Caldicott & Ors v Richards & Anor

The self-dealing rule applies where a trustee sells trust property to herself, even where she is also a discretionary beneficiary, unless the transaction falls within an authorised dispositive power. The rule may be defeated by the fully informed consent of every beneficiary, but the trustees must disclose all material facts. A fact is material if it may have affected consent. The court must also consider whether, in all the circumstances, it is fair and equitable to permit the transaction to stand.

Rescission is an equitable remedy. The court may impose conditions to achieve a fair result, including requiring repayment of benefits received. Trustee removal turns on the welfare of the beneficiaries and proper execution of the trust, considered in light of the settlor’s intentions. Friction or an inherent conflict is insufficient without a real risk that the trust will not be properly administered.

The claim concerned a discretionary family trust holding shares in companies operating a holiday park. One trustee, who was also a discretionary beneficiary, purchased 15 per cent of the trust’s shares to provide funds for an interest-free loan to another beneficiary’s wife.

The beneficiaries signed disclosure letters consenting to the transaction. They later claimed that they had not been told that the proposed repurchase option was limited to two years or that it would be recorded only in a non-binding letter of wishes. They sought rescission of the share sale, an account of profits and removal of both trustees.

The central issues were whether the self-dealing rule applied, whether fully informed consent had been established, what relief should follow, and whether the trustees’ continuance in office would prevent proper execution of the trust.

1. Self-dealing. The share sale was within the self-dealing rule. The trustee was acting administratively in selling trust property to herself, not exercising a dispositive power in her favour. The trust instrument authorised trustees to act as company directors and receive remuneration, but did not authorise them to sell trust property to themselves. The fact that the purchaser was also a discretionary beneficiary did not alter that conclusion.
2. Consent. The defendants had to establish deliberate, fully informed consent from each beneficiary. The two-year limit on the repurchase option was material because knowledge of it might have affected whether, when or on what terms the transaction proceeded. The non-binding nature of the letter of wishes was also material. The disclosure letters did not sufficiently explain either point. The defence of fully informed consent therefore failed.
3. Discretion and fairness. The circumstances were not exceptional enough to disapply the rule. The trustee had acted as trustee in arranging the transaction and there was a real potential conflict. The authorities concerning the flexibility of the rule involved very special facts and did not govern this case.
4. Exemption clause and relief. The exemption clause did not prevent rescission because rescission was proprietary rather than a personal liability for breach of trust. It did prevent an account of profits and, on the better view, personal recovery of dividends as an incident of rescission. The sale was rescinded subject to repayment of the £200,000 loan and repayment to the trustee of the £204,660 purchase price. The trustee was not required to account for dividends and was not entitled to interest.
5. Removal. The court declined to remove the trustees. The governing question was whether their continuance would prevent proper execution of the trust, having regard to beneficiary welfare and the settlor’s intentions. The trustee’s intended involvement in the business, the family friction and the error concerning the option did not establish that threshold.

First-instance decision. No prior appellate decision is stated in the judgment.