Court resolves dispute between parties as to who should hold the power to appoint trustees following settlor’s death

The English High Court has recently approved an application to change the provision of a trust deed relating to the appointment of new trustees.[1] The change was necessary because the original power was reserved exclusively for the settlor, who had died. All adult beneficiaries of the trust supported the change, as did three of the four trustees.

This case illustrates the importance of having succession plans for the power of appointment of new trustees. It also addresses disputes between parties about changes to trust terms.

Background

The case concerned an application to change the provision relating to the appointment of new trustees of a trust. The original settlement gave the power to the settlor during his life. The settlor had died. The application proposed to change the provision for appointment so that the principal beneficiary (as defined in the trust instrument) was granted the power to appoint new trustees, with the written consent of the trustees.

One trustee opposed the application. His view was that the trustees should have the power to nominate and appoint new trustees, with the principal beneficiary holding a veto power. The opposing trustee considered this a better proposal on the basis that:

  1. The collective view of existing trustees may be better informed as to the attributes needed and through their wider collective contacts they may be better able to identify suitable candidates than the principal beneficiary.

  2. Exercise of the veto power by the principal beneficiary would less likely result in any lasting discord than exercise of the veto power of the trustees.

  3. Beneficiaries can be ill fitted to make such important enduring appointments in the wider best interests of all beneficiaries. There are examples of unsuitably partisan and over compliant trustees being appointed by principal beneficiaries for their own ends.

Judgment

The Court granted the application, noting that the change would not be departing radically from the structure the settlor first created. The case was not one where the settlor had originally entrusted the appointment of new trustees to the existing trustees, but rather had reserved to power to himself.

In rejecting the opposing trustee's arguments, the Court noted:

  1. There is no reason why trustees may be better able to identify suitable candidates than the principal beneficiary, and there was no evidence put before the Court to that effect. Further, even if it were true, likely there would be prior informal discussion, so the benefit of the trustees' experience, knowledge and contacts would be available to the principal beneficiary.

  2. The possibility at someone taking offence in relation to the exercise of the veto power existed whether the trustees had the veto power or the principal beneficiary had it. The power to nominate trustees was a fiduciary power and there was no reason to suppose the principal beneficiary would not take his responsibility seriously.

  3. A senior beneficiary, knowing the situation of all the beneficiaries (being members of his extended family), and having enjoyed a long relationship with the trust assets was in a better position than most to decide what qualities were needed in a new trustee.

Comment

The case, whilst fact specific, provides an interesting insight into what a Court will consider when considering changes to the power to appoint trustees and how the Court deals with the situation where one party opposed an application. As noted above, it could have been avoided had the trust deed provided for successor appointors following the settlor's death.

 

For more information, please contact Richard Norridge, Joanna Caen or your usual Herbert Smith Freehills contact.

Richard Norridge
Richard Norridge
Partner
+44 20 7466 2686
Joanna Caen
Joanna Caen
Senior Consultant
+852 2101 4167

Wills interpreted according to their ordinary and natural meaning despite this not reflecting testators’ intention

The English High Court has recently held that, in a case concerning construction of Wills, the ordinary and natural meaning of survivorship clauses should be given effect to.[1] This operated to mean that certain beneficiaries under the Wills of a husband and wife benefitted twice, which the parties agreed was not the couple's intention. The claimants were the executrices of the couple's estates (and also beneficiaries of the estates). They wished to know how to distribute the estates. The claimants wanted the Court to interpret the Wills in accordance with the couple's intention. This would have meant that they received less under the Wills than they would have done if the Wills were interpreted in their ordinary and natural terms. The defendants were the solicitor who drafted the Wills and his firm.

The case is a reminder to executors of the importance of administering estates in accordance with the terms of the Wills. The case is also a reminder to draftsmen of the importance to accurately convey a testator's intention when drafting a Will.

Background

A husband and wife were both found dead in their home leaving mirror Wills. Under the terms of their Wills, they each left their estate to the other if each survived the other by 28 days. However, in the event that that gift failed they each provided for the disposal of their personal chattels, left pecuniary legacies to the same named individuals and charities and left the residue of their estate to the claimants, also being the executrices of the Wills.

It was not possible to determine which of the couple died first. Therefore, it was not in dispute that the husband, being the younger of the pair, was deemed to have survived his wife. This was so because of the "commorientes rules" under statute. Therefore, under the husband's Will the gift of residue in favour of his wife failed because she was deemed to have pre-deceased him. The husband's Will fell to be distributed in accordance with the provisions in the remainder of his Will.

The key issue for the Court was to determine whether the survivorship clause meant that the wife's gift of residue to her husband also failed. If so, then her Will would also fall to be distributed to the same named individuals and charities as the husband's Will with the residue going to the claimants. The result of this would be that the named individuals and charities would benefit twice (once from the husband's estate and once from the wife's). This was not the couple's intention. Instead, they had intended that in such circumstances other beneficiaries would take the estate of one of them so no beneficiary would benefit twice.

The claimants brought the claim in their role as executrices in order to ascertain how to administer the estates. It was the claimants' position that the correct interpretation of the wife's Will was that the survivorship clause meant the wife's gift to her husband failed. This was so because the wife's Will required the husband to survive her by 28 days in order to inherit her estate. It was the defendants' position that the survivorship clause did not apply to the gift of residue to the husband because inter alia the overall purpose of the Will and the facts known or assumed by the parties at the time the Will was executed did not suggest it should. It was common ground between the parties that the husband and wife did not intend beneficiaries to benefit twice.

Judgment

The Court held that on true construction of the wording of the Will, the survivorship clause meant that the residue gift in favour of the husband failed. In so holding, the Court examined the principles of construction, noting that the starting point was to give the words of the Will their ordinary and natural meaning. The ordinary and natural meaning of the survivorship clause was that anyone who was named in the Will must survive the testator by 28 days in order to take under the Will. The fact that the husband died within 28 days of the wife meant that the gift to the husband failed. This failure could have easily been avoided by different drafting, for example by excluding the effect of the survivorship clause in respect of the relevant spouse and/or the primary gift.

The Court commented that the apparent mistake on the part of the draftsman in failing to give effect to his clients' apparent actual intention may have been capable of being cured through a claim for rectification. However, such a claim was not brought before the Court so the Court declined to rule on it.

Comment

The case serves as a reminder that in considering claims of Will construction, the Court will start by considering the natural and ordinary meaning of the words. If the words are clear and unambiguous then that unambiguous meaning will be given effect to as the testator's intention. This was despite in this case the unambiguous meaning being at odds with the apparent actual intention of the testator.

For draftsmen, it is important to remember to draft in a way which gives effect the client's intention. Failure to do so may give rise not only to dispute as to the meaning of the drafting, but also a potential negligence claim. For executors, it is important to remember your duties in administering the estate and the necessity to administer the estate according to the terms of the Will. This is true even if you know this to be contrary to the testator's actual intention.


[1] Jump and another v Lister and another [2016] EWHC 2160 (Ch)

 

For more information, please contact Richard Norridge, Joanna Caen or your usual Herbert Smith Freehills contact.

Richard Norridge
Richard Norridge
Partner
+44 20 7466 2686
Joanna Caen
Joanna Caen
Senior Consultant
+852 2101 4167

 

 

 

 

Akers v Samba: Trusts over foreign assets

The UK Supreme Court has held that the extinction of a company's beneficial interest under a trust on the transfer of an asset by the trustee to a bona fide purchaser without notice does not constitute a "disposition" under section 127 of the English Insolvency Act 1986 (the "Act"). Accordingly, the transfer of such assets was not void, the assets could not form part of the insolvency estate of the liquidated company, and the beneficiary's interest in the assets was extinguished: Akers v Samba Financial Group [2017] UKSC 6.

The Supreme Court also considered (albeit by way of obiter dicta) the effect of the lex situs in relation to trust assets.

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Judge sentenced to six months’ jail by Nottingham Crown Court for forgery of a will and fraud

A former solicitor and disability claims tribunal judge, and her husband, forged a will and letter to obtain two adjacent cottages in order to create one, large retirement home for themselves. On conviction, they were sentenced to six month's jail, the maximum sentence.  This case should remind readers of the serious penalties for forgery.

Background

The fraud was committed by Margaret Hampshire, and her husband, Alan Hampshire.

The will

The first cottage was owned by Martin Blanche, who died in 2007. Mrs Hampshire administered Mr Blanche's estate and claimed to have found a will while clearing out the contents of Mr Blanche's home following his death. Under the "will" Mr Blanche purportedly left the first cottage and his share in the second cottage to his cousin, Josephine Burroughs. Mrs Hampshire and Ms Burroughs were also related.

There was doubt cast at the time as to the validity of the will. It was widely believed Mr Blanche was illiterate, therefore unlikely to have written a will. Nonetheless the will was admitted to probate and both properties were transferred into Ms Burroughs' name.

The letter

The second cottage was part owned by Mr Blanche and Ms Burroughs. Mrs Hampshire had been granted power of attorney over the affairs of Ms Burroughs.

Following the transfer of both cottages into Ms Burroughs' name, Mrs Hampshire produced a letter, purportedly typed by Ms Burroughs, to the effect of "I have thought about Martin and the cottages at Rolleston and as we discussed I definitely do not want anything to do with it…I think it's fair for you to have it, and I am happy for Sarah [the Hampshires’ daughter], to have them if that is what you want." The letter was dated 24 February 2007 and apparently signed by Ms Burroughs. Mrs Hampshire later admitted that she had written it in 2009 and that Ms Burroughs' signature had been forged.

Abuse of power of attorney

Mrs Hampshire subsequently used her power of attorney over Ms Burroughs' affairs to transfer ownership of both cottages to her daughter, Sarah Hampshire, to avoid inheritance tax.

In 2012 Mr Hampshire stole £23,176 from Ms Burroughs' bank account to fund the conversion of the two cottages into one, large cottage.

Ms Burroughs died in January 2014, prior to the discovery of the forgery and fraud.

In 2016 the Hampshires sold their home and moved into the renovated cottage, following which their offences were discovered due to a dispute with a neighbour.

The trial

Although Mr and Mrs Hampshire initially denied the claims, they eventually pleaded guilty at trial in November 2016. Mrs Hampshire pleaded guilty to two counts of forgery and one count of fraud. Mr Hampshire admitted forgery and two counts of theft.

Timothy Greene QC, for Mrs Hampshire, argued that there had been no intention to cause financial harm and that Ms Burroughs had been telling third parties that she wanted to leave the property to Mrs Hampshire. Mr Greene QC argued that "This was the first example of her smoothing the passage, improperly proved, to enable her to achieve the end that would have been achieved in any event." However there was the issue of whether Ms Burroughs had wanted the cottages transferred before or after her death.

Similarly, Peter Lownds, for Mrs Hampshire, alleged he had forged the will for "reasons of expediency" and that "There was no will. Having a will meant the administration of the estate could be conducted in a speedier and more straightforward manner." Mr Lownds stated, in relation to the will, that his understanding was "…It was her words, and his handwriting."

Decision

On 20 December 2016 Senior Circuit Judge Gregory Dickinson QC sentenced the Hampshires to three concurrent jail terms of six months each.

Judge Dickinson QC admonished Mrs Hampshire in particular for committing the offences while still employed by the Ministry of Justice as a disability claims tribunal Judge and for abusing her position of attorney to Ms Burroughs. Judge Dickinson QC told Mrs Hampshire that "You actually played fast and loose with the Land Registry, probate service and your own cousin's affairs", "You abused your knowledge and experience gained as a solicitor, forgetting or ignoring the need to act with integrity" and "Your terrible fall from grace and your age cannot save you from an immediate custodial sentence."

Judge Dickinson QC also made findings against Mr Hampshire, concluding that he had written the will at the direction of Mrs Hampshire and that Mr Hampshire had stolen £23,000 from Ms Burroughs' account, which was "an appalling abuse of a position of trust".

A further hearing is to be held in 2017 as to whether the Hampshires will be required to pay compensation and forfeit the cottages.

Learning point

As Judge Dickinson QC sentenced both defendants to the maximum jail term of six months under section 6 of the Forgery and Counterfeiting Act 1981, it appears that the Court did not accept the defendants' pleaded mitigating factors of expediency and inevitability. It goes without saying that a potential beneficiary should not seek to expedite the transfer of any property or benefits by forgery and the consequences of doing so can be severe.

 

For more information, please contact Richard Norridge, Joanna Caen or your usual Herbert Smith Freehills contact.

Richard Norridge
Richard Norridge
Partner
+44 20 7466 2686
Joanna Caen
Joanna Caen
Senior Consultant
+852 2101 4167

 

The English High Court pierces the corporate veil using the “evasion principle”

In Paul David Wood & Anor v Timothy Darren Baker & Ors, the joint trustees in bankruptcy of the bankrupt's property successfully obtained injunctions freezing the assets and business of the respondents and restraining them from dealing with such assets and business.  This case is an illustration of how the court may apply the "evasion principle", a principle identified in the decision of the Supreme Court in the case of Prest v Petrodel Resources Ltd, in piercing the corporate veil.

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Interpretation or rectification — when and how can the Court uphold an unclear Will according to the testator’s intentions

In In the matter of the Estate of Florence Rosemary Harte (Deceased) ("Re Harte"), the English High Court had to decide when and how to interpret and rectify a Will to reflect the testator's true intentions. Re Harte affirmed the landmark Supreme Court case Marley v Rawlings in its intent-based approach to Will interpretation and rectification. The Judge also widened the definition of "clerical error" in in relation to Wills. 

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English High Court upholds disclosure order regarding interests of a beneficiary under discretionary trusts

In JSC Mezhdunarodniy Promyshlenniy Bank and Another v Sergei Viktorovich Pugachev and Others [2014] EWHC 3547 (Ch), the English High Court upheld a disclosure order against one of the beneficiaries of discretionary trusts (granted as part of a worldwide freezing order against him) in order to identify the true extent of his control of the trust assets. The decision demonstrates the wide scope of disclosure orders and how they enhance the effectiveness of freezing orders. In Hong Kong, the decision is likely to have precedent value in cases where freezing orders are obtained against defendants who are also the beneficiaries of obscure discretionary trust structures. Continue reading

English Court of Appeal confirms account of profits available as remedy for dishonest assistance

Some, if not quite born trustees, are appointed as such at the outset of a trust. Some achieve trusteeship at some later stage. And some have some aspects of trusteeship thrust upon them.

Within this third category are strangers to a trust who “dishonestly assist” an express trustee in a breach of the trustee’s fiduciary duty. Through this dishonest assistance, the stranger will be liable to the injured beneficiary, even though no fiduciary relationship exists between them. Although not sued as fiduciaries, such strangers can be held liable to account in equity as if they were a trustee of the beneficiary. Commonly, for convenience (which more often leads to confusion), the stranger is called a “constructive trustee”.

Previously, there was some uncertainty as to the scope of the remedies available for dishonest assistance: specifically, whether the claimant-beneficiary could obtain an account of profits against the dishonest assister, even though no loss was suffered. The unanimous decision of the Court of Appeal in Novoship (UK) Limited & ors v Nikitin & ors [2014] EWCA Civ 908 confirms the availability of the remedy in claims against third parties for dishonest assistance and also the circumstances in which the remedy will be available, namely where there is a sufficient causal connection between the dishonest assistance and the profit and where it would be not be disproportionate to grant the remedy. Robert Hunter and Tom Wood consider the decision here.

English High Court considers the effect of invalidly appointed trustees

In Jasmine Trustees Ltd v Wells & Hind (A Firm) [2007] EWHC 38, the High Court of England and Wales interpreted “individuals” in Section 37(1)(c) of the Trustee Act 1925 (“TA 1925“) as meaning natural persons and not corporations. Accordingly, the appointment of an investment bank as one of the replacement trustees was ineffective in discharging the original trustees of the settlement. This resulted in a series of acts being rendered invalid and the trust being liable to capital gains tax. The Judge also considered the status of invalidly appointed trustees, concluding that they were trustees de son tort. Such trustees may be liable for breach of trust but do not have the same powers as a validly appointed trustee. Section 38(1)(c) of the Trustee Ordinance (Cap 29) in Hong Kong has retained the same wording as the old Section 37(1)(c) TA 1925. This decision is, therefore, likely to be important if similar questions of interpretation arise in Hong Kong. Continue reading