England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice The Rolls Building Fetter Lane, London, EC4A 1NL
		27/07/2012

Mr Justice Henderson:

Introduction and background

1. On 25 July I heard argument on an urgent application for directions by the trustees ("the Trustees") of a settlement made on 27 June 1961 ("the 1961 Settlement") by the late Eric Lionel Thomas ("the Settlor"). The principal asset of the 1961 Settlement is a controlling majority holding comprising 19,233 (or approximately 51.23%) of the 37,490 issued ordinary A £1 shares ("A shares") in a company called NWN Media Limited ("the Company"). The Company publishes local newspapers covering north and mid Wales, Chester, Shropshire and Herefordshire. Its business can be traced back to the mid-19^th Century, originally as the publisher of a railway timetable in Oswestry. The business subsequently grew through the launch of new titles and by acquisitions, and in the early 1930s it was owned by the Settlor's father, Rowland Thomas. The Settlor inherited the Company in 1959 and considerably enlarged it.
2. On 12 July 2012 a formal offer was made by Tindle Newspapers Limited ("Tindle") to the Trustees, offering to purchase as many share as the Trustees were willing to sell provided that Tindle would thereby acquire at least a controlling 51% shareholding in the Company after taking account of other shares bought at or around the same time from other shareholders. The offer was expressed to remain open for acceptance until 30 July. The offer price may be commercially sensitive, and I will therefore say that it equates to £[x] per share.
3. The Trustees consider this to be an exceptionally favourable offer, and in principle they wish to accept it. They are supported in that view by one group of beneficiaries under the 1961 Settlement, namely the Settlor's daughter Nonna Patricia Woodward ("Mrs Woodward") and her two children, Alexander Woodward and Sophie Woodward, who between them own a total of 8,717 A shares either as individuals or as trustees of a Woodward family trust. The Woodwards wish to sell their 8,717 shares to Tindle at the offer price. Accordingly, the minimum number of further A shares which Tindle would need to acquire from the Trustees in order to achieve a 51% controlling interest in the Company is 10,429, or approximately 54% of the Trustees' holding.
4. The proposed sale is, however, opposed by the other two groups of beneficiaries under the 1961 Settlement. One group ("the Bourne family") comprises the Settlor's daughter Susan Bourne, her daughter Nerys Bayley and her son Huw Jones; the other group ("the Moss family") comprises the Settlor's daughter Erica Moss, her son Anthony Moss and her daughter Julie Moss. Apart from their beneficial interests under the 1961 Settlement, each of Nerys Bayley, Huw Jones, Anthony Moss and Julie Moss also owns 1,623 A shares in his or her own right. Their four individual shareholdings together represent about 17.3% of the A shares.
5. The trust fund of the 1961 Settlement is divided into three sub-funds which were originally of equal size, reflecting appointments made in the 1970s and 1980s in favour of the Bourne, Moss and Woodward families respectively. I will need to examine those appointments, and an appropriation (or purported appropriation) of trust assets to the three funds made by the Trustees in 1993, later in this judgment. For now, it is enough to note that the present division of the trust holding of A shares is as follows: 6,758 shares are contained in the Bourne fund, 6,757 in the Moss fund, and 5,718 in the Woodward fund.
6. A further crucially important point is that the beneficial interests in the three funds are now vested absolutely and indefeasibly in the groups of beneficiaries I have mentioned, all of whom are of full age and capacity. In the case of the Woodward fund, the class of Mrs Woodward's children who are entitled to capital subject to her life interest in part of the fund will technically remain open until her death; but as she is now aged 68, it is common ground that this possibility can for practical purposes be ignored. In the case of the Bourne and Moss funds, the class of children entitled in remainder has been closed since the relevant appointment was made in 1983.
7. It will be apparent from the details which I have already given of the holdings of A shares that, if the Bourne and Moss families make common cause, and if they are entitled either to call on the Trustees to transfer to them, or to direct the Trustees how to act in respect of, the A shares contained in their respective funds under the 1961 Settlement, they are together in a position to control the Company and therefore to prevent the proposed sale to Tindle. The shares in their settled funds, together with the four individual holdings mentioned in paragraph 4 above, would amount to about 53.3% of the A shares.
8. The Trustees are independent of the three branches of the Settlor's family, and have all held office for between 20 and 25 years. One of their number, Mr Russell Whitehair, has been chairman of the Company since 1994 and has overseen its management. He has more than 30 years experience in the local media industry and has held a number of high level posts connected with it. He is also the deputy chairman of Mediaforce (Holdings) Limited and in-house solicitor for the Mediaforce Group, which operates a portfolio of companies involved in direct marketing and advertising sales in the UK and abroad across a wide spectrum of local media. Within Great Britain and Ireland, the Mediaforce Group represents over 360 titles with a weekly circulation of over 14 million. Mr Whitehair's co-trustees are Maldwyn Humphreys and Gareth Hughes. Mr Humphreys was a close colleague of the Settlor during his lifetime and joined the Company in 1954, later becoming the Settlor's personal assistant, and then advertisement director of the Company from 1970 until his retirement in 1988. Mr Hughes, whose background is in banking and corporate lending, has been a non-executive director of the Company since 2004. The Trustees therefore bring a formidable combination of long experience and relevant business expertise to the discharge of their duties.
9. On 5 July 2012 the Trustees held a meeting at the offices of their solicitors, Field Fisher Waterhouse LLP, to consider the future of the trust's shareholding in the Company. Although Tindle's offer had not yet been formally made in writing, its content had been made known to the Trustees by the chairman of Tindle, Sir Ray Tindle, and Mr Whitehair had discussed it with him. The Trustees' meeting was attended by three representatives of Field Fisher Waterhouse, and also by counsel instructed on their behalf, Mr Leon Sartin.
10. The minutes of the meeting record the discussion and decision taken by the Trustees as follows:

"3. Advancement of shares to the Bourne and Moss families

3.1 The Chairman reminded the Trustees that on 30 May 2012, the Bourne and Moss families had requested them to advance the [A] shares in the Bourne and Moss funds to the children of Mrs Bourne and Mrs Moss respectively. The Bourne and Moss families have made it clear to the Trustees that they oppose the sale of any shares.

3.2 If the Trustees accede to the request to advance the shares it will be impossible to sell the shares in Mrs Woodward's fund which will become part of a minority interest in [the Company] and will suffer a considerable reduction in value to reflect this.

4. The options

4.1 The Chairman reminded the Trustees that they owe certain fiduciary duties to the beneficiaries of the Trust. In particular, all beneficiaries must be treated fairly and the Trustees must seek to maximise the Trust fund.

4.2 The Trustees were asked to consider what they wished to do assuming either they had the powers available to do what they thought best or could obtain Court approval or the beneficiaries' consent. The Trustees considered the following options:

(a) advance the shares to the Bourne and Moss families as requested by them;

(b) agree to sell to Sir Ray the shares in the Woodward fund together with sufficient shares in the Bourne and Moss funds to give him a 51% interest once the other Woodward family shares were taken into account and advance the remaining shares in the Bourne and Moss [funds] as requested;

(c) sell all the Trust's shares to Sir Ray; and

(d) keep all [A] shares in Trust.

5. Option 1 – advancement of shares to the Bourne and Moss families

5.1 The Trustees considered whether it would be in the best interests of all of the beneficiaries to advance shares to the Bourne and Moss families.

5.2 It was noted that this would allow the Bourne and Moss families to achieve their ambition of together taking direct control of [the Company], rather than control remaining with the Trustees Although no single individual shareholder would hold more than 15% of the shares.

5.3 It will be impossible to accept Sir Ray's offer and the shares in Mrs Woodward's fund would be a minority interest and fall sharply in value.

5.4 Local newspaper companies currently operate in a very adverse climate with sharply falling advertising revenue and the share prices of quoted groups stand at record lows. In the Trustees' opinion it is highly unlikely that any offer as generous as Sir Ray's will ever be received.

6. Option 2 - sell 51% of the shares in [the Company] to Sir Ray

6.1 The Chairman reminded the Trustees that, as previously discussed, Sir Ray is not interested in acquiring a minority stake in [the Company]. In addition, none of the existing shareholders other than the Woodward family are, so far as the Trustees are aware, willing to sell any of their shares to Sir Ray. This means that the only way the sale to Sir Ray can proceed is if the Trust provides the balance of shares in [the Company] so that Sir Ray acquires at least 51%.

6.2 The Chairman reminded the Trustees that Sir Ray has offered to purchase 51% of [the Company] for approximately £[y] million. The Trustees agreed that Sir Ray's offer is very generous. It is well publicised that the newspaper industry is in decline with profits and turnover falling rapidly …

6.3 The Chairman also reminded the Trustees that the Bourne and Moss families had previously made an offer to purchase shares from the Woodward family for £[z] million. This is much lower than the price offered by Sir Ray. In addition, the Chairman understands that in the event that the offer from the Bourne and Moss families was accepted, they do not intend to fund the purchase out of their own resources but have instead approached [the Company's] bankers with a proposal to fund the purchase by way of a buy-back of the relevant shares by [the Company]. Although the bank has approved a funding package for this buy-back, the Trustees have concerns as to whether the profitability of [the Company] can support such funding … The Bourne and Moss families have confirmed that they are not able to increase the offer relating to the Company's buyback of £[z] million.

6.4 It was felt that in the light of the above this option 2 provided a solution. In this way the Woodward family would achieve a sale of all the shares in the Woodward family fund at a price reflecting a majority valuation of [the Company]. The Bourne and Moss families would also benefit from the sale of shares at this price and would also receive some shares to hold personally. Neither the Bourne nor Moss families would separately have control of [the Company] even if all shares were advanced to them from their respective funds and so Option 2 did not alter this position.

…

7. Option 3 – sell all the Trust's shares in [the Company] to Sir Ray

7.1 This option has the merit that it will secure a good price for all the beneficiaries' shares. However it is in opposition to the clear stated wishes of the Bourne and Moss families to increase their personal shareholdings.

7.2 The Trustees discussed this option and noted that if all of the Trust shares and the Woodward family shares are sold to Sir Ray, this will leave the Bourne and Moss families with a minority stake in [the Company]. In addition, it was noted that Sir Ray's offer for 80% for [the Company] is not proportionately greater than his offer for 51% of [the Company], despite the additional control that 80% provides. There would therefore be no financial loss to the Bourne and Moss families if only sufficient shares are sold to Sir Ray to provide him with a 51% shareholding.

8. Option 4 – keep all of the [A] shares in Trust

8.1 The Trustees discussed the possibility of maintaining the status quo.

8.2 This would be in opposition to all three families' wishes.

9. Conclusion

9.1 The Trustees discussed the four options which they considered were available to them. After careful consideration of, in particular, their fiduciary duties as Trustees of the Trust to treat all beneficiaries fairly and to maximise the value of the Trust fund, the Trustees decided that the Trust should sell the shares in Mrs Woodward's fund together with sufficient shares in the Bourne and Moss funds to provide Sir Ray with 51% of [the Company]. The Trustees considered that this option provides the best solution in terms of balancing the interests of all of the beneficiaries.

9.2 It was noted that the approval of the Court would be needed before such sale could take place unless all beneficiaries consented …

9.3 In reaching this decision, the Trustees considered, in particular, the following matters:

(a) if option 1 is implemented, the Trust's majority shareholding will be lost and the value of the Woodward family's shares will be adversely impacted;

(b) Sir Ray's offer to Nonna Woodward will not proceed if he is unable to acquire at least 51% of the shares in [the Company] and none of the other shareholders are willing to sell;

(c) the Bourne and Moss families are unable to match Sir Ray's offer;

(d) it is unlikely that any shareholder will receive a higher offer for the [A] shares from any other third party; and

(e) there is no compelling reason to sell more than 51% of the shares in [the Company] to Sir Ray."

11. Since the agreement of the Bourne and Moss families to the Trustees' decision was not forthcoming, the Trustees started the present proceedings by a Part 8 claim form issued on 19 July with a return date of 25 July. The first six defendants are the members of the Bourne and Moss families, while the Woodwards are the 7^th, 8^th and 9^th defendants. The principal relief sought by the Trustees is that the court may authorise them to sell 10,429 of the A shares held by them in the 1961 Settlement to Tindle at the price of £[x] per share, in the following proportions: 2,356 shares from Mrs Bourne's fund, 2,355 from Mrs Moss's fund and 5,718 from Mrs Woodward's fund.
12. The evidence in support of the application consists of a witness statement by Mr Whitehair dated 19 July, which sets out the relevant background and concludes as follows:

"42. It is clear that the beneficiaries take strong and opposing views as to the merits of distributing or selling shares. This means that the decision for the Trustees is not an easy one or one they are prepared to make without guidance from the court. We have a strong desire to act in the best interests of all the beneficiaries and not prefer the interests of some over others. The Trust has worked successfully for over 50 years. The Trustees' controlling shareholding has allowed the interests of all concerned to be taken into account. The decision for the Trustees is therefore a momentous one for the Trust.

43. For this reason the Trustees seek the court's directions whether or not to accept Tindle Newspapers Limited's offer. We have explained to the beneficiaries why we formed the view that the proposed sale of the shares is for the benefit of all of them. Unfortunately however, they are unable to agree to a course of action. Inaction risks losing the highly favourable offer to purchase the shares. We would naturally wish to assist the court as far as possible but remain neutral and allow the beneficiaries to put forward their competing arguments for and against a sale or distribution of shares …"

13. Further evidence has been filed by Nonna and Sophie Woodward on behalf of the Woodwards, and by Huw Jones, on behalf of the Bourne and Moss families. Mr Jones makes it clear that, although the Bourne and Moss families are united in their opposition to the present proposal, each of them "have their own independent view of matters in relation to the Trust and Company generally and it is not appropriate to assume that either of the families, or the two families together, always act as a homogenous unit". Finally, Mr Whitehair filed a second witness statement on 23 July to clarify various points about the timetable of the offer made by Tindle.
14. The evidence referred to above has had to be prepared under considerable time pressure, particularly on the part of the defendants. I have read it and taken it into account, although as I said in the course of the hearing it would not be appropriate for me to express any views about the commercial merits of the proposed sale to Tindle or the competing views about the recent history and prospects of the Company put forward by the Woodwards on the one hand, and the Bourne and Moss families on the other. I have no doubt that strong views are sincerely held on each side, but the issues are not capable of summary resolution on an application for directions by the Trustees.

15. For their part, the Trustees have made it clear through their counsel, Mr Sartin, that they do not wish to surrender their discretion to the court, but are instead asking the court to give its blessing to their proposed course of action. The application therefore falls within the second category identified by Robert Walker J (as he then was) in a judgment given in chambers in 1995 and cited by Hart J in The Public Trustee v Cooper [2001] WTLR 922 at 923:

"The second category is where the issue is whether the proposed course of action is a proper exercise of the trustees' powers where there is no real doubt as to the nature of the trustees' powers and the trustees have decided how they want to exercise them but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action on which they have resolved and which is within their powers. Obvious examples of that, which are very familiar in the Chancery Division, are a decision by trustees to sell a family estate or to sell a controlling holding in a family company. In such circumstances there is no doubt at all as to the extent of the trustees' powers nor is there any doubt as to what the trustees want to do but they think it prudent and the court will given them their costs of doing so to obtain the court's blessing on a momentous decision. 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 that the court to know what is in the best interests of the beneficiaries."

15. Hart J went on, at 925, to identify three matters about which the court must be satisfied, after a "scrupulous consideration" of the evidence before it, in considering a category 2 case. First, the court must be satisfied that the trustees have in fact formed the opinion, or made the decision, for which approval is sought. Secondly, the opinion must be "one at which a reasonable body of trustees properly instructed as to the meaning of the relevant clause could properly have arrived". Thirdly, the opinion must not be vitiated by any conflict of interest under which any of the trustees had been labouring. That guidance was given in the context of the particular issues arising in the Cooper case, which concerned the acceptance of an offer made to trustees to purchase their shares in Mansfield Brewery Plc. It was common ground before me, however, that similar principles were applicable in the present case, and in particular that, if the court reached that stage, the relevant test was whether the decision taken by the Trustees was one at which they could properly have arrived. It is not the function of the court, on an application of this nature, to form a view about the merits of the decision, or whether it was the best or only decision open to the trustees in the circumstances, provided only that the threshold test of reasonableness is satisfied.
16. At the hearing before me on 25 July I had the benefit of written and oral submissions from very experienced Chancery counsel appearing for the defendants, as well as the helpful submissions of Mr Sartin for the Trustees. The Bourne and Moss families were represented by Mr Gregory Hill, and the Woodwards by Mr Peter Crampin QC. In the light of their submissions, it soon became clear that there were two preliminary questions of law which, if determined in favour of the first to sixth defendants, would make it impossible for the Trustees to implement their decision. The first issue, shortly stated, is whether the beneficiaries of the Bourne and Moss funds are entitled under the rule in Saunders v Vautier to require a transfer to themselves (or as they direct) of the A shares comprised in their respective funds under the 1961 Settlement. If the answer to that question is yes, the second issue is whether a transfer of the relevant shares by the Trustees to the children of Mrs Bourne and Mrs Moss would comply with the restrictions on transfer of the A shares contained in the Company's articles of association. If the answer to that second question is also yes, it is not disputed by Mr Crampin QC on behalf of the Woodwards that the proposed sale of a controlling interest in the Company to Tindle cannot proceed, because the Trustees would be unable to sell any of the A shares contained in the Bourne and Moss funds.
17. Before considering these two preliminary issues, I must first examine the history of the 1961 Settlement and the relevant appropriations, or purported appropriations, of the A shares to the three funds.

The 1961 Settlement: relevant history

18. The 1961 Settlement was in a standard discretionary form, in favour of a "specified class" of beneficiaries comprising the Settlor's three daughters, any future children of his (there were none), his remoter issue borne within a lengthy specified period, and any spouse, widow or widower of any of the above. The initial trust fund comprised 7,920 ordinary £1 shares in the Company, which was then called Woodalls Newspaper Ltd. The trustees were given power to sell the shares, in common with any other trust investments, with the consent in writing of the Settlor during his lifetime and thereafter at their discretion. Clause 7(6) gave the trustees the powers of appropriation, and other incidental powers, conferred on personal representatives by section 41 of the Administration of Estates Act 1925 without any of the consents made requisite by that section.
19. It is convenient at this point to set out section 41(1) of the Administration of Estates Act 1925, which provides as follows:

"(1) The personal representative may appropriate any part of the real or personal estate, including things in action, of the deceased in the actual condition or state of investment thereof at the time of appropriation in or towards satisfaction of any legacy bequeathed by the deceased, or of any other interest or share in his property, whether settled or not, as to the personal representative may seem just and reasonable, according to the respective rights of the persons interested in the property of the deceased."

Various consents to exercise of the power are then made requisite by proviso (ii) to subsection (1), but it has for long been common practice to exclude those requirements in wills, and in trust instruments which import the section 41 power, for reasons of administrative convenience and to save stamp duty (as to which see Jopling v Inland Revenue Commissioners [1940] 2 KB 282). By virtue of subsection (4):

"An appropriation made pursuant to this section shall bind all persons interested in the property of the deceased whose consent is not hereby made requisite."

20. By a deed of appointment made on 11 August 1975 ("the 1975 Appointment") the then trustees of the 1961 Settlement irrevocably appointed that the future income from the trust property:

"shall be held as to one third part thereof for [Mrs Bourne] as to a further one third share for Erica Moss … and as to another third share thereof for [Mrs Woodward] for their respective lives."

By this date the original trust holding of shares in the Company had been increased by a further 39,600 new ordinary shares allotted in 1972 and 1973.

21. Mr Crampin submitted, and I agree, that the effect of this appointment was to give each of the Settlor's three daughters an entitlement to one third of the income of the Trust Fund. That is to say, each daughter had a one third interest in the whole income of the Trust Fund, which is not the same thing as an interest in the whole of the income of one third of the fund. The distinction was clearly made by Goff LJ in In re Freeston's Charity [1978] 1 WLR 741 at 751G, where he said:

"… it is manifest that an interest in half the income of an undivided fund is quite different from the whole income of a divided half of that fund."

22. On 17 March 1983 a further appointment ("the 1983 Appointment") was made by the then trustees in exercise of the power given to them by clause 3 of the 1961 Settlement. The deed recited that the Trust Fund included 46,497 ordinary £1 shares in the Company, and that the Trustees had "appropriated" 15,499 such shares to the parts of the Trust Fund held upon trust for Mrs Bourne, Mrs Moss and Mrs Woodward for their respective lives. I was told that enquiries have been made, but no trace can be found of the "appropriation" referred to in this recital. The operative clauses of the 1983 Appointment then dealt separately with the shares appropriated for Mrs Bourne and the property from time to time representing the same (defined as "the First Fund") and the corresponding fund appropriated for Mrs Moss (defined as "the Second Fund"). Mrs Bourne's two children, who had been born in 1968 and 1969, were defined as "Mrs Bourne's children", while Anthony and Julie Moss, who had been born in 1969 and 1971, were defined as "Mrs Moss' children". The First Fund and the income thereof was then appointed to be held, subject to Mrs Bourne's life interest, upon trust for such of Mrs Bourne's children as should attain the age of 25, and if both in equal shares absolutely. The Second Fund and its income was appointed on corresponding trusts for Mrs Moss's children. In addition, Mrs Bourne and Mrs Moss each surrendered her life interest in 3,070 shares (or approximately one fifth of the shares "appropriated" to her fund), so that it should merge and be extinguished in the capital of her fund.
23. It follows from the terms of the 1983 Appointment that the beneficial interests in the First Fund and the Second Fund had all vested indefeasibly by 2 July 1996, when Julie Moss attained the age of 25.
24. By a further deed of appointment dated 13 July 1984 ("the 1984 Appointment") the then trustees made a similar appointment in favour of Mrs Woodward and her children over the 15,499 shares in the Company "appropriated" to her share of the Trust Fund. There were, however, some differences, of which the following should be noted. First, the class of her children was defined as meaning her son Alexander "and any other children born to her hereafter". The only other existing member of the class is Mrs Woodward's daughter Sophie, who was born after the date of the 1984 Appointment and attained the age of 25 in or about 2009. As I have already explained, the class can for all practical purposes be treated as closed. Secondly, Mrs Woodward surrendered her life interest in a larger proportion of the shares in which she had a life interest than her sisters, namely 5,118 (or approximately one third of the shares in her fund). This difference explains why the number of A shares now held in Mrs Woodward's fund is smaller than the number held in the other two funds. Thirdly, although the 1983 Appointment had incorporated the statutory power of advancement in section 32 of the Trustee Act 1925 with the usual modification that it should apply as if the restriction to one half of the beneficiary's entitlement to the capital of the trust property had been omitted, the 1984 Appointment incorporated section 32 without such modification.
25. Subject to the purely theoretical possibility of an increase in the class of Mrs Woodward's children, the position under the 1984 Appointment is again that the beneficial interests vested absolutely and indefeasibly when Sophie Woodward attained the age of 25.
26. I now turn to an important document which was signed by the present Trustees on 26 January 1993. I will call it "the 1993 Appropriation", because it purported to be made in exercise of the power of appropriation conferred by clause 7(6) of the 1961 Settlement; but that description should not be taken as prejudging the question whether the document was in fact a valid exercise of that power. The 1993 Appropriation was expressed to be supplemental to the 1961 Settlement and the documents and events specified in the First Schedule, which included the 1975, 1983 and 1984 Appointments, but did not include any former appropriations of assets. The operative part of the document reads as follows:

"WE, … being the Trustees for the time being of the Settlement in exercise of the power of appropriation conferred on us by Sub-clause 7(6) [of] the Settlement HEREBY appropriate as specified in the Second Schedule the respective assets to each fund named in satisfaction of the share of that fund in the Settlement and the persons comprised in the Specified Class defined in the Settlement Deed HEREBY consent to the exercise by us of the power of appropriation in the manner set out in this document such consent indicated by their signatures hereto."

27. The Second Schedule to the 1993 Appropriation then set out a list of the assets allocated to Susan's Fund (i.e. Mrs Bourne's fund), Erica's Fund (i.e. Mrs Moss's fund) and Patsy's Fund (i.e. Mrs Woodward's fund). Each trust holding of shares or securities, including the shares in the Company, was divided equally, or as near to equally as possible, between the three funds. Thus 8,785 shares in the Company were allocated to Susan's Fund, and 8,784 shares in the Company were allocated to Erica's Fund and Patsy's Fund. In addition, there was an equal division of the cash held on deposit by the Trustees.
28. On the final page of the 1993 Appropriation, beneath the signatures of the Trustees, each of Mrs Bourne, Mrs Moss and Mrs Woodward signed her name beneath the declaration:

"I … hereby consent to the appropriation of the Trust Fund of the Settlement in the manner set out in this deed."

I note in passing that the reference to a "deed" is strictly speaking inaccurate, because the document was only signed under hand by the Trustees. There is, of course, no requirement for an appropriation under section 41 of the Administration of Estates Act 1925 to be made by deed, or even by a written document. It should also be noted that the three life tenants signed the 1993 Appropriation, to signify their consent to its provisions, even though the power of appropriation in clause 7(6) of the 1961 Settlement had expressly dispensed with the need for any consents.

29. The background to the 1993 Appropriation is explained in a letter sent by Mr Whitehair to Mrs Moss (and, I infer, to each of her sisters) on 19 January 1993:

"Following the meeting at the end of November last year – as you know it was decided it is a good idea for the Settlement Fund to be split into three parts, reflecting the three family interests.

The effect will be that one third of the Fund currently held by Flemings and one third of the remaining shares in [the Company] will be designated for your "family unit" and the other two thirds respectively for the other families' interests.

The advantage of this course of action would be that your "family unit" can within the ambit of the Trusts of the Settlement make decisions concerning the investment of your Family Fund without reference to your extended family.

I am advised there will be no tax consequences arising from the appropriation for although each fund will be treated separately in the accounts and for administrative purposes the appropriation does not amount to a disposal for Capital Gains Tax purposes and the funds will be treated as one.

I enclose a copy of the proposed draft document which gives effect to the appropriation and it is proposed that the Flemings shareholdings and [Company] shares should simply be divided three ways …"

30. The 1993 Appropriation has formed the basis for the practical administration of the 1961 Settlement over the last 19 and a half years. Separate trust accounts are provided for each group of beneficiaries, and as between the Trustees and the beneficiaries everybody has proceeded on the footing that the Trust Fund has been validly divided into the three sub-funds.
31. On the assumption that the 1993 Appropriation was effective to achieve its stated object, namely a division of the Trust Fund into three separate funds with different beneficiaries, there is no doubt about the consequences of the appropriation. Mr Hill referred me to the decision of the House of Lords in Fraser v Murdoch (1881) 6 App Cas 855, where Lord Watson said at 879:

"The appropriation of these stocks, if authorised, as I hold it to have been, by the terms of the trust deed, was an act of administration which the trustees of themselves had no power to undo. The immediate effect of that act was to alter the pecuniary interests of the two sets of beneficiaries concerned, and the relations subsisting between them and the trustees. The beneficial interests of [the two sets of beneficiaries] were henceforth limited to the stocks severally assigned to them, and the trustees ceased to be under any liability to account to either life-rentrix and her children for the stocks appropriated to the others. Two trusts were created instead of one, with separate funds, and different beneficiaries having no community of interest."

32. At the time of the hearing on 25 July, it was unclear whether the Trustees had taken any steps to split their holding of shares in the Company to reflect the 1993 Appropriation. On 26 July, however, I was supplied by Mr Hill with the results of some investigations into the Company's records made by his clients, which appear to establish that on 23 December 1993 entries were made on the Company's share transfer register recording transfers by the Trustees to themselves of blocks of shares in the Company corresponding to the numbers in the 1993 Appropriation for the three sub-funds, together with three share certificate counterfoils of the same date, and with the same numbers and references, although not specifying any distinguishing numbers for the shares. It appears, therefore, that not only did the Trustees intend to constitute three separate funds by means of the 1993 Appropriation, but that they also took the necessary steps to have themselves registered as holders of three separate blocks of shares in the Company for that purpose.

The Saunders v Vautier issue

33. In the light of this history, the basic submission advanced on behalf of the Bourne and Moss families by Mr Hill is simplicity itself. He submits that the life tenant and reversionary beneficiaries of each of Mrs Bourne's fund and Mrs Moss's fund are entitled to have the whole of that fund transferred to themselves or to such other person as they direct, under the rule in Saunders v Vautier. This is a matter of present entitlement, and does not depend on any exercise of any dispositive power of appointment or advancement by the Trustees. As it is put in Lewin on Trusts, 18^th edition (2008), at para 24-07:

"If there is only one beneficiary, or if there are several beneficiaries all of full age and capacity and of one mind, the specific execution of the trust may be stayed and the special trust will acquire the character of a bare or simple trust; for through whatever channel the settlor may have intended his bounty to flow, the beneficiaries, as the persons ultimately to be benefited, are in equity and from the creation of the trust, and before the trustees have acted in the execution of the trust, the absolute beneficial proprietors. The principle applies both to a trust fund as a whole and to a particular gift out of a fund, such as a legacy.

[Various examples are then given]

On the same principle, beneficiaries may be able to call for a partial distribution out of a fund …"

See too para 24-08, which states that:

"The principle of Saunders v Vautier is not a rule of construction but depends on the proposition that the beneficiaries are collectively the beneficial proprietors of the fund. It may therefore be invoked even though it will defeat the known intentions of the settlor or testator …"

34. Mr Hill further submitted that effective requests to the Trustees under the rule had already been made by the beneficiaries of each fund on 30 May 2012 (these being the requests referred to in paragraph 3.1 of the minutes of the Trustees' meeting on 5 July). It is sufficient to quote the letter sent on that date by Mrs Moss, Anthony Moss and Julia Moss to the Trustees:

"Dear Sirs

The E L Thomas 1961 Settlement

We, Erica Moss, Anthony Moss and Julia Moss being together absolutely entitled to the assets comprised within Erica's Fund of the above settlement hereby authorise and request you to exercise your powers so as to appoint all or any shares in [the Company] comprised within Erica's Fund to Anthony Moss and Julie [sic] in equal shares.

We confirm that we will join in, execute all or any documents which may be required in order to achieve such an appointment.

We have sent a copy of this letter direct to the trust's solicitors Field Fisher Waterhouse …"

35. The letter sent on behalf of the Bourne family was in all material respects identical, and asked the Trustees to appoint all or any shares in the Company comprised in Mrs Bourne's fund "to Nerys Bayley and Huw Jones in equal shares". Each letter was signed by all three relevant beneficiaries.
36. I pause at this point to observe that there is in my judgment some room for doubt whether these letters were indeed effective to invoke the rule in Saunders v Vautier, on the assumption that the beneficiaries were entitled to do so. The opening words ("being together absolutely entitled to the assets comprised within Erica's Fund") strongly suggest that this was the intention, but the request to the Trustees to "exercise [their] powers so as to appoint all or any shares in [the Company]" is hardly the language of a request or direction to a bare trustee, but rather seems to envisage the exercise of a power which would leave the number of shares to be "appointed" in the discretion of the Trustees. Perhaps understandably, neither the Trustees nor Field Fisher Waterhouse have, so far as I am aware, stated their understanding of what the Trustees were being asked to do; and the confusion is further compounded by the reference in paragraph 3.1 of the 5 July minutes to requests "to advance" the relevant shares, which suggests that the power being invoked was the statutory power of advancement. Fortunately, however, it is unnecessary for me to resolve this conundrum, because Mr Hill argued in the alternative, and Mr Crampin in my view rightly accepted, that it would be enough if the Bourne and Moss families now have the right to invoke the rule in Saunders and Vautier, whether or not they have already succeeded in doing so. If they have such a right, it can be exercised at any time, and a further request to the Trustees, in an unambiguously appropriate form, could be given before the Trustees entered into any contract with Tindle.
37. The arguments which Mr Crampin QC felt able to advance in opposition to this analysis were, as he frankly conceded, of a technical nature.
38. His first point, which as I have already indicated I accept, was that the effect of the 1975 Appointment was to give each of the Settlor's daughters a life interest in one third of the entire income of the Trust Fund. Accordingly, Mrs Woodward then acquired a beneficial interest in all of the A shares held by the Trustees, and that has remained the position ever since unless something subsequently happened which changed the nature of her beneficial interest and confined it to the income of the A shares allocated to Mrs Woodward's fund.
39. Mr Crampin's next submission was that the 1993 Appropriation did not change the nature of Mrs Woodward's beneficial interest, even if the Trustees proceeded on the mistaken assumption that it had done so. He submits that the scope of the statutory power of appropriation in section 41 of the Administration of Estates Act 1925 is limited to the transfer or allocation of assets in satisfaction of pre-existing beneficial interests, and that it is not in itself a dispositive power which can be used to transfer beneficial interests from one asset to another. In support of this submission, Mr Crampin relied on the common law principle that a power of appropriation vested in a personal representative operates on the basis of a contract between him and the legatee, whereby instead of receiving payment in cash, the legatee agrees to take some specific asset in full or partial satisfaction of the legacy: see generally Snell's Equity, 32^nd edition (2010), at para 35-010. In Jopling v Inland Revenue Commissioners, loc. cit., it was held by Lawrence J that the statutory power of appropriation in section 41 "does not differ in any material degree from the power of appropriation which existed before the Act". It was for this reason that an appropriation made with the consent of the legatee amounted to a conveyance on sale for stamp duty purposes.
40. It is at this point, in my judgment, that Mr Crampin's argument breaks down. In the first place, although I do not doubt the historic learning on the nature of an appropriation referred to by Mr Crampin, I do not accept that the scope of the section 41 power is confined to transactions of a contractual or quasi-contractual nature. Mr Crampin accepted that the statutory power can also be used, for example, to segregate separate funds within a trust for the purposes of convenient administration; and in my view the words "in or towards satisfaction … of any other interest or share in his property", at any rate when incorporated by reference into an inter vivos settlement, are wide enough to permit trustees, in an appropriate case, to replace a beneficial interest in part of the income of the whole with an interest in the whole of the income of an appropriated part. No authority to the contrary was cited to me, and it seems to me desirable in principle that section 41(1) should be broadly construed in a way which promotes practical and convenient trust administration. The necessary protection for beneficiaries lies, not in adopting a narrow interpretation of the scope of the power, but rather in the requirements for consent imposed by the section, and in the requirement that the appropriation must be one that "may seem just and reasonable" to the trustees, according to the respective rights of the beneficiaries. I therefore see no reason to doubt that the appropriation into three separate sub-funds purportedly effected by the 1993 Appropriation was a valid exercise by the Trustees of the modified section 41 power conferred on them by the 1961 Settlement.
41. The matter does not stop there, however, because even if I am wrong in the conclusion which I have just expressed, there is the additional feature in the present case that the three life tenants interested in income expressly joined in and signed the 1993 Appropriation in order to signify their consent to it. As they are the only people who could possibly have been prejudiced by a change in the nature of their income interests, it seems to me that their agreement is conclusive and makes good any deficiency which there might otherwise be in the legal basis for the appropriation. Mr Hill did not fail to submit, in this connection, that their signatures could if necessary be treated as satisfying the requirement in section 53(1)(c) of the Law of Property Act 1925 that "a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same". I do not think it is necessary to go that far, but if it were the only basis on which the validity of the 1993 Appropriation could be upheld, I would be prepared to accept the submission.
42. For these reasons, I am satisfied that the 1993 Appropriation did what it purported to do, with the consequence that the Bourne family and the Moss family are indeed the only persons beneficially interested in the holdings of A shares allocated to their respective funds. It follows that they are entitled under the rule in Saunders v Vautier to direct the Trustees how to deal with those shares, if and to the extent that they have not already done so by the requests which they sent to the Trustees on 30 May 2012.

Would transfers of A shares by the Trustees to the children of Mrs Bourne and Mrs Moss be permitted transfers?

43. The current Articles of Association of the Company were adopted by a special resolution passed on 4 July 2003, some seven years after the death of the Settlor in 1996. Article 1 provides that the regulations contained in Table A in the Schedule to the Companies (Tables A to F) Regulations 1985, as amended, shall apply to the Company "except as hereinafter provided and so far as not inconsistent with the provisions of these Articles".
44. The provisions relating to transfer of shares are of some complexity, but for present purposes the only point taken by Mr Crampin QC is a very narrow one which turns on the definition of "family trust" in article 14.1. The contention, put shortly, is that the 1961 Settlement is no longer a "family trust" within the meaning of the definition, even though it clearly was during the Settlor's lifetime and after the 1983 and 1984 Appointments had confined the class of beneficiaries to his children and grandchildren.
45. The relevant provisions of articles 13 and 14 read as follows:

"TRANSFER OF SHARES

13. The directors shall not register the transfer of any share or any interest in any share unless the transfer is made with the prior written consent of the members holding 85 per cent or more of the equity share capital or in accordance with these Articles …

14. Permitted Transfers

14.1 For the purposes of this article 14

"family member" means, in relation to any person, any of his children and grandchildren

"family trust" means, in relation to a member, a trust which does not permit any of the settled property or the income from it to be applied otherwise then for the benefit of that member or any of his family members and under which no power of control over the voting powers conferred by any shares the subject of the trust is capable of being exercised by, or being subject to the consent of, any person other than the trustees or such member or any of his family members.

14.2 Subject to Articles 14.3 to 14.6 inclusive any member who is an individual may at any time transfer any shares to a person shown to the reasonable satisfaction of the directors to be

14.2.1 a family member of his, or

14.2.2 trustees to be held under a family trust for that member.

…

14.5 Where shares are held by trustees under a family trust

14.5.1 those shares may, on any change of trustees be transferred by those trustees to any new trustee of that family trust,

14.5.2 those shares may at any time be transferred by those trustees to the Settlor of that trust or any family member to whom that Settlor could have transferred them under this article 14 if he had remained the holder of them, and

14.5.[3] if any of those shares cease to be held under a family trust for any other reason, the trustees shall give a Transfer Notice (as defined in article 21) with 28 days in respect of all the shares then held by those trustees."

46. If the 1961 Settlement is a "family trust" as defined in article 14.1, it is clear that any transfer of A shares by the Trustees to any of the first to sixth defendants would be a permitted transfer under article 14.5.2, because they are all family members to whom the Settlor could have transferred the shares under article 14.2.1 if he had remained the holder of the shares. So much, I think, is not disputed by Mr Crampin. He submits, however, that the 1961 Settlement has not been a "family trust" since the Settlor's death in 1996, at the latest, because "family trust" is defined "in relation to a member", and a member of the Company must be a living person. Accordingly, so it is said, the Settlor ceased to be a member on his death, or (if earlier) when he no longer held any shares in the Company in his own name, and at that point it was no longer possible for the 1961 Settlement to qualify as a family trust. Mr Hill pointed out, correctly in my view, that the 1961 Settlement had not been a family trust from its inception, because the original specified class of beneficiaries was not confined to the Settlor's children and grandchildren. Nevertheless, it is clear, and Mr Crampin did not dispute, that the 1961 Settlement satisfied the definition of a family trust by, at the latest, the date when the 1984 Appointment was executed, because from then onwards the class of beneficiaries was so confined.
47. Mr Crampin did not press his submission with much enthusiasm, and in my judgment it is untenable. The proposition that a qualifying family trust automatically loses its status on the death of the settlor, or when he otherwise ceases to be a member in his own right, would produce consequences so absurd and impractical that it should be accepted only if the language permits of no other interpretation. In my view the natural reading of the definition, and at the very lowest a possible reading of it, is that the definition may be satisfied at any time during the relevant member's life, and once it is satisfied the family trust retains its status as such for so long as the conditions in the definition are satisfied.
48. Three points in particular persuade me that this must be the correct interpretation. First, the hypothesis in article 14.5.2 of a transfer that the settlor could have made to his family members had he remained the holder of the settled shares strongly suggests that it is irrelevant whether the settlor is in fact still alive, or (if he is) whether he still retains any shares in his own name. It would indeed be strange if a member settled all his shares on a trust for his family members, but the settlement could not qualify as a family trust merely because he retained no shares in his own name. Secondly, no conceivable rational purpose would be served by an automatic requirement that a family trust cease to qualify as such on the death of the settlor, assuming him still to be a member when he died. Indeed, if that were the correct interpretation, it would seem to follow that the trustees would then be obliged to give a Transfer Notice in respect of all the trust shareholding within 28 days of his death pursuant to article 14.5.3. Thirdly, the articles in their present form were adopted seven years after the Settlor's death, and some 19 years after the 1961 Settlement had on any view first become a family trust. All the members of the Company in 2003 must have been aware of those simple facts, and of the fact that the Trustees held a controlling interest in the Company. In those circumstances, it would be absurd to impute to them the intention that the 1961 Settlement should not be a family trust in respect of which permitted transfers could be made to the Settlor's own children and grandchildren.
49. For these reasons, I have no hesitation in rejecting the argument advanced by Mr Crampin and I conclude that the 1961 Settlement is still a family trust for the purposes of article 14. It follows that there is nothing to prevent the Trustees from giving effect to a Saunders v Vautier request for transfer of the relevant shares to any of the first to sixth defendants.

Conclusion

50. I have now considered the two preliminary issues, and decided them both in favour of the Bourne and Moss families. In those circumstances, it is rightly accepted by Mr Crampin that the proposed sale to Tindle cannot proceed against the wishes of those families, and the court cannot give the Trustees the approval of the proposal which they seek.