The claimants brought a part 8 claim for the determination of three issues in relation to a family trust of land on which was operated a family-run plant nursery business. The nursery business was operated through a limited company which was separately owned from the trust and the company paid no rent to the trust for occupation of the land. All parties to the claim were adult members of the family and comprised all of the existing beneficiaries of the trust. The fourth defendant represented the interests of potential unborn beneficiaries. The relief sought by the claimants was unopposed by the other named defendants.
In 1983, the trust purchased a piece of freehold land on which the nursery business was already operating under a lease or license. The purchase was made by Mr Alwin Mills, his wife Pauline (D2) and their sons David (C1) and Richard (D1). Alwin Mills died.
A deed of trust was executed at the time of the purchase (the 1983 deed), naming the family members as trustees. All four were named as beneficiaries. The 1983 deed provided that the trustees ‘shall hold the said land and the net proceeds of sale and the net income until (inaudible), a, as to 60% thereof on trust for the parents as joint tenants beneficially and, b, as to 40% on trust for the sons as joint tenants beneficially.’ Four provisos were stated as follows:
‘Provided that, (a) if either of the sons shall die leaving issue, such tenancy shall be taken as having been severed and the share of the deceased sons shall be held on trusts for his issue and more than one in equal shares when they attain the age of 18 years.
(b) upon the death of the survivor of the sons, should such survivor not leave issue him surviving who shall attain the age of 18 years the share of such deceased survivor shall accrue to the issue of the first of the sons to die when such issue shall attain the age of 18 years and if more than one in equal shares.
(c) if there be no issue of the sons, then their hare shall accrue to the parents or the survivor of them.
(d) on the death of a survivor of the parents, their share shall accrue to the sons or there issue, as the case may be, or the survivors of them and if more than one in equal shares.’
In 1993, a relatively small plot in the corner of the nursery site was sold off by the trustees to the claimants (the 1993 sale) who built a house on the site on the condition that it would only be occupied by someone responsible for supervising the nursery. The claimants had lived in the house ever since. The claimants had incurred the cost of around £350,000 in obtaining the planning permission and constructing the house, which considerably enhanced the value of the land they acquired.
A second deed was executed in 1997 (the 1997 deed) titled as a trust deed relating to the nursery. It recited the terms of the 1983 deed in brief, stating that the land was to be held on trust (a) as to 60% for the parents as joint tenants beneficially and (b) as to 40 % on trust for the sons as joint tenants beneficially. The operative provision of the 1997 deed provided that:
‘This deed witnesseth that the parents transfer 50% of the said land and the net income thereof upon trust for the sons with the provisos contained in the original just deed as if the same had been set out herein to the intent that hereafter the said land and the net proceeds of sale and net income until sale should be held upon trust (a) as to 10% thereof on trust for the parents as joint tenants beneficially and (b) as to 90% thereof on trust for the sons as joint tenants beneficially, save that in place of proviso (c) the following clause shall have effect, namely if there be no issue of the sons, then their share shall accrue to their sister Jane Elizabeth Hanes(?) of, if she is then deceased, to her issue and if more than one in equal shares per stirpes.’
At the time of the hearing, D1 proposed to retire from the nursery business and it was agreed by the parties that he would sell his interest in the limited company to the claimants and that the trust should sell its interest in the land to the claimants at the price of £1m (the proposed sale).
The claimants asked the court the following:
- (1) as to the effect of the trusts declared, and in particular whether on the death of D2, the sons if then alive accrue any absolute interest in the property and if so, how much, or whether they only have a lifetime interest;
- (2) for an order approving the 1993 sale;
- (3) for an order approving the proposed sale.
Regarding issue (1), it was agreed that first of all in relation to the 1983 deed, on the death of Alwin Mills, his share passed by survivorship to D2. Counsel for the claimants then submitted that the effect of the 1983 deed was that on D2’s death if the sons were alive, then the effect of proviso (d) is that they take their interests from D2 absolutely. Counsel for the claimants submitted that the effect of the 1997 deed was simply that it transferred five sixths of the parents’ life interest in 60 percent of the property to the sons so that they become absolutely entitled to that share on the death of the survivor of the parents.
Counsel for the potential unborn beneficiaries submitted that by way of alternative construction, the effect of the 1997 deed was a resettlement declaring new trusts of the whole interest in the property and that the 1983 deed did not in any event confer absolute interests on the sons on D2’s death. The word ‘accrue’ suggests an enlargement of some existing interest, rather than creation of a new one.
- 1) Regarding issue (1), that the construction submitted by counsel for the unborn beneficiaries was to be preferred. The 1983 deed provided that the interest of the parents operates to enlarge the interests that the sons already held, as opposed to creating a new different interest being an absolute interest. Further, the 1997 deed was best regarded as being intended to be a resettlement and a declaration of trusts to apply to the whole of the parents’ interests in the land rather than an assignment of the limited lifetime interest that they had prior to execution of the 1997 deed.
- 2) Regarding issue (2), the 1993 sale was a breach of the rule against self-dealing, the effect of which is that the transaction is potentially voidable at the instance of a beneficiary affected who does not consent or acquiesce in the transaction.
- 3) If the court has the power to approve a transaction in advance which would otherwise be a breach of the self-dealing rule where it is desirable and in the beneficiaries’ interest, there is no reason why the court cannot give a retrospective sanction to a transaction in circumstances where those involved were unaware that such sanction was required (Holder v Holder  Ch 353 applied.) In the alternative, the court can prospectively approve a proposed ratification or confirmation by the trustees of the original transaction.
- 4) To retrospectively approve a transaction, the court should consider the same factors as it would have needed to have considered at the date it was carried out, including valuation evidence establishing that a proper price was paid and evidence that the transaction was desirable and in the beneficiaries’ interests. No valuation evidence of the land in 1993 was available at the hearing and there was conflicting evidence as to the price that was paid. Whilst the 1993 sale and building of the house was desirable for the nursery business, the 1993 sale was not necessarily desirable for the trust or in the beneficiaries’ interests as they did not own the business operated on the land and would not directly benefit from it. There was no information before the court on which the 1993 sale could be retrospectively approved.
- 5) Regarding issue (3), the court did have before it valuation evidence as to the present value of the land and was satisfied that the price was an appropriate one and that it was desirable in the interests of the beneficiaries’ that their interest in the land should be realised.
6) Approval of the proposed sale granted on terms that included provision to dispose of any residual claim that the trust might have for recovery of the land on which the house was situated or for equitable compensation against C1. This solution would have the effect of resolving issue (2) as well.