South Downs Trustees Ltd v GH & Ors

The court may confer a missing or restricted trustee power under section 57(1) of the Trustee Act 1925 where the proposed transaction is part of the management or administration of trust property. The jurisdiction does not permit the court to rewrite the trust. Expediency is assessed by weighing the advantages and disadvantages for the beneficiaries as a whole, rather than requiring equal benefit for every beneficiary. Separately, under the second limb of Public Trustee v Cooper, the court considers whether a momentous trustee decision falls within a range of reasonable decisions; it does not substitute its own decision for that of the trustee.

The claimant trustee sought approval for the sale of the employee benefit trust’s controlling shareholding in a holding company. The transaction would convert the trust assets into cash, distribute the proceeds among three classes of beneficiaries and bring the trust to an end. The trustee also sought an order under section 57(1) of the Trustee Act 1925, because the trust instrument prohibited disposal causing loss of control.

The court was additionally asked to set aside an inadvertently erroneous deed granting share options, approve the transaction as a momentous decision, determine representation and confidentiality issues, and consider a potential conflict of interest.

1. Deed of Grant. The deed granting share options was set aside and declared void ab initio. The error was distinct and serious, and it was unconscionable for the beneficiaries receiving the benefit of the error to retain it.
2. Section 57 jurisdiction. Section 57(1) of the Trustee Act 1925 may override an express restriction on trustee powers, subject to proper consideration of the settlor’s wishes. The court must be satisfied that: (i) the trustees lack power to carry out the transaction; (ii) the transaction is expedient; and (iii) the discretion to confer the power should be exercised. The transaction must also fall within the management or administration of trust property.
3. The sale of the shares, although it would end the trust, was an ultimate exercise of management and administration. It converted the trust assets and implemented the trust’s objects. It did not rewrite the trust. The proposed use of the power to substitute a principal company in order to evade the restriction would have been a fraud on that fiduciary power.
4. Expediency was assessed by reference to the interests of all beneficiaries together. The court weighed the overall benefits and risks at a relatively high level. The substantial capital payments, timing of the sale and advice on price outweighed the risks to current employees arising from a change of ownership.
5. Momentous decision. The sale fell within the second limb of Public Trustee v Cooper. The trustee had not surrendered its discretion. The court asked whether the decision fell within a range of reasonable decisions, rather than whether it was the right decision. It was reasonable, and was not vitiated by a conflict of interest.
6. The deed was set aside; the trustee was given power under section 57(1) to effect the disposal; and the sale was sanctioned. Representation orders and confidentiality protections were also made. The court observed that, in future cases of this kind, separate law firms for representative parties may be preferable where the trustee’s power to transact is itself in issue.