Gelber & Anor v Tthe Sunderland Foundation & Ors

This Part 8 claim came before me on 6 August 2018 at a disposal hearing when I made an order in the terms sought by the parties. This judgment provides my reasons for doing so.

The claim concerns the Marlborough 1981 Settlement (“the 1981 Settlement”) which was made on 13 October 1981 by John George Vanderbilt Henry Spencer Churchill who was the 11^th Duke of Marlborough. He died on 16 October 2014. The 1981 Settlement was created for his descendants but by a series of deeds of appointment the trustees have reduced the class of beneficiaries. The dispositive trusts and powers governing the trust funds held by the trustees of the 1981 Settlement are now those set out in the Deed of Revocation and Appointment dated 19 November 2001 (“the 2001 Appointment”).

The current beneficiaries of the 1981 Settlement comprise:

The first and second defendants are the current trustees of the 1981 Settlement. The first defendant is a foundation established under the laws of Guernsey but is not a trust corporation in the narrow sense as it is defined in section 68(18) Trustee Act 1925. Its council members are persons resident either in Switzerland or Guernsey and include the second defendant. The constitution requires there to be a minimum of two members of the council.

The claim has two objectives. The trustees seek new powers:

The claim was originally intended to be made under the Variation of Trusts Act 1958. In the event, it was pursued relying on the jurisdiction contained in section 57 of the Trustee Act 1925. It proved unnecessary to consider the jurisdiction under the Variation of Trusts Act 1958 in the alternative.

The power under section 57 is a broad one. The section provides that:

“(1)

Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure, 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, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.”

The court is able to confer power on trustees to undertake to a wide range of dispositions and transactions where the power to enter into the disposition or transaction is absent. The jurisdiction was introduced because the court’s inherent jurisdiction was limited to cases of “salvage”, not “expediency”. Lord Simonds in Chapman v Chapman [1954] AC 429 at 445 explained the effect of the pre-1925 cases on the inherent jurisdiction:

“… the court had power in the administration of trust property to direct that by way of salvage some transaction unauthorised by the trust instrument should be carried out. Nothing is more significant than the repeated assertions by the court that mere expediency was not enough to found the jurisdiction.”

The scope of section 57(1) was considered by the Court of Appeal in Re Downshire Settled Estates [1953] 1 Ch 216 in the judgment of Evershed MR and Romer LJ at page 248:

“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.”

If the power under section 57 is to be applied, the court must be satisfied about four matters that arise from the express terms of the section:

The notion of expediency is both obvious and slightly elusive. It clearly includes something that is ‘advantageous’ or ‘beneficial’. But it seems to me that if additional powers are ‘necessary’, in circumstances falling short of an emergency requiring salvage, the test may be satisfied. In all probability, however, powers that are necessary are likely to be of benefit.

The term is helpfully discussed in Lewin on Trusts 19^th Ed at 45-23 and 45-24. The disposition or transaction must be for the benefit of the trust as a whole. In other words, it must be for the benefit of the beneficiaries as a whole. But it does not need to be expedient for every beneficiary and may benefit some more than others. A broad approach should be adopted looking at the overall benefit rather than one that focusses on the individual beneficiaries. The court may be entitled to conclude that a disposition or transaction is expedient even though it is disadvantangeous for some beneficiaries, as long as the overall benefits are sufficient to make it expedient for the trusts as a whole. Furthermore, the disposition or transaction may bring with it a mixture of benefits and disbenefits for all the beneficiaries. In that event the court has to weigh them in a notional balance and form a view about the overall benefit.

An important factor when considering expediency in the case of most trusts is the question whether any changes to the proposed disposition or transaction, and the addition to the powers of the trustees, will have any effect on the liability to tax. If there are significant adverse tax consequences, or at least an appreciable risk of such consequences, it is unlikely that the disposition or transaction will be regarded as being expedient. In this case, the trustees and the court have had the benefit of a detailed review of the tax position from Mr William Massey QC who appeared at the hearing to represent the trustees. His opinion has been provided to the court in the evidence. It is a subject to which I will return when considering the merits of both limbs of the application.

In addition to the four matters adumbrated above, the court must be satisfied that:

Blenheim Palace is not an asset of the 1981 Settlement. The trusts under which the Palace is held, the Parliamentary Settlement and the 1994 Settlement, are however indirectly relevant and need to be briefly summarised.

By letters patent dated 5 May 1705 Queen Anne gave to the first Duke of Marlborough the Manor of Woodstock and other properties which are now known as the Parliamentary Estates. The grant required the authority of an Act of Parliament and this was provided by 3 and 4 Anne c.6 (1704). By a further Act of Parliament, 5 Anne c.3 (1706), it was provided that the titles of the first Duke should, in the event of failure of his male issue (which occurred) pass to his daughters and their male issue in tail male severally in succession with remainders over. The latter Act also provided that the Parliamentary Estates, together with the Palace at Blenheim, which was then in the course of erection, should devolve in the same manner. The entail in the Parliamentary Settlement was entrenched by a special statutory provision.

Subsequently, the first Duke, Queen Anne, Parliament and later Dukes have added to the Parliamentary Estates, in particular in the building and enhancement of Blenheim Palace. The Parliamentary Estates include Blenheim Palace and the surrounding Park, but not the Woodstock Land held by the trustees of the 1981 Settlement.

In relation to the Parliamentary Estates, the Duke of Marlborough for the time being, as tenant in tail in possession under the Parliamentary Settlement, had until 1994 the powers of disposition and management of a tenant for life of a settlement under the Settled Land Act 1925. However, in Hambro v Duke of Marlborough [1994] Ch 158 the court, in exercise of its powers in section 64 of the Settled Land Act, approved a disposition by the 11^th Duke as tenant in tail in possession. By that disposition the 11^th Duke conveyed the Parliamentary Estates to the trustees of a new settlement (“the 1994 Settlement”). Under the 1994 Settlement the trustees were originally trustees for sale of the Parliamentary Estates but subsequently became trustees of land. They held the income in trust for the 11^th Duke for life and then upon protective trusts for the 12^th Duke for life. Subject to the protective trusts, they will hold both the capital and income of the Parliamentary Estates upon the trusts of the existing Parliamentary Settlement. After the death of the 12^th Duke each succeeding Duke of Marlborough will be the tenant in tail in possession under the Parliamentary Settlement.

The protective trusts affecting the life interest of the 12^th Duke were removed by a deed dated 4 September 2006 and during his life the present 12^th Duke is permitted:

“(i)

to reside in the private apartments in Blenheim Palace; and

(ii)

to use and enjoy the said gardens and pleasure grounds and Blenheim Park … in common with all other persons permitted by the [trustees] to use and enjoy the same”.

On the death of the 12^th Duke, the Parliamentary Estates, including Blenheim Palace, will revert to the Parliamentary Settlement. The Parliamentary Estates will be held for the successors in title of the first Duke of Marlborough and the powers to manage the Parliamentary Estates, including Blenheim Palace, will be held by each successor to the Dukedom.

In 1986 the trustees of the 1981 Settlement acquired the Woodstock Land which consisted of 166 acres of tenanted agricultural land at Woodstock, Oxfordshire. At the time the land was purchased it was thought to be worth in the region of £1000 per acre. For many years there was no immediate prospect of the trustees obtaining planning permission for a change of use of the land. However, the position changed in 2012 with a new National Planning Policy Framework. Local planning authorities were encouraged to avoid new isolated homes in the countryside unless there are special circumstances such as “… where such development… would be appropriate enabling development to secure the future of heritage assets.” It hardly needs to be said that the difference between the value of the land for agricultural use and for residential development is enormous.

Following advice from consultants, discussions with West Oxfordshire District Council took place concerning the possibility that consent might be granted for housing on the Woodstock Land. The planning authority made it clear that the heritage contribution would have to be sufficiently large to make a real difference to the future preservation of Blenheim Palace. With a likely level of expenditure in the region of £40 million under the Management Plan for Blenheim Palace, the required contribution had to be substantial. It became clear that the planning authority expected the heritage contribution to be 70% of the development value of the Woodstock Land, broadly speaking this being the enhanced value as a result of the grant of permission for residential dwellings to be built on the land. An application for planning consent was made on 20 April 2016 which included provision for a heritage contribution.

On 21 May 2018, the local planning authority granted outline planning permission for up to 300 dwellings and detailed planning permission for 46 dwellings on 40 acres of the Woodstock Land. Condition 33 of the planning permission provides:

“Prior to the commencement of the development hereby approved, details of the legally binding mechanism to secure the contribution of relevant proceeds from the development to the conservation, maintenance and restoration of the Blenheim Palace World Heritage Site shall be submitted to and approved in writing by the local planning authority. Thereafter the development shall be implemented in accordance with the approved details.”

The trustees of the 1981 Settlement entered into a Put and Call Option Agreement and Promotion Agreement with the trustees of the Vanbrugh Unit Trust (“the VUT”) on 25 November 2016, which was varied by a Supplemental Agreement dated 14 June 2018; together they are referred to as the “the VUT Agreement”. The VUT is an authorised UK unit trust in which a number of the Marlborough family settlements (but not the 1981 Settlement) hold units. The VUT holds other real property located in the vicinity of Blenheim Palace and the trustees consider it is a suitable ‘vehicle’ for pursuing the development of the Woodstock Land with developers, J A Pye.

Under the terms of the VUT Agreement it is the responsibility of the trustees of the 1981 Settlement to satisfy the heritage obligations in condition 33 of the planning permission. Negotiations with the local planning authority have produced a draft Deed of Covenant which is intended to operate as the legally binding mechanism to secure the heritage contribution. The trustees will covenant under clause 2.1 of the Deed of Covenant to pay the heritage contribution to BHF, whose primary object is the conservation of Blenheim Palace. The amount of the contribution is set by clause 2.2 at the lower of the “Net Relevant Gain” (as it is defined in the Deed of Covenant) or the cost of fulfilling the requirements of the Management Plan.

Net Relevant Gain is defined as being 70% of the gross sale proceeds of the Woodstock Land (“the Base Value”), less the agricultural value of the land and certain costs and expenses. The agricultural value of the land is based upon advice received by the trustees.

At this stage it is not possible to be precise about the Base Value as this will depend on the element of affordable housing the development will contain.

The trustees ask the court to confer powers on them to enter into the Deed of Covenant. The current powers that are contained in the 2001 Appointment are those contained in clauses 3.2 and 3.3:

“3.2

The trust fund and the income thereof shall henceforth be held in trust for George [Lord Blandford] and his male issue subject to the following provisions:

…

3.2.5

From and after the time when George attains full age [28 July 2010] (both before and after he has attained the age of 25 years) the Trust Fund shall be held upon trust to pay the income thereof to George during his life

3.2.6

Subject as aforesaid the trust fund shall be held upon trust for the first son of George and so that the Trust Fund shall not vest absolutely in such first son but be held in trust to pay the income to such first son during his life and subject thereto for the eldest son of such first son who shall be living on the Vesting Date absolutely and subject as aforesaid upon trust for such first son of George absolutely if he shall be living on the Vesting Date and subject as aforesaid upon the like trusts for the second and other sons of George successively according to seniority and their respective sons

3.2.7

Notwithstanding the foregoing the Trustees may at any time or times before the Vesting Date pay or transfer to the person for the time being entitled to the income of the Trust Fund or apply for his maintenance education or benefit absolutely all or any or part of the capital of the Trust Fund.

3.3

If George shall die before the Vesting Date without leaving a son who or whose son takes absolutely under the foregoing trusts the Trust Fund shall be held on the like trusts as are contained in clauses 3.2 to 3.2.7 (inclusive) for the second and other sons of the Lord Blandford successively according to seniority and their respective sons and grandsons and subject thereto upon the like trusts for the first and other sons of Lord Edward according to seniority and their respective sons and grandsons to the intent that the enjoyment of the trust fund shall until the Vesting Date be had by the person (other than the Duke, Lord Blandford and Lord Edward) who is for the time being the holder of the Dukedom of Marlborough or is next in line of succession to the Dukedom of Marlborough.”

Clause 3.4 indicates that if, after the failure of the trusts for the benefit of Lord Blandford and his sons and grandsons declared by clauses 3.2 to 3.2.7, any son, grandson or great grandson of Lord Edward becomes entitled under clause 3.3, the trusts for Lord Edward’s issue will be immediately defeated by the birth thereafter of a further son or sons of the 12^th Duke.

Clause 3.6 provides that:

“Subject to the trust’s powers and provisions hereinbefore contained and if and so far as for any reason whatever not otherwise disposed of the Trust Fund and the income thereof shall be held in trust (1) to pay the income of one half to [the first defendant] during his life and after his death to [the second defendant] during his life and as to the other half to [the second defendant] during his life and after his death to [the first defendant] during his life and subject as aforesaid (2) for George absolutely.”

Clause 3.7 confers a power to release or restrict the future exercise of powers, and clause 3.8 provides that specific administrative provisions in the 1981 Settlement and its schedule continue to apply.

Most of the powers of the trustees are found in the schedule to the 1981 Settlement. Paragraph 1 permits the trustees to make investments and there is a limited power under paragraph 8 to guarantee the payment of moneys borrowed by any company owned by the trustees. There is no wider power to make covenanted payments. Paragraph 12 contains powers for the management of land such as erecting, demolishing and rebuilding and making alterations and improvements. There is no express power which permits the trustees to pay money to a third party, whether to a charity or otherwise, in order to satisfy a planning condition.

There is no difficulty concluding that the transaction which the trustees wish to enter into, namely the execution of the Deed of Covenant, is one for which they lack power. Entry into the Deed of Covenant involves the trustees agreeing to pay away a very substantial proportion of the development value of the Woodstock Land. The covenant that is required by condition 33 of the planning consent cannot be seen as an ‘investment’ and none of the other powers are wide enough to permit the trustees to meet the condition. Equally, there is no difficulty concluding that the transaction is one which arises during the course of the administration of the trust and the transaction is of the type contemplated by section 57. The provisions of the Deed of Covenant can be seen as a disposition arising from the obligation to pay over 70% of the development value. It is also a type of transaction because it is the means by which the trustees will satisfy condition 33.

The principal issue for the court is whether the grant of power to execute the Deed of Covenant is expedient. The witness statements made by the first claimant and second defendant in support of the application set out the case succinctly. The first claimant’s witness statement provides four reasons why the trustees should be authorised to enter into the Deed of Covenant with BHF:

“66.

First, the development of the 40 acres of the Woodstock land - and the unlocking of the full development value of that land - can only occur if the Trustees first satisfy condition 33 of the planning permission.

67.

Secondly, if the Trustees of the 1981 Settlement enter into the draft deed of covenant, they will then be able to sell the land to the VUT and produce a much larger net fund of cash to invest for the benefit of the beneficiaries.

68.

Thirdly, the successive beneficiaries of the 1981 settlement in the male line of descent from the 11^th Duke benefit from the expenditure of the funds paid to BHF on the conservation, maintenance and restoration of Blenheim Palace and Park. This is because, ultimately, each successive life tenant under the 1981 Settlement, apart from [the second claimant] and me, is also likely to be the tenant in tail in possession of Blenheim and the Park under the Parliamentary Settlement.

69.

Fourthly, Blenheim is a place of immense natural beauty and of significant historic and architectural interest, and my understanding is that the members of our family have always felt a moral obligation to support Blenheim as an asset of the nation from which our family have derived significant benefit. [The first defendant] and I share this view. We are therefore keen that BHF should have sufficient funds to ensure that the World Heritage Site Management Plan can be carried out for the public benefit.”

As I have indicated, the tax position has been very thoroughly reviewed by William Massey QC and his advice to the trustees has been considered by the court. He expresses the view that neither the conferment of the power under section 57 nor the execution of the Deed of Covenant give rise to any implications for Capital Gain Tax or Inheritance Tax. It is unnecessary to set out his analysis in this judgment.

A letter was sent to HMRC on 13 July 2018 giving notice of the intention to issue the claim and inviting HMRC either to be joined in the proceedings or to comment. The letter from HMRC in reply considers the application solely on the basis of it being made under the Variation of Trusts Act 1958 and does not comment on the use by the court of powers under section 57. However, it is clear from the letter that HMRC has no concerns about the relief that is sought and does not wish to be joined as a party.

The claimants and the trustees support the application. Lord Blandford has provided consent to the order sought through his solicitors.

Caspar is independently represented by his litigation friend and by counsel, Richard Dew, who appeared on his behalf. Mr Dew has provided an opinion to Caspar’s litigation friend which has been filed as part of the application. Mr Dew concludes that the grant of power sought is of benefit to Caspar and expedient. He considers that the interests of the beneficiaries are aligned with the Parliamentary Trusts and asks the court to grant the power that is sought.

At first blush, it might be thought to be a bold step for the trustees to give to the BHF 70% of the development value of the Woodstock Land. However, the reasons put forward in the evidence are compelling. Condition 33 arises from discussions with the local planning authority. Its terms are a requirement of the local planning authority. Compliance with the condition is the only current way at present by which the development value of the Woodstock Land can be unlocked, releasing development value that is 90 to 100 times its value as agricultural land. There is no indication whatever that it might be possible to negotiate terms for payment of a lesser proportion of the development value, or an alternative deal, in the foreseeable future. And there is no indication that the planning position will change radically in the short or medium term. The trustees are entitled to take advantage of the position as they find it today.

As a result of the development, the 1981 Settlement will be in a hugely improved financial position which will be of benefit to future generations of the family. The net sum the trustees of the 1981 Settlement will receive is between 20 and 25 times the current agricultural land value. The income that can be generated from the sum the trustees receive will be considerably in excess of the current income that is generated by the land in agricultural use.

Additionally, the payment to the BHF will, in the broadest sense, benefit the beneficiaries of the 1981 Settlement, for two main reasons, First, there is a close alignment of interests between the 1981 Settlement and the Parliamentary Settlement. The trustees of the 1994 Settlement have an obligation to maintain and conserve Blenheim Palace. They have granted a licence to the BHF which requires the BHF to perform similar obligations. The payment of 70% of the development gain accords with the wishes of the adult beneficiaries concerning the conservation of Blenheim Palace for the benefit of the public. It can also be seen to be in Caspar’s interests and has the support of his litigation friend.

There is no concern that the grant of the power to enter into Deed of Covenant could effect a resettlement. This is far from being a marginal case where the issue of expediency is finely balanced. It is plainly right that the court should exercise its discretion in favour of making the order that is sought.

The second element of the transaction concerns the introduction of new powers relating to the appointment and retirement of trustees and the vesting of property in the new or continuing trustee or trustees, so as to authorise the discharge of outgoing trustees even where only one trustee will remain in office. At present, the statutory provisions in sections 36 to 40 of the Trustee Act 1925 apply to the 1981 Settlement. These provisions do not permit (i) the appointment of a sole trustee to act in place of the current trustees or (ii) the retirement of one or more trustees leaving a sole trustee and the vesting of the trust property in a sole trustee.

The proposal is to modify the statutory powers so they will authorise (i) the appointment of a single non-natural person (but not a single individual) to act as the sole trustee and (ii) the retirement of any trustee leaving a single non-natural person (but not a single individual) as the sole trustee. If implemented, it will be possible in future for there to be only one trustee, provided that trustee is a company, but the company need not qualify as a trust corporation within section 66(18) of the Trustee Act 1925. So, for example, the company need not be resident in the EU and will not need to have a minimum capital of £100,000.

At all times since its inception, the trustees of the 1981 Settlement have been persons resident outside the United Kingdom and it is likely that the settlement will continue to be administered outside the United Kingdom in future. There are considerable tax benefits which flow from the non-resident status of the trustees. There are, however, practical difficulties finding suitable non-UK residents to act as trustees of a settlement governed by English law like the 1981 settlement.

The first defendant is a foundation established under the laws of Guernsey but it is not a trust corporation. It was established for the specific purpose of acting as trustee of the 1981 Settlement and other Marlborough family settlements. There is obvious greater administrative convenience in the administration of foreign trusts if the trustee is a non-natural legal person, rather than an individual who needs to be replaced every time there is a change of personnel at the institution that is carrying on the trusteeship. There is also greater continuity and simplicity.

There is no difficulty with the initial requirements of section 57. Plainly the trustees lack the powers they are seeking and the powers relate to the management and administration of the trust. It is permissible as a matter of trust law to vary the statutory provisions to achieve the desired outcome: see Lewin on Trusts 19^th Ed. at 14-041 and Knox J in London Regional Transport Pension Co Ltd v Hatt [1993] PLR 227, 260-2.

It is not immediately obvious that the appointment or retirement of a trustee is a disposition or transaction of the type contemplated by section 57. Mr Dew in his opinion provided to Caspar’s litigation friend expressed some initial doubts on this subject. Neither he nor counsel for the claimants and counsel for the trustees were able to find English authority on the point. However, Mr Taube QC, who appeared for the claimants, submitted that the jurisdiction under section 57 is engaged because the essential feature of a change of trustees is the transfer of the title to, and responsibility for the administration of, the trust property from the outgoing trustee or trustees to the new or continuing trustee or trustees. It can therefore be seen as a disposal.

Some assistance can be obtained from Lewin at paragraph 45-016 where it is suggested that the court has jurisdiction to confer modified powers of appointment of trustees under the section 57 jurisdiction. The authors cite a decision of the Cayman Island courts in HSBC International Trustees Ltd v Registrar of Trusts [2008] C.I.L.R. N5. This is a brief note of the decision to permit the trustee to appoint a UK resident trustee in addition to a Cayman Island resident trustee. The decision was made under section 63(1) Trusts Law (2007 revision) which is in substantially identical terms to section 57.

It seems to me that Mr Taube’s analysis is right. When the court is looking to establish whether the powers the trustees are seeking from the court fall within the class of disposition or transaction that is contemplated by section 57, the description of the event (eg retirement of a trustee) may mask what the event involves. The appointment or retirement of a trustee necessarily involves control of the trust assets moving from one person to another.

The event that gives the court jurisdiction under section 57 need not be the only event that is intended. The appointment or retirement of a trustee brings with it a change of trustee and a disposition of the trust’s assets. The latter is an essential element of what takes place and it is sufficient to enable the court to have jurisdiction (provided the other elements of section 57 are satisfied). It matters not that there is also a retirement or appointment of a trustee.

Are the proposed changes expedient? The ability to permit the first defendant or a similar non-natural person to remain as a sole trustee has obvious advantages for the reasons given in the evidence. It will be easier in future for the 1981 Settlement to be administered by the first defendant or a similar entity that is not a trust corporation and I accept there are real difficulties finding suitably qualified natural persons to be appointed as trustee. There are, however, two possible disadvantages that flow from the proposal:

Lord Blandford has consented to the order. Mr Dew, despite initial concerns about the scope of the jurisdiction, has advised Caspar’s litigation friend that the proposed change should be supported as being in Caspar’s long term interests.

The changes that are proposed are minor, bringing with them real benefits for the trust and for the beneficiaries as a class. When the long term benefits are put in the balance against the disbenefits, I am satisfied that the grant of additional powers in the terms that are sought can be regarded as being expedient. Clearly the changes, whether taken on their own, or together with the changes relating to the Woodstock Land, do not involve a resettlement. All the parties to the claim support the change. It is appropriate for the court to make the sole trustee order in the exercise of its discretion under section 57.