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12 December 2016

Pub talk

This July saw the culmination of a long-running series of cases in the Chancery Division concerning the Albert Arms public house in Esher, Surrey. The litigation was started in September 2014 and has encompassed various fi rst-instance and appeal hearings to bring it to the fl urry of hearings in July 2016.

Background

Jean Montgomery died in 1997, leaving a will that provided for her principal asset, the Albert Arms itself, to be held by her appointed trustees on trust for her second husband, Bruce, for his lifetime and thereafter to be divided equally between her three children, Sarah, Peter and Jonathan. Bruce died in February 2013, vesting the siblings’ interests in the property absolutely. By 2013, after some changes of trustees, Philip Baker and Raymond Preedy were the trustees of the trust.

The key issue (and that which has featured as a cornerstone of the litigation since September 2014) is that Jonathan, together with an assortment of companies owned or run by him, has been in occupation of the property since around 1997. The trustees were therefore faced with a signifi cant difficulty: how to realise the interests of the beneficiaries to divide the property equally between them when one of them was in occupation of the property to the exclusion of the others.

Initially, there was some dispute about how Jean’s will should be interpreted: the trustees (with support from Peter and Sarah) considered that the will created a life interest for Bruce; however, that interpretation was opposed by Jonathan, and consequently proceedings were issued by the trustees seeking orders regarding the construction of the will.

Proceedings

As part of those original 2014 proceedings, the trustees sought a Beddoe order concerning a claim to obtain possession of the property from Jonathan and thereafter to sell the property (this being the only obvious means to be able to divide the property between the siblings and to pay the substantial inheritance tax bill that had arisen). Despite initially indicating that he opposed the construction summons and the Beddoe application, at the last minute Jonathan conceded both issues and the Beddoe order was granted. Thereafter the trustees pursued their possession claim in separate proceedings issued in January 2015. The trial of that claim came on before Master Matthews in July 2015 and was reported in his judgment on 2 October in Preedy v Dunne [2015]. The trustees were successful in their claim for ossession and in defeating Jonathan’s claims that a proprietary estoppel had arisen entitling him to remain in the property.

Permission to appeal the judgment was sought on the basis of both proprietary estoppel and a new argument on the basis of an estoppel by convention leading to a money claim. Jonathan also sought a stay of execution of the possession order in this application. Briggs LJ gave permission to appeal on the new ground, but rejected the application for permission in relation to the proprietary estoppel issue. Importantly, he also refused to grant a stay of execution – leaving Jonathan with a purely monetary counterclaim against the possession proceedings. The appeal came before the Court of Appeal in late July 2016. Again, the trustees were successful in opposing Jonathan’s (new) estoppel claims.

That then brought matters to the head that they reached in early July 2016: whether or not (the trustees having been granted possession of the property and an application for a stay of that order having been refused by the CA):

  •  the possession order should be enforced; and
  • whether the trustees could/should thereafter sell the property.

In June 2016, the trustees applied for the orders described above. In the main, they sought relief from the court on two bases:

  • a Beddoe-type order relating to the enforcement (by taking possession) of the possession order; and
  • for approval by the court of the action proposed by the trustees in selling the property.

In opposing those orders, Clare Stanley QC (for Jonathan) advanced the case that either or both of these actions would put the trustees in breach of trust: having received the application from the trustees, Jonathan’s solicitors had responded by preparing draft particulars of claim which were sent to the trustees as a threat to them of what would happen if they took possession and sold the property as proposed. In substance, the draft particulars alleged that the trustees’ actions would cause loss either directly to Jonathan and his companies, through alleged breaches of those entities’ intellectual property rights, or to the trust generally by failing to realise the best value for the trust asset (which Jonathan asserted could only be achieved through a sale of the property directly to him).

It was this threat of a claim of breach of trust, together with a host of earlier, similar threats, that meant the trustees had felt compelled to make the application in the fi rst instance: they were being told in strident terms that despite nearly two years of (court-approved) litigation to get an order for possession, what they now needed to do in order to execute the terms of the trust would itself be a breach of trust.

It is worth recording the legal background against which the application (and the assertions detailed above) was therefore made. It is widely understood that trustees who participate in litigation without fi rst seeking the approval of the benefi ciaries or the court expose themselves (a) in costs should the litigation fail and (b) to claims for breach of trust from beneficiaries who do not believe that the trust assets could or should be used to pursue litigation, however meritorious or not (see Re Beddoe [1893]). Lewin on Trusts gives an admirably succinct description of what a Beddoe order does in effect (see Lewin at 27-236): 

A Beddoe [order] authorises the trustee to [participate in litigation] and to be indemnified out of the trust fund in respect of the costs incurred in the proceedings to which the application relates, including any costs which he might be ordered to pay to another party to the proceedings. Such an order operate to the extent… of the steps which are authorised to be taken and to remove doubts which otherwise exist as to whether he is entitled to indemnity. 

In this application, the trustees therefore sought a Beddoe-type order authorising them to enforce the possession order that they had already obtained and that they were indemnifi ed from the trust fund for doing so. Strictly speaking it was not a Beddoe order simpliciter, as they give permission to pursue litigation, and this was seeking permission to enforce successful litigation – but the analogy was clear.

However, the trustees also sought directions regarding the sale of the property (on the basis that as the property was the only trust asset, the sale of it would be ‘momentous’). The trustees therefore also asked the court to approve the proposed sale of the property with vacant possession, on a basis similar to the line of authorisation flowing from Public Trustee v Cooper [2001]:

When the Court has to adjudicate on a course of action proposed… by trustees…the second category is where the issue is whether the proposed  course of action is a proper exercise of the trustees’ powers… because the decision is particularly momentous. 

No doubt the trustees also had in mind (particularly given the threats they faced of breach of trust claims should they pursue this course) the consequences of seeking to deal with matters after the event, as in Green v Astor [2013] and the material risk that, having failed to seek the blessing of the court to their proposed course of action, the trustees could then be exposed to the very claims that were being threatened.

Here, the trustees had obtained two pieces of expert evidence: the first, advice on the marketing of the property (which advised the trustees o seek to sell the property with vacant possession on the footing that Jonathan’s occupation was likely – given his capacity for litigation – to make viewings and a sale difficult), and the second, advice from a valuation expert concerning the value of the property with and without Jonathan’s occupation. In the case of the expert valuation, the value given for the property with vacant possession was £2.1m; the value given for the property with a tenant in situ was £1.8m and the value given for the property with Jonathan in situ (paying no rent as he was) was £0. 

The trustees therefore sought the blessing of the court to implement both pieces of conjoined advice: from a marketing and valuation perspective, the sale of the property with vacant possession was strongly advised.

The Beddoe element

Chief Master Marsh identified that the key issue on whether the possession order should be enforced related to whether the allegations concerning the appropriation of Jonathan’s intellectual property rights would be made out by someone other than Jonathan trading from the premises. In dealing with this, the Chief Master made the following observations: 

  • that the position was complicated because of a series of overlapping and entangled rights and entitlements, relating to the distinction between the Albert Arms as a property and the business of publicans trading from that property;
  • that the property had existed as a trading pub for many years (since the 19th century in fact) and that therefore the goodwill in the property could not be said to relate exclusively to Jonathan’s occupation of it;
  • that a distinction needed to be drawn between personal goodwill in the trading organisation (which belonged to Jonathan and would be taken with him if he left the premises) and the goodwill inherent in a trading pub having operated from the property for centuries which would ‘adhere’ to the property itself;
  • that therefore Jonathan’s assertions that his intellectual property rights would be infringed were ‘fallacious’. Of particular interest is the observation made by the Chief Master at para 19, noting that ‘the idea of an unlawful occupier of premises developing goodwill in a business carried on in those premises and then asserting a right of passing off against the lawful owner is not an attractive one’. That finding will no doubt have wider implications than just in relation to this case.

The Chief Master noted that in his view ‘the trustees were perfectly entitled to proceed cautiously’ given the threats made against them, and thus that the trustees were justified in making the application even though if it were granted it would effectively debar Jonathan from pursuing any claims for breach of trust against the trustees arising from this course of action. That point too is worthy of note, as it was suggested by Clare Stanley QC in submissions that the court should be very cautious to take any action that would extinguish a future cause of action.

The Public Trustee v Cooper application

The Chief Master then elided the two issues in the application, on the footing that the Beddoe order regarding taking possession was only necessary if the trustees’ proposed steps concerning the sale of the property were to be implemented.

In pronouncing himself satisfi ed with the (unchallenged) evidence from the trustees’ experts, the Chief Master recorded that it was ‘inconceivable that Jonathan could safely be left in occupation of the property while a sale was taking place’. There were substantive submissions made on Jonathan’s behalf concerning the strength of the expert evidence obtained by the trustees, and questions therefore asked about whether it was reasonable for the trustees to have relied on that evidence. No doubt having in mind the Court of Appeal’s decision in Cotton v Brudenell-Bruce [2016] that the trustees were not obliged to ‘question or second guess’ the advice that they had received, the Chief Master was satisfied that the trustees were entitled to rely on the advice that they had received and to act on in it accordingly.

It was further submitted by the trustees that as the application had the full support of two thirds of the benefi ciaries, an application of the Trusts of Land and Appointment of Trustees Act 1996 would indicate strongly that the trustees should follow the wishes of the majority, particularly where it was manifestly reasonable for them to do so. The Chief Master did not engage with this point, but it is worth observing nevertheless, as a further weapon in the armoury of trustee directions applications.

The Henderson v Henderson estoppel argument

Up to this point the case was decided upon relatively straightforward trustee directions principles. However, the trustees also sought to exclude Jonathan’s arguments on the basis that he was estopped from bringing them under the Henderson v Henderson doctrine, as explained in Barrow v Bankside Members Agency Ltd [1996] at 260 by Sir Thomas Bingham:

In the absence of special circumstances the parties cannot return to the court to advance arguments, claims or defences which they could have put forward for decision on the first occasion, but failed to raise. The rule is not based on the doctrine of res judicata in a narrow sense, nor even on any strict doctrine of issue or cause of action estoppel. It is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do. That is the abuse at which the rule is directed.

The trustees’ argument was therefore very simple – Jonathan should have raised his claims that selling the pub would result in both a passing-off claim and a breach of trust claim:

  • at the original Beddoe hearing in 2014, when permission to claim possession was sought and obtained,
  • at the possession hearing itself in 2015, and The Chief Master noted that in his view ‘the trustees were perfectly entitled to proceed cautiously’ given the threats made against them.
  • when the stay of execution was sought from the Court of Appeal.

He failed to do so, and to do so now would be an abuse of process.

Jonathan’s argument in response was that he had been unaware of the possibility of a passing off action until recently, and therefore this was not an abuse of process.

The Chief Master agreed with the trustees. Having cited the White Book at 3.4.3.2, he concluded that:

[Jonathan’s threatened claim] has all the hallmarks of a last desperate attempt to prevent a sale taking place in the light of the advice the Trustees have received about the best course of action for them to adopt to realise the maximum value in the Albert Arms’, and noted that it was provided in draft form along with an offer of settlement ‘with a view to putting pressure on the Trustees to accept the offer.’

Having concluded that the passing off and breach of trust claim had ‘no real prospect of success’, the Chief Master then went on to make what is possibly the most signifi cant statement in his judgment. He concluded that:

Although delay is not of itself sufficient to amount an abuse of process, the late discovery by Jonathan of the possibility of bringing a claim for passing off, does not assist him because he has known the facts upon which such a claim is based from the outset. He has had access to legal advice throughout and the fact that his advisers had no raised the possibility of bringing a claim for passing off does not help him. Clearly there has been very extensive delay and the proper time for bringing forward the proposed claim was, at the latest, when the Trustees sought permission to issue a writ of possession. Although Jonathan has not been the claimant, he has made positive claims. Even if he has not held the passing off claim up his sleeve because he was unaware of it, he failed to investigate the legal position adequately. And the breach of trust claim is one which has been asserted on several occasions but not explained or pursued despite Jonathan having had an ample opportunity to do so.

Practical points

One of the most common problems with family trust litigation is that reasonable parties often face irrational or recalcitrant opponents, who repeatedly raise the same arguments on diff erent occasions, or who raise new arguments at the last minute in an att empt to derail an application for directions. This happens both to trustees dealing with irrational benefi ciaries, and to benefi ciaries dealing with unprofessional trustees. Hopefully this judgment by the Chief Master can give some assistance to such rational parties, and help close off lines of argument that have or should have been debated in the past. And for practitioners acting for the reasonable party, it is a salient reminder to put forward all your (reasonable) arguments in one set of proceedings, or risk being debarred from doing so later.

Barrow v Bankside Members Agency Ltd
[1996] 1 WLR 257

Re Beddoe
[1893] 1 Ch 547 CA

Cotton v Brudenell-Bruce
[2016] WTLR 39

Green v Astor
[2013] WTLR 1489

Henderson v Henderson
(1843) 3 Hare 100

Preedy v Dunne
[2015] WTLR 1795

Preedy v Dunne
[2016] EWCA Civ 805

Public Trustee v Cooper
[2001] WTLR 901

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