Taylor & Ors v Midland Bank Trust Company Ltd, Court of Appeal - Civil Division, July 21, 1999, [1999] EWCA Civ 1917

Resolution Date:July 21, 1999
Issuing Organization:Civil Division
Actores:Taylor & Ors v Midland Bank Trust Company Ltd
 
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IN THE SUPREME COURT OF JUDICATURE FC3 99/5213

IN THE COURT OF APPEAL (CIVIL DIVISION) FC3 99/5247

ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANI 98/1539

CHANCERY DIVISION CHANI 98/1573

(MR JUSTICE CARNWATH)

Royal Courts of Justice

Strand, London W2A 2LL

Wednesday 21st July 1999

B e f o r e

LORD JUSTICE STUART-SMITH

LORD JUSTICE BUXTON

MR JUSTICE RATTEE

TAYLOR AND OTHERS Respondents

v.

MIDLAND BANK TRUST COMPANY LIMITED Appellant

(Transcript of the handed down judgment

Smith Bernal Reporting Limited

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Official Shorthand Writers to the Court)

MR ANTHONY MANN QC (instructed by Messrs Farrer & Co, baker & McKenzie) appeared on behalf of the Appellant (Defendant).

MR ALASTAIR NORRIS QC and MR CHRISTOPHER TIDMARSH (instructed by Messrs Amy & Partners) appeared on behalf of the Respondents (Claimants).

J U D G M E N T

(As approved by the court)

Crown Copyright

MR JUSTICE RATTEE:

This is an appeal from a decision of Carnwath J. given on 5 June 1998 whereby he refused an application by the Defendants to strike out the Claimants' amended statement of claim as disclosing no cause of action or being otherwise an abuse of the process of the court within R.S.C. Order 18 rule 19, because it has no prospect of success. The appeal is brought pursuant to permission to appeal given by the judge.

The action concerns an unhappy dispute that has arisen over the administration of two discretionary settlements made in 1964 by Raymond and Elsie Taylor respectively for the benefit of their issue. The first two Claimants are grandchildren of the settlers included in the class of beneficiaries under the settlements. The third Claimant is a son of the settlers, but sues as personal representative of his deceased son, who was also a beneficiary under the settlements. The third Claimant is apparently solely entitled to his son's estate.

The first Defendant is a trust corporation which has been a trustee of the settlement throughout its life. The second, third and fourth Defendants are individuals who are, or have been, trustees together with the first Defendant. Of them the second Defendant, Mr. Leaver, a solicitor, was a trustee from the inception of the settlements until 28 July 1994, the third Defendant, Mr. Salter, an accountant, was a trustee from 18 September 1989 until 28 July 1994, and the fourth Defendant, Mr. Broke, also an accountant, became a trustee only on 16 February 1994, and still remains a trustee. The fifth Defendant is a daughter of the settlers, and a beneficiary under the settlements.

The two settlements are in common discretionary form, under which the Trustees had a discretion as to the application of capital and income for the benefit of the beneficiaries. So far as material they are in identical form. Each contains a trustee's indemnity clause, again in common form, to the effect that no individual trustee shall be liable for loss arising from other than dishonest breaches of trust.

From time to time appointments of capital have been made by the trustees in exercise of their powers under the settlements in favour of various beneficiaries, including the first and second Claimants and Christopher Taylor, the since deceased son of the third Claimant.

On 17 August 1964 the settlers transferred the whole of the issued share capital of R.P. Taylor (Holdings) Ltd. to the trustees of the settlements - 442 shares to Raymond Taylor's settlement and 250 to Elsie Taylor's settlement. At about the same time R.P. Taylor (Holdings) Ltd. purchased the whole issued share capital of A.J.A. Taylor & Co. Ltd., a property investment company (to which I shall refer as "the Company"). On 23 February 1966 the whole of the issued share capital of the Company was transferred to the trustees of the settlements, as to 13,681 shares to Raymond Taylor's Settlement and as to 7,739 to Elsie Taylor's Settlement. At about the same time the Company altered its memorandum of association so that it became a property trading company.

The two settlers were at all material times directors of the Company. Their son Michael, the father of the first Claimant, was a director from 1964 and the third Claimant was a director from 1980 onwards.

Immediately before the appointments made by the Trustees on 3 October 1994 ("the 1994 Appointments"), which form part of the subject matter of this action, the result of appointments previously made was that the settlers' grandchildren, Jonathan, Marcus (the first Claimant), Joanne (the second Claimant) and Christopher (the third Claimant's son), were each entitled absolutely and irrevocably to 10.64% of the trust funds (which were comprised entirely of the shares in the Company). The remaining 57.44% was held by the Trustees subject (as to 37.98%) to revocable life interests in favour of the settlers' children Jane (the fifth Defendant) (25.18%), Michael (3.89%) and David (the third Claimant (3.89%). On 3 October 1994 the Trustees revoked all the revocable appointments and instead made irrevocable appointments of the whole of the remaining 57.44% of the trust funds to the fifth Defendant, Jane, absolutely. The result was that control of the Company passed to her, and she became Chairman of the Company.

The writ in the present action was issued on 29 July 1997. By the Claimants' amended statement of claim two essential complaints are made:

(1) Prior to the making of the 1994 Appointment the Trustees, as majority shareholders in the Company, caused the Company to pay excessive sums to the settlers purportedly by way of directors' remuneration, to the extent that the Company's business was starved of reinvestment in its stock in trade - properties - by reason of money that should have been reinvested being paid instead to the settlers. This, according to the claim, has been facilitated by the fact that in the Company's accounts its properties were entered at historic cost rather than real values, so that, on sale of them, an unrealistically large profit appears in the accounts. The complaint is that the Trustees caused (rather than permitted) these excessive payments to be made to the settlers because, under the articles of association of the Company, it was the Company in general meeting that actually decided on directors' remuneration.

(2) In order to shield themselves from complaints by the Claimants, in particular about the excessive remuneration paid to the settlers, the Trustees decided in 1994 to appoint all the remainder of the trust funds (a majority holding in the Company) to the fifth Claimant, who was prepared to acquiesce in what the Trustees had done. Thus the 1994 Appointments constituted frauds on the powers purportedly being exercised by the Trustees, because they were made, at least in part, for the Trustees' own protection.

The Defendants took out a summons to strike out the statement of claim in the action as disclosing no cause of action, or alternatively being an abuse of the process of the court, because it is bound to fail. Some six working days before the date fixed for the hearing of that summons the Claimants amended their statement of claim to plead that the alleged breaches of trust by the Trustees were dishonest, in that they deliberately or recklessly exercised their voting rights in the Company in a manner which caused the payments to the settlers of which the Claimants complain.

The Defendants filed affidavit evidence on their strike out summons in support of contentions that the accounting policy adopted by the Company of showing properties at historic cost was a proper policy to adopt, and that the Claimants should be taken to have consented to, or acquiesced in, the alleged breaches of trust, not least because one of them was a director of the Company and the others had attended Annual General Meetings of the Company.

The Claimants' allegations of breach of trust are to be found in paragraph 28 of the amended statement of claim. That paragraph includes the following:

"In breach of trust the Trustees acted in accordance with a policy agreed with the Settlers and in any event in accordance with their expressed wishes, directions, intentions or instructions and not in exercise of their own free and independent judgment. The Trustees:

(a) in their administration of the trusts of the Settlements, and whilst the majority shareholders in the Company, have failed in their duty as Trustees to ensure that any, or any reasonable and prudent, re-investment policy has been pursued by the Company; and/or

(b) have failed to exercise their discretion, whether properly or at all, for the purpose of preserving and protecting the value of the Company's shares in the Funds to the benefit of the beneficiaries; and/or

(c) have allowed the Company's assets to be sold and disposed of with the intended purpose or policy and effect of paying sums to the Settlers by way of purported remuneration which were excessive and unreasonable in the circumstances in that they were unrelated to, or otherwise out of all proportion to, services provided by them as directors of the Company and, further, had no connection or direct relationship with the actual performance of the Company... The said sums were voted by the Trustees but were not genuinely remuneration but constituted a disguised gift out of capital. In the premises the voting of the said sums was not a genuine or bona fide exercise of the Trustees' power, as majority shareholders, to vote remuneration under the Articles.

PARTICULARS

Matters here pleaded are evidenced by and/or may be inferred from the following:

(A) by the Company's Articles of Association the directors' remuneration was to be determined from time to time by Ordinary Resolution of the Company. Save as aforesaid the directors had no right to remuneration;

(B) the directors' remuneration was shown in draft accounts and from time to time was voted by the Trustees entitled, as shareholders, to vote at Company AGMs. Until the appointment of 3 October...

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