Brown v New Quadrant Trust Corporation Ltd & anr [2022] WTLR 49

Analysis

New Quadrant Trust Corporation Ltd (the trustee), a professional trustee corporation and trustee of a discretionary trust (the trust), decided to sell the trust’s shares in a company known as Lifetime Home Securities Ltd (LHS), such shares representing approximately 25% of the value within the trust. LHS had traded in home equity release arrangements but was then non-trading, with around 13 properties remaining on its portfolio and a remaining director who was 92 years old. The trustee considered that a sale of the shares was more tax efficient, would diversify the trust’s portfolio and would avoid concerns arising from an ongoing FCA investigation into home equity release arrangements. The main beneficiary under the trust, Mr Mark Brown, objected to the sale and sought an injunction restraining such sale. At the initial hearing, the trustee gave an undertaking to not sell pending the full determination of the injunction application. By the time that the injunction application was heard, Mr Brown had issued proceedings which included a request for the trustee to be removed on the basis, inter alia, of a failure to pursue previous trustees for mismanagement and a failure to disclose documents. Further, the trustee had issued a counterclaim seeking approval of its decision to sell the shares at the best price reasonably obtainable and asked that its counterclaim be determined at the same time as the injunction application. The second defendant, Mrs Arlene Brown, was not a major beneficiary of the trust and did not participate in proceedings.

Held:

1. 1) While it was more usual for an approval application to be issued under CPR Part 8, it was legitimate, and indeed more efficient, for it to be made by counterclaim in the circumstances. Due to the overlapping arguments, it was appropriate to hear the counterclaim at the same time as Mr Brown’s application for an injunction.
2. 2) In deciding whether there was a serious issue to be tried for the purposes of the injunction application, the test was whether the trustee’s decision is not one which a reasonable trustee could properly have reached. The reasonableness was to be assessed on the basis of the facts at the time of the hearing and not of the earlier decision-making process. Further, there is no presumption that the trustee should have taken specialist independent advice on every aspect of the proposed sale.
3. 3) There was no serious issue to be tried in respect of whether the trustee’s decision to sell the shares was reasonable. The trustee had acted reasonably in making that decision. In particular, it was reasonable for the trustee:
   1. i) as a professional trust corporation, to not take investment advice;
   2. ii) to consider, but ultimately reject, Mr Brown’s alternative financial plan;
   3. iii) to take into account the FCA investigation;
   4. iv) to be concerned about its own lack of experience in the home equity sector;
   5. v) not to regard as decisive Mr Brown’s, and potentially the settlor’s, desire to retain the shares within the trust;
   6. vi) to market the shares through a specialist agent;
   7. vii) to use Zoopla as a tool in the overall valuation of the underlying properties in circumstances where it would be disproportionate to commission separate valuations;
   8. viii) to use LHS’s previous director’s calculations as a basis of valuing LHS even in circumstances where such director was an original trustee of the trust and Mr Brown complained of such director’s conduct while acting as trustee;
   9. ix) not to disclose a draft sale contract; and
   10. x) to consider that diversification of the trust was desirable, wish to move to more reliable income and take into account the small and diminishing market for the shares.
4. 4) In respect of the approval application, these circumstances fell within the second case under Public Trustee v Cooper [2001], that is, a case where there is no real doubt as to the nature of the trustee’s powers but the decision is ‘particularly momentous’.
5. 5) It was appropriate to approve the trustee’s decision to sell the shares at the best price reasonably obtainable. In particular:
   1. i) there was no failure to give full and frank disclosure;
   2. ii) the fact that Mr Brown was seeking the removal of the trustee did not prevent the approval (distinguishing Jones v Firken-Flood [2008]); and
   3. iii) the terms of the approval were not too vague.

JUDGMENT MRS JUSTICE BACON: [1] This hearing concerns a dispute between Mark Brown, who is the main beneficiary under two trusts appointed out of the estate of his late father, and New Quadrant, which is a professional trust corporation and the current sole trustee of both of those trusts. Arlene Brown is the other beneficiary …

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