Analysis
Michael and Philip Noble were brothers who built up a substantial property empire known as the Noble Organisation. It had a complex ownership and management structure involving a number of companies and partnerships and certain trusts for the benefit of their respective families. Michael died in 2006. The executors were Philip, his widow Gillian, and John Barnsley (an accountant associated with PricewaterhouseCoopers). There was a demerger of the business side and property side of the Noble Organisation with Philip taking the business assets and Gill taking the property assets. This was concluded in March 2009.
The Noble Organisation had submitted a series of claims for repayment of VAT made to HMRC on the grounds that it had been contrary to EU law for HMRC to claim this tax (following developments in EU law). The first claim was made in 2005. Following developments in EU law, this stood at a sum in the order of £30m by 2008. After the merger in 2009, the Noble Organisation submitted a serious of additional claims for repayment of VAT.
When the scale of the additional claims came to be appreciated by Mr Barnsley and Gillian after the demerger, they felt that they had been misled by Philip about the VAT repayment claims available to the business side of the Noble Organisation which would be acquired by him under the demerger. They (the claimants) commenced proceedings against Philip including causes of action in contract, in deceit, and for negligent misstatement. It also included claims for breach of duty as a fiduciary (as an executor and trustee of the will), first by infringement of the prohibition on self dealing, and second, by failure to make full disclosure of the information he had about the VAT repayment claims. They sought equitable compensation from Philip in respect of such breaches. Nugee J dismissed these claims. In particular, he upheld Philip’s defence to the self-dealing claim that he was exonerated from liability by clause 14 of the will (the exoneration clause) which provided as follows:
‘In the professed execution of the trusts and powers hereof no trustee shall be liable for any loss to the trust premises arising by reason of any improper investment made in good faith or for the negligence or fraud of any agent employed by him or by any other trustee hereof although the employment of such agent was not strictly necessary or expedient or by reason of any other matter or thing except wilful and individual fraud or wrongdoing on the part of the trustee who is sought to be made liable provided always that in the case of any trustee hereof who or whose firm for remuneration renders legal accountancy or other professional or business services to my trustees nothing in this clause shall exonerate such trustee or his firm from liability for negligence or other wrongdoing in relation to the services so rendered.’
The claimants appealed Nugee J’s decision that the exoneration clause applied to protect Philip in respect of the claims for equitable compensation.
Held (dismissing the appeal):
- 1) The exoneration clause had application in respect of the breach of the self-dealing rule regardless of the existence of a transactions clause permitting self-dealing in certain circumstances. There was nothing in the language of the provision or the context to indicate that the exoneration clause did not apply to one category of trustee liability (ie for loss suffered as a result of breach of fiduciary obligation through breach of the self-dealing rule), even though it applied to all other categories of trustee liability. There was no good reason to distinguish the first category from the others. On the contrary, there was good reason why the exoneration clause, as it applies to lay executors and trustees, should be construed as covering all categories of personal liability for loss to the estate.
- 2) As to the argument that the exoneration clause had no application because there was no evidence that Philip had consciously thought about the exercise of the power in the transactions clause, that also fell to be dismissed. The word ‘professed’ referred to actions of a trustee as they appeared to the outside world, rather than to the subjective state of mind of the trustee. There was no doubt that in entering into the demerger transaction Philip was acting in relevant respects qua executor in the professed execution of those trusts and powers.
- 3) As to the argument that Philip engaged in ‘wilful and individual fraud and wrongdoing’, the phrase ‘wilful fraud’ meant that it was a knowing and deliberate breach of a relevant equitable duty or reckless indifference to whether what is done is in breach of such duty which had to be shown. The word ‘wilful’ here did not carry the much weaker connotation of intentional action proposed by the claimants. The natural meaning of the words is that there had to be an awareness of wrongdoing.
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