Goodrich & ors v AB & ors [2022] WTLR 525

Analysis

W was the founder of WBL, an internationally renowned publisher of children’s books. In 1989 W instructed solicitors to create an employee trust (WBET) for WBL and transferred 51% of the WBL shares into WBET. The remainder of the shares were divided amongst family trusts established by W.

W died in 1991 and the shares in WBL held by the family trusts were distributed to employees and officers of WBL through a qualifying employee share ownership trust and a share incentive plan. Some of those shares were acquired from employees by the WBL Employee Share Ownership Plan (ESOP).

The trustees of WBET were the first and second claimants and the trustees of ESOP were the third and fourth claimants. The claimants wished to sell their holdings in WBL to a buyer and sought the approval of the court, pursuant to the jurisdiction described in Public Trustee v Cooper [2001], in relation to the proposed sale. The proposal was approved and sanctioned by the court and, following the sale, the claimants wished to distribute the proceeds of sale.

In this application to the court, the claimants sought directions, first, as to the construction of certain provisions of the WBET trust instrument (the construction application); and, secondly, the extent to which the claimants, as trustees of the two trusts, might share information and take the shared information into account in reaching decisions as to distributions (the information application).

Held:

1. (1) It was accepted by all parties that the task for the court in construing a trust was to ascertain the objective meaning of the words used, and the objective intentions of the settlor, by interpreting the whole of the words used against their documentary and factual context.
2. (2) Although the trustees were neutral on all issues, they were directed to advance positive arguments in respect of certain issues so that opposing views could be put before the court in respect of each issue.
3. (3) As to admissible evidence, save in the exceptional case of latent ambiguities, evidence of the subjective intention of the settlor was not admissible. Material could be admitted for the purpose of establishing objective facts provided it was not to prove subjective intention by the back door:
   1. (i) A document headed ‘Letter to All Employees’ (the Letter to Employees), dated the day before the WBET, intended to be read by beneficiaries and setting out in lay terms the intention of the trust instrument, was admissible as an aid to construction.
   2. (ii) An unsigned memorandum of wishes that was found to have been prepared on W’s instructions and drafted contemporaneously with the WBET trust instrument was admissible as part of the factual background.
   3. (iii) A Note to the Trustees prepared by W and post-dating the WBET trust instrument did not assist with the factual background and was not relevant to the construction of the WBET; it was not admissible.
   4. (iv) The biography of W was admissible for the purpose of establishing the factual matrix.
   5. (v) Witness statements that sought to place before the court evidence about W’s subjective wishes and views were not admissible.

The construction application

1. (4) The objects of the discretionary powers of the trustees of the WBET, referred to as ‘the beneficiaries’, included ‘retired’ officers or employees of WBL; ‘spouses’ of certain of the beneficiaries; and their ‘children’ and ‘remoter issue’.
   1. (i) As to the retired officers or employees, the court directed that the word ‘retired’ should be given its widest meaning: those who – whether before, at or after usual retirement age – ceased working for WBL, irrespective of whether they continued in the workforce thereafter or not. This was supported by an entry in the Oxford English Dictionary; the content of the Letter to Employees; and dicta in Venables v Hornby (Inspector of Taxes) [2003].
   2. That meaning included officers and employees who subsequently joined a competitor of WBL, those who died in service, and those who had ceased to be officers or employees of WBL (referred to as ‘bad leavers’), including those who left one role in the company for another (as ‘good leavers’) before they then left the company.
   3. (ii) The term ‘spouse’ included civil partners (under the Civil Partnerships Act 2004 (CPA)) even though the legal concept did not exist at the time that the WBET was established. Put into the commercial context, the intention was to reward the contributions of employees and, by extension, their dependants so that it was open to construe ‘spouse’ as including a civil partner, which was a legal relationship between two people carrying with it similar rights to those enjoyed under marriage. The question of spousal rights engaged Art 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms (the Convention – see Human Rights Act 1998, ss3 and 6 and Sch 1) – the right to respect for private and family life. Although the court construed ‘spouse’ so as to include civil partners, if it had declined to do so, that would infringe Art 14 of the Convention, but it was not possible to read down the CPA in a Convention-compliant way
   4. The term ‘spouse’ also included same-sex spouses (under the Marriage (Same Sex Couples) Act 2013 (MSSCA)). For the reasons given in relation to civil partners, it was open to construe ‘spouse’ as including same-sex spouses. Likewise, a decision not to construe ‘spouse’ so as to include same-sex spouses infringed Art 14 of the Convention, but, in this case, it would have been possible to read down the MSSCA in a Convention-compliant way (Re Hand’s Will Trust [2017] followed).
   5. (iii) The term ‘children’ excluded stepchildren. At common law ‘children’ were originally construed to mean legitimate children and this did not include stepchildren. The meaning was extended by statute to include legitimate, illegitimate, legitimated and adopted children, but not stepchildren. The trust instrument did not extend the meaning of ‘children’ to include stepchildren and the admissible evidence did not show any intention so to extend it. For the purposes of the human rights legislation, there was nothing discriminatory in the court drawing a distinction between a natural or adopted child and a stepchild.
   6. (iv) The terms ‘spouse’, children’ and ‘remoter issue’ included surviving spouses, children and remoter issue of officers and employees who died in service (Administration of Estates Act 1925 and Inheritance (Provision for Family and Dependants) Act 1975 referred to).

Information application

1. (5) Broadly, both sets of trustees intended to make distributions on the basis of an individual’s contributions to the success of WBL. The beneficiaries of the WBET and of the ESOP substantially, but not entirely, overlapped, so that without an exchange of information those entitled under both trusts might disproportionately benefit as against those entitled under only one of the trusts. Accordingly, sharing information between the trusts was important.
2. It was held that permitting a limited incursion into the trustees’ duty of confidentiality by sharing information in respect of the trustees’ distribution policies, with necessary protections in place, was in the best interests of the beneficiaries and the due administration of the trusts.

JUDGMENT CHIEF MASTER SHUMAN: [1] On 14 February 2020 the court approved and sanctioned the claimants to do all things necessary to complete a conditional share purchase agreement of their shares in Walker Books Limited (WBL) to a buyer. The sale completed on 7 May 2020. The application for approval had been brought under the …

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