When can it be implied that trustees have exercised a power where such an exercise has not been explicitly documented?
This application was made by the current trustees of the T 1998 Discretionary Settlement (the "Trust") to clarify whether or not one of the Trust's former trustees had effectively resigned. The issue arose because the Trust was in fact governed by English law rather than by Jersey law, and section 39(1) of the UK's Trustee Act 1925 (as amended) required, inter alia, that in order for a trustee to resign and be discharged from office the following conditions had to be fulfilled:
(i) after the resignation, there had to be either a trust corporation or two persons in office as trustees;
(ii) the retiring trustee must have declared his or her desire to retire and be discharged by deed; and
(iii) the co-trustees of the retiring trustee must by deed have consented (a) to the retirement and discharge of the retiring trustee and (b) to the vesting of the trust property in themselves alone.
In this case, the trustees of the Trust at the relevant time were Ms Louise Stoten ("Ms Stoten"), AIB Trust Company (Jersey) Limited ("AIB") and Mr Anthony Staples ("Mr Staples"). Whilst Ms Stoten, an English solicitor, was resident in the UK, both AIB and Mr Staples were resident in Jersey.
A proposal to refinance the assets of the Trust was made and, because of a potential conflict of interest, one of the conditions of the refinancing package was the resignation of Ms Stoten from office as a co-trustee of the Trust. Accordingly, on 4 April 2001 Ms Stoten executed a deed (the "Deed of Retirement") whereby she purported to retire as a co-trustee of the Trust. Neither AIB nor Mr Staples were parties to the Deed of Retirement.
Subsequently, on 25 July 2001, AIB and Mr Staples executed a number of deeds designed to effect the refinancing transaction (the "Refinancing Deeds") in which they claimed to be acting as the then trustees of the Trust. Subsequently, in 2008, both AIB and Mr Staples resigned from office and the current trustees of the Trust took over.
The question which arose was whether or not Ms Stoten had in fact validly resigned and been discharged from office as a trustee of the Trust.
Clearly the first two requirements of section 39(1) of the Trustee Act 1925 had been satisfied - i.e., following Ms Stoten's purported resignation there had been two remaining trustees (AIB and Mr Staples) and Ms Stoten had declared her desire to retire and be discharged by deed in the Deed of Retirement. Equally clearly, both AIB and Mr Staples had the power to fulfil the third requirement of section 39(1) - i.e. that they could execute a deed consenting both to Ms Stoten's retirement and discharge and to the trust property being vested solely in themselves. Unfortunately, however, neither AIB nor Mr Staples had been parties to the Deed of Retirement and, accordingly, the Deed of Retirement in and of itself had not been sufficient to effect Ms Stoten's retirement and discharge.
There were, therefore, effectively two questions before the Court:
(i) does the effective retirement and discharge of a trustee under section 39(1) of the Trustee Act 1925 need to be effected by a single deed executed by all necessary parties, or are separate deeds permissible?; and
(ii) if separate deeds are permissible, were the contents of the Refinancing Deeds (which made no express mention of consenting to Ms Stoten's retirement and the subsequent vesting of the Trust's assets in AIB and Mr Staples, but whose contents clearly implied that both AIB and Mr Staples were proceeding as if these things had happened) sufficient to satisfy the final requirements of section 39(1)?
In relation to the first question, the Court noted that section 6(c) of the UK's Interpretation Act 1978 provides that "In any Act, unless a contrary intention appears:- ...... (c) words in the singular include the plural and words in the plural include the singular" and, on that basis, section 39(1) of the Trustee Act 1925 could be satisfied by the retiring trustee and the remaining trustees executing separate deeds.
As to whether or not the Refinancing Deeds provided sufficient evidence of the consent of AIB and Mr Staples to the resignation and discharge of Ms Stoten and the vesting of the trust property in them alone, the Court analysed the issue in the following way. It was clear that AIB and Mr Staples had the power to give the relevant consent in the Refinancing Deeds, but what was required to evidence an exercise of that power? The Court held that the appropriate test was that, in order to infer the exercise of a particular power, there must be a sufficient indication of intention to exercise such a power in the instrument alleged to exercise it and that a sufficient indication of such intention would be generally provided by either:
(a) a reference to the power exercised; or
(b) a reference to the property which was subject to that power.
In this case, the Refinancing Deeds contained no express reference to the power of AIB and Mr Staples to consent to the retirement and discharge of Ms Stoten and to the subsequent vesting of the trust property in themselves alone, although the Court conceded that it might be possible to infer such a reference from the fact that AIB and Mr Staples referred to themselves simply as "the trustees" in the Refinancing Deeds, thus implying that they were aware of their power to consent to the retirement of Ms Stoten.
In the event, however, the issue was decided on the basis that the Refinancing Deeds involved AIB and Mr Staples acting in relation to the property of the Trust in a way which could only have been lawful if such acts also embodied an exercise of their power to consent to Ms Stoten's resignation and the subsequent vesting of the Trust's assets in them alone. The fact that, in executing the Refinancing Deeds, they were not conscious of the fact that they were exercising this power was immaterial - their intention to effect the transactions embodied in the Refinancing Deeds as the only trustees of the Trust was sufficient.
Despite its eventual outcome, this case emphasises the need for trustees to understand and follow the formalities required (whether as a result of statute or as a result of the trust documentation itself) when exercising trust powers. Arguably this is particularly important when it comes to trustees resigning from office and/or new trustees being appointed, as a failure to follow the correct procedure could potentially jeopardise all transactions carried out by the trustees between the making of the error and its subsequent correction.
Having said that, this case does confirm the principle that trustees will be taken to have exercised a power where the exercise of such a power is a necessary prerequisite to their lawful entry into a subsequent transaction. This will be true even if the trustees are not conscious of exercising that power at the time provided that it cannot be inferred from the particular facts of a case that the trustees had a positive intention not to exercise that power.
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