England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/11/2016

Master Matthews :

1. In this application under the Variation of Trusts Act 1958, a small part of the scheme of arrangement proposed involves a change to the provision for the appointment of new trustees. The original settlement provided for appointment by the settlor during his life. He is now dead, and so the statutory power under s 36 of the Trustee Act 1925 now applies. The arrangement proposes for the future that the principal beneficiary for the time being should have the power to appoint new trustees, with the written consent of the trustees for the time being. All the adult beneficiaries of the settlement support this change. Three of the four current trustees do so also.
2. The remaining fourth trustee however does not, saying this:

"The terms of the trust provided for the settlor to appoint new trustees during his lifetime. Thereafter the existing trustees assumed the right which they have exercised after taking cognisance of the principal beneficiaries views. I consider that it would be in the better interest of the trust and all existing and potential beneficiaries for the power of nomination and appointment to remain with existing trustees albeit with a veto provision being given henceforth to the principal beneficiary. Undoubtedly there would have been prior informal discussion.  I consider this preferable to the suggested alternative on two grounds. First the collective view of existing trustees may be better informed as to the attributes most needed and through their wider collective contacts they may be better able to identify suitable candidates an increasingly difficult task. Secondly in the unhappy event of the veto being exercised I believe this alternative less likely to result in any future lasting discord. Conversely rejection by trustees of the beneficiary's nomination may cause real offence. Finally one has seen beneficiaries ill fitted to make such important enduring appointments in the wider best interests of all beneficiaries and indeed there are examples of unsuitable, partisan and over compliant trustees being supported by principal beneficiaries for their own ends."

3. I have already indicated that I would make (and indeed have now made) the order approving the arrangement proposed on behalf of minor and unborn beneficiaries, as being for their benefit. Here I shortly explain, in deference to the objection made by the fourth trustee, why I have preferred the trustee appointment provision now put forward in the arrangement.
4. First, this is not a case where the settlor originally entrusted the appointment of new trustees to the existing trustees. Instead he reserved the power to himself, without the need for other consent. So in making a change the arrangement would not be departing radically from the structure the settlor first created. In one sense, indeed, the arrangement would be replicating, or at least extending, it.
5. Secondly, each of the two possible versions of the revised power involves a nomination by one side and a veto power in the other. This is far removed from an unfettered power of appointment. The fourth trustee would have been content with one of these two, ie the power being vested in the trustees with a requirement for principal beneficiary consent. So the difference between the arrangement proposed and that with which he would be satisfied is small. It largely concerns the question which of the two sides has to nominate a potential new trustee, subject to the veto of the other. There is also a smaller point about what happens if the trustees, being a plurality, cannot agree.
6. The fourth trustee puts forward three reasons for preferring the trustees to the principal beneficiary for the role of nominator. The first is that the trustees may be better able than the principal beneficiary to identify suitable candidates. I do not see why this is necessarily true, and I am not aware of any evidence to that effect before me. But, even if it were true, there would be (as the fourth trustee says) prior informal discussion. So the benefit of the trustees' experience, knowledge and contacts would be available to the principal beneficiary in any event.
7. The second reason is that in the case of a veto being exercised, lasting discord would be less likely if the veto is that of the principal beneficiary, whereas (it is said) a veto by the continuing trustees of the choice of the principal beneficiary would cause real offence. But in my view the possibility of someone taking offence is there in any event, and indeed it will inform and potentially influence both sides in making decisions, whoever has the veto. The power to nominate trustees in a case like this will undoubtedly be a fiduciary power (see Re Skeats' Settlement (1889) 42 Ch D 522), and I see no reason to suppose that the principal beneficiary will not take his responsibilities seriously (cf Schroeder v IRC [1983] STC 480). The trustees' power of veto, being a power given to trustees as such, will equally be such a fiduciary power.
8. A further reason is given (though it may be simply an extension of the second), and this is that there have been cases of unsuitable or compliant trustees being overborne by beneficiaries for their own ends. That may possibly be, although I repeat that the powers here conferred are undoubtedly fiduciary, and that I see no reason to suppose that any of those concerned would deliberately fail in their duty. But in the unlikely event that any did, the courts would be there to put them right.
9. Overall, I do not find the arguments convincing for preferring that the power to nominate be vested in the trustees rather than the principal beneficiary. As it seems to me, a senior beneficiary, knowing the situation of all the beneficiaries (members of his extended family), and having enjoyed a long relationship with the land part of the trust assets held in his family for many generations, is in at least as good a position as anyone, and better than most, to decide what qualities are needed in a new trustee. Moreover, given the purposes for which the settlement was set up and the important role that the principal beneficiary plays in them, the principal beneficiary in each generation is the obvious candidate. 
10. For these reasons, if I were choosing just between these two alternatives, I would prefer that put now forward in the arrangement.
11. Finally, I add that, even if there were nothing to choose between the two possibilities, the fact is that the one providing for the principal beneficiary to choose is that now put forward in the arrangement. I have been satisfied that, this point apart, the whole arrangement is for the benefit of the minor and unborn beneficiaries. I could not therefore reject the arrangement on the basis that the two possibilities are equally balanced. Moreover, as at present advised, I do not think I could do so on the basis that on this point the balance just tipped against the version now proposed. It is all one arrangement. The balance would have to go considerably further against the version proposed in order to outweigh the benefit of the scheme as a whole.