In Brief
This was an application under Article 51 of the Trusts (Jersey) Law 1984 by the Representor for an order overturning the decision of the Trustee to sell a London property and directing that the property be retained in the trust fund. The Trustee did not surrender its discretion to the Court, but wished to proceed with the sale. The Court rejected the application.
Facts
The trust fund was held upon trust to pay income to AM during her lifetime and remainder to AM's brother, the Representor. The trust's underlying company owned a London property which was occupied by AM on a rent free basis until 1997, following which it was let intermittently on commercial terms, with some refurbishment and maintenance being carried out. Savills, the estate agents, reported in late 2008 that the property required extensive refurbishment if it were to continue to be let.
Over time, the Trustee corresponded with the settlor's various lawyers advising them that the property could not be let without significant expenditure and that the property would need to be sold, unless the settlor added sufficient funds to the trust for refurbishment. The settlor and the Representor made it clear that they did not wish the property to be sold. It was suggested that the Trustee borrow funds to pay for refurbishment and repay the loan from rental income. The Trustee responded that it was not permissible to reduce the life tenant's income to repay capital of a loan, i.e. for the benefit of the remainderman.
Little progress was made and eventually the Trustee advised that the house would be placed on the market if no funding arrangements were forthcoming. The Trustee was advised that the Representor would be prepared to rent the property on a long lease, but the Trustee did not accept this proposal and said it intended to place the property on the market. Following discussions between Savills and the Trustee, it was decided to offer the property by informal tender. The Trustee was then advised that the settlor would be prepared to fund refurbishment if the costs were repaid from rental income. The Trustee responded that it was not acceptable for capital expenditure to be repaid from income where there is a life tenant, but said it was still prepared to consider provision of additional settled funds or alternatively an interest free loan by the settlor to refurbish the property, to be repaid upon sale of the property. Shortly before the closing date for offers (some 19 months after the Savills report), the Trustee was advised the settlor had offered to provide funds for refurbishment and was asked to remove the property from the market. The Trustee declined on the basis that the settlor and Representor had had considerable time to make this offer. The Trustee said that if a loan were to be made, then the loan documentation needed to be in place and the Trustee in receipt of cleared funds before close of business on the final date for tenders. On the day preceding the final tender date, the Trustee was advised that the settlor had agreed to put forward a bank guarantee to provide part of the necessary funding. The Trustee responded that it would accept the funds as additional settled property provided it was in receipt of cleared funds and additional funds to be held by the Trustee's lawyers, to be drawn against if necessary. Nevertheless, upon receipt of offers in excess of the anticipated amount, the Trustee decided to proceed with the sale. The highest offer was accepted, subject to contract and to the outcome of the court application.
Held
The Court summarised two broad principles. Firstly, the jurisdiction of the Court's role is a supervisory one and is simply to ensure trustees' decisions are reasonable and lawful. The Court will not substitute its own decision for that of a trustee, unless the trustee surrenders its discretion and the Court accepts such surrender. The court could only intervene if the decision is one at which no reasonable trustee can arrive (S-v-L and Bedell Cristin Trustees Limited [2005] JRC 109 and [2005] JLR N 34). Secondly, the Trustee must fairly balance the interests of the life tenant and the remainderman. In this case, the Court could not categorise the Trustee's decision as unreasonable; on the contrary, it was eminently reasonable, given that it was essential to refurbish the property if it were to be let and the Trustee had no funds to undertake the refurbishment. There had been plenty of time for the settlor to propose suitable funding arrangements, but this had not happened until the offer closing date was imminent. The price offered was exceptionally good and investment of the sale proceeds would provide a reasonable income for the life tenant, with capital growth for the remainderman. If the property were not sold, then further delays could ensue whilst waiting for the settlor to propose suitable arrangements.
Comment
This is a good example of the Court's stance where a trustee has not surrendered its discretion and although the Court did not go into all the circumstances where it would be likely to intervene, it clearly shows that the Court must consider the trustee's decision to be unreasonable before it will in fact intervene - the Court observed that the discretion of a trustee is conferred upon that trustee and generally, therefore, beneficiaries must live with the trustee's decisions.
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