Schumacher & Anor v Clarke & Ors

On 31 March 2016, Dame Zaha Hadid died at the age of 65. She was and remains an architect of world renown. It is now over four and a half years since her death and, sadly, due to major differences between her executors and trustees, the administration of her estate is not complete and it remains for the trustees to make appointments under her will trusts.

Dame Zaha left a will dated 2 April 2015 with a letter of wishes of the same date. She appointed the claimant (“Mr Schumacher”) and the first to third defendants (“the Trustee Defendants”) as her executors and will trustees. Where I refer to all four of them together, I will call them “the Trustees”.

Dame Zaha left a substantial estate with a net value for probate of £67,249,458. The Trustees obtained a grant of probate on 14 December 2016. She ran a very successful international architectural practice which employed about 400 staff. In 2013 she set up a charitable foundation (“the Foundation”) with the aim of protecting and exhibiting her works and enabling promising artists and architects of modest means to obtain education and training to develop their abilities. The Trustee Defendants are the trustee directors of the Foundation, although they are not parties to this claim in that capacity.

On 12 November 2020, I heard an application made by the Trustees for orders under Categories 2 and 3 as delineated in Public Trustee v Cooper [2001] WTLR 901. The Trustees applied under Category 3, based upon a total surrender of their discretion, because of a deadlock between them on a particular point. I gave an extemporary judgment on that point during the course of the hearing having agreed to accept the surrender of discretion. The Trustees also applied, under Category 2, for the approval of a decision that is regarded as being momentous, without the trustees surrendering their discretion. This is my judgment on the Category 2 application.

Richard Wilson QC and Jamie Randall appeared for Mr Schumacher; Elspeth Talbot-

Three additional defendants were joined to represent the interests of certain classes of beneficiary by my order dated 29 October 2020. Nicole Langlois appeared for the fourth defendant, Richard Dew for the fifth defendant, and Adam Cloherty for the sixth defendant. The Foundation was also joined as seventh defendant, but it has played no active part in the application.

I acknowledge the considerable assistance provided by all counsel during a hearing that covered a great deal of ground in a short space of time. The hearing was managed between them in a particularly helpful and cooperative way. I will come to describe what it is that the court has been asked to approve in due course. At this stage, I merely observe that the Trustees have not been entirely consistent in their approach to the Category 2 application seeking the court's blessing. It will be necessary to summarise the not-entirely subtle shift that took place between the application in its first manifestation and the way in which it was ultimately put to the court at the hearing on 12 November 2020.

Dame Zaha’s will, after leaving a number of legacies, set up will trusts. For the purposes of those trusts, there are three definitions which are material.

Dame Zaha gave the Trustees wide powers of disposition and, at least in part, the hearing in relation to this judgment is given relates to the exercise of those powers.

Dame Zaha left a letter of wishes which bears the same date as her will. The material part of the letter of wishes is paragraph 3 where she says:

In short, it is clear that Dame Zaha's wishes were that there should be continuity of her business and continuity of her design and architectural legacy through the Foundation; and, in addition, she desired that the three main beneficiaries should benefit from the assets she left behind.

I observe, so far as the second class of beneficiaries is concerned, that there have been different views amongst the Trustees about the extent to which Dame Zaha intended to benefit past employees. A desire to benefit past employees of ZHL and possibly ZHD, inevitably created some difficulty for two reasons. First, with a business that has been in being for some years, and with the inevitable turnover of staff, the class of past employees would be large. Secondly, past employees include those individuals who are sometimes described as "bad leavers" as well as those who have made a major contribution to the business and, indeed, to Dame Zaha's vision. It follows that a class of past employees is both large and far from homogenous.

Dame Zaha chose her executors and trustees with care. Mr Schumacher is a director of ZHL and, as an architect, he worked alongside Dame Zaha in many of her projects. Clearly, he was highly valued by her and her will describes him as her “business partner”. His importance to her practice is clear from the evidence as well as her will and letter of wishes. Since Dame Zaha's death, ZHL has continued to operate successfully under Mr Schumacher's leadership. This is indeed a considerable achievement.

The first defendant, Brian Clarke, is an artist in his own right and he was a close friend of Dame Zaha. The second defendant, Rana Hadid, is Dame Zaha's niece and was close to her. The third defendant Lord Palumbo is well-known for his interests in architecture and he was also a friend of Dame Zaha.

Mr Schumacher is a substantial beneficiary under the will and it can be seen from Dame Zaha’s letter of wishes she intended he should also be a substantial beneficiary under the will trusts. He continues to operate ZHL for his own benefit and for the benefit of others. Clearly, there are and were conflicts arising from his roles as director, beneficiary and executor and trustee. The Trustee Defendants are independent of the architectural practice but were and are trustee directors of the Foundation which is in the class of beneficiaries under the will trusts and the default beneficiary. They face conflicts too. Although it is right to recognise that these conflicts arose because of the choices Dame Zaha made in appointing these four individuals, one of the issues that the court will have to bear in mind is the extent to which the Trustees have recognised and managed these conflicts in an acceptable fashion. Both sides, Mr Schumacher and the Trustee Defendants, have held and continue to hold strong feelings about the proper disposal of the assets held under the will trusts and it is clear too that they hold strong feelings about each other.

Substantial disagreements between Mr Schumacher and the Trustee Defendants led to the issue of this claim in September 2018. The nature of this claim in which the application is made is important context for the application. Mr Schumacher sought an order under Section 50 of the Administration of Justice Act 1985 for the removal of the Trustee Defendants and their replacement by one or more independent professionals and an order for them to resign as directors of ZHH which is the holding company for ZHL.

Mr Schumacher asserted that the Trustee Defendants had allowed their personal animosity towards him improperly to influence their decision-making. In his particulars of claim, he sets out in detail the basis upon which he made that allegation. A summary can be seen from paragraph 2. In short, he was saying, and indeed is saying, that the Trustee Defendants have failed to comply with their fiduciary duties.

The defence and counterclaim served by the Trustee Defendants runs to 35 pages. They deny that relations have broken down. However, they allege that Mr Schumacher has failed to distinguish between the roles of executor, trustee and director. Although they recognise that there were difficulties between the four of them, they allege that these difficulties were the result of Mr Schumacher failing to distinguish between his personal interests and his role as a fiduciary, compounded by his role as a director of ZHL. They said he was driven by a desire to control ZHL to the exclusion of the trustee directors. Their allegations, which I do not need to set out in detail in this judgment, were serious. The Trustee Directors counterclaimed that if the court concluded the relationship had broken down, then Mr Schumacher should be removed. The principal issue on both sides concerned whether the relationship had broken down and at a trial the court will have to consider these detailed allegations and counter-allegations although the extent to which detailed findings of fact will be needed is not clear.

The trial of the Section 50 claim was originally due to come on for hearing in September 2019. However, Heads of Agreement were produced shortly before that trial that were intended to provide a basis upon which the estate could be distributed. The trial date was vacated and the parties proceeded to apply those Heads of Terms. Unfortunately, relations broke down again and the section 50 claim was restored for a trial due to commence on 27 October 2020. By the time the pre-trial review came before me on 16 October 2020, it was clear that progress had been made between the parties. The recital to the order records that substantial agreement had been reached on the final administration of the estate, subject to the approval of the court.

Quinn Emanuel Urquart & Sullivan LLP, who act on behalf of the Trustee Defendants, issued an application notice on 22 October 2020. The application states it is made on behalf of all four trustees. The first paragraph relates to the surrender of discretion that was dealt with on 12 November 2020. The second paragraph asked the court to approve the claimant's and Trustee Defendants' decision to enter into a settlement agreement in the form attached to the application “… for the final distribution of the Will Trust and in full and final settlement of the proceedings”. The third paragraph sought an order that the parties' costs of the approval application should be paid out of the estate. The application was listed for hearing on 29 October 2020.

There are a few points at this stage to note.

In the event, the hearing on 29 October 2020 did not proceed because the Trustees, at a rather late stage, realised that the interests of classes of the employee beneficiaries needed to be represented and an order was made for the joinder of the fourth, fifth and sixth defendants and the Foundation as the seventh defendant. Entirely understandably, the representative defendants needed time to consider their position and the hearing was adjourned until 12 November 2020. This was the minimum time that the representatives could have been given. I recognise that those representing the representative defendants and their counsel have undertaken a great deal of work in a short space of time. They made a significant contribution at the hearing, for which I am most grateful.

At the hearing on 29 October 2020, I expressed some concerns about what it was the court was being asked to do in relation to the Category 2 application and, in particular, that the court was being asked to approve a settlement that included terms for the distribution of the will trust’s assets, the settlement of a major dispute between the trustees and approval of an indemnity for the Trustees for their costs out of the estate. I need say nothing more about the dispute other than to say that had the section 50 application come on for trial or, indeed, if it comes on for trial, the Trustees cannot assume that the starting point under CPR 46.3, that the Trustees should have an indemnity, would or will necessarily be the end point after consideration of the provisions of paragraph 1 of Practice Direction 46. Surprisingly, although I have to assume not by oversight, although the court was asked to approve the indemnity, it was not provided at that stage with any information about the costs that had been incurred.

I now refer to the agreement that is referred to in the application dated 22 October 2020. Some of its provisions have been changed as a result of further negotiations since the hearing on 29 October 2020 but the changes are not material for present purposes. Before referring to the principal clauses, I note that "dispute" and "proceedings" are both defined as meaning the current litigation between the parties, namely the section 50 claim. To my mind, it is striking that the Trustees have defined the dispute between them as being these proceedings, because the only relief that is sought in this claim, disregarding this application which has been tacked on, is the removal and replacement of the Trustees. I have already outlined the issues between the parties, which are essentially about their respective breaches of fiduciary duty and their deadlock. The court was not being asked in the section 50 claim to make a determination about the appointment under the will trust or, indeed, to give guidance to the Trustees. It was merely a removal and replacement application.

The material provisions of the agreement, in outline, are these.

Perhaps the most notable decision the Trustees ask the court to approve concerns ZHD. According to the letter of wishes, employees of both ZHL and ZHD were to be treated equally. However, the Trustees have reached a division of the estate essentially between ZHL, which is to be owned by the EBT, and the Foundation, which will own ZHH and ZHD. In broad terms, the division of the net assets of the will trust comes to approximately £40 million in value to the EBT, and £32.6 million to the Foundation.

Although there is no objection to tacking on the application for Public Trustee v Cooper relief to these proceedings for convenience, it is important not to lose sight of what the parties were seeking to achieve. They clearly wanted to settle a bitter dispute between them that had manifested itself in this claim and a dispute which is far wider than just removal and replacement of trustees. I observe it is clear from the substantial body of evidence that has been placed before me, there has been no rapprochement between Mr Schumacher and the Trustee Defendants or, indeed, the other way round.

At the hearing on 29 October, the court already had a body of evidence that was relevant to the application. It would not be warranted to refer to all the evidence in this judgment, but there are some aspects that must be mentioned.

Mr Schumacher's fourth witness statement refers in a number of paragraphs to the proposal he understood was being placed before the court at that stage, namely approval of the agreement. That is not, in fact, what the court is now asked to do. In paragraph 17 he expresses the view that he thinks it is fair and reasonable for his costs and the trustee defendants' costs to be borne by the estate and he says he expresses the view that in the context of the administration it would have been possible to avoid these costs in reaching agreement on how the estate would be distributed.

He goes on at paragraph 18 to acknowledge that he has a personal interest as one of the beneficiaries of the will trust, and then, he concludes his witness statement by saying:

Mr Clarke in his fourth witness statement asks for the court to approve the agreement. As with Mr Schumacher, therefore, there is a mismatch between what he is asking the court to do and what the court is now being asked to do. There is also a rather surprising element at paragraph 31 of his witness statement. He says that the Trustees have managed to reach agreement and he goes on:

He then sets out those various interests. I simply observe it was surprising for Mr Clarke to say that he “infers” that Patrik agrees with his view. This would suggest, on its face, there has been very limited, if any, personal engagement between them.

The third witness statement of Ms Hadid was signed the day before Mr Clarke's fourth statement. Although that statement relates to the surrender of discretion, it is of direct relevance to the approval application. The Trustee Defendants appear to have approached the application from two different directions, separating out the surrender of discretion from the approval application. However, the two elements do not sit comfortably with each other. Mr Clarke's evidence, to which I have made brief reference, explains the process which the defendant trustees have adopted to reaching agreement about the appointing out of the trust assets. In contrast, his fellow trustee, Ms Hadid, resurrects in her statement a range of serious allegations about Mr Schumacher that the Trustee Defendants would have relied upon and, indeed, may still rely upon at the trial of the Section 50 claim. It is right to recall, in addition, that Mr Schumacher's case in the Section 50 claim is that the Trustee Defendants have acted in a non-fiduciary manner by allowing their personal feelings about him to influence their approach to the administration of the estate. In summary, Ms Hadid says in her statement that Mr Schumacher:

Ms Hadid’s evidence is disputed and it is not part of this judgment to make any findings about it. I do remark, however, that during the course of the last hearing (that is, dealing with the surrender of discretion) I felt it was necessary to ask Ms Talbot-Rice, who appeared for the Trustee Defendants, whether they were saying, as appeared to be the case, that Mr Schumacher was not fit to be a director of the EBT. After a period of time during which instructions were taken, the court was told that the Trustee Defendants agree to Mr Schumacher being a trustee director of the EBT and that he was a fit and proper person, provided there were checks and balances including the power to remove him. However, they did not consider he was suitable to be a sole director or to have what were described by Ms Talbot-Rice as “superpowers”, in other words, a power of veto as chair of the board of the EBT. This was hardly a ringing endorsement of him as a fellow trustee exercising fiduciary powers and it remains the case that the Trustee Directors rely on the allegations they have made against Mr Schumacher, albeit they seek the court's approval to the terms they have agreed for the appointment out of the assets held under the will trusts.

Next in the chronology is a statement from Mr O'Rourke, who is a partner with Quinn Emanuel. Although I do not need to refer to it in any detail, I note that he, perhaps in response to the court's concerns about the Trustees’ costs, provided some information on that subject. He says in terms at paragraph 19 that the Trustee Defendants are not asking the court to sanction the costs and are not asking the court to make a costs order in the section 50 proceedings either. He goes on to explain the steps the Trustee Defendants have taken to reach agreement. He says there had been more than 20 meetings between solicitors and also a mediation. There have been parallel streams of work, dealing with the claim on the one hand and negotiations relating to the administration of the estate on the other. He concludes by saying:

At paragraph 16, he explains the process that led to the agreement concerning the EBT. I do not need to refer to it in detail, although the process is one which I find concerning.

His evidence together with the very substantial costs that have been incurred suggest, whether rightly or not, that the Trustees have found it nearly impossible to work together. His description of Mr Schumacher's "entrenched role" is telling. Elsewhere, the evidence makes it clear that in order to reach agreement, the Trustees have had to make significant compromises.

Both Mr Clarke and Mr Schumacher then provided further evidence about the processes that were adopted in their dealings and this evidence is contained in their witness statements dated 4 November 2020. Even at this stage, there are no signs of an evidential convergence between the opposing camps. Mr Clarke gives evidence only about the views of the Trustee Directors and he ends his statement with a further telling remark. After saying that the Trustee Defendants did not reach their decisions, itself an interesting choice of language, about distributions in order to avoid a trial of the Section 50, he says:

His observation chimes with the evidence I have referred to earlier and, indeed, it chimes with Ms Hadid's statement. Similar indications about the extent of the estrangement between the trustees can be seen in Mr Schumacher's sixth statement. At paragraph 14, he remarks that it was always going to be difficult to give effect to Dame Zaha's wishes but he considers the agreement does this. He adds:

Again, I note that he is not able to say from his own dealings with his fellow trustees that they found an appropriate solution, but merely that he understands that they share his view.

Finally, in terms of the procedure, I record that on 10 November 2020, the Trustees issued a further application notice, without having disposed of the earlier application notice, and it is this application that the court has been asked to deal with. Instead of the court being asked to approve the agreement, the court is now only asked to approve the determinations that are contained in clauses 4, 5, 6 and 7. It follows that the court is not asked to approve clause 3, which is the full and final settlement provision, clause 8, which concerns the DAC Beachcroft investigation, clause 9, which concerns fees, clause 13, which concerns the release and clause 11, which deals with the Trustees combined legal costs.

Three persons have been appointed to represent classes of employee:

In each case, their evidence and submissions have been helpful. In broad terms, they all wish there to be finality, although in the case of classes 2 and 3, for different reasons, they say that the proposals are unfair. I can, of course, fully accept that there is a universal wish for there to be an end to the dispute between the Trustees. It is entirely understandable that this dispute is damaging to morale and, indeed, is potentially damaging to the businesses.

I can summarise the relevant law quite briefly, because there is no dispute between the parties. The jurisprudence, as it relates to Category 2 Public Trustee v Cooper approvals is a well-developed area of law. It is helpful, however, to refer directly to paragraph 39-095 in Lewin on Trusts 20^th ed. where the editors say this:

They go on:

I am happy to adopt this helpful formulation. There are, however, several further matters that can usefully be highlighted and I take these from a number of observations made in Lewin at paragraphs 39-095 and 39-096.

There is no doubt that the Trustees have power to make the dispositions for which they seek approval and they have decided, subject to obtaining approval, that they should make the dispositions that are set out in the agreement at clauses 4 to 7. With the decision made by the court on the surrender of discretion having been made, the deadlock between the trustees has been broken, and a major obstacle to the disposition of the assets held by the will trust has been removed.

It seems to me that this application is a most unusual one. I accept in principle that the court is able to give its approval in a Public Trustee v Cooper Category 2 application where there is a dispute. What is unusual here is that the dispute is solely, or at least principally, between the Trustees. I have concerns both about the process that the trustees have adopted in reaching their decisions and the manner in which conflicts of interest have been managed. As a consequence, I consider there is a real risk that the decisions they have made are vitiated (in the sense in which I have used it) by the conflicts of interest.

It follows that I do not consider it is appropriate for the court to grant its approval on the basis requested in the application notice dated 10 November 2020. That is a matter of regret because I recognise that finalising the administration of Dame Zaha's estate and making dispositions under the will trust are much delayed already. I also recognise there is a general wish amongst the beneficiaries of Dame Zaha's will trust for finality. The beneficiaries (here, I leave out of account Mr Schumacher) wish to be able to concentrate upon the future. This sense strongly emerges from the evidence and from a letter sent by 57 senior employees of ZHL. The way they put it is:

In the judgment given at the hearing on 12 November 2020, dealing with the surrender of discretion, I described the dispute between the Trustees as being “toxic”. Having reflected further since that hearing, I consider the description remains apt. The context in which the application is made is that the two trustee camps have been in dispute with each other since 2018 about the suitability of the other camp to play the part of an executor and trustee; and they were locked in a dispute long before the claim was issued. They have accused each other of breaches of their duties as fiduciaries and failures to recognise and/or deal with conflicts of interest. This clearly does not provide a promising platform from which to make an application for the court's approval which is premised upon the Trustees collectively having undertaken a process of decisionmaking that was careful and principled. As I have pointed out, far from the trustee directors putting aside their case against Mr Schumacher, they have positively relied upon it for the purposes of the surrender application. I do not see how they can, with any credibility, at the same time retreat from those allegations and promote the notion that the decision-making that has been adopted has been a proper one. Equally, it remains Mr Schumacher's case that the Trustee Defendants are motivated by hostility against him.

I have highlighted certain elements of the evidence. I have pointed to Mr Clarke, in his fourth statement, saying that he “inferred” that Mr Schumacher agreed with the Trustee Defendants' view and, in his sixth statement, Mr Schumacher saying that he “understands” that the Trustee Directors share the view he expresses. These are glimpses into the true state of affairs and they indicate to me that the two camps have operated in separate silos. They have dispatched envoys to negotiate their dispute without any real engagement between the individuals whom Dame Zaha chose as her executors and trustees.

There are five inter-related reasons why I consider it is not appropriate for the court to give its approval:

In conclusion, therefore, I record that I have said nothing about the decisions the court is asked to approve. My reasons for declining to approve the provisions of the agreement that are placed before the court are more concerned with process than the decisions themselves. It is simply that I am not satisfied the dispositions are untainted by the approach the Trustees have adopted and the way they have or have not managed conflicts of interest. It will now be a matter for the Trustees to decide whether they wish to enter into the agreement without the court's approval. I should make it clear that nothing in this judgment disapproves of the dispositions they are proposing. They are within the Trustees' powers, and if they are satisfied that they are proper dispositions, and that they are a fair reflection of Dame Zaha's wishes, they should act accordingly, albeit without the court's approval.

I will dismiss both applications for approval and I will hear counsel now or at some point in the future on other issues including costs.