Roadchef (Employee Benefits Trustees) Ltd v Hill & Anor

The court held that the transfer of Roadchef shares from EBT1 to EBT2 pursuant to the REBTL resolution of 6 February 1995 was void. The exercise of the purported power in clause 4(1) of the EBT1 trust deed was outside the trustees' proper scope because it could not properly be regarded as for the benefit of EBT1's beneficiaries and was effected for improper purposes, including a pre-conceived plan to confer economic benefit on Mr Ingram Hill.

The judge applied and analysed the principles in Pitt v. Holt and the Hastings-Bass line, concluding that the transfer was not merely voidable for inadequate deliberation but void as a fraud on the power. As a consequence, the transferees (including Mr Ingram Hill and the EBT2 trustees) were not bona fide purchasers for value without notice and hold traceable proceeds on constructive trust for the claimant. The claimant (REBTL) has standing to bring the claim and is entitled to proprietary remedies, tracing and an account; claims in deceit were not established and dishonest assistance was not found in the required sense. Relevant provisions and authorities considered included clause 4(1) and clause 2(iii) of the EBT1 trust deed, section 13(1) IHTA 1984, Companies Act provisions relied upon in argument, the rule in Re Hallett, and constructive trust and tracing principles.

This was a first instance trial of claims arising from a transfer of shares held for an employee share ownership plan (the ESOP) from one employee benefit trust (EBT1) to another (EBT2). REBTL (the corporate trustee of EBT1) sued the trustees of EBT2 and Mr Ingram Hill alleging that the transfer was void or voidable, or effected in breach of trust or fiduciary duty, and that Mr Ingram Hill dishonestly assisted or otherwise profited and should account for the profit. The claimant sought proprietary relief (setting aside and tracing), equitable compensation and an account of profits.

Relevant factual background: EBT1 operated as the distribution trust for Roadchef employees; EBT2 had been used for senior management. Over 1993-1995 Mr Ingram Hill sought to increase his personal shareholding and took steps which culminated in REBTL resolving on 6 February 1995 to transfer unappropriated EBT1 shares to EBT2. The transfer was followed by the grant of options by EBT2 to Mr Ingram Hill, the exercise of those options in 1998 and his sale of the shares on Roadchef's takeover, producing very large proceeds.

Issues framed and decided included: (i) whether the transfer was within the trustees' power under clause 4(1) of the EBT1 deed or was void for being a fraud on the power or otherwise voidable for inadequate deliberation (Hastings-Bass / Pitt v. Holt); (ii) whether REBTL had standing to challenge its own earlier resolution; (iii) whether recipients were bona fide purchasers for value without notice; (iv) liability in breach of fiduciary duty, dishonest assistance and deceit; and (v) remedies (proprietary relief, tracing, constructive trust and equitable compensation / account of profits) and quantification issues including allowable deductions.

Court's reasoning in brief: the judge found that the transfer could not properly be regarded as for the benefit of EBT1 beneficiaries, that the transfer was part of a pre-conceived plan to benefit Mr Ingram Hill and that relevant trustee deliberation and inquiry into the transferee trust's terms had not taken place. For those reasons the transfer fell outside the power and was void (fraud on the power). If the transfer had been only voidable for inadequate deliberation, the claimant was nonetheless a proper applicant and the transfer would be set aside. The recipients were not bona fide purchasers for value without notice; accordingly Mr Ingram Hill and the EBT2 trustees hold traceable proceeds on constructive trust and must account. The court declined to find deceit: the judge accepted mixed motives and did not find the necessary dishonest misrepresentation for deceit. Dishonest assistance was not established in the requisite sense, although equitable relief for the void transfer and breach of fiduciary duty was ordered. The judge left detailed quantification (including allowable deductions for expenditure and tax and the taking of an account) and interest for further consideration.

The claimant's principal claims succeeded. The transfer of the disputed shares to EBT2 pursuant to the REBTL resolution of 6 February 1995 was void because it fell outside the trustees' power and was effected for improper purposes and as part of a pre-conceived plan to benefit Mr Ingram Hill. REBTL has standing; Mr Ingram Hill and the trustees of EBT2 hold traceable proceeds on constructive trust for REBTL and must account. Claims in deceit were not made out and dishonest assistance in the requisite sense was not established; remedies including tracing, constructive trust and an account were ordered with quantification to follow.