BUSINESS & PROPERTY COURTS OF
ENGLAND AND WALES
PROPERTY TRUSTS AND PROBATE LIST
Rolls Building, Fetter Lane,
London EC4A 1NL
B e f o r e :
| SOUTH DOWNS TRUSTEES LIMITED
(as trustee of the South Downs Employee Benefit Trust)
|- and -
Leon Pickering (instructed by Macfarlanes LLP) for the First Defendant
James MacDougald (instructed by Macfarlanes LLP) for the Second Defendant
Philip Jenkins (instructed by Macfarlanes LLP) for the Third Defendant
Hearing dates: 16 February 2018
Crown Copyright ©
i. "The Purchaser" is the purchaser under the SPA.
ii. "The Deed of Grant" is the deed entered into on 12 December 2017 as part of the sale transaction purporting to grant the Share Options.
iii. "The Share Options" are the options referred to in the Deed of Grant.
iv. "The Financial Adviser" is the merchant bank that has provided advice to the Trustee about the disposal of the EBT's holding of shares.
v. "The Regulator" is the statutory economic regulator of the Utility.
vi. "The Pot A Beneficiaries" are the class of beneficiaries under the EBT comprising former employees of the Utility who were employed at some point in the period from 30 September 2007 to 30 September 2011 who left their employment by retirement under the rules of the pension scheme, or by left their employment but by special dispensation continue to benefit from the EBT.
vii. "The Pot B Beneficiaries" are current employees of the Utility whose employment started after 30 September 2011.
viii. "The Joint Pot Beneficiaries" are current employees of the Utility whose employment started after 30 September 2007 but before 30 September 2011.
i. The defendants represent respectively the three relevant classes of employee, namely the Pot A, Pot B and Joint Pot Beneficiaries and, in the case of Pot A Beneficiaries, their widows and widowers;
ii. The Deed of Grant purporting to grant share options be set aside and declared void ab initio;
iii. Pursuant to section 57 Trustee Act 1925 the Trustee had power to put into effect transactions set out in the SPA for the disposal of the EBT's shares in the Holding Company;
iv. The court sanctioned the Trustee entering into the SPA and approved the Trustee's decision to complete the transaction on the basis that this was a 'momentous decision' and it was right for the Trustee to seek the court's approval under the second limb of Public Trustee v Cooper.
"4.1 The object of the Trust is to encourage or facilitate the holding of Shares by Beneficiaries or for their benefit and otherwise to hold the trust Property on trust for the benefit of the Beneficiaries in accordance with the terms of the Trust."
"5.6 to bind itself to provide particular benefits in the future …:
5.7 to agree or adopt rules setting out the way in which it will exercise its powers;
5.8 to establish schemes for providing benefits;".
"At any time after all the A Ordinary Shares have converted to deferred shares, the Trustee will not transfer or otherwise dispose of its beneficial interest in any Shares its (sic) holds from time to time if such transfer or other disposal would result in the Trustee ceasing to have control (as defined in section 840 of the Income and Corporation Taxes Act 1988) of the [Holding Company] …".
i. The offer should reflect fair market value;
ii. The offer should minimise disruption to the day-to-day operations of the business including maintaining the Utility's independence, minimising the impact on employees and preserving the employment status and terms of employees;
iii. The confidentiality of the process should be maintained.
i. There were some perceived advantages to an auction because it would allow comparison of different proposals and might result in a better offer than the one received from the Purchaser. However, in view of the relative transparency of the market, it was considered that the Trustee would be able to form a view about a fair value.
ii. Confidentiality would be difficult to preserve in an auction process.
iii. A public auction might attract strategic bidders who would compromise the Trustee's desire for minimal disruption to employees.
iv. An auction process could take some time to complete and this was undesirable in light of possible regulatory decisions on the immediate horizon.
i. Option Shares: Pursuant to clause 6 of the SPA the Trustee has granted share options to certain of the beneficiaries over approximately 40% of its holding of shares. The options are granted pursuant to the Deed of Grant which includes a schedule of the beneficiaries being granted share options. Each beneficiary is to be provided with a letter explaining the mechanism of the share options and enclosing a power of attorney in favour of attorneys for them, to sign and return. The attorneys will exercise the option prior to completion. The net effect of these arrangements is that the beneficiaries who have been granted the share options will participate in the sale as sellers. There are tax benefits that accrue from this arrangement.
ii. Trustee Shares: The Trustees will sell the deferred shares. In addition, they will sell a residual portion of B shares. These comprise three tranches: (a) those shares in respect of which share options were granted where the option is not exercised; (b) shares retained to convert into cash to enable the expenses of the transaction to be paid and (c) the balance of the shares to be sold in exchange for loan notes.
iii. Loan Note Shares: The balance of the B shares will be sold by the Trustee in exchange for loan notes. These are secured by a deposit of cash in a sum equivalent to the aggregate sum due under the notes.
Hearing in Private
i. A hearing that "involves confidential information … and publicity would damage that confidentiality".
ii. A hearing that involves "uncontentious matters in relation to the administration of trusts …".
i. The court will be astute to protect the confidentiality of information and to ensure that it is not compromised to the detriment of the parties: see Dechert LLP v Eurasian Natural Resources Corp  3 Costs LO 327.
ii. The court generally tries to give effect to agreements that commercial arrangements should be kept confidential: see Department of Economics, Policy and Development of Moscow v Bankers Trust Co  EWCA Civ 314.
iv. Consideration should be given to whether allowing a hearing to take place in public would involve an enforced waiver of legal professional privilege. The principles of open justice should be balanced against the countervailing right to maintain such privilege – Dechert v Eurasian Natural Resources
v. The nature of the jurisdiction being exercised by the court is relevant: see JX MX v Dartford and Gravesham NHS Trust  1 WLR 3647
vi. The fact that parties in a similar position to the claimant could conduct their affairs in private without resort to court proceedings is a relevant factor: Dartford & Gravesham.
i. The Trustee is not free to conduct the negotiations and to conclude the transaction in view of the terms of the EBT and it reasonably requires the court's approval of the transaction. A party who has no choice but to come to court is in a different position to a party involved in normal inter partes litigation. It is analogous to a minor coming to court for approval for a course of action or to a settlement.
ii. The Trustee is entitled to keep information such as the advice it has received about the merits of the transaction and its negotiating strategy confidential from the Purchaser. Otherwise it would find it difficult to be candid with the court when asking for approval.
iii. The parties to the claim have disclosed privileged information to the court. Each of the defendants is represented by independent counsel who have provided the court with an opinion from the perspective of their clients about the issues. Although the privilege of that advice is not maintained as between the parties to the claim, for practical reasons, it would be invidious for the opinions to be available to the Purchaser. It would be possible to direct that the opinions themselves remain confidential, but they have been discussed in court which necessitates the hearing itself being conducted in private.
iv. This is not a case where a more limited derogation from the principle of open justice such as making confidentiality orders would have been adequate.
v. The Trustee has been astute at all times to prevent unrest in the workforce. It would inevitably have been very unsettling for employees to learn of the proposed transaction when the issue of job protection is one of the matters the court has to consider. The Trustee has consulted with members of the Advisory Committee but a wider dissemination of information about the sale could have been very detrimental.
The representation order
The Deed of Grant
i. There must be a distinct mistake and not a mere misprediction.
ii. The mistake must be serious.
iv. The mistake must be sufficiently serious as to make it unconscionable on the part of the done to retain the property.
Section 57(1) Trustee Act 1925
"Where in the management or administration of any property vested in trustees, any sale … or other disposition … 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 … the necessary power for the purpose on such terms and subject to such provisions and conditions, if any, as the court may think fit …".
"In our judgment, the object of section 57 was to secure that trust property should be managed as advantageously as possible in the interests of the beneficiaries and, with that object in view, to authorise specific dealings with the property which the court might have felt itself unable to sanction under the inherent jurisdiction, either because no actual "emergency" had arisen or because the position which called for intervention was one which the creator of the trust could not reasonably have foreseen; but it was no part of the legislative aim to disturb the rule that the court will not rewrite a trust, or to add to such exceptions to that rule as had already found their way into the inherent jurisdiction."
i. There is no power to carry out the transaction which the trustees wish to carry out under the trust deed (or provisions governing the trust);
ii. It is expedient that the trustees should be able to enter into the relevant transaction;
iii. The Court should consider the exercise of its discretion in order to confer the power on the trustees.
"15.7.1 not undertake or pursue any programme of compulsory redundancy …;
15.7.2 not terminate the employment of the Employees, other than in the ordinary course of business of the Group or for Cause ….;
15.7.3 provide employment benefits to the Employees which are substantially the same, equivalent to, or represent an improvement to, the benefits provided to such Employees as at the date of this agreement; and
15.7.4 not materially adversely change the terms of employment of the Employees,
in each case, save as may be required by applicable law."
Public Trustee v Cooper