Folds Farm Trustees Limited & Anor v Oliver Alister Sydney Cutts & Ors

In a category 2 application for the court’s blessing of a momentous trustee decision, the court does not substitute its own view for that of the trustees. It must be satisfied that the trustees acted within their powers, formed the relevant opinion, considered relevant matters, disregarded irrelevant or improper matters, and reached a decision which a reasonable and rational body of properly instructed trustees could make. The trustees must also be free from an unmanaged conflict of interest.

In a discretionary trust, beneficiaries have no right to equal treatment. A letter of wishes cannot fetter the trustees’ discretion. Where the trust property is to be appointed to a beneficiary under a discretionary power, an open-market sale is not necessarily required. The court may approve the decision while leaving detailed implementation, such as overage provisions, to the trustees.

The claimant companies, as trustees of two discretionary trusts holding a substantial farm, sought the court’s blessing for a decision to appoint the farm to Alister Cutts for £4.2 million, subject to overage, tax and other conditions.

The beneficiaries disagreed. Victoria, Charlotte and Cecilia challenged the decision on grounds including unequal treatment, inadequate valuation, failure to consider benefits previously received by Alister, irrelevant considerations, insufficient disclosure and conflicts of interest. The central issues were whether the trustees’ decision was one which a reasonable body of properly instructed trustees could properly have reached and whether it was vitiated by any conflict.

1. Approval granted. The court approved the trustees’ decision to appoint the Farm to Alister for £4.2 million, subject to the agreed payment, overage, tax and related terms.

2. The application fell within category 2 of the classification in Public Trustee v Cooper. The trustees had the power to act, had made the decision, regarded it as momentous, and had not surrendered their discretion. The court therefore had to examine the legality, rationality, honesty and propriety of the decision-making process, without asking whether it would have made the same decision.

3. The trustees had considered relevant matters, including the Farm’s illiquidity, modest income, secured debt, the beneficiaries’ differing needs, family conflict, Susan’s wish that the Farm remain in the family, Alister’s ability to continue farming it, the professional valuations, borrowing costs, tax consequences, expenditure on the Farm, overage and transaction costs. The decision was within the range of decisions reasonably open to trustees.

4. The discretionary nature of the trusts meant that the children were not entitled to equal treatment. Susan’s letter of wishes expressly recognised that it could not fetter the trustees’ discretion. The proposed appointment was not equivalent to an ordinary sale of trust property in which beneficiaries had absolute vested interests; an open-market sale was therefore unnecessary.

5. The court rejected the objections based on rent, subsidies, Alister’s threats, possession proceedings, borrowing costs and alleged personal relationships with trustees. The alleged conflicts were not shown to have affected the decision and were in any event appropriately managed by seeking the court’s approval.

6. The trustees had placed sufficient material before the court. Detailed disclosure of every internal minute was unnecessary in a blessing application. The court could approve the decision without micro-managing the detailed drafting of the overage provisions.