A momentous decision

Monday, 01 December 2014
John Greenfield discusses a decision in the Royal Court of Guernsey that looks set to colour trustee cases in the future.

A ruling of the Royal Court of Guernsey earlier this year gives important guidance to trustees on the decision-making process when reaching a ‘momentous decision’. The anonymised judgment in In the matter of the [AAA] Children’s Trust will be of interest to practitioners in the trust and legal industries because the court addressed what documents it would expect to see when considering whether to bless a decision.

Facts of the case

An application to approve a momentous decision had been brought by the trustees, relating to the sale of a property. The property formed a substantial part of the trust’s assets and the settlor had left detailed wishes which, unusually, had been incorporated as a schedule to the trust deed itself. The settlor described the property as the ‘finest jewel in the jewel box’ and had instructed it was only to be sold in ‘exceptional circumstances’ and then ‘at an appropriately extraordinary price such that the news will reach [me] even in heaven’. So steadfast was the settlor in his wish that the property be retained that he did not want his two children to dispose of their interest in it until they reached the age of 40 and, even then, he did not want them to sell it, as it had been acquired to ‘protect their long-term interests and security’.

This is a salutary lesson to trustees to ensure that they can properly evidence their decision-making process

The sale was, however, supported by the trustees and a second joint protector, a long-term business associate of the settlor. It was opposed by all the family members and the advocate representing the children and the unborn and unascertained beneficiaries.

One of the problems faced by the court was that the process relied upon by the trustees in reaching their decision did not stand up to scrutiny. The court expressed concern regarding the lack of documents produced by the trustees and noted that there was no evidence of a clear-cut decision by them to accept the proposed offer to purchase the property. The process ought to have been supported by a dossier of relevant factual information and recorded in comprehensive minutes of the trustees’ deliberations.

The court concluded that it was impossible to pinpoint a meeting at which the momentous decision was taken, or whether, in fact, a decision had been made at all. What emerged was that it had been a ‘rolling decision’ made over a long period of time, discussed via telephone and email. No file notes or records had been disclosed to the court, or the opposing parties, despite the trustees being pressed for full disclosure on a number of occasions.

It is important to note that the trustees submitted further information after the application was made to the court. The trustees also lodged expert evidence that post-dated their application and that was intended to support their decision to sell the property in the current market. The court remarked that, as ‘the application has evolved, the opinions are less relevant than they might have been’. By this stage, the trustees’ momentous decision should already have been made and the factors taken into account should have been before the court.

Throughout the hearing, there were two recurring issues:

  • it was unclear from the papers lodged by the trustees whether or not a decision had in fact been made and/or what factors the trustees had taken into account in their decision-making process;
  • in relation to their duty of disclosure, it became apparent that the trustees had not been full and frank with the court or the opposing parties, a failure which was described as ‘unforgiveable’.

These concerns left the court with only one option: to decline to bless the transaction.

Lessons learned

A trustee should ensure a meeting is held specifically to consider all the relevant factors in relation to a momentous decision and, prior to the meeting, a trustee should consider whether or not it is necessary to obtain any independent professional advice (financial, legal, valuation, etc).

A trustee, particularly a paid professional, should prepare and circulate a full dossier of information, including the agenda and any supporting documents, prior to the meeting and should ensure that comprehensive minutes of the meeting are taken, setting out the deliberations, as well as the factors taken into account in the decision-making process.

Full and frank disclosure should be made to the court and the opposing parties, and a trustee would be unwise to try to bolster an application after the event by way of further expert opinion or lay evidence.

This is a salutary lesson to trustees to ensure that they are taking their duties seriously and can properly evidence their decision-making process when making a momentous decision. It is also a reminder that good preparation is essential.

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John Greenfield

John Greenfield is Managing Partner and an Advocate at Carey Olsen in Guernsey 

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