Hughes & Ors v Bourne & Ors

On a category 2 application, the court does not substitute its view for that of trustees or decide whether their proposed course is the best available option. It must determine whether the trustees actually made the decision, whether a reasonable body of properly instructed trustees could have reached it, and whether the decision was affected by a conflict of interest.

Where a trust instrument incorporates the appropriation power in Administration of Estates Act 1925, section 41, the power may, in an appropriate case, divide a trust fund into separate sub-funds and alter the character of beneficiaries’ interests. Once beneficiaries are collectively and absolutely entitled to a separate fund, they may invoke the rule in Saunders v Vautier. A family trust may retain that status after the settlor’s death where the trust continues to satisfy the relevant definition.

The trustees of the 1961 Settlement held a controlling shareholding in NWN Media Limited. The trust fund had been administered as three sub-funds for the Bourne, Moss and Woodward families. The trustees resolved to sell sufficient shares to Tindle Newspapers Limited to give it a 51 per cent controlling interest, but the Bourne and Moss beneficiaries opposed the sale and sought transfers of the shares in their respective funds.

The trustees brought a Part 8 claim seeking the court’s blessing for the proposed sale. The court had first to determine whether the Bourne and Moss beneficiaries were entitled to require transfers under the rule in Saunders v Vautier and whether such transfers would be permitted by the company’s articles. If both questions were answered affirmatively, the proposed sale could not proceed.

1. Category 2 application. The trustees sought the court’s blessing for a momentous decision while retaining their discretion. Applying the guidance in The Public Trustee v Cooper [2001] WTLR 922, the court had to be satisfied that the trustees had made the decision for which approval was sought, that a reasonable body of properly instructed trustees could properly have reached it, and that no conflict of interest vitiated it. The court was not required to decide whether the decision was the best or only one available.
2. Appropriation of the trust fund. The 1975 Appointment gave each daughter an interest in one third of the income of the whole fund, rather than the whole income of a divided third. The 1993 Appropriation validly divided the fund into three separate sub-funds. Section 41(1) of the Administration of Estates Act 1925, as incorporated into the settlement, was broad enough to permit trustees to replace an interest in part of the income of the whole fund with an interest in the whole income of an appropriated part. The power was not confined to contractual or quasi-contractual transactions. In any event, the life tenants’ signatures supplied effective consent to the alteration.
3. Rule in Saunders v Vautier. The Bourne and Moss beneficiaries were the only persons beneficially interested in the shares allocated to their respective funds. Being of full age and capacity and collectively entitled, they could direct the trustees how to deal with those shares, whether or not their earlier requests had already validly invoked the rule.
4. Articles of association. The 1961 Settlement remained a family trust within article 14.1. The definition could be satisfied during the settlor’s lifetime and, once satisfied, continued while its substantive conditions remained fulfilled. It did not cease automatically on the settlor’s death or when he ceased to hold shares personally. Transfers to the relevant children and grandchildren were therefore permitted under article 14.5.2.
5. The two preliminary issues were decided in favour of the Bourne and Moss families. The trustees could not sell the controlling interest to Tindle against their wishes, and the court could not give the requested approval.