Sheffield v Sheffield & ors [2013] EWHC 3927 (Ch)

Analysis

John Vincent Sheffield (JVS) and his wife Ann Sheffield bought 1,000 acres of land in Hampshire in 1968 as tenants in common, with JVS owning 25% and Ann 75% (the 1968 settlement). The land included two farms, numerous residential properties and some shooting rights over adjoining land. Ann died in 1969 and left JVS a life interest in her estate and thereafter to their son Julian. In 1971 JVS married France (who predeceased him) and he lived on the estate until his death in May 2008.

In May 1976 JVS agreed a farming partnership of the farming land on the estate. JVS was entitled to a salary of £9,000 and an 8% share of the profits. The land to be farmed by the first farming partnership was let by the trustees of the 1968 settlement to a nominee, Mr Monier-Williams (a solicitor), at a rent of £1,000 per year and then sub-let by Mr Monier-Williams to the first farming partnership. This structure was used to prevent the faming partnership from acquiring certain rights but meant that the income the 1968 settlement was entitled to was only the £1,000. Most of this income was used up in trust expenses. JVS was the only person entitled to the income and no trust accounts were prepared for many years.

JVS was concerned about inheritance tax payable on his estate. Following legal advice he gave his 25% of the 1968 settlement to the claimant, Julian’s child John (then aged 20 and a student). The first document signed was a deed of accession. By it the claimant became a partner in the first farming partnership and became entitled to a share of 0.01% of the profits while JVS’ profit share was reduced from 8% to 7.99%.

The declaration of trust was dated 24 October 1983 (the 1983 declaration). By the 1983 declaration, JVS declared that he held his beneficial interest under the 1968 settlement (including, critically, ‘… the net income until sale…’) on trust for the claimant. From the date of the declaration JVS became a sub-trustee for the claimant.

A deed of covenant was also dated 24 October 1983 and expressed to be supplemental to the 1983 declaration (the covenant). By it the claimant covenanted ‘… not to do any act or join with any other person in doing any act which is intended to terminate or interrupt the occupation by [France] of the property known as New Barn House Laverstoke aforesaid provided that [JVS] in all respects shall be deemed to hold the benefit of the foregoing covenant as trustee for [France]…’

In November 1983 JVS wrote to the claimant stating ‘This is to confirm our discussion on my handing over to you the quarter share of our farm here… I am afraid that you will not get much tangible benefit from this gift until I expire…’. The claimant denied any conversation at all with JVS before or after the signing of the agreement.

The claimant was not given a copy of any of the documents until 2004.

The defendants were the executors of JVC, the current and former trustees of the 1968 settlement and Julian.

On the defendants’ case the 1983 scheme was subject to an informal antecedent ‘arrangement’. They alleged an agreement between the claimant and JVS that JVS would ‘gift’ his quarter beneficial interest under the 1968 settlement to the claimant ‘… but that JVS would continue to keep all the income attributable to the gifted interest while he was alive and that he and his wife would continue to occupy New Barn House… and generally JVS would continue to act in relation to JVS’ quarter share as if JVS was still the owner’.

The evidential burden rested with the defendants to prove the existence of the arrangement. The claimant’s case was that there was no such understanding and that his father told him just before the 1983 documents were signed that he was to receive no or no significant income as a result of JVS’ gift to him. He maintains that the effect of the 1983 declaration was not explained to him by anyone else prior to him signing it; he accepted what he was told by his father and did not read the contents of the declaration.

In 1987 a deed was signed to create a new farming partnership. The lease to Mr Monier-Williams was brought to an end and with it the underlease to the first farming partnership. There was no formal lease in favour of the second farming partnership as had been the case with the first farming partnership and thus no rent payable by the second farming partnership to the trustees of the 1968 settlement. The deed constituting the second farming partnership provided that a salary was payable to JVS of £35,000 and as to 5% of the profit to JVS and the claimant, to be shared as agreed between them. It is common ground that JVS received the whole of the 5% profit share at all times. The second farming partnership structure prejudiced the interests of the claimant because he was beneficially interested in 25% of the income derived from trust assets and those assets (the farming land) were being provided to the partnership without charge. The claimant alleged that he signed the 1987 deed completely unaware of his entitlement under the 1983 declaration.

In 1995 the second farming partnership was ended and a farming business tenancy started, and all the income from it was paid to JVS.

The claimant also alleged that the trustees of the 1968 settlement acted in breach of trust by selling or renting properties at below market value (and indeed renting for free), failing to repair assets and failing to exploit the shooting rights.

Aside from reliance being placed on the arrangement, the defendants relied on the general defences of estoppel, limitation, acquiescence and laches, and s61 of the Trustees Act 1925. The defendants’ case in laches was that JVS died before the commencement of the proceedings and that it was inequitable that the claimant should proceed as they had been deprived of the opportunity of obtaining a statement from JVS.

Held (allowing the claim):

1. 1) The legal advice given prior to the signing of the 1983 documents is very clear. Both JVS and Julian were well aware that the 1983 declaration carried with it the right to receive 25% of the estate’s income but neither was troubled by that fact, because the rent payable to the trustees was so low and was likely to be consumed by trust expenses in any event. JVS’ income stream was secure from the farming partnership already in existence.
2. 2) JVS did discuss matters with the claimant. It is inherently unlikely that JVS would not inform the claimant of the gift he was making and instead simply leave it to Julian to supply the necessary information to the claimant. JVS was the driving force behind the arrangements and the November letter confirmed that he did discuss things with the claimant.
3. 3) The November letter (which in the end was the only document that the defendants’ witnesses relied on as supporting the existence of the arrangement) does not support the conclusion that JVS and the claimant made the arrangement either in the course of the conversation referred to in that letter or otherwise.
4. 4) The letter must be seen in context. JVS was simply summarising in everyday language the effect of the gift. There was nothing known to JVS that would have led him to think that the gift would have any material effect on his income position because ceasing to use the farming partnership and lease structure was simply not contemplated by anyone at that time.
5. 5) The primary focus of the letter was not income but provision for France. There is nothing in the letter to support the suggestion that, in the discussion referred to, any agreement or understanding had been arrived at. The letter would have set out the understanding reached.
6. 6) There is no reason for rejecting the claimant’s evidence that he accepted what he was told at face value by his father and that he did not read the documents. The claimant was 20 with no experience of the business world or of managing large family-held estates. He had been told that he would receive no benefit during his grandfather’s lifetime.
7. 7) Given that there was no agreement there is no defence of estoppel. The claimant did not know that the documents that he was being invited to sign had a different effect than told to him by JVS and his father.
8. 8) Family members were discussing these matters with JVS in 2006 and had anything said by JVS at that time suggested that a defence was available then the defendants could and should have taken a statement from him.
9. 9) All of the correspondence from November 2006 to May 2011 suggests unequivocally that the principle of the claimant’s entitlement to the income after the coming into effect of the 1983 declaration had been conceded. That position was maintained until the death of JVS and thereafter. In those circumstances, it has not become inequitable for the claimant to be permitted to maintain his claims.
10. 10) Acquiescence is unsustainable as an answer to the claim for an account of income received because the claimant was in ignorance of his rights to income arising from the 1983 declaration until late 2004, when a copy of the 1983 declaration was sent to the solicitors then acting for him. He asserted his claim sufficiently promptly thereafter.
11. 11) It was a breach of trust on the part of JVS as sub-trustee to enter into an arrangement whereby the second farming partnership was permitted to farm without paying rent for the land it farmed without first obtaining the informed consent of the claimant as beneficiary under the sub-trust.
12. 12) There is no evidence that the shooting has been operated on any basis save that of an expenses sharing exercise. The trustees had never considered that the shooting rights were capable of commercial exploitation. The achievable profits, although small, need to be accounted to the claimant.
13. 13) The failure to inform the claimant as to the true position was deliberate concealment. That being so, time could not start to run against the claimant in respect of the breach until December 2004 when a copy of the 1983 declaration was supplied to the claimant’s solicitors.
14. 14) JVS held the 25% interest in the estate as trustee for the claimant and thus was not entitled to occupy to the exclusion of the claimant. He was thus liable to pay an occupation rent equivalent to 25% of the occupation rent otherwise properly payable for the property but adjusted to take account of 25% of the maintenance costs of the buildings that would otherwise have been a trust expense.
15. 15) The trustees obtained expert evidence prior to selling properties and no breach of trust is demonstrated.
16. 16) While the trustees of the 1968 settlement could have paid the claimant rather than JVS they were not obliged to do so. The trustees of the 1968 settlement paid JVS as they were entitled to do. The failure of JVS to pay these sums to the claimant was a breach of trust on his part, not on the part of the trustees for the time being of the 1968 settlement. Therefore JVS’ estate is liable to reimburse the claimant rather than the trust.

JUDGMENT HHJ PELLING QC: Introduction [1] This is the trial of a claim by which the claimant in his capacity as a beneficiary of a family trust seeks various accounts and payments of (a) a quarter of certain trust income received by the trust which he maintains should have been but was not paid to …

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