Alexander v Alexander & Ors [2011] EWHC 2721 (Ch)

[2011] EWHC 2721 (Ch)Case No HC09C04076
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 21/10/2011
Before
MR JUSTICE MORGAN
Between
John AlexanderClaimant(1) William AlexanderDefendant((1)) Robert ShukerDefendant(3) Carol ShukerDefendant(4) Daniel Taheri-AnjedaniDefendant(5) Marcel Taheri-AnjedaniDefendant(6) Gerald HemmingDefendant(7) Christine HemmingDefendant
APPLICATION ON PAPER
Judgment

The application

[1]This is an application by trustees for an order under section 57 of the Trustee Act 1925, alternatively for an order under section 1 of the Variation of Trusts Act 1958.

The trust

[2]The trust in question was created by the will of William Owen Rawlings. The will is dated 20th March 2006 and Mr Rawlings died on 3rd October 2007. Probate of the will was duly granted to two solicitors, John Alexander (the Claimant) and William Alexander (the First Defendant).[3]Prior to his death, Mr Rawlings lived at Wisteria Cottage, Sneachill, Spetchley, near Worcester (“the cottage”). By his will, he left the cottage to his executors, as trustees, to hold the same on trust for his step granddaughter, Carol Shuker (the Third Defendant), for her lifetime and thereafter for her children on their attaining 21 years of age in equal shares absolutely. Ms Shuker has two children, the Fourth and Fifth Defendants. Since the issue of the claim form in this case, the Fourth Defendant has ceased to be a minor but is still under 21 years of age. The Fifth Defendant remains a minor. William Alexander (the First Defendant) acts as his litigation friend.[4]The will declared that the purpose of this trust was to make the cottage available for occupation by Carol Shuker. The will stated that she then resided in Germany and wished to “return home”. The will further declared that Mr Rawlings wished and intended that Carol Shuker should be responsible for paying all outgoings on the cottage and should at her cost keep the cottage in good repair and condition and fully insured.[5]The will then provided that the powers conferred on the trustees by sections 6 and 7 of the Trusts of Land and Appointment of Trustees Act 1996, or otherwise, were subject to two exclusions. The first exclusion stated that the trustees had no power to purchase leasehold land held on a lease for an unexpired term of less than 60 years. The second exclusion stated that the trustees had no power to sell or lease or otherwise dispose of the cottage unless the cottage was held by at least two individuals or a trust corporation. This second exclusion was expressly subject to clause 4(4) of the will.[6]Clause 4(4) of the will provided:
“During the lifetime of Carol Schuker (sic) my Trustees shall have no power to grant or dispose of any freehold or leasehold estate or interest in the property (i.e. the cottage) or any part of it or to purchase any land out of the proceeds of sale of the property as it is intended that this gift shall provide Carol Schuker with a home in England in which to live but I have no objection to her modernising or improving the property at her expense in any way.”
[7]The will also expressed Mr Rawlings’ wish that the trustees would delegate to Carol Shuker their powers of management in relation to the cottage.[8]In addition to the provisions dealing with the cottage, the will provided for a number of legacies (including a pecuniary legacy to the Second Defendant) and then left the residue of the testator’s estate to the Sixth and Seventh Defendants.

The orders sought

[9]The trustees now apply to the court for an order which will permit them to sell the cottage and to purchase an alternative residential property to be held on the trusts of the will.[10]The position of the parties in relation to the present application is as follows. The trustees seek the order to which I have referred. Carol Shuker supports that application. So does her elder son, the Fourth Defendant. The litigation friend for her younger son, the Fifth Defendant, also supports the application. I am asked to proceed on the basis that there may be other children yet unborn who might benefit under the trust in relation to the cottage. As I have described, the will left the residuary estate to the Sixth and Seventh Defendants. The cottage will only fall into residue after the death of Carol Shuker if none of her children attains the age of 21 years. Although the evidence served on behalf of the trustees stated that the Sixth and Seventh Defendants wished the cottage to be retained by the trustees, those Defendants have filed acknowledgments of service stating that they do not intend to contest the application. Accordingly, I proceed on the basis that the Sixth and Seventh Defendants do not oppose the application. The Second Defendant is not a beneficiary under the trust of the cottage but, in any event, he does not oppose the present application.[11]It can be seen that the application to the court is for the trustees to be given power to sell the cottage and to buy a replacement property. For reasons which will appear later in this judgment, I think that I ought to consider what the attitude of the court would be if the application had been for the trustees to be given a power to sell the cottage but without purchasing a replacement property. In such a case, the trustees would have power under the will to invest the proceeds of sale of the cottage in an appropriate manner.[12]Under section 57(1) of the 1925 Act, there are three matters to be considered in turn. The first is whether the court has jurisdiction to act under that subsection. The second is whether it is expedient to confer the power which is sought. The third is whether the court should, in the exercise of its discretion, confer that power. I will discuss these three matters in relation to, first, the proposal to sell the cottage and buy a replacement property and, secondly, a possible proposal to sell the cottage and invest the proceeds of sale.

Jurisdiction

[13]Section 57(1) of the Trustee Act 1925 provides:
“Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.”
[14]Section 57(1) of the 1925 Act refers to the trustees not being able to effect the relevant transaction “by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, …”.[15]In the absence of clause of 4(4) of the will, the trustees would have had power to sell the cottage and invest the proceeds of sale or to use those proceeds, or part of them, to buy a replacement property which they could make available for occupation by Ms Shuker. Such powers would have been conferred by section 6 of the Trusts of Land and Appointment of Trustees Act 1996 and section 8 of the Trustee Act 2000. Section 6(1) of the 1996 Act provides that the trustees of land have all the powers of an absolute owner. Section 6(3) confers on trustees of land the power to acquire land under the power conferred by section 8 of the 2000 Act. By section 8 of the 2000 Act, trustees may acquire freehold or leasehold land in the United Kingdom as an investment, or for occupation by a beneficiary or for any other reason. However the powers conferred by section 6 of the 1996 Act are subject to section 8(1) of the 1996 Act, which provides that section 6 does not apply in the case of a trust of land created by a disposition, in so far as provision to the effect that it does not apply is made by the disposition. Clause 4(4) of the will is such a provision. Further, the power conferred by section 8 of the 2000 Act is, by reason of section 9 of that Act, subject to any restriction or exclusion imposed by the trust instrument. Clause 4(4) of the will is such a restriction or exclusion. Thus, the effect of clause 4(4) of the will is that the trustees do not have power to sell the cottage and buy a replacement property to be held on the trusts of the will.[16]Thus, clause 4(4) of the will has the effect that the trustees do not have power under the trust instrument to act as they now wish. It follows that there is an absence of the desired power “vested in the trustees by the trust instrument” for the purposes of section 57(1). Similarly, there is an absence of the desired power “vested in the trustees … by law” because the general law, which would otherwise have conferred the desired power, has been overridden (something which the general law allows). This conclusion applies whether the trustees wish to sell the cottage and buy a replacement property or simply to sell the cottage and invest the proceeds of sale.[17]Section 57(1) refers to the sale or purchase of property “in the management or administration” of any property vested in trustees. The scope of these words has been considered in a large number of cases over the years, notably, in the decision of the Court of Appeal in In re Downshire Settled Estates [1953] Ch 218. The court does not have power under section 57(1) of the 1925 Act to alter the beneficial interests under the trusts. A sale of trust property where the property is turned into money is not an alteration of the beneficial interests although it obviously affects the ability of the beneficiary to enjoy the property which was, before its sale, held by the trustees. Similarly, the use of that money to buy a replacement property affects the ability of the beneficiary to enjoy that money in some other way but, again, there is no alteration of the beneficial interests.[18]Accordingly, in the absence of any authority to the contrary, I would hold that the court has jurisdiction in this case under section 57(1). Because the application to the court was, in the alternative, under the Variation of Trusts Act 1958, I was provided with an opinion of counsel on behalf of the Fifth Defendant and unborn beneficiaries. In his opinion, counsel referred me to Re Fell [1940] NZLR 552, Re Smith [1975] 1 NZLR 495 and Royal Melbourne Hospital v Equity Trustees [2007] VSCA 162. The first two cases are decisions at first instance in New Zealand and the third was a decision of the Court of Appeal in Victoria.[19]In re Fell concerned section 81 of the (New Zealand) Statutes Amendment Act 1936, which was said to be in the same terms as section 57(1) of the Trustee Act 1925. The trust in that case was created by a will under which the testatrix stated that it was her wish and she directed that a particular property would not be sold for a period of time, which she then attempted to describe. The court held that the statutory provision allowed the court to order a sale if it were expedient, not only where the testatrix did not give power to sell but even where she directed that the property should not be sold. On the facts of that case, the court held that the sale was expedient and the trustees were given an appropriate power to sell.[20]In re Smith concerned sections 64 and 64A of the (New Zealand) Trustee Act 1956. Section 64 appears to have been similar to section 57 of the Trustee Act 1925 and section 64A appears to have been similar but not identical to the Variation of Trusts Act 1958 (the text of the legislation is not set out in the report). In that case a farm was settled on the son of the testator for life and thereafter on trust for the son’s children. The trustees wished to sell the farm to the son. In the event, the court was prepared to give relief, on certain terms, under section 64A. The judgment records that the trustees did not primarily rely on section 64 but the judge said that to permit the trustees to sell the farm to the tenant for life would savour of a rewriting of the substantive trusts more than of a step in the management or administration of the estate. He added that without attempting to discover the precise limits of section 64 he was not as a matter of discretion prepared to approve the proposal pursuant to section 64. On the facts of that case, the court seemed to think that the transaction might involve an alteration of the beneficial interests. I will deal later with the question of the court’s discretion under section 57 of the Trustee Act 1925.[21]Royal Melbourne Hospital v Equity Trustees is a helpful authority. In that case, the testator left a very substantial property to trustees who were directed by the will to retain the property to allow the testator’s children and grandchildren to use and enjoy the property for two generations. Although the will conferred a general power of sale, it was held that this general power could not be used to defeat the direction to retain the property: see at [81]. The trustees applied to the court under section 63(1) of the (Victoria) Trustee Act 1958 which was in the same terms as section 57(1) of the Trustee Act 1925. The Court of Appeal conferred on the trustees a power to sell the property; the precise terms of the power do not matter for present purposes. The Court of Appeal discussed the difference between an alteration of the beneficial interests under the trust and an alteration of the enjoyment of specific trust assets by the beneficiaries: see, in particular, at [168] to [187] per Bell AJA. The reasoning is consistent with my own conclusion that the transaction which is proposed in the present case does not involve an alteration of the beneficial interests under the trust. At [114] and [115], Bell AJA discussed the significance to be given to the testator’s direction that the property was to be retained and said:
“I think that the exercise of the discretion is informed but not governed by the settlor’s expressed intentions. Of course, where the expedience of the circumstances demands, a power of dealing may be conferred even though it involves “a departure from the expressed intentions, if any, of a testator or settler”
. In such circumstances, the power may be used to add to or even override the powers supplied by the trust instrument. But it is always necessary to consider the interests of the trust as a whole or, put another way, the interests of all of the beneficiaries … . As the settlor is the author of that trust and has specified those interests, this necessarily involves considering his or her intentions.” (Footnotes omitted)[22]The first and third of these cases support my conclusion that the sale of the cottage in the present case (whether or not the trustees purchase a replacement property) will not alter the beneficial interests under the trust. The second case did not consider this question in any detail. Further, the first and third of these cases show that the court does have jurisdiction under a provision, in essentially the same terms as section 57(1) of the Trustee Act 1925, to permit trustees to sell trust property even where the settlor has expressed the wish that the trustees will not sell or even directed the trustees to retain that property. The settlor’s wishes or directions are nonetheless relevant when the court comes to consider how to exercise the discretion which it is given by section 57(1).

Is the transaction expedient?

[23]I next need to consider whether the proposed sale and purchase, or a sale of the cottage but without the purchase of a replacement property, would be “expedient” within the meaning of section 57(1). This requires me to look at the interests of the trust as a whole, that is, the interests of the beneficiaries collectively. Where beneficial interests may be affected in different ways by what is proposed, all interests must still be considered. I should attempt to hold the scales fairly between the various interests. This is how matters were described by Bell AJA in Royal Melbourne Hospital v Equity Trustees.[24]The testator lived in the cottage until his death in October 2007. Since then the cottage has been empty. The property is unmodernised and suffers from damp. It is said to be “falling into dereliction”. Ms Shuker does not wish to occupy it, certainly not in its present condition. In November 2008, an engineer estimated that the cost of repairing the cottage was some £100,000. Whilst some of those costs might be dispensed with (for example, the cost of constructing a garage), the essential works are likely to cost at least £80,000, at 2008 prices. Today, the estimated costs might be greater. The trustees do not have funds to meet such costs. Ms Shuker is not able, or is not willing, to meet those costs. Indeed, at present, no one is paying to insure the property or provide any security for it.[25]The evidence does not specifically discuss the possibility of raising money on mortgage. It might not be straightforward to obtain a loan secured on mortgage for the necessary costs. The cottage was valued at £150,000 for probate purposes in November 2007. In February 2009, an estate agent suggested a guide price of £150,000 to £175,000 but he did not carry out a formal valuation. I do not have any more recent information and both the market and the state of the property may have changed since 2007 or 2009. Further, I have no evidence as to how much the value of the cottage would be increased if the works referred to by the engineer were to be carried out. However, what weighs with me in relation to the possibility of a loan secured by a mortgage is that someone would have to pay the interest on the loan. The trustees do not have funds for that purpose. Ms Shuker has not offered to pay the interest. There is obviously a difference from her point of view between a gift of a cottage for life, free of rent and mortgage interest payments, and a gift of a cottage for life, subject to mortgage interest payments.[26]Further, the evidence does not discuss the possibility of the cottage being let so as to produce an income. However, I think that the overall tenor of the evidence is that the cottage is virtually uninhabitable so that it would not be lettable.[27]Ms Shuker is now about 55 years old. It is most undesirable that the cottage should remain unoccupied and uninsured for the rest of her lifetime, which could be many years. The cottage will deteriorate further and its value will decline. The cottage is at risk of damage as a result of it being empty and uninsured.[28]In these circumstances, speaking generally, it seems to me to be a good idea to sell the cottage rather than to retain it. More particularly, a sale is in the interests of Ms Shuker and her children and, to the extent relevant, the residuary beneficiaries. In circumstances where no one has expressed an interest in occupying the cottage, now or in the future, the relevant comparison for each of these persons is between(1) the trustees continuing to own the cottage which will decline in value over the years and(2) the trustees owning a replacement property, which will not decline in value, or investing the proceeds of sale of the cottage.[29]Accordingly, I am satisfied that it is expedient to sell the cottage. That raises the question as to what should be done with the proceeds of sale. There seem to me to be two questions and in relation to each the evidence is not satisfactory. The first is whether the net proceeds of sale, after paying the costs and expenses involved in the sale, will be sufficient to allow the trustees to buy a replacement property which might be occupied by Ms Shuker. The evidence says that the cost of a replacement property together with the costs involved in the sale and purchase are likely to be £130,000. However, the evidence as to the likely proceeds of sale is not up to date and there is no detailed evidence as to what sort of property could be purchased with the net proceeds of sale.[30]Secondly, the evidence is not clear as to Ms Shuker’s wishes. The Claimant’s witness statement stated that Ms Shuker would, in principle, be keen to occupy the cottage if it were reasonably habitable. However, later, that witness statement stated that Ms Shuker had lived in Germany for a period which is now some 30 years, that her life is in Germany and that her children had been brought up and educated there. The evidence does not disclose what Ms Shuker’s attitude would be to the possibility of occupying a property of the kind which could be bought out of the net proceeds of sale of the cottage. Further, the evidence does not disclose what her attitude would be if a replacement property was not purchased by the trustees. In that event, as I read the will, the net proceeds of sale would be held on the trusts of the will. Ms Shuker would be entitled to the income for her life and the capital would pass to her children on her death.[31]In the absence of evidence on the two matters to which I have referred, I am not satisfied that it is expedient to use the net proceeds of sale to buy a replacement property. It might very well be much more expedient to invest the proceeds of sale in a more appropriate investment.

Discretion

[32]The position I have reached is that the court has jurisdiction to confer power on the trustees to sell the cottage, with or without the purchase of a replacement property. I am satisfied that it is expedient to sell the cottage, with or without the purchase of a replacement property. Conversely, I am not yet satisfied that it is expedient to buy a replacement property.[33]The court has a discretion under section 57(1). Normally, where a transaction is expedient within the subsection, the court would exercise its discretion to confer power on the trustees to effect the transaction. However, as was pointed out in Royal Melbourne Hospital v Equity Trustees, the court can take into account the wishes of the settlor when deciding whether, in the exercise of its discretion, to confer the relevant power on the trustees. In the present case, the testator’s wishes were expressed in his will in March 2006. He plainly thought that the cottage would be suitable for Ms Shuker to live in and that she would want to live in it. It is now clear that the cottage is not suitable for her and she does not want to occupy it. The present position is that the cottage has remained empty, neglected and uninsured. It is hard to think that the testator would want that state of affairs to continue. Further, this is not a case where the beneficiaries are divided in their opinion and the testator’s wishes would allow me to favour one point of view over another. The proposed transaction is in the interests of all the beneficiaries and there is no opposition to the proposed transaction.[34]These considerations indicate to me that the court should be prepared to exercise its discretion to confer on the trustees power to sell the cottage. I have however gone on to consider whether the testator would have had a preference between the investment of the net proceeds of sale and the purchase of a replacement property to be available for Ms Shuker and, if so, whether, that should affect the exercise of my discretion. Should I, for example, only permit the trustees to sell the cottage if they are to use the proceeds of sale to buy a replacement property?[35]As to the testator’s likely views, I consider that if the cottage has to be sold (which I think it does) the testator would be likely to think that the question whether the proceeds of sale should be invested or whether they should be used to buy a replacement property for Ms Shuker should really depend on her wishes and intentions and not on his.[36]Accordingly, I conclude that I should now confer on the trustees power to sell the cottage. Thereafter, the trustees must consider, in consultation with Ms Shuker and the other beneficiaries, what is to be done with the proceeds of sale. If the trustees decide to invest the proceeds, otherwise than in the purchase of land (see clause 4(4)), then they do not need to return to the court for any further powers. If the trustees decide that the appropriate course is to use the proceeds of sale to buy a replacement property, then they do need the court to confer on them the necessary power. If they wish to obtain such an order from the court, then it will be necessary for them to file detailed evidence as to why such a transaction would be expedient for the purposes of section 57(1).[37]It is unnecessary to consider the alternative application under the Variation of Trusts Act 1958. I will not therefore deal with that application in any detail and I can make my findings in summary form. If it had been necessary to deal with the alternative application, I would have been prepared to approve the proposed sale on behalf of the Fifth Defendant and any unborn beneficiaries. On the present evidence, I would not have been prepared to approve a purchase of a replacement property; the interests of the Fifth Defendant and unborn beneficiaries might be better served by the proceeds of sale of the cottage being invested in some other way. I reach that conclusion essentially for all of the reasons which I have set out above.

The result

[38]I will confer on the trustees power to sell the cottage. This power is conferred pursuant to section 57(1) of the Trustee Act 1925.

Cited in 1 later judgment