which funds the trust to which a similar duty is owed; the trustee must make a decision about benefits for the trust but the trustee is a delayed beneficiary on retirement and here she or he has a duty to provide for family members; the trustee sees an investment as objectively valuable but holds a directorship in the company that may receive the investment or is a shareholder whose shares may increase in value. In the latter example there is a conflict of interest if the trustee is a shareholder and a conflict of duty if the trustee is a director; in the second example, the trustee would owe a duty of protection and proper provision as a parent in a family; in the first example it might be part of the structure of a trust that the funder would have an interest in the proper financing of both the company and the trust. Conflicts of duty are to be equated to conflicts of interest as the duty does not arise without the interest and the genesis of the rule in the frailty of human nature requires that both are equally to be treated.
5.9 The defendant trustees also argue that the law excuses conflicts that arise from the inherent nature of the trust situation. This situation commonly arises in pension trusts. Employee or pensioner nominees, who will benefit ultimately in their pension from proper investment of the trust fund and employers representatives, who may in the context of their responsibility be tasked with saving expense to the company, can both be required to make decisions that simply cannot be avoided. There the rule cannot apply. Nor could it be said that every trust is required to respond to every situation of conflict by engaging in the expense of hiring professional trustees. While it may be said that the strict application of the rule against conflicted trustees making decisions can have unpalatable consequences, any exemption arising from the situation of trustees not being of their making must be sensibly applied. It is only if the conflict directly arises from the situation of the trust that any such exception can arise. Any conflict that comes from a trustee voluntarily assuming responsibilities outside those in the necessary contemplation of the terms of the trust deed and which conflict with the trustee’s duty cannot give rise to exoneration. This exception, however, is well founded in law. In Sargeant and Another v National Westminster Bank Plc and Another (1991) 61 P & CR 518 a man owned three farms which he let to his children who farmed in partnership. On his death, he appointed his wife and children trustees and also left the residue of his estate to them for sale while at the same time providing that the trustees could buy any portion of his estate. On one of the children, Charles, dying intestate the other children exercised an option under the partnership deed to acquire his interest in the partnership. The executors of the estate of Charles claimed an entitlement to a one-third share of the vacant possession and claimed that the other children as trustees could not put themselves in a position where their interests and duties conflicted. While accepting that a conflict of interest arose, the Court of Appeal excused it, Nourse LJ stating at page 5 of the judgment:
It cannot be doubted that the trustees have ever since been in a position where their interests as tenants may conflict with their duties as trustees in the estate of Charles. But the conclusive objection to the application of the absolute rule on which Mr Romer relies is that it is not they who have put themselves in that position. They have been put there mainly by the testator’s grant of the tenancies and by the provision of his will and partly by contractual arrangements to which Charles himself is a party and of which his representatives cannot complain. The administrators cannot therefore complain of the trustees’ continued assertion of the rights as tenants.
5.10 In re Drexel Burnham Pension Lambert UK Pension Plan [1995] 1 WLR 32 at 42 is sound authority towards the same common sense proposition. Snell puts the matter of fiduciary conflict as having few exceptions; at 7-019. One of these is fully informed consent; and this can be obtained at the outset from the creator of the fiduciary relationship, from the principal of the fiduciary and, on a special application, from the court. Where company directors are conflicted, their duty to the company may be exempted by other directors. Fundamentally, however, the obligation on trustees is to desist from acting while conflicted; though they are generally not obliged to make full disclosure and seek consent. Footnotes excluded, Snell continues:
A fiduciary is not liable for breach of the fiduciary conflict rule where he exercises a contractual right which he held prior to entering into the fiduciary relationship. Similarly, a fiduciary is not liable for breach of fiduciary duty if the conflict was not of his making. These are best understood as situations where the person creating the fiduciary position implicitly consented to and authorised the existence of that conflict. If the settlor of the trust was unaware of the potentially conflicting interest, the trustee is banned by the fiduciary conflicts rule, as consent cannot be inferred in such a situation.
5.11 On the authorities, an exception to the rule against trustees acting in a situation of conflict arises where it is implicit in the nature of the trust that particular decisions in pursuit of the trust’s business will also affect the trustees. For the exception to apply, however, the necessary exercise of the decision-making power of trustees notwithstanding conflict must be inevitable; the exception cannot apply if the trustees take on additional responsibilities outside those contemplated by the trust deed and it cannot apply if the trustee acts as a volunteer in providing paid services or in attempting to buy, or otherwise deal with, the trust fund property in any way that would not be expressly or by necessary implication envisaged on a proper interpretation of the deed.
5.12 Snell must surely also be correct in establishing this exception to fiduciary conflicts on the basis of consent. Such consent is clearly present where the trust deed sets up an exclusion from the fiduciary conflict rule in express terms. This can be understood as implicit consent and authorisation in advance that such conflicts as may arise are exempted by the trust deed. It is then a question of interpretation as to whether the scope of the clause covers the exemption in question. In which case, a trust deed must be interpreted in accordance with the recognised canons.
Interpretation
5.0 A most helpful case on the interpretation of pensions trusts is Irish Pensions Trust Limited v Central Remedial Clinic [2005] IEHC 87, [2006] 2 IR 126. There, Kelly J endorsed the general approach to the construction of pension schemes as set down by Millett J in Re Courage Groups Pension Schemes [1987] 1 WLR 495 at 505:
Before I consider this question, I should make some general observations on the approach which I conceive ought to be adopted by the court to the construction of the trust deed and rules of a pension scheme. First, there are no special rules of construction applicable to a pension scheme; nevertheless, its provisions should wherever possible be construed to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly-changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life.
6.1 Kelly J also considered the judgment of Warner J in Mettoy Pension Trustees Limited v Evans [1990] 1 WLR 1587 at 1611:
It would be inappropriate and indeed perverse to construe such documents so strictly as to undermine their effectiveness or their effectiveness for their purpose. I do not think that, in saying that, I am saying anything different from what was said by Lord Upjohn when in Re Gulbenkian’s Settlements [1970] AC 508 at 552, he referred in the context of a private settlement to:
‘The duty of the court by the exercise of its judicial knowledge and experience in the relevant matter, innate common sense and desire to make sense of the settlors’ or parties’ expressed intentions, however obscure and ambiguous the language that may have been used, to give a reasonable meaning to that language if it can do so without doing complete violence to it.’
What the court has to do here is to perform that duty in the comparatively novel and different context of pension scheme trusts.
6.2 These key principles were endorsed by the Supreme Court in Boliden Tara Mines Limited v Cosgrove and Others [2010] IESC 62, (Unreported, Supreme Court, Hardiman J. nem. diss., 21st December, 2010). In Armitage v Staveley Industries Plc, [2005] EWCA Civ 792, the Vice-Chancellor on an analysis of the case law helpfully restated the principles to be used in the construction of pension scheme documentation thus at para. 29:
(1) The words of the [documents] must be interpreted in light of the background;
(2) The background includes the rules of [the pension scheme] and the fiscal limitations on pensions that can be paid without jeopardising the status of [the pension scheme] as an exempt approved scheme;
(3) The interpretation must be one that is practical and purposive, rather than detached and literal;
(4) If more than one interpretation is possible, the correct choice may depend on the practical consequences of choosing one interpretation rather than another;
(5) If one would conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention that they plainly could not have had;
(6) If detailed semantic and syntactical analysis of words in a contract leads to a conclusion that flouts business common sense, it must be made to yield to business common sense;
(7) The ultimate question is what meaning would be conveyed to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the date of the contract.
(8) The court must not construct from the background alone a contract that the parties did not make.
(9) There are strict fetters on the ability of the court to imply further terms.
(10) Whether a term is to be implied is to be determined as at the date of the contract.
6.3 The approach of this Court is guided accordingly.
Jurisdiction to rule on trustee decision
7.0 There is no doubt that the High Court has an inherent jurisdiction to aid trustees in situations of conflict which are not otherwise exempted, where the nature of the difficulty faced by the trustees is such as to impair their ability to function properly. This jurisdiction is mentioned in many cases; Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513 at 548 sets many of these out. The jurisdiction existed in English law prior to Irish independence. Halsbury’s Laws of England in the 1914 edition sets out at paragraph 364 of volume XXVIII that a court of equity may interfere in the management and administration of a trust:
…where there is no trustee to carry it on (k), or where the trustee wrongfully declines to act (l), or is acting improperly (m), or where difficulties have arisen which cannot be removed without its assistance (n), or where the decision of the court on a doubtful question connected with the trust or on the proper administration thereof is sought by the trustee (o) or by the cestui que trust (p).
7.1 The jurisdiction is provided for in the Rules of the Superior Courts at Order 54, rule 1. This provides that trustees may apply on a special summons for relief under Order 3. In turn this provides for wide relief that includes: under rule 4 a “direction to… trustees to do or abstain from doing any particular act…”; under rule 2 the “determination of any question affecting the rights or interests of any person claiming to be… cestui que trust of any deed or instrument…”; and under rule 1 the “…administration of the trust of any deed or instrument save where there is a charge of wilful default or breach of trust.” Any such application may be expensive and may thus be a waste of the money entrusted to the trustees. In the view of this Court such an application can properly be made where there appears to be no possible answer to an issue; where the trustees are hopelessly deadlocked with no provision for majority or otherwise; where the meaning of a trust deed cannot be reasonably ascertained by professional advice; where the trustees are conflicted with no exemption under the trust deed and there is no other means to act; or where the trustees are exempted under the trust deed from conflict but the nature of the conflict faced by them is such as that as a matter of fact it has undermined or impaired their ability to act. This is no more than a suggested list that is set out in the context of it being the duty of trustees to safeguard the trust property and not to heedlessly expend it on court applications.
7.2 There was some possibility in this case of the defendant trustees applying to the High Court to exercise its jurisdiction to guide their decision. The trustees did not consider applying until after their decision to accept the company’s offer. Thereafter the issue mainly contemplated would have been whether their decision was possible under clause 9 of the trust deed. Here the argument is that the trustees ought to have applied because their conflicts of interest, their deadlocked state with three in favour of accepting the company’s offer and three against, required an independent resolution. The trustees, then differently constituted, would have been aware of the possibility of a High Court application from issues that arose in 2008 and a brief mention of this jurisdiction in a legal opinion of the 8th May of that year. At the trustee meeting of 18th of November 2011, the representative of their legal advisor, Holmes O’Malley Sexton, according to the official minutes, noted that the trustees could seek directions from the High Court in relation to what actions they should take, e.g. does the employer have a liability to pay the deficit and do the trustees have a liability to seek payment of the deficit. This echoes an opinion of counsel dated 8th of November 2011 which discussed many questions, including the issue of conflict of interest, and then expressed this view:
From our review of the authorities, there does not appear to be any reported Irish case in which it has been necessary for the court to decide whether trustees may rely on a provision in trust documentation that they may act, notwithstanding a conflict of interest. While it is likely that an Irish court would enforce a provision authorising the trustees to act notwithstanding a conflict of interest, it is open to the trustees to apply to the court for directions as to how a discretion should be exercised.
7.3 While this option was open to the trustees, to prove that a body of trustees was wrong not to exercise it must involve proof that a situation had arisen where they were required in discharge of their duty as trustees to apply to the High Court for directions. It cannot suffice merely that the jurisdiction was open to them. For liability to arise, the situation must be such that the trustees were unable properly to make the decision and therefore had, as a reasonable body of trustees, to have their responsibility exercised by a judge. Such a situation might arise where a conflict of interest though exonerated under the terms of a trust deed was such as, on a matter of fact and not of mere theory, to cripple or undermine the independent judgment of the trustees. Then, the trustees would be unable to fulfil their basic duty of care and fidelity to the trust because as a matter of honesty and good faith, they would be unable to lay aside their conflict of interest and exercise an independent judgment on the issue in question. In such circumstances a trustee decision might be set aside and the trustees should apply to the High Court.
7.4 This issue is therefore to be resolved on the question of whether the trustees were overwhelmed or influenced in the discharge of their duties and therefore had an obligation to make the decision in question through the jurisdiction of the High Court. In so far as any issue was merely very difficult to decide and where the trustees retained the ability to act in good faith and honestly, a failure to apply to the High Court cannot undermine the decision of trustees unless that failure was a decision which no reasonable body of trustees could have made. Certainly, in this case there is nothing to suggest that the legal advisors warned that such an application should have been made. Even still, trustees cannot hide behind legal or other advice because it is up to them to make decisions. Nothing in the papers or on the evidence, however, suggests that the option of applying to the High Court for directions as to how to deal with the company’s offer was so clearly the right thing to do that to fail to take that course was a decision that no reasonable body of trustees would have made. Furthermore, it is arguable that in such a case it must be shown that the High Court would have decided the matter differently to the trustees.
Wilful default
8.0 Where an expression used in a document regulating trusts has an express meaning in the law of trusts, the use of that expression, the defendant trustees argue, implies that the settlor of the trust intended that meaning. Here the argument is over the meaning of what is ‘wilful default’ in clause 24 of the trust deed. Default by trustees can arise in many instances. The trustees may be slothful and thus fail to remove money from a failing investment; or may be neglectful of alternative and solid means of earning income for a trust; or may fail to engage in periodic analysis of the performance of funds; or may fail to report to the beneficiaries thus keeping them in ignorance of poor performance about which they might protest; or may fail to serve a contribution demand that would rightfully arise against the funder under the deed. The plaintiff beneficiaries, on the other hand, argue that any decision not to serve a contribution demand is a default and that since such a decision was exercised through the rational decision of the split vote weighted with the chairman in favour, a wilful default consequently arises. This is how their argument is put in written form:
In all cases, the extent of the protection conferred on a trustee will depend on the precise terms of the relevant exemption clause. Thus, a clause – such as clause 24(c) of the Trust Deed – which excludes a breach of trust caused by ‘wilful default’ will deny protection to a trustee who deliberately commits a breach, even if he honestly believes that he is acting in the best interests of the beneficiaries. The recent… Supreme Court decision in ICDL v European Computer Driving Licence Foundation Limited [2012] IESC 55 confirms that it suffices for an act to be wilful that it is done deliberately. It is not necessary that it be committed with the intention to injure or that the person committing it knows that it is unlawful; see judgment of Fennelly J, paragraphs 124-129.
Each of the acts and omissions of the trustees at issue in these proceedings was undertaken deliberately and constitutes wilful default that is not exempted from liability under clause 24(a) of the Trust Deed.
8.1 This argument cannot be right. It is a no fault argument that cannot sit with a proper interpretation of the trust deed. For trustees to fail to invest funds on behalf of beneficiaries in an attractive and solid enterprise which will ensure a better return, or to fail to pull funds out of an enterprise which is declining, is on the ordinary meaning of the concept a default by trustees. Where it is proven that the trustees applied their minds to the issue and made a decision one way or the other then their action is undoubtedly wilful. But to join two words together and to argue that because the trustees have thought about an issue, have decided on a course of action that fails to do what the majority beneficiaries want amounts to wilful default of the obligations of the trustees cannot be right. That much is clear from the context of the trust deed in question and the express wording of clause 24 of the deed. As it says, a trustee “who is engaged in the business of providing a trusteeship service for payment shall be liable for negligence.” This means failing to exercise the normal skill and care expected of a specialist professional trustee. Liability arises in that way for that person, but if the submission of the plaintiff beneficiaries is correct, merely failing to make a decision renders the trustees liable. What is missing from that submission is that it is clear that a lesser standard of conduct by non-professional trustees is to be tolerated; and all the trustees here are members of management or are workers for the company. Further, negligence is expressly excluded as against the trustees for “default upon any of the investments” or “any delay… in… investment” or “the exercise of any discretionary power” except that they “shall be liable for wilful default”.
8.2 Even if the argument of the plaintiff beneficiaries was correct that wilful default simply means failing to do something, in this instance failing to serve a contribution demand, then any court must be driven back to the touchstone of trustee liability: is this wilful default one which no reasonable body of trustees would commit? It cannot be otherwise: a court is not entitled to review a trustee decision by substitution of that decision with its own view.
8.3 There is greater sense in analysing the phrase ‘wilful default’ in the context of the exclusion of negligence as a ground of liability for ordinary trustees, the inclusion of negligence for professional trustees and the use of a phrase common to trust deeds. In this regard, the decision of the Supreme Court in ICDL v European Computer Driving Licence Foundation Limited [2012] IESC 55, (Unreported, Supreme Court, November 14th, 2012) concerned that express phrase, but in the context of a contract where the phrase used was “wilful act” and liability was for such or for “gross negligence”. The authorities cited in the majority judgment were from vendor and purchaser and workmen’s compensation law at paragraphs 123-129. The Supreme Court was not defining this phrase as one of universal application, much less for trustees, and was analysing it within a particular context; which is not this context. The dissent of O’Donnell J is to be noted as the majority removing from the limitation clause what the parties intended. No comment on this is made.
8.4 The phrase ‘wilful default’ has a particular resonance in trustee law. The most recent cited case is Spread Trustee Company Limited v Hutcheson and Others [2011] UKPC 13, [2012] 1 All ER 251. This concerned a Guernsey statute that limited the degree to which exclusion clauses in trust deeds could limit the liability of trustees and that included in that case limitations on the liability of professional trustees. The Trusts (Guernsey) Law 1989 for the first time made statutory provision for Guernsey trusts. It provided by section 34(7): “Nothing in the terms of a trust shall relieve a trustee of liability for a breach of trust arising from his own fraud or wilful misconduct.” Subsection (7) was amended by section 1(f) of the Trusts (Amendment) (Guernsey) Law 1990 by the addition of the words “or gross negligence” at the end. So no liability could be excluded under Guernsey law for the trustees acting fraudulently, through wilful misconduct or grossly negligently. Since that case centred on time scales, when the various provisions were passed into law was important, and on the question of gross negligence, it deals with other issues. The Privy Council, however, approved the earlier decision of the Court of Appeal in Armitage v Nurse and Others [1998] Ch 241. There, the trust deed excluded liability for any loss caused to the trust fund by the trustees, save loss occasioned through actual fraud. It was held that since contracting parties could exclude liability for gross negligence, such a wide exoneration of future conduct was also open to parties to a settlement. Millet LJ was of the view that perhaps trust deed exclusion clauses were too extensive and that where trustees were professional, a wide exclusion of liability was inconsistent with the ordinary test of negligence to which professional people were otherwise liable. In this trust deed, the exclusions operating on the trustees under clause 24 would not have applied had they been professionally engaged in that capacity. Quoting from a Law Commission paper on fiduciary duties to the effect that trustees cannot exclude themselves from liability for fraud, bad faith and wilful default, Millet LJ set this out as follows:
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 this context 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.”
8.5 Millet LJ made two comments on this passage, the first of which is germane to the meaning of liability for wilful default of trustees’ responsibility:
First, 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 as section 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 v. Great Western Railway Co. (1877) 3 Q.B.D. 195 ; In re Trusts of Leeds City Brewery Ltd.’s Debenture Stock Trust Deed; Leeds City Brewery Ltd. v. 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.
8.6 For completion, it is also worth noting that fraud has a wider meaning in a trust deed than the definition of the tort of deceit or the general sense of the concept as deliberate dishonesty as used in criminal law. This makes up the second comment of Millet LJ:
Secondly, the Law Commission was considering the position of fiduciaries as well as trustees, and in such a context it is sensible to consider the exclusion of liability for so-called equitable fraud. But it makes no sense in the present context. The nature of equitable fraud may be collected from the speech of Viscount Haldane L.C. in Nocton v. Lord Ashburton [1914] A.C. 932, 953 and Snell’s Equity, 29th ed. (1990), pp. 550-551. It covers breach of fiduciary duty, undue influence, abuse of confidence, unconscionable bargains and frauds on powers. With the sole exception of the last, which is a technical doctrine in which the word “fraud” merely connotes excess of vires, it involves some dealing by the fiduciary with his principal and the risk that the fiduciary may have exploited his position to his own advantage. In Earl of Aylesford v. Morris (1873) L.R. 8 Ch. App. 484, 490-491 Lord Selborne L.C. said: “Fraud does not here mean deceit or circumvention; it means an unconscientious use of the power arising out of these circumstances and conditions;….”
8.7 Commenting on the facts in issue, the application of the principles enunciated is clarified by Millet LJ:
A trustee exemption clause such as clause 15 of the settlement does not purport to exclude the liability of the fiduciary in such cases. Suppose, for example, that one of the respondents had purchased Paula’s land at a proper price from his fellow trustees. The sale would be liable to be set aside. Clause 15 would not prevent this. This is not because the purchasing trustee would have been guilty of equitable fraud, but because by claiming to recover the trust property (or even equitable compensation) Paula would not be suing in respect of any “loss or damage” to the trust. Her right to recover the land would not depend on proof of loss or damage. Her claim would succeed even if the sale was at an overvalue; the purchasing trustee could never obtain more than a defeasible title from such a transaction. But clause 15 would be effective to exempt his fellow trustees from liability for making good any loss which the sale had occasioned to the trust estate so long as they had acted in good faith and in what they honestly believed was Paula’s interests.
Accordingly, much of the argument before us which disputes the ability of a trustee exemption clause to exclude liability for equitable fraud or unconscionable behaviour is misplaced. But it is unnecessary to explore this further, for no such conduct is pleaded. What is pleaded is, at the very lowest, culpable and probably gross negligence. So the question reduces itself to this: can a trustee exemption clause validly exclude liability for gross negligence?
It is a bold submission that a clause taken from one standard precedent book and to the same effect as a clause found in another, included in a settlement drawn by Chancery counsel and approved by counsel acting for an infant settlor and by the court on her behalf, should be so repugnant to the trusts or contrary to public policy that it is liable to be set aside at her suit. But the submission has been made and we must consider it. In my judgment it is without foundation.
There can be no question of the clause being repugnant to the trust. In Wilkins v. Hogg (1861) 31 L.J.Ch. 41, 42 Lord Westbury L.C. 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 such case has occurred in England or Scotland since.
I accept the submission made on behalf of Paula that there is an irreducible core of obligations 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.
8.8 This judgment was made following an analysis of the applicable authorities. For the trustees to be liable for wilful default, the plaintiff beneficiaries must show more than that a decision not to make a contribution demand was made wilfully, that is consciously, and that this was a default, which all decisions not to do something are: rather, liability arises only where that default can be truly characterised as a conscious breach of duty or a reckless breach of duty, in the sense of conscious awareness that is dismissed. If that is wrong and wilful default simply means a failure that is voluntary, then the judgment of Millet LJ confirms that for liability to be established that default must infringe the core duty of trustees to manage the trust honesty and in good faith for the benefit of the trustees. In which case, a court is thrown back on the question of whether any lack of good faith or dishonesty is proven; and, if it is not, then whether the default complained of was one which no body of trustees, armed with the knowledge of the trustees in issue at the time of the decision, could have made.
Honesty and good faith
9.0 No allegation has been made by the plaintiff beneficiaries that any of the defendant trustees acted dishonestly or did not proceed to discharge their duties in good faith. It is worth recording that, in four weeks of evidence, not the slightest evidence to support such a supposition arose. Hearing all of the evidence over four weeks and considering thousands of documents leads the Court to conclude that these trustees were conscious of their duties to the beneficiaries and did their very best to exercise those duties honestly and in good faith.
The Robins case
10.0 This may be considered briefly. All of the experts for the plaintiff beneficiaries and the defendant trustees were of the view that any issue affecting possible State liability to reimburse an insolvent fund on the insolvent liquidation of Element Six Limited was so remote as to not be required to be of serious influence to the trustees’ decision. In Robins and Others v Secretary of State for Work and Pensions (Case C-270/05) [2007] ECR I-1053 the Court of Justice of the European Communities held that article 8 of Council Directive EEC/987/1980 of 20 October 1980 on the approximation of the laws of the member states relating to the protection of employees in the event of the insolvency of their employer, OJ L 283/23 28.10.1980 required certain protections that had not been transposed into English law. In this litigation it was argued that a 49% protection of the pension benefit was required by Irish law, as a minimum, and that the trustees should have considered making a demand that would have resulted in such a double insolvency secure in the knowledge that at least that minimum protection would have been set as a floor of rights under Irish legislation. The argument was enforced by the decision of the Court of Justice of the European Union in Hogan and Others v Minister for Social and Family Affairs, Ireland and the Attorney General (Case C-398/11) [2013] OJ C 171/6 15.06.2013. There the interpretation of article 8 of Directive EEC/987/1980 was that it was a requirement that an employee be entitled to receive on the insolvency of his or her employer at least half of the old-age benefits arising out of the accrued pension rights for which contributions have been paid under a supplementary occupational pension scheme and that Ireland had not correctly fulfilled that obligation. When these defendant trustees were making the decision in question, the Hogan case had yet to be decided. Perhaps, on its own, the Robins case might be considered by a professional lawyer to be sufficiently clear. But, in reality, the State was arguing yet another case to differentiate Ireland’s position. Further, there are no figures indicating that the 50% threshold would have been breached in this case. Finally, the expert evidence cannot be disregarded. The result of this litigation has been the Social Welfare and Pensions (No 2) Bill which was published on 20th of November 2013. Under the terms of it, as Philip Shire, expert witness for the defendant trustees told the Court, no more money would have been available to the trustees on such a double insolvency. But, who knows? The issue is what the trustees ought to have considered and here the bulk of the evidence is one way against this issue being of any serious importance. It might also be commented here that no liability by other companies in the group to contribute to the pension has been shown to arise on insolvency.
A chronology
11.0 Thousands of pages of documents have been referred to the Court and there has been four weeks of a hearing; 14 very long days. In referring to what the Court considers the events necessary to an appropriate explanation of reasons, none of the material is being discounted or forgotten.
11.1 In 2008, it emerged that the defined benefit scheme had a funding deficit of approximately €100 million. By letter dated 10th of April 2008, the Pensions Board indicated that it was proposing to give a section 50 direction unless a funding proposal was received. On 23rd of October 2008, Willis, the actuaries on behalf of the scheme, certify that there was a deficit of €96.8 million. Negotiations were entered into with Element Six Limited. The contribution demand was made by the trustees of the company. The company denied that this power arose but made a funding proposal to last from 1st of April 2009 to 1st of July 2020 which was to pay the equivalent of €10.725 million per annum into the scheme. This was accepted by the trustees and approved by the Pensions Board in April 2009. Legal advice was taken in respect of the steps.
11.2 Within two years, however, the problem of the deficit returned. Among the ideas considered by the trustees were increasing the normal retirement age from 60 to 65; removing the fixed increase in payments to pensions which at that stage kicked in at 3% extra per annum every January; offering enhanced transfer values to members who elected to transfer their accrued assets to a defined contribution plan voluntarily; and offering enhanced employer contribution rates above 5% to those persons. At a meeting with the trustees on 23rd of June 2011, the company warned that it was “treading water as a whole and therefore Element Six did not see any merit in putting any more money into the defined benefit plan unless it proved to be sustainable in the long run were the underlying risks were reduced.” Carmel Sexton had previously been a trustee but was chosen by the Shannon company to interact with the trustees. This has been much criticised. In evidence, however, there was no basis upon which her integrity could have been doubted. The choice by the company increased the suspicions of the plaintiff beneficiaries and no one is to blame for that but the company. She met with Danny Coady on 29th of June 2011 to discuss the way forward. These interactions continued with meetings in the preparation of presentations by a subgroup for the trustees. A preliminary draft of the Willis presentation was prepared by 21st of July 2011 and went through several iterations. In it Willis noted that the funding proposal was on track to satisfy the funding standard by 1st of July 2020. It soon became apparent, however, that the company was unwilling to continue contributing and fundamental strategy seems to have been “to de-risk the pension arrangement and to have more certainty.” Danny Coady, as chairman of the trustees, began to seek legal advice from Holmes O’Malley Sexton. Counsel were later briefed and none of the advice given can be faulted. By August of that year it was clear that the funding proposal was off track. A letter of 25 August from Willis shows a clear projection of the issue. It became clear that the company would not pay the next tranche €10.725 million. On 6th of September 2011, the company wrote to the trustees summarising the current position and complaining about the change in legislation, about the pension levy and stating clearly that the current position was untenable:
We also want to be very clear that unless we have an agreed route forward to address what we believe are fundamental issues for the scheme, the company is not prepared to contribute the next payment into the scheme of €10.7[25] million scheduled for January 2012.
11.3 Willis then made a further presentation on 7th of September 2011 as a follow-up to the presentation of 21st of July 2011. This was in the context of a meeting of the trustees with Willis and with the trustees’ solicitors. The beneficiaries were informed of the issues by letter addressed to the members of 23rd of September 2011. On 6th of October 2011, Danny Coady, who has been criticised during the hearing for being “supine” wrote to the company requesting a meeting. This letter is not cast in milk and water language:
The trustees are most concerned with the contents of these letters. We discussed the letters at the trustee meeting held on 7th September 2011. Given the import of the letters, we are of the view that they require further consideration and discussion by the trustees, however, as a preliminary point we would like to remind the company that it signed up to the funding proposal in February 2009 for the period from 1 April 2009 to 1 July 2020. The company’s agreement to pay €10.725 million per year under the funding proposal was not contingent upon agreement with the trustees in relation to future matters pertaining to the scheme. The trustees are seeking confirmation from the company that its contribution of €10.725 million, required under the funding proposal for the year ended 31st December 2011, will be paid as required within 31 days of that date.
11.4 Unfortunately, and it seems without the authority of the ultimate board of directors of the group in Luxembourg, the Irish branch of the company began to stonewall in terms of ordinary interaction as a process of negotiation and instead adopted an attitude that was far from conducive to the solution of this problem. No regard was given to the commitment already made by the company. Everything was presented on the basis of take the offer that is there or you will lose your jobs and the company will be put into voluntary liquidation on an insolvent basis. On 7th of October 2011, the trustees had a meeting with the company. The proposal put to the trustees was that the company believed that “wind up was the only real option to resolve the pensions issue once and for all and gives the best flexibility to look after members in a fair and even handed way”; the company was prepared to make “a substantial contribution” of €35.4 million; that the operation and funding of the pension was “unsustainable and threatened the viability of the Shannon operation”; and that the site would be shut with a loss of 359 jobs. This would be, the company claimed, €13 million per annum in lost salaries and €12 million loss of annual purchases. It might be noted now that the company later increased its offer to €37.1 million and not through negotiation but by notice: given literally two hours before the crucial trustee meeting at which the ultimate decision was made. This was so despite the fact that the revision of the figures was apparently the result of a recalculation which uncovered some errors but which was discovered some two weeks before that meeting and was not notified to the trustees. Danny Coady wrote to the members of the scheme by letter dated 10th of October 2011 as to what the offer was: he said that Element Six “has indicated that action must be taken as the viability of the Shannon site is under threat and closure is a possibility.” Holmes O’Malley Sexton advised that a time extension should be sought, as there was only a month to accept or reject the offer, and certification of the current deficit sought by the trustees from Willis. This was then estimated at €129.2 million. Naturally, the pensioners and those in the defined benefit scheme did not respond well. The anger of the members was clearly provoked by the approach of the company. It is difficult to see how this was anything other than predictable. The workers issued a media statement on 13th of October 2011. Willis made a further presentation to the trustees on 14th of October 2011. This included alternative proposals including a demand for the full minimum funding standard deficit.
11.5 The bind that the trustees were in can be discerned from the pros and cons of the proposal. In favour were the possibilities that: the trustees would be able to provide benefits as prescribed under the plan without reduction; the 3% annual pension increase would be covered; active and deferred members would get transfer values that would include allowances proposed retirement pension increases; it may enable the trustees to negotiate a larger lump sum contribution to the plan on winding it up; and the members may criticise the trustees if the demand was not invoiced. The downside of the demand was listed as: it might cause the company to become insolvent, resulting in the company being wound down; the Shannon plant might shut; the jobs of members would be lost; there would be a knock-on effect on the local economy; and that it was “not clear whether [the] demand will stick”. By this stage the arbitrary deadline set by the company for acceptance by 24th of October was fast approaching. The threat to close was then explicitly made to the members of the scheme by the company by letter dated 17th of October 2011:
In a worst case scenario, if the company were required to increase its contributions and/or pay the full deficit whether due to a change in legislation or otherwise, it would be forced to close the site leading to active members only receiving a proportion of their flat pension benefits and a loss of all jobs on the site.
11.6 By letter dated 17th of October 2011, Danny Coady sought information from the company. While some information was made available, absent from this process was any human interaction whereby, as Alan Broxson the pension expert on behalf of the defendant trustees properly indicated, both sides would sit down together with a view to sharing information and attempting to sort out the problem which they had in common. On 20th of October 2011, the ultimate board of directors of the corporate group was somehow inspired to write a letter threatening similar consequences to the Irish company. Curiously, this letter has been identified as having been signed by the two individuals who were behind the strategy as it was being played out in Shannon.
11.7 By undated letter, probably the 19th or 20th of October 2011, the company replied to the questions posed by Danny Coady on 17th of October. The company refused to transfer the entire amount of the offer into the defined benefit scheme, instead of splitting it between that scheme and the defined contribution scheme. The company further said that the “funding proposal is not and was never intended to be a contract – it is a statutorily required document that does not override the provisions of the trust deed and rules or impose contractually binding obligations.” This is most unconvincing but this was designed so that the trustees would not see it that way. The threat to close the plant was reiterated, this time on the basis of an instruction from the ultimate board of directors of the group: “Without funding the company would be forced to look at a plan to close down the site with the loss of all jobs on the site. While this outcome would be dire, should the proposal succeed then we would be able to make this €35.4 million available to members to provide fair benefits and sustain the site into the future.” Advice was then sought from counsel. This was to the effect that a contribution demand did not need to be made immediately but could be validly made within the four-week notice period under the trust deed. On 24th of October 2011, the company formally wrote to the trustees giving the relevant figures, again threatening to wind up the company and asking for “an indication within the next 18 days of the trustees’ outline position on the proposal.” On 24th of October 2011 formal notice was received from the Shannon company:
In accordance with clause 15 of the definitive deed and rules dated 20 May 1994 (as amended) governing the plan, Element Six Limited hereby gives one month’s notice to terminate its liability to contribute to the fund. The liability to contribute will therefore terminate on 24 November 2011.
11.8 On 27th of October 2011, three of the trustees met with counsel and solicitors and received detailed advice. This was to the effect that the trustees were legally entitled to make a demand for the entire deficit, something the company was denying even though the company knew that this was not true; that the trustees were obliged to pursue the recovery of the deficit, advice later nuanced; that there was no possibility of enforcing the debt on the parent company; and that further actuarial and insolvency advice should be sought. In all of this, it is actually very hard to see what the trustees were supposedly doing wrong.
11.9 The opinion of counsel was then received dated 8th of November 2011. This did not nor could it have provided definite answers and neither could it nor did it seek to tell the trustees what they ought to do in discharge of their responsibility. Counsel thought that there was “at least a stateable case that the trustees are entitled, and obliged, to demand the deficit as certified by the actuary” and that the funding proposal over the 11 years to 2020 was an “at least arguable” agreement to pay the deficit that was binding on the company. This was later said in the opinion to be “cogently arguable”. Arising out of the relevant legal advice Danny Coady formed the view that there was a strong case to take the company to court either to meet the full deficit or alternatively to meet its commitments under the funding proposal. His email of 9th of November 2011 does not show any lack of gumption in communicating with his fellow trustees but it does show caution:
However, from a commercial perspective, on the basis that the company have given notice that they will wind up the Shannon company if we pursue them for more than their offer, we should only take this course of action if having taken appropriate advice on the financial position of the Shannon company, we are sure that a liquidation of the company would yield more than the offer on the table. [Counsel has] also confirmed that it is only the Shannon company and that we can concern ourselves with – there is no recourse to the parent company. So the advice from Brian McEnery [of Howarth Bastow Charleton] is critical to how we proceed – in my view if in his opinion the company have significantly understated the value of the company in liquidation, then the first thing that we should do is ask the company to make up the shortfall between this value and their offer. If they refuse then we should proceed and force the liquidation, but if the financial opinion is that we are unlikely to get more from a liquidation than the company’s offer, we should accept the offer.
11.10 From 15th of November 2011, advice started coming in from that source. Two days later the company was asked for an extension of time for response up to 9th of December 2011. On 18th of November, there was a further meeting of trustees which discussed the question of money being apparently siphoned out of the Irish company and into other companies in the group, a matter which was disputed by the Irish company. Assistance was given at the meeting from the trustees’ solicitors, from Willis and from Howarth Bastow Charleton. It is clear from the evidence and from the documentation that the numbers in question were keenly considered. Approaches were made by the professional advisers to the company to seek an extension and to seek out whether there was any flexibility on the offer. Little hope was held out. To the credit of the Irish branch of the company, access was given to the liquidation specialists to the books of the company with a view to ascertaining values. That month, a summary of all the issues was prepared in concise and accurate form by Holmes O’Malley Sexton and this continued to be refined. By letter dated 21st of November 2011, the company queried whether Brian McEnery was exceeding his “mandate” in the analysis he was engaged in. By email dated 17th of November 2011, the company had already denied payments out of capital.
11.11 On 22nd of November 2011, another opinion was received from counsel regarding the issue of superannuation being ranked as a preferential debt on liquidation. Counsel were of the view that in the event that the trustees demanded the certified sum from the employer and this remained unpaid, then the sum demanded was a preferential debt. A qualifier was added which was that: “it should be noted that certainty would only be achieved if, and when, a liquidator brought directions application before the High Court…”
11.12 The trustees then met on 25th of November 2011 to make the decision as to whether to accept or to reject the company’s offer. The trustees were given a full report from Howarth Bastow Charleton, part of which is quoted later, a presentation from Willis and a summary of the issues and opinions from Holmes O’Malley Sexton. It is impossible to fault any of the presentations that were made. All were considered, properly prepared and concisely laid out. These advisers left the meeting so that the trustees could make the decision in private. From the evidence, it is clear that there was a full review of the information in the relevant reports. This was indicated by debate, which in testimony was described as impassioned. The notes record:
Having considered the company’s proposal, the trustees voted to accept the company’s proposal, subject to the legal framework being in a form agreeable to the trustees and their legal advisers, which framework would need to be received by the trustees by Monday 28th of November. The trustees agreed that they were unhappy with the treatment of the scheme by the company, with a threatening position adopted by the company and with the lack of opportunity given to the trustees to negotiate and engage in meaningful discussion.
11.13 The Court fully shares those concerns. The context requires amplification.
Pressure by the funding company
12.0 No opportunity was ever given to the trustees by Element Six Limited in Shannon to negotiate. The approach to this issue was never made to the trustees on the basis that there was a problem that needed to be solved and which might be furthered by discussion. The attitude of the Irish branch of the company was inappropriate and seems to have been entirely generated without the approval of the ultimate board of directors of Element Six SA in Luxembourg, the head company of the group. Someone within the executive in Shannon decided to adopt the position that under the trust deed a contribution demand could not be made. Yet documents indicate that the individuals in question knew that a contribution demand could be issued by the trustees but determined that this was going to be presented to the defendant trustees as legally untenable. This is how it was put: “The company would aggressively defend against any assertion that the trustees have a right to request a contribution demand”. In evidence, this approach was described by Siobhán Duffy as shocking. No reasonable person could disagree. In addition, the full offer as authorised by the ultimate board of directors in Luxembourg was simply never on the table for negotiation. The Court was asked to accept in evidence that the €40 million sanction from that board was to include legal fees for the trustees and the company of €1.2 million each. That is improbable and is flatly contradicted by the relevant minutes. The Court was also asked to accept that fees of that magnitude were anticipated. There is no evidence that fees of this kind were to be anticipated. The Court was also asked to accept that there was no flexibility in even the sum set in the Luxembourg board minutes. That is improbable. There are two factors in addition. Firstly, the Court accepts the evidence of Carmel Sexton that in making up the offer, a later look at the figures indicated that an extra €1.7 million would be appropriate. Her evidence that this was discovered in mid-November is also accepted. The Court does not believe that it was her fault that this offer was not transmitted until a couple of hours before the trustee meeting on 25th of November 2011 and nor is it at all likely that the deliberate pressure exercised by the Irish company had its origin in, or was participated in by, her. Without her assent, the pressure was ratcheted up as the defendant trustees approached the crucial meeting for deciding on the offer. Two documents arrived shortly before that meeting. It is improbable that it was an accident that the offer incorporating the extra €1.7 million, and the Court wonders who in reality authorised this, was simply thought of and transmitted on the day of the meeting when it could have been sent up to two weeks earlier. If it had, there would have been time for the trustees to think: maybe there is the possibility of a better offer? At least, that kind of consideration may be reasonably inferred as what was probably behind this delay. That this was a slight of hand by someone in Shannon is partly a matter of logical inference but it also fits with the arrival of a second document. This came from a distinguished firm of solicitors who had not been briefed by the trustees. This firm purported to intermeddle in this delicate process by giving unsolicited advice to the trustees that the extra €14 million to the defined contribution scheme could be taken into account by the trustees of the defined benefit scheme. This was completely inappropriate behaviour. In the result, however, the evidence discloses that this did not influence the trustees one way or the other.
Later events
13.0 The Court is not persuaded by attempts in argument on behalf of the plaintiff beneficiaries to make later events evidence that some kind of clique had grown up among the trustees and that this was operative in terms of the decision. To reach any such decision is to ignore how decent people behave when under pressure and when isolated from consensus. It is natural for people in the aftermath of a traumatic decision, which this was, to communicate with those whom they believe are on their side. The whole process has wounded both plaintiffs and the trustees. People are having to wait for their pensions. People here are very hurt. They avoid each other even to the extent of shunning church services for dead colleagues and their families; which is a most unnatural situation in Ireland.
13.1 An application to the High Court was considered after the decision, and indeed partly drafted, and there has been much discussion as to that issue. This application certainly would have included a decision as to whether the exercise by the trustees of the discretion under clause 9 of the trust deed had been possible notwithstanding conflicts of interest and might have included other matters had court documents been eventually refined beyond what appears to have been basic instructions. An extension of time in that regard was granted by the company but was accompanied, and this is by now entirely predictable, by restrictions demanded by the company. On 1st of December 2011 the company wrote:
The trustees have confirmed that they accepted the company’s proposal. We would therefore like to make it very clear that in the event that the trustees now issue a contribution demand to the company, the company’s proposal will immediately be withdrawn and will not be reinstated with the most likely outcome being the closure of the site. The company will also aggressively defend against any contribution demand. In these circumstances the trustees will then be in a position where the proposal they accepted as being in the best interests of their members will no longer be available.
13.2 In all of their actions the trustees acted reasonably. The idea of going to the High Court was eventually withdrawn and the trustees met on a number of occasions, including 9th of December 2011, to discuss what was going on. The matter was considered fully and entirely reasonably: any contrary allegation in the statement of claim in that regard is dismissed. One of the reasons for urgency was that, under the terms of the existing pension scheme, those who are already pensioners would receive a 3% increase come 1st of January 2012. This would decrease the amount of money available on the offer. On the issue of conflicts, it would not suit any one of the four trustees who were active members: but conflicts can be for and conflicts can be against. That is the way the decision was made.
The figures involved
14.0 Payments into the defined benefit plan to bring active members to the minimum funding standard were €9.2 million. Payments into the defined benefit plan to bring deferred members to minimum funding standard were €13.9 million. Total payments to the defined contribution scheme were therefore €23.1 million. Outside that scheme, there were payments into the defined contribution scheme, all of which would benefit those who were to receive benefits under the defined benefit scheme. These were: additional monies to provide enhanced benefits for actives to an amount of €8.1 million; additional monies to provide increases for low-paid pensioners in the sum of €2.5 million; a net present value of increased employer contributions to defined contributions scheme of 2.5% additionally on the 5% employer contribution capitalised at €2.5 million; additional payment to provide benefits for actives over 55 years to a value of €0.5 million; and additional monies to fund disability between 60-65 years in the sum of €0.4 million. These additional sums going to members of the defined benefit scheme through the defined contribution scheme amounted to a total of €14 million. The total offer was therefore €37.1 million of which only €23.1 million was within the defined benefit scheme but all of which would benefit the members of that scheme financially.
14.1 As has been seen, in 2009, the company made a funding proposal that an extra €10.725 million would be paid into the defined benefit scheme annually until 2020. These payments were made in January in respect of the previous year. 10 payments were left as of 25th of November 2011. That amounts to €107.25 million. The capitalised value of receiving money early is of course less than the full amount. Getting money years before it is due means that the money can be used. On the Willis calculations, depending on the discount factor, a matter of debate, the remaining sum was capitalised at between €65.9 million and €79 million. Willis certified that the minimum funding basis was €137.1 million. The deficit on a full buyout basis exceeded that figure; in fact the evidence was that it was over €200 million. For the entire group of companies, the profit levels over the three prior years had not much exceeded €35 million. The assets of the company on an insolvent liquidation would not cover, on any calculation, even close to the capitalised value of the funding proposal of 2009-2020. An issue arose as to whether the group multinationally might not fund the entire deficit of the Shannon company, given the commercial sensitivity a blow of the dimensions of an insolvent liquidation would strike at its creditworthiness. At the level of the ultimate board in Luxembourg, at least one doubt had been expressed as to this course. The trustees were not to know this, however. Further, notwithstanding all of the evidence and documentation at trial the Court cannot assess this as probable one way or the other. At a bare minimum, it was a definite risk.
14.2 In addition, there was the issue of whether the funding proposal at €10.75 million per annum constituted a contract, the breach of which would give rise to an entitlement to damages on the capitalised value mentioned above. The Court has listened carefully to the evidence on this matter and in particular has received particular guidance from Alan Broxson, expert witness on behalf of the defendant trustees. If the circumstances in which a funding proposal is made involve a definite offer by the funder to the trustees and a definite acceptance by them and if the sum to be paid is fixed over a period of years, then the ordinary rules of contract suggest that the solution to this issue is that over that period that agreed sum is what the funder must pay to the trustees on behalf of the beneficiaries. The answer to this is, however, capable of dispute. Pension funds go up and down. There are good years and bad years. The obligation of the funder under the trust deed to pay in accordance with its terms so as to allow a defined benefit to employees can be buoyed up and down with the rise and fall of the market. It will be more or less painful depending on profit levels of the funder and return on investments on the open market of funds invested by trustees. But while it is correct to characterise a defined benefit scheme as a kind of deferred income, whereby employees work at a particular level of remuneration knowing that on retirement they will receive a particular percentage remuneration up to a maximum level depending on how many years they work, nonetheless section 50 of the Pensions Act 1990 recognises the vagaries inherent in pension funding. It allows trustees to take measures to reduce the benefits payable under a scheme. Section 50 has gone through a number of iterations, but the version as of the latest amendment in June 2011 provides:
(1) The Board may, by notice in writing, direct the trustees of a scheme to take such measures as may be necessary to reduce, in respect of members of the scheme then in relevant employment, the benefits which would be payable to or in respect of them from the scheme where—
(a) the trustees of the scheme fail to submit an actuarial funding certificate within the period specified in section 43, or
(b) the actuarial funding certificate certifies that the scheme does not satisfy the funding standard and the trustees of the scheme have not submitted a funding proposal in accordance with section 49, or
(c) the actuarial funding certificate certifies that the scheme does not satisfy the funding standard and the trustees of the scheme have submitted a funding proposal in accordance with section 49,
(2) The reduction in benefits under subsection (1) shall-
(a) to the extent specified, override paragraph 2(2) of the Second Schedule and paragraph 4(b)(i)(I) of the Third Schedule, and
(b) be such that in the opinion of the actuary concerned—
(i) the scheme would satisfy the funding standard in accordance with section 44 immediately following the reduction, or
(ii) in the case of a scheme referred to in subsection (1)(c), the scheme could reasonably be expected to satisfy the funding standard at the effective date of the next actuarial funding certificate or, where applicable, any later date specified under section 49(3).
(3) Where the Board gives a direction under subsection (1), the trustees of the scheme shall—
(a)
(i) take such measures as may be necessary to reduce, in respect of members of the scheme then in relevant employment, the benefits which would be payable to or in respect of them from the scheme such that the scheme would, in the opinion of the actuary concerned, satisfy the funding standard in accordance with section 44 immediately following the reduction [or in the case of a scheme where a funding proposal has been submitted to the Board pursuant to section 49, such that in the opinion of the actuary concerned the scheme could reasonably be expected to satisfy the funding standard at the effective date of the next actuarial funding certificate or, where applicable, any later date specified under section 49 (3), and
(ii) notify the members of the scheme of the reduction in benefits within a period of 2 months, or such longer period as the Board considers appropriate,
(b) within a further period of one month, submit to the Board-
(i) details of the reduction in benefits including copies of the notifications issued to members of the scheme, and
(ii) an actuarial funding certificate certifying that –
(I) at the effective date, being the date of the reduction in benefits, the scheme satisfies the funding standard, or
(II) in the case of a scheme where a funding proposal has been submitted to the Board pursuant to section 49, at the effective date of the next actuarial funding certificate or, where applicable, any later date specified under section 49 (3), the scheme could reasonably be expected to satisfy the funding standard.
14.3 While it may be said that the vagaries of the market and the possibility of resort to the Pensions Act to reduce benefits removes from a funding proposal the binding character of a contractual obligation if accepted, this Court does not agree. Where, in the knowledge of the alternative of reducing benefits, a funder makes a proposal for a definite period, and this is accepted, then this is an enforceable contract. The offer made here, as a funding proposal over 11 years, certainly put the deliverability of funds at the vagaries of the company’s profit levels. As it turns out it could not, or would not, be met. But, in contract law how parties do in commercial terms after a bargain is made is irrelevant to the enforceability of the agreement, unless the contract terms provide otherwise. It is a matter of negotiation as to what scheme seems best to be offered and seems reasonable to be accepted as a binding offer. In practical terms, a funding proposal stretching over shorter periods than ten years would seem to accord more with what the variabilities of pension funding might suggest. From the point of view of the defendant trustees, the advice given by Holmes O’Malley Sexton was what had to be then considered. It was reasonable to advise that the funding proposal as accepted might not be seen by a court as a binding contract. In the absence of authority, no other advice could reasonably be given.
14.4 Then there was the issue of priorities. The trustees obtained legal advice on this. Endlessly parsed through the hearing, counsel were of the view that certainty as to the priority of the debt due on making a contribution demand, or on requiring the early payment of the 11 year funding proposal, would only “if, and when, a liquidator brought a directions application before the High Court querying whether any sum demanded by the trustees constituted a preferential or unsecured liability of the employer”. In pursuit of a definite answer, Howarth Bastow Charleton had contacted the Department of Jobs, Enterprise and Innovation, the Pensions Board and the Office of Corporate Enforcement but no definite clarification was available. Again, the issue was not easy but the defendant trustees did their best. The Companies Act 1963 provides at section 285(2), as inserted by section 10 of the Companies (Amendment) Act 1982 in relation to preferential payments on a winding up:
In a winding up there shall be paid in priority to all other debts –
…
(i) any payments due by the company pursuant to any scheme or arrangement for the provision of superannuation benefits to or in respect of employees of the company whether such payments are due in respect of the company’s contributions to that scheme or under that arrangement or in respect of such contributions payable by the employees to the company under any such scheme or arrangement which have been deducted from the wages or salaries of employees.
14.5 The advice given to the defendant trustees was the best that could be obtained. The Court does not quarrel with it. Clarity in such a decision can only arise when the matter is fully argued. Crucial to any such decision is whether or not the sum is ‘due’. Clearly, it can be argued that if a contribution demand is not made or there is no entitlement to make a contribution demand, then the sum is not due. Similarly, an argument can be made that what is liable to be paid is what is due in the year when a company goes into liquidation. The circumstances of this case are particular. Here, a contribution demand was made in 2008 and was compromised with the approval of the Pensions Board in April 2009. Taking the view that this was an offer made by the funder in full knowledge of the vagaries of the market in terms of achieving returns and accepted by the trustees with the same knowledge and to secure funding over an 11 year period, this constituted a contract breach if it occurred when the company announced that it was simply not going to pay the next €10.75 million due in January 2012. The capitalised value of that commitment was one which the trustees could have sued upon and since this was a sum due in respect of the company’s contributions to that scheme, that sum would have had priority on an insolvent liquidation of the company. In reality, however, this is only the Court’s best view in circumstances where the Court has had a wider breadth of evidence and the possibility of attempting to obtain the assistance of counsel in argument. Considering the matter from the point of view of the defendant trustees, this was yet another variable factor. In financial terms, they were entitled to consider it in that manner and the figures available are stark. The likely return on liquidation is set out in the final Howarth Bastow Charleton report on recovery that was delivered to the trustees before their decision to accept the company’s offer and which may be tabulated as follows:
Proposal of Element Six and estimates of recovery Where the pension scheme is a preferential creditor Where the pension scheme is an unsecured creditor
Element Six proposal €37m ($50.1m), of which €23.1m ($31.2m) goes into scheme If accepted, there would be no liquidation, according to the company promise.
Howarth Bastow Charleton estimate €42.5m ($57.4m) €18.2m ($24.6m)
Element Six estimate: high €38.4m ($51.9m) €16.3m ($22m)
Element Six estimate: low €25.6m ($34.6m) €10.4m ($14m)
14.6 The figures are stark. No adviser can exercise a crystal ball and nor can a trustee. Variables abound. However the relevant figures are massaged, they give rise to no possibility of recovering the pension contribution demand in full, as certified by Willis, much less any higher sum mentioned during the hearing. A real risk was proposed to the trustees through the best advice then available, which advice was prudent and sensible, which was that making the contribution demand would have left the beneficiaries considerably worse off. Further, the sums potentially available are close to the offer of Element Six Limited.
14.7 The biggest variable was perhaps whether the extra €14 million could be taken into account as then, if it could be so considered by the trustees, the sum under consideration as what might be recovered on an insolvent liquidation would be much closer at €37.1 million to what the company was offering. This is considered below.
14.8 On the variability within the figures, it is worth quoting the summary from the final Howarth Bastow Charleton report:
In summary, we believe the company in making an offer of $31.2 million towards the pension deficit is assuming that the trustees will conclude that this offer is more attractive than liquidating the company. Yet the company’s own analysis, on their optimistic assumptions, would indicate that in excess of $51 million would flow to the pension scheme if the pension deficit is ranked as a preferential creditor. Surprisingly, even in the worst case scenario identified by the company in their own analysis, they indicate that an amount of circa $34.5 million would go towards the pension deficit if the deficit were ranked as a preferential creditor.
The company seems to expect the trustees to assume the pension will receive an injection of $47.8 million (€35.4 million), however as highlighted by your legal adviser, only $31.2 million (€23.1 million) is to be paid into the pension scheme. Under the company’s proposal the balance of $16.6 million is not for the benefit of the scheme at all.
Our analysis of the likely liquidation scenario shows that our best estimate of the payments to the scheme on liquidation (assuming the pension deficit is a preferential creditor) is $57 million. As highlighted in the report, this is based on the anticipated future cash flows discounted to today’s value of money. We believe we have chosen fairer assumptions in reaching this estimated outcome and indeed we have specifically excluded the value of any suitable increase in assets which might become available if previous transactions referred to in this report were to be successfully set aside.
Overall, on the basis of the legal evidence you have secured, combined with our own judgement, we believe the company’s offer to the scheme of $31.2 million (€23.1 million) is some $25 million (€18.5 million) or so lower than what one might anticipate on a liquidation.
14.9 It is to be noted that if the additional sum of €18.5 million is discounted by the ability of the trustees to take into account the offer to the defined contribution scheme to the benefit of those in the defined benefit scheme of €14 million the figures come very much closer. In addition, figures in relation to the alleged siphoning off from the funding company Element Six Limited in Shannon into other group companies need to be added to any potential final debate that the trustees might have. A caution needs to be entered here. There has been much evidence about payments by the company for no return. In effect, it is as if the Court is expected to decide whether Element Six Limited wrongfully depleted its assets. The Court cannot decide that. In constitutional terms, no court should stray into making decisions that are not absolutely necessary in respect of unrepresented individuals. Nor should a court in the absence of a properly debated dispute reach a decision on a controversy and this is so simply because, like an iceberg, only part of the facts will appear and even then only such slivers as the parties choose to highlight. Just as the law of evidence puts an end to the debate of collateral issues, a court should not be steered into a controversy that is not essential to deciding the central facts. Fundamentally, however, here the basic principle of reviewing trustee decisions needs reiteration: the issue is not how a court would have decided a matter, especially a court with more information and the benefit of argument from counsel, but how the matter ought reasonably to have been seen by a body of trustees.
14.10 The best information about this controversy comes from the final Howarth Bastow Charleton report. The most pertinent paragraph is as follows:
The dramatic decrease in debtors in recent months has been mirrored in the cash balances held by the company which have decreased by in excess of 80% in the year to date.
The extraction of these cash reserves from the company, through:
• payments for the intellectual property ($54 million);
• inter-group charges ($65 million [year to date] September 2011);
• repayments of intercompany loans ($17.7 million [year to date] September 2011;
• repayments of capital contributions ($68 million); and
• payment of dividends ($19 million).
have reduced cash balances to a level significantly lower than at any time since 2006. This in turn has a direct impact on the level of funds that would be available to creditors on liquidation. Undoubtedly were there to be in the words of the company an “adversarial” liquidator appointed then I believe the liquidator would seek to set aside some or all of the above transactions and thereby seek the recovery of assets (predominantly cash) for the company and by implication its creditors. We make this comment guardedly and without any agenda, as if the liquidator were to be appointed, then most probably due to the level of inter-company – and syndicated lender balances (who would most probably give their proxy to the company) the company’s nominee of liquidator would most probably prevail. It is unlikely our firm would be the company’s nominee.
14.11 Of the sums mentioned, there was considerable evidence as to some of these issues. Danny Coady and Carmel Sexton gave the most pertinent testimony about the intellectual property payment. Having paid a huge sum for this resource only a few years earlier, the relevant patents or other intellectual property was estimated by the company to be worth nothing on liquidation. The method of outsourcing work from the Shannon plant apparently involved the payment by off-site manufacturing suppliers for the use of the intellectual property and the Court was told that this was then reflected in price paid to them. In addition, apparently, the beneficial interest, but not the legal interest, in this intellectual property was bought by the company from some other company in the group, based in South Africa, but with no taxation liability to that vendor in respect of that gain. In European law, but only on the basis of the limited facts available, this makes no sense; UsedSoft GmbH v Oracle International Corporation (Case C-128/11) [2012] OJ C 194/8 2.7.2011. The trustees did not have the benefit of any intellectual property value analysis. They are not to be blamed for this. What seems to be the reality of modern international company groups is that assets are moved constantly from company to company. That most reliable text Pennington’s Company Law, 7th Ed (London, 1995) at page 993 cites Charterbridge Corporation Ltd v Lloyd’s Bank Ltd [1970] Ch 62 in support of the following assertion:
[I]f a subsidiary company enters into a transaction, not for its own objects, but in order to assist its parent or holding company or a fellow subsidiary…the transaction may be a misuse of the power of its directors….This is not so, however, if the directors of the subsidiary act to promote or safeguard the common interests of the subsidiary and its holding company….
14.12 Forde in Company Law, 3rd Ed (Dublin, 1999) writing of the Charterbridge decision states at paragraph 14-47:
In Charterbridge…the legal position was summarised as follows:…‘The proper test [in such circumstances] must be whether an intelligent and honest man in the position of a director of the company concerned could, in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the company’. Benefiting an associated company or the entire group will often enure to the advantage of the company in question.
14.13 As to the repayment of the $17.7 million company loan, possibly this might be challenged in the lead up to a liquidation; and as this is what the company was threatening that is a possibility. But it is only that. The dividend issue depended on a close analysis of the company structure and its relationship to the company to which this was paid, Shannon Diamond Holdings, of which Danny Coady was a director. Inter-group charges were not particularly focused on in the hearings but the reality was that, since manufacturing of diamonds had been moved to South Africa in 2001, these were likely to be high. The capital contribution of $68 million was repaid, apparently without liability, but had come from another company in the group, most probably through the treasury holding company which makes or is used in almost all of these transactions. The matter can be much debated. The report does not state a level of risk that a liquidator, minded to challenge transactions signed off on as an appropriate use of corporate funds by an international firm of accountants, would be engaging should some of these transactions be challenged. What a trustee would reasonably ask would be: how likely is it that substantial sums would be recovered by the liquidator and so enhance the liquidation fund? Danny Coady, with the best knowledge of company activity among the trustees, was not optimistic; most particularly because of the accountancy sanction that the transactions had received. This view was not unreal or unreasonable and was clearly the view of the trustees in the way that they voted.
14.14 What appeared to the Court to be normal from the point of view of the trustees was that sums of money would be moved in and out of the company at the behest of the ultimate board of directors of the group in Luxembourg. Perhaps international firms of accountants regard this as normal. It can be correct for sums to move from related company to related company; but there must be a valid reason and every payment must be representative of value taking into account the directors of care and fidelity to their own company and how the interests of the group impact on that. Anyone doing accounts for a group of companies should remember, however, that each company is a distinct legal personality and that as a creation of law with distinct privileges, that whether linked to a group or not, is also subject to the fundamental rule that it cannot deplete its capital through transactions that do not provide value for money. A company does not have a legal capacity to throw away its money. Even within a group, each payment must be scrutinised by the board of directors, and by the accountants signing off on accounts, as a transaction that is economically justified in terms of the benefit to the company and the corporate benefit to the group as to the balance between what is being paid and what is returned for that remuneration. A dividend is the legitimate way for a company to make a distribution to its members. Over-payment for services or goods by a company to a related company can be a breach of directors’ duties where the analysis of benefit to the company through the transaction and benefit to the group that supports the company is not shown. Directors in the exercise of their fiduciary capacity must not authorise payments that are not made for the benefit of the company within the context of a group of companies. These are merely indications: full analysis will await an appropriate case. The issue is as to how matters appeared to the trustees. So, how were the trustees to regard these still mysterious after much debate transactions?
14.15 The best estimate of recovery of some of these sums available to the Court was that of Jim Luby, the insolvency expert who gave evidence on behalf of the plaintiff trustees. Had he been liquidator of Element Six Limited, and achieving that result at a meeting of creditors would not be a foregone conclusion, he would have considered that there was material on which he could legitimately threaten litigation against the recipients of the payments. Without such a threat, there would be no chance of recovering funds. Where, obviously, the question of moving into the expense of actual litigation was involved, any party challenged might see advantage in delay perhaps up to the door of the court of trial and perhaps to final judgment. His best estimate was that there was perhaps a 50/50 chance of recovering €10 million or more for the benefit of the liquidation fund on the material available to him. That is a genuine and helpful observation. Nonetheless, this factor is but one of many that the trustees were entitled to consider. As can be seen, it might weigh the figures up in consequence of recovery and might weigh them down as to the costs and time involved in such litigation. The trustees did not have the benefit of Jim Luby’s expert opinion at the time and the fact that they, as it turned out, gave little or no weight to the potential to recover further funds does not of itself give sufficient ground to challenge their decision.
14.16 Looked at reasonably, the trustees had much to lose and definite money to gain. This was the dilemma facing them. Possibly some yield might have come from challenging and then litigating the mysterious financial transactions by the Irish company; probably the debt to the pension fund could have been regarded as a priority on the liquidation of the company, but this was not certain; probably the funding proposal would have been regarded as a contract, but this was less certain; probably the company would have shut down with the loss of all the jobs in Ireland; possibly the estimates on liquidation were uncertain and could reasonably have been worse than the advisors to the trustees predicted; probably liquidation would have gone on for two years or more; definitely the company was making the direst possible threats and transmitting them in unambiguous form; and probably, whether the decision was one way or the other, the trustees were still going to be reviled.
Conflict as a matter of fact
15.0 The offer of an increase in employer contributions to the defined contribution scheme applied only to those members of that scheme who were also members of the defined benefit scheme. This meant those who had worked up to 2001, and thus were in the defined benefits scheme already, meaning people who had not joined the Shannon company from 2001 onwards when new recruits were put only into the defined contribution scheme and had no entitlement to the benefit scheme. Those in question are thus employees in the defined benefit scheme who had joined prior to 2001. Even these had been passed over in 2009 to the defined contribution scheme for every benefit gained thereafter while retaining such accrued rights as they had under the defined benefit scheme. Under the company’s offer, for those joining from 2001 the defined contribution scheme was to remain the same. This was that each employee contributed 5% of wages to the future purchase of an annuity or encashment on retirement and the employer paid an equal sum. But for those who overlapped between the benefit scheme and the contribution scheme, the 5% of the employee wages as a contribution was to remain the same, but the 5% contribution from the employer was increased to 7.5%. The value of this was capitalised in the offer of the company at €2.5 million, being part of the extra €14 million. Thus, of the defendant trustees, Danny Coady, Siobhán Duffy, Gerard O’Sullivan and Dermot Tuite stood to gain. Dermot Tuite had health problems and was thus shortly to retire. Gerard O’Sullivan had been on disability leave but was nonetheless active in the scheme. Danny Coady was then, and also was at the time of the hearing, finance director of the advanced materials division of the Element Six Group. This is an international job that involves analysis and strategy but does not involve the preparation of financial statements. The Court has listened to all of the evidence on this matter and, having seen and heard the relevant witnesses in the proper context, sees no sign of this conflict having in any way influenced the trustees. A similar consideration applies to the question of the top up for actives that is included in the offer.
15.1 Those same four trustees were employed; thus standing to lose their jobs with the company should Element Six SA in Luxembourg carry out its threat to shut down the Shannon plant. All of them, in addition, were said to be likely to want to stay based in Shannon, as opposed to assuming a peripatetic existence around the globe in various De Beers companies and facilities. In practice, Dermot Tuite had been ill and was not planning, he said in evidence, to stay more than a year or so longer in employment. Danny Coady was already travelling extensively and his responsibilities in finance meant that it mattered little where he was based. To a lesser extent this also applied to Siobhán Duffy. Probably it mattered most to Gerard O’Sullivan. In fact, probably this element of convenience was very much a lesser consideration that can be disregarded in any analysis of this situation. The Court has listened to all of the evidence on this matter and having seen and heard the relevant witnesses in the proper context sees no sign of this conflict having influenced the trustees in any way. These conflicts so far were inherent in the issues in contemplation within the trust deed; and even had there been no exoneration through clause 9, the conflicts were both unavoidable and were contemplated as requiring to be decided by the trustees from the inception of the trust. A similar consideration applies to the decision to wind up the trust before 1st of January 2012. By doing this, these same four employees have lost the benefit of a 3% increase on retirement but it was contemplated by the trust deed that these kinds of decisions would need to be made by working trustees; in this case against their interest.
15.2 On 24th of November 2010, the board of Element Six Limited met at Shannon and decided to pay an interim dividend of $19 million. None of the trustees were involved in this decision. Dermot Tuite and Danny Coady are alleged to be implicated in this dividend and a conflict is said to arise because both were directors of the sole registered shareholder which was Shannon Diamond Holdings Limited. Ultimately, as a matter of plain reality, the sum would have been disbursed to that and other companies for the benefit of the group as a whole. The Court has given its view of that kind of practice above. The argument is that if the dividend had been sought back by the liquidator of Element Six Limited that they would have a conflict of duty. The Court has listened closely to all of the evidence and from what appeared in all of that and in the documents considers that this issue played no role in their decision as trustees.
15.3 An extraordinary general meeting of Element Six Limited was held on 10th of March in Shannon. Even though Danny Coady and Dermot Tuite were not directors of Element Six Limited, they were of Shannon Diamond Holdings Limited which was the shareholder of that company. Thus they attended. The issue was that the net assets of the company were less than half of the called up share capital and thus the meeting was required under section 40 of the Companies (Amendment) Act 1983. In evidence, the implication arose that the dividend, repayment of capital mentioned in the Howarth Bastow Charleton report to the trustees for 25th of November, and the repayment of the loan were germane to the issue and that the real solution was the closure of the pension fund. In contrast, there was every indication that the meeting was formal and that the reference in the minutes that there was “a plan in place to assess and improve the situation” was an overall group plan outside their competence to which they paid no or very little heed. There is no evidence that the plan was to close the pension fund. The Court believes the testimony of these witnesses on this issue.
15.4 Dermot Tuite and Danny Coady were also directors of Element Six Abrasives Treasury Limited and, as stated above, Shannon Diamond Holdings Limited, to which a repayment of €17 million had made in respect of a loan. The Court can see nothing wrong with the repayment of this loan regardless of what companies any of the trustees were directors. There is nothing to suggest that this loan was either improperly made or dishonestly repaid so as to avoid being thrust into the category of ordinary debt without priority on liquidation. The Court has listened to all of the evidence on this matter and having seen and heard the relevant witnesses in the proper context sees no sign of this conflict having influenced the trustees. Insofar as Danny Coady might ultimately benefit from an increase in the group’s overall balance sheet, or Siobhán Duffy or Dermot Tuite, this played no part in the decision. The decision was all about what was available, what was possible and what stood to be lost. Nothing else.
15.5 Those are the conflicts. As a matter of fact, no conflict of interest or duty influenced the decision of any of the trustees much less undermined or overwhelmed their ability to act honestly and objectively in the interests of the beneficiaries and in good faith.
15.6 Were the trustees exonerated by the trust deed from acting where there was a conflict of interest? The argument by the plaintiff beneficiaries is that they are not. This argument does not survive analysis. It is always possible for a trust deed to provide in advance for exemption from anything except the core obligation of trustees to exercise fidelity to the objects of the trust for the ultimate good of the beneficiaries through acting honestly and objectively and in good faith. The Court has seen and heard from those trustees who voted in favour of accepting the company’s offer. They presented as having entirely put aside any issue of conflict. They were not disabled in their capacity to act. At all times they considered the relevant material and were not influenced by any personal interest which they had. Instead, as a matter of objective assessment, the decisions which they took were untainted by conflict. The wording of the trust deed as to exemption from conflict admits of no distinction as between conflicts of interest and conflicts of duty. The law, as previously analysed in this judgment, does not admit of such a distinction; in any case any such hair-splitting would involve the ostensible recognition of a distinction without a difference. That is not attractive and it is not well founded in law. Also argued is the proposition that a trust deed may admit of exoneration from a minor conflict of interest but not from a major conflict of interest. This viewpoint was particularly central to the expert opinion of Vernon Holgate, expert witness for the plaintiff beneficiaries. As he said, however, no authority was available to support his view; save for England and Wales practice based on the express legislative requirements that arose when a conflict manifested itself.
15.7 A trust deed may exempt from major conflicts of interest as well as minor ones and it may exempt from conflicts of duty as well. It is a matter of construction. Fundamentally, the point made on the state of the law earlier might usefully be reiterated: the trustees can be allowed in the trust deed to overcome conflicts of interest. If they as a matter of fact do so, no decision of theirs can be challenged on that ground. If as a matter of fact, the conflicts of interest are such as to overcome or disable their ability to act in good faith independently for the good of the beneficiaries, then a trustee decision cannot stand; since that duty is the irreducible minimum that beneficiaries and funders are entitled to expect of the operation of a trust. In this regard, there is no authority, and there is no warrant either as a matter of logic, for the incorporation of some standard based perhaps upon principles of public law whereby a major conflict may give rise to a presumption that a conflict cannot be overcome or whereby objective conflict is to be a lesser standard that a trust deed can exonerate but major conflict is to be equated with subjective bias. No: there is either exoneration under the express words of the trust deed or there is not; and there is either evidence that the irreducible minimum duty of the trustees was compromised by a conflict or there is not. In this case there is exoneration and there is no evidence that the Court can accept that the trustees acted any way other then for the ultimate good of the beneficiaries as a whole.
Matters to be taken into account
16.0 Two main factors are argued that bring the decision of the defendant trustees outside their sphere of competence through including irrelevant factors in their decision. The first is the threat of the company to shut down the Element Six plant at Shannon, thereby rendering redundant some 359 employees of which some 173 people were active working members of the defined benefit scheme. The second is even more strongly argued and it is that of the offer from Element Six Limited to shut the defined benefit scheme that only €23.1 million could have been taken into account by the trustees and that their decision to also consider the additional €14 million that would benefit members of that scheme through the defined contribution scheme rendered the trustees’ decision invalid. These are issues on which the Court has had expert evidence; from Vernon Holgate on behalf of the plaintiff beneficiaries and from Jim Luby more peripherally; and from Alan Broxson and more tangentially from Philip Shine looking at matters from the point of view of the defendant trustees. The Court is grateful for all of that evidence and much has been learned from it.
16.1 Fundamentally, on the issue of the threat by the company to close the plant should the offer not be accepted, the key evidence comes from the three trustees who gave evidence: Danny Coady, Siobhán Duffy and Dermot Tuite. It is clear that the threat to close the plant at Shannon must have motivated all of the trustees to some degree. Dermot Tuite knew the personality of the individual pushing this proposal; he did not give evidence at the trial, and he regarded him as serious and not a person to make empty threats. He considered that once a contribution demand was made that the company would be sent into liquidation. Siobhán Duffy regarded the threat to shut the plant as serious. She was aware that there were contingency plans in place and that the company could survive as a group without Shannon. Stocks of product, finished industrial diamonds being the core product, had been moved to other plants outside of Ireland for distribution so that customers would have not interruption in service. Danny Coady recalled how in 2001, the Shannon plant had suffered a serious blow when the high-pressure synthesis presses had been moved to South Africa from Ireland. Thus, as a bolt out of the blue, as he put it, manufacturing in Ireland had ceased and the Shannon plant was left with finishing the raw diamonds, like shaping and coating, and with administrative functions. He also recalled that in 2009, the executive behind the offer and the way it was put had announced the closure of the Shannon plant. Only through a management plan to reduce costs by €30 million, in large part through 300 redundancies, was it possible to save employment. While the fine words of the press statement of that time resonate as hollow in the light of the latter threat to shut the plant should the offer not be accepted, trustees have to deal with reality and not with public relations. At the meeting of 24th of October 2011, a company representative had presented a clear scenario on behalf of the company: accept or lose all employment. To all of the trustees, the only indication upon which any analysis was done, and the only real scenario facing them on the analysis of Howarth Bastow Charleton, of their legal advisors Holmes O’Malley Sexton, and of their actuaries Willis was an insolvent liquidation. Whereas documents later discovered from the ultimate head company in Luxembourg place a degree of doubt over that for reputation reasons, any such doubt was unknown to the trustees. Prudently, they could only reckon that had they made a contribution demand that the Shannon plant would be shut and its assets disposed of in an insolvent liquidation.
16.2 This is not a question of conflict of interest. Beneficiaries are not to be divorced from the reality of their lives as living breathing people with the needs of the real world. Perhaps the three company trustees jobs might probably be saved or relocated, as they told the Court, but the job of the trustees was to take into account the total benefit of any decision they would make, or the total detriment of such a decision, on the people whose interests they were trusted to shepherd. The needs of people include work and stability in both employment and residence. Giving some weight, therefore, to the reality of the threat to shut the plant would be appropriate. 173 people who were beneficiaries under the defined benefit scheme might, perhaps, have gained more money had the trustees called the company’s bluff, putting the Court in a position to know if it was an empty threat or not, but had the company made another of its decisions akin to 2001 and 2009, those people would have the detriment of no employment, having probably to move home or commute further, and the funds towards the defined contribution scheme would have been cut off for the simple reason that a person cannot earn towards a pension or contribute to pension funding without earning money through a job.
16.3 Broadly, the expert evidence was of a sensible viewpoint. These are the answers of Vernon Holgate on this issue:
Question: So, what degree of consideration can you therefore give to the threat of the company, if you’re a trustee sitting there on 25th of November, that the Shannon plant will be shut and everyone will lose their jobs?
Answer: It’s just the loss of the – the implication behind that is that the company will cease to exist and therefore won’t be able to pay any contributions at any time. So effectively you have got a winding up situation so that is a lose-lose. The company his gone, people have lost their jobs and importantly from the trustees’ point of view they have lost their financial sponsor.
Question: So do you regard that as a serious consideration then?
Answer: Yes.
Question: And which the trustees are entitled to take into account?
Answer: You are, yes. Because the financial health of that business and its interests are something which you are linked to; it’s a kind of partnership.
16.4 These are the answers of Alan Broxson on this issue:
Question: But now look at it from the point of view of the trustees. The trustees’ obligation is to benefit membership of the trust, and it may be said in legal submissions, I don’t know yet, to benefit the membership of the trust only under the ambit of the trust deed. In other words what is the responsibility? Now the responsibility there is to the pension fund and not to anything else. So it’s perfectly plain that if you lose your job you are more likely to be depressed, have no work, have a lower income, fight with your spouse, or whatever the case may be. Everybody knows that. So to what extent, if at all, are you entitled to take into account… the fact that the company are saying we are going to shut the plant and they seem to be serious about it?… So what is your view?
Answer: There is a lot said about this. The obligation is to act in the best interests of the members, the best overall interest of the members… And what does that mean? Can it mean things outside the pension fund and, you know, we certainly agonise about this, but you rarely in a situation where the only determining factor for your decision is whether or not people lose or keep their jobs. But it would be a consideration, in my view, but the extent to which it is a consideration differs.
Question: You see, it’s pretty hard. If you look at one of these old-fashioned tobacco weighing scales where you have these big brass scales and you have weights on one side and then you put the tobacco on the other and you see what the weight is. You see them in antique shops. Is it like that? And in which case if a kilo represents a decision where you go in favour of the company’s proposal, of that kilo how much is the fact that if you don’t go with the proposal… everyone is going to lose their jobs? You and the beneficiaries, but you are thinking about the beneficiaries?
Answer: Yeah, well, if you’re saying that that thing is so balanced that the one difference is loss of jobs.
Question: Well, I am saying that you are going down the route of accepting… and the route of accepting, let us weigh it as a kilo. Can you give me in terms of this situation what regard do you think the trustees are entitled to have to the fact that the Shannon plant is going to be shut and their beneficiaries are going to lose their jobs?
Answer: I think it would be correct to have regard to it. I mean, my own approach and I have to say, Judge, that even when you ask for a legal opinion on this, the extent to which you can take it into account, you do get various answers. But my own approach is that the trustees don’t live in a vacuum and if the consequences of a particular approach is that jobs are lost, I think it’s an issue that they are entitled to take into account.
Question: Is it a 10%, or again, I suppose, you think it’s silly to ask?
Answer: If you are talking about percentages, maybe it is 10%, judge; it’s a very difficult one to answer.
16.5 The evidence of Alan Broxson that legal opinion differs on this issue is challenging. The weighty preponderance of evidence supports the view that beneficiaries are not simply to be defined and regarded as those who are in technical and isolated benefit under a pension scheme but, rather, are people to be regarded as such within the wider context in which a decision must be made. The loss of the employment of those people is a serious detriment. It is an issue to be weighed according to the best approach of the trustees and it is for them, in accordance with settled law, to take into account what weight must be put on such a factor. Certainly, the primary duty of trustees is to administer the scheme in accordance with the limits of the trust deed but in doing so, the trustees should never lose sight of the fact that a short-sighted application of the scale of benefit to them is more than mathematical. Some support for this approach is to be found in Edge v Pensions Ombudsman [2000] Ch 602. There, Chadwick LJ made these remarks at page 626:
The need to consider the circumstances in which the surplus has arisen does not lead to the conclusion that the trustees are bound to take any particular course as a result of that consideration…. Nor does the need to consider the circumstances in which the surplus has arisen lead to the conclusion that the Trustees are not required to take – or are prohibited from taking – any other matters into account in deciding what course to adopt. They must, for example, always have in mind the main purpose of the scheme – to provide retirement and other benefits for employees of the participating employers. They must consider the effect that any course which they are minded to take will have on the financial ability of the employers to make the contributions which that course will entail. They must be careful not to impose burdens which imperil the continuity and proper development of the employer’s business or the employment of the members who work in that business. The main purpose of the scheme is not served by putting the employer out of business. They must also consider the level of benefits under their scheme relative to the benefits under comparable schemes; or in the pensions market generally….
The matters to which we have referred are not to be taken as an exhaustive or a prescriptive list. It is likely that, in most circumstances, pension trustees who fail to take those matters into account will be open to criticism. But there may well be other matters which are of equal or greater importance in the particular circumstances with which trustees are faced. The essential requirement is that the trustees address themselves to the question of what is fair and equitable in all the circumstances. The weight to be given to one factor as against another is for them
16.6 This is undoubtedly correct. If too much weight is given to a particular factor, the Court is only entitled to condemn the decision of trustees where that assignment of importance was one that no reasonable body of trustees could have made. The burden of proof in that regard is on whoever alleges a decision based on a perverse balancing of factors.
16.7 Secondly, there is the issue of how much the trustees were entitled to take into account; only the €23.1 million to the defined benefit scheme or the external benefit of the €14 million extra to the defined contribution scheme structured so as to benefit only those people who were in both schemes. One of the trustees, Dermot Tuite, was definite in taking that wider benefit into account and said so at the crucial meeting of 25th of November. Of the reports prepared for the trustees, that of Holmes O’Malley Sexton does not deal with this issue. The expertise shown by the authors of legal advice to the trustees from this source was consistently to the point and well expressed. The main advisor from that firm was at the meeting at that point, advisors later left before the decision was taken, and her lack of dissent could reasonably be taken as positive advice. The Howarth Bastow Charleton report considers the figure of €23.1 million as being the crucial figure for comparative purposes. The report from Willis refers to the larger figure on an actuarial basis in analysing the appropriate range of choice open to the trustees. Apart from Dermot Tuite, the evidence of the other trustees was that some degree of consideration was given to the wider offer. In the direct examination of Siobhán Duffy, the testimony emerges as follows:
Question: And the second thing I wanted to ask you about is the extent to which you took into account the €14 million which was being paid outside the scheme, some of it to low paid pensioners and others to other groups. Just tell the judge what view you took of that, and whether and the extent to which you took it into account in your decision?
Answer: Okay. With regard to the proposal that was given to us by the company, all of the money that was in the proposal, the €35.4 million or that €37.1 million, was all going to members of the scheme and as a trustee I felt that since our obligation was to the beneficiaries of the scheme that it was relevant to consider the two sums. And also there was the point that the condition was that the €23.1 million was conditional on us accepting the €14 million, so they were linked.
Question: Yes. You had raised with the company, I think, the trustees had raised with the company the prospect of paying it all into the scheme, isn’t that correct?
Answer: We had. We had asked the company actually on the first day that it was presented, the trustees had asked the company was it possible to actually put all of the €35.4 million, as it was at the time, into the fund and the company had advised us that no, it wasn’t. And I think you’ve heard through other evidence the reasons that they gave was that they wanted to give an equitable distribution across the different members of the scheme.
Question: Yes. And the wind up of the scheme of course has a particular order of priorities, isn’t that correct?
Answer: Yes. The wind up of the scheme in Irish pension law has a particular priority. So with regard to pensioners, pensioners get preference, so therefore they get one hundred per cent of what is due to them at the given time, and then afterwards the deferred and actives are treated. …
Question: And one of the things… you asked Willis to do was to work out for you the amount that would go to each category under the company’s offer on the one hand or under an insolvent liquidation on the other hand; isn’t that correct?
Answer: That is correct. In order to understand the proposal that was put in front of us and also to understand what our options were with regard to a wind up and an insolvent liquidation we asked Willis to give us a breakdown of what that meant to the different members of the fund. …
Question: All right. And it sets out, for instance, but under the company’s proposal the actives were getting €17 million additional money?
Answer: Correct.
Question: And whereas if €42.5 million was paid into an insolvent winding up they would get less, €14 million?
Answer: Correct.
Question: On the second line it says that they would get €3 million, in fact its €2.5 million, by an increase in the rate of payment into the defined contribution scheme?
Answer: If they worked until the age of 65.
Question: If they worked until the age of 65 they get that under the company’s proposal but they wouldn’t get it on an insolvent winding up?
Answer: Correct.
Question: And then it does the same comparison for deferred pensioners. They would get €14 million additional money under the company’s proposal but €21 million under a €42.5 million payment arising from an insolvent liquidation?
Answer: Correct.
Question: And pensioners would get €2 million, that’s going to the low paid pensioners I think, under the company proposal, but they would get a maximum of €8 million if €42.5 million came in, from an insolvent winding up?
Answer: Correct.
16.8 As emerges from the questions, these figures were based on a written analysis by Willis. The more extensive evidence of Danny Coady also dealt with this. In cross-examination, the following evidence emerges:
Question: Well, the offer was €23.1 million?
Answer: Well, the offer that was – the monies going directly into the fund were €23.1 million, yes. The offer was for an additional €14 million to be paid to the beneficiaries of the scheme.
Question: And did you approach it on the basis so that the offer you are considering was one of €37.1 million?
Answer: Ultimately I had to consider the €14 million, yes.
Question: So the answer is – you approached your decision on the basis of the offer being €37.1 million?
Answer: Again I have to say again that I had to consider the €14 million. It had to be considered.
Question: Who advised you to approach it on the basis of €37.1 million rather than €23.1 million?
Answer: There was no direct advice. There wasn’t any direct advice that I should consider it to be €37.1 million.
Question: There wasn’t any indirect advice either, was there?
Answer: No, I don’t believe so.
Question: Mr McEnery [of Willis] approached it on the basis of €23.1 million, isn’t that so?
Answer: Mr McEnery-based it on the €23.1 million because it was his understanding that’s what our legal advisers had indicated.
Question: And in fact that’s the approach that the legal advisers seem to have taken as well, isn’t it, Holmes O’Malley Sexton?
Answer: Certainly at stages that is exactly what they had said, yes.
Question: And counsel was never asked for advice as to whether the appropriate comparator was €23.1 million or €37.1 million?
Answer: No, I don’t believe so.
Question: If the offer was €23.1 million, do I take it you would have refused the offer?
Answer: I actually didn’t ever consider it to be only €23.1 million.
Question: I appreciate that. You said that. There must come a point in time where the offer is in your opinion not enough. Treating the offer as being one for €37.1 million you seem to have taken the view that the offer should be accepted. If the offer was in fact €23.1 million, on the basis of the McEnery [Willis] report and other information you had available, what would your decision have been? Would it still have been to accept the offer rather than to serve a demand and face the possibility of liquidation?
Answer: As I said, I haven’t considered that, and certainly my thought process is that the level of risk that we’re talking about on liquidation – and not just risk in terms of proceeds, but risk in terms of time it will take for all those things to be settled, during that period it’s going to cause serious disruption to all of the beneficiaries and is going to cause them problems. So, for me the way up here, risk is the biggest single thing to consider here. As I say I didn’t consider it. I can’t say whether I would or I wouldn’t. I think risk would still have been a big consideration for me.
Question: Risk was factored into Mr McEnery’s figures [in the Willis report]. He had put in the discount factor, he had calculated the risk of certain assets not being fully recovered, so he took the risk into account in the figures that he came up with?
Answer: But he didn’t consider the impact on the beneficiaries of the scheme of litigation and liquidation going on for a prolonged period of time.
Question: Did you consider the impact on the beneficiaries of the scheme of them getting nearly €23.1 million into the scheme when €240 million was required in order to provide their benefits when there would be inevitable litigation that you had been warned of in advance anyway? Did you take that into account?
Answer: I considered everything.
Question: Well now, risks had been taken into account in Mr McEnery’s figures. If the offer had been €23.1 million and no €14.4 (sic) million on the side, would you have still taken it on the basis that you don’t want to take any risk?
Answer: I may well have done so.
Question: If it was €10 million would you still have taken it on the basis that you still don’t want to take any risks?
Answer: I really would have had to think about it long and hard.
16.9 This is honest evidence. The relevant factors were taken into account. The scheme of priorities on winding up was also properly considered.
16.10 The relevant expert evidence does not undermine the approach that the trustees took. It is instructive to note the similarity of their approach. Alan Broxson for the defendant trustees gave evidence as follows:
Question: Now then we talked about money outside the scheme. Your view on this, because really it’s a difference between saying its €23.1 million or is it €37.1 million? So your view on this is, as I understand you, yes, you can take that into account. So do you look at it as a trustee that the amount on offer is – in fact it became €37.1 million, but at the time they were thinking about it in the most detail it was €35.4 million, but let’s stick with €37.1 million. Do you take it that the trustees, in other words, the view expressed in the minutes by [Dermot] Tuite that, yes, I am taking that into account, is that right or?
Answer: Yes, I think it is right. I think I said in my evidence that a trustee would probably prefer that the totality goes into the fund, because that is the way the rules are actually structured, because then it is clear as to how the money is distributed, but if the company takes a different view, provided the money is going into the benefit of somebody, well maybe I won’t go and fight so much over it. It depends on how tough the company is being and what they want to do with it.
Question: Again the dilemma that is posed is obviously very extreme because if you take the €2.5 million that is still a defined contribution scheme that applies only really to people, it can’t apply to anyone who wasn’t ever in the defined benefit scheme?
Answer: Yes.
Question: So that is not benefiting all of the trustees, it’s benefiting only those who are continuing to work, in other words who are active?
Answer: I think you are right, Judge, and I think my reading of that was that what the company was at here—just remember that the company removed the entitlement to future credit going forward and removed pension increases—and therefore the people with the longest past service, pensioners, which will include pensioners and deferreds, they would have all of that. The people who were losing, the people who are actually bearing the cost, if you like, of past problems. And this is unfortunately the case, and I hesitate to put it in these terms but, as I said, the problem in most pension funds are caused by the weight of the pension liability and when companies make a change to the benefit structure to try to recover it, inevitably it is those still in employment who actually suffer most. So it is not a surprise to me therefore that companies will try, as part of the settlement, to somehow redress that. That is simply what I have seen and I have seen it happen several times.
Question: Then we are talking about €2 million to low incomes. That became €2.5 million, but I think that was for those who were pensioners already who are under €17,500 [pension income] annually?
Answer: Indeed, yes.
Question: So is that kind of more reasonable to take that into account?
Answer: Well, where we sit as trustees, we have known for quite some time, that the Pensions Act was unduly favourable to pensioners and the very fact that the Minister has recently proposed in a Bill, which is going to the Dáil to change the priority and if you look at it it’s geared to protect the lower pensioners, I think what the company was trying to do, if you like, was very much what the Minister has now tried to do. So, you know, as, if you look at it from the outside you would have to say that is a reasonable thing to do.
Question: And then, finally, you have the €8.1 million which was €7.8 million, which is going to the actives. So those were working and actively contributing that is going… outside… into the defined contribution scheme. Again, do you take that into account, given that it’s only a sector? Because as I understand the sector in terms of the numbers we are talking about kind of … 173 actives, as opposed to 258 who are actually on pension and 375 who are deferred and really, I suppose, 375 who are deferred or hit the worst?
Answer: Like I said, Judge, inevitably the actives are the ones who lose most in a restructuring. And that has happened in this case and I can therefore perfectly understand why the company would want to do that to redress some of the laws that they have suffered to get a better balance and it’s interesting that the changes being made by the Minister in fact will achieve that going forward.
16.11 A definite view in favour of the trustees being enabled to consider the effect of the wider offer was given by Vernon Holgate on behalf of the plaintiff trustees. He had thought that the trustees had received legal advice not to take the extra €14 million into account. He continued as follows:
Question: Well, that’s actually not clear from the Holmes O’Malley Sexton legal report. It simply talks about €23.1 million. It doesn’t comment on the question of whether you should only consider the €23 million or not?
Answer: I think it’s one of the few areas of directed legal advice which they received which told them to take it out. So if you – it undermines the value of this as a slide.
Question: Sure. Well I’m not sure that they did. Just leaving that aside for a moment Mr Holgate if you wouldn’t mind just leaving that aside, it does emphasise the importance of considering the total offer, doesn’t it?
Answer: I think, I think it is a very difficult area where people are talking about making settlements for one class of members into another trust, not your trust. But, these are a group of active members and they are beneficiaries. You owe them obligations and rights and duties, if you are not seeking to prefer one group over another and you want to take that into account and you can be sure that payment would be made for their benefit, I don’t think it is unreasonable to factor that in. Actually the problem tends to come from the lawyers who will not let you. So there is a difference between, if you like, my professional view and the legal view.
16.12 Earlier questions and answers in cross-examination confirmed this viewpoint as a professional trustee:
Question: All right. So the company is offering a payment of €23 million, €23.1 million straight into the fund and it’s offering a top up of €14 million to be paid outside the fund, isn’t that correct?
Answer: Yes.
Question: …And in summary they are payments of various sorts, some to active members and some to lower paid pensioners outside the fund, isn’t that correct?
Answer: Yes.
Question: All right. And they are intended to provide benefits for those two categories of people that wouldn’t easily be provided through the fund, that is active’s and low paid pensioners, and they wouldn’t be easily provided through the fund because of the priority issues, because of the priorities that apply in the winding up of a [pension] fund, isn’t that correct?
Answer: Yes.
16.13 From the point of view of loss of employment, a detriment reasonably to be expected as arising from a refusal of the offer, and from the point of view of taking account of the sums to go to the members of the defined benefit scheme but under the defined contribution scheme, a benefit to those members arising from accepting the offer, the trustees acted correctly. This approach accords with what the duty of trustees ought to be. They are entrusted with sums of money and property in order to benefit defined individuals. They are expected to act honestly and in good faith. They are expected to act within the range of what reasonable trustees would do. The property that they are called on to administer is for the benefit of the members of the pension fund and it would be wrong for trustees to take a narrow view that admits of only the financial considerations under the trust deed and not financial benefits arising from an offer that would go to those same members. Where an offer includes a detriment in real terms of loss of employment and an ongoing detriment to any future contributions to the fund by a demand putting the funder out of business, that as a matter of law and on the evidence is something the trustees can take into account. In public law, these issues would be questions of vires, or excess of jurisdiction. There is no evidence of it. Questions of weight, as previously considered, are matters for them once the decision is reasonable.
Overall factors in the decision
17.0 Additional factors to the threat of the loss of employment and the additional benefit to defined benefit scheme members under the defined contribution scheme were taken into account. These emerge clearly from the text of the reports and are in the context of the correspondence and various steps taken up to the meeting of 25th of November 2011. In that context the evidence of the three trustees who gave evidence is instructive.
17.1 Siobhán Duffy said that one of the factors was the liquidation of the company, certainly, but she couldn’t lose sight of the fact that making a demand would mean the entire loss of the offer. She regarded the trustees as having weighed the certainties and the uncertainties to try and make the best decision. She was shocked by some of the evidence given at trial on behalf of the company. The Court shares her concern. Her clear view was that the trustees would not obtain a better return by making a demand. Her view of the variables on the Howarth Bastow Charleton analysis was that some between €42.5 million and €18 million might be available on liquidation. There was also an issue as to whether the contribution demand would be considered as a debt on the company in liquidation at all. The lower figure was encountered in the event that the debt was not preferential. She had personal knowledge of the Shannon plant, as did the other trustees, but the personal view that you took in relation to the money that might be recovered in liquidation was more sanguine. Trustees are entitled to take their own information into account as well as seeking the advice of experts. After all, the reason they are there as trustees is to exercise their judgment on the basis of common sense and local knowledge as well as seeking expert advice for more difficult decisions or ones which are outside the sphere of their immediate competence and experience. Her view of the Shannon buildings was that there were empty buildings which had not been shifted over some years; that the legacy and obsolete stock that was being valued might not be as saleable as the estimates on liquidation proposed; that a great deal of the product on hand was unfinished; that without brand support from the parent company, or some branch of it, sales at an appropriate value were dubious apart from the possibility of sale at low value to a buyer in China; and she felt that the process of liquidation could have been a long one perhaps lasting over a period of three years. Dermot Tuite took a similar view. He said that the decision of 25th of November 2011 had come after a detailed consideration of the legal advice available, the report of Howarth Bastow Charleton, the presentation by Willis and the knowledge which the trustees had of the company and the background. The threat of liquidation was serious. If the demand was made then the offer might be lost. He felt that the offer was the least bad offer but that the offer was not good. The Willis report gave the numbers but he differed from the accountancy report on the issue of the value of local property. He felt that the company was paying high rates on big buildings and that some of these buildings had zero attraction for investors. On the question of the inventory, sales he thought would be dubious as what was involved was a raw material. Holmes O’Malley Sexton took the trustees through all the relevant information. One proposal by the company trustees was to seek a meeting with a higher official than the one with which they were meeting but some of the trustees declined. Danny Coady had regard to the seriousness of the situation. The pension deficit was a multiple of the annual group profit. He had interacted with Carmel Sexton on the question as to whether more money might be available and she had told him that there was no more on the table. This answer was given by Carmel Sexton in good faith from a source within the company that was not acting in good faith. The concerns which he had were shared by the other trustees. The fact that some trustees came out in favour and some against does not render a decision unreasonable. The variables in the decision were: whether Element Six Limited would shut down the plant; whether the debt could be recovered through liquidating the insolvent company; would the debt to fund the pension deficit be preferential; and could the sums in dispute that were alleged to have been siphoned off be recovered? On the latter issue, he felt there was little room for manoeuvre as a major firm of accountants had signed off on the relevant accounts. As he saw it, the rationale for the decision was that the company would end up in liquidation; that money in the hand had to be considered as against the multiple risks on a liquidation; that among the risks was whether, and the extent to which, the pension fund was a creditor or not and the extent to which this debt was preferential or not; that the time for liquidation could be up to three years and that it could be a very difficult liquidation; and that, overall, the his sense of responsibility required him to take the guaranteed money on behalf of the beneficiaries. Letting go of the money was not an option. Everything was given serious consideration in light of the threat of shutting down the company. Payments outside the scheme of €14 million which were going to go to the beneficiaries are to be considered in addition.
Reasonable body of trustees
18.0 Did the trustees act reasonably? This is not something in respect of which a court needs expert evidence; though the Court has had the benefit of expert views which have been helpful in debating the issues back and forth. The trustees were experienced people with a good knowledge of the company, how the company was likely to react, and who had obtained expert advice on issues of accountancy, the likely results on insolvency, the actuarial value of the various figures and pertinent legal opinions. The final summary of the issues presented for decision by Holmes O’Malley Sexton was admirable.
18.1 Having regard to all of the evidence which the Court has heard and seen and the variable factors as they were reasonably considered at the time, the decision of the trustees could not be regarded as one which no reasonable body of trustees could have made. The trustees’ decision of 25th of November 2011 was well within the range of what might be considered a reasonable response to a very difficult situation. The same observation applies to all the other trustee decisions that have been put in issue in this case.
Result
19.0 The defendant trustees would have been under enough pressure already without further stress in having to make the decision which they made on 25th of November 2011. But, the Court must regrettably record that it is clear from the evidence that Element Six Limited in Shannon organised additional stresses. This was not ostensibly authorised at the ultimate board level of the international company in Luxembourg and, in fact, there is no evidence to suggest that. At the local level, the attitude adopted by the company in Shannon by the two relevant male executives was one lacking any emotional intelligence and was completely geared towards monetary success at the expense of any humanity in approach. That is not always what business is about. The attitude was always: there is no more money and this is our final offer. This was not true; the board minutes of the ultimate parent company in Luxembourg indicate that an offer of €40 million was authorised. Earlier in the year, larger sums were mentioned at that board level as possibly being made available, but times change. A degree of flexibility might have stretched even the €40 million available, in the Court’s best estimate, by up to 10%. The local negotiators falsely adopted an attitude that in law no contribution demand could be served by the defendant trustees when they knew that this was untenable. Overall, this was a textbook example of how not to approach the delicate negotiation of exit from a defined benefit scheme. In contrast to this approach, the correct matrix for the making of a difficult decision on the future of a pension fund should be one of both sides attempting to solve a shared and very difficult problem. Honesty in laying out the position of both sides aids such a process. Experience has shown that such an approach is almost always a sure guarantee against later being brought to court.
19.1 The defendant trustees did their best. They were not overwhelmed or crippled or influenced to any degree by any conflict of duty or interest. As a matter of fact, their decision was solely made in the interests of the beneficiaries. That decision was arrived at on a fair appraisal of the situation as they saw it and after all reasonable enquiries. It was made honestly and in good faith. Their actions can only be judged according to the knowledge which they had at the time of their decision. They might be criticised had they not obtained the best possible advice; but, they did this and from reliable and expert sources. They took all of that advice into consideration and, with prudence and fortitude, made the decision which they thought was in the best overall interests of the beneficiaries under the defined benefit scheme. They did not take any irrelevant factor into account and nor did they ignore any relevant factor. Nor does the weighting which the defendant trustees gave to particular factors emerge as unreasonable. Ultimately, in the entirety of the circumstances, the decision which the trustees made to decline to serve a contribution demand and to accept the company’s offer of €37.1 million in winding up the pension scheme was not one with which any court could take issue.
19.2 Having heard counsel on costs, the Shannon company has indemnified the trustees and is not seeking costs. Having lost, plaintiff beneficiaries are not seeking costs either.
In the Estate of Stanley
[2016] IEHC 8
Ruling of Mr Justice David Keane delivered on the 15th January 2016
Introduction
1. This is an application for orders setting aside a trust (“the trust”) on the basis that it is void for uncertainty. The trust came into being on the death of Mr. Thomas Heuston Stanley (“the settlor”), on the 30th of November 2012, in accordance with the terms of a will executed by him on the 18th of July 2002 (“the will”).
2. The application is made on behalf of Karen Stanley and Frances Stanley (“the applicants”), who are, respectively, the daughter and widow of the settlor.
Background
3. The will appoints the applicants, together with Mr. Donal Branigan, a solicitor, and Mr Vincent Murray, an auditor, as both executors under it and trustees of the trust that it creates.
4. The relevant portion of the will, which creates the trust at issue, is the following:
“2. I GIVE DEVISE AND BEQUEATH all of the property of whatsoever nature or wheresoever situate of which I stand possessed to my Trustees to hold upon the following Trusts:
(a) To pay all my debts, funeral and testamentary expenses.
(b) To hold as to income for my daughter KAREN, such income of the Trust to be paid within 28 days of it being received by the Trust.
(c) To hold as to Capital (subject to any appointments made by them) upon Trust for:
(i) My wife FRANCES STANLEY, my daughter KAREN and any spouses or issue of KAREN. Such of my, or those of FRANCES STANLEY, NEPHEWS AND NIECES as I or FRANCES STANLEY may from time to time add. All of whom are hereafter referred to as “My Beneficiaries” in such shares and at such times as my said Trustees may in their absolute discretion think fit and generally in such manner in all respects as my Trustees may in their absolute and uncontrolled discretion at any time or times or from time to time by deed or deeds revocable or irrevocable executed before the Vesting Day but without transgressing the rule against perpetuities appoint
(d) In default of an (sic) subject to such appointments as aforesaid my Trustees shall hold my Estate upon Trust to pay, apply or accumulate such part or parts of the income therefrom as they shall in their absolute and unfettered discretion see fit to or for the benefit of any one or more of my Beneficiaries to the exclusion of the other or others in such proportions and in such manner as my Trustees in their absolute discretion shall think fit PROVIDED that my Trustees may accumulate all or such parts of the income as an accretion to the Trust Fund by investing the same and resulting income therefrom in the manner hereinafter providing and my Trustees may apply the accumulation of any preceding year or years to or for any of the Beneficiaries in the same manner as such accumulation might have been applied had it been income arising from my Estate in the then current year and subject thereto my Trustees shall hold such accumulations and investments representing the same for such of my Beneficiaries as shall eventually become entitled to my Estate.
(e) Subject to the Trust’s powers and provisions herein declared and contained and to any and every exercise of such powers and Trustees shall hold the Trust Fund upon Trust for such of the Beneficiaries as shall be living on the Vesting Day and the issue then living of any such child or children who may have died before Vesting Day and if more than one in equal shares but so that such issue of a deceased child shall take equally between then as tenants in commonly only the share which their parent would have taken had he or she been living on the Vesting Day so that any part of the Capital of the Trust Fund appointed or advanced to any Beneficiary under the powers of aforesaid shall be brought to hotchpot or account in assessing such equal shares.
(f) The Vesting Day shall be the day on which will have expired one hundred years from my death.”
The present application
5. The applicants submit that clause 2 of the will establishes two separate trusts: a fixed trust under clause 2(b) and a discretionary trust under clause 2(c). They then argue that each of those trusts is void for uncertainty on various grounds. For reasons I will come to shortly, I do not propose to address those arguments in the present ruling, nor do I propose to address whatever argument there may be concerning whether the will creates two separate trusts (one fixed and one discretionary) or a single trust with both fixed and discretionary elements, and whether anything turns on that distinction.
6. The application is brought on very limited evidence. At several points in the analysis that follows, it will be evident that relevant information has not made available to the Court.
The capacity in which the present application is brought
7. As is evident from the foregoing, the first named applicant is the daughter of the settlor; an executor of his will; a trustee of the trust thereby created; and a beneficiary of the trust. The second named applicant is the widow of the settlor; an executor of his will; a trustee of the trust thereby created; a beneficiary under the trust; and the holder of a power conferred on her by the trust to appoint additional beneficiaries from the class of persons comprising her nieces and nephews and those of the settlor.
8. Moreover, although the applicants have not addressed the point, it seems tolerably clear that, should the trust fail (or be declared void, as the applicants argue it should be), the settlor’s estate would then fall to be distributed in accordance with the rules on intestacy, since the will contains no residuary clause. S. 67 (2) of the Succession Act 1965 provides:
“If an intestate dies leaving a spouse and issue-
(a) the spouse shall take two-thirds of the estate, and
(b) the remainder shall be distributed among the issue….”
Accordingly, it would seem that the applicants have an obvious personal interest in the question of the validity of the trust as the persons entitled to share directly (and, in all probability, exclusively) in the property the subject of the settlor’s estate, should the trust of which they are trustees fail. The applicants have not disclosed whether the first named applicant is the sole (or sole surviving) issue of the settlor. It may or may not be appropriate to draw an inference to that effect from the terms of the settlor’s will, whereby the first named applicant is the only child of the settlor identified and provided for.
9. In relation to the status of the applicants as beneficiaries of the trust, the first named applicant has averred that she is not now, nor has she ever been, married or in a civil partnership with any person, and that she has not now, nor has she ever had, any children. However, other than averring that she has reached her majority, the first named applicant provides no further information concerning her age or her personal circumstances. No evidence whatsoever has been laid before the Court concerning whether or not the settlor or the second named applicant exercised the power of appointment vested in each to add any nephew or niece as an additional beneficiary under the trust. Counsel, for the applicants informed the Court that, according to his instructions, no such appointment has been made to date but, as Counsel well knows, his instructions are not evidence.
10. In relation to the status of the applicants as executors of the settlor’s will, the first named applicant has sworn an affidavit exhibiting the grant of probate made on the 26th August 2013, whereby the will was admitted to proof and the administration of the settlor’s estate was granted by the Court to each of the applicants as two of the executors named in the will. In the same affidavit, the first named applicant has averred to the truth of the matters pleaded in the special summons. The special summons pleads that no income or capital has yet been put on trust but no explanation is forthcoming as to why that has not been done, nor is any other information provided concerning the present status of the administration of the estate.
The relevant duties of trustees
11. As the very learned author of Keane, Equity and the Law of Trusts in the Republic of Ireland, 2nd ed., Dublin, 2011, states (at para. 10.01 of that work):
“The first duty of a trustee who has accepted office is to acquaint himself with the nature of his trust. He must, accordingly, without delay, familiarise himself with the terms of the instrument creating the trusts and find out what property is subject to the trust. He is, thereafter, under a paramount duty to carry out the directions of the settlor in administering the trust.”
12. Earlier in the same work, addressing the topic of those who can be appointed trustees, the author states as follows (at para 9.02):
“A beneficiary may be appointed a trustee, but it is undesirable that he should be in any case where a conflict of interest is likely to arise. In practice, beneficiaries are frequently appointed, if for no other reason than that it is hard to find persons who are willing to act who are not going to benefit. This is perfectly lawful, but the possibility of a conflict of interest arising should always be borne in mind.”
13. It seems to me that the duty upon a trustee to avoid a conflict of interest is not in any sense narrowly confined to those cases where the conflict at issue is that between a person’s duties as trustee and his or her interests as a beneficiary. In Snell’s Equity, 32nd ed., London, 2010 (at para. 7-018), the authors cite, as the general principle governing conflicts between the duty and interest of a trustee, the following dictum from Bray v. Ford [1896] A.C. 44 (at 51):
“It is an inflexible rule of a Court of Equity that a person in a fiduciary position…is not allowed to put himself in a position where his interest and his duty conflict.”
The position of the trustees on the present application
14. It is a remarkable feature of the present application for orders declaring the trust void that the applicants are themselves trustees under the will, subject as such to a paramount duty to carry out the directions of the settlor (which directions the present application would, if successful, negate) and subject also to an obligation not to permit any conflict to arise between the personal interest of each (whether as a beneficiary under the trust or as a person entitled to the trust property should the trust fail) and the duties of each as a trustee (including the paramount duty just described).
15. The position of the other trustees is scarcely less troubling. The applicants’ solicitor has sworn an affidavit in which he avers that he served a copy of the proceedings on each of the other two trustees, Mr Branigan and Mr Murray, and to which he exhibits the letter that he received from each in reply. Both of those letters comprise a single sentence, amounting to the laconic recital in each instance that the trustee concerned has “no objection” to the applicants’ claim. In neither of those letters, nor anywhere else in the evidence before the Court, does either of those trustees explain why he has adopted a position of disengagement or how he can reconcile having doing so with the proper discharge of his responsibilities as trustee.
The position of Mr Branigan
16. This application turns on the proper construction of the settlor’s will. Indeed, the applicants contend, by reference to the arguments they make, that they can surmount the high hurdle of persuading the Court that it is entirely impossible to place a meaning on the will that would prevent the trust that it creates from being void for uncertainty.
17. That test of impossibility derives from the following statement of Budd J. in Kilroy v. Parker [1966] IR 309 (at 320):
“The difficulties in interpreting a disposition which is ambiguously expressed are not enough to render the disposition void for uncertainty. To be void for this reason it must be utterly impossible to put a meaning on it.”
18. In the subsequent case of O’Byrne v. Davoren [1994] 3 IR 373 (at 382) Murphy J. commented on that test as follows:
“the significance of the judgment of Budd J….is the determination with which he sought to salvage the validity of the particular testamentary trust notwithstanding the difficulties created by the manner in which the testatrix had expressed her intentions. Again I could respectfully agree that the learned judge was entirely correct in that course and as far as possible I believe that a similar approach should be taken in the present matter.”
19. S. 90 of the Succession Act 1965 states:
“Extrinsic evidence shall be admissible to show the intention of the testator and to assist in the construction of, or to explain any contradiction in, a will.”
20. The decision of the Supreme Court in Rowe v. Law [1978] IR 55 makes clear that, under s. 90, extrinsic evidence will be admissible where: (a) there is ambiguity on the face of a will; and (b) it is necessary to ascertain the intention of the testator.
21. Accordingly, if the applicants can make any headway with their argument that there is some ambiguity in the terms of the will creating the trust, then that will in turn, at least arguably, open the door to the admission of extrinsic evidence of the settlor’s intentions to the extent that it is appropriate or necessary to consider them in order to resolve that ambiguity.
22. In circumstances where Mr Branigan is named as an executor and trustee under the will; where the copy of the will admitted to probate has been certified by his firm; where the grant of probate was extracted by his firm; and where the will appears to have been witnessed by two persons who describe themselves as legal secretaries and who each give as their address that of Mr Branigan’s firm, it seems to me very possible, if not probable, that Mr Branigan may be in a position to provide some relevant extrinsic evidence in that event.
23. In view of the duties and obligations of Mr Murray and Mr Branigan as trustees; the potential conflict of interest on the part of the applicants who are the only other trustees; and the possibility that Mr Branigan, in particular, may be in a position to provide evidence relevant to the present application, it seems to me entirely inappropriate that the involvement of Mr Murray and Mr Branigan in these proceedings should be limited to the provision by each of a bare statement that he does not object to the grant of an Order setting aside the trust.
24. On the contrary, in order to properly exercise the supervisory jurisdiction vested in this Court, I require each of the trustees to apprise the Court of the steps that he or she has taken to date both to become acquainted with the nature of the trust and to carry out the settlor’s directions. On the limited evidence so far presented, a disturbing (though, perhaps, misleading) impression has been created that the instant application arises, not in the context of an attempt by the trustees to obtain some necessary clarification of the meaning of the trust instrument in order to enable the proper discharge of their duties, if that is possible, but rather in the context of an attempt by some or all of the trustees to repudiate those duties by impugning the validity of the trust that imposed them. It is probably superfluous to observe in that context that, while the role of a trustee can be an onerous one (especially in a case like this where, atypically, the trust instrument contains no remuneration clause), there are mechanisms available whereby a trustee who is unwilling to act may disclaim his or her appointment or, if he or she has accepted it, may seek to be discharged from that position.
Procedural issues
25. I have already referred to the failure of the applicants to state whether they have brought these proceedings in their capacity as trustees or in some other capacity, such as that of the persons directly entitled to the trust property in the event that the trust is found to be invalid.
26. Order 4, rule 9 of the Rules of the Superior Courts (“RSC”). provides as follows:
“If the plaintiff sues or the defendant is sued in a representative capacity, the indorsement shall show in manner appearing in such of the forms in Appendix B, Part I, as shall be applicable to the case, or by any other statement to the like effect, in what capacity the plaintiff or defendant sues or is sued.”
27. Turning to Appendix B, Part I of the RSC, it contains the following precedent:
“Trustee
The plaintiff’s claim is as [or the plaintiff’s claim is against the defendant as] trustee under the will of AB….”
28. Were the Court to infer from the trustees failure to plead that they sue in their capacity as trustees that they do not sue in that capacity, then a number of questions follow.
29. The first question is who is to represent the trust? The applicants have brought the present proceedings ex parte. Order 54, rule 1 of the RSC provides in material part that:
“…[T]he trustees under any deed or instrument or any of them, and any person claiming to be interested in the relief sought as…cestui qui trust under the trust of any deed or instrument…may take out a special summons for relief of the nature or kind specified in Order 3 (1) to (7) inclusive.”
30. Order 54, rule 2 provides in relevant part that, where the summons has been taken out by the executors or trustees, the persons to be named as defendants in proceedings covered by the foregoing rule shall be, at least in the first instance, one or more of those persons claiming an interest in the trust as beneficiary (or, in the words of the rule, as ‘cestui que trust’). Since, in the unusual circumstances of the present case, that rule would give rise to the unhelpful, if not absurd, result that the applicants would be suing themselves, it is obviously necessary to move beyond ‘the first instance’ in seeking to ensure the effective and efficient administration of justice in this case.
31. Order 54, rule 2 (2) of the RSC provides that where a summons of the kind at issue is taken out by a person other than an executor or trustee, the appropriate defendants at first instance are the executors or trustees. This rule, while not of immediate application in the circumstances of the present case, demonstrates what many would argue is the self evident proposition that the interests of the trust should be represented in the face of any challenge to the validity or operation of that trust.
32. In advancing the quest for an appropriate legitimus contradictor in the unusual circumstances of this case, some assistance can be gleaned from the case law. Kilroy v. Parker [1966] IR 309 was a will construction suit brought by the executors of that will in that capacity. Very properly it seems to me, the defendants in that case included the sole surviving brother of the deceased (presumably, as the person entitled to benefit on an intestacy, should the trust completely fail) and two separate classes of potential beneficiary under the trust. It seems to me that the pertinent principle demonstrated by the approach adopted in that case is that different classes of beneficiary (or, in my view, different beneficiaries within the same class) may have different interests necessitating separate representation on an issue of construction.
33. In the subsequent case of O’Byrne v Davoren [1994] 3 I.R. 373, again the plaintiff brought a will construction suit in his capacity as executor. The first defendant was joined in the proceedings as representative of the potential beneficiaries under a residuary bequest and the second defendant was joined as representative as those who would benefit in the event of an intestacy.
34. The obvious difficulty in this case is that the persons purporting to prosecute the present will construction suit ex parte are persons among the trustees and executors; among the potential beneficiaries (indeed, it would seem, the only extant potential beneficiaries); and comprise the persons who, it appears, would be entitled to the trust property should the trust fail.
35. Order 15, rule 8 of the RSC provides as follows:
“Trustees, executors, and administrators may sue and be sued on behalf of or as representing the property or estate of which they are trustees or representatives, without joining any of the persons beneficially interested in the trust or estate, and shall be considered as representing such persons; but the Court may, at any stage of the proceedings, order any of such persons to be made parties either in addition to or in lieu of the previously existing parties….”
36. It seems to me that, as the foregoing rule suggests, it would be quite improper to issue proceedings impugning the validity of a trust in a non-trustee capacity without joining the other trustees of the relevant property or estate. While the applicants in this case have put the other trustees informally on notice of the present ex parte application, that cannot be sufficient since it leaves the applicants’ claim without a legitimus contradictor and deprives the wider class of potential beneficiaries (comprising any person who may yet come within that class other than the applicants and, thus, will come within a separate class of beneficiaries without any evident residual or other claim to the trust property) of any representation of its interests in the face of the applicants’ claim to orders that would, if granted, extinguish those interests.
37. On the other hand, if the applicants are purporting to prosecute these proceedings in their capacity as trustees, then that would give rise to a number of problems, quite apart from their obvious breach of the rule requiring them to include an express plea to that effect. First, a question would then arise concerning whether or not it is permissible for the applicants as trustees to bring proceedings challenging the validity of the trust in respect of which they are more aptly the appropriate defendants.
38. Second, even if it were accepted that some circumstance might be imagined in which it may be appropriate to allow a trustee to bring such proceedings, it is difficult to see how the present action could fall properly within that category.
39. Third, the present proceedings have not been brought in the form appropriate where a trustee or trustees require the resolution of a question or questions arising upon the construction of a trust instrument.
40. Order 4, rule 4 of the RSC, provides (in relevant part):
“The indorsement of claim … on a special summons shall be entitled “SPECIAL INDORSEMENT OF CLAIM”, and shall state specifically and with all necessary particulars the relief claimed and the grounds thereof. The indorsement of claim on … a special summons shall be in such one of the forms in Appendix B, Part III, as shall be applicable to the case, or, if none be found applicable, then such other similarly concise form as the nature of the case may require.”
41. Precedent No. 2 in Appendix B, Part III, section 2 of the RSC, recites as follows:
“Construction
The plaintiff’s claim is as the executor and trustee of the said will mentioned in the title hereof of XY,deceased, for the determination of the following questions arising (in the administration of the estate, and) upon the construction of the said will of the said testator, and in the events that have happened, viz (Set out questions in form which will enable them as far as possible to be answered “yes” or “no”) and that the cost of the proceedings may be provided for.”
42. There is a stark contrast between proceedings constituted in the manner just described and the present proceedings. Here, the applicants do not present disinterestedly particular questions for the consideration of the Court to enable them to carry out their duties as trustees, in so far as may be possible in accordance with the terms of the trust instrument. Instead, they seek a very particular construction of the trust instrument rendering it void for uncertainty, in support of an application for specific terminal reliefs, namely, Orders declaring the trust void, and they purport to do so, against the background of an apparent conflict of interest (whereby they would directly benefit in their personal capacity from such Orders), in the absence of any legitimus contradictor. It is difficult to see how, in the exercise of its supervisory jurisdiction, the Court could permit the proceedings as presently constituted to proceed in that way.
Conclusion
43. For the reasons set out above, I have come to the conclusion that the presence before the Court of Mr Murray and of Mr Branigan in the capacity of each as trustee of the trust at issue is necessary to enable the Court effectually or completely to adjudicate upon and settle the questions involved in the present proceedings. Accordingly, both in the exercise of this Court’s supervisory jurisdiction and pursuant to the terms of Order 15, rule 13 of the RSC, I hereby Order that Mr Vincent Murray and Mr Donal Branigan be joined or added as defendants to these proceedings in the capacity of each as trustee of the trust at issue and I will adjourn the present application to afford the applicants (or plaintiffs, as it seems to me those parties should more properly be described), a reasonable opportunity to take the appropriate consequential steps in accordance with the RSC, if the present proceedings are to be maintained. It is for that reason that I do not propose to adjudicate at this stage on the application as it was presented to the Court.