Gregson v HAE Trustees Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr. Robert Miles QC: |
| Judgment Date | 08 May 2008 |
| Neutral Citation | [2008] EWHC 1006 (Ch) |
| Docket Number | Case No:HC06C04165 |
| Court | Chancery Division |
| Date | 08 May 2008 |
[2008] EWHC 1006 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr. Robert Miles QC sitting as a Deputy Judge of the High Court
Case No:HC06C04165
Nicholas Le Poidevin (instructed by Ashurst) for the Claimant
Guy Newey QC & David Mumford (instructed by Lovells) for the Second and Third Defendants
Alan Steinfeld QC (instructed by Brecher Abrams) for the Fifth Defendant
Hearing dates: 24 & 25 April 2008
HTML VERSION OF JUDGMENT
Introduction
By a deed of settlement of 17 June 1960 (“the Settlement”) between Henry Cohen (“the settlor”) and the first defendant (“HAE”), the settlor created a discretionary trust the objects of which included the issue of the settlor's grandparents.
The settlor and his two brothers, Alfred and Edwin, had previously acquired and built up a furniture business then known as Courts Bros (Furnishers) Limited, which later became Courts plc (“Courts”). By the early 1960s Courts was already a valuable company.
HAE was incorporated on 30 May 1960 to act as an executor or administrator of estates or as a trustee. It took its name from the first initials of the three brothers, Henry, Alfred and Edwin. Over the years it was appointed as trustee of a number of Cohen family trusts and settlements including the Settlement.
The original directors of HAE were Henry, Alfred and Edwin Cohen. Later others were appointed as directors, mostly members of the Cohen family. The second to fifth defendants are sued as former directors of HAE (the fourth defendant representing a former director of HAE).
Substantially the whole of the property of the trust, at all material times, consisted of shares in Courts which the settlor transferred to HAE shortly after the Settlement was created (together with various accretions which have since arisen on scrip or bonus issues) (“the Courts shares”). It is common ground that none of the Courts shares represented later purchases by HAE. HAE has retained the Courts shares since they were settled.
The claimant, who is a member of the Cohen family, is a beneficiary of the Settlement under an appointment made in 1991. Her share is 25.733% of the trust fund.
On 30 November 2004 Courts went into administration. The company was and is insolvent with an estimated deficiency for members of £70,000,000. The Courts shares (and, with them, the property of the trust) became worthless.
The claimant alleges that HAE was in breach of duty in failing to review the need to diversify the assets of the Settlement and that had it done so, and taken appropriate professional advice, it would have diversified and avoided the losses it has suffered.
HAE has no assets and therefore, although a party to this action, it has played no part. The real targets are the directors of HAE, the second to fifth defendants. The claimant seeks to claim against them not on the basis of a directly owed fiduciary or tortious duty but by alleging that they are liable to HAE for breach of their duty of care to HAE and that such claims of HAE are trust property of the Settlement. Since HAE will not and cannot be expected to sue, the claimant claims to be able to sue as a beneficiary of the Settlement. Claims of this kind, based on the idea that a corporate trustee's claims against its directors are held on trust for the trusts it administers, have become known as “dog leg claims”.
The second to third defendants and the fifth defendant have issued applications to strike out or for summary judgment. They say, first, that the dog leg claim lacks reasonable grounds or has no real prospect of success, and, secondly, that HAE did not owe any duty to review diversification of the trust funds because, under the Settlement, the Courts shares were to be held in their original form until HAE decided in its discretion to convert them into money for future investment, and that until that happened there was no duty to consider diversification.
The parties are agreed that the evidence relevant to these two issues is complete, in the sense that nothing further of relevance will emerge between now and the end of a trial, and all sides urged me to decide both of these points one way or the other rather than simply deciding whether the claim was arguable.
The first defendant's absence has already been explained. The fourth defendant, as personal representative of one of the former directors, pleads plene administravit and agrees to submit to the determination of the Court of the factual and legal issues in the claim. Her absence does not therefore prevent me from deciding the issues raised one way or other.
The claimant was represented by Mr. Le Poidevin, the second and third defendants by Mr. Newey QC and Mr. Mumford, and the fifth defendant by Mr Steinfeld QC. Mr. Newey took the lead for the defendants on the log leg point, and Mr. Steinfeld led on the trustee's duty point. I am grateful to them all for their clear and succinct arguments.
Further factual background
The remaining facts relevant to the two points for decision can be stated quite shortly.
The Settlement included the following terms:
“1(b) “the Trust Fund” means the said sum of £100 and any further money or property that may at any time or times hereafter be paid or transferred to or otherwise vested in the Trustees by or at the instance of the settlor without any other direction or declaration of trust and the property for the time being representing the same respectively.
The Trustees shall hold the Trust Fund as to so much thereof as shall consist of money upon trust to retain the same [or] any part thereof uninvested for so long as the Trustees may think fit or at any time or times in the discretion of the Trustees to invest the same or any part thereof in any manner hereinafter authorised and as to property other than money upon trust to allow the same or any part thereof to remain in its actual condition or state of investment for so long as the Trustees may think fit or at any time or times in the discretion of the Trustees to sell call in and convert into money the same or any part thereof.
Money subject to the trusts hereof may be invested in the purchase or other acquisition of any property of whatsoever nature and wheresoever situate and whether or not subject to encumbrances or involving liability of any kind (including the lending or deposit of money with or without any personal or other security and upon any terms and conditions whatsoever) to the intent that the Trustees shall have the same full free and unrestricted powers of investment and of changing investments as if they were absolutely entitled to the Trust Fund beneficially.”
Turning to HAE, it was incorporated as a company limited by guarantee and not having a share capital. Its objects were to act as executor of wills and other testamentary dispositions, as administrator of the estates of deceased persons, and as trustee of trusts. By clauses 4 and 5 of the Memorandum of Association the affairs of the company were to be conducted with a view to avoiding the acquisition of any profit or gain and no part of the income, property or assets of the company were to be transferred whether by way of dividend, bonus or otherwise to any member of the company.
By clause 37 of the Articles of Association the company in general meeting had power to appoint any member of the company to be a director and by clause 38 the board had the power to appoint any member of the company to fill a casual vacancy or as an addition to the board so that any such director would hold office until the next following annual general meeting and would then be eligible for re-election.
By clause 30 of the Articles the first directors were Henry, Alfred and Edwin Cohen.
Soon after its incorporation on 30 May 1960, HAE became the trustee of a number of Cohen family trusts. On 8 June 1960 it became trustee of the AS Cohen Trust and the EN Cohen Trust; on 17 June 1960, of the ES Cohen Trust and of the Settlement; on 4 February 1963, of the EG Cohen Trust; on 8 March 1963, of the PC Cohen Trust; and on 23 August 1967, of the BJR Cohen Trust. In the 1990s HAE was also appointed trustee of ten trusts of life insurance policies in respect of various members of the wider Cohen family.
From time to time HAE incurred liabilities to outside creditors including its solicitors and accountants and was liable to pay tax.
I should also say what is not in issue on these applications. The defendants say that they did in fact consider the question of diversification of the Courts shares from time to time and had good grounds for concluding that the shares should be retained. They say it was always the wish of the Cohen family, including the claimant and the other appointees of the Settlement, that Courts should remain substantially a family owned and managed company. They rely on letters of wishes by which the settlor stated in 1988 that the shares should not be sold except in the case of a takeover. They point out that the holdings of the various family members in Courts, which together comprised a majority holding, continued until late 2004, and that diversification would have risked eliminating the family's controlling holding. They also refer to the terms of shareholders agreements affecting the shares, to potential tax liabilities from a sale of the shares and to the possibility of a disposal of Courts or its business during 2004, all of which they say were good reasons not to diversify. They also allege...
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