1. In
this case the plaintiffs claim against the defendant the sum of £46,960 as
damages for breach of trust.
2. By
or pursuant to a deed of trust dated 28 July 1981, the late William Stacey
vested in John Branch, the defendant herein, two holdings of registered land in
County Meath on each of which a dwelling-house had been erected, one known as
‘Fairwinds’ and the other as ‘Windswept’ on trust for
his infant son, the above named John Stacey, on his reaching 21 years of age
subject as to Fairwinds to the right of residence for life for Marie Monahan
(formerly Donoghue), the mother of the said John Stacey.
3. The
said John Stacey was born on 8 August 1977 and accordingly will attain his
majority on 8 August of this year.
4. The
settlor died in September 1981 not long after he and John’s mother had
moved from Windswept to Fairwinds. John Branch, the trustee under the
settlement and the defendant herein, was a lifelong friend of the settlor and
is the godfather of the said John Stacey to whom he is closely attached. Mr.
Branch resides and did at all material times reside in England. It is common
case that he is a very successful businessman.
5. The
deed of trust is a short document. The operative part thereof is divided into
two numbered paragraphs the first of which deals with the Fairwinds property
and the second paragraph with Windswept. The trust in relation to Fairwinds
provides that the mother is to have a life interest therein subject to the
payment of all rates, taxes and insurance and other outgoings thereon and
subject thereto the trustee is to hold that property on trust for John on his
attaining the age of twenty one years. No issue arises in relation to that
property. It is in relation to the Windswept property that the conduct of the
trustee is criticised. It is important, therefore, to set out in full the
trusts declared of and concerning that property and the powers and duties
conferred on the trustee in respect thereof.
7. In
relation to the property described in Folio 20138 County Meath I direct my said
trustee to hold this land in trust for my infant son, John until he reaches the
age of twenty one and at that stage it is to be transferred to my said son,
John Stacey for his own absolute use and benefit. In the meantime my trustee
shall have full power to deal with the aforesaid property as he in his absolute
discretion shall think fit to include leasing the land on such conditions as
the trustee shall think fit and if necessary to sell the aforesaid land. In the
event of the land being sold my trustee may purchase other properties to
include land in the Republic of Ireland or may invest all or any part of the
proceeds of sale in investments for the time being authorised by or for the
investment of trust funds and when my said son reaches the age of twenty one
years the trust funds or the aforesaid land will be transferred to my son
absolutely for his own use and benefit. If there is any income forthcoming out
of the property described in Folio 20138 County Meath, this income or any part
of the same may at the discretion of the trustees be advanced to Marie Donoghue
for the maintenance and education of my son John Stacey.
8. The
proceedings herein were instituted as far back as 11 November 1987. The
statement of claim was delivered on 13 February 1991 and the defence on 16 July
1991. On the pleadings there appeared to be a dispute between the parties as to
what constituted the trust property and the duty of the trustee to deliver
accounts. Whatever problems existed in that regard they appear to have been
resolved by the delivery of interrogatories and the replies thereto. The issue
argued before me was whether the defendant/trustee had managed or dealt with
the trust property in accordance with the powers vested in him and with the
degree of care (if any) which he was required to exercise in the discharge of
his fiduciary duties.
9. The
circumstances in which that issue arose can be stated shortly. When the trust
was created in 1981, the premises Windswept were unoccupied. Some months after
the creation of the trust, the trustee put Mr. Desmond Stacey in occupation
thereof as caretaker. It was the evidence of Mr. Branch and Desmond Stacey that
under the caretaker’s agreement, the caretaker was to protect and keep up
the dwelling-house; to pay all outgoings thereon and to deliver up possession
when required by the trustee so to do. It was envisaged that possession would
be delivered up when the beneficiary attained his twenty first birthday. The
document (if any) recording this arrangement was not produced in court. It is,
however, common case that the caretaker was not required to pay any sum by way
of rent or mesne rates. Criticism was made of certain works carried out by the
caretaker in relation to the attic, the central heating system, the garage and
the kitchen. However, it was not suggested that the works carried out were
irreversible or that they were carried out maliciously. In general it was
accepted that the premises are in a reasonably good condition and the evidence
given to the effect that the same premises were in poor condition at the
commencement of the trust was not disputed.
10. Evidence
was given by Mr. Alain Doyle, chartered surveyor, of the annual open market
rental of these premises which are situate near the golf course in Bettystown,
County Meath. The estate agent envisaged short term lettings at a monthly rent.
He envisaged a succession of tenants over the seventeen years or so which would
elapse before the beneficiary attained his twenty first birthday. He was
optimistic that tenants could have been found and that, whilst there might have
been significant gaps from time to time, in general he believed that it would
have been possible to have obtained a succession of tenants paying rents which
annualised at figures varying from £1,440 per annum in 1981 to £2,880
in 1994. The total rent which might have been earned in accordance with those
figures was £27,060 from which some allowance would have to be made for
the cost of management of the property; the collection of the rents and the
renewal of the lettings. Mr. Doyle gave evidence that a figure of 5%
should
be allowed to cover those items. It follows that a figure of approximately
£25,000 could have been earned by way of rent provided that there was no
gap in occupation. Even if one was to assume a 20% unoccupancy, a rental of
some £20,000 might have been achieved. In calculating the loss which the
beneficiary claims to have sustained, a figure for interest would have to be
added to the rent foregone.
11. It
does appear that in December 1982 a contract was entered into for the sale of
Windswept to a Mr. Michael Vaughan (in trust) for a sum of £35,000. The
transaction was not proceeded with in circumstances which were not fully
explained. Mr. Branch did say that he was not happy that the £35,000
represented the full value of the property but how he extricated himself from
the sale is not clear. Apart from that transaction no evidence was adduced of
any advice obtained by Mr. Branch or any effort by him to advise himself as to
the desirability of possible courses of action in relation to the trust
property in the 17 years or so before the beneficiary would become entitled in
possession thereto. Evidence was given that the present value of the property
is in the order of £70,000 and it does appear that it is insured in the
sum of £97,871. Indeed, it may be noted that Fairwinds is insured in the
sum of £177,635 so that it would seem that the beneficiary and his mother
will between them become absolutely entitled to properties worth approximately
£275,000 in August next.
12. Whether
the retention and preservation of the property in Bettystown was more
advantageous to the beneficiary than the sale of the property in 1981 and the
investment of the proceeds thereof in trust securities was not explored in any
detail. Certainly it is possible to envisage a sale of the premises and an
investment programme which might have a very satisfactory outcome. Presumably
the investment of a sum in the order of £33,000 in 1982 on short term
deposits or investments might have yielded a high return, at least in the early
1980s, but any growth in the value of the corpus of the fund would depend upon
the wisdom or good fortune of the investment policy adopted. Moreover, very
complex problems could arise as to the impact of income tax on the income of
the fund. However, as between the letting of the property throughout the
greater part of the minority of the beneficiary and merely permitting the same
to be occupied by a caretaker, there is no doubt whatever as to which course
would produce the greater financial return as measured in actual annual income.
The only question that could arise is the extent to which the premises would be
preserved and their value maintained if they were occupied by a succession of
fifteen or so tenants with at least some intervals occurring between lettings
from time to time. It is difficult to see that such a programme would not
involve considerable wear and tear and perhaps, occasionally, malicious damage
which it might not be possible to recover in full from the tenant. Undoubtedly,
the danger that the premises might be left unoccupied from time to time would
be disturbing. Presumably it could result in very considerable damage to which
the only and perhaps necessary alternative would be the provision of extremely
expensive security. These are not matters on which detailed evidence was led
perhaps for the very practical reason that evidence at this stage could only
deal with the matter retrospectively whereas the performance by the trustee of
the duties imposed upon him could only be judged by reference to anticipated
and prospective considerations. I think all that can be said with confidence is
that in deciding to put in a caretaker in 1981/82, the trustee must clearly
have realised that he was foregoing a significant rental income and that over a
period which it was anticipated would last some 17 years.
13. What
is the nature of the duty imposed upon a trustee? A trustee must, of course,
invest trust funds in the securities authorised by the settlement or by
statute. To invest in any other securities would be of itself a breach of
trust; but, even with regard to those securities which are permissible, the
trustee must take such care as a reasonably cautious man would take having
regard not only to the interest of those who are entitled to the income but to
the interest of those who will take in the future. In exercising his discretion
a trustee must act honestly and must use as much diligence as a prudent man of
business would exercise in dealing with his own private affairs; in selecting
an investment he must take as much care as a prudent man would take in making
an investment for the benefit of persons for whom he felt morally bound to
provide. Businessmen of ordinary prudence may, and frequently do, select
investments which are more or less of a speculative character; but it is the
duty of a trustee to confine himself not only to the class of investments which
are permitted by the settlement or by statute, but to avoid all such
investments of that class as are attended with hazard.
14. Neither
party dissented from the foregoing views taken from the leading textbooks and
based on the decision of the House of Lords in
Learoyd
v. Whiteley
(1887) 12 App Cas 727. Counsel on behalf of the plaintiffs emphasised the matter of
fact that the beneficiary was at all material times an infant in need of
financial support and asserted the proposition of law based on the decision in
Charles
v. Jones
(1887) 35 ChD 544 that a trustee is bound to set aside trust monies in such a way
‘as to be fruitful for the benefit of the persons beneficially entitled
to it’. However, without necessarily accepting either proposition, I am
convinced that the course adopted by Mr. Branch in relation to the property at
Bettystown would not have amounted to an adequate discharge by a trustee of his
duties as such in the absence of special authority or provision in that behalf.
15. Counsel
on behalf of Mr. Branch draws attention to the fact that the trustee was given,
in certain respects at any rate, an ‘absolute discretion’ and it is
asserted that provided that such discretion was exercised honestly it was not
open to review by the court or capable of giving rise to an action for breach
of trust. Reliance upon a discretion expressed to be absolute can be deceptive.
In Snell’ s
Equity,
29th
ed. at p. 225 the authors comment as follows:-
16. However
wide the language of such clauses, they give the trustee an absolute discretion
in appearance only; as in the case of all discretionary powers, he must act
honestly and with ordinary prudence. If, therefore, he selects an investment
for the purpose of making a private gain, or if at the request of an importunate
cestui
que trust
he
invests the trust funds in notoriously doubtful security, even though it may be
expressly authorised, he would be liable for any resulting loss.
17. That
quotation is perhaps misleading. It is true to the extent that words such as
‘absolute discretion’ would not necessarily relieve a trustee from
his duty to exercise reasonable care and prudence. On the other hand there is
no doubt that an absolute owner of property can settle his affairs in such a
way and on such terms as would relieve his trustees from the responsibility to
exercise the degrees of care and prudence which would otherwise be inferred (see
Gisborne
v. Gisborne
(1877)
2 App Cas 300 and
Tabor
v. Brooks
(1878)
10 ChD 273). At the end of the day the extent of the obligations imposed on a
trustee or the degree to which he is relieved from responsibilities ordinarily
assumed is a matter of the construction of the terms of the document under
which the trustee is appointed.
18. The
brief paragraph dealing with the trust of Windswept contains a number of clear
provisions. First, the trustee was directed to hold the particular land in
trust for John Stacey. The trustee was to hold Windswept and, subject to the
exercise of any of the powers conferred on him, to transfer that property to
the beneficiary as and when he attained the age of twenty one years. Secondly,
no part of the trust property and in particular the trust of Windswept
comprised or included liquid assets so that there was no fund available from
the property as settled with which to make advances for maintenance or
education or even to discharge such costs as might properly arise in the
administration of the trust. Thirdly, it was expressly provided that ‘in
the meantime’ - that is between the date of the trust deed and the
attainment by the beneficiary of his majority -‘the trustee should have
full power to deal with the aforesaid property as he in his absolute discretion
shall think fit’. The powers of dealing with the property were expressed
as including leasing the land on such conditions as the trustee should think
fit and selling the land but in the latter case it is to be noted that the
power to sell the land only arose if a sale was, or became,
‘necessary’. Fourthly, the trusts declared of this property
expressly provided that in the event of it being sold, the monies realised, to
the extent that they were to be invested in funds, were required to be invested
‘in investments for the time being authorised by or for the investment of
trust funds’. Fifthly, it was expressly provided that in the event of any
income being derived from the property known as Windswept, the trustees might
at their discretion advance the same to Mrs. Monahan for the maintenance and
education of her son.
19. There
is, therefore, an extraordinary emphasis placed on the discretion conferred
upon the trustee to deal with the property as originally settled. It is in
relation to that, and that alone, that ‘full power to deal with’
and ‘absolute discretion’ is conferred. Cash investments are
limited expressly to trust securities and the sale of the property could only
be permitted to the trustee or justified to a purchaser by establishing that
such a sale was ‘necessary’. The power of leasing which is included
in the power ‘to deal’ is to be on conditions as the trustee
‘thinks fit’.
20. Further
assistance may be obtained by contrasting the trusts declared of Fairwinds with
those declared in respect of Windswept. In relation to the former he expressly
provided for the keeping of the property in a reasonable condition have regard
to its age and condition where no such provision was made in explicit terms at
any rate for Windswept.
21. It
is clear that the settlor intended that Windswept should be kept by the trustee
and ultimately transferred to his son. That would necessarily involve taking
some steps to preserve the property between the creation of the trust and the
property vesting in possession in the beneficiary. No funds were provided for
that purpose. It was in those circumstances that the settlor purported to
confer on the trustee ‘full power to deal with the aforesaid property as
he in his absolute discretion shall think fit’. In my view, the settlor
meant what he said. He intended the trustee to have and to exercise his own
honest but absolute discretion as to how this basic objective should be
achieved. I am satisfied that the decision of Mr. Branch to put the premises in
the occupation of Mr. Desmond Stacey was a decision made
bona
fide
in
pursuance of that discretion. It was not made with the dominant intention of
benefiting Mr. Desmond Stacey, though no doubt it did have that effect. Nor do
I believe that the decision was made for the trustee’s own convenience.
Whilst I doubt that any competent valuer or other expert would have recommended
or approved the course adopted by the trustee, I do have some sympathy with Mr.
Branch’s viewpoint. He expressed his view that the sale of the property
and the investment of the proceeds in shares would not necessarily have
provided a good solution. He was sceptical of the wisdom of investing in
shares. Likewise, he was critical of the solution which involved lettings to a
succession of tenants. He is entitled to say that the property has, by and
large, been well preserved over the past fourteen years and he states with
confidence that it would be vested in the beneficiary on his majority in that
good condition. Unusual though the trustee’s attitude has been and
unsupported by expert evidence as it is, I believe that his decision was
honestly made and that it was made in exercise of the discretion which the
settlor conferred on the trustee and reflected the trust and confidence reposed
in him. In these circumstances it seems to me that an action for breach of
trust must fail and I will dismiss the claim accordingly.