High Court

John Stacey (an infant suing by his mother and next friend Marie Monahan) and Marie Monahan
										(Plaintiffs)

v.

John Branch, otherwise John Carroll, otherwise James Carroll
										(Defendant)

No. 10357p of 1987
[10th of March, 1995]

Status: Reported at [1995] 2 ILRM 136

Murphy J. 
In this case the plaintiffs claim against the defendant the sum of £46,960 as damages for breach of trust.
By or pursuant to a deed of trust dated 28 July 1981, the late William Stacey vested in John Branch, the defendant herein, two holdings of registered land in County Meath on each of which a dwelling-house had been erected, one known as ‘Fairwinds’ and the other as ‘Windswept’ on trust for his infant son, the above named John Stacey, on his reaching 21 years of age subject as to Fairwinds to the right of residence for life for Marie Monahan (formerly Donoghue), the mother of the said John Stacey.
The said John Stacey was born on 8 August 1977 and accordingly will attain his majority on 8 August of this year.
The settlor died in September 1981 not long after he and John’s mother had moved from Windswept to Fairwinds. John Branch, the trustee under the settlement and the defendant herein, was a lifelong friend of the settlor and is the godfather of the said John Stacey to whom he is closely attached. Mr. Branch resides and did at all material times reside in England. It is common case that he is a very successful businessman.
The deed of trust is a short document. The operative part thereof is divided into two numbered paragraphs the first of which deals with the Fairwinds property and the second paragraph with Windswept. The trust in relation to Fairwinds provides that the mother is to have a life interest therein subject to the payment of all rates, taxes and insurance and other outgoings thereon and subject thereto the trustee is to hold that property on trust for John on his attaining the age of twenty one years. No issue arises in relation to that property. It is in relation to the Windswept property that the conduct of the trustee is criticised. It is important, therefore, to set out in full the trusts declared of and concerning that property and the powers and duties conferred on the trustee in respect thereof.
Paragraph 2 provides as follows:-

In relation to the property described in Folio 20138 County Meath I direct my said trustee to hold this land in trust for my infant son, John until he reaches the age of twenty one and at that stage it is to be transferred to my said son, John Stacey for his own absolute use and benefit. In the meantime my trustee shall have full power to deal with the aforesaid property as he in his absolute discretion shall think fit to include leasing the land on such conditions as the trustee shall think fit and if necessary to sell the aforesaid land. In the event of the land being sold my trustee may purchase other properties to include land in the Republic of Ireland or may invest all or any part of the proceeds of sale in investments for the time being authorised by or for the investment of trust funds and when my said son reaches the age of twenty one years the trust funds or the aforesaid land will be transferred to my son absolutely for his own use and benefit. If there is any income forthcoming out of the property described in Folio 20138 County Meath, this income or any part of the same may at the discretion of the trustees be advanced to Marie Donoghue for the maintenance and education of my son John Stacey.

The proceedings herein were instituted as far back as 11 November 1987. The statement of claim was delivered on 13 February 1991 and the defence on 16 July 1991. On the pleadings there appeared to be a dispute between the parties as to what constituted the trust property and the duty of the trustee to deliver accounts. Whatever problems existed in that regard they appear to have been resolved by the delivery of interrogatories and the replies thereto. The issue argued before me was whether the defendant/trustee had managed or dealt with the trust property in accordance with the powers vested in him and with the degree of care (if any) which he was required to exercise in the discharge of his fiduciary duties.
The circumstances in which that issue arose can be stated shortly. When the trust was created in 1981, the premises Windswept were unoccupied. Some months after the creation of the trust, the trustee put Mr. Desmond Stacey in occupation thereof as caretaker. It was the evidence of Mr. Branch and Desmond Stacey that under the caretaker’s agreement, the caretaker was to protect and keep up the dwelling-house; to pay all outgoings thereon and to deliver up possession when required by the trustee so to do. It was envisaged that possession would be delivered up when the beneficiary attained his twenty first birthday. The document (if any) recording this arrangement was not produced in court. It is, however, common case that the caretaker was not required to pay any sum by way of rent or mesne rates. Criticism was made of certain works carried out by the caretaker in relation to the attic, the central heating system, the garage and the kitchen. However, it was not suggested that the works carried out were irreversible or that they were carried out maliciously. In general it was accepted that the premises are in a reasonably good condition and the evidence given to the effect that the same premises were in poor condition at the commencement of the trust was not disputed.
Evidence was given by Mr. Alain Doyle, chartered surveyor, of the annual open market rental of these premises which are situate near the golf course in Bettystown, County Meath. The estate agent envisaged short term lettings at a monthly rent. He envisaged a succession of tenants over the seventeen years or so which would elapse before the beneficiary attained his twenty first birthday. He was optimistic that tenants could have been found and that, whilst there might have been significant gaps from time to time, in general he believed that it would have been possible to have obtained a succession of tenants paying rents which annualised at figures varying from £1,440 per annum in 1981 to £2,880 in 1994. The total rent which might have been earned in accordance with those figures was £27,060 from which some allowance would have to be made for the cost of management of the property; the collection of the rents and the renewal of the lettings. Mr. Doyle gave evidence that a figure of 5% should be allowed to cover those items. It follows that a figure of approximately £25,000 could have been earned by way of rent provided that there was no gap in occupation. Even if one was to assume a 20% unoccupancy, a rental of some £20,000 might have been achieved. In calculating the loss which the beneficiary claims to have sustained, a figure for interest would have to be added to the rent foregone.
It does appear that in December 1982 a contract was entered into for the sale of Windswept to a Mr. Michael Vaughan (in trust) for a sum of £35,000. The transaction was not proceeded with in circumstances which were not fully explained. Mr. Branch did say that he was not happy that the £35,000 represented the full value of the property but how he extricated himself from the sale is not clear. Apart from that transaction no evidence was adduced of any advice obtained by Mr. Branch or any effort by him to advise himself as to the desirability of possible courses of action in relation to the trust property in the 17 years or so before the beneficiary would become entitled in possession thereto. Evidence was given that the present value of the property is in the order of £70,000 and it does appear that it is insured in the sum of £97,871. Indeed, it may be noted that Fairwinds is insured in the sum of £177,635 so that it would seem that the beneficiary and his mother will between them become absolutely entitled to properties worth approximately £275,000 in August next.
Whether the retention and preservation of the property in Bettystown was more advantageous to the beneficiary than the sale of the property in 1981 and the investment of the proceeds thereof in trust securities was not explored in any detail. Certainly it is possible to envisage a sale of the premises and an investment programme which might have a very satisfactory outcome. Presumably the investment of a sum in the order of £33,000 in 1982 on short term deposits or investments might have yielded a high return, at least in the early 1980s, but any growth in the value of the corpus of the fund would depend upon the wisdom or good fortune of the investment policy adopted. Moreover, very complex problems could arise as to the impact of income tax on the income of the fund. However, as between the letting of the property throughout the greater part of the minority of the beneficiary and merely permitting the same to be occupied by a caretaker, there is no doubt whatever as to which course would produce the greater financial return as measured in actual annual income. The only question that could arise is the extent to which the premises would be preserved and their value maintained if they were occupied by a succession of fifteen or so tenants with at least some intervals occurring between lettings from time to time. It is difficult to see that such a programme would not involve considerable wear and tear and perhaps, occasionally, malicious damage which it might not be possible to recover in full from the tenant. Undoubtedly, the danger that the premises might be left unoccupied from time to time would be disturbing. Presumably it could result in very considerable damage to which the only and perhaps necessary alternative would be the provision of extremely expensive security. These are not matters on which detailed evidence was led perhaps for the very practical reason that evidence at this stage could only deal with the matter retrospectively whereas the performance by the trustee of the duties imposed upon him could only be judged by reference to anticipated and prospective considerations. I think all that can be said with confidence is that in deciding to put in a caretaker in 1981/82, the trustee must clearly have realised that he was foregoing a significant rental income and that over a period which it was anticipated would last some 17 years.
What is the nature of the duty imposed upon a trustee? A trustee must, of course, invest trust funds in the securities authorised by the settlement or by statute. To invest in any other securities would be of itself a breach of trust; but, even with regard to those securities which are permissible, the trustee must take such care as a reasonably cautious man would take having regard not only to the interest of those who are entitled to the income but to the interest of those who will take in the future. In exercising his discretion a trustee must act honestly and must use as much diligence as a prudent man of business would exercise in dealing with his own private affairs; in selecting an investment he must take as much care as a prudent man would take in making an investment for the benefit of persons for whom he felt morally bound to provide. Businessmen of ordinary prudence may, and frequently do, select investments which are more or less of a speculative character; but it is the duty of a trustee to confine himself not only to the class of investments which are permitted by the settlement or by statute, but to avoid all such investments of that class as are attended with hazard.
Neither party dissented from the foregoing views taken from the leading textbooks and based on the decision of the House of Lords in Learoyd v. Whiteley (1887) 12 App Cas 727. Counsel on behalf of the plaintiffs emphasised the matter of fact that the beneficiary was at all material times an infant in need of financial support and asserted the proposition of law based on the decision in Charles v. Jones (1887) 35 ChD 544 that a trustee is bound to set aside trust monies in such a way ‘as to be fruitful for the benefit of the persons beneficially entitled to it’. However, without necessarily accepting either proposition, I am convinced that the course adopted by Mr. Branch in relation to the property at Bettystown would not have amounted to an adequate discharge by a trustee of his duties as such in the absence of special authority or provision in that behalf.
Counsel on behalf of Mr. Branch draws attention to the fact that the trustee was given, in certain respects at any rate, an ‘absolute discretion’ and it is asserted that provided that such discretion was exercised honestly it was not open to review by the court or capable of giving rise to an action for breach of trust. Reliance upon a discretion expressed to be absolute can be deceptive. In Snell’ s Equity, 29th ed. at p. 225 the authors comment as follows:-
However wide the language of such clauses, they give the trustee an absolute discretion in appearance only; as in the case of all discretionary powers, he must act honestly and with ordinary prudence. If, therefore, he selects an investment for the purpose of making a private gain, or if at the request of an importunate cestui que trust he invests the trust funds in notoriously doubtful security, even though it may be expressly authorised, he would be liable for any resulting loss.
That quotation is perhaps misleading. It is true to the extent that words such as ‘absolute discretion’ would not necessarily relieve a trustee from his duty to exercise reasonable care and prudence. On the other hand there is no doubt that an absolute owner of property can settle his affairs in such a way and on such terms as would relieve his trustees from the responsibility to exercise the degrees of care and prudence which would otherwise be inferred (see Gisborne v. Gisborne (1877) 2 App Cas 300 and Tabor v. Brooks (1878) 10 ChD 273). At the end of the day the extent of the obligations imposed on a trustee or the degree to which he is relieved from responsibilities ordinarily assumed is a matter of the construction of the terms of the document under which the trustee is appointed.
The brief paragraph dealing with the trust of Windswept contains a number of clear provisions. First, the trustee was directed to hold the particular land in trust for John Stacey. The trustee was to hold Windswept and, subject to the exercise of any of the powers conferred on him, to transfer that property to the beneficiary as and when he attained the age of twenty one years. Secondly, no part of the trust property and in particular the trust of Windswept comprised or included liquid assets so that there was no fund available from the property as settled with which to make advances for maintenance or education or even to discharge such costs as might properly arise in the administration of the trust. Thirdly, it was expressly provided that ‘in the meantime’ - that is between the date of the trust deed and the attainment by the beneficiary of his majority -‘the trustee should have full power to deal with the aforesaid property as he in his absolute discretion shall think fit’. The powers of dealing with the property were expressed as including leasing the land on such conditions as the trustee should think fit and selling the land but in the latter case it is to be noted that the power to sell the land only arose if a sale was, or became, ‘necessary’. Fourthly, the trusts declared of this property expressly provided that in the event of it being sold, the monies realised, to the extent that they were to be invested in funds, were required to be invested ‘in investments for the time being authorised by or for the investment of trust funds’. Fifthly, it was expressly provided that in the event of any income being derived from the property known as Windswept, the trustees might at their discretion advance the same to Mrs. Monahan for the maintenance and education of her son.
There is, therefore, an extraordinary emphasis placed on the discretion conferred upon the trustee to deal with the property as originally settled. It is in relation to that, and that alone, that ‘full power to deal with’ and ‘absolute discretion’ is conferred. Cash investments are limited expressly to trust securities and the sale of the property could only be permitted to the trustee or justified to a purchaser by establishing that such a sale was ‘necessary’. The power of leasing which is included in the power ‘to deal’ is to be on conditions as the trustee ‘thinks fit’.
Further assistance may be obtained by contrasting the trusts declared of Fairwinds with those declared in respect of Windswept. In relation to the former he expressly provided for the keeping of the property in a reasonable condition have regard to its age and condition where no such provision was made in explicit terms at any rate for Windswept.
It is clear that the settlor intended that Windswept should be kept by the trustee and ultimately transferred to his son. That would necessarily involve taking some steps to preserve the property between the creation of the trust and the property vesting in possession in the beneficiary. No funds were provided for that purpose. It was in those circumstances that the settlor purported to confer on the trustee ‘full power to deal with the aforesaid property as he in his absolute discretion shall think fit’. In my view, the settlor meant what he said. He intended the trustee to have and to exercise his own honest but absolute discretion as to how this basic objective should be achieved. I am satisfied that the decision of Mr. Branch to put the premises in the occupation of Mr. Desmond Stacey was a decision made bona fide in pursuance of that discretion. It was not made with the dominant intention of benefiting Mr. Desmond Stacey, though no doubt it did have that effect. Nor do I believe that the decision was made for the trustee’s own convenience. Whilst I doubt that any competent valuer or other expert would have recommended or approved the course adopted by the trustee, I do have some sympathy with Mr. Branch’s viewpoint. He expressed his view that the sale of the property and the investment of the proceeds in shares would not necessarily have provided a good solution. He was sceptical of the wisdom of investing in shares. Likewise, he was critical of the solution which involved lettings to a succession of tenants. He is entitled to say that the property has, by and large, been well preserved over the past fourteen years and he states with confidence that it would be vested in the beneficiary on his majority in that good condition. Unusual though the trustee’s attitude has been and unsupported by expert evidence as it is, I believe that his decision was honestly made and that it was made in exercise of the discretion which the settlor conferred on the trustee and reflected the trust and confidence reposed in him. In these circumstances it seems to me that an action for breach of trust must fail and I will dismiss the claim accordingly.