Armitage v Nurse & Ors [1997] EWCA Civ 1279

EWCA-Civ
Armitage v Nurse & Ors
[1997] EWCA Civ 1279 · 1997-03-19
[1]I am of opinion that, as at present drawn, the Amended Statement of Claim does not allege dishonesty or any breach of trust for which the trustees are not absolved from liability by Clause 15. Accordingly I would answer Question 1 in the affirmative as the Judge answered it. Clause 9(a) of the Settlement.

(a) of the Settlement reads as follows:

“...the Trustees...shall have power to carry on or join or assist in carrying on or directing any business of farming...with power for that purpose ...to employ or engage... any managers or agents ...and to delegate all or any of the powers vested in them in relation to the business... And the Trustees shall be free from all responsibility and be fully indemnified out of Paula’s fund in respect of any loss arising in relation to the business” (my emphasis).”
In the absence of the Clause the trustees would have no power to carry on a farming business, whether themselves or through an agent. If they did so, however prudently, they would commit a breach of trust. The Clause confers the necessary powers. The Judge rightly held that the concluding words of the Clause confer upon the trustees a consequential exemption from liability for trading losses incurred in the carrying on of the farming business. It does not exonerate them from liability for imprudently investing in a farming business yielding poor returns or from failing to ensure that the business is properly managed. Question[2]Accordingly I would answer Question 2 in the negative as the Judge answered it. Limitation.

(a) of the Limitation Act 1980 provides:

"No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action- (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy"
Section 21(3) provides:
"Subject to the preceding provisions of this section, an action by beneficiary....in respect of any breach of trust...shall not be brought after the expiration of six years from the date on which the right of action accrued. "
For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession." Two questions have been argued. The first is whether Section 21(1)(a) is limited to cases of fraud or fraudulent breach of trust properly so called, that is to say to cases involving dishonesty. The Judge held that it is. In my judgment he was plainly right for the reasons which he gave. I have explained the meaning of the word fraud in a trustee exemption clause, and there is no reason to ascribe a different meaning to the word where it appears in Section 21(1)(a) of the Limitation Act 1980. Moreover, the meaning of the subsection is not free from authority. Its predecessor (Section 26 of the Limitation Act 1939) was held "to mean what it says" and to be limited to cases where fraud was an ingredient of the wrong: see Beaman v A.R.T.S. [1949] per Lord Greene MR at p. 538. The meaning of the words "fraud" and "fraudulent" in Section 21(1)(a) is not distorted by the meaning of the expression "concealed fraud" formerly used in Section of the 1939 Act and which was given a very special meaning but has been replaced in the 1980 Act by the more accurate expression "deliberate concealment". The result is that in the absence of deliberate concealment liability for an honest breach of trust is statute-barred after six years, but liability for a dishonest breach of trust endures without limitation of time. The second question is whether Paula had a present interest while she was under the age of 25 or whether she had only a future interest which fell into possession when she attained that age. The Judge held that she had merely a future interest. In my judgment he was right. Until Paula attained 25 the trustees held the trust fund upon trust to accumulate the income with power instead to pay it to Paula or to apply it for her benefit. She had no present right to capital or income but only the right to require the trustees to consider from time to time whether to accumulate the income or to exercise their power to pay or apply it for her benefit. That, in my judgment, is not an interest in possession. Paula was, of course, a beneficiary and as such was entitled to see the trust documents. The Respondents submit that this was sufficient to give her an interest in possession within the meaning of the Section, and cite Leedale v Lewis [1982] 3 All ER 808 in support. In my judgment that case does not assist the Respondents. As Lord Wilberforce pointed out at p. 816 “The word “interest” is one of uncertain meaning and it remains to be decided on the terms of the applicable statute which, or possibly what other, meaning the word may bear.” The statutory language and context in that case compelled the conclusion that an object of a discretionary trust of capital and income had an interest in settled property. A-G v Heywood (1887), 19 QBD 326 was to similar effect. That decision was approved in Gartside v IRC [1968] AC 553 where, however, a different conclusion was reached because of the different context in which the word “interest” was used. The meaning of the word must, therefore, be ascertained from the context in which it appears. As the tax cases show, the evident policy of a taxing Act may sometimes make it necessary that an object of a discretionary trust or power should be treated as having an interest and sometimes it may show the contrary. The question thus depends upon identifying the legislative purpose which Section 23 is intended to achieve. The Respondents submit that the policy to which Section 23 of the Limitation Act 1980 gives effect is that it would be unfair to bar a plaintiff from bringing a claim unless and until he is of full age and entitled to see the trust documents and so has the means of discovering the injury to his beneficial interest. The difficulty with this argument, in my judgment, is that it proves too much. Every beneficiary is entitled to see the trust accounts, whether his interest is in possession or not. The rationale of Section 23 appears to me to be different. It is not that a beneficiary with a future interest has not the means of discovery, but that he should not be compelled to litigate (at considerable personal expense) in respect of an injury to an interest which he may never live to enjoy. Similar reasoning would apply to exclude a person who is merely the object of a discretionary trust or power which may never be exercised in his favour. Question[3]Accordingly, I would answer Question 3 also in the negative, as did the Judge. Costs. The Judge awarded the Respondents 80% of their costs, depriving them of the remaining 20% because they were unsuccessful on two of the points which had been argued. After hearing further argument, he directed that the Respondents should not be at liberty to reimburse themselves out of the trust fund to the extent of that 20%. He considered that the Respondents were defending themselves and, having taken points which cost money and in respect of which they were unsuccessful, ought to bear those costs themselves. The Judge recognised that there was long-standing authority to the contrary, but held that it was displaced by the terms of RSC Order 62 Rule 6.2. That Rule entitles a trustee to recoup his costs out of the trust fund and authorises the Court to order otherwise "only on the ground that he has acted unreasonably or, in the case of a trustee or personal representative has in substance acted for his own benefit rather than for the benefit of the fund." The Respondents cross-appeal from the Judge's ruling which, they claim, deprives them of their legal rights. They submit that trustees are entitled to a lien over the trust fund for their costs, and that this lien extends to the costs of litigation, including the costs of defending themselves against a charge of breach of trust: see Turner v Hancock (1882), 20 Ch.D. 303; Re Spurling's Will Trusts [1966] 1 WLR 920. The lien is only lost by misconduct. But the principle is in my opinion overstated. Trustees are entitled to a lien on the trust fund for the costs of successfully defending themselves against an action for breach of trust. That was the position in Re Spurling's Will Trusts as it was in Walters v Woodbridge 7 Ch.D. 504 which it followed. But on what principle can one justify their right to recoup themselves out of the trust fund for the costs of unsuccessfully defending themselves against such an action? It offends all sense of justice. The Respondents rely on Turner v Hancock and submit that that was just such a case; but I do not think that it was. The action was an action for an account. On taking the accounts it was found that a sum was due from the trustee and not to him as he contended. It was therefore a case in which the trustee was unsuccessful; but it was not a case in which he was found to be guilty of misconduct or breach of trust. In the course of his judgment Sir George Jessel MR said at p. 304; "These rights can be lost or curtailed by such inequitable conduct on the part of a mortgagee or trustee as may amount to a violation or culpable neglect of his duty under the contract...It is not the course of the court in modern times to discourage persons from becoming trustees by inflicting costs upon them if they have done their duty, or even if they have committed an innocent breach of trust." As Ungoed-Thomas J pointed out in Re Spurling's Will Trusts, it is not enough to deprive trustees of their right to recoup their costs out of the trust fund that the claim is a claim to recover money from them for the benefit of the trust. If the trustees succeed, then the claim was not well founded, and they cannot be denied their right of recoupment. I would add that even if the claim succeeds, yet they may not have so conducted themselves as to lose their right of recoupment. In the present case the Judge deprived the Respondents of 20% of their costs because they had put forward arguments on which they had been unsuccessful. That was a proper exercise of his discretion. But he also deprived them of their right to recoup themselves out of the trust fund to the extent of that 20% on the ground that the claim was a hostile claim against them personally for breach of trust. In my opinion that was not a sufficient ground for denying them their contractual rights. As things stood at the conclusion of the Judge's judgment, he had held that the Respondents were absolved by Clause 15 from liability in respect of all the claims for breach of trust pleaded against them, with the result that the greater part of the Action was bound to fail (there is a claim to an account in respect of a separate matter which is not particularly contentious and which would survive). Accordingly, unless the pleadings were amended, the Action would be dismissed without any inquiry into the trustees' conduct. This would not provide any basis for depriving the Respondents of their rights. Accordingly, I would set aside this part of the Judge's order. Amendment of the pleadings. At the conclusion of Belmont Finance Ltd. v Williams Furniture Ltd.( supra) this Court granted the unsuccessful respondent leave to amend the pleadings. No such application is before us. Nevertheless I think that Paula should be given the opportunity to re-amend the Amended Statement of Claim if so advised. I express no view on whether there is material which would justify Counsel in advising such a course; and I would not wish to encourage it. They will no doubt bear in mind that at the material time the trustees of the settlement consisted of one professional man and two distant relatives; and that a charge of fraud against independent professional trustees is, in the absence of some financial or other incentive, inherently implausible. The possibility of amendment affects the order for costs which ought to be substituted for the order which the Judge made. In my judgment, the Respondents should have the right to recoup themselves out of the trust fund but only if and when the Action against them is discontinued or dismissed. If the Action is repleaded and succeeds against any of them, then the unsuccessful Respondents should not recoup themselves out of the trust fund without the leave of the Court given after trial of the Action. Conclusion. It is our view that Paule should be given the maximum opportunity to see the trusts documents and to investigate the manner in which the trustees managed the affairs of the trust. We would wish to hear Counsel as to the terms of any order which we should make in this respect, in particular as to the appropriate tribunal to entertain such an application (whether the Master or the Judge in Chambers), the imposition of any time limits, and whether, prior to such application, Paula should have the right to have the trust documents produced to her: see Re Londonderry Settlement [1964] Ch. 594. Subject thereto, the appeal and cross-appeal will be dismissed. The Order of the Judge refusing the Respondents liberty to recoup their costs out of the trust fund will be set aside and an Order in the terms indicated above substituted. LORD JUSTICE HUTCHISON: I agree. LORD JUSTICE HIRST: I also agree. Orders: appeal and cross appeal dismissed; respondents to receive 80% of costs in the Court of Appeal; order made under section 18 of the Legal Aid Act; appellant's contribution assessed at nil - - - - - - - © 1997 Crown Copyright

Cited in 5 later judgments