PT-2024-000315 - [2025] EWHC 3011 (Ch)

Ground 3 – alleged failure to act fairly and disinterestedly in the administration of the Trust

Next, the Claimants allege that the Trustees have failed to act fairly and disinterestedly in the administration of the Trust. In truth, this ground consisted of a variety of sub-grounds, which were collected and presented together as allegedly demonstrating an overall lack of impartiality on the part of the Trustees.

The first sub-ground concerns an alleged lack of impartiality in the distribution of Trust assets. In their evidence in support of the claim, the Claimants alleged that they had received no distributions from the Trust, other than payments towards Leah’s children’s school fees. They contrasted this lack of any distribution with the position of Guy, whom they said had received substantial benefits from the Trust.

In response, Paddy’s evidence is that Graham wanted Nathan and Leah to receive their benefit from the Trust primarily via their remuneration as directors of Millpledge, including via the ‘profit share’ that they might receive. Paddy set out in his evidence the aggregate remuneration (including salary, ‘profit share’ and other benefits) received by Nathan and Leah from Millpledge between 2016 and 2023. I did not take this summary of the amounts received to be contested by the Claimants. I do not think it is necessary for me to set the figures out here, but substantial annual payments were made.

Following the removal of Nathan and Leah as directors of Millpledge, and indeed following the issuing of these proceedings, the Trustees have recently indicated to Nathan and Leah that they are now in a position to begin making regular distributions of income to them.

On the particular issue of school fees, Leah alleged an unfair difference of treatment between the beneficiaries: she said in her witness statement that the Trustees had “withheld school fees from me for nearly 3 years whilst I believe paying Guy’s son’s school fees in full immediately and potentially including a deposit despite his son being at twice as expensive a school.” In his evidence, Paddy explained that the Trustees had considered it appropriate to cap payments for school fees. It seems that this resulted in Guy’s children’s school fees being paid in full, but Leah’s children’s school fees were not paid in full because her son was attending a more expensive school. In her reply evidence, Leah states that she had never been informed of this cap, and that in any event she has two children whereas Guy has three, such that, even were her children’s school fees to be paid in full, the aggregate payment towards her children’s school fees would still be less than the aggregate payment towards Guy’s children’s school fees. The Claimants also complain that the Trustees assisted Guy in respect of his tax affairs (by ensuring that he was provided with an annual Form R185), but that similar assistance was not afforded to the Claimants.

In his skeleton argument, Mr Burton submitted on behalf of the Claimants that the disparity of treatment in respect of distributions reflected the fact that the Trustees view Nathan and Leah as “entitled spoilt brats”, and that the Trustees had in reality set about to exclude Nathan and Leah from receiving any benefit from the Trust. In both his skeleton argument and in oral submissions, Mr Burton rejected the contention that the payment of remuneration (salary, ‘profit share’ and other benefits) by Millpledge to Nathan and Leah constituted benefits received from the Trust: rather, he submitted that Nathan and Leah were “paid their salaries in return for the work they completed as directors and employees of the company, and in accordance with their respective contracts.” He submitted that the more recent indication by the Trustees that regular distributions of income would be made to Nathan and Leah was not guaranteed and could be withdrawn at any time, and that Nathan and Leah have little confidence that the Trustees will continue with these distributions.

In response, Mr Learmonth KC submitted that Nathan and Leah had between them, and during their tenure as directors, received the lion’s share of payments made by Millpledge under its ‘profit share’ scheme, and that these sums were not paid to them simply as a result of their position as directors and employees of the company, but in recognition of their position as beneficiaries of the Trust. Mr Learmonth KC submitted that this was entirely consistent with Graham’s worldview, pursuant to which Graham wanted Nathan and Leah to receive their benefit from the Trust primarily via their remuneration as directors and employees of Millpledge, and that Graham envisaged and wanted Nathan and Leah to reinvest the majority of these payments back into the company. As to school fees, Mr Learmonth KC submits that the Trustees’ decision to place an upper limit on school fees was a reasonable decision, taken in light of the financial conditions then faced by the Trust.

I do not consider that this sub-ground has any real merit. I do not consider that the Trustees’ approach to the Trust in the period between Graham’s death and Nathan and Leah’s dismissal as directors of Millpledge can be said to demonstrate unfair or partial treatment of the beneficiaries. On the contrary, in my judgment the approach taken to the administration of the Trust in that period seems to me to have closely followed Graham’s wishes, with Nathan and Leah receiving considerable benefits from their roles in Millpledge, whereas Guy received distributions derived from the Trust’s properties.

In this regard, I do not accept that the benefits received by Nathan and Leah from their roles in Millpledge should be disregarded or treated as irrelevant. It is undeniable that this is primarily how Graham wished Nathan and Leah to receive benefits from the Trust, and it seems to me to be obvious that their status as beneficiaries of the Trust was taken into account in the decision that they would between them receive the majority of the ‘profit share’ made available to the company’s directors.

Following their dismissal as directors, Graham’s wish that Nathan and Leah receive benefits primarily through their role at Millpledge has been thwarted. In those circumstances, the Trustees have evaluated the situation, and have decided to commence monthly distributions to Nathan and Leah. I do not consider that decision to have been unreasonable or indicative of a lack of impartiality. Nor do I consider that the possibility that such payments are not fixed, and therefore may be subject to future change, is in itself supportive of the claim – it is in the nature of discretionary trusts that the provision of benefits from the trust remains subject to an exercise of the trustee’s discretion from time to time. I do not accept that the Trustee’s decision to place a cap on school fees is inherently unreasonable, and it is certainly not so unreasonable as to constitute a breach of duty on the Trustees’ part.

I therefore reject the assertion that the Trustees’ approach to distributions constitutes a breach of their duty to act fairly and disinterestedly in the administration of the Trust.

The next sub-ground is that the Trustees have acted improperly and in breach of duty in respect of the expulsion of Nathan and Leah as directors of Millpledge. At the outset I should say that, while this sub-ground was grouped under ground 3 – that is, the allegation that the Trustees have acted in breach of their duty to act fairly and disinterestedly in the administration of the Trust – it does not fit naturally under that heading, because it does not on its face relate to a disparity of treatment between the beneficiaries of the Trust. In reality, it is more of a free-standing complaint that the Trustees have acted in an unlawful and unfair manner towards the Claimants. But at the final hearing it was dealt with under this ground, and I therefore address it at this stage of my judgment.

In essence, the complaint is that Nathan and Leah’s removal as directors of Millpledge was unlawful because a proper process was not followed. Mr Burton submitted that section 169 of the Companies Act 2006 confers on directors a non-derogable statutory right (i) to receive a copy of any notice of an intended resolution to remove that director from office; (ii) to be heard on the resolution at the meeting; and (iii) to have any written representations on the intended resolution circulated to the members of the company (or read out at the meeting, if it is too late to circulate them). It is said that these statutory provisions were not complied with in relation to the removal of Nathan and Leah as directors of the company. It is therefore said that the Trustees acted unlawfully. The Claimants also point to the fact that, on the same day that Nathan was removed as a director of the company, the Trustees executed a written resolution amending the Articles of Association of Millpledge, which in his oral submissions Mr Burton characterised as being a bungled attempt by the Trustees to facilitate Nathan’s removal as a director of the company (‘bungled’ because the Claimants’ case is that the rights conferred on the directors by section 169 of the Companies Act cannot be disapplied by a company’s Articles of Association).

In response, the Trustees’ position was that there was ample justification and need for both Nathan and Leah to be removed from their position as directors of the company. As to the allegation that a proper process was not followed, Mr Learmonth KC provided what he said was a direct answer to that point, that the statutory rights at section 169 of the Companies Act 2006 are engaged only in respect of a resolution to remove a director pursuant to section 168 of the Act, which was not the route adopted in respect of the removal of Nathan and Leah as directors. However, he also made the more fundamental point that the Claimants have not brought any proceedings or sought any relief in respect of the allegation that their dismissal as directors of Millpledge was undertaken unlawfully.

Moreover, while the Trustees accept that Nathan and Leah’s removal as directors of the company is contrary to Graham’s worldview, they say that the decision was taken in the best interests of the company, and therefore of the Trust. Mr Learmonth KC submitted that the removal of Nathan and Leah as directors of the company is actually a reason against, rather than in favour of, the Trustees’ replacement in office, as the principal source of friction between the Claimants and Paddy in particular (namely, the hostility at board level) has now been removed.

In my judgment, this sub-ground does not provide any support for the claim:

Two other points were grouped under this ground, which may be taken relatively shortly.

First, it was submitted that the Trustees had misapplied Graham’s letter of wishes, “slavishly” following it in respect of the benefits conferred on Guy from the Trust’s property income, such that Nathan and Leah had not even been considered for benefit from that source of income. It was submitted that this was established on the face of Malcolm’s evidence in his second witness statement. But looking at the passage referred to, Malcolm referred to Graham’s letter of wishes requesting that Guy be treated as the “main beneficiary of Graham’s property portfolio” and that “Nathan, Leah and Guy [be] the main intended beneficiaries of any Company profits.” That does not show that Guy is being treated as the sole beneficiary of the property portfolio – rather, it refers to Graham asking that Guy be treated as the main beneficiary of the income generated by that portfolio. That is precisely what Graham’s letter of wishes asks the Trustees to do. I do not consider that there is any basis in the evidence to conclude that the Trustees have failed to exercise their discretion properly in respect of the distribution of the property portfolio income.

Second, it was submitted that the Trustees had failed to act unanimously. Thus, in respect of the expulsion of Nathan and Leah as directors of Millpledge, it was suggested that the ‘family’ trustees - Sarah and Maldwyn – “were either kept in the dark until after the event or simply, passively, went along with everything Paddy and Malcolm wanted.” It was also submitted that there was “good evidence” from which it could be inferred that Sarah and Maldwyn had simply taken “a back seat” in the administration of the Trust. The trouble with those allegations is that both Sarah and Maldwyn are very clear in their evidence that they have always been fully involved and engaged in trustee decision-making. Thus, for example, Maldwyn said in his witness statement that “[t]he Claimants appear to aver that I am not in agreement with my fellow Trustees around the management of the Trust. This could not be further from the truth. Whilst my co-trustees and I have been confronted with some difficult decisions over the years, we have always been unanimous in our decision-making and I consider it a privilege to have served with them.” Sarah has provided similar evidence.

In circumstances in which neither Maldwyn nor Sarah has been cross-examined, this seems to me to be another situation in which it would be impossible for the court to disbelieve their evidence and to find – notwithstanding their direct evidence to the contrary – that the Trustees have not acted unanimously in the administration of the Trust. I therefore decline to do so.

In the premises, in my judgment none of the points grouped together under ground 3 provides any support for the claim to replace the Trustees.