In this Spring edition of the newsletter, we consider the principal grounds required for challenging trustees’ decisions, the difficulties that a beneficiary may face in obtaining the evidence required to mount a challenge and when trustees may seek the blessing of the Court to protect their position. We also review two colourful cases, both of which have attracted significant media interest. The first is the decision of the Court of Appeal in Davies & Davies v Davies, (colloquially referred to as the “Cinderella” case), where the daughter of a Welsh farming family succeeded in her proprietary estoppel claim to an interest in the family farm. The second is the Supreme Court decision of Wyatt v Vince, where the ex-wife of Mr Vince was permitted to bring a claim for maintenance nineteen years after the marriage had ended.

Challenging a trustee's decision

At the heart of many trust disputes lies a dissatisfied beneficiary who objects to the decision the trustees have either already taken or indicated they are about to take.

Unsurprisingly, challenges to trustees’ decisions often become acrimonious and can evolve into claims for breach of trust and for the removal of the trustees. The grounds for challenging trustees’ decisions essentially fall into the following categories:

  1. The step taken following the trustees’ decision was outside the scope of the trustees' powers. This category of act was described by Lord Walker in the jointly heard cases of Futter and Pitt v HMRC [Futter and another v HMRC; Pitt and another v HMRC [2013 UKSC 26]] as “excessive execution”. A challenge on this ground would involve an examination of the trust documents to determine the scope of the trustees’ powers and analysis of the effect of the act to ascertain whether it falls within the scope of the powers. If it does not, then the act will be void.
  2. The act was within the scope of the trustees’ powers but the trustees committed a breach of trust in failing to give proper consideration to relevant matters (or took into account irrelevant matters). This category of act was described by Lord Walker as “inadequate deliberation” and if the Court finds the trustees have committed a breach of trust, then the act will be voidable at the Court’s discretion. The Supreme Court has confirmed that this is the rule in Hastings Bass as properly understood. Clearly, there is potentially plenty of scope for a beneficiary to argue that the trustees have not given proper consideration to relevant matters. Again, some guidance can be obtained from Lord Walker’s judgement; he confirmed that trustees must inform themselves of relevant matters before taking a decision, which may include tax considerations. A common complaint raised by beneficiaries is that the trustees slavishly followed the wishes of the settlor. There is no reason why trustees should not accede to the settlor’s wishes provided they can demonstrate that they have given thought to the matter themselves. As Lord Walker said “The Settlor’s wishes are always a material consideration in the exercise of fiduciary discretions. But if they were to displace all independent judgment on the part of the trustees themselves (or in the case of a corporate trustee, by its responsible officers and staff) the decision making process would be open to serious question”.
  3. The act was within the scope of the trustees’ powers but was exercised for a purpose, or an intention, which was outside of the power being exercised (commonly referred to as “fraud on a power”). There is no need for a beneficiary to demonstrate that the trustees acted dishonestly (though they may well have done). Where the power has been exercised improperly then the trustees' act will be void.
  4. The trustees had a conflict of interest in making the decision in question. Here, a beneficiary must show that the conflict was neither inherent in the circumstances of the trust when it was created nor expressly authorised by the terms of the trust. The trustees must then demonstrate that the decision was one which any reasonable trustee might have taken and that it was not influenced by the conflict.
  5. The act was a result of a mistake by the trustees (either a mistake of law or of fact). As a result of the Supreme Court’s decision in Holt/Futter v HMRC, there is no longer a requirement for the mistake of law to be as to the effect of an act rather than its consequences. However, the mistake must be of sufficient gravity for the Court to set it aside.

Evidence required to challenge trustees' decisions

A beneficiary who wishes to challenge trustees’ decisions on any of the grounds above, may face difficulties in obtaining the information from the trustees which will enable a proper assessment of the likelihood of the Court declaring the decision void or voidable. Beneficiaries are not entitled to any trust documents as of right but they can usually expect to be provided with the “core” trust documents, for example the trust deed, deeds of appointment and retirement of trustees, deeds of addition/removal of beneficiaries and the trust accounts. A beneficiary, for example, who wishes to challenge an act of the trustees on the grounds at (ii) above, namely that the trustee committed a breach of trust in not considering relevant matters, will usually want to obtain information from the trustees regarding the exercise of their discretion. However, trustees are under no obligation to provide such information and are unlikely to decide to do so, particularly if the decision was or is likely to be a sensitive one or if they are concerned about preserving confidentiality. In which case, the beneficiary could make an application in the Chancery Division to determine the issue of disclosure. The costs of such an application are in the discretion of the Court. Therefore if the application is unsuccessful, then the beneficiary is likely to be responsible for the costs, which can act as a deterrent.

Blessing applications

Where trustees consider that the decision they are proposing to take is particularly momentous, then they may wish to apply to the Court for its blessing of the decision. If the trustees obtain such a blessing, then this has the important effect that the beneficiaries are precluded from bringing any future claim against the trustees in relation to that decision. To benefit from this protection the trustees are therefore required to ensure that they disclose all of the relevant facts to the Court.

In the Court of Appeal decision in the Cardigan case [Cotton & Another v Brudenell- Bruce & Others [2014] EWCA Civ 1312] Lord Cardigan was challenging whether previous High Court judges were correct, in effect having approved the trustees’ intended sale of the main trust asset, Tottenham House. In summary, Lord Cardigan claimed that the expert advice which the trustees received raised a number of questions which ought to have prevented the Court from approving the intended sale; whereas the trustees’ view was that they should not be required to second guess that advice. The Court of Appeal agreed with the trustees. In the course of the judgment, the trustees’ obligations to provide information to the Court was emphasised by Lord Justice Vos who said that “In order to succeed in such an application, the trustees must, as Sir Andrew Morritt made clear in Tamlin v Edgar supra, put the Court in possession of all relevant facts so that it may be satisfied that the decision of the trustees is proper and for the benefit of the beneficiaries. Moreover, it must be demonstrated that the exercise of their discretion is untainted by any collateral purpose”. However, where the trustees have concerns about confidentiality obligations that they owe to beneficiaries, they may consider it appropriate for any confidential material to be disclosed only to the Court.

Whilst dissatisfied beneficiaries may seek to challenge the information provided by the trustees, it must be remembered that the trustees, in providing full and frank disclosure to the Court, are not under the same disclosure obligations that could arise where a hostile claim is commenced against them.

To conclude, it is possible to challenge a trustee's decision but this area of law is both subtle and complex and there are cost risks. Advice from a specialist is therefore recommended before embarking on such a challenge.

Davies & Davies v Davies [2014] EWCA Civ 568

Eirian Davies (“Eirian”) had worked for many years in her parents’ farming business in Wales with little or no remuneration on the understanding that the farm would one day be hers. When her employment was terminated Eirian brought a claim based on the doctrine of proprietary estoppel to establish her interest in the farming business.

Proprietary estoppel claims comprise three main elements (i) a representation or assurance made to the claimant (ii) reliance on it by the claimant and (iii) detriment to the claimant in consequence of that reliance. The claimant’s expectations are important, but because the relief granted by the Court is discretionary the claimant does not have a right to call for the property or interest in property which he or she expected to receive, merely a right to go to Court to seek relief.

At first instance, it was held that Eirian had established an entitlement to a “beneficial interest in the farm and/or the farming business,” with the nature and extent of that interest to be determined at a subsequent hearing. Eirian’s parents appealed and the issue before the Court of Appeal was whether the Judge was right to find that Eirian incurred a substantial detriment in relying on the representations made by her parents.

Eirian was one of three sisters; she and her parents had a stormy relationship, but she was the only sister who remained involved in the farm in adulthood. Between 1989 and August 2012, when Eirian’s employment was terminated, she spent significant periods working on the farm. In 2008 Eirian’s parents agreed to hand over 49% of the business to her and Eirian gave up her job to work full- time at the farm.

In 2009 Eirian was shown a draf twill that left her both the farmland and buildings, and a share in the company, and representations were made to her to the effect that the farm would be left to her. However, Mr and Mrs Davies later changed their draft wills, eventually putting the farm into a trust and dividing the residue of their estates equally between their three daughters. Family relations subsequently deteriorated and Eirian’s employment was terminated in August 2012.

In determining whether there was substantial detriment to Eirian, the Judge had to contrast the rewards she obtained from her job outside the farm with those of working on the farm (including free accommodation, but with longer working hours and more difficult working relationships).

The Court of Appeal concluded the Judge was right that Eirian’s skills had contributed significantly to her parents’ dairy herd and her employment as a reproduction specialist was a good indication of the career she might have followed if free from her obligations at the farm. Once it was appreciated that the detriment to Eirian was not purely financial there was no need to quantify the benefit that she had received from enjoying free accommodation – this was simply one factor to be included in the evaluation exercise. The Judge had been right to determine that there was net detriment to Eirian. Eirian was granted £1.3m in compensation, just over a third of the net value of the farm following a four day hearing and an exhaustive review of the evidence.

It is notoriously difficult to predict the outcome of a proprietary estoppel claim and the cost of seeking determination through the Court is prohibitive. A skilled mediator should be able to persuade the parties to meet somewhere in the middle by highlighting the cost and uncertainty of taking a claim to trial.

Vince v Wyatt [2015] UKSC 14

The Supreme Court appeal by Ms Wyatt against her ex-husband Dale Vince has received huge and, at times, misrepresentative coverage by the media. But what was the basis for the Supreme Court’s decision, and what are the implications for potential divorcees?

The couple met in 1981. They married in 1982 and had one child together in 1983. At the time Ms Wyatt had a child from a previous relationship, who was, during the brief relationship with Mr Vince, treated as a child of the family. In 1984 the couple separated.

During their relationship the couple lived a hand-to-mouth existence and in the early years following their separation Mr Vince had insufficient income to pay child maintenance. Ms Wyatt continued living on benefits with the children after Mr Vince started to create his fortune.

In 1992 Ms Wyatt petitioned for divorce and Decree Absolute was granted in August that year. The parties did not seek at that time to deal with their financial claims against one another – an omission which Mr Vince has lived to regret.

Mr Vince and his partner set up a successful company, generating a pre-tax profit of £236k in 1997 and now worth in excess of £100 million. Mr Vince made no attempt to pay child maintenance, despite his wealth, and Ms Wyatt and the children continued to live on state benefits.

In 2011, 27 years after the breakdown in their marriage and 19 years after their divorce, Ms Wyatt lodged her financial application against Mr Vince and sought a contribution towards her legal costs. Mr Vince applied to the Court to strike out his ex-wife’s claim given the passage of time since their relationship.

The High Court at first instance dismissed the strike out application (and ordered that Mr Vince pay £125,000 towards Ms Wyatt’s legal costs). This decision was reversed by the Court of Appeal. Ms Wyatt in turn appealed to the Supreme Court.

The Supreme Court unanimously allowed Ms Wyatt’s appeal, ordering that her financial application should proceed, and restored the costs award made by the original trial judge.

The Supreme Court decided that family Courts do not have the right summarily to dismiss a claim without full consideration of all of the circumstances of the particular case. This would need to involve each party putting their full case before the Court. An application to “strike out” a claim is draconian, and can only succeed where there are no reasonable grounds for bringing the claim or where the claim is an abuse of the Court’s process. Thus, Ms Wyatt’s application was allowed to proceed.

The Supreme Court also decided against the imposition of a blanket limitation period because in family law it is necessary to undertake a thorough examination of all of the circumstances of the case, rather than bypassing them on the basis of delay. This is, as Lord Wilson stated, consistent “with the potentially life-long obligations which attend a marriage”. Although Courts will not encourage applications brought years after the divorce, an application may be made and an award will be considered depending on the circumstances. Crucially, therefore, the effect of the delay will be considered in determining the application, although it was not relevant to determine whether the application should have been made in the first place.

The stark lesson of this case is the importance of addressing financial claims, rather than ignoring them and assuming that a spouse will not seek financial remedy in the years to come. Specialist advice should therefore be sought at the time of the divorce. Even where there are no funds for a financial settlement, where there are children, legal advice may result in a nominal maintenance order that can be revised upwards and possibly capitalised if the paying spouse makes good!