Analysis
Eric Lionel Thomas (the settlor) settled a trust (the 1961 settlement) by deed dated 27 June 1961 (the 1961 deed). The principal asset of the 1961 settlement was a controlling interest in NWN Media (the company), a family owned newspaper publishing company that published local newspapers in Wales, Chester, Shropshire and Herefordshire. The trustees of the 1961 settlement (the trustees) were given powers by the 1961 deed to sell shares with the consent of the settlor during his lifetime and thereafter at their discretion. In addition, the 1961 deed gave the trustees the powers of appropriation contained in s41 of the Administration of Estates Act 1925 without the need for the consents required by that statute.
The original fund of the 1961 settlement was divided into three equal sub-funds by appointments made by the trustees in 1975, 1983 and 1984. Each of the settlor’s three daughters, Mrs Bourne, Mrs Moss and Mrs Woodward, were entitled to the income from one sub-fund for life subject to which their respective children were entitled to the capital. For practical purposes, the beneficial interests in each of the sub funds had vested by the date of the hearing. In 1993, the trustees executed a document by which they purported to exercise their power of appropriation to appropriate as equally as possible company shares to the Bourne family sub-fund, the Moss family sub-fund and the Woodward family sub-fund (the 1993 appropriation). Notwithstanding that the 1961 deed provided that the trustees’ powers of appropriation required no consents the 1993 appropriation was signed by Mrs Bourne, Mrs Moss and Mrs Woodward, each of whom consented to the appropriation of the fund.
On 12 July 2012 an offer was received from Tindle Newspapers Ltd (Tindle) to purchase a controlling share of at least 51% of the shares in the company from the trustees. The trustees considered the terms of this offer to be very favourable. The Woodward family requested that the trustees accept the offer. The Bourne and Moss families were both opposed to the offer and requested that the trustees advance them the shares held in their respective sub-funds. The trustees held a meeting to consider the offer, at which the trustees came to the conclusion that, having regard to the interest of all the beneficiaries of the settlement, the most appropriate course of action was to sell the entirety of the shares held in the Woodward family sub-fund to Tindle, and to sell enough shares from the Bourne and Moss family sub-funds to give Tindle the requisite 51% controlling interest in the company.
The trustees issued an application seeking the guidance of the court on their proposed course of action. At the hearing, the Bourne and Moss families contended that they each had the right to require the trustees to transfer their respective sub-funds to them under the principle in Saunders v Vautier (1841) 4 Beav 115, and that their requests to the trustees to advance them the shares held in those sub-funds required the trustees to pay over those shares. The Woodward family opposed this submission on the basis that the 1993 appropriation had not effected a valid appropriation of company shares into three separate sub-funds. They further submitted that the 1961 settlement did not fall within the definition of ‘family trust’ in the company’s articles of association, as the settlor ceased to be a member of the company on his death in 1996. As such, the transfers of the Bourne and Moss sub-funds were not permitted.
Held
1. The Bourne and Moss families were entitled to direct the trustees on how to deal with their respective sub-funds, to the extent that they had not already done so by their request to the trustees to advance the shares to them. It was desirable that s41 Administration of Estates Act 1925 should be broadly construed in a way which promoted practical and convenient trust administration. The Woodward family’s submission that it was confined to transactions of a contractual or semi-contractual nature was not supported by authority and the power could be used, for example, to replace a beneficial interest in part of the income of the whole with a beneficial interest in the whole of the income in an appropriated part. The necessary protection for beneficiaries lay not in adopting a narrow interpretation of the power conferred by the section but rather in the requirement for consent and the requirement that an appropriation must be just and reasonable having regards to the respective rights of the beneficiaries. Accordingly, the 1993 appropriation was a valid exercise of the trustees’ modified s41 power conferred by the 1961 deed. Even if that analysis were wrong, the consent of Mrs Bourne, Mrs Moss and Mrs Woodward remedied any defect in the exercise of the power.
2. The 1961 settlement was still a ‘family trust’ within the definition in the company’s articles of association and there was nothing to prevent the trustees from giving effect to the requests of the Bourne and Moss families. The submission that the settlor’s death in 1996 had caused the settlor to cease to be a ‘member’ and thus caused the 1961 settlement to cease to fall within the definition was untenable. The proposition that his death would cause an otherwise qualifying trust to cease to be so would produce consequences that were so absurd and impractical that it should be accepted only if the language permitted of no other interpretation. The natural reading of the definition, or at the lowest a possible reading, was that the definition may be satisfied at any point in a member’s lifetime and the family trust retained its status so long as the conditions in the definition were satisfied.
JUDGMENT MR JUSTICE HENDERSON: [1] On 25 July I heard argument on an urgent application for directions by the trustees (the trustees) of a settlement made on 27 June 1961 (the 1961 settlement) by the late Eric Lionel Thomas (the settlor). The principal asset of the 1961 settlement is a controlling majority holding comprising 19,233 …Continue reading "Hughes & ors v Bourne & ors [2012] EWHC 2232 (Ch)"