Roadchef (Employee Benefits Trustees) Ltd v Hill & Anor

A trustee’s power to transfer trust property to another settlement must be exercised for the benefit of the beneficiaries of the transferring trust. A transfer made as part of a plan to benefit persons outside that class is outside the power and void. The same result follows where a fiduciary power is exercised for an improper purpose. Inadequate deliberation may make a decision voidable, but an act outside the scope of the power is void.

A director who uses control of a corporate trustee to secure personal benefits without informed consent breaches fiduciary duties. Traceable proceeds of trust property may be recovered through a constructive trust and an account, subject to proper deductions for expenditure necessary to realise the relevant profit.

The claimant was the corporate trustee of an employee benefit trust holding shares in Roadchef plc. The defendants were trustees of a separate trust established for senior management. The claimant transferred shares to the second trust after being told that the shares would be warehoused for the employee scheme.

The transfer formed part of arrangements under which the first defendant, who controlled Roadchef, the recipient trustee and the claimant’s board, obtained options over the shares and later made a substantial profit. The claimant sought declarations that the transfer was void or voidable, proprietary relief, accounts, equitable compensation and damages for deceit and dishonest assistance.

The central issues were whether the transfer was authorised by the power in clause 4(1) of the employee trust deed, whether it was made for an improper purpose, and what remedies followed.

1. Transfer outside the power. Clause 4(1) permitted capital to be transferred to another settlement only where the transfer was capable of benefiting the beneficiaries of the transferring trust. It was insufficient that the transfer might benefit beneficiaries of the recipient trust. The relevant beneficiaries were the employees within the definition in the employee trust deed.
2. The transfer was part of a plan to grant options to the first defendant, or at most a small number of senior employees. In the events which occurred, it could not be regarded as benefiting the employee beneficiaries. The transfer was therefore outside the scope of clause 4(1) and void.
3. Inadequate deliberation and mistake. The trustees had not considered the terms of either trust, the criteria for exercising the power or the interests of the employee beneficiaries. If the transfer had been merely within the power but inadequately considered, it would have been voidable. The claimant had standing to seek that relief. Relief would also have been available for the causative and sufficiently grave mistake established on the facts.
4. Improper purpose and fiduciary duty. The transfer was made for the improper purposes of benefiting Roadchef and the first defendant personally. Applying the “but for” approach to mixed motives, the power would not have been exercised without the improper purpose. The first defendant also breached his fiduciary duties as a director of the claimant by failing to disclose his intention to obtain options. Informed consent was absent.
5. Recipients and remedies. The first defendant was not a bona fide purchaser for value without notice because he obtained the options for no consideration and acted in bad faith. The recipient trustees were not purchasers for value. The claimant could trace the disputed shares and their proceeds into the hands of the defendants and require an account or equitable compensation. Relevant deductions included expenditure necessary to realise the profit and properly attributable to the disputed shares. The claims in deceit and dishonest assistance were not made out, and statutory relief was refused.
6. The defendants were liable on the basis that the transfer was void and that the claimant could trace the proceeds into their hands. Interest was left for further argument.