Bonham & Anor v Fishwick & Anor

A trustee exemption clause preserving liability only for wilful and individual wrongdoing provides a complete defence where the alleged breach rests on a supposed departure from legal advice, but a fair reading shows that the trustees accepted and followed that advice. Legal advice must be read in the context of the instructions and circumstances to which it was directed. A warning against a hypothetical fresh transaction does not govern a later, materially different transaction.

A broad power permitting trustees, in their absolute discretion, to make arrangements connected with a corporate reconstruction can authorise an option needed to secure consent to a restructuring that benefits the trust. That power may operate independently of a narrower power concerning additions to the trust fund.

The appellants, the replacement trustees of a settlement, brought a claim for breach of trust against the former trustees. They challenged the grant of an option over shares created during a corporate reorganisation and the resulting payment to the option-holder.

Evans-Lombe J struck out the claim on 30 July 2007. He held that the settlement’s exemption clause protected the respondents because the pleading did not disclose sufficient particulars of wilful and individual wrongdoing. He also held that the proceedings were an abuse of process, although that ground was not determinative on appeal.

The appellants contended that the respondents had acted contrary to counsel’s 1999 advice concerning an earlier option and their power to grant a fresh option. The central issue was whether that advice and the terms of the settlement left an arguable case of wilful wrongdoing.

1. The appeal was dismissed unanimously. Lord Justice Mummery held, with whom Lord Justice Keene and Lord Justice Rimer agreed, that the claim had properly been struck out because clause 17 of the settlement was a complete defence. No arguable case of wilful and individual wrongdoing was disclosed.

2. The respondents had not acted contrary to their legal advice. Counsel’s 1999 opinion, fairly and reasonably read with the solicitor’s advice letter, advised that the First Option was valid and enforceable. Counsel had stated the historical rule in Samuel v. Jarrah, [1904] AC 323, but gave the confident view that the House of Lords would depart from it. Trustees could not be guilty of wilful wrongdoing by accepting and acting on that advice.

3. The advice headed “New option” did not concern the Second Option granted during the later reorganisation. It addressed only the hypothetical grant of a fresh option over the original shares if the First Option were void. It therefore had no application to the changed circumstances in which the Second Option was granted.

4. Further, clause 14 conferred ample authority to grant the Second Option. Its broad words permitted arrangements connected with a reconstruction in the trustees’ absolute discretion. The option secured the consent necessary to reorganise and sell the auction business, producing more than £2.5 million for the trust. The court did not need to decide the limits, if any, imposed by clause 2.

5. As the clause 17 defence disposed of the action, the court expressed no view on the alternative estoppel or abuse-of-process ground.

• Court of Appeal (Civil Division) — dismissed the trustees’ appeal and upheld the striking-out of the breach of trust claim.
• High Court of Justice, Chancery Division — on 30 July 2007, Evans-Lombe J struck out the claim on the grounds that clause 17 supplied a complete defence and that the proceedings were an abuse of process. Permission to appeal was later granted by Carnwath LJ.