Schumacher & Anor v Clarke & Ors

In a Category 2 application under Public Trustee v Cooper, the court’s approval of a momentous trustee decision is discretionary. The court must be satisfied that the trustees formed the relevant opinion, that a reasonable body of properly instructed trustees could have reached it, and that conflicts of interest have not impaired the decision.

The assessment covers both process and outcome. Trustees must take relevant matters into account, disregard irrelevant matters, and reach a decision open to a rational trustee. Where trustees are deeply divided and have unresolved allegations of fiduciary misconduct against one another, the court may refuse approval because the decision-making process may be tainted by conflicts, even though the proposed dispositions are within the trustees’ powers and may remain available without approval.

Dame Zaha Hadid’s will established trusts benefiting, among others, Patrik Schumacher, employees and office-holders of companies associated with her architectural practice, and the Zaha Hadid Foundation. Mr Schumacher and three other trustees became involved in prolonged disputes concerning the administration of the estate, fiduciary duties, conflicts of interest and the future ownership of the businesses.

Mr Schumacher brought a claim under section 50 of the Administration of Justice Act 1985 seeking removal and replacement of the trustee defendants. The trustees later applied for approval of dispositions forming part of a proposed settlement and final distribution of the will trust under Category 2 of Public Trustee v Cooper. The issue was whether the court should approve the specified dispositions despite the trustees’ conflicts, divided positions and the process by which agreement had been reached.

1. The applications for approval were dismissed. The court was not satisfied that the proposed dispositions were untainted by the trustees’ approach to decision-making and their management of conflicts of interest.

2. The court adopted the established Category 2 approach. It had to be satisfied that: the trustees had formed the opinion that they should act as proposed; a reasonable body of trustees, correctly instructed as to the relevant trust provisions, could properly have reached that opinion; and the opinion was not vitiated by a conflict of interest. The second requirement concerned both process and outcome: relevant matters had to be considered, irrelevant matters excluded, and the decision had to be one to which a rational trustee could have come.

3. Approval was discretionary rather than an entitlement. The court could consider the consequences of refusing approval and had to act cautiously because approval could prevent beneficiaries from later complaining of breach of trust where there had been full disclosure. Conflicts required heightened scrutiny, and failure to acknowledge and explain their management could be fatal.

4. The trustees’ prolonged hostility, mutual allegations of fiduciary breach, limited engagement with one another, and reliance on inconsistent evidence made it impossible to conclude that their conflicts had been properly managed. The revised application also created a mismatch between the evidence and the narrower relief sought, while the settlement and costs arrangements gave the trustees personal interests which conflicted with those of beneficiaries.

5. The refusal was based on process, not on a finding that the proposed dispositions were outside the trustees’ powers or substantively improper. The trustees remained free to decide whether to enter into the agreement without the court’s approval. The court dismissed both approval applications and reserved other issues, including costs.

This was a first-instance decision. The judgment followed an earlier hearing on 12 November 2020 at which the court accepted the trustees’ surrender of discretion on a separate issue involving deadlock.