Jones & Ors v Firkin-Flood

Trustees may enter contractual restrictions affecting future distributions where those restrictions are authorised by the trust’s investment powers and are reasonably necessary to secure a beneficial transaction. Such restrictions do not, without more, constitute an unlawful fetter.

When asked to bless a momentous discretionary decision, the court examines whether the decision is lawful, rational, honestly reached and free from material conflict. Approval should be refused where trustees have considered irrelevant interests, failed to consider material benefits received by a beneficiary, or allowed a conflicted trustee to participate. Trustees may be removed for want of capacity or fitness, even without dishonesty or deliberate default, where their conduct endangers proper administration or demonstrates inability to discharge their duties.

The claimant trustees sought directions concerning the administration of a discretionary trust created by the will of Douglas Firkin-Flood. The trust’s principal assets, shares in family companies, had been sold for approximately £17.5 million. The trustees sought confirmation of a provisional resolution distributing the proceeds unequally among the deceased’s children.

The defendants alleged an agreement for equal division, challenged the trustees’ conduct, disputed restrictions given to the purchaser, and sought accounts and removal of the trustees. The court rejected the alleged equal-shares agreement, upheld the sale arrangements, and considered whether the trustees’ decision was a proper exercise of discretion and whether they remained fit to act.

1. Equal-shares agreement. No agreement had been made concerning equal distribution of the trust fund. There had only been a broad consensus concerning a fair division of the free estate and pension money. The related estoppel, compromise and trust claims therefore failed.
2. Sale agreement and fetter on discretion. The trustees had power under the will’s beneficial-owner investment power to give commercial warranties and enter Schedule 9 restrictions. The restrictions were an integral and beneficial incident of obtaining the best value for the shares. They did not surrender their discretion, although they significantly narrowed its future ambit. The sale agreement was valid and binding on beneficiaries seeking capital distributions, who had to provide the required covenant. The court would alternatively have sanctioned the transaction under section 57 of the Trustee Act 1925.
3. Blessing the provisional resolution. Applying the category (2) approach in Public Trustee v Cooper, the court considered whether the decision was within power, rational, honestly reached and free from material conflict. The resolution was vitiated because the trustees considered the interests of non-beneficiary employees, Mr Bramley participated despite a conflict connected with his prospective employment, and they failed to consider Ian’s substantial direct and indirect benefits from CSCL. Their overestimation of Ian’s contribution was an additional concern. The resolution was not approved and was remitted for fresh consideration by suitable trustees.
4. Removal and administration. The trustees had collectively abdicated their supervisory, accounting and investment duties. Mr Jones, Ian and Mr Bramley were removed; Mrs Levy was to remain with a new professional trustee. Ian’s power to appoint trustees was fiduciary and subject to court supervision. Further directions were reserved, including issues concerning Ian’s possible liability to account.