Jones & Ors v Firkin-Flood [2008] EWHC 2417 (Ch)

[2008] EWHC 2417 (Ch)Case No HC08C01566
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 17/10/2008
Before
MR JUSTICE BRIGGS
Between
THOMAS JONESClaimantsIAN DOUGLAS FIRKIN-FLOODClaimantNORMA LEVYClaimantJOHN GRAHAM BRAMLEYClaimant(ALL AS TRUSTEES OF THE BREDBURY HALL TRUST FUNDClaimantAND, IN THE CASE OF THOMAS JONES, ALSO AS A REPRESENTATIVE OF THE MINOR AND UNBORN BENEFICIARIES)ClaimantDANIEL FIRKIN-FLOODDefendantsLOUISE FIRKIN-FLOODDefendant
Mr Jeremy Cousins QC & Mr Andrew Charman (instructed by Shammah Nicholls LLP, 340 Deansgate, Manchester M3 4LY) for ClaimantsMr Gilead Cooper QC & Mr Andrew Child (instructed by Reynolds Porter Chamberlain, Tower Bridge House, St Katherine’s Way, London E1W 1AA) for DefendantsMr Ian Clarke (instructed by Shammah Nicholls LLP, 340 Deansgate, Manchester M3 4LY) for Minors and Unborn BeneficiariesHearing Hearing dates: 23 rd September - 7 th October 2008
Judgment
[1]Douglas Firkin-Flood (“Mr Flood”) died on 16th February 2001, leaving behind him his eldest son Daniel, born on 30th March 1963, his second son Ian born on 20th July 1964 and his only daughter Louise born on 26th January 1969. His wife Freda predeceased him on 28th April 1998.[2]By his last will made on 12th February 2001 (“the Will”), four days before he died, and admitted to probate on 4th May 2001, Mr Flood appointed as his executors and trustees (“the Trustees”) his solicitor Thomas Jones, his son Ian, Mrs Norma Levy and Mr Graham Bramley, the last two being longstanding friends of his and employees in the family business.[3]He separated his estate into two parts. The first part was constituted as the Bredbury Hall Trust Fund (“the Trust Fund”), and consisted of all his shares in two companies, First House Leisure Group Ltd (“FHLG”) and First House Group Ltd (“FHG”). Apart from a specific but defeasible trust of income, which was to be paid as to 60% to Ian, 30% to Daniel and 10% to Louise, he left the Trust Fund to his Trustees upon broad discretionary trusts both as to capital and income in favour of a class of beneficiaries consisting of his three children and the children of Ian and his remoter issue, with a gift over to such of his three children as should be living at his death in the same percentage proportions as I have already set out in relation to income.[4]Mr Flood left the residue of his estate to his three children in the proportions 50% to Ian, 30% to Daniel and 20% to Louise with gifts over to their issue should any of his children predecease him.[5]The principal assets of FHLG and FHG were a hotel known as the Bredbury Hall and Country Club (“the Hotel”) and a night club called Quaffers. The night club together with substantial other assets were held through Quaffers Limited (“Quaffers”), a wholly owned subsidiary of FHLG. I shall refer to FHG, FHLG and its subsidiaries as “the Trust Companies”. Mr Flood had by the time of his death become a successful hotelier and night club proprietor.[6]By clause 12 of his will he expressed his wish that his son Ian should operate and direct the affairs both of the Hotel and of Quaffers after his death.[7]The net value of the estate was stated in the grant of probate to be £3.42 million odd, based upon a purported valuation of the assets of the trust fund at slightly over £3 million and an aggregate gross value of the residue of slightly over £600,000, of which the main item was Mr Flood’s home in Lytham.[8]On 31st January 2008 the Trustees and the other shareholders in FHLG (“the Sellers”) contracted to sell the entirety of its share capital to Bredbury Hall Ltd (“the Buyer”) for an aggregate consideration in cash and assets of £17,458,763. At that date, the 801 issued share in FHLG were owned as to 456 by the Trustees, as to 71 by Ian (who received them as the result of a variation of his mother’s will, in substance by way of gift from his father) and as to 274 by FHG, the whole of the shares in which were part of the Trust Fund. The result was that, subject to adjustment pursuant to the terms of the Sale Agreement, the Trustees will receive the whole of the contracted consideration save for £1,547,531 payable directly to Ian in his own right. The bulk of the consideration has already been paid.[9]Pursuant to the Sale Agreement the Sellers including the Trustees gave wide-ranging warranties, and to protect the Buyer’s potential claims under those warranties the Trustees covenanted not to deal with or distribute the Trust Fund, subject to certain exceptions, for a primary period of 7 years (capable of extension), and subject to a cap in an amount slightly less than the part of the cash consideration receivable by them under the Sale Agreement. One of the exceptions to that restraint enabled the Trustees to distribute to any adult beneficiary of the Trust Fund who first entered into a warranty covenant with the Buyer in substantially the same terms as that undertaken by the Trustees.[10]At a meeting on 6th February 2008 the Trustees unanimously resolved that the capital of the Trust Fund should, subject to retention of tax, be distributed as soon as possible, as to £2.5 million net of tax to Daniel, £1.5 million net of tax to Louise, and as to the balance to Ian subject to any election on his part, after taking tax advice, to have part of his share distributed to his children. I shall refer to the Trustees’ decision as “the provisional resolution”. The Trustees signed a written resolution to that effect and it was copied to Daniel and Louise’s solicitors under cover of a letter of 1st April 2008.[11]That letter formed part of the Trustees’ considered response to a claim first notified on their behalf by Daniel and Louise’s solicitors by letter of 29th February 2008, that shortly after Mr Flood’s death, they and Ian had agreed that their father’s estate should be divided between them in three equal shares, the alleged quid pro quo for Ian’s promise to that effect being that Daniel and Louise would not pursue a proposed challenge to the validity of the Will on the grounds of want of testamentary capacity and undue influence. By the same letter Daniel and Louise made wide-ranging complaints, both at the inadequacy of the distributions so far made to them, and as to the failure by the Trustees to provide proper accounts and information in connection with the administration both of the estate and the Trust Fund. I shall adopt the label applied by the parties to the alleged agreement for the equal distribution of Mr Flood’s estate between his three children as “the Equal Shares Agreement”.[12]On 13th June 2008 the Trustees issued a Part 8 Claim under CPR 64.2 seeking the court’s determination: i) whether their powers under the Will are restricted, limited or compromised by virtue of the alleged Equal Shares Agreement; and ii) whether the Trustees may properly exercise their powers of appointment and distribution under the Will trust so as to give effect or substantial effect to the provisional resolution.[13]Apprehending the loss of a permanent tax advantage if the proposed appointments were not made before 5th October 2008, the Trustees applied for, and obtained, an expedited trial of the claim, designed to lead to a determination of the above issues by the October 2008 deadline, and on 29th July 2008 Daniel and Louise served a Defence and wide-ranging Counterclaim seeking some 22 heads of relief which may be summarised as: i) a declaration whether and if so when the Trust Fund had ever been constituted; ii) the removal of the claimants as executors and trustees both of the estate and of the Trust Fund (if constituted); iii) the appointment of independent professional executors and/or trustees; iv) a declaration as to the validity of the Sale Agreement, and its effect, if any, on them; v) damages for losses sustained by them by virtue of the Sale Agreement and any other breaches of trust proved; vi) declarations that the Trustees had surrendered their discretion by virtue of the Equal Shares Agreement or the Sale Agreement; vii) declarations that the assets of the estate are held on trust in equal shares for each of them and Ian, or alternatively that any excess above a one third share distributed to Ian is held on trust for them; viii) payment of arrears of income alleged to be due; ix) a wide-range of accounts and inquiries in relation to the estate and the Trust Fund; x) declarations as to the respective entitlements of them and Ian in relation to the share capital of Cheshire Sporting Club Ltd (“CSCL”).[14]A review of the Statements of Case, which were completed by the service by the claimants of a Reply and Defence to Counterclaim on 26th August 2008, revealed a wide range of disputed issues between the parties, most but by no means all being disputes of fact. So complete has been the breakdown of what appears to have been a formerly substantial level of trust and confidence between Mr Flood’s children, following his death, that the parties have not shrunk from alleging, as against each other, deliberate lies and deception, the fabrication of deeds and attendance notes, and the perversion of justice by the offering of financial inducements to witnesses.[15]In substance, the defendants say that Ian, with the connivance of the other Trustees, and despite all of them having notice of the Equal Shares Agreement, thereafter embarked on a deliberate and initially clandestine course of obtaining for himself the lion’s share of his father’s estate while pretending initially to provide equal benefits for his siblings. The claimants’ case, in a nutshell, is that the defendants have recently and dishonestly manufactured the claim that there was an Equal Shares Agreement as a belated means of giving vent to a grievance that their brother will benefit much more than them from the substantial proceeds of the sale of their father’s business empire, and that the proposed distribution is a rational exercise of the Trustees’ discretion having regard in particular to Mr Flood’s wishes.

THE WITNESSES

[16]Each of Mr Flood’s three children gave evidence, and were cross-examined at length. None of them were satisfactory witnesses. The main reason for this was, in my judgment, that each of them had become so completely consumed by passionate hatred of their opponents, and a determination to win the dispute between them at all costs, that they had in giving evidence abandoned any objectivity, any desire to assist the court, or even any attempt to subject their passionate views about the iniquities of all those opposed to them to rational restraint, or to the dictates of common-sense.[17]Of the many examples of these unfortunate characteristics, perhaps the most telling was the disposition of each of them to treat as dishonest recent forgeries any apparently contemporaneous documents which tended to suggest that the facts were otherwise than as each of them portrayed them. As will appear, an important part of the evidence as to what occurred at the meeting in March 2001 at which Daniel and Louise allege that the Equal Shares Agreement was made were two pages of attendance notes made by Mr Jones, as he confirmed and I accept, shortly after the meeting. Both Daniel and Louise were constrained in cross-examination to have to accept that those notes, if genuine, were irreconcilable with their recollection of that meeting. Without hesitation they both asserted that the notes had been dishonestly manufactured after the event by Mr Jones, in league with Ian.[18]For his part, Ian categorised as fictitious a draft letter prepared by solicitors for Daniel to give to Mr Jones prior to or at the meeting, together with a manuscript amended copy of it made by Daniel at the time. Those documents were corroborative of Daniel’s and Louise’s case that Daniel had been about to hand-deliver his manuscript letter to Mr Jones at the meeting, before being dissuaded by Ian, and that he had given the manuscript letter to Ian during a side meeting between the three children immediately prior to the making of the Equal Shares Agreement. So bigoted had Ian’s enmity for his siblings by then become that it did not apparently occur to him that Daniel might indeed have obtained the draft letter and made his copy of it but, for other reasons, chosen not to deploy it at the meeting.[19]Neither Mr Gilead Cooper QC for the defendants nor Mr Jeremy Cousins QC for the claimants cross-examined on the basis that any of these documents were otherwise than genuine. Their genuineness had not been challenged when they were disclosed, and both counsel sensibly and inevitably in my judgment accepted the genuineness of those documents during their submissions.[20]The result was that although in different ways all three of Mr Flood’s children demonstrated intelligence, a ready appreciation of questions, and in many respects good memories, their wholesale subjection of the truth to the dictates of the relentless pursuit of their mutual hatreds meant that it was impossible for me to rely upon the testimony of any of them, save where it was corroborated by documents, or the evidence of reliable witnesses.[21]Of the three of them, Louise was the most unrestrained in attributing any apparent evidential difficulty to a dishonest conspiracy by Ian and his supporters. Daniel perhaps demonstrated more self-control than either of the other two, but his integrity was undermined first by his offering a family employee £5,000 for her to give evidence and then by lying about it when cross-examined. Ian’s evidence was further undermined by a thoroughgoing defensiveness in his response to straightforward questions in a genuinely mild cross-examination by Mr Cooper, always looking for unintended traps and seeking to deflect perceived latent criticism by evasive and unhelpful answers. In particular I found his defensiveness and evasion about a Liechtenstein bank account set up by his father to be destructive of his credibility.[22]My assessment of the evidence as a whole has led me to the conclusion that, in most but by no means all respects, Ian’s evidence was less at variance with the truth than that of his siblings. I have however reached that conclusion by placing my reliance upon documentary and oral evidence of greater reliability than his, and upon the general probabilities in relation to the disputed factual issues.[23]The next most important witness was Mr Jones. Although a solicitor of many years’ experience, I regret to have to say that I found him also to be an unsatisfactory witness in most respects. His most serious weakness as a witness of fact arose from his unshakeable determination to prevaricate in relation to any questions the answers to which might reflect adversely upon his professional competence. An early example which arose during his cross-examination concerned the question whether, when advising Mr Flood about the terms of his wills, Mr Jones had considered the possible impact of the Inheritance (Provision for Family and Dependants) Act 1975. After an initial silence, his response was that he had considered all relevant matters and, despite the question being repeated, he steadfastly refused to elaborate. Since the impact of the 1975 Act was obviously relevant to the advice called for in the circumstances, the literal interpretation of his answer suggested that he had taken it into account but, as his demeanour and prevarication led Mr Cooper to suggest, it sounded very much as if he had not.[24]The result of this prevarication about matters calling into question his professional competence was that Mr Jones’ evidence about crucial matters involving the Trustees, whose advisor he was throughout, was deprived of any real clarity, still less reliability. He was also evasive about the Liechtenstein bank account, in a manner undermining his credibility.[25]An additional factor undermining the reliability of Mr Jones’ evidence, despite his best endeavours to conceal it, was an embedded if perhaps partly sub-conscious partiality for Ian, as against his two siblings. Early in his evidence, when being questioned about the Trustees’ apparent policy of making no discretionary distributions between 2001 and 2007 (either of income or capital), Mr Jones said that he had thought that Daniel and Louise were happy with the position since they had been in receipt of large amounts of money from the efforts of everyone else. Upon my inquiry at the end of his evidence as to the sums in question, and the identity of the persons responsible for their generation, Mr Jones was quite unable to make this observation good, not least because Louise had been engaged full-time in the business of the family Trust Companies during the relevant period, to an even greater extent (purely in terms of time worked) than Ian. Mr Jones was in the end driven to attribute this perception that Daniel and Louise had been provided with money from the efforts of everyone else mainly to his role as a trustee of the family pension fund, in enlarging the receipts distributed to each of them beyond their strict entitlements under the scheme. In my judgment, Mr Jones harboured a perception that, because of his undoubted business skills and determination, Ian was much the worthiest of Mr Flood’s three children, and deserving of his support for that reason. I found it therefore necessary to treat with considerable reserve his assertions that he had taken an impartial interest in the wellbeing of all three children equally.[26]Both Mrs Norma Levy and Mr John ‘Graham’ Bramley, the remaining two executors and trustees, gave evidence, but at considerably less length. As longstanding employees of the family businesses, and close personal friends of Mr Flood over many years, they both professed an impartial concern for the wellbeing of all three of Mr Flood’s children which, unlike that professed by Mr Jones, I found more persuasive. Generally their evidence was straightforward, to the point, unvarnished and, so far as I could discern, unaffected by any partiality or private agenda other than an understandable dislike of having the truthfulness of their recollections challenged.[27]Since their evidence broadly accorded with that of Ian, that dislike may to some extent have led them to becoming associated with and their supportive of his case rather than theirs, but in my judgment this did not significantly affect the reliability of their evidence. I found Mrs Levy’s evidence to be of particular assistance in explaining the basis upon which the Trustees resolved in February 2008 to distribute the Trust Fund between the three children of Mr Flood.[28]The only other witness of any importance to be called was Mr Philip Lord, another longstanding employee of the Trust Companies and for many years, both before and after Mr Flood’s death, the companies’ accountant. Again, I found him to be a clear, straightforward, helpful and apparently unbiased witness. He provided useful information about relevant aspects of the financial affairs of both the Trust Companies and of CSCL about which I will have much to say in due course.[29]My only reservation about his evidence was that, having given clear evidence about the level of inter-company borrowing between the Trust Companies and CSCL, he had shortly thereafter to be recalled to correct his evidence by reference to the Trust Companies’ audited accounts, and to do so by a very substantial margin. This suggested that he may have been over-confident in his recollection of relevant financial information, but since the parties have had access to those accounts I have been able to rely generally upon his evidence, where uncorrected.[30]I must briefly mention a number of further witnesses. Two of them were the witnesses to the Will, both of whom had been conveyancing executives in Mr Jones’ firm at the time. They were called by the claimants to prove their recollection of Mr Flood’s apparently satisfactory mental capacity at the time when he made the Will. Since the Will is not challenged in these proceedings, and since the impression which they formed was untrained either by legal or medical qualifications, their evidence added little.[31]The claimants called a partner in Mr Jones’ firm Mr Gregory Sher, to prove certain aspects of the negotiation of the Sale Agreement, which fell within his responsibility on behalf of the Sellers. He was an experienced commercial negotiator whose evidence I accept without question. They also called a Mr Anthony Jackson, an accountant engaged to assist CSCL in its application in 2001 for a casino licence from the Gaming Board. The purpose of his evidence was to prove that the applications to the Board signed by each of Louise and Daniel were the product of information supplied by each of them to him at face to face meetings between them. After cross-examination it became evident that Mr Jackson had exaggerated the level of personal input from Daniel and Louise, probably because of a too easy assumption that the process had followed his normal practice, and the absence of a sufficiently reliable recollection of it. Mr Jackson was therefore an honest but not very reliable witness.[32]The defendants called a Ms Angela Collier, with whom Mr Flood formed a relationship after his wife’s death, which lasted until he died. She was called to prove certain aspects of their case that the Will was made in circumstances giving rise to potential challenges based on want of testamentary capacity and undue influence. She gave her oral evidence quietly, with well focussed clarity and without apparent partiality, but her evidence added little to the resolution of the factual issues.[33]Finally, the defendants called by witness summons a Mrs Meg Burke, who was employed at the time of Mr Flood’s death to provide domestic services, in particular in the apartment at the Hall where Mr Flood lived and died. She was called in an attempt to prove, contrary to the denials of all the claimants and Mr Lord, that Mrs Levy and Mr Bramley had been present at the meeting when the Equal Shares Agreement was allegedly made and its contents notified to the Trustees. The circumstances in which she came to give evidence were extraordinary, and reflected no credit either on Daniel or Ian. She was initially approached by Daniel and signed a short statement recalling being present to hand round refreshments at the beginning of the meeting at which Mrs Levy and Mr Bramley were present, while expressing extreme reluctance to give evidence or otherwise become involved in the children’s dispute. Thereafter Ian learned that Mrs Burke had described how Daniel had offered her inducements to give evidence, namely £5,000 and a holiday and, in order (as he hoped) to incriminate his brother arranged secretly to tape record a telephone conversation which he set up between himself and Mrs Burke. In the event, Daniel admitted offering Mrs Burke a holiday but denied the financial inducement. Mrs Burke confirmed her telephone conversation, to the effect that the financial inducement had been offered. I make it clear that at no time did either Daniel or Ian invite or encourage Mrs Burke to say anything which either she or they believed to be untrue, and that they both made clear to her their wish to her that she should come to court to tell the truth.[34]In the event that is in my judgment what Mrs Burke sought, although terrified, to do. It emerged from a brief cross-examination however that her recollection of being present at the start of the meeting attended by Mrs Levy and Mr Bramley could not in her mind, still less in mine, be identified with any confidence to be the meeting at which the Will was read, in March 2001, at which the defendants allege that the Equal Shares Agreement was made. Save therefore that the circumstances in which Mrs Burke came to give evidence graphically illustrated the ill-judged extent to which Daniel and Ian have sought to advance their respective cases, her participation in these proceedings has added little of substance to their outcome. THE FACTS Events prior to Mr Flood’s death

THE FACTS

[35]The distortions and exaggerations with which the family witnesses’ enmity for each other has coloured their evidence gave rise to unusually wide factual issues as to the relevant background to this dispute about the administration of Mr Flood’s estate. For the most part those issues were of marginal, if any, relevance, and the pressure of time to which both this trial and my decision have been subjected make it neither practical nor, in any event, appropriate for me to attempt to resolve more than a small number of those issues, however much the parties may wish me to do so.[36]In particular, Mr Flood has been presented alternatively as an ex-gangster whose attitude to his children was disabled by racial prejudice and a dislike of homosexuality on the one hand, and on the other as the best known and respected proprietor of licensed premises in the Greater Manchester area with an impeccable reputation for the proper management of his business, and a far-sighted and rational perception of his children’s best interests after his death. The summary which follows of the relevant background should in no sense be understood as an attempt to resolve the differences between those portraits. For all I know, aspects of both of them may be true, but I express no view one way or the other.[37]Mr Flood’s business career was by no means confined to acquiring and managing the Hall and Quaffers. I accept Mr Jones’ evidence that, during a long business career, Mr Flood had at various times owned and managed a large number of different licensed premises, and had some involvement in other business such as a caravan park. From time to time he arranged for the acquisition of investment property from the surplus revenues of his main businesses, on occasion arranging for properties to be acquired in the names of one or more members of the family, upon the basis that, upon re-sale, the proceeds would be ploughed back into the businesses, such that the relevant family members were in substance nominee owners of the properties concerned, with no practical power of decision-making in relation either to their acquisition or re-sale.[38]In addition to the business empire and the investment properties, Mr Flood established a Liechtenstein Foundation at some time in the 1980s which was reputed by the time of his death to be worth in the region of £1.5 million. At a late stage in the preparation for this trial an attempt was made to accuse the executors of misconduct by failing to disclose the Foundation to the Inland Revenue, as a ground for removing them as trustees, and of failing to have regard to the availability of that sum and Ian’s alleged control of it in considering how to exercise their discretion in relation to the Trust Fund. For reasons given in a judgment on the first day of the trial, I refused to permit those allegations to be introduced by amendment, principally on the grounds that the inadequately explained delay in raising them left it practically impossible for the claimants to respond to them adequately by the time of this trial. I therefore express no view on the questions whether the assets of the Foundation, or any interest in them, were an asset of the deceased at the date of his death, whether in any event any aspect of the Foundation should have been disclosed to the Inland Revenue, or whether its existence and control was relevant to the Trustees’ proposed exercise of discretion. Despite that ruling, both sides pursued cross-examination of their opponents’ witnesses as to credit on this issue. I have already described the adverse outcome in terms of the credibility of Ian and Mr Jones.[39]By the time of his death, all three of Mr Flood’s children had at various times been employed in the family business. Taking them in order of age, Daniel worked in one of his father’s clubs from the age of 18 until 23, when, wishing for some independence, he moved to Brighton to study for a degree in graphic design. Nonetheless he returned a year later without completing that course to work as a manager at the Hall, from May 1987 until 1996. Thereafter he worked for his long-standing male partner in connection with his night club business. It does not appear that Daniel’s decision to cease working in the family business, or his homosexual relationship, caused any permanent or serious breach in relations between him and either of his parents or, for that matter, between him and his brother.[40]Ian worked continuously in the family business from his mid-teens. It is plain that he had been identified well before Mr Flood’s death as his chosen successor as leader of the business thereafter, as is reflected in terms in clause 12 of the Will.[41]Louise worked full time in the family business during her late teens, until a rift with her parents caused by her association with a black man named Gilly, with whom she had a daughter Daniella, caused her both to leave the business and sever all contact with her parents. This occurred in about 1988. Following her separation from Gilly upon his arrest for drug dealing in 1995, she was reconciled with her parents and resumed working at the Hall, being provided at the company’s expense with a car, and an apartment for her and her daughter to live in, with the expectation of being bought a house in due course. This expectation was on the point of fulfilment when Mr Flood died, contracts for the purchase of a house having been exchanged, but the purchase not completed. By that time, Mr Flood had already provided some £195,000 towards the purchase of a house by Ian, there being an issue whether that was done by way of loan or gift, to which I will have to return. So far as I have been able to ascertain, Mr Flood had not by the time he died made any similar provision for a house for Daniel, or substantial gift to him.[42]Mr Flood’s wife Freda (short for Winifred) died of cancer on 28th April 1988, leaving all her property to him. By a deed of variation dated 1st April 2000 Mr Flood gave to his children in equal shares certain leasehold properties and ground rents in Manchester New Road, Blackley and gave his late wife’s shares in FHLG to Ian. The deed was executed by Mr Flood and all three of his children. In that respect I reject the defendants’ evidence that they neither participated in its execution nor knew anything about it at the time.[43]It is possible that both Daniel and Louise forgot about the Deed of Variation, so that this was the basis upon which, in their evidence, they roundly suggested that it was a forgery, relying in particular on a supposed conversation between Ian and Louise in December 2007 in which Ian is alleged to have told Louise that he had only just found out that he was the direct owner of any shares in FHLG. This allegation of forgery was not pursued by Mr Cooper, either in cross-examination of Mr Jones, who had prepared the Deed of Variation, or of Ian. It is another example of the irrational way in which Mr Flood’s children have pursued their grievances against each other. In relation to the conversation between Ian and Louise in December 2007, I prefer Ian’s version, which was to the effect that he had only then discovered the value of his shareholding, rather than its existence.[44]Mr Flood knew that he had serious, if not terminal, cancer for some time before he died and, beginning in mid-2000, embarked upon a series of further wills. All of them made broadly similar and unequal provision for each of his children, in wills which, like his last, divided his estate into the Trust Companies and residue.[45]Thus on 22nd July 2000 he made a will appointing Mr Jones, Mr Lord and Mr Bramley to be his executors and trustees and, when the complications caused by the company structure are understood, left his share in the Trust Companies to Ian, Daniel and Louise in the proportions 56%, 33% and 11%, while dividing the residue between them in proportions 40%, 40% and 20%.[46]His next will, made on 9th February 2001, appointed Mr Jones, Ian, Mr Lord and Mr Bramley to be his executors and trustees, and left his estate on the same terms as in his last will, which I shall shortly describe in detail. It differed therefore from his last will only by a different choice of trustees, Mrs Levy replacing Mr Lord in his last will made three days later.[47]I have already described the main provisions of Mr Flood’s last will at the beginning of this judgment. It is necessary for completeness to add a little more detail as follows. Following the gift of his late wife’s 71 shares in FHLG to Ian by the Deed of Variation, Mr Flood’s shareholding was 730 of the 801 issued shares, as to 456 held directly, and as to 274 held through FHG of which he owned all the shares, and the only asset of which was, in turn, a shareholding in FHLG. The result was that the “Bredbury Hall Trust Fund” identified by clause 4.1 of the Will comprised at the date of Mr Flood’s death, a slightly greater than 91% shareholding in FHLG, and therefore of the family business, of which the principal operating company was then Quaffers Ltd.[48]Clause 6.2(a) of the Will conferred, subject to and in default of any discretionary appointment, shares in the income of the Trust Fund as to 60% for Ian, 30% for Daniel and 10% for Louise. Clause 6.2(b) contained an overriding power to pay all of any part of the Trust Fund to or for the advancement or benefit of such of Ian, Daniel or Louise as the Trustees should think fit. Clause 6.3, expressed to be “subject to the provisions of clause 6.2 and until and subject to and in default of any appointment under clause 6.1” conferred a discretionary trust of income and a power to accumulate. The main discretionary trust of capital and income was conferred by clause 6.1.[49]The precise interaction between the various overlapping and repetitive provisions of clause 6 of the Will were prior to trial a matter of some uncertainty and dispute, but it became common ground during the trial that, taken together, they conferred an immediate right to income in Mr Flood’s three children in the proportions which I have identified, subject to any discretion to apply capital or income otherwise.[50]Clause 6.4 of the Will provided the default gift to Ian, Daniel and Louise in proportions 60%, 30% and 10% which I described at the beginning of this judgment. Clause 6.5 provided as follows:
“Any of the Trustees may join in exercising any of the powers contained in this clause of my Will notwithstanding that he or she is one of the Discretionary Beneficiaries and will or may benefit from any such exercise.”
By clause 3.1 the Discretionary Beneficiaries were identified as (a) Ian, Daniel and Louise and (b) the children of Ian and their remoter issue.[51]Clause 6.6 contained a power for the Trustees to exercise all the discretionary powers in clause 6.1 in advance of Probate or vesting assent. Clause 9.1 of the Will conferred upon Ian the power during his lifetime to appoint new trustees, that power passing to the Trustees upon his death.[52]Clauses 10 and 11 of the Will disposed of the residuary estate in the manner in which I have already described, while clause 12 expressed Mr Flood’s desire (reflected in both the earlier wills which I have summarised) that Ian should operate and direct the affairs of the Bredbury Hall Hotel & Country Club and Quaffers and that his other children should respect that wish. Clause 13 consisted of a professional charging clause.[53]By clause 14.3 of the Will, the Trustees were given power to exercise all rights conferred by ownership of shares in the Trust Companies as fully and freely as if they were the absolute beneficial owners thereof, and without being liable to account as trustees for any remuneration of benefit obtained by them directly or indirectly in consequence thereof.[54]A significant proportion of the evidence was directed to the question whether Mr Flood was in sound mind when making the Will, four days before his death. Since there has been no challenge to the Will it is unnecessary to deal with this issue in depth. It was raised by the defendants in attempt to show that there was a real challenge capable of being advanced, and therefore compromised under section 15 of the Trustee Act 1925 in return for Ian’s agreement, both as beneficiary and executor, to an equal division of the whole estate between Mr Flood’s three children. Conversely, the claimants’ purpose in affirming Mr Flood’s testamentary capacity was to establish that any such challenge was fanciful.[55]Mr Flood’s fatal illness consisted of cancer which developed initially in his nose. He was being prescribed powerful painkillers during his last days, albeit there is some issue as to the extent to which he actually took them all. Notwithstanding a painful condition, originating near his brain, for which he was being prescribed powerful drugs, Mr Jones who was responsible for arranging for the making of his last will did not think it necessary to obtain any medical opinion as to Mr Flood’s capacity, contrary to settled best practice. The result is that the conflicting evidence that he was, alternatively, alert and cheerful to the end on the one hand, and seriously confused on the other, all came from lay witnesses.[56]Nonetheless the close similarity between Mr Flood’s last will and its immediate predecessor, and the substantial similarity between that and his will made in July 2000 demonstrates that from a time well before there could have been any issue as to Mr Flood’s testamentary capacity, he had formed a settled intention to provide for his three children in unequal shares, with Ian both receiving the largest share of the estate and having conferred upon him responsibility for the continued conduct of the family business.[57]Attempts were made to portray Ian during the year prior to his father’s death as seeking to stoke up resentment between his father and Louise in particular. Both the assertions and their denial came from witnesses of minimal reliability and I find it unnecessary therefore to make any finding on the point one way or the other. The settled nature of Mr Flood’s intentions to deal unequally with his children to Ian’s advantage since July 2000 is sufficient in my judgment to dispel any significant suspicion that the Will was in any respect the product of Ian’s undue influence.[58]While I therefore have no reason to conclude, treating the matter as one of probability, that Mr Flood either lacked testamentary capacity or was subjected to undue influence, the circumstances in which the Will was made four days before his death, in the absence of medical evidence as to his testamentary capacity, must in my judgment have made any threatened challenge to the Will one which Ian would have to take seriously. To that limited extent, but not further, the defendants’ evidence on this issue was sufficient to serve their purpose.[59]In February 2001, the operating part of the family business consisted only of the Hall. The nightclub known as Quaffers had been closed down and its freehold site was being marketed for sale. Both the Quaffers site and the Hall itself were believed to have substantial value, against which the companies’ bankers provided working capital in the form of a substantial overdraft facility. All of Ian, Louise, Mr Lord, Mrs Levy and Mr Bramley were employed there, and Mr Jones, whose firm handled the Trust Companies’ legal affairs, was a frequent visitor.[60]Mr Flood’s interest in the family business was purportedly valued for probate purposes at £3.05 million by Lunt, Jordan and Co, a firm of chartered accountants. I say “purportedly” because there is sufficient evidence to persuade me that at least Ian and Mr Jones regarded the business as being worth very substantially more than that. In a written application to the Gaming Board for a casino licence, Ian valued the whole business at £10 million. In a note to purported trust accounts made in April 2008 under Mr Jones’ supervision, it was said of the probate valuation of the business:
“Inland Revenue accepted values but did not look into value because Business Assets Relief granted.”
[61]Neither Mr Jones nor Ian, both of whom prevaricated steadfastly on the issue, could offer any convincing explanation for more than a small part of the enormous disparity between those two valuations. Making due allowance for the fact that the probate valuation was for only 90% of the business, that Ian had a genuinely (and probably correctly) more optimistic view of the value of the Quaffers site than his father, that there was every incentive to maximise value in the Gaming Board application, by comparison with probate, and that there may have been a rise during 2001 in relevant property values, it seems to me nonetheless that both Ian and Mr Jones must have thought that the true value of the family business was very substantially understated in the probate valuation which they had obtained.[62]The assets of the residuary estate may be summarised as follows. The deceased had a substantial house at 20b Clifton Drive, Lytham which was sold later in 2001 for £375,000 and which was mortgage free. The estate itself had a pension entitlement of just over £16,000 and the benefit of a loan account with Quaffers Ltd of £70,500 odd. Chattels were valued at £3,000. Against all that, Mr Flood had an overdraft with his bank at the date of death of a little over £83,000.[63]Corrective accounts lodged after probate with the Inland Revenue suggest at face value that the estate included two further intangible assets. The first was a purported loan by Mr Flood to Ian of £195,000. The second was a debt purportedly due from Mr Flood’s nephew, but unpaid, of £27,250. Although Inheritance Tax was in due course paid in respect of both of these supposed assets, I am satisfied that neither of them was in substance an asset of the estate. The first related to Mr Flood’s provision of £195,000 to Ian towards the purchase of his house. Had it been a gift, it should have been but was not declared by Mr Flood as a Potentially Exempt Transfer, and would have been liable to Inheritance Tax in any event. The Executors never made any attempt to recover it as a loan and none of the parties suggested that, as between Ian and his father, it was ever to be repaid. It may have been dressed up as a loan in the corrective account to avoid the embarrassment of Mr Flood not having declared it as a PET earlier. Beyond that, the reason for its misdescription is obscure. I am satisfied, as Ian eventually asserted after prevarication, that it was a gift.[64]As for the £27,000 odd, the evidence as to the circumstances in which this became the subject of a corrective account to the Inland Revenue is even more obscure. Save to record my conclusion that it was never in reality a collectable debt of the estate, the less said about that evidence, the better.[65]Mr Flood’s death also unlocked a substantial sum from the company pension scheme which had been written in trust, amounting in the aggregate to about £260,000, according to a contemporaneous attendance note by Mr Jones who was one of the pension trustees, along with Ian, Daniel and a pensioneer trustee called Michael Field. It did not form part of Mr Flood’s estate.

THE EQUAL SHARES AGREEMENT

[66]The foregoing findings constitute a sufficient background for my determination of the main factual issue in the proceedings, namely whether there was or was not an agreement for the equal distribution between his three children of the whole of Mr Flood’s estate, made and notified to the Trustees on 14th March 2001. It is convenient first to summarise the parties’ rival contentions. The defendants’ case was as follows. Daniel obtained from Norma Levy a copy of Mr Flood’s will shortly after his death, and both he and Louise were “shocked and surprised” by it, both because of the unequal distribution of Mr Flood’s wealth between his children and because of the omission of any reference to Louise’s daughter Daniella. Suspecting that both those dispositions and his father’s choice of trustees had been interfered with by Ian, Daniel took advice from Smyth Barkham solicitors (on his partner Nigel’s introduction) and obtained from them a draft letter for him to copy and send to Mr Jones on his and his sister’s behalf, expressing their disappointment at the contents of the Will and making a thinly veiled threat to challenge it if they could not be satisfied with a sufficiently reliable indication of a satisfactory exercise of discretion by the Trustees in their favour.[67]Daniel then wrote out a manuscript copy with amendments which slightly toned down the threat and brought it to a meeting which had been set up to enable a formal reading of the Will to take place, on 14th March 2001 at Mr Flood’s apartment within the Hall. The meeting was attended by all three children, Mr Jones, Mrs Levy, Mr Bramley and Mr Lord, with Meg Burke in attendance at the outset to dispense refreshments.[68]After a description of the present state of the Trust Companies’ finances by Mr Lord, who then left, Mr Jones announced his intention to read the Will, but was forestalled by Daniel proffering the sealed envelope, and by Ian’s immediate response:
“Don’t give him the letter. If you do we will all lose everything and the tax man will take it all”
. The three children then adjourned to a side meeting on their own in their father’s study at which Daniel said that, being disappointed with the Will, made four days before their father’s death, he and Louise thought they had no alternative but to challenge it, whereupon Ian was invited to read the manuscript letter.[69]Having done so, Ian told his siblings that he agreed that the proposed distribution in the Will was unfair as between the three of them, and that it was his intention that they should each receive equal benefits from the estate. This was then agreed between the three of them, the quid pro quo for Ian being that there would be no challenge to the Will by Daniel or Louise.[70]The three of them then returned to the main meeting, informed the other three Trustees of the agreement which they had just made, following which Daniel stated that he would also bring within the equal shares regime the proceeds of any sale of the residue of a farm which had been bought in his name, known as Nut Bank Farm. Although then a formality by reason of the agreement which had been made, Mr Jones nonetheless proceeded to read the Will.[71]The claimants’ radically different account of that meeting was as follows. Mr Jones informed Mrs Levy and Mr Bramley that he intended to read the Will at a meeting with the beneficiaries which it was unnecessary for them to attend. The meeting was attended by Mr Jones, all three children, Mr Lord and (briefly) by a waiter (not Mrs Burke) with refreshments. Mr Lord then described the Trust Companies’ finances, following which, after his departure, Mr Jones then read the Will and explained its meaning and effect, including the implications of the discretionary trust, at length.[72]The three children then agreed that the free assets, but not the Trust Companies should be realised and divided between the three children on a fair but not necessarily equal basis, otherwise than in accordance with the division of the residuary estate in the Will, the basis being designed to apply both to the residuary estate, the pension money held in trust and to the proceeds of sale of Nut Bank Farm, but designed to take account of the differing extent to which their father had provided or contributed to the purchase of houses for only two out of the three of them. It was also agreed that this fair division should be achieved in part by the Executors paying available monies into a joint account to be set up in the names of the three children, requiring two signatures for any withdrawal.[73]There was however no Equal Shares Agreement (as described by Daniel and Louise) and in particular no agreement at all as to the distribution of the Trust Fund, or as to the sharing of benefits from the continued running of the family companies. Nor was there any proffering of a letter by Daniel, or any side meeting between the three children, the whole of the defendants’ account of it being entirely denied.[74]The rival contentions of the parties as to this issue were supported by witnesses whose testimony was, on both sides, thoroughly unreliable, for the reasons which I have already given. The only evidence directly probative of the Equal Shares Agreement was that of Daniel and Louise. The only evidence that something entirely different happened at the meeting was that of Ian and Mr Jones. As for the witnesses whose evidence I have found to be generally reliable, Mr Lord attended but left before the disputed events began to occur, whereas both Mrs Levy and Mr Bramley said that they did not attend at all, and therefore had no knowledge of what took place. As for Mrs Burke, she was in the event unsure if the meeting which she recalled having been attended by Mrs Levy and Mr Bramley had occurred at or even roughly about that time.[75]Both sides relied upon separate contemporaneous documents by way of corroboration. Daniel and Louise produced both the solicitor’s draft and Daniel’s amended manuscript version of the letter which he described having given to Ian. For the claimants, Mr Jones produced two pages of contemporaneous attendance notes of the meeting. Each side described the other’s documents as dishonest recent fabrications, but neither of those serious allegations was persisted in by counsel, for good reason.[76]I have reached the clear conclusion that the claimants’ case on this central issue is, for the most part, to be preferred. Although my reasons for doing so will be largely apparent from the findings which follow, they may be summarised as follows. First, although Daniel’s proposed threatening letter is consistent with the defendants’ account, it is by no means probative of it, or irreconcilable with the claimants’ account. By contrast, the second page of Mr Jones’ attendance note is, beyond the scope of any accidental inaccuracy, flatly inconsistent with it.[77]Secondly, the defendants’ case that the agreement was in terms notified to all the Trustees is flatly denied both by Mrs Levy and by Mr Bramley, whose evidence I have found to be generally reliable. They would in my judgment be most unlikely to have been notified of such an agreement, and then forgotten all about it.[78]Thirdly, the claimants’ version of what was agreed is more consistent with the parties’ subsequent conduct than the defendants’ account. It appears that the free estate and the pension fund was distributed fairly between the parties, to their satisfaction at the time, and in a way that acknowledged that, unlike his siblings, Daniel had yet to receive any substantial gift from his father. By contrast there is no reliable evidence that Daniel or Louise mentioned, still less complained about non-performance of an Equal Shares Agreement until February 2008, whereas the first written complaint made by solicitors on Daniel’s behalf in December 2007 asserted, in substance, that the 60/30/10 split contained in the default provisions governing the Trust should not be departed from by the Trustees without adequate explanation. As I shall in due course explain, the defendants’ attempts to explain that letter in a manner consistent with there having been an Equal Shares Agreement was wholly unpersuasive.[79]Finally no mention of the Equal Shares Agreement was made by Daniel or Louise in Personal Declaration forms which they signed later in 2001 in connection with CSCL’s application for a casino licence, and the forms suggested that they owned shares in the Trust Companies in the default proportions set out in the Will, i.e. 30% and 10% respectively. This last factor is of less weight than the others, for reasons which I shall set out later in this judgment.[80]In my judgment, what happened on and prior to 14th March 2001 was as follows. Daniel and Louise did obtain an advance copy of their father’s will. Mrs Levy confirmed that she had provided it to them. As Mr Jones acknowledged, it was only human nature that they, and Louise in particular, should be both disappointed and hurt by its contents, and in particular by the omission of Daniella from the discretionary class.[81]Daniel did obtain advice and a draft letter containing a veiled threat to litigate if a satisfactory advance indication of the Trustee’s proposed exercise of their distributive discretion could not be obtained. Daniel’s manuscript letter toned down that threat by its omission of part of his solicitor’s draft, but it still contained the following passages:
“Whilst we have no desire to seek to question the validity of the will for whatever reason, we naturally want to be aware of every avenue that is open to us to ensure that the approach that is taken in the administration of the estate is fair.” “Given Ian’s apparent conflict of interest in this matter, we would ask you on behalf of the remaining trustees of an indication of how you intend to exercise your discretion over the capital assets and indeed whether you intend to do so. Clearly the approach you intend to take will govern our future decisions.”
[82]Mrs Burke’s evidence notwithstanding, neither Mrs Levy nor Mr Bramley attended the meeting at which the Will was to be read, although they were aware that it was to take place. This conclusion is also consistent with Mr Lord’s evidence, and with the first page of Mr Jones’ attendance note which described the meeting as having been attended by Mr Lord, Ian, Daniel, Louise and himself.[83]The meeting began by Mr Lord explaining the financial position of the family companies, following which he left. None of this is contentious, and is summarised in bare outline by the first page of Mr Jones’ attendance note. His note appears not as anything like a description of the whole of Mr Lord’s presentation, but rather a summary of highlights which Mr Jones would be likely to wish to have on record.[84]Although Daniel may well have come armed with his manuscript letter, I have concluded that he did not make use of it at the meeting, or thereafter. It may be that, having regard to the broad agreement reached as to the disposal of the free estate and the pension money, which I shall shortly describe, he felt that there was a sufficient ongoing basis of fairness and goodwill for a threat of hostilities to be both unnecessary and counterproductive. However that may be, the sword remained in the scabbard.[85]There was therefore no outburst from Ian at the risk of the estate ending up in the hands of the tax man. That part of the defendants’ story is in any event inherently improbable, because Daniel and Louise do not suggest that Ian had any inkling, before he read it, what the envelope or enclosed letter contained. Similarly, there was no need for any separate side meeting between the three children, and none took place.[86]The meeting then continued with Mr Jones’ reading of the Will, an event deposed to by all parties, although curiously not mentioned in Mr Jones’ attendance note. In that context, the second page of his notes, like the first, does not purport to be a blow-by-blow account of a meeting which took, by all accounts, well over an hour but, again, a disjointed series of notes of particular matters which Mr Jones, by no means a regular maker of attendance notes, wished to have recorded for future reference.[87]My conclusion that no Equal Shares Agreement was either made (at a private meeting between the three children) or notified to the Trustees does not depend upon the absence of any reference to it in the second page of Mr Jones’ attendance note, but rather on its being irreconcilable with the following paragraph:
“The meeting carried on with a discussion about the way in which the estate would be administered and I explained to Daniel and Louise the way in which the Will had been drafted and that the Trustees had a discretion as to how the shares and income (if any) were to be distributed. It was entitled at the discretion of the Trustees as to what would happen in the future. I could not give them any guarantee of any certainty and it would depend on how things went. There were however other subjects which were more certain ie. their loan accounts – when the time was appropriate they could repay their loan accounts.”
[88]On the assumption that “entitled” in the middle of that paragraph was a misprint for “entirely”, and that “repay” in the penultimate line meant “be repaid” (mistakes made by Mr Jones’s secretary reading a manuscript or listening to his dictation) that paragraph is irreconcilable with the defendants’ case since there could have been no sensible reason for Mr Jones to have lectured the beneficiaries about the Trustees’ discretion if they had already notified an agreement for equal distribution. At the most, he might have reminded them of the need for the Trustees separately to consider Ian’s children, who were beneficiaries, but who had not of course been party to any such agreement.[89]The attendance note and therefore the meeting continued with a reference to Daniel agreeing that the proceeds of sale of Nut Bank Farm were to be split equally three ways, and that a joint account be opened with two signatories on the account. The note then continued as follows:
“Apart from the money from the sale of the house and the repayment of loan accounts I explained to them that there would be a tax free lump sum available from the Pension Fund of approximately £260,000. It was entirely at the discretion of the Trustees ie. Michael Field, myself, Ian and Daniel as to how the £260,000 was distributed. If it was the general wish between them that all things were going to go well and they were going to divide this money between them then no doubt the Trustees would exercise their discretion in that way, particularly if a joint account was set up where all the other free monies were to be put into.”
The note concluded with a reference to a transfer of property from the Pension Fund to Quaffers, which is of no relevance to the dispute.[90]Comparison between the two paragraphs of the attendance note which I have quoted in full illustrates a fundamentally different approach by Mr Jones to the Trust Fund created by the Will and to the Pension Trust Fund. As to the former, his note suggests no agreement among the beneficiaries as to how or in what proportion the capital was to be distributed. As to the latter, the note reflects an emerging agreement for a fair or equal division, and the creation of the joint account for that purpose, and an acknowledgment that the Pension Trustees would be likely to exercise their discretion so as to give effect to any general consensus between the pension beneficiaries.[91]As I shall describe, the parties’ subsequent conduct was entirely in accordance with their having reached a consensus as to the free estate and the pension money, but not any Equal Shares Agreement as to the whole estate, nor in particular as to the Trust Companies.[92]It is necessary now to describe in some detail aspects of the administration of the estate, and of the Trust during the almost seven year period between the deceased’s death and the sale of the family business in January 2008. Although aspects of both proceeded simultaneously, it is convenient to deal with the administration of the estate, and in particular the residuary estate, first.

ADMINISTRATION OF THE ESTATE

[93]Consistent with my conclusion that neither Mrs Levy nor Mr Bramley attended the meeting at which the Will was read is my conclusion that the Executors did not as a body embark together upon the administration of the estate. In substance it was carried out largely by Mr Jones, who reported to and obtained confirmation as to the beneficiaries’ agreement from Ian.[94]Mr Jones lost no time in obtaining probate, which was granted on 4th May 2001. In the meantime Mr Flood’s house at Lytham was put up for sale, and progress was made simultaneously towards completion of Louise’s purchase of the house which her father had contracted to buy for her before he died. It appears that Mr Jones conceived that it might be necessary to obtain bridging finance from Quaffers in case completion of her purchase had to precede completion of the sale of Mr Flood’s house, and a declaration of trust was prepared for that purpose, whereby Louise was to declare herself a trustee of the house for Quaffers. In the event this proved unnecessary and the part of the completion monies not being raised on mortgage, namely some £72,000 odd was obtained from the proceeds of sale of the house at Lytham. The remainder of the net proceeds were paid into a joint account which the children had by then opened, save for £90,000 odd which is alleged to have been paid to Daniel, consistently with what Ian said was perceived to be a need to compensate him for the fact that no house had been purchased or contributed to by the deceased for him.[95]Daniel denied receipt of the £90,000 and attempted to support that denial by producing contemporary statements of his then bank accounts. In response the claimants produced an account statement identifying a payment of that sum to “D Flood”. On balance, I find that Daniel did receive this money from the estate.[96]Quite separately, Daniel and Louise both acknowledged that Daniel received £110,000 from the Pension Fund on 9th July 2001, whereas Louise only received £10,000, putting the disparity down to an agreement that he should be compensated for not having received any contribution towards a house. Thus, the three children appear to be ad idem as to Daniel receiving compensation over and above an equal division of the free estate and pension money, the issue being whether he received £100,000 or £190,000 more than the others. Since Ian had received £190,000 towards the purchase of his house, the latter seems more likely.[97]By mid-2001 it appears that the combined effect of realising free assets and paying off Mr Flood’s overdraft left enough to pay £360,000 into the joint account which, with varying degrees of prevarication, all the children agreed was, at least in law, to be treated as jointly and equally owned by them. The prevarication came mainly from Ian who sought to maintain that the joint account was funded without agreement as to any equal division of or entitlement to its contents. For their part, Daniel and Louise sought to play down the joint account on the basis that it was opened not pursuant to an agreement as to the free estate, but for the purpose purely of demonstrating to the Gaming Board that the promoters of the planned casino were persons of real substance. The equal ownership of the joint account monies is stated in terms in all three children’s Personal Declaration forms.[98]Save for the two corrective Inland Revenue accounts which I have mentioned, which purported to identify assets in the estate which the Executors took no steps to recover, but upon which Inheritance Tax was paid, no further steps were taken in or about the administration of the estate. In particular, no estate accounts were prepared, apart from the Inland Revenue accounts, at any time between the date of Mr Flood’s death and the arising of the present dispute at the end of 2007.

THE ADMINISTRATION OF THE TRUST FUND

[99]Although the Will recorded Mr Flood’s wish that Ian should operate and direct the affairs of the Hall and of Quaffers, the Will contained no “anti-Bartlett” clause of the type explained in Lewin on Trusts (18th ed.) at paragraph 34-50, such as might have absolved the Trustees from a duty to use their powers as controlling shareholders of the Trust Companies in supervising Ian’s conduct of their affairs, as laid down in Bartlett v. Barclays Bank Trust Co Ltd [1980] Ch 515, at 532-4.[100]Mrs Levy and Mr Bramley as long-standing employees of the family companies at the Hall were sufficiently closely involved in the day to day business of the Hall (Quaffers nightclub having closed) to have some limited appreciation of the only continuing active trading business of the companies. Similarly, as the solicitor used at Ian’s direction by the companies for any necessary legal work, Mr Jones had some general on-going understanding of the companies’ financial position. Apart from that, it does not appear that at any time between the date of Mr Flood’s death and the end of 2007 the Trustees took any steps as a body to discharge what I shall label as their Bartlett duties. Ian was left in sole and unsupervised control of the business of the companies. It was very clear from his evidence that he regarded all aspects of the management and control of the companies as his exclusive domain. Such matters included, for example, deciding how much the companies should pay him by way of remuneration, deciding how much the companies should provide by way of remuneration and benefits to Louise, who was employed and to Daniel, who was not, deciding when, and for how much to sell Quaffers’ former nightclub site and deciding upon the extent to which and the manner in which Quaffers should provide financial and other support to the new business of CSCL, which he also controlled, but which was not a trust asset. In due course, the question when, how and for how much to sell the entirety of the Trust’s shares in the Trust Companies also fell to Ian, albeit that the intensive legal work necessary to complete the sale naturally involved considerable activity on the part of Mr Jones and other members of his firm.[101]The Trustees’ total abdication of their Bartlett duties was almost matched by a similar failure to consider, as a body, the important question whether the Trust Fund was appropriately invested, arising from the fact that the trust property had for many years prior to Mr Flood’s death consisted of non-income producing assets, since the companies paid no dividends. Although the Trustees could point to no meeting earlier than in 2008 at which they gave consideration to those questions as a body, each of them in evidence testified to an individual consciousness in 2001 that, for the time being, the shares were to be retained rather than sold, and that the companies were not expected to begin paying dividends, an attitude which Mr Jones sought to justify by reference to his perception that Mr Flood’s children seemed happy with what they were receiving by other means. Thereafter the matter seems simply to have been ignored until Ian’s decision that the business should be sold which, once implemented, left the Trustees with no alternative but to meet to decide what to do with the proceeds. It follows that for at least five years after Mr Flood’s death, the Trustees retained a non-income producing investment as the sole trust asset, consisting of a business managed by one of the discretionary class of beneficiaries, in which another was employed but with which the third beneficiary Daniel had no significant connection beyond the weekly allowance which Ian made available to him, without seeking in a meeting or otherwise to form any collective view whether this was an appropriate investment for the beneficiaries as a whole, albeit in the absence of complaint from any of them.[102]To that general picture of absence of complaint there is one semi-exception. In February 2002 Louise asked Mr Jones and Ian whether some shares in the Trust Companies could be vested in her name or in a trust for her daughter. She was given a negative response, on the grounds first that the shares were held on discretionary trust, secondly that she had enough property and money anyway, thirdly that if she had problems in the future Ian, Daniel and the Trustees would look after her and fourthly that there might be repercussions from her former live-in boyfriend. Mr Jones undertook to obtain counsel’s advice about that risk, and that her request would be reconsidered in a year or two. In fact there is no evidence that the Trustees considered her request as a body, in 2002 or at any time thereafter.

IAN’S MANAGEMENT OF THE FAMILY BUSINESS AND THE ESTABLISHMENT OF CSCL

[103]It is necessary for me to describe in some detail certain aspects of Ian’s conduct of the affairs of the Trust Companies, because of the allegation of breach of trust, both by him (through commission) and by his fellow trustees (by permission). Before doing so, and in fairness, it needs to be recognised that the Trust Companies undoubtedly prospered under Ian’s management between 2001 and their sale in early 2008. Furthermore, it is beyond dispute that, whether by luck or judgment, but probably by a combination of both, Ian achieved a very beneficial sale of the companies, largely for cash, at the very top of the market, yielding an aggregate consideration of just under £17.5 million for a business which is unlikely to have been worth more than £10 million in 2001.[104]Immediately after his father’s death, Ian was employed full time in running the Trust Companies, at an annual salary of £58,000. By 2007 he had increased his salary from the Trust Companies to £140,000. His view was that the question what the companies should pay him was entirely a matter for him as their sole director to decide. He neither discussed the matter with his fellow trustees still less sought their approval, although he assumed from their close involvement with the companies’ affairs that they were aware of it.[105]Ian also arranged for the companies to pay his wife a salary for some probably minimal work which he described as “working on Club memberships”. Louise obtained a salary throughout which has not been described as otherwise than a commensurate payment for the work which she did. Ian arranged for Daniel to be paid a weekly sum of £300 by the companies which, although he described it as a salary, was a sum which he said he paid to Daniel “out of compassion”, because Daniel did no work for the companies at all. He regarded the payments to Daniel as having been authorised by him as sole director of the companies, and not in any way as payments made by a trustee to a beneficiary.[106]The large increase in the level of Ian’s remuneration by the companies was not matched by any corresponding increase in his work for them. On the contrary, beginning in 2001, Ian’s attentions became increasingly focussed on the establishment and operation of CSCL, a company set up to fulfil a longstanding ambition of his to run a casino, but one which had been kept in check by his father during his lifetime.[107]Issues about the beneficial ownership of CSCL were introduced by the defendants by way of counterclaim, and appeared initially to be almost entirely unconnected with the dispute about the estate and the Trust Fund which gave rise to the commencement of this litigation. As the evidence emerged during the trial however, it became apparent to me that the affairs of CSCL, and in particular its close relationship with the Trust Companies, were very much connected with the issues underlining the claim for the removal of the Trustees, as was reflected by a series of amendment applications made both at the beginning of and during the trial, some of which I allowed after opposition, some of which were made unopposed, and one of which, because of its extreme lateness, I had no alternative but to adjourn.[108]The ownership issue relating to CSCL may be briefly described. Daniel and Louise claim that they and Ian agreed from the outset that CSCL was to be beneficially owned by the three of them in equal shares, and that they were to derive equal benefit from its activities, subject only to the need to provide a profit share for a Mr Forsyth, whose contribution as a manager was thought to be important to the success of the casino venture. For his part, Ian denied any such agreement, maintaining that the beneficial ownership of CSCL’s share capital was in all respects the same as its legal ownership. An initial difficulty, that Mr Forsyth had not been joined as a party to the proceedings, evaporated when it appeared that at some time in or after 2006 Ian had acquired his shares.[109]The relevance of CSCL’s activities to the claim that the Trustees should be removed derives from the fact that throughout its existence CSCL received support and obtained property from the Trust Companies in circumstances giving rise to claims by the defendants that this involved breach by Ian both of his director’s duties to the Trust Companies and of the self-dealing rule in relation to the Trust Fund, as well as breaches of trust by the remaining Trustees in failing to restrain him. These matters were introduced entirely by amendments to the Defence and Counterclaim, the first set being allowed on the first day of the trial, and the last during closing speeches on the final day. This last amendment alleged that the Trustees had failed when deciding how to distribute the Trust Fund to take into account the substantial benefits which Ian had received through CSCL, thereby vitiating the exercise of their discretion.[110]The amendment (also introduced on the last day of the hearing) which I was forced to adjourn alleged that the whole of the business of CSCL derived from a business opportunity which came to Ian by virtue of his position as a director of the Trust Companies and trustee of the Trust, so that (subject to the defendants’ prior and inconsistent claim that CSCL was beneficially owned between the three children) Ian should be held accountable to the Trust for the whole of his benefits from CSCL, including a substantial salary and his entitlement to the bulk of the surplus now available after the sale of its business which, after tax, is likely to equal or exceed £1 million.[111]The evidence thus far given in the case suggested that the factual basis for this new claim might well be established (namely that the business opportunity leading to the establishment of CSCL came to Ian as a director of the Trust Companies and trustee of the Trust), but the lateness of the making of the allegation made it necessary in fairness for me to give Ian and his legal advisers time to consider whether he could advance any case to the contrary, and if so, time to deploy evidence for that purpose, including in particular the evidence of Mr Forsyth. Since the claim that Ian should account to the Trust Fund for benefits received from CSCL was potentially severable from the rest of the claims in these proceedings it did not seem to me necessary to dismiss the amendment application purely because of its lateness, provided that Ian could be given a fair opportunity to respond to it. Accordingly the question whether Ian is accountable for the benefits received both as director and shareholder from CSCL is not a matter for determination in this judgment, and I am constrained to address all the other issues (in particular whether the Trustees should be removed and whether their provisional resolution should be approved) upon the basis that, although the business opportunity exploited by CSCL may have been derived from Ian’s status as director and trustee, this has yet to be established, one way or the other. In an ideal world it would have been better for the whole trial to have been adjourned to enable the facts and issues relating to that question to be fully deployed, but the remaining issues need to be resolved without further adjournment, in the light of the total breakdown of the parties’ relationships, the delay which has already followed the making of the February resolution, and the need for the prudent administration of the Trust Fund to be put beyond dispute in times of extreme financial uncertainty.[112]CSCL was incorporated in September 2001 with a most unusual capital structure. Pursuant to Article 3 of the Articles of Association, the share capital of £100,000 was divided into an equal number of A and B ordinary shares of £1 each. Article 3(B) provided that the A and B shares were to rank pari passu subject to the rights and restrictions contained in the following three sub-articles C, D and E.[113]Article 3(C) provided that the company’s profits were to be divided amongst its members in any particular year as determined by the company in General Meeting, giving that meeting power to determine that dividend to be declared on one or several classes of shares to the exclusion of any other class or classes of shares, or at different rates for different classes of shares. These provisions applied both to final and interim dividends. Article 3(D) provided that the B shares did not entitle the holders either to receive notice of, attend or vote at any general meeting.[114]Article 3(E) provided that upon winding-up or other distribution of capital the assets should be applied first in repaying the amounts paid up on the B shares, secondly in repaying the amounts paid up on the A shares and lastly in distributing pari passu any remaining assets among the holders of the A shares.[115]It is immediately apparent that, subject to any binding shareholders’ agreement conferring special rights on the B share holders beyond those conferred by the Articles, investment in the B shares of CSCL would be of minimal value or utility, since they conferred no right to share in any surplus capital beyond the nominal £1 per share original subscription price, and since the receipt of dividends was entirely at the discretion of the A voting shareholders. It is in my experience rare to find a non-voting class of shares with no fixed rights to participate in the company’s success, beyond a mere interest free return of the subscription originally invested.[116]All the A shares in CSCL were issued to Ian. The B shares were divided as to 50% to Mr Forsyth, 25% to Ian, and 12½ % each to Daniel and Louise.[117]By November 2001 it had been agreed between the three children that in addition to the nominal subscription price for their respective shareholdings, each would invest the whole of their respective shares in the joint deposit account (namely £120,000 each) in CSCL’s casino project. This was in due course achieved by the whole of the money in the joint account being paid to Quaffers, and being on-lent by Quaffers to CSCL together with substantial further funds, interest free but upon the security of a debenture.[118]The evidence in support of Daniel and Louise’s case that they invested in CSCL in the manner in which I have described upon the basis of Ian’s agreement that the company should be beneficially owned by them in equal shares is neither consistent nor satisfactory. It emerged first in a letter dated 17th July 2008 from their solicitors to the claimants’ solicitors in response to a request to explain what relevance Casino 36 (the trading name of CSCL) had to the trust dispute. The letter asserted that Casino 36 had been set up and operated using trust assets and sought particulars from Ian as to the manner in which its business had been funded. It continued:
“Furthermore, your client the Second Claimant, always represented to our clients that Casino 36 was a family business. As will be clear to you in due course from our clients’ witness statements, they would never have agreed to the Trust assets being used to set up and support Casino 36 if it had not been their clear understanding that it was also a Trust asset, which they would benefit from in equal measure to the Second Claimant.”
By that time, the Equal Shares Agreement (relating to the Trust Fund), had already been alleged on Daniel and Louise’s behalf.[119]In their Defence and Counterclaim in its original form, verified on 29th July 2008, Daniel and Louise alleged that, shortly after Mr Flood’s death, Ian told them that he intended to establish a new casino business, using Mr Flood’s estate’s assets, in which the three of them would be equal shareholders in accordance with the Equal Shares Agreement. Paragraph 82 of the Defence and Counterclaim continued:
“It was agreed between the Second Claimant and the Defendants before the casino opened that CSCL would be owned between them in equal third shares as it effectively represented an asset of the deceased’s estate. Once the casino opened, the Second Claimant told the Defendants that George Forsyth required 50% of the casino if he were to remain involved. The Second Claimant told the Defendants that the 50% balance would be shared between the three of them equally, in accordance with the Equal Shares Agreement.”
[120]Daniel’s witness statement, signed on 10th September 2008, broadly verified that pleaded case, making clear his recollection that even when in 2003 after the casino opened he was told by Ian that Mr Forsyth demanded a 50% profit share, Ian nonetheless assured him that the underlining beneficial ownership of the business would remain equal as between the three children.[121]Louise’s witness statement, signed on the same day, acknowledged that Ian had told her from the outset (rather than only after the casino opened) that Mr Forsyth insisted on a 50% profit share, and that he proposed to divide the other 50% of the profits as to 25% to himself (because of his executive role) and 12½ % to each of herself and Daniel. Both she and Daniel acknowledged in their witness statements having been under a different impression as to profit shares at the time when they agreed to invest in the project, but both maintained an understanding that the underlining ownership of CSCL was to be split equally between them and Ian. In due course, at the beginning of the trial, the Defence and Counterclaim was amended to reflect their different understanding of what the profit sharing arrangements were to be, as disclosed for the first time in their witness statements.[122]Ian’s evidence on this issue consisted of a denial that CSCL was ever intended to be or to be operated as if it were a trust asset, to deny that he had agreed any basis of equality either for ownership or profit sharing in CSCL, and to assert that his siblings’ interest in CSCL had always been as defined by their rights as B shareholders. Further, he relied upon the contents of applications to the Gaming Board for CSCL’s casino licence, signed by each of the three siblings, as contemporaneous evidence of the truth of his account.[123]The Gaming Board applications were the subject of intense cross-examination and submissions during the trial. I shall first describe their contents, and then deal with the issues as to the circumstances in which they were prepared and signed.[124]Pursuant to statutory powers, the Gaming Board for Great Britain required applicants for casino licences in 2001 to provide Personal Declaration forms relating to the application signed by persons who were to be officers of the applicant company, the holders of 3% or more of the applicant company’s share capital, persons intending to provide financial backing for the management of the business and persons intended to be in actual and effective control of the business. Pursuant to those requirements, Ian, Daniel, Louise, Mr Forsyth and Mr Lord all signed Personal Declaration forms, containing particulars of their respective assets, particulars of the manner in which and the extent to which they intended to provide financial backing for the proposed business of CSCL and authority to the Board to request information and seek references from their bankers. All those Personal Declaration forms were signed in late November 2001.[125]Ian, Daniel and Louise all identified the extent of their proposed financial backing for CSCL’s business by reference to their one third shares of the £360,000 in the joint account. Daniel identified his total assets as £3.537 million by reference to an attached Annex A which should have been, but was not, signed by him and by a reporting accountant. The largest element in that aggregate was stated to be £3 million, representing what was described as :
“30% shareholding in Family Company First House Leisure Group (Valuation Attached to GB11 to Ian Firkin-Flood).”
[126]Louise’s Personal Declaration Form identified her total assets as £1.353 million odd, by reference to an Annex A similarly unsigned, which identified her main asset as £1 million attributable to a 10% share in the family business, by reference to a description in similar form to that which I have quoted above in relation to Daniel’s form.[127]It might have been expected that a valuation would have been found attached to Ian’s Personal Declaration form (as suggested in each of his siblings’ Annex As). Ian’s Annex A identified his main asset as £6 million, described as a 60% shareholding in FHLG, and referred to a “valuation letter attached” which has not apparently survived, since no copy of it was provided at trial. Plainly, the valuation letter must have valued the Trust Companies at £10 million. Ian described it not as an independent professional valuation, but as a letter stating his opinion to that effect to the Gaming Board.[128]Both Daniel’s and Louise’s Personal Declaration forms identified their financial interest within CSCL as:
“Shareholder – 12.5% - ‘B’ shares …”
Ian’s form identified his interest as:
“Shareholder 100% A ordinary shares 25% B shares (non-voting).”
Mr Forsyth’s form identified his interest as limited to 50% of the B non-voting ordinary shares.[129]None of the Personal Declaration forms made any reference to an Equal Shares Agreement, to CSCL being a trust asset, or to any separate agreement for equal beneficial ownership of CSCL. Nor did they, on the other hand, explain the limited nature of the B shareholders’ rights, as I have described them by reference to CSCL’s Articles.[130]Turning to the circumstances in which the Personal Declaration forms were prepared and signed, both Daniel and Louise alleged in their evidence that the information in their Personal Declaration forms had been inserted in manuscript by Mr Lord, and that they had signed them at his request without being asked to review their contents, consistent with what Louise described as a settled practice in relation to financial forms, including her tax returns and other business papers, relying upon him to provide accurate information as the family accountant. Both of them acknowledged attending a hearing at the Gaming Board at which they were questioned about their suitability, but not in the detail which would have drawn their attention to the particular contents of their Personal Declaration forms.[131]Mr Lord denied having completed either of Daniel’s or Louise’s Personal Declaration forms. Mr Jackson, who was retained by CSCL to advise and assist in its casino licence application said in his witness statement that he had personally completed all three children’s forms, obtained the information for doing so from personal interviews with each of them, applying his usual meticulous approach having regard to the seriousness with which he knew that the Gaming Board regarded documents of that type.[132]Cross-examination demonstrated that the truth as to the manner in which the forms had been completed and signed lay somewhere between those two competing accounts. I am satisfied that the forms were in fact completed, mainly in manuscript, by Mr Jackson, and had been completed by the time Daniel and Louise signed them. Nonetheless Mr Jackson obtained the information necessary for completing the forms from meetings with, and information supplied by Mr Lord, Mr Jones and all three children, rather than completing each form separately, and limiting himself solely to information supplied by the declarant. In particular he obtained a substantial part of the information necessary to complete each of the forms from Mr Lord, and recalled in cross-examination that both Daniel and Louise had signed their forms on being presented with them by Mr Lord, in his (Mr Jackson’s) presence. Mr Lord confirmed in cross-examination that he had provided to Mr Jackson relevant personal information relating to Louise and Daniel so as to enable Mr Jackson to complete their respective forms, in much the same way, he said, as he did in relation to information relevant to their tax returns, which were then completed by a tax partner in the same firm as provided the family’s auditors.[133]Mr Jackson’s evidence that he took each of Daniel and Louise meticulously through their respective forms before they signed them was in my judgment based upon a mistaken assumption arising from his ordinary practice rather than from recollection. Although I can understand that Mr Jackson would have ordinarily done so in relation to declarants who were to be involved in the management of casinos or similar premises, I did not find his evidence that he had done so in relation to Daniel and Louise, who were merely to be investors in rather than managers of CSCL’s business, persuasive. Mr Jackson said that, although unsigned, each of the Annex As in which their financial circumstances were set out would have been attached to their Personal Declaration forms before Daniel and Louise signed them. Nonetheless, the fact that they were not themselves signed by the declarants or by a reporting accountant (as they should have been) and would have been attached to Daniel and Louise’s forms beneath the pages where they did sign them, hardly supports the claimants’ case or Mr Jackson’s evidence that they were meticulously prepared or carefully checked by Daniel and Louise.[134]Finally, I am not persuaded that such investigation as there was of Daniel’s and Louise’s personal information at the Gaming Board hearing in 2002 was sufficient to draw to their attention any particular parts of their Personal Declaration forms, although no doubt they were asked to and did give a general confirmation of their accuracy.[135]My conclusions on the issue as to the beneficial ownership of CSCL’s shares are as follows. First, there was no agreement (using that word in the sense of a contract or bargain) that they should be equal beneficial owners of CSCL, either by way of a specific bargain relating to CSCL itself, or by way of some more general bargain that, by being treated as a Trust Company, CSCL would fall within the Equal Shares Agreement which the defendants allege was made in relation to the whole of their father’s estate, a case which I have already rejected.[136]Secondly, I am not persuaded that Ian or anyone else provided anything approaching a fair or adequate explanation to Daniel and Louise of the vestigial nature of their rights as shareholders in CSCL. At the highest, Ian told them, (and it is unnecessary for me to make findings as to precisely when he told each of them), that because of his responsibility as manager and the necessity to engage Mr Forsyth, they were to be minority shareholders with smaller profit shares than he was to obtain. In particular, I am not satisfied that he explained to either of them that their enjoyment of a share in the profits was dependant entirely upon his discretion as the only voting shareholder, or that they were as B shareholders to have no rights at all to any surplus capital value, beyond repayment without interest of their nominal subscriptions for the shares.[137]My reasons for those conclusions now follow. First, the lack of consistency, either over time or as between their two accounts in Daniel’s and Louise’s assertions and evidence about CSCL make it virtually impossible, even if I have given full credit to their reliability as witnesses, to construct any clear or settled agreement between them and Ian sufficient to constitute a contract for beneficial interests at variance with the rights actually conferred by the shares issued to them. Secondly and in any event, their oral evidence is, for the reasons which I have already given, thoroughly unreliable. Thirdly, the only contemporaneous evidence of their understanding as to their interest in CSCL takes the form of their signed Personal Declaration forms, which are antipathetic to the existence of any such agreement. On balance however I doubt whether either Daniel or Louise gave much attention to the detailed contents of those forms, or that the invitation from Mr Jackson to consider them carefully before signing them, or their response, was more than perfunctory.[138]As to my conclusion that they received no proper explanation of the vestigial nature of their rights as shareholders, there was no evidence from Ian or anyone else that they were given any, let alone any satisfactory, explanation of their unusually limited rights as B ordinary shareholders. When it is borne in mind that they were persuaded to invest (through Quaffers) into CSCL £120,000 each, on an equal basis with Ian, from the joint account, it seems to me quite inconceivable that they would have done so, had their vestigial rights as shareholders been explained to them. If Mr Jones (as the solicitor instructed in connection with the applications) had focussed upon the disparity between the equality of the children’s financial investment in CSCL and the extreme inequality in their respective rights as shareholders, he ought to have recommended that they took separate legal advice. The fact that he did not do so suggests, on the face of it, such a dereliction of duty as the trusted family solicitor that it makes it easy for me to conclude that he failed to explain the limited nature of their rights to them either. For each of Daniel and Louise, £120,000 in cash in a joint account represented a very large part of their assets available for investment, which they could not rationally have committed to CSCL without at least some expectation (albeit possibly one falling short of contract) of enjoying a significant share in the capital value of the business which it was expected to generate.[139]It follows that the only pleaded claim of the defendants in relation to ownership of CSCL fails. Nonetheless my findings as to the inadequate and unfair basis upon which they were persuaded to invest in CSCL will be of real significance to other issues which I have to decide.

IAN’S MANAGEMENT OF CSCL AND OF ITS RELATIONSHIP WITH THE TRUST COMPANIES

[140]As contemplated when it was established, CSCL was wholly dependant for funding upon a combination of the money in the joint account (routed through Quaffers), and further substantial interest free but secured funding from Quaffers. In response to a question of mine, Mr Lord’s initial recollection was that the Trust Companies funded CSCL to the tune of about £1.5 million (inclusive of the contribution from the joint account). When recalled to be asked about Quaffers’ accounts, it became apparent that the highest level reached by Quaffers’ funding to CSCL on any accounting reference date was £865,000 (in 2004) and that in 2006 the balance was reversed, because Quaffers became a net borrower from CSCL on inter-company account during that year.[141]Snapshots taken only of accounting reference dates, in the absence of access to the company’s books of account, do not preclude the possibility that, between year-end dates, the aggregate level of interest free lending reached a substantially higher amount. If so, the information available to me at trial did not enable it to be ascertained. On balance, I think that Mr Lord’s £1.5 million may have represented not the highest level of lending, but an aggregate of monies advanced on a rolling basis from time to time by Quaffers to CSCL. On any view however, Quaffers’ lending to CSCL was for a significant period substantially in excess of the amount originating in the children’s joint account. Furthermore, Quaffers was not given the joint account monies by the children, but lent them interest free, and in due course repaid them.[142]The original business plan for CSCL contemplated that it would trade from premises leased from Quaffers, namely one of two vacant sites which were, by 2001, surplus to Quaffers’ active business requirements. For reasons which I need not describe and which were not investigated at trial in any detail, this plan did not come to fruition but, in the financial year ending 30th April 2006 CSCL acquired a vacant site from Quaffers for £870,000. Mr Lord told me that this was a site at 36 Petersgate, Stockport, and that Quaffers had paid £500,000 for it in November 2002. It was still an asset of CSCL when the assets and business of that company were sold at Ian’s direction in mid-2008 for a sum in excess of £3 million, of which Mr Lord told me that approximately £1 million was attributed to the site previously acquired from Quaffers, in the Sale Agreement.[143]CSCL’s casino business did not prove as profitable as Ian had hoped and expected. Nonetheless a single dividend of £25,000 gross was paid to each of Daniel and Louise in January 2006, and they each received £200,000 from Quaffers in and after November 2004, in settlement of their respective loan accounts with that company. This, in effect, repaid each of them the £120,000 originally invested in CSCL through Quaffers but without interest, and settled other balances on their respective loan accounts with Quaffers. How it was that their loan accounts (apart from the £120,000 derived from the joint account) were precisely identical was not explained, and does not matter.[144]Ian’s rewards from CSCL were not investigated at any depth at trial, but the following summary emerged during cross-examination. As the sole owner of any surplus value in CSCL beyond share subscriptions, the result of the sale of its business in mid-2008 is that, after tax, Ian stands to receive the whole of the balance of CSCL’s net assets, the net of tax amount being roughly estimated by Mr Lord as about £1 million. In the meantime, Ian paid himself a substantial salary for his management of CSCL’s business, and received a dividend of £50,000. This was in addition to his salary from the Trust Companies.

IAN’S MANAGEMENT OF THE TRUST COMPANIES

[145]Little more needs to be said under this heading, prior to the negotiation of the sale which completed in January 2008, save in relation to dealings by Quaffers with a freehold farm property known as Berristall Hall Farm, Pott Shrigley, (“the Farm”), in 2005. It consists of a 141 acre farm with farmhouse in an elevated agricultural location between Manchester and Stockport. Ian wanted the farmhouse as a second home and, when the Farm came onto the market endeavoured to arrange for its acquisition in two lots, with Quaffers buying the farmland and him buying the farmhouse. This was rejected by the vendors for tax reasons and as a result Quaffers bought the whole Farm for £1.5 million. Ian then arranged for Quaffers to sell the farmhouse together with some adjacent land, an outbuilding and the necessary right of way over the Farm itself to himself for £300,000. I shall refer to the farmhouse, outbuilding and adjacent land sold to Ian as “the Farmhouse”, and to the land retained by Quaffers as “the Farmland”. Mr Jones’ firm acted for Quaffers on the purchase of the Farm and (I assume in absence of evidence to the contrary) for Quaffers and Ian on the sub-sale of the Farmhouse.[146]The price chosen by Ian for his purchase of the Farmhouse from Quaffers was confirmed as the “market valuation of the Farmhouse … for transfer purposes” in a valuation prepared by Beesley Thomson Chartered Surveyors and dated 13th August 2005. On its face, the valuation appeared to relate only to the farmhouse itself, rather than to the property constituted by the house, the adjacent outbuilding and land, but I was informed by leading counsel on both sides that, having reviewed certain correspondence, it was agreed that the valuer Mr Beesley had in fact correctly identified the subject matter of the sale to Ian but merely misdescribed it in error in his report.[147]It does not appear that Ian or Mr Jones regarded this transaction to be a matter for consideration by the Trustees. They appear to have thought that Ian was authorised to commit Quaffers to the transaction with him as its sole director. As is now conceded on behalf of the claimants in response to my inquiry, both Quaffers’ sale of its Stockport site to CSCL and its sale of the Farmhouse to Ian were carried out in breach of section 320 of the Companies Act 1985, there having been no general meeting of Quaffers, or of its parent company FHLG, as required by section 320(1).[148]Neither of the property sales by Quaffers to which I have referred were criticised by the defendants as transactions at an undervalue. Nonetheless it did not appear that when considering the sale of the Farmhouse by Quaffers to Ian, Beesley Thomson were either instructed to, or did, consider whether the effect of splitting the Farmland from the Farmhouse had any adverse effect on the value of the land retained by Quaffers, in excess of the £300,000 which it received for the sale of the Farmhouse. In short, no consideration was given to the question whether the Farmland and the Farmhouse together had marriage value which would be destroyed by the sale of part of the Farm to Ian.[149]The Farmland itself formed part of Quaffers’ assets when the Trust Companies were sold lock stock and barrel, in January 2008, but the Sale Agreement provided for the re-transfer of the Farmland to the Trustees, together with three other properties, and the Farmland was attributed a value of £1.225 million in Schedule 8 Part II to the Sale Agreement.[150]This attribution of value appeared to be supported by a further valuation from Mr Beesley (whose firm by then had changed its name to Beesley Silas) dated 20th September 2007. The same valuation attributed values to two residential properties which were to be re-transferred to the Trustees in the same way as the Farmland, at 94 and 96 Annable Road, Bredbury, Stockport, of £125,000 and £142,000 respectively. Unfortunately, it emerged during closing submissions by Mr Clarke who appeared to represent the minor and unborn discretionary beneficiaries of the Trust that there was another valuation, also dated 20th September 2007, by the same Mr Beesley, which attributed a value of only £750,000 to the Farmland, a copy of which lay, undiscovered until then, in a different trial bundle.[151]Mr Clarke’s interest in the value of the Farmland arose because, as part and parcel of the Trustees’ invitation to the court to bless a distribution of the Trust Fund in accordance with the February 2008 resolution, Ian offered an undertaking to settle part of the Trust property to be distributed to him, including both the Annable Road properties and the Farmland, on his children and remoter issue.[152]An inquiry (which I assume was initiated by Mr Clarke) into the reasons for the extraordinary discrepancy in the value attributed to the Farmland in two contemporaneous valuations by the same valuer elicited a written explanation from Mr Beesley in a letter dated 30th September 2008, to the effect that the September 2007 valuation of the Farmland at £750,000 was:
“An error on our part as there was confusion as to the amount of land included.”
Mr Beesley thereby appeared to confirm that £1.225 million was his September 2007 opinion as to the value of the Farmland.[153]Only ten days before writing that explanatory letter, Mr Beesley had re-valued the two Annable Road properties and the Farmland, for the purposes of quantifying the value of the property proposed to be settled on Ian’s children and remoter issue, at £110,000, £127,500 and £700,000 respectively. In his letter of 30th September he continued:
“Our experience indicates that there has been a greater percentage fall in residential values than there has been in agricultural values. Hence the larger percentage variation in our valuation in respect of the Annable Road properties compared with the 2007 Valuation of Berristall Hall Farm.”
[154]Mr Beesley’s re-valuation of the two Annable Road properties reflect diminutions of value of 10.3% and 12% respectively. Had his opinion been that the 2007 value of the Farmland had been £750,000, his 2008 valuation would have reflected a fall in value of 6.7%, entirely consistent with the paragraph which I have quoted above. By contrast, had his 2007 opinion of the value of the Farmland been £1.225 million, his 2008 valuation would reflect a fall in value of some 42.8%, an amount not merely wholly in conflict with his opinion about the relative fall in value of residential and agricultural property, but prima facie incredible in itself.[155]Mr Clarke was unable prior to trial to extract from Mr Beesley any more satisfactory explanation of this conundrum, and the court is left with the uncomfortable feeling first, that Mr Beesley’s written opinions of value cannot be trusted and secondly, that there may indeed have been a very substantial loss of marriage value when the Farm was split into the Farmhouse and the Farmland. That the Trustees can have thought it fit, with the benefit of legal advice, to present for the court’s blessing a proposed distribution supported by such apparently unsatisfactory and contradictory valuation evidence gives rise to no confidence in their collective, or for that matter individual, ability even now to discharge the onerous duties connected with the valuable Trust Fund. The urgency with which the trial was conducted prevents me from reaching any safe conclusions about the value of the Farmland, in relation to which Mr Beesley has provided such conflicting and self-contradictory explanations.

THE SALE OF THE TRUST COMPANIES

[156]Ian decided that it was time to sell the Trust Companies early in 2007. It does not appear that he considered that this momentous investment decision required a meeting of minds among the Trustees, still less their formal consent, although I have no reason to suppose that they were unaware of what was happening.[157]Subject to one matter, nothing about the timing or conduct of the sale is the subject of criticism by the defendants. The exception relates to the contractual arrangements for the giving by Trustees of wide-ranging warranties in connection with the subject matter of the sale, coupled with the restraints both upon distribution and upon the vesting of the Trust property in new trustees which the Trustees undertook as part of the terms of the Sale Agreement. I have summarised that structure in paragraph 9 of this judgment, but must now explain it in a little more detail, together with the circumstances in which those contractual provisions were undertaken by the Trustees.[158]It appears to have been common ground at the commercial stage of the negotiations with the eventual purchaser of the Trust Companies that the vendors (i.e. the Trustees and Ian) would give the full wide-ranging warranties typical of a commercial share sale relating to a private trading company. That much appears to have been agreed in principle, subject to contract, by the end of 2007, without, so far as the evidence goes, any thought having been given to the inevitable consequences upon the Trustees’ practical ability to distribute the proceeds of sale, if they were to protect themselves against warranty liability after completion by exercising their rights of indemnity against the Trust Fund and, pending crystallisation of any liability, retaining the fund in hand for that purpose.[159]Alarm bells began to ring, at least in the mind of Mr Jones, early in January 2008, when the Buyer at the request of its funding bankers sought the insertion into the Sale Agreement of what became Schedule 9. While limiting the Trustees’ liability under the warranties to the amount of broadly equivalent to the cash consideration to be received by them pursuant to the Sale Agreement, Schedule 9 required them to undertake neither to deal with nor to distribute the part of the Trust Fund constituted by the cash consideration, subject to stated exceptions, within a period of seven years from completion, subject to extension in certain stated circumstances.[160]Vigorous attempts to negotiate down or away from these restrictions, conducted by Mr Sher at Mr Jones’ bidding, led to the response that the buyer’s bankers would withdraw their offer to fund the transaction unless provisions broadly along those lines were included, so as to protect the Buyer against the credit risk of the Trustees being otherwise free to dispose of the Trust Fund immediately after completion. Faced with the prospective loss of an otherwise beneficial transaction, Ian and Mr Jones in substance surrendered, with the assent of the other two Trustees, and the transaction completed with Schedule 9 largely intact.[161]In their final form paragraphs 2 and 3 of Schedule 6 to the Sale Agreement imposed financial and time limits on the Sellers’ warranty liabilities. By paragraph 2.2 the Sellers’ total aggregate liability for all claims was limited to the sum of the initial cash consideration and deferred consideration (about £13.5 million in aggregate). By paragraph 3 of Schedule 6 the time limits for claims were (subject to certain exceptions) 7 years in respect of the Tax Warranties and 21 months in respect of any other claim, in both cases from the date of completion.[162]By paragraph 1 of Schedule 9, the Trustees’ aggregate liability for claims under the Sale Agreement was limited broadly (subject to certain deductions and exceptions) to the amount of the cash and deferred consideration actually received by them as such. By paragraph 1.3 the Trustees undertook for 7 years (or such longer period as should be needed for final determination of all claims) not to mortgage, charge, pledge or grant any other third party rights over any part of the Trust Fund, and not without the Buyer’s consent to distribute or dispose of any of the Trust Fund subject to the following express exceptions. Paragraph 1.4 contained a formula for the extension of the 7 year period of restraint. Paragraph 1.5 permitted distribution or payments from the Trust Fund to meet tax liabilities, costs and expenses incurred by the Trustees in connection with the agreement or any claim against them thereunder, income from the Trust Fund, general professional costs and expenses and the amount of any liability of the Trustees to the Buyer.[163]Paragraph 1.6 entitled the Trustees to transfer all but not part of the Trust Fund to new or additional trustees approved by the Buyer (such approval not to be unreasonably withheld or delayed) provided that the successor trustees stepped into the Trustees’ shoes for all purposes under the agreement and covenanted in similar form with the Buyer. Paragraph 1.7 enabled the Trustees to distribute all or part of the Trust Fund to one or more adult beneficiaries subject to the Trustees’ obligations under the agreement being assumed by those beneficiaries, and further subject to the beneficiaries entering into a form of letter of request and deed of covenant, the practical effect of which was to require the distributee to assume that proportion of the Trustees’ liability under the Sale Agreement as was equivalent to the fraction of the Trust Fund to be distributed to that beneficiary, with a proportionate reduction or discharge of liability of the Trustees.[164]The defendants criticised Schedule 9 as containing illegitimate fetters on the Trustees’ discretion to distribute, contending that the restrictions are both void as between the Trustees and the Buyer and, in any event, void as between the Trustees and the defendants. Further they criticised the provisions of Schedule 9 as in substance the choice of an unfair solution to the requirement to maximise value by the giving of warranties, submitting that the warranties should have been given only by those actively involved in the Trust Companies’ business, having sufficient knowledge both to assess their truth or falsity and therefore to quantify their potential liability.[165]The effect of the completion of the Sale Agreement may be summarised as follows: i) The Trustees received immediate cash of £10.027 million odd, the transfer of assets to which a value of £3.883 million was attributed, including the Farmland, the Annable Road properties and another valuable site in Bloom Street, Manchester, together with a promise of deferred consideration in the aggregate amount of £2 million, to be paid in three unequal instalments over eighteen months. ii) The amount of consideration was liable to adjustment by reference to completion accounts to be prepared thereafter by the Buyer’s accountants, subject to agreement by the Seller’s accountants, and to determination of any dispute by an expert, so as to increase or decrease the consideration by reference, pound for pound, to any surplus or shortfall of net assets as at completion above or below £9.1 million odd. iii) Ian received payment for his shares of £1.547 million odd. iv) Louise lost her means of livelihood and the source of her mortgage repayments because the Buyer made her redundant on completion, receiving about £2,500 odd in respect of redundancy together with her company car. v) Daniel lost his weekly £300 payment from the Trust Companies. vi) Mr Bramley lost his job with the Trust Companies, although he was permitted for a short time to continue in occupation of his accommodation at the Hall. vii) Mrs Levy continued to be employed by the Trust Companies under the Buyer’s ownership.[166]The completion accounts have yet to be finally agreed or determined, although I was informed by Mr Cousins on instructions that the only outstanding issue is whether the completion net assets are equivalent to or a little in excess of the £9.1 million benchmark. As yet there have been no claims under the warranties, and I was told that the Buyer appears, notwithstanding the subsequent fall in the market, to be happy with its acquisition.

THE FEBRUARY 2008 PROVISIONAL RESOLUTION

[167]Before describing the process, including the thought processes, by which the Trustees reached their provisional decision on 6th February 2008 as to the distribution of the Trust Fund, it is necessary for me to describe a little more of the immediate background. News that Ian was negotiating a sale of the Trust Companies or their businesses reached Daniel and Louise well before the end of 2007, and the question how the anticipated proceeds of sale were then to be dealt with by the Trustees became a matter of conversation, both among the Trustees and between one or more of them and the defendants. As with most of the events in this case not clearly recorded by documents, there is a wide dispute as to the content of those conversations. For the most part, the detail does not matter, and I confine myself to the following findings.[168]First, contrary to their evidence, there was no mention by Louise or Daniel of the Equal Shares Agreement. Secondly both Daniel and Louise were, before the end of 2007, both aware that Ian had received greater benefits from the Trust Companies than them, and that it was probable that the Trustees would distribute more to him from the anticipated proceeds of sale than to either of them. Thirdly, Louise had in a conversation with Mrs Levy expressed the view that the amount that Mrs Levy thought should be distributed to Louise would be wholly inadequate, upon the investment advice which she had received, for the maintenance of her lifestyle and the support of her daughter. Fourthly, because no sale could be certain, Louise kept from Ian her dissatisfaction with what she expected to be about to receive, because she regarded her continual employment at the Hall as potentially in jeopardy if she became engaged in a dispute with him.[169]The first written expression of concern by either of the defendants at what they anticipated they might be about to receive took the form of letters in identical form addressed to each of the Trustees and dated 19th December 2007 (“the December Letter”). It is worth quoting in full:
“We have been instructed by Daniel Firkin Flood in connection with the administration of the estate of his late father. We are writing to you as executors and trustees of the deceased’s Will dated 12th February 2001, a copy of which has been passed to us. Our client is particularly concerned by the way in which you as trustees are dealing with the Bredbury Hall Trust Fund as defined in clause 4 of the Will. You will be aware that the assets comprised in the Bredbury Hall Trust Fund are held upon discretionary trusts and our client is one of the named beneficiaries together with his brother and sister. Our client advises us that he has received limited distributions from the trust fund to date and that he is aware that a substantial asset comprised within the trust fund is about to be sold. He has been informed by his brother that he will be receiving a small lump sum as a result of this transaction but that this amount is significantly less than the default provision of 30% as provided in clause 6.4 of the Will. Accordingly, we are writing to you on behalf of our client inviting you to explain why you are exercising your discretion in this way. It is clear from the Will that in the absence of the exercise of your discretion the capital and income of the Bredbury Hall Trust Fund should be divided as to 60% for Ian Firkin Flood, 30% for Daniel Firkin Flood and 10% for their sister Louise. Any deviation from this default provision should be explained to the beneficiaries in detail by all the executors and trustees. Our client is most keen that this matter be resolved amicably without resorting to legal action. However, in the event that we do not receive satisfactory justification for the trustees’ actions or indeed a resolution as to the future conduct of the trustees in the exercise of their discretion we will be forced to advise our client of the legal avenues available to him. Accordingly, we look forward to hearing from you within 14 days of the date of this letter. [signed]” [signed]”
[170]I have already observed that the content of this letter is wholly inconsistent with any belief by Daniel, as at December 2007, that the distribution of the proceeds of sale of the family companies was subject to the terms of the alleged Equal Shares Agreement. Daniel sought to explain that inconsistency away in his witness statement, by suggesting that prior to 19th December he had done no more than give his solicitors a copy of the Will with general instructions to raise a concern about distribution of the anticipated proceeds of sale. In closing submissions Mr Cooper hinted that the failure to mention the Equal Shares Agreement in the letter might be attributable to a misunderstanding between Daniel and his solicitors. Since privilege was not waived in relation to the process whereby Daniel instructed solicitors in December 2007, so as to enable an excuse of that type to be investigated, and since I have concluded that Daniel’s oral evidence is generally unreliable, I am wholly unpersuaded by that attempt to belittle the adverse effect of that letter upon the claim that there was an Equal Shares Agreement.[171]Daniel also attempted to suggest that, since under the Equal Shares Agreement he would receive only 3⅓ % more by way of distribution than under the default provisions in the Will, there was no real point in his emphasising the agreement, rather than those default provisions. I am equally unpersuaded by that suggestion, not least because the evidence revealed that Daniel made available to Louise a copy of the December Letter before it was sent. Her evidence was that she did not trouble to read it. This was at a time when, for the understandable reasons which I have described, she did not wish to put her own head above the parapet. Nonetheless I find wholly unconvincing her evidence that the December Letter was simply the product of Daniel’s separate initiative, and that she did not take the trouble to read it. In my judgment Daniel discussed his initiative, and the content of the December Letter, with Louise before he instructed his solicitors to send it. It is therefore also destructive of her case that there was an Equal Shares Agreement.[172]The content of the December Letter is also an important aspect of the background to the Trustees’ meeting on 6th February, because it constituted a clear invitation on Daniel’s behalf (albeit not on Louise’s) that the Trustees should in exercising their discretion under clause 6 of the Will, treat the default provisions in clause 6.4 as the starting point, and justify any departure from them with detailed reasons.[173]The final aspect of the background to the 6th February Trustees’ meeting is that, so far as I have been able to ascertain, the Trustees had only ever previously met as a body, during almost 7 years in office, in January 2008, in connection with the completion of the Sale Agreement. It does not appear that Mr Jones had ever considered it necessary to sit his three lay trustees down together and read them the Will, supplementing it with a proper explanation of the nature and extent of their duties as trustees. Mr Bramley said in cross-examination that he had not even read the Will before the beginning of this litigation. As I have already explained, the fact that there had until February 2008 been no distributions at all from the Trust Fund arose not from any collective decision of the Trustees in which that question was addressed. Such benefits as the discretionary beneficiaries received from the Trust Companies arose as a result of management decisions taken by Ian as their director which he did not regard as having anything to do with his trusteeship and which, in relation to Daniel, he described as an exercise of compassion. Although Mr Jones said, in explaining apparently unsatisfactory state of non-decision making, that the children had never previously requested any distributions, Louise had in fact done so in February 2002 at the meeting with him and Ian which I have already described.[174]I turn to the events of 6th February 2008. The Trustees met at Ian’s house in Hale at about 10 o’clock in the morning and the meeting lasted until lunchtime. Each of them gave evidence as to what occurred, Mr Jones in his witness statement and the other Trustees mainly in cross-examination. In my judgment the clearest and most reliable account of the discussion, and therefore of the Trustees’ thought processes, came from Mrs Levy. It is impossible now to reconstruct the precise order in which the Trustees considered matters which they believed to be relevant to the exercise of their discretion. My findings as to what was discussed derive from the evidence from all four Trustees, appropriately discounted to reflect their varying levels of reliability and powers of recollection. I have also borne in mind that Mr Jones’ account in his witness statement was the polished product of a lawyer, with further legal assistance, whereas the accounts of the other three Trustees had an element of unprompted freshness derived from being given in response to a relatively open-ended cross-examination, about a relatively recent and memorable event.[175]In deciding to distribute the whole rather than part of the Trust Fund, the Trustees had clearly in mind both the express wishes of Daniel and Ian that they should obtain lump sum distributions, and also the threat of litigation implicit in the December Letter. For completeness I note that Daniel’s solicitors had sent a chasing letter expressly threatening proceedings for breach of trust on 4th February 2008, by fax and by post to Mr Jones’ firm. Ian said that it was still in the post on 6th February, so that the Trustees were not aware of it. That seems to me very unlikely, since the letter was faxed to Mr Jones’ firm on Monday 4th February and must have come to his attention by 6th February. Ian said that the Trustees’ view was that a complete distribution of the fund would provide a clean break at a time of deteriorating family relations, by comparison with the retention of substantial funds in a continuing discretionary trust.[176]It is clear that the Trustees took as their starting point the default provisions in clause 6.4 of the Will. In this respect, Daniel’s solicitors’ demand that they do so appears to have accorded with their own inclination.[177]The Trustees shared at some length their individual recollections of what Mr Flood had told each of them about his intentions in relation to his children, and his expressed reasons for an apparent intention (reflected in the default provisions) that his children should benefit unequally from his estate. These appear to have included, in Ian’s favour, a desire that he should continue the family business after Mr Flood’s death and, adversely to Daniel and Louise, that large sums of money placed in their hands might be vulnerable to pressure, in Daniel’s case from his partner Nigel (who Mr Flood feared might use it in imprudent business transactions) and in Louise’s case from her former partner Gilly. They do not appear to have conducted any discussion or conscious analysis of the question whether those concerns of Mr Flood were either rational at the time, or whether they still held good seven years after his death.[178]Mr Flood’s desire that Ian should continue to run the family businesses after his death was of course, by February 2008, no longer capable of fulfilment since the businesses had just been sold. Nonetheless the Trustees appear to have taken very much into account, as a factor favouring Ian, his wish to use a substantial part of any distribution made to him to establish a new business in the leisure or casino field, using for that purpose a core team of some eight or more employees, all of whom had been employed in the family business prior to the sale, and all or most of whom had been employed for a period beginning well before Mr Flood died. That proposed team included both Mr Lord and Mr Bramley himself.[179]The precise relevance of this point in the Trustees’ deliberations is important, and requires a close examination of the evidence about it, in the order in which the evidence was deployed. In his witness statement Mr Jones said that Ian was the driving force in the family business and wished to develop other businesses retaining persons who had been employees of the family companies, that he was a competent entrepreneur, whose efforts had made a great contribution to the success of the businesses since Mr Flood’s death. Mr Jones said that the Trustees regarded him as the best person to make use of a large capital sum.[180]In cross-examination Mrs Levy said this, as part of her explanation for giving Daniel less than the 30% default share:
“We also had to take into consideration Ian’s children and also the employees that had been with the company for many, many years, taking care of them as well, which Ian had to take with him to carry on with the new business.”
Shortly afterwards, she said:
“Also we looked into Ian taking the business – a business forward with employees that had worked with Douglas and Ian for many, many years and, you know, making sure they were employed. They were all reaching an age when it would be difficult for them to get a job.”
[181]Mr Bramley’s examination-in-chief followed shortly thereafter, and it was he who revealed for the first time, without any apparent embarrassment, that he was one of the employees to whom Mrs Levy had referred. Mr Bramley was by then in his 70s and had been a very longstanding employee and friend of Mr Flood. He therefore fell fairly and squarely within the category of employees whom Mrs Levy described as needing to be taken care of, because of their age, and their consequent difficulties in finding other employment.[182]Mr Bramley described the proposed team of employees as having the necessary skills for Ian’s intended new business, in terms of hospitality and entertainment, construction and (in relation to Mr Lord) accountancy. In answer to a question what Ian’s wishes had been, he said:
“He wanted to retain in a small brigade or cross-section of his employees to carry on with future plans for hospitality or entertainment, licensed premises, things like that. That was the core that we got together.”
When asked what was said about these employees at the meeting, he replied:
“It was considered a number of facts. One, as I say their expertise, their service to the company, how long they had been employed by Mr Flood, virtually all of them for a very long period of time. Myself for well over 30 years, Mark Hughes approaching 30 years, Des Burn probably longer, Philip Lord 32, I think.”
He was then asked:
“What was it expected would become of these employees? What were you intending to achieve?”
He replied:
“We were going to go into new businesses in the entertainment and hospitality business, the licensed premises. This was the basic core that could facilitate going into that type of occupation. We knew what we were doing, we had done it for years together.”
He was then asked:
“And who would be running these new businesses?”
He replied:
“I would be a contributive factor, Ian would be a contributive factor. We would all put our two penneth [pennyworth] in.”
[183]As a result of Mrs Levy and Mr Bramley’s evidence on this point, Mr Cooper gave notice of proposed amendments alleging that the Trustees had improperly taken into account the interests of non-beneficiaries (namely the employees to whom I have referred) and that Mr Bramley had, in considering that his own further employment prospects would be enhanced by a large gift to Ian, allowed his interest to come into conflict with his duty. In response to Mr Cousins’ application, I permitted Ian to be recalled for further examination-in-chief. His evidence was that his reason for wishing to re-employ the “small brigade” referred to by Mr Bramley was because they were essential for the purposes of his planned future business. He said:
“They had skills, a skill base, and that was essential for the leisure, the construction property, accountancy, administration, sectors involved in across the board the development properties and the way we had been going for[ward] … you know as I had been trained basically, as I have done all my life.”
He said that he had shared these views with his fellow Trustees both before and at the 6th February meeting. I did not detect in Ian’s evidence any sense of moral obligation towards his and his father’s employees, but rather a desire to retain and re-employ a valuable core team, who were used to working together and who shared the skills requisite for his new business.[184]The Trustees approached the distribution question on the assumption that they had assets of approximately £13.5 million to distribute. They do not appear to have taken account of the vulnerability to reduction of that sum arising from the provisions for adjustment of the consideration by reference to completion accounts, the preparation of which had not by then been embarked upon. Furthermore it is not clear by what process they arrived at that figure. Nonetheless, when tax liabilities arising from the sale are taken into account, and with the benefit of hindsight as to the modest ambit of dispute in relation to the completion accounts, they appear by common consent to have identified the amount available for distribution between the beneficiaries with reasonable accuracy.[185]Mrs Levy gave the most coherent explanation of how the various matters which the Trustees took into consideration led to the amounts provisionally resolved upon for distribution. She said that Louise had informed her of her adviser’s view that nothing less than £4 million would be sufficient for her and her daughter’s maintenance, and reported that to the Trustees. She said that 10% of the available sum would yield £1.3 million for Louise and that the Trustees increased it to £1.5 million to take into account Louise’s obligations towards Daniella. As for Daniel, the effect of her evidence was that it was appropriate to reduce Daniel’s share below 30% so as to enable the Trustees to make a larger than 60% distribution to Ian, mainly for the reasons connected with his proposed new business and the employment of longstanding employees to which I have referred. She said that the Trustees considered it reasonable to provide Daniel with £2.5 million, both because that would be amply sufficient for his maintenance and because he had and would have no children of his own to look after. As for Ian’s children, the Trustees appear to have regarded the amount which they proposed to distribute to Ian as sufficient for him to make adequate provision for them, without the Trustees needing to make specific provision, separate for that to be distributed to Ian.[186]The net result of the Trustees’ deliberations, as reflected in the written resolution subsequently prepared, was that there were to be final distributions to Louise of £1.5 million, to Daniel of £2.5 million and to Ian of the whole of the residue of the Trust Fund. That reflects percentages to each of them (for which I gratefully adopt Mr Clarke’s unchallenged calculations) of 10.7% to Louise, 17.8% to Daniel and 71.5% to Ian. The Trustees’ decision was necessarily provisional, if for no other reason than the requirements of Schedule 9 to the Sale Agreement, which prohibited distributions to any adult beneficiary who did not first provide the necessary warranty covenant to the Buyer.

SUBSEQUENT EVENTS

[187]The Trustees’ meeting on 6th February 2008 is the last event about which I have to make findings of fact. Nonetheless, in order to address two points, going to the question whether the Trustees should be removed, arising out of subsequent events, I must mention them briefly. There is no factual issue about what occurred. The first point is that it is submitted by Mr Cooper that the adversarial and unhelpful manner in which the party and party correspondence both prior to and during this litigation has been conducted by Mr Jones’ firm on the Trustees’ behalf demonstrates a wholly inappropriate attitude of the Trustees towards their continuing duties, and in particular towards Daniel and Louise as beneficiaries, symptomatic of a general unfitness to continue in office. The essence of the point is that, faced with reasonable requests for information about the affairs of the Trust and the administration of Mr Flood’s estate, the Trustees responded with a mixture of procrastination, delay and outright refusal to provide the information requested.[188]In order to address that criticism, a brief summary of the party and party correspondence is necessary. For any student of the detail, the correspondence speaks for itself. Mr Jones’ firm Shammah Nicholls LLP (which had by then incorporated his earlier firm Grovers) had already on 30th January 2008 responded to the December Letter by stating, by reference to Re: Beloved Wilkes’ Charity (1851) 3 Mac & G 440 that the Trustees did not intend to give reasons for the exercise of their discretion, being under no obligation to do so. This remained the Trustees’ stated position until the service of Mr Jones’ second witness statement dated 9th September 2008, in which his account of the Trustees’ reasoning was set out.[189]The Trustees took no steps to communicate the substance of their provisional decision on 6th February 2008 to the defendants before Smyth Barkham, by then instructed by both of them, wrote a substantial letter of complaint dated 29th February, alleging for the first time the Equal Shares Agreement and its notification to the Trustees and seeking substantial information about the affairs of the estate and of the Trust, including estate accounts, trust accounts, records of advice to the Executors and Trustees, notes or minutes of Executors’ and Trustees’ Meetings, information about the remuneration of any Trustees as directors or employees of the Trust Companies, and information about the accumulated profit of the Trust Companies and its disposal. They also persisted in their request for an explanation and documents relevant to the Trustees’ reasoning for any exercise of discretion, suggesting that the law had moved on a little since the 1850s.[190]Apart from a trenchant denial of the existence or notification to the Trustees of the Equal Shares Agreement by letter dated 4th March, the Trustees did not reply substantively to Smyth Barkham’s letter of 29th February until 1st April, when Shammah Nicholls responded on the Trustees’ instructions after consultation with leading counsel. For the most part, that letter consisted of a detailed blow by blow refutation of the matters of complaint in the letter of 29th February. As to the provision of information, it included estate accounts to which I shall return in due course but which had evidently been hurriedly prepared since copies had been requested in February. It included a statement of the value of the Trust Fund on inception and a promise of Trust accounts in due course, reflecting the outcome of the sale of the family companies. It provided certain information about reimbursements to Ian (of £208,000 in aggregate) of payments which he had previously made on behalf of the Trust. In relation to most of the information requested, the letter invited Smyth Barkham to seek answers from their own clients, it being suggested that Daniel and Louise knew as much about the matters in question as the Trustees.[191]By a separate letter of the same date, the Trustees by their solicitors notified the defendants of the provisional decision reached on 6th February, and asked whether Ian and Louise would, before any distribution could be made to them, be prepared to give the covenant required by Schedule 9 of the Sale Agreement to the Buyer. The letter made clear that there would be no further income or capital distributions to Daniel or Louise, other than those identified, namely £2.5 million to Daniel and £1.5 million to Louise, and that those distributions would not be made unless and until the Schedule 9 covenants had been provided, and any challenge to the validity of the Will or claim to share equally in the Trust Fund had been formally abandoned. Otherwise the Trustees would feel obliged to seek the directions of the court.[192]Thereafter, and until proceedings were issued on 13th June, the correspondence continued on an increasingly adversarial, hostile and sometimes acrimonious basis, with Shammah Nicholls maintaining the Trustees’ refusal to provide reasons for their decisions or minutes of meetings, and their position that most of the information being requested was already known by Daniel and Louise. Certain further information was in fact provided, but the attitude taken by Shammah Nicholls was that, as potential challengers to the Will and to the propriety of the Trustees’ conduct, it was incumbent as much upon Daniel and Louise to provide information to the Trustees as it was upon the Trustees to provide anything in return. At the same time, from 9th May, Shammah Nicholls notified the defendants of their view that, as a result of the receipt of tax advice, it was going to be extremely important to resolve all matters before 5th October 2008.[193]On 27th June Reynolds Porter Chamberlain LLP (who had ten days previously come on the record as Daniel’s and Louise’s solicitors in place of Smyth Barkham) wrote to Shammah Nicholls expressing, as experienced trust lawyers, what they described as their astonishment at the hostility, aggression and obstinacy contained in Shammah Nicholls’ previous correspondence, and suggesting that the repeated requests to Smyth Barkham that they obtain their own clients’ answers to questions raised at the Trustees suggested a lack of impartiality on the Trustees’ behalf. This provoked a detailed response from Shammah Nicholls on 2nd July by way of denial, the gist of which was an assertion that the dispute was engendered by an unjustified attack by Daniel and Louise upon the Trustees’ integrity, and that continued requests for information were a tactic to delay the necessarily urgent resolution of the matters raised for decision in the Trustees’ proceedings by then issued.[194]Finally, I must mention the Trustees’ failure (as they now acknowledge) to pay income to Daniel or Louise (or for that matter, to Ian) following the conversion into deposited cash of the bulk of the Trust Fund. In that context, the evidence did not disclose whether the valuable properties (including the two houses and the Farmland) had generated any income since being transferred to the Trustees as the non-cash part of the consideration under the Sale Agreement.[195]It is common ground that no income had in fact been paid to any of the discretionary beneficiaries following the completion of the Sale Agreement, even by the end of the trial on 7th October. Furthermore it is apparent, at least from the receipt of the tax advice referred to in Shammah Nicholls’ letter of 9th May 2008, that the Trustees or at least their advisers must have assumed that the Trust was an interest in possession settlement, since the adverse tax consequences of a failure to make distributions by 5th October 2008 arose entirely from the expiry on that date of transitional relief relating to interest in possession settlements. The trust created by Mr Flood’s will was an interest in possession settlement because of the children’s rights to income, in the absence of a discretionary accumulation or appointment elsewhere, conferred by clause 6.2(a) of the Will. The particular concern arose from Ian’s desire to take advantage of the transitional relief in connection with his plan to settle on his issue a substantial part of the proposed distribution to him.[196]The Trustees were therefore in the unattractive position of asserting that Daniel and Louise had an immediate right to an aggregate of 40% of the income from the Trust Fund, as the basis for pressing for a resolution of the dispute by 5th October, and in due course for the obtaining of an order for an expedited hearing during the Long Vacation, while at the same time failing without any explanation to pay that income to them.[197]When it became apparent to me during the trial that no such income had been paid, (as a result of Mr Cooper’s cross-examination of Mr Jones), I was proffered by Mr Cousins a variety of unimpressive explanations. The first was that the Trustees’ 6th February resolution had determined that: “No future payments to be made to the above whether in respect of income or capital.” [‘the above’ being a reference to Daniel and Louise][198]It was suggested that the Trustees had therefore exercised their discretionary power to defeat Daniel’s and Louise’s defeasible right to income. This was promptly contradicted by Mr Jones in cross-examination, when he acknowledged that the provision in the Trustees’ written resolution which I have just quoted was intended to apply only after Daniel and Louise had actually received the substantial sums which were intended to be distributed to them.[199]The second explanation was that the question whether the children had an immediate but defeasible right to income was itself a difficult question of construction of the Will. That explanation was in my judgment wholly irreconcilable with the confident presentation of the Trust’s status as an income in possession settlement, for the purpose of obtaining an expedited trial.[200]The third explanation was that the purpose of the proceedings was not to enable the Trustees to decide whether to make the appointments contemplated in their 6th February resolution, but simply to bless that decision which, it was submitted, would take effect retrospectively once approved by the court. I was told that this extraordinary concept had found no favour with Warren J. at a hearing for directions on 21st August 2008, and that he found it incomprehensible. So do I. Finally I was told that there was some doubt as to how much income if any had become payable, because the cash proceeds of the sale had been placed on term deposit.[201]It must in my judgment have been apparent to the Trustees from, at the latest, their receipt of Smyth Barkham letter dated 29th February 2008, that there was likely to be a substantial delay before there could be any prospect of the Trustees’ provisional decision to distribute the Trust Fund being implemented. That much was expressed in terms in Shammah Nicholls’ second letter of 1st April 2008 in which the substance of the Trustees’ provisional decision was first communicated to Daniel and Louise. All four Trustees must (or would if they had given the matter any thought) been aware that the consequence of the completion of the Sale Agreement was, as I have already described, to deprive both Daniel and Louise of their only sources of regular income, leaving them thereafter, and pending any distribution as contemplated on 6th February, dependent upon their savings for their everyday needs. By contrast, as emerged at a late stage during the trial, Ian and his family have continued to enjoy the benefit of Ian’s substantial salary from CSCL, which has continued and is proposed to continue notwithstanding the sale in mid-2008 of its business and assets to an independent purchaser.[202]Mindful of my growing surprise and likely disapproval of this failure to pay Daniel and Louise their income entitlement from the Trust Fund, despite the cutting off of their previous sources of income from the Trust Companies and the lengthy postponement of the making of any distribution to them, it appears that steps have been taken, such that the arrears of income which are now acknowledged to have become due are likely to have been paid by the time of the handing down of this judgment.

THE ISSUES

[203]I turn therefore to deal with the specific issues raised by these proceedings. The outcome of many of them will be apparent from the findings of fact which I have already made. The outcome of others depend also upon the resolution of certain legal issues. The haste with which this trial has been prepared and conducted has precluded the agreement of a list of issues between the parties. For convenience, I shall adopt (with gratitude) the list contained in paragraph 55 of the claimants’ written closing submissions, albeit with some changes to the order necessitated by their interrelationship. (1). Was there an Equal Shares Agreement between Ian, Daniel and Louise on 14th March 2001? (2). If any such Agreement was made, was it communicated to the Trustees, and did they agree to/assent to it? (3). If the answer to the first two questions is “Yes”, is the Equal Shares Agreement binding upon the Trustees/The Trust Fund? (4). Are the defendants estopped by convention from asserting the Equal Shares Agreement? (5). Have the defendants relied on the Equal Shares Agreement to their detriment?[204]As to issue (1), there was not an Equal Shares Agreement, for the reasons already given. There was no more than a broad consensus as to a fair and substantially equal division of the free estate, taking into account the unequal provision thus far made by Mr Flood towards the provision of houses for two of his three children. Nothing was agreed about distribution of the Trust Fund.[205]The result of that conclusion is that issues (2) to (5), which arise only if an Equal Shares Agreement had been made, fall by the wayside, notwithstanding the interesting legal argument addressed to the question whether, had Ian committed himself to it, he would have bound the estate as Executor by a compromise under section 15 of the Trustee Act 1925. (6). Had the Trustees constituted the Trust Fund?[206]An argument that they had not done so was initially raised, but in the event sensibly not pursued by Mr Cooper on behalf of the defendants. I therefore answer that question in the affirmative, without the need for further explanation. (7). Was the Sale Agreement valid? (8). To what extent is the Sale Agreement binding on the defendants if at all? (9). If the Sale Agreement was outside the power of the Trustees, should it nevertheless be sanctioned under section 57 of the Trustee Act 1925, or otherwise? (10). Had the claimants surrendered their discretion by virtue of the Sale Agreement, and if so to whom? (11). Are the claimants liable to compensate the defendants for any loss?[207]These issues all arise from the defendants’ case that the restrictions undertaken by the Trustees in Schedule 9 of the Sale Agreement constituted an illegitimate, and therefore void, fetter upon their discretion as to the distribution of the Trust Fund thereafter. That the Trustees by Schedule 9 promised a stranger to the Trust that they would not exercise their discretionary powers to distribute the Trust Fund, save in accordance with very substantial restrictions which might in certain events altogether prevent distribution to one or more beneficiaries, cannot be doubted. It is equally clear that the Trustees’ warranties, together with the restrictions in Schedule 9 designed to protect their value in the hands of the Buyer, were an instrumental part in the process whereby the best value was obtained for the sale of the Trust Companies, without which the sale which completed in January 2008 would in fact have become abortive, due to the understandable insistence upon Schedule 9 by the Buyer’s lending bank. The facts of present case therefore raise, fairly and squarely, the question how far the rule which prohibits trustees from fettering their discretion applies in circumstances where an apparent fetter forms a necessary part of the implementation of a beneficial investment decision.[208]For the general principle Mr Cooper relied upon Swales v. IRC [1984] 3 All ER 16, at 24 per Nicholls J, where he said:
“It is trite law that trustees cannot fetter the exercise by them at a future date of a discretion possessed by them as trustees.”
He also referred to Re: Gibson’s Settlement Trusts [1981] Ch 179, at 182 and Oceanic Steam Navigation Co v. Sutherberry (1880) 16 Ch D 236, at 243 to 244.[209]For the Trustees Mr Cousins submitted that not all fetters on a trustee’s discretion were prohibited, in particular where the trustees’ investment powers were broad enough to authorise a transaction which might have that effect. For that purpose he relied upon the decision of the Grand Court of the Cayman Islands in ATC (Cayman) v. Rothschild Trust Cayman Ltd [2007] WTLR 951, which contains in paragraph 20 of the judgment of Smellie CJ the following helpful citation from Thomas on Powers (1998) at page 307:
“The application of the principle (or prohibition) against fettering their discretion may be excluded or restricted by an express provision (although, unlike express provisions authorising the release of powers, this is perhaps neither common nor always easy to draft). Moreover, it must be doubtful whether fetters and restriction of all kinds are prohibited, irrespective of circumstances. Thus, on a sale or purchase of land by trustees, are they prohibited (in the absence of express provision to the contrary) from entering into a covenant which restricts their future use of either retained land or the land thus purchased?”
[210]The alleged fetter in that case consisted of a proposed undertaking by successor trustees to their predecessors not to distribute a proportion of the trust fund for as long as it was required to meet the outgoing trustees’ entitlement to an indemnity. The Chief Justice held that such an undertaking, giving effect to the retiring trustees’ entitlement to an indemnity and lien, was, although restrictive of the successor trustees’ discretionary powers, plainly not an illegitimate fetter on their discretion.[211]Mr Cousins also relied upon paragraph 29-205 of Lewin on Trusts (18th ed.), in which the editors expressed their view that, provided trustees properly consider the effect of a proposed restriction in narrowing the ambit of their discretionary powers in future, they may properly enter into a transaction which has that effect, citing as an example a decision of trustees who sell a house forming part of the trust property pursuant to their powers of investment, who thereby disable themselves thereafter from making that house available for occupation by a beneficiary, pursuant to an express power to that effect in the settlement.[212]Finally, Mr Cousins referred me to the wide “beneficial owner” power of investment conferred upon the Trustees by clause 14.3 of the Will in relation to the Trust’s shares in the Trust Companies.[213]In my judgment the Trustees plainly had power both to give the warranties and enter into the provisions of Schedule 9 to the Sale Agreement for the protection of the value of those warranties to the Buyer, in the exercise of their investment powers under the Will. The giving of warranties is a common if not standard incident to the sale of shares in private companies, well within the beneficial owner power of investment conferred by clause 14.3, and it was plainly beneficial for them to do so in terms of realising best value for the shares. But for the detailed provisions of Schedule 9 (which it was demonstrated to me were derived from a form in common use where trustees are required to give warranties) it would have been both competent and prudent of the trustees to retain a substantial part of the Trust Fund, if not indeed all of it, for the duration of the warranty period, in order to protect their indemnity in respect of any liability arising from the giving of those warranties. The effect of Schedule 9 was to enable the Trustees to distribute the Trust Fund notwithstanding giving those warranties, albeit only to beneficiaries who each undertook to stand in their shoes, up to the amount distributed to each of them.[214]Mr Cooper’s final complaint in this respect was that even if prima facie within the Trustees’ powers, their entry into Schedule 9 was a breach of trust because they did not even pause to consider the effect of those restrictions upon their ability to distribute thereafter. I reject that complaint. First, the presence or absence of such considerations in the minds of the Trustees cannot sensibly be relevant to the question whether their entry into Schedule 9 was strictly ultra vires, so as to be void as between them and the Buyer, even though it might be relevant to the question whether their conduct amounted to a breach of trust. Secondly, in my judgment it is impossible to suppose that trustees asked to consider whether to sign up to a covenant expressly restricting distribution can have failed to have in mind the fact that their powers to distribute would thereafter be restricted pursuant to that covenant. Whether they had in mind, or were advised by Mr Jones, of the rules about fetters on discretion, is a separate question and for present purposes neither here nor there.[215]Mr Cousins emphasised correctly, by reference to the defendants’ pleadings, that the criticism in relation to this issue was purely that the Trustees’ entry into the Schedule 9 covenants was ultra vires, not that if it were intra vires, it was a negligent, foolish or irrational decision. For completeness however, it is my view that it was none of those things. Since the maximum liability of any beneficiary giving his or her own covenant as required by Schedule 9 was limited to the amount proposed to be distributed to that beneficiary, it seems to me that it was a sensible restriction with which to secure the completion of a beneficial transaction. While I appreciate that Daniel and Louise may well lack the detailed information necessary to enable them to quantify the amount of the liability to which they might expose themselves by giving the required covenant to the Buyer, the cap on the amount of their liability gives them sensible protection. The result is only that they would be well advised to invest any distribution to them in a form which (together with their other assets) ensures that they would have the means to meet any such liability if called upon within the 7 year period contemplated by the Sale Agreement.[216]I should add that, had I been in any doubt as to the outcome of these issues, it would have been necessary for the Buyer to have been joined in these proceedings, before I could sensibly rule that the Sale Agreement was void as against them. In the event however, I answer the questions raised by issues (7) and (8) in the affirmative. The Sale Agreement is valid. It is also binding on the defendants, in the sense that, if they wish to receive a capital distribution from the Trust Fund they will have to provide the covenant required of them by Schedule 9. Had I been in any significant doubt about the power of the Trustees to enter into the Sale Agreement, including Schedule 9, I would unhesitatingly have sanctioned that course under section 57 of the Trustee Act 1925. To do otherwise now would have been to risk an unwinding of the Sale Agreement, at a time when the subject matter of the sale has probably radically fallen in value.[217]Finally, in relation to issues (10) and (11), the claimants have not surrendered any discretion by virtue of the Sale Agreement to anyone else, albeit that the terms of Schedule 9 give rise to very significant restrictions upon the ambit of their discretionary powers. In the circumstances no loss has been identified for which the Trustees could be liable to the defendants, and they have done nothing to give rise to any such liability by entering into the Sale Agreement. (12). Does Ian hold any assets distributed to him over and above a one third share on trust for the defendants?[218]For reasons given in relation to my answers to issues (1) to (5) inclusive, the answer is, of course, no. There is however an outstanding issue whether all or any part of the benefits received by Ian from his ownership and directorship of CSCL are held by him on trust, or subject to a liability to account to the Trust, and therefore for the defendants as discretionary beneficiaries. That is an issue which, for reasons which I have already given at length, has had to be severed from the other issues, and adjourned. There is also (at least potentially) a similar issue arising from Ian’s purchase of the Farmhouse from Quaffers. (13). Are shares held in CSCL by Ian held on trust in equal shares for him, Daniel and Louise?[219]For reasons given in my findings of fact in relation to the establishment of CSCL, the answer is, again, no, subject to the same reservations as affect issue (12). (14). Have Estate/Trust assets been used to provide security for the debts of CSCL, or otherwise to finance its establishment or trading?[220]Now that the evidence has been fully deployed and considered, it is clear that no estate or trust assets were used as security for lending to CSCL. Nonetheless, substantial money which derived from the estate or from the activities of the Trust Companies, and Quaffers in particular, were lent interest free to CSCL. The only relevant security was a debenture given by CSCL itself to Quaffers. Furthermore, CSCL obtained by purchase from Quaffers, in breach of section 320 of the Companies Act, a property which it has used for the pursuit of its business activities, and since sold at an apparent substantial profit. Furthermore, it remains to be decided (for reasons already given) whether the business opportunity upon which the whole of CSCL’s activities were based was obtained by Ian by virtue of his position as a director of the family companies, or as a trustee of the Trust, pursuant to principles set out in Regal (Hastings) Ltd v. Gulliver [1967] 2 AC 134n.[221]Both the loan and the property purchase transactions also involved a serious breach by Ian of the self-dealing rule, since he was sole director of Quaffers and of CSCL, and because his A shares in CSCL conferred upon him the beneficial ownership and control of that company. That the transactions involved such a breach was only acknowledged on the Trustees’ behalf on the very last day of the trial, after they and their advisers had had time to reflect upon the explanation from Vinelott J in Re Thomson’s Settlement [1986] Ch 99 at 115, of the reason why that rule is not confined simply to sales by trustees to one of their number or purchases by trustees from one of their number. Until then, the Trustees’ case (once the breaches of the self-dealing rule constituted by those transactions and by the Farmhouse transaction became the subject of analysis) was that since the money and properties in question had been owned by Quaffers, and the Trust property consisted only of a controlling shareholding in Quaffers’ parent company, no such breach was involved.[222]Mr Cousins’s belated admission that there had been such breaches of the self-dealing rule in relation to transactions between Quaffers and CSCL was accompanied by the trenchant assertion of a submission that, because Daniel and Louise had known and approved of the establishment of CSCL, the lending of money to it through and by Quaffers, and the use of a Quaffers property as the trading venue for CSCL, they had disabled themselves from any complaint about the matter.[223]For a summary of the relevant law Mr Cousins referred me to paragraph 20-98 of Lewin (op cit) which is itself substantially based upon the decision of the Court of Appeal in Holder v. Holder [1968] Ch 353. There is indeed a principle that a beneficiary who has consented to a purchase in breach of the self-dealing rule or confirmed it or acquiesced in it after it has been made, is generally barred from seeking relief in relation to it. But for consent, confirmation or acquiescence to give rise to such a bar the trustee must demonstrate that a number of requirements are satisfied. The editors of Lewin list 7, of which the following are relevant to the present case:
“(3) There must be no suppressio veri or suggestio falsi, but the beneficiary must be honestly acquainted with all the material circumstances of the case. (4) While there is no hard and fast rule that the beneficiary must not be ignorant of the law in the sense that he must know that the transaction, by its character, is impeachable, nonetheless, if he does not have that knowledge, the court will have regard to all the circumstances of the case with a view to seeing whether it is fair and equitable that, having given his concurrence, the beneficiary should succeed against the trustee. (7) Where the beneficiaries are a class of persons, such as creditors, the sanction of the major part will not be binding on the minority: the concurrence to be complete must be the joint act of the whole body.”
[224]In relation to condition (7) concurrence by one of more of a class of beneficiaries may have the more limited consequence that the concurring beneficiaries have any accretion to their entitlement arising from the defaulting trustee being held to account impounded, leaving the non-concurring beneficiaries free to benefit, in proportion to their share of the fund which is augmented.[225]In the present case, for reasons which I have already given, the question whether Daniel and Louise should be held to have become barred from complaining of Ian’s admitted breaches of the self-dealing rule, so as for example to prevent them from sharing in the consequences of Ian being required to account to the Trust Fund in respect of those breaches, is one which I consider has been insufficiently examined thus far, and which can conveniently be adjourned to be dealt with as part of the separate issue as to Ian’s liability to account. For present purposes, the point is nonetheless of relevance to two issues which have not been severed, namely whether those breaches add to the defendants’ case that the Trustees should be removed, and whether a failure by the Trustees to have regard to Ian’s benefits from (inter alia) CSCL vitiated the exercise of their discretion on 6th February 2008.[226]Daniel and Louise are of course only two members of a discretionary class, which included Ian’s children and remoter issue, such that there was not within the meaning of Lewin’s seventh condition, a consent or acquiescence by the whole beneficial class sufficient entirely to discharge Ian from the consequences of his breach of the rule.[227]Furthermore, for the reasons which I have given in relation to the circumstances in which CSCL was established, I do not consider that, when Daniel and Louise undoubtedly agreed to CSCL being given financial assistance by Quaffers in a scheme which was from the outset designed to use premises to be leased from Quaffers, they were on the face of it honestly acquainted with all the material circumstances of the case. In particular, it seems to me that they were by no means acquainted with the vestigial nature of their rights as B shareholders. Concurrence in the application of Trust assets for the benefit of a company in which they, Trust beneficiaries, had a substantial interest is one thing. Concurrence in such conduct in relation to the affairs of a company in which, unbeknown to them, they had no such substantial interest, seems to be something altogether different.[228]Furthermore, in relation to Lewin’s fourth condition, it seems to me quite plain that Daniel and Louise never for one moment appreciated that the transactions between Quaffers and CSCL involved the commission of breaches of trust by Ian, or even that they were transactions as to which they had any right to give or withhold their consent.[229]For all those reasons, it seems to me that, on the evidence thus far adduced, it is by no means established that in considering whether, in the interests of all the beneficiaries, the present Trustees should be removed, I must disregard those transactions and the breaches of the self-dealing rule to which they gave rise. Nor, separately, does it seem to me that concurrence in them by Daniel or Louise means that the benefits thereby derived by Ian via CSCL were something necessarily irrelevant when the Trustees came to exercise their dispositive discretion in February 2008.[230]Finally, although as a matter of fact I conclude that Louise and Ian were aware that loans were being made by Quaffers to CSCL in excess of the contributions routed through Quaffers from the joint account, the evidence does not show that Daniel and Louise were informed, still less consulted, about the sale of Quaffers’ property to CSCL, which was a transaction quite different from the proposed lease which the parties had in mind when CSCL was established. (15). Should accounts and inquiries be ordered in respect of the Estate and the Trust Fund?[231]This issue arises from the undoubted fact that, in breach of what is often described as the first duty of trustees, the claimants failed to cause to be prepared either estate accounts or trust accounts before copies of them were requested on the defendants’ behalf by Smyth Barkham in their letter dated 29th February 2008. Estate accounts of a sort were hurriedly prepared. Trust accounts were promised, and produced later.[232]Taking the estate accounts first, Mr Cooper was able without much difficulty to point to a number of respects in which the estate accounts belatedly prepared in March 2008 fell well short of proper estate accounts appropriate to an estate worth millions of pounds. The inadequacies largely stemmed from the Executors’ failure to have estate accounts prepared when they should have been, at a time when the subject matter was fresh in relevant minds.[233]Nonetheless, the identity and application of Mr Flood’s free estate (i.e. other than the Trust Fund) has been exhaustively investigated during the course of this trial. Even though there remain factual uncertainties, such as the facts surrounding the supposed £27,250 debt owed by Mr Flood’s nephew, it seems to me wholly unlikely that further inquiry will produce a return which justifies the inevitable expense. All the potentially realisable assets in the free estate have been administered, and the bulk of them were paid either into the joint account or separately to the beneficiaries within a year of Mr Flood’s death.[234]It follows that while the Executors’ undoubted failure to prepare estate accounts is a matter relevant to the question whether they should be removed, I can envisage no sensible purpose in ordering further accounts or inquiries in relation to the free estate.[235]Turning to the trust accounts, there is no uncertainty as to the identity of the Trust property during the period between Mr Flood’s death and its sale in January 2008, nor any issue as to whether that property produced any income in the form of dividends. It did not. By contrast, the Trustees have yet to produce any accounts in respect of the proceeds of sale, (cash and real property), but since this occurred less than a year ago it is difficult to regard that as a default on their part. No doubt such accounts will have to be produced in due course, but there is no reason to suppose that this requires an order of the court, still less a formal account before a Master.[236]There remain outstanding issues as to whether Ian has become accountable to the Trust in respect of the transactions which infringe the self-dealing rule. So far as those transactions relate to CSCL, that issue has been severed, and will have to be determined, if not previously compromised, in due course. As for the Farmhouse transaction, the question whether Ian is accountable for having caused a loss of marriage value in relation to the Farmland retained by the Trust remains at large, and will have to be investigated, either by the court, if so required (which, so far, it has not been), or by trustees. To that extent therefore, further accounting may be necessary in relation to the Trust, but it is at present premature to direct that this should take place by way of a separate account or inquiry, for reasons which will become apparent. (16). Should the claimants be removed as Executors and Trustees? (17). Has Ian the right to appoint new trustees in the event that the existing Trustees are removed? (18). Should the Trustees be relieved from liability under section 61 of the Trustee Act 1925? (19). Should the provisional resolution be approved?[237]Save for issue (18) which the parties eventually agreed was premature at this stage, it is not possible wholly to disentangle these last important issues from each other. In one sense, it is tempting to take issue (19) first, because if the provisional resolution is approved, there may be little for the existing Trustees to do, and if due to a disinclination on the part of Daniel or Louise to give the Schedule 9 covenants their shares of the Trust Fund have to be retained rather than distributed, it is common ground that the present Trustees would stand down in favour of trustees acceptable to them.[238]But for reasons which I shall explain, I find it difficult satisfactorily to address the question whether the court should, as requested, approve the provisional resolution without regard to the question whether the Trustees had by February 2008 demonstrated a thoroughgoing unfitness to act. For that reason I shall address the remaining issues first by considering the allegations of breach of trust against the Trustees in relation to the period up to, but excluding their conduct on 6th February 2008, secondly by considering whether the provisional resolution should be approved, thirdly by considering whether the Trustees, or one or more of them should, in the light (inter alia) of that conclusion, be removed, and finally by considering the implications of Ian’s prima facie right to appoint new trustees.

Breach of Trust up to January 2008

[239]I regret to have to say that the facts as I have found them reveal not merely a number of isolated breaches of trust by the Trustees, but rather a total abdication of their duties by all of them, save only in relation to their concurrence in the beneficial sale of the family companies negotiated largely by Ian.[240]At the outset, they failed to appraise themselves of the nature and extent of their duties. They failed to prepare, or to have prepared, estate or trust accounts. They failed to meet to consider whether in the interests of the beneficiaries it was appropriate to leave the Trust property as they received it, in the form of shares in private companies producing no dividends, or to consider whether the beneficiaries’ interests required them as controlling shareholders to request, and if necessary impose, a dividend policy. They never considered as Trustees whether the benefits in salary and in kind which Ian arranged, as a director, to be provided to his siblings and to himself were appropriate. Ian’s view was that in voting himself and his wife remuneration and in arranging for ex gratia payments to be made to Daniel, he was acting as a director, and not as a trustee.[241]Although it appears that Mr Flood had explained at least to Mrs Levy his expectation that she could learn from Mr Jones all that she needed to know about her duties as trustee, there is no evidence that any of the lay trustees asked Mr Jones for any such explanation, or that Mr Jones took it upon himself to provide one. From the outset therefore, the lay trustees apparently blundered into their office oblivious of the heavy responsibilities which they were undertaking, and did nothing whatsoever to discharge any of them prior to 2008.[242]An inevitable consequence was that, for the whole of the period 2001 to 2007 the Trustees did nothing to supervise or regulate Ian’s management of the companies, as they should have done, save to the very limited extent that their personal involvement in the companies’ affairs as employees and as the solicitor habitually resorted to for legal work gave them varying degrees of understanding as to the manner in which Ian was running the companies’ affairs. While it is fortunate that, while thus unsupervised, the Trust Companies apparently prospered under Ian’s management, the consequence is merely that, fortunately for them, their abdication of their Bartlett duties may have given rise to no personal liability on their part.[243]Their failure to supervise Ian did of course include a failure to prevent his breaches of section 320 in relation to the property transactions between Quaffers, CSCL and himself (in relation to the Farmhouse). The evidence did not show whether either Mrs Levy or Mr Bramley were aware of those transactions, but plainly Ian and Mr Jones were. A careful perusal of the Trust Companies’ audited accounts, plainly part of the Trustees’ Bartlett duties, would have revealed them.[244]I have thus far described the Trustees’ abdication of their duties by reference to their collective rather than individual responsibility. It is necessary also to address the individual responsibility and blameworthiness of each Trustee separately. It is convenient to begin with Mr Jones. As the professional trustee who Mr Flood expected to provide appropriate advice and guidance to his lay colleagues, Mr Jones must bear a heavy responsibility for the collective abdication by the Trustees of their duties. This is not a case in which lay trustees, aware of their duties, chose deliberately to ignore them. Nor did their failure to perform their duties appear to arise from laziness on their part. So far as I have been able to ascertain, all three of the lay trustees, including Ian, appear to have been wholly ignorant throughout of their duties as trustees, and this arose from Mr Jones’ failure properly to instruct them in that respect, as Mr Flood had expected him to do.[245]The most charitable explanation for Mr Jones’ failure in that regard is that, despite his legal qualifications, he also was ignorant of the nature and extent of the Trustees’ duties. I can envisage no reason why he would deliberately have failed to appraise his colleagues of duties of which he was aware, and his long record of service in a wide range of legal fields for Mr Flood and his companies makes it improbable that he was indolent, any more than were his Trustee colleagues. To a substantial extent, his ignorance of the duties and responsibilities of trustees of a trust such as this one manifested itself throughout Mr Jones’ cross-examination as well as from his apparent inability to appreciate, until it was acknowledged on the last day of the trial, that Ian’s role in the transactions between Quaffers and CSCL, and himself (in relation to the Farmhouse) involved breaches of the self-dealing rule.[246]It follows that, notwithstanding the absence of any deliberate intent, and the Trustees’ successful conclusion under his overall supervision of the sale of the Trust properties by the end of January 2008, Mr Jones had demonstrated beyond question his unfitness to be the sole professional trustee of this trust. When that is added to his apparently subconscious partiality for Ian as against his siblings (to which I have already referred), I consider that his unfitness to continue as a trustee of this trust, in any capacity, even if assisted by one or more additional professional trustees, is beyond doubt.[247]Turning to Ian, the consequence of his being left entirely unsupervised to conduct the affairs of the Trust Companies as their sole director led him into serious breaches of trust, as well as breaches of section 320 of the Companies Act 1985, arising out of the manner in which he conducted the relationship between Quaffers and CSCL, and similar breaches in relation to his purchase of the Farmhouse. Again, I have no reason to suppose that Ian was in the slightest degree aware that his duties as a trustee impinged on any of those transactions in any way, or that his decision-making in relation to the provisions made for himself and his siblings by the Trust Companies by way of remuneration and other benefits necessarily raised questions for the Trustees, rather than being merely matters within his authority as sole director.[248]Mr Cousins on Ian’s behalf sought to argue that the breaches of section 320 were merely technical. I do not agree. The central purpose of section 320 is to ensure that, in relation to transactions which give rise to a potential conflict between a director’s interest and his duty, they are submitted for approval by the company’s shareholders (and if necessary the shareholders of its parent company) before they are entered into. In the present case, the Trustees as a body were the controlling shareholders of Quaffers’ parent company, and compliance by Ian with section 320 would have compelled the Trustees to meet and consider whether those offending transactions should or should not be approved. For that very reason, namely that the Trustees never considered any of them as a body, Ian can derive no assistance from the provisions of either clause 6.5 or clause 14.3 of the Will, as Mr Cousins was constrained eventually to concede.[249]It was also submitted on Ian’s behalf that the court could be satisfied that Ian’s breaches of section 320 and of the self-dealing rule caused the Trust Fund and the relevant companies no loss. Again, I do not agree. It was prima facie disadvantageous for Quaffers to make large interest free loans to CSCL even if they were secured and repaid in full. As for the property transactions, my lack of confidence in the reliability of the surveyor whose valuations determined the prices chosen means that the question whether they caused loss remains at large. In any event, as Mr Cousins also conceded, it is no answer to a breach of the self-dealing rule to prove that the transactions in question took place at a fair value.[250]The evidence therefore establishes that Ian had by January 2008, and notwithstanding his successful management and sale of the Trust Companies, committed substantial and serious breaches of trust both by commission and omission, mitigated in terms of blameworthiness by his ignorance of his duties, both as a director and as a Trustee, and by the fact that he was entitled to expect (as he father had) that Mr Jones would give him due and proper instruction in that regard.[251]In most respects, Mrs Levy and Mr Bramley may be considered for this purpose together. Their breaches of duty consisted, save in one respect, entirely of omission rather than commission, and their failure to undertake any of their duties as Trustees earlier than in January 2008 was, again, primarily caused by Mr Jones’ failure to give them any sufficient instruction. As persons who were and were expected to remain employees of companies which Mr Flood wished Ian to control after his death, they were in any event hardly suitable choices as trustees with duties of supervision and, if necessary, control over his activities. But this is, of course, in no respect their fault, and it remains a matter of speculation what if anything they would have done if appraised of the need to assume that role.[252]The sole exception to that uniform picture in relation to Mrs Levy and Mr Bramley arises in connection with Mr Bramley’s conduct on 6th February 2008, in participating in a discretionary decision in respect of which, as an intended employee of Ian’s new business, he was in a position of conflict. Since that issue goes directly to the question whether the court should approve that decision, I will deal with it under that heading. It is plainly relevant to the question whether Mr Bramley should continue or be removed as a trustee hereafter.

Should the provisional resolution be approved?

[253]The most recent detailed examination of the function of the court when asked by trustees to approve a proposed exercise by them of their discretion is to be found in the decision of the late Hart J in Public Trustee v. Cooper, currently reported only in [2001] WTLR 901, but in my view worthy of much wider publication. It was itself based to a substantial extent on an earlier unreported decision of Robert Walker J (as he then was).[254]Hart J divided the circumstances in which the court might have to undertake that task into four categories, the second of which is:
“…Where the issue was whether the proposed course of action was a proper exercise of the trustees’ powers where there was no real doubt as to the nature of the trustees’ powers and the trustees had decided how they want to exercise them but, because the decision is particularly momentous, they wished to obtain the blessing of the court for the action on which they have resolved and which was within their powers… In a case like that, there is no question of surrender of discretion and indeed it is most unlikely that the court will be persuaded in the absence of special circumstances to accept the surrender of discretion on a question of that sort, where the trustees are prima facie in a much better position than the court to know what is in the best interest of the beneficiaries.”
This is a category (2) case. At page 925, Hart J continued:
“What then are the duties of the court in considering a category (2) case? They will depend upon the circumstances of each case.”
He then identified three matters appropriate to the case before him of which the court needed to be satisfied. The first was particular to that case. The second and third appear to me to be of general application. He described them as follows:
“Secondly, was the opinion which the … trustees formed one at which a reasonable body of trustees properly instructed as to the meaning of the relevant clause could properly have arrived? Thirdly, was the opinion at which that body had arrived vitiated by any conflict of interest under which any of the trustees had been labouring, either because such conflict actually had, or because it might have had, an effect on the decision which they took?”
[255]In cases where a decision did give rise to potential or actual conflict of that kind, Hart J added the following invaluable guidance, at pages 933-4:
“In some areas of our law the existence of conflicts of this kind is recognised and managed by a variety of devices, ranging from requiring the affected person to declare his interest to requiring him to abstain from participation in the relevant decision-making process. In the law of private (ie non-charitable) trusts, where unanimity of decision-making is required, such devices are difficult to transplant. The beneficiary is entitled to the decision of all his trustees but, at the same time, he is entitled to require that the decision is made independently of any private interest or competing duty of any of the trustees. Where a trustee has such a private interest or competing duty, there are, as it seems to me, three possible ways in which the conflict can, in theory, successfully be managed. One is for the trustee concerned to resign. This will not always provide a practical or sensible solution. The trustee concerned may represent an important source of information or advice to his co-trustees or have a significant relationship to some or all of the beneficiaries such that his or her departure as a trustee will be potentially harmful to the interests of the trust estate of its beneficiaries. Secondly, the nature of the conflict may be so pervasive throughout the trustee body that they, as a body, have no alternative but to surrender this discretion to the court. Thirdly, the trustees may honestly and reasonably believe that, notwithstanding a conflict affecting one or more of their number, they are nevertheless able fairly and reasonably to take the decision. In this third case, it will usually be prudent, if time allows, for the trustees to allow their proposed exercise of discretion to be scrutinised in advance by the court, in proceedings in which any opposing beneficial interests are properly represented, and for them not to proceed unless and until the court has authorised them to do so. If they do not do so, they run the risk of having to justify the exercise of their discretion in subsequent hostile litigation and then satisfy the court that their decision was not only one which any reasonable body of trustees might have taken but was also one that had not in fact been influenced by the conflict. These observations appear to me to be amply supported by recent authority. In Hillsdown Holdings Plc v Pensions Ombudsman [1997] 1 All ER 862 at p895, Knox J rejected a submission that the self-dealing rule applied so as to render a transaction voidable no matter how fair and proper it was, if, in the negotiations which led up to the transaction, there was at least one person who was either a trustee or a director on both sides, with a conflict of duties. He accepted, however, that, in such a case, the onus of proving that the transaction was indeed fair and reasonable falls on those who seek to uphold it.”
[256]Returning to the more general function of the court in a category (2) case, I was referred for additional guidance to the following passage in Re: Hastings-Bass Deceased [1975] Ch 25, at page 41, per Buckley LJ, giving the judgment of the Court of Appeal:
“To sum up the preceding observations, in our judgment, where by the terms of a trust … a trustee is given a discretion as to some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless (1) what he has achieved is unauthorised by the power conferred upon him or (2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account.”
Strictly that was not a category (2) case within the analysis in Public Trustee v. Cooper, since the relevant decisions had by then already been taken and acted upon, but I can see no reason why its inherent good sense is inapplicable to a category (2) case.[257]Further assistance is found in Lewin (op cit) at paragraph 29-296 to 299, the last of which is worth quoting in full:
“The court’s function where there is no surrender of discretion is a limited one. It is concerned to see that the proposed exercise of the trustees’ powers is lawful and within the power and that it does not infringe the trustees’ duty to act as ordinary, reasonable and prudent trustees might act, ignoring irrelevant, improper or irrational factors; but it requires only to be satisfied that the trustees can properly form the view that the proposed transaction is for the benefit of beneficiaries or the trust estate and that they have in fact formed that view. In other words, once it appears that the proposed exercise is within the terms of the power, the court is concerned with limits of rationality and honesty; it does not withhold approval merely because it would not itself have exercised the power in the way proposed. The court, however, acts with caution, because the result of giving approval is that the beneficiaries will be unable thereafter to complain that the exercise is a breach of trust or even to set it aside as flawed, they are unlikely to have the same advantages of cross-examination or disclosure of the trustees’ deliberations as they would have in such proceedings. If the court is left in doubt on the evidence as to the propriety of the trustees’ proposal it will withhold its approval (though doing so will not be the same thing as prohibiting the exercise proposed). Hence it seems that, as is true when they surrender their discretion, they must put before the court all relevant considerations supported by evidence. In our view that will include a disclosure of their reasons, though otherwise they are not obliged to make such disclosure, since the reasons will necessarily be material to the court’s assessment of the proposed exercise.”
[258]Implicit in that paragraph is the assumption that in cases such as the present, where the Trustees have been cross-examined as to their decision-making, the court will be unlikely to find itself in a position where it is unsure whether to sanction the proposed discretionary decision. As will appear, there may be other circumstances leading to the same result.[259]Turning to the present case, the provisional resolution which the Trustees made on 6th February 2008 is not attacked, nor could it be, upon the basis that it was one which no reasonable body of trustees, properly instructed, could have reached. It is however vigorously attacked by Daniel and Louise upon Hastings-Bass principles, by reference to matters which the Trustees wrongly took into account, and matters which they wrongly failed to take into account. All of these were introduced into the Defence and Counterclaim by a series of amendments, as the evidence unfolded. The defendants’ original case had been simply that the Trustees failed to take into account or give effect to the Equal Shares Agreement. I must therefore address each of those aspects of the defendants’ amended case in turn, and consider their overall effect, bearing always in mind that it is not for the court to consider the weight given to an otherwise admissible consideration, that being pre-eminently a question for the chosen decision-maker, unless it is apparent that the decision was so dominated by one consideration to the exclusion of all others that it was irrational on that ground. I shall consider the eight matters of criticism in the order in which they now appear in the re-re-amended Defence and Counterclaim, at paragraph 96B. (1). Taking into account the threat of litigation by the defendants[260]In my judgment this was not an irrelevant consideration. I consider that the Trustees were entitled to have regard to the looming dispute between Mr Flood’s children in deciding, for example, to distribute the whole rather than merely part of the Trust Fund so as to achieve a clean break.[261]Of course, if there was any evidence that they had reduced Daniel’s or Louise’s shares as a partisan response to threatened litigation, this would plainly have vitiated their decision, but this has neither been alleged, put in cross-examination, nor proved. (2). Having regard to the interests of Company employees who were not beneficiaries of the Trust[262]This emerged from Mrs Levy’s evidence, which I have quoted in full on this point. It provoked extended submissions from counsel. Mr Cousins’ main submission was that the Trustees’ discussion of employees arose not in the context of benefiting them, but purely as part of Ian’s description of the core team which he wished to engage in his intended new business. In my judgment, that submission is in conflict with Mrs Levy’s evidence, which I accept, namely that the Trustees took into account not merely the benefit to Ian of employing those persons, but the benefit to them, the need to take care of them, and the difficulty which some of the older of them would experience in finding alternative employment. Although those considerations may not have been in the forefront of Ian’s mind, Mrs Levy attributed such considerations to the Trustees generally rather than merely to herself, and I accept her evidence in that regard.[263]Further or alternatively, Mr Cousins submitted that the Trustees were entitled by their proposed distribution to confer benefits on Company employees because to do so would thereby discharge a moral obligation of Ian, relying for that purpose on Re: Clore’s Settlement Trust [1966] 1 WLR 955, in which Pennycuick J upheld a proposed appointment by trustees to a charity which the beneficiary desired to benefit.[264]Attractively though that submission was presented, I consider that it foundered on the following two rocks. The first was that Ian himself did not appear to manifest at the meeting of the Trustees any sense of a moral responsibility of his own towards the employees. He simply regarded them as his ideal core team. While it is not clear from Re: Clore whether the beneficiary’s moral obligation is to be subjectively identified (by reference to his own wishes) or objectively ascertained, the second difficulty is that it did not emerge from the evidence of any of the Trustees that what Mrs Levy described as the need to care for employees who would find it difficult to find a job was regarded as purely Ian’s moral obligation, rather than something that the Trustees themselves could properly entertain as a desirable objective, probably in fulfilment of what they assumed were Mr Flood’s wishes. It follows that in my judgment this second objection was established by the evidence.[265]The parties were content to treat as a sort of sub-set of this second objection the fact that Mr Bramley was himself, by his own acknowledgement, one of the (if he will forgive me) elderly employees to be benefited, and thereby presented with an insuperable conflict between his duty and his interest in participating in the decision. Mr Cousins sought to meet this objection by reference to clauses 6.5 and 14.3 of the Will. Clause 6.5 permitted any of the Trustees to join in exercising any of the clause 6 distributive discretionary powers “notwithstanding that he or she is one of the discretionary Beneficiaries and will or may benefit from any such exercise”.[266]The language of that clause suggests that it would permit participation by a trustee who was a beneficiary, but not by a trustee who stood to benefit from the proposed exercise of the clause 6 power without being a beneficiary. Mr Cousins strove hard to persuade me to adopt a purposive rather than literal construction of the language of clause 6.5 on the basis that, having chosen three out of four trustees who were likely to be employed by the companies, two of whom were not beneficiaries, Mr Flood had placed the Trustees in a position of inevitable conflict.[267]While I recognise that a general principle of that type exists, it seems to me that the only inevitable conflict facing employee trustees who were not beneficiaries was one likely to arise when exercising investment powers (for example whether to retain or sell the shares in the Trust Companies) rather than when exercising dispositive powers under clause 6. Clause 14.3 of the Will contained a sensible solution to that inevitable conflict, by enabling Trustees to exercise their rights as shareholders on a beneficial owner basis “without being liable to account as Trustees for any remuneration or benefit obtained by them directly or indirectly in consequence thereof”.[268]The decision made by the Trustees including Mr Bramley on 6th February 2008 was not, of course, made pursuant to clause 14.3. By that time, the Trust property consisted of cash and various forms of property but no shares or securities in any controlled company. The decision was purely and simply an exercise of clause 6 powers which, unlike clause 14.3, could only be exercised so as to benefit a trustee if that trustee was also a beneficiary. Accordingly, Mr Cousins’ submissions based upon those two clauses of the Will failed.[269]Mr Cousins nonetheless submitted that, by applying to the court to bless the provisional resolution, the Trustees had in fact followed the guidance laid down in Public Trustee v. Cooper where conflict affecting one or more trustees would otherwise threaten to vitiate a discretionary decision. That was, of course, not the reason why the Trustees applied to the court to bless the provisional resolution, since they appear to have been unconscious of the problem represented by Mr Bramley’s conflict until it emerged at a late stage in the trial. It is therefore not the type of case contemplated by Hart J in Public Trustee v. Cooper at pages 933H to 934D where trustees, appreciating the existence of a conflict affecting one or more of their number, considered themselves nonetheless able fairly and reasonably to take the decision. Even in such a case, a reference to the court specifically on the grounds of conflict would throw on the remaining trustees the onus of proving the transaction was indeed fair and reasonable, rather than merely honest and free from apparent irrationality. In my judgment, a decision reached entirely ignoring Mr Bramley’s conflict vitiated the exercise of the Trustees’ discretion. (3). Taking into account the terms of previous wills that had been revoked by Mr Flood[270]I was not persuaded by the evidence that the Trustees, other than possibly Mr Jones, took any significant account of this factor. In any event, once it is conceded (as it is) that Mr Flood’s intentions were a relevant consideration for the Trustees, then there was in my judgment no reason in principle why regard could not be had to any pattern emerging from a series of successive wills, if that threw light on those intentions. As is explained earlier in this judgment, my own review of Mr Flood’s previous wills does indeed demonstrate a settled, rather than momentary, intention to benefit his children unequally, and to favour Ian above the others. This objection therefore fails. (4). Taking into account knowledge of alternative percentage interests which Mr Flood had considered but rejected[271]Again, this objection fails for substantially the same reasons as objection (3). (5). Having regard to the fact that Daniel had no children as a reason for reducing his share below the default percentage, although Mr Flood must have decided on the default percentages in the knowledge that he would not have children[272]In my judgment the Trustees were perfectly entitled to have regard to the fact that Daniel was unlikely to have children, when deciding how much he needed for his maintenance, and therefore in concluding that £2.5 million was an adequate sum for him to receive. I did not understand the Trustees’ evidence to suggest that they regarded his childlessness as a specific reason for reducing his share below 30%. That reduction appears to me to have been primarily attributable to the Trustees’ desire to give Ian substantially more than 60%. Again therefore, this objection fails. (6). Failure to draw any distinction between funds previously paid to and received by the defendants from the residuary estate, pension fund, assets in the joint account, salaries and bonuses paid from the companies for work actually done and from gratuitous payments from the Companies[273]It was not explained to me by Mr Cooper what effect upon the Trustees’ decision-making the drawing of these distinctions might have had. All those sources of the defendants’ receipts were either unlocked by Mr Flood’s death (for example the pension fund) or attributable in one way or another to his estate or to the Trust Companies. While it is true that the Trustees did not appear on 6th February to draw any such clear distinctions, I have not been able to understand why their not having done so had any deleterious effect upon their decision-making. (7). Giving Ian undue credit for having enhanced the value of the Companies[274]Mr Cousins submitted that once it was implicitly conceded that the Trustees might properly attribute some credit to Ian for having enhanced the value of the Trust Companies, and to take that into account in their decision-making, the identification of the enhancement attributable to his skill and work was a matter for them rather than for the court, and not susceptible to challenge on the evidence deployed at trial, which did not include any valuation evidence relating to the Companies. In my judgment the extraordinary difference between the probate valuation of the Companies at just over £3 million, and Ian’s valuation later that same year at £10 million, coupled with his and Mr Jones’ steadfast prevarication in cross-examination about the reasons for the difference, does suggest that the Trustees probably overestimated the value of Ian’s contribution to the Companies’ success, real and substantial though it undoubtedly was. Mr Jones’ subconscious preference for Ian over his siblings, coupled with the natural loyalty of Mrs Levy and Mr Bramley as, in substance, Ian’s employees, may naturally have contributed to this.[275]In my judgment, had it stood alone this would not have been a sufficient basis for a conclusion that the Trustees’ provisional resolution should not be approved. It nonetheless offers some modest additional grounds for my lack of confidence in the process conducted on 6th February, when aggregated with the other criticisms made by the defendants which have prevailed. (8). Failing to take into account the direct and indirect benefits received by Ian through his interest in CSCL[276]I have concluded that Ian received very substantial benefits indeed, both by way of salary, dividend and, more importantly, enhanced capital value by virtue of his shareholding in CSCL. To some extent it was of course the result of his business skills, and also but more marginally, the resuthat lt of his contribution of a personal guarantee of CSCL’s bond to the Gaming Board, secured on his house.[277]As at February 2008 the benefit attributable to the capital value of CSCL had yet to be crystallised by the sale of its assets later in the year, but inquiry by his Trustee colleagues of Ian would I think have elicited an opinion from him that it was substantial.[278]There is no evidence that the Trustees did take into account Ian’s benefits from CSCL, and it is clear that they had no inkling of the fact that Quaffers’ support of CSCL had been brought about by reason of breaches by Ian of the self- dealing rule. Nor were the Trustees conscious of the possibility (and at present I can put it no higher than that) that the whole of CSCL’s activities may have been ultimately attributable to Ian’s misuse of a business opportunity that was the property of the Trust Companies, or of the Trust.[279]In my judgment a proper appreciation of these matters was material to the Trustees’ decision-making, so that this final objection is well made. In that context I bear in mind that although it was introduced by an extremely late amendment, the claimants did not avail themselves of the opportunity afforded them to recall any witnesses to deal with it.[280]In conclusion therefore, I have identified three distinct respects and one contributory reason for concluding that the Trustees’ decision-making which led to the February 2008 provisional resolution was vitiated, such that it should not now be approved by the court, but rather remitted for reconsideration by suitable trustees, considering the matter entirely afresh. The vitiating factors are, in summary, that the Trustees wrongly had regard to the interests of Company employees who were not beneficiaries, that the decision was vitiated by Mr Bramley’s conflict, and by its having gone wholly unnoticed by the Trustees, that the Trustees failed to have regard to Ian’s direct and indirect benefits from CSCL, and as a supporting but not separately decisive consideration, that the Trustees overestimated value of Ian’s contribution to the success of the Companies’ business.[281]I am fortified in reaching my conclusion that I ought not to confirm or bless the provisional resolution by my perception, which I have already described in detail, that the Trustees had by their conduct prior to February 2008 demonstrated their collective and individual unfitness to be Trustees of this trust. It is most unusual for the court to be invited to bless a discretionary decision by trustees against such an unpromising background. Furthermore, it seems to me that the relatively limited role which the court has hitherto chosen to adopt in category (2) cases (within the Public Trustee v. Cooper analysis) may well have been developed in the context of decisions by trustees whose general fitness was not in dispute. For that reason I would add to the category of cases in which the court may feel insufficiently certain about the propriety of a proposed discretionary decision that it declines to bless it, without at the same time prohibiting it, a case just like the present, where the trustees have demonstrated a general unfitness to act, by conduct prior to the taking of the decision in question.[282]It is fair comment that the unfitness of these Trustees by reference to their conduct prior to February 2008 had been demonstrated more clearly by their abdication of supervisory duties and their neglect to consider any earlier exercise of clause 6 dispositive powers, rather than by anything wrong done when consciously exercising their powers as Trustees. Nonetheless, for the reasons which I have given, their provision resolution cannot be approved.

Should some or all of the Trustees be removed?

[283]Mr Cooper submitted that I should remove all four of the Trustees, not least because the necessary trust and confidence which ought to subsist between trustees and beneficiaries has, vis-à-vis Daniel and Louise, wholly disappeared. For his part, Mr Cousins submitted that I should remove none of them primarily because regardless whether the alleged breaches of trust were established, a trustee ought not to be removed for anything other than wilful (by which he meant deliberate) breach. Furthermore he submitted that the undoubted breakdown in trust and confidence was the defendants’ fault, in pursuing a false case about the Equal Shares Agreement, rather than the result of anything wrong done by the Trustees. Alternatively Mr Cousins submitted that I should not in any event remove all the Trustees, because of the evident trust which Mr Flood had reposed in them, and because of the desirability of maintaining a real family connection, by which he meant retaining trustees with a knowledge of the family going back many years.[284]The submission that trustees should not be removed otherwise than for deliberate default is in my judgment unsupported by any authority, and contrary to the principles emerging virtually unanimously from all of them, best summarised in paragraphs 13-49 and 50 of Lewin (op cit), itself substantially based upon Letterstedt v. Broers (1884) 9 App Cas 371:
“The general principle guiding the court in the exercise of its inherent jurisdiction is the welfare of the beneficiaries and the competent administration of the trust in their favour. In cases of positive misconduct, the court will, without hesitation, remove the trustee who has abused his trust; but it is not every mistake or neglect of duty or inaccuracy of conduct on the part of a trustee that will induce the court to adopt such a course. Subject to the above general guiding principle, the act or omission must be such as to endanger the trust property or to show a want of honesty or a want of proper capacity to execute the duties, of a want of reasonable fidelity. Friction or hostility between trustees and beneficiaries, or between a trustee and his co-trustees, is not of itself a reason for the removal of a trustee. But where hostility is grounded on the mode in which the trust has been administered, where it is caused wholly or partially by overcharges against the trust estate, or where it is likely to obstruct or hinder the due performance of the trustee’s duties, the court may come to the conclusion that it is necessary, for the welfare of the beneficiaries, that a trustee should be removed.”
[285]The present case is not one of dishonesty or even of deliberate breach and only to a limited extent one involving a breach of aspects of the duty of fidelity. It is pre-eminently a case of want of capacity, or, as I would prefer to put it, of unfitness. The Trustees have, quite simply, amply demonstrated their collective unfitness to be trustees of the Trust.[286]Although fitness needs to be addressed by reference to what the Trust continues to require of its trustees, my decision not to uphold the provisional resolution means that there is much still to be done, including the re-consideration of when and how to distribute the Trust Fund among a discretionary class, part of which has entirely lost confidence in the Trustees. In that context the fact that the provisional resolution was vitiated in the manner which I have described is also relevant to the fitness of the trustees to continue in office, although of course it will be a rare case in which a failure in that respect will, on its own, lead to the wholesale removal of trustees.[287]In this context Mr Cooper’s points about the Trustees’ conduct after making the provisional resolution must also be evaluated. There is some force in his criticism of the tenor of the party and party correspondence, and the adversarial attitude adopted on the Trustees’ behalf to requests by Daniel and Louise for relevant information. But its weight as a factor in favour of removing the trustees is largely mitigated by two matters. The first is that trustees may (if they consider it to be in the beneficiaries’ interests) properly withhold their reasons for the exercise of discretionary powers, at least until they decide to seek the court’s blessing of it. The reasons for the Trustees’ decision to take that course in the present case have not been investigated.[288]The second factor is that the Trustees’ adversarial and at times hostile attitude was plainly to a large degree the result of the assertion by Daniel and Louise of a factual case in relation to the Equal Shares Agreement which carried the implication that the Trustees were lying in their denial of it. It is of course the case that a major reason for the breakdown in confidence between the Trustees on the one hand and Daniel and Louise on the other has been the defendants’ vigorous pursuit of their fictitious case in relation to the Equal Shares Agreement, and their false assertions that it was agreed by Ian and notified to the other Trustees. The party and party correspondence was the first manifestation of this.[289]The breakdown in trust and confidence was however also attributable in no small measure to a growing perception by Daniel and Louise that Ian had been misusing his control of the Trust Companies to secure for himself benefits out of all proportion to those obtained by them, and even disproportionate to the default percentages, without any restraint or intervention by the Trustees. To the extent that Ian’s control of those matters was entirely unrestrained and unsupervised by the Trustees, the defendants’ misgivings were well-founded. The question how far, thus unrestrained, he did secure for himself disproportionate benefits is one which is yet to be finally determined, because of the necessity to defer to a later occasion the question whether Ian is accountable to the Trust in respect of the benefits received by him from CSCL.[290]Mr Cooper’s second criticism of the Trustees’ conduct after February 2008 is in my judgment much stronger. It was unlawful for the Trustees to withhold Daniel’s and Louise’s income entitlement after completion of the sale of the Trust Companies. More seriously in my judgment it demonstrated a lack of concern for their interests as beneficiaries, once it became apparent that there was to be a substantial delay before the provisional resolution could be implemented. Furthermore that lack of concern for Daniel and Louise was accompanied by a strenuous (although ultimately unsuccessful) attempt to protect the interests of Ian and his family by obtaining a decision in time for them to reap the fiscal benefits of a settlement on Ian’s children by 5th October.[291]In my judgment it is obvious that there must be a change from the present body of Trustees. The more difficult question is whether all or only some of them, and if so who, should be removed.[292]In my judgment, the governing criterion, consistent with the need to have regard first and foremost to the interests of the beneficiaries, is to constitute a body of trustees who will be able with the minimum of expense and dissention, and in particular with as little as possible further assistance from the court, to restore the administration of the Trust to a basis capable of commanding the confidence and respect of all its beneficiaries, and dealing impartially with their separate claims to consideration for distribution.[293]Viewed against that criterion, I consider it inevitable that Mr Jones must be removed. So must Ian, although probably less to blame than Mr Jones for what has gone wrong. The more difficult question is whether either or both of Mrs Levy and Mr Bramley should be removed.[294]In that context I bear in mind the invitation forcefully expressed both by Mr Cousins and, on behalf of the minor and unborn beneficiaries, by Mr Clarke, that some family connection of the type which I have described should be preserved, by retaining as a trustee someone with a long and deep knowledge of the family and its history, together with a personal acquaintance with, in particular, Ian’s children. That objective could be achieved by retaining either Mrs Levy or Mr Bramley as a trustee, but does not require the retention of both. As between the two of them, Mr Bramley has already, although unaware of it, been disabled by a conflict from participating in the most important decision thus far made by the existing trustees, and may well be similarly conflicted when the question of distribution comes to be reconsidered by a newly constituted body. Furthermore he is still employed or to be employed by Ian and, regardless of any actual or potential conflict, may lack the independence now enjoyed by Mrs Levy, who has continued to be employed at the Hall by the wholly independent purchaser of the Trust Companies. Furthermore, I was impressed by Mrs Levy’s spirited independence when giving evidence and, since I consider that I ought to choose between them, am minded to choose that she rather than Mr Bramley should be retained. By this I intend no personal criticism of Mr Bramley who remains, despite his greater age, willing if called upon to continue to discharge duties which, after the trial, he no doubt appreciates are very much more onerous that he had previously understood.[295]I therefore intend to direct that Mr Jones, Ian and Mr Bramley be removed as Trustees. I do so of course not with the intention that Mrs Levy should continue as sole trustee, but with a view to her being joined by new trustees, by a process of appointment to which I must now turn.

Has Ian the right to appoint new trustees?

[296]I have referred to clause 9.1 of the Will, which in terms confers such a power on Ian for his lifetime. It is however correctly acknowledged by Mr Cousins on his behalf that this is a fiduciary power rather than a beneficial right, and thereby inherently subject to the supervision and control of the court, in particular on an application such as the present for a general administration of the Trust.[297]It necessarily follows, as Mr Cousins also conceded, that the court has power either to prohibit Ian from exercising his power to appoint new trustees conferred by the Will, or to supervise it, for example by subjecting the exercise by Ian of that power to the approval of the court. Furthermore, I must bear in mind that paragraph 1.6 of Schedule 9 to the Sale Agreement contains a covenant by the existing Trustees not to transfer all or any part of the Trust Fund to successor trustees unless they have been approved by the Buyer, such approval not to be unreasonably withheld. That does not of itself prevent the court from appointing new trustees, or even from directing that the Trust Fund be transferred to them, but the court is naturally disinclined to do anything which would give the Buyer ground for complaint under the Sale Agreement, unless it were absolutely necessary.[298]The defendants have put forward, together with appropriate CVs and consents to act, the names of two apparently suitable professional persons as new trustees, about whose suitability the claimants have as yet (so far as I am aware) raised no reasoned objections.[299]It will be apparent from the foregoing that the replacement of Mr Jones, Ian and Mr Bramley is by no means a simple or straightforward matter. It may, because of the need to obtain the consent of the Buyer under the Sale Agreement, take a little time before it can be completed. Furthermore, I am not persuaded that Ian’s conduct to date merits him being wholly excluded from the process, having regard to his prima facie power to appoint new trustees pursuant to the Will. A possible solution might lie in the appointment of one or both of the professional gentlemen proposed by the defendants as interim trustees, pending the holding of an inquiry before the Master for the purpose of identifying and appointing suitable permanent replacements, in which both Ian and the Buyer can play their proper parts. Mr Cousins sought however to dissuade me from that course because of the risk that a temporary appointment of a professional would give rise to significant wasted expense, while he or she read in to the detailed affairs of this Trust, including this trial, for no long term purpose. Nonetheless, I consider it inappropriate either that the present Trustees should remain in office once it has been decided that they should be removed, or that Mrs Levy should be left holding the fort on her own.[300]The course which I propose to take, as to the fine-tuning of which I will hear submissions, is as follows. First, Mr Jones, Ian and Mr Bramley are to be removed forthwith. Secondly, one or other of the defendants’ proposed professionals is to be appointed forthwith. I will hear submissions as to which. Thirdly, the existing Trustees are directed forthwith to seek the Buyer’s consent to the vesting of the Trust Fund in him jointly with Mrs Levy, in the form of a letter to be agreed between counsel for the parties, and in default settled by me. Fourthly, that appointment is not to be on an interim basis, but the question whether the appointee should continue in office is to be for the decision of the Master at an inquiry as to who should, on a permanent basis, be appointed trustees to serve with Mrs Levy, it being for Ian and (if necessary) counsel for the minors and unborns to show cause to the Master why that appointee should not continue to be a trustee on a permanent basis. Fifthly, Ian is to be at liberty to propose an additional permanent trustee or trustees for consideration at that inquiry, but the choice is not to be limited to trustees identified by him.[301]I will also hear submissions from counsel as to the directions necessary to be given for the determination of the outstanding issue which I have severed and adjourned including, as a necessary preliminary question, the grant or refusal of permission to the defendants to make the amendment the subject matter of the adjourned application.[302]I express the hope that the appointment of new trustees in whom all the beneficiaries have confidence will enable all outstanding issues, including the issue which I have caused to be severed, to be determined by them, or at least on their initiative, rather than at continued large expense and after significant delay by the court. This has already been as bitter and expensive a trust dispute (in proportion to the amounts at stake) as it has been my misfortune to encounter. None of the participants, with the exception of Mrs Levy and Mr Bramley, have emerged from it with any credit. I hope that, having ventilated their no doubt heartfelt grievances at each other at sufficient length and inordinate expense, they may be persuaded to allow new trustees to restore some measure of harmony and cooperation within the family. Failing that, it is by no means too late for the matters still in dispute to be resolved by a suitably qualified mediator, at greatly reduced expense, albeit that the obtaining of the court’s approval on behalf of Ian’s children and remoter issue may be unavoidable.

Cited in 2 later judgments