AB v CD & Ors

Trustees exercising discretionary powers must act responsibly and in good faith, take relevant matters into account, act impartially and avoid ulterior purposes. Where trustees are deadlocked but owe a duty to act, the court may intervene in its supervisory jurisdiction. The usual course is to direct the trustees to reconsider the matter lawfully. The court should exercise the trustees’ power itself only in exceptional circumstances, particularly where the trustees have not properly considered the exercise of the power. The existence of deadlock, the trustees’ failure to act impartially and the availability of a range of lawful solutions may justify further directions, but do not automatically entitle the court to impose one proposed distribution.

The claimant, a trustee of the Will Trust and Grandchildren’s Trust, sought directions concerning the winding up of the trusts and the division of a discretionary fund, including whether the M Funds should be taken into account. The trustees broadly agreed that the funds should be distributed equally between the grandchildren, but remained divided over the treatment of the M Funds and the use of a letter of wishes. The central issues were whether the court should impose the claimant’s proposed solution or direct the trustees to reconsider the matter, and the circumstances in which the court may intervene in the exercise of a trustee’s discretion.

1. Trustees’ fiduciary duties. The trustees were required to act responsibly and in good faith, take all relevant matters into account, act impartially and avoid acting for an ulterior purpose. The attempt to exclude two grandchildren because of personal hostility was inconsistent with those duties and failed to give proper weight to the purposes of the trusts and the original letters of wishes.
2. Supervisory jurisdiction and deadlock. The court may intervene where trustees have a duty to act, there is more than one permissible way of fulfilling that duty, and the trustees cannot reach the required unanimous or majority decision. Deadlock does not, however, automatically authorise the court to dictate how a discretionary power must be exercised.
3. Appropriate remedy. The court distinguished intervention to approve a particular step from the exercise of a trustee’s discretion itself. Where trustees have failed properly to consider the exercise of a power, the ordinary remedy is to direct them to reconsider it on the basis of proper considerations. The court should be very reluctant to exercise the power itself unless exceptional circumstances exist. The fact that the trustees had not surrendered their discretion was a relevant factor, but did not require the court to impose the claimant’s proposal.
4. Disposition. The court considered that the M Funds should be taken into account in seeking a distribution closer to the original wishes, but that a range of possible solutions remained open. The trustees were directed to reconsider matters with a view to reaching a compromise. If they remained unable to agree, the court would determine the appropriate course after hearing argument directed specifically to that issue. No final distribution was imposed at this stage.