Cotterell & Anor v Allendale & Anor

The claimants are the trustees of the Allendale 1949 Settlement (“the Settlement”). The first defendant is the fourth (and current) Viscount Allendale and the second defendant is his son. I will describe the first defendant as “Lord Allendale” and his son (in the manner adopted in later deeds of appointment) as “Wenty”. They are both beneficiaries under the Settlement.

The trustees apply to the court for orders under section 57(1) of the Trustee Act 1925 (“section 57”), and under the court’s inherent jurisdiction, to extend their powers. I am indebted to Mr Dew, who appeared for the trustees, for his full and helpful submissions.

Section 57(1) of the Trustee Act 1925 provides:

“Power of court to authorise dealings with trust property.

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.”

Section 57 enables the court to grant powers to trustees in connection with the management and administration of trust property. The principal considerations are that the court must be satisfied (a) the trustees lack the power they seek and (b) it is “expedient” to exercise the jurisdiction to make such an order. The court must also be satisfied that it should exercise its discretion to make the order.

The scope of section 57 has historically given rise to differing judicial views. On one view, the power could only be exercised where a specific “disposition” or “transaction” was contemplated that could not be undertaken due to the absence of the requisite power. The contrary view is that section 57 is not restricted in this way. I will first describe the Settlement and then deal with the issues that have arisen for determination.

The Settlement was created on 31 March 1949 by the second Viscount Allendale. It:

By an Order made on the 15 February 1977 the Settlement was varied, pursuant to the Variation of Trusts Act 1958, so as to include various provisions, including a power to accumulate income and an extended power of appointment in favour of the male line of The Right Honourable Wentworth Canning First Viscount Allendale.

Clause 12 of the Settlement conferred various powers in the 'management of real and leasehold and immoveable property'. There are other powers at Clause 13. In addition, the Order referred to above inserted a new Clause 12A and 13A. Clause 13A is in the following terms:

“The Trustees shall have power to appropriate partition or apportion any property for the time being forming part of the Trust Fund in or towards satisfaction of any share or interest in the Trust Fund or for any purpose in connection therewith in such manner as the Trustees shall in their absolute discretion (and without the necessity of obtaining any consent) consider just'”.

The Settlement also included a clause permitting remuneration, in the following terms:

“ANY trustee for the time being hereof being a solicitor or other person engaged in any profession or business shall be entitled to charge and be paid all usual professional or other charges for business done by him or his firm in relation to the trusts hereof and also his reasonable charges in addition to disbursements for all other work and business done and all time spent by him or his firm in connection with matters arising in relation to the trusts hereof including matters to which a trustee not being a solicitor or other professional person might have personally attended but to which such trustee might reasonably instruct a solicitor or other professional person to attend”.

The substantial assets now comprised in the Settlement are held in four funds: The W Fund, The I Fund, the D Fund and the U Fund. The appointments (or in the case of the I Fund the surrenders and releases) can be briefly summarised.

By a deed dated the 28 March 1977 (the “1977 Appointment”) the then trustees of the Settlement appointed a fund, described as “Wentworth's Fund” (and now known as the 'W Fund') upon trust for Lord Allendale for his life, with powers to enlarge his interest into an absolute interest and subject thereto for such all or such one or more exclusively of Lord Allendale's male issue and in such shares and with such trusts and powers and so on as Lord Allendale should by deed or deeds revocable or irrevocable or by will or codicil appoint.

There have been various appointments exercising the power referred to above. However, the governing appointment is now that contained in the deed dated 27 November 2012 made by the trustees and by which the trustees resolved, in exercise of the powers conferred by section 32 of the Trustee Act 1925 (as extended by the 1977 Appointment), that Lord Allendale is absolutely entitled to the W Fund provided always that the trustees might at any time or times during Lord Allendale's lifetime by deed wholly or partially revoke Lord Allendale's absolute entitlement or wholly or partially release the future exercise of that power.

The I Fund was created not by a single appointment, but by a series of surrenders and releases by which Lord Allendale gave up his life interest, and the trustees revoked their ability to appoint in his favour, in respect of various property at different times.

The governing appointment for those funds is the deed of release, revocation and advancement dated 19 October 2012. Under that deed:

By a deed dated 29 February 1984, the third Viscount Allendale, Lord Allendale's father, appointed the Dukesfield Estate onto trusts for Wenty in tail male. Further property was added to the D Fund by the Third Viscount of Allendale by deeds dated 31 March 1992 and 15 December 1997. Further assets from another fund (not relevant to this application) passed into the D Fund upon the death of the Third Viscount Allendale in 2002.

Income is payable to Wenty during his lifetime. Subject to Wenty's life interest, the D Fund will pass into Wenty's free estate on his death to be held in accordance with his will.

By a deed dated 19 October 2012, funds were appointed to the U Fund (prior to this the Fund had been known as the 'Unappointed Fund').

Pursuant to an appointment dated 19 October 2012, the Perpetuity Period applicable to this fund is now defined as 21 years from the death of the last survivor of all descendants of either the 2nd Viscount Allendale living in 1949 or members of the royal family living in 1949.

If the U Fund has not been completely distributed before the expiration of the Perpetuity Period then the U Fund shall be held in tail male for the person who is then holder of the Viscountcy.

When the claim came before the court on 16 December 2019, the primary concern of the trustees was to obtain a power to re-appropriate assets held in one sub-fund to another sub-fund, in exchange for assets of equivalent value from the other sub-fund. It was not considered that the power to appropriate under clause 13A could be construed to include a power to re-appropriate.

There were two reasons for this aspect of the application being pursued. First, the trustees wished to transfer assets that are non-exempt for the purposes of IHT held in the W Fund (of which Lord Allendale is the beneficiary) to the I Fund (of which Wenty is the beneficiary) in return for the transfer of exempt assets of equivalent value to the W Fund. The objective is to avoid or reduce the incidence of IHT on the death of Lord Allendale. Secondly, it was thought generally desirable to have flexibility about the assets held in the separate sub-funds. A general power to reappropriate is clearly a sensible addition to the power of appropriation because as times change there may be good reasons to make suitable adjustments that are in the interests of the beneficiaries. The first reason for making the application provides a good example of this.

The trustees sought, in addition to the power to re-appropriate, other powers that were unrelated to any transaction or disposition that is currently contemplated. The trustees ask the court to confer the following powers upon the trustees:

At the hearing on 16 December 2019 the court was satisfied that it was appropriate to make an order granting the trustees a power of re-appropriation in the following terms:

“Where the Trustees have appointed, appropriated or allocated any part of the Trust Fund or any assets comprised within the Trust Fund to be held upon trusts distinct from any other part of the Trust Fund, the Trustees may at any time or times transfer any assets comprised in, or any part of the capital of, any such fund to any other fund which forms part of the Trust Fund in exchange for assets which have a value equal to the open market value of the assets or part so transferred”.

The trustees were proposing to re-appropriate assets as between some of the funds and plainly these actions could be seen as either dispositions or transactions that were expedient in the interests of the beneficiaries. The court had concerns, however, about its jurisdiction to make the additional orders extending the powers of the trustees in circumstances where (a) the proposed extensions of the trustees’ powers were not connected with a particular contemplated disposition or transaction and (b) the new power was of a general nature and not in its nature directly transactional. In Sutton v England [2012] 1 WLR 326 at [36] Mummery LJ drew attention to the need to adopt a cautious approach to the jurisdiction under Section 57, although his remark was made in the context of concern whether the order sought might amount to a variation of a beneficial interests under the trust.

Having made the order that appeared to me to be uncontroversial, Mr Dew was invited to provide further submissions in writing. The claim came back before the court for further review on 17 July 2020 when further orders were made. This judgment provides the reasons for making the orders on that occasion and on 16 December 2019.

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 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 Lord Evershed MR and Romer LJ at page 248:

Two points arise from the words that are emphasised:

The text of section 57 appears at first sight to limit its scope to the authorisation of “dispositions” and “transactions” (for convenience I will use “transactions” to cover both) where the trustees lack the power “for that purpose” provided the court considers the transaction to be “expedient”. The section goes on to say that “…the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose …”. There is therefore some tension within section 57 between, on the one hand, the trustees lacking power “for that purpose” and the court providing power for “the purpose”, and on the other hand, the court having the ability to confer upon the trustees power “generally”.

It is not immediately apparent that section 57(1) contemplates the court granting general powers in relation to the management or administration of trust property without there being an identifiable transaction that triggers the jurisdiction. The essence of the jurisdiction appears to be that the trustees wish to do something in relation to the management or administration of trust assets that they cannot do; and the lack of power relates to transactions that are by their nature generally a single or a series of single events. On the other hand, it is not obvious why the court should be given jurisdiction to confer power “generally”, unless the draftsman had in mind that a contemplated disposition or transaction might fall through and the trustees should be entitled to carry out a related but different transaction. Or it might have been intended that once the court’s jurisdiction was triggered by the need for a specific transaction to be undertaken, the court could extend the trustees’ powers concerning transactions of that type against a future need.

Mr Dew’s submitted that the critical phrase in section 57(1) is “the necessary power for the purpose”. If “the purpose” is limited to a contemplated transaction, then there is no jurisdiction to grant general powers. He further submitted that this is not the only necessary reading of the section. The section talks in terms of “any” transaction which is expedient and which cannot be effected by reason of the absence of a power. The “purpose” can therefore relate to the absence of power to carry out “any” transaction rather than the absence of a power to carry out a particular transaction. He submits it is not necessary, as a matter of linguistics, to confine the power only to contemplated transactions.

Mr Dew provided the court with a very helpful review of reported cases in which section 57(1) was considered. The starting point is what he described as the investment cases and I gratefully adopt his summary with only minor adaptations.

In the 1950’s and then again in the 1980’s there were a number of cases where trustees found their trustee investment powers to be inadequate and so made applications to court to widen them. Later, the Trustee Act 2000 rendered such applications unnecessary. The decisions are of assistance because they involved instances where the trustees contemplated investing generally rather than having in mind specific investment decisions.

In the 1950’s, judicial opinion appeared to be split regarding the applicability of section 57 to the conferring of investment powers.

On the one side, Vaisey J. was of the opinion that there was doubt as to the applicability of section 57 because it could not confer a general power without a particular transaction in mind. In Royal Society’s Charitable Trusts [1956] Ch 87 the order sought was made pursuant to the charity’s jurisdiction and the headnote (curiously not the report itself) states that Vaisey J. said that the jurisdiction did not arise under section 57. In Re Byng’s Will Trusts (which is reported along with Re Coate’s) Vaisey J. struck out the application under section 57 in favour of one under the Variation of Trusts Act 1958. Similarly, in Re Coate’s [1959] 1 WLR 375 Harman J. invited the trustees to amend their application to seek such powers by the Variation of Trusts Act 1958, saying:

“There has, however, always been a doubt whether the like could be done under section 57 of the Trustee Act 1925 although there is no doubt that the court can authorise under that Act the sale of existing securities and investment in specified new ones”.

On the other side, Danckwerts J. considered that there was power in section 57. In re

In the 1980’s the principal concern of the court was whether it should widen investment powers beyond those conferred by the Trustee Investment Act 1961. In two cases (Trustees of the British Museum v HM Attorney General [1984] 1 WLR 418 and Steel v Wellcome Trustees Ltd [1988] 1 WLR 167) no doubts were expressed about the ability of the court to widen investment powers, although it is unclear from the reports what jurisdiction was being exercised.

In Mason v Farbrother [1983] 2 All ER 1078 His Honour Judge Blackett-Ord V-C (sitting as a judge of the High Court) expressly considered that section 57 conferred jurisdiction. He said:

“That power was exercised by Danckwerts J in a charity case, Re Shipwrecked Fishermen ... so as to extend the investment powers of the trustees. “Shortly afterwards, in Re Coates’ Will Trusts the view was put forward by Harman J. that the proper way to proceed where the trustees wished to obtain extended investment powers was by way of application under the Variation of Trusts Act 1958, and that advice, in my experience, was acted on and applications were made under the Act but the law as laid down by Danckwerts J in Re Shipwrecked Fishermen has not been overruled, and I am satisfied that where in the management or administration of trust property it is in the opinion of the court expedient, I have the power to authorise the substitution for clause 5 and 6 of the 1929 deed of the sort of investment clause which is being put forward here.” The Judge also conferred other ancillary powers, including the powers to appoint nominees and so on, and so the authority is not confined solely to investment powers.

These authorities were then applied by His Honour Judge Paul Baker QC (sitting as a judge of the High Court) in Anker-Petersen v Anker-Petersen [1990] Lexis Citation 1639. The application was for the extension of the power of investment “and other associated powers”, and was brought under section 57, or alternatively under the Variation of Trusts Act 1958. His Honour Judge Paul Baker QC identified as “the first point” whether the application should be under section 57 or under the Variation of Trusts Act 1958. He said:

“Although the prime object of the latter Act, the Variation of Trusts Act 1958, was to remove the limitation on the jurisdiction of the court to give its approval to variations of beneficial interests under settlements, it also allowed the court to sanction arrangements "enlarging the powers of the Trustees of managing or administering any of the property subject to trusts." There is no restriction on the class of powers of management or administration which can be enlarged. In this respect its language is broader than S 57 which contains the list of transactions that I have read already read out --but which I repeat: "any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction." The specific nature of this list has led to the expression of doubt whether the Section can be used to enlarge a power of investment generally rather than simply to authorise a particular investment: see Re Coates' Trusts [1959] 2 All ER 47n, [1959] 1 WLR 375 at 378 --a decision of

Harman J (as he then was); or Re Byng's Will Trusts [1959] 2 All ER 47n, [1959] 1 WLR 379 at 381, a decision of Vaisey J.

“These doubts have not troubled other judges and one can see Re Brassey's Settlement [1955] 1 All ER 577, [1955] 1 WLR 192 at 196 and Re Shipwrecked Fishermen and Mariners' Royal Benevolent Society [1959] Ch 220, both decisions of Danckwerts J, and much more recently Mason v Farbrother [1983] 2 All ER 1078, a decision of the Vice-Chancellor of the County Palatine of Lancaster, Judge Blackett-Ord. For my part, I see no reason to adopt a restrictive construction of the Section. Its manifest object was to enlarge the inherent administrative jurisdiction of the court which had hitherto been confined to cases of emergency: that is Re New [1901] 3 Ch 534. It was widened so that it was no longer necessary to wait for an emergency. The court was empowered to authorise transactions which were, in its opinion, expedient.”

His Honour Judge Paul Baker QC found that he did have power to confer a wider general power of investment. Moreover, he conferred other powers, including those of delegating, employing nominees and borrowing which he considered to be “either transactions in themselves (such as borrowing) or adjuncts to the power of investment and hence can form part of the provisions and conditions which the court may impose”. He noted that similar powers were conferred in Mason v Farbrother.

What therefore emerges from the investment cases is that:

In Re the Portman Estate [2015] EWHC 536 (Ch) Birss J. was asked to confer a number of general powers upon the trustees. The application to the court concerned five trusts, each with a number of funds. The administrative powers of the trustees were described by Birss J as being a “patchwork with different trusts having different powers.” The absence of a power to trade in relation to some of the funds was of particular importance because the trustees wished to be able to (a) operate certain hotels in Gloucester Place, (b) to operate a farm and (c) to develop a particular property as a mixed residential and commercial development. A general power to trade was granted in relation to each of these properties. Birss J was satisfied that it was appropriate to grant a general power to trade because it avoided “… the need for continued applications to court and will allow the trustees to adapt to changing circumstances …”.

In addition, powers falling into six categories were sought:

Birss J granted the first five powers summarised above on the basis that it was expedient for the trustees to have those powers for the future management and administration of the trusts. However, he declined to grant the sixth power despite the safeguard that was included.

Birss J considered the width of section 57. After considering the authorities that were cited to him, including Anker-Petersen, he said at [13]:

“…

In Re Downshire Evershed MR explained the purpose of section 57 at p248 as being to secure that trust property should be managed as advantageously as possible in the interests of the beneficiaries. Ms Bedworth submitted that although in the passage at p248 the Master of the Rolls then referred to the authorisation of “specific dealings”, it is clear from the words of the statute that the court not only has power to authorise a transaction on a 'one off' basis, it may also authorise the insertion of additional more general administrative powers. I accept that submission. The words used in s57(1) are “either generally or in any particular instance” and make it clear that the court's power is not confined to authorising specific transactions.”

It is also helpful to refer to Lewin on Trusts. Between the hearing in December 2019 and the hearing in July 2020 a new edition of the work has been published and the commentary about the scope of Section 57 now includes the text in the fourth supplement. Under the heading “Enlargement of investment and other administrative powers” at 45-017 to 45-020 there is an analysis of what are said to be the three issues that arise for consideration on an application of the nature described in the heading, the first of which is:

“(1)

Whether the jurisdiction under section 57 authorises the enlargement or conferral of investment and other administrative powers, including the conferral of powers of delegation of investment management and the holding of investments in the names of nominees, as well as the authorisation of a particular transaction.”

In the 19^th ed. it was said in a single sentence that the jurisdiction under section 57 does extend to enable the court to confer powers of the type that are described in the heading citing Anker-Petersen and other authorities.

In the 20^th ed. although the court’s jurisdiction under section 57 is described at 52-008 as relating to “transactions”, at 52-14, in answer to the question now posed at 52-13 (formerly at 45-17) the authors express their views in an expanded form:

“As to the first issue, the court has jurisdiction under section 57 of the Trustee Act 1925 where in the management or administration of any property subject to a trust any sale, 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. That wording, read alone, may suggest that the court has jurisdiction only where some particular disposition or transaction is under consideration and before the court. However, section 57 then goes on to authorise the court to confer the requisite power, either generally or in any particular instance, and this wide wording suggests that the jurisdiction is not limited to particular dispositions or transactions before the court. It is now settled,after earlier doubts, that the jurisdiction is not limited in that way, but extendsgenerally to the enlargement of investment and other administrative powers. We consider that the conferral of very wide or general new administrative powers comes within the jurisdiction, including even a power for the trustees to add new administrative powers. That does not, in our view, involve any ouster of the court’s jurisdiction. Rather, it is an exercise of the court’s jurisdiction. Where a new administrative power is conferred on the trustees, we consider that the new power may, if appropriate, be conferred for a limited period or be made subject to a power for the trustees to release or restrict it, since that operates as a limitation on the new power. But it is open to some doubt whether the jurisdiction extends to the conferral of a power to release or restrict an existing administrative power conferred by the trust instrument or by law, even though such a power may be expedient, for instance for tax reasons, since that is a matter of restriction of administrative powers rather than limited enlargement of administrative powers.” [emphasis added]

I consider that, subject to two qualifications which I express below, this passage accurately summarises the law as it now stands. Although doubts were expressed in some of the investment cases in the 1950’s, there is now a long line of first instance authority in which section 57 has been construed as giving jurisdiction to confer general administrative powers. It is, despite the uncomfortable drafting of section 57, unnecessary for an application to the court to be based upon a transaction that is under contemplation.

The two qualifications I have in mind are:

The court was satisfied that it had power under section 57 to grant the trustees additional powers of the type summarised in paragraph 22 above (and the power to reappropriate between funds), and should exercise its discretion to do so, with two exceptions. It can readily be seen that:

The self-dealing powers that have been approved are not obviously transactions in themselves. They can be seen, however, as falling within Section 57 because by restricting the scope of the self-dealing rule the court is increasing the power of the trustees to carry out transactions. The self-dealing rule provides protection for beneficiaries; but this benefit needs to be balanced against the difficulties the rule can create where trustees are trustees of related trusts, or shareholders of related companies or beneficiaries of the trust. The clause that the court has approved requires there to be an independent trustee to ensure that there is adequate protection for the beneficiaries whilst relaxing the effect of the rule. A similar clause was approved in Somerset v Fitzgerald [2019] EWHC 726.

The request for the court to confer a general power to delegate was refused. Delegation is a type of transaction in the broad sense of the word and granting a power to delegate investment responsibilities, where such power is absent, is not controversial. However, the trustees were unable to show that it is expedient to confer a general power to delegate or that the court should exercise its discretion to do so.

So far as remuneration of trustees is concerned, although there is an existing remuneration clause in favour of trustees who are individuals, and there is power to appoint a trust corporation, the trustee charging clause does not permit a trust corporation to be remunerated. Although the trustees do not currently have plans to appoint a trust corporation, it is right for the court to recognise that it is increasingly common to do so because it avoids issues of personal liability and trustee succession.

The court has power under section 57 to add powers that are only indirectly related to a transaction or transactions. However, there is only jurisdiction under section 57 to add ancillary powers where the transactional power is lacking and there is a need to add ancillary powers to facilitate the operation of the transactional power.

The absence of jurisdiction under section 57 is not fatal to this element of the trustees’ application. In Duke of Norfolk’s Settlement Trusts [1982] 1 Ch. 61 the Court of Appeal considered the scope of the court’s inherent jurisdiction to authorise the remuneration of trustees in the context of a trust instrument that permitted a named trust company to receive remuneration but only on a restricted basis. The claim was for the court to authorise additional remuneration for the trust company on a general

If, in future, the trustees of the Settlement consider that the good administration of the trusts requires the appointment of a trust corporation, that power could only, in practice, be exercised upon terms that remuneration is paid. It seems to me, therefore, that it is appropriate to exercise the court’s power under its inherent jurisdiction to permit remuneration to be paid to a trust corporation on its standard terms.

The revised order lodged by Mr Dew following the hearing on 17 July 2020 has been approved and sealed. The amendments to the Settlement form an appendix to this judgment.