Walbrook Trustees (Jersey) Ltd & Ors v Fattal & Ors

The Court of Appeal dismissed the appeal and upheld the order of Blackburne J that, in administering the declaration of trust (the BSL Trust), the trustees should be directed to admit two additional members of the company so as to reflect the four beneficial interests and to enable each 25% interest to be represented by its own nominee member. The court held that clause 2 of the BSL Trust required the trustees to act as bare nominees and to give effect to written directions from each beneficiary in respect of that beneficiary's proportion of membership rights, including voting rights. Where the existing two-member structure produced an impasse, the court had jurisdiction under Part 64 of the Civil Procedure Rules to execute the trust by appropriating parts of the trust fund and ordering the expansion of membership to give effect to the trust instrument. The appeal rejecting a construction requiring unanimity of beneficiaries was dismissed.

Background and procedural posture:

• The dispute arose from a trust and company structure created in 1995 (the BSL Trust and BSL, a company limited by guarantee) as part of a tax planning scheme following earlier investments governed by a joint venture agreement dated 30 January 1989 (the JVA). The case came to the Court of Appeal on appeal from Blackburne J in the Chancery Division ([2009] EWHC 1446 (Ch)).

Parties and relief sought:

• The claimants (trustees of the various family trusts) sought, under Part 64 CPR, an order directing Walbrook (Jersey) and Witco as the two members of BSL and trustees of the BSL Trust to procure the admission of two additional members so that each of the four equitable interests (treating the Fattal trusts together as one) would have its own nominee member, thereby dividing the membership rights into four separate nominee trusts.

Issues framed:

• Whether clause 2 of the BSL Trust required unanimity of beneficiaries before the trustees could alter the two-member structure;
• whether the court had jurisdiction to order the admission of new members and to appropriate parts of the trust fund to give effect to the trust; and
• whether the JVA or the prior position as shareholders in BCIL should be treated as preserving a de facto veto for the Fattal parties.

Reasoning and findings:

• The court treated the trustees as bare nominees obliged by clause 2 to act on written directions of each beneficiary in respect of its proportion of membership rights, including voting and distribution rights, and concluded there was no express requirement of unanimity in the trust instrument.
• Where the two-member structure caused a practical impasse, the court had power, exercising its jurisdiction in relation to the administration of trusts under Part 64 CPR, to split the trust fund by appropriating specific parts of the trust property and to direct the admission of additional members so as to give effect to the trustees' nominee duties.
• The court rejected the argument that the JVA or pre-1995 arrangements implied a preservation of unanimity or veto rights; clause 2 instead obliged the trustees to give equal effect to the directions of each beneficiary and thus supported the order made to break the impasse. The authority in Re Marshall was applied by analogy to permit appropriation of membership rights.

Conclusion: The appeal was dismissed and Blackburne J's order directing the admission of two new members to reflect the separate beneficial interests was upheld.

Appeal dismissed. The Court of Appeal held that clause 2 of the BSL Trust made the trustees bare nominees obliged to follow written directions from each beneficiary in respect of that beneficiary's proportion of membership rights and that, where the existing two-member structure produced an impasse, the court had jurisdiction under Part 64 CPR to order appropriation of the trust fund and the admission of additional members to give effect to the trust. There was no requirement of unanimity in the trust instrument and the judge's order was therefore properly made.

Appeal from the High Court, Chancery Division, Mr Justice Blackburne (reported at [2009] EWHC 1446 (Ch)); judgment on appeal delivered by the Court of Appeal, [2010] EWCA Civ 408.