Ludlow Trust Company Limited v John Homfray

In construing a settlement, the court must read the instrument as a whole and select interpretative tools appropriate to its nature. Textual analysis generally carries greater weight for professionally drafted trusts and wills, which operate long-term and affect persons who were not parties to them. A trust may subsist even though assets originally comprised in a particular fund have been distributed, if other assets remain subject to the trusts applicable to that fund through a cross-accruer provision. Whether trusts are “subsisting” is ultimately a matter of construction, not an automatic application of the general law. A court may authorise trustees to administer a fund on the footing that an elderly beneficiary will have no further children, but trustees should not ordinarily seek judicial sanction for an obviously lawful and practically certain course of action.

The claimant trustee sought declarations concerning the construction and administration of a settlement created in 1945. The settlement divided assets into funds for three biological children of the settlor, with a cross-accruer clause providing for the assets of a failed fund to accrue equally to other funds whose trusts were subsisting.

One child, Simon, died without issue. The principal issue was whether the trusts of David’s Fund were still subsisting when Simon died, although assets originally in David’s Fund had substantially been distributed. The answer determined whether Simon’s Fund accrued equally to David’s and Angela’s Funds or wholly to Angela’s Fund. A subsidiary issue concerned permission to administer the settlement on the footing that Angela, aged over 95, would have no further children.

1. Declarations granted. The assets of Simon’s Fund were held, from Simon’s death, on the trusts of Angela’s and David’s Funds equally. The claimant was also permitted to administer Angela’s Fund on the footing that Angela would have no further children.

2. The phrase “shall accrue” in paragraphs 4(5) and 5(5) of the 1971 order was conditional. It did not itself vary the operation of the settlement’s cross-accruer clause.

3. The words “trusts ... subsisting” in clause 6 were used in opposition to trusts which “fail or determine”. The relevant question was therefore whether the trusts had failed or determined in the context of the settlement as a whole.

4. Under the general law, a trust subsists from the time a trust obligation engages the owner’s conscience in relation to an asset until that obligation ends in relation to every surviving asset derived from the original. That general meaning does not control the construction of words used in a particular trust instrument.

5. On the proper construction of clause 6, the trusts of David’s Fund remained subsisting. The trusts of a fund could continue even after the capital originally in that fund had been distributed, because assets in Simon’s Fund remained subject to the trusts of David’s Fund through the cross-accruer mechanism. The separation of trusteeships did not alter the construction.

6. The court treated the decision in Dooneen Ltd v Mond [2019] 1 All ER 895 as providing no assistance. It concerned a Scottish insolvency trust deed whose specific termination provisions determined the result.

7. The subsidiary application was analogous to a Beddoe application. An order could protect the trustee from personal liability on the assumed factual basis without extinguishing the rights of a later-born child. Given Angela’s age, there was no serious practical possibility of further natural children and adoption was fanciful. The order was therefore made, although the judge cautioned trustees against seeking sanction for obviously lawful acts without good reason.