Hollis & Ors v Rolfe & Ors

A charitable trust’s purposes cannot be altered by adopting religious or other internal rules without an appropriate scheme. Internal rules may regulate the trustees’ administration, but they cannot introduce new beneficiaries or change the trust’s objects.

Where property is conveyed to purchasers as joint tenants, beneficial ownership is presumed to follow legal ownership. That presumption may be displaced by evidence showing that the property was acquired for a trust, but vows of poverty alone are insufficient.

A sale by trustees is not a breach of trust where the trustees had power to sell, obtained appropriate professional advice, relied on an adequate valuation and acted in the interests of the trust. Claims for knowing assistance require dishonesty, while knowing receipt requires retention of the property to be unconscionable.

The claimants sought recovery of Penton Lodge and West Lodge. Penton Lodge had been held by trustees for a Roman Catholic community and its educational work, and was sold to the first defendant subject to a leaseback to a charitable company operating the school. West Lodge had been repurchased by three nuns and later transferred to the second claimant and ultimately to the second defendant.

The claims alleged breach of trust, breach of fiduciary duty, the rule against self-dealing, undue influence, knowing assistance and knowing receipt. The Bishop also relied on the Community’s constitution, Canon Law and the later suppression of the Community. The court had to determine the trusts affecting the properties, the effect of the constitution and the validity of the challenged transactions.

1. Trusts affecting the properties. The 1946 purchase was held on charitable trusts to provide a residence for the Community and to promote the Christian religion, including by providing a school. Members of the Community were beneficiaries for maintenance and support in their charitable work. The court followed the reasoning in Cocks v Manners [1871] LR 12 Eq 574 in treating the active religious community as charitable.
2. The 1956 Constitution could regulate the Community’s day-to-day affairs and restrictions on alienation, but it could not alter the objects or beneficial interests of the established charitable trust without a scheme. The Bishop therefore had no beneficial interest or locus standi. The 1987 Declaration of Trust was similarly ineffective to alter those interests. By joining in the relevant dispositions, the surviving member had in any event abrogated the internal restriction on alienation.
3. West Lodge. The 1976 transfer described the purchasers as beneficial joint tenants. Applying Stack v Dowden [2007] 2 AC 432, with reference to Oxley v Hiscock [2005] Fam 211, the presumption that beneficial ownership followed legal ownership was not rebutted. The claimants failed to prove that the purchase price came from Community funds. The claim to recover West Lodge therefore failed.
4. Penton Lodge. The trustees had power to sell. They obtained advice from specialist solicitors and counsel, an independent valuation and a leaseback designed to preserve the school’s use of the premises. The sale was not shown to be a breach of trust. The criticisms concerning uncertainty of the trusts, changes to the lease and alleged permanent occupation rights did not establish any breach.
5. The undue-influence claim failed on the evidence. The claimants’ allegations against the first defendant did not establish that the assent of the surviving member was improperly procured. Following Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773, the relevant principles were settled, but they were not satisfied on the facts.
6. The rule against self-dealing did not apply to the purchaser, who was neither trustee nor fiduciary of the property. The trustee defendant did not act in breach of trust. The knowing-assistance claim failed because dishonesty was not pleaded or proved, applying Royal Brunei Airlines v Tan [1995] 2 AC 378. The knowing-receipt claim failed because the sale was not a breach of trust and retention of the property was not unconscionable, applying BCCI v Akindele [2001] Ch 437 and the formulation in El Ajou v Dollarland Holdings plc [1994] 2 All ER 685.
7. The claims failed. The judge nevertheless drew attention to the potentially valuable disclaimed lease and suggested that the Attorney General consider proceedings to restore the company to the register, appoint a new liquidator and seek annulment of the disclaimer.