Category Archives: Fiduciary Duties

Court: Trustees could sell estate to that buyer at that price

Where a property is subject to a trust and the trustees are in doubt whether they should proceed with a propose sale, they can protect themselves from future actions by the beneficiaries by seeking court approval.

Since the giving of such approval will deprive the beneficiaries of their remedy, the legal precedents emphasise the requirement for caution by the court before approving trustees’ decisions to carry out “a momentous transaction”. The court will not approve a trustee’s decision without a proper evidential basis for doing so. Equally the court should not withhold approval from trustees “without good reason”.

One of the main tests is whether the trustees can show that their decision to enter into and complete the intended sale was “one which reasonable trustees could properly take in the interests of the beneficiaries”.

In the Court of Appeal case of Cotton & Anor v Brudenell-Bruce & Ors [2014] the court had to decide whether or not to approve a “momentous decision” made by trustees.

The case concerned Tottenham House, Savernake, Wiltshire (“Tottenham House”) which was the main asset of the Savernake Estate. It had been unoccupied since the 1990s, and was rapidly deteriorating. It was on English Heritage’s register of ‘at risk’ properties. Should the court approve the proposed sale to the existing buyer?

The trustees wanted the court to approve the intended sale. One of the main beneficiaries of the trust, Lord Cardigan opposed the intended sale.

For the trustees the intended sale price was a good one that presented an opportunity not to be missed. For Lord Cardigan the price was inadequate and was the outcome of an ineffective and inadequate marketing exercise.

The intended purchaser would originally have been able to walk away from the sale contract by now but had given the trustees an extension to the long-stop date to enable these proceedings.

The court was much concerned that the trust would be put “in an impossible bind” if court approval were withheld. The effects were potentially dire.

The trust had no money, and had to spend large amounts on insurance and maintenance. The trust had already defaulted in paying the bank, and the bank would probably enforce the security it held against three of the smaller properties on the estate.

The trustees would be thrown into an open marketing campaign, against the advice of their estate agent, GVA. They would risk losing the specially interested buyers who had meticulously assembled their bids.

The court had to be cautious to ensure that the trustees were indeed justified in proceeding with the sale but it was not the job of the court to place insurmountable hurdles in the path of trustees as badly placed as the Savernake Trustees were. “Caution cut both ways.”

The court confirmed to the trustees, that in acting on GVA’s professional advice to sell to that buyer at that price, the trustees would be fulfilling their duties to the trust beneficiaries.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Failed Construction Assignment Might Work as Declaration of Trust for Lender

Where a contract prohibits assignment without consent, the contract cannot be effectively assigned without the consent of the other party.

In any event the other party should be given written notice of any assignment to perfect it in the legal sense.

In Stopjoin Projects Ltd v Balfour Beatty Engineering Services (HY) Ltd [2014] a struggling sub contractor Brunel had assigned the benefit of its debts to a lender. The main contractor, then called Haden Young, was now applying to get the lender’s claim against it, under the sub contract, ruled out summarily on the basis the lender had no arguable claim for any debt.

The court found that HY had never waived the prohibition against the benefit of the sub contract being assigned. Firstly it had written taking issue with the lender’s position as a stranger (i.e. non party) to the construction sub contract. Secondly HY had never thereafter paid the lender or corresponded with it.

So the lender argued that Brunel held the benefit of the sub contract on trust for the lender.

The court appeared unconvinced by the idea that a failed assignment could amount to a declaration of trust of the sub contract benefits it was supposed to have assigned legally. After all trying to assign your legal rights to something is hardly a promising basis for later holding those same benefits on trust for the intended assignee of those legal rights. The two things are mutually inconsistent. An assignment of a legal right is an attempt to clothe the assignee with legal ownership of that right and entirely at variance with a trust where the person making the disposition retains legal ownership of the contract and merely clothes the other person with the right of enjoyment i.e. beneficial ownership.

The court also pointed out that the assignment clause might expressly or impliedly prevent the benefit of the sub contract being held on trust.

However the court thought that the lender’s argument was sufficiently arguable to refuse HY (since renamed Balfour Beatty) summary judgement leaving the issue to go to a full hearing.

This blog is posted out of general interest. It does not replace the need to get proper legal advice in individual cases.

Directors diverted Property Opportunity to their Own Company and breached Fiduciary Duties

Where directors encounter an opportunity in their role as a director or that they might and should implement for the benefit of the company they must exploit it for the benefit of the company and not seek to divert it for their own benefit. This rule applies equally where the shares of the company to which the opportunity is diverted are beneficially owned by the directors concerned.

This was the situation in Pennyfeathers Ltd –v- Pennyfeathers Property Company Limited (2013). In that case the directors were brought in to assist a company set up to use a land option held by 2 individuals. But they set up their own company Pennyfeathers Jersey Limited which proceeded to take a conditional contract in respect of the land and to enter options to acquire surrounding land.

The court lifted the corporate veil on Pennyfeathers Jersey Limited saying that its contracts where impressed with implied trusts in favour of Pennyfeathers Limited by virtue of the directors’ ownership and control of the Jersey Company and held that they and the directors were accountable to Pennyfeathers Ltd for their profit.

This position could only have been avoided if the relevant directors had made full disclosure to Pennyfeather’s Limited and got that company’s full approval by written resolution. In practice that could only have occurred had the 2 directors taken over Pennyfeathers Limited as well.

As usual this blog is posted out of general interest. It does not replace the need for proper legal advice in individual cases.