Mary Shovlin v Site Civils and Surfacing Limited & Anor

A trustee’s agreement to make an unsecured, undocumented loan at a low interest rate does not, without more, establish a breach of fiduciary duty. The question is whether the trustee acted disloyally by subordinating the beneficiaries’ interests to those of the recipient. The terms must be assessed in context, including whether the transaction was intended as an investment for the trust and whether the trustee had informed consent. A complaint that the trustee failed to secure better terms may instead concern the statutory duty of care under the Trustee Act 2000, section 1. If no primary breach is established, a knowing receipt claim and proprietary tracing claim based on the transfer cannot succeed.

Mary Shovlin, as sole surviving trustee of the SPH Trust, appealed against the dismissal of claims against Site Civils and Surfacing Ltd and George Crosby. The claims arose from two unsecured and undocumented loans of trust money to the company, allegedly made by the deceased co-trustee in breach of fiduciary duty.

The High Court, in [2023] EWHC 1658 (Ch), rejected the primary breach claim and consequently dismissed claims for an account of profits based on knowing receipt and for a proprietary remedy concerning Greenacres. The permitted appeal concerned the characterisation of the loan terms, the alleged disloyal purpose, and the consequences for knowing receipt and backwards tracing.

The Court of Appeal unanimously dismissed the appeal. Snowden LJ delivered the leading judgment, with Falk LJ and Males LJ agreeing.

1. Fiduciary duty and duty of care. The complaint that the loans were unsecured, undocumented and made at a low rate of interest did not, by itself, establish a breach of fiduciary duty. Under Bristol and West Building Society v Mothew [1998] Ch 1 at p 18, fiduciary duty concerns single-minded loyalty, whereas a trustee’s duty of care is distinct. The matters relied upon might engage the duty of care under the Trustee Act 2000, section 1, but were not the applicable test for fiduciary disloyalty. Learoyd v Whiteley (1887) 12 App Cas 727 and Wight v Olswang (2000) 3 ITELR 352 concerned duty-of-care claims and did not govern the fiduciary issue.
2. Applicable inquiry. Mrs Shovlin had to establish that, when making the loans, Austin Fergus intended to benefit SCS or Mr Crosby by disloyally disregarding or subordinating the interests of the trust beneficiaries. The judge was entitled to regard the loans as made in anticipation of an investment or joint venture concerning Mercury Way, intended to produce an enhanced return for the trust. That conclusion was not displaced by the informal terms. The judge was also entitled to take account of the bank statements sent to Mrs Shovlin, her regular meetings with the trustee, his reputation for honesty, his previous informal personal loan to Mr Crosby, and the absence of reliable evidence contradicting informed consent.
3. Appellate restraint and consequences. The trial judge’s findings were open to him on the limited and conflicting evidence. The Court had no sufficient basis to interfere with his evaluation. Since no primary breach of trust or fiduciary duty was established, there could be no knowing receipt liability: El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 at p 700g. SCS also acquired full legal and beneficial title to the loan monies, so no proprietary tracing claim to Mercury Way, Vinesgrove or Greenacres could arise. It was unnecessary to determine the remaining knowing receipt and backwards tracing grounds.

1. Court of Appeal (Civil Division). The appeal from the High Court was dismissed.
2. High Court of Justice, Business and Property Courts in Manchester. In [2023] EWHC 1658 (Ch), HHJ Cawson KC dismissed the claims for an account of profits and a declaration that Greenacres was held on trust.