Re Montagu's Settlement Trusts

JurisdictionEngland & Wales
CourtChancery Division
[CHANCERY DIVISION] In re MONTAGU'S SETTLEMENT TRUSTS DUKE OF MANCHESTER v. NATIONAL WESTMINSTER BANK LTD. [1979 M. No. 2412] 1984 June 18, 19, 20, 21, 22; 1985 March 29 Sir Robert Megarry V.-C.

Trusts - Constructive trust - Beneficiary - Trustees releasing property to beneficiary absolutely in breach of trust - Beneficiary having notice of trust - Whether beneficiary having knowledge of terms of trust - Whether beneficiary constructive trustee of property

By clause 14 of a family re-settlement made in December 1923, the future tenth Duke of Manchester assigned to trustees “all articles of furniture plate pictures and other chattels” to which he was absolutely entitled in remainder after the death of the ninth Duke, and by paragraph (B) the trustees, after the death of the ninth Duke or, if and so far as practicable and convenient, during his lifetime, were to select and make an inventory or inventories of such chattels as the trustees in their absolute discretion might consider suitable for inclusion in the settlement, and were to hold the residue in trust for the future tenth Duke absolutely. The ninth Duke died in February 1947 but the trustees made no inventory of the chattels and by the end of 1948 had released them to the tenth Duke. The Duke's solicitor, who knew of the settlement and at an earlier stage had known of the effect of clause 14, informed the Duke in a letter dated 15 November 1948 that he was free to sell the items released. The Duke disposed of a number of items during his lifetime. After his death in 1977, the plaintiff, the eleventh Duke, brought an action alleging, inter alia, that the trustees had been in breach of trust in failing to make any selection or inventory of the chattels and in releasing chattels to the tenth Duke, and he claimed a declaration that the tenth Duke had become a constructive trustee of the property:—

Held, that the trustees, along with the Duke's solicitor, had sufficiently conveyed to him in the letter of 15 November 1948 that they were treating clause 14(B) of the settlement as allowing them to release the chattels to him as being his absolute property, but there was no reason why the solicitor's accurate knowledge of the meaning of clause 14(B) at some earlier date should be imputed to the Duke so that his conscience was affected, and his failure to make inquiries had imposed a constructive trust on him; that even supposing the Duke did once understand the true meaning of clause 14(B) of the settlement, there was nothing to suggest that he remembered its terms and, therefore, knew at the time when he received the chattels, that they were trust property; that, accordingly, although the trustees had been in breach of their fiduciary duty in transferring the assigned chattels to the Duke in 1948, he had not received them as a constructive trustee (post, pp. 1209A–B, 1210G–H, 1211A–C, 1212B–C).

Carl Zeiss Stiftung v. Herbert Smith & Co. (No. 2) [1969] 2 Ch 276, C.A. applied.

Baden, Delvaux and Lecuit v. Societe General pour Favoriser le Developpement du Commerce et de l'Industrie en France S.A. [1983] B.C.L.C. 325 considered.

Per curiam. It is at least doubtful whether there is a general doctrine of “imputed knowledge” that corresponds to imputed notice (post, pp. 1211H–1212B).

The following cases are referred to in the judgment:

Amalgamated Investment & Property Co. Ltd. v. Texas Commerce International Bank Ltd. [1982] Q.B. 84; [1981] 2 W.L.R. 554; [1981] 1 All E.R. 923; [1982] Q.B. 84; [1981] 3 W.L.R. 565; [1981] 3 All E.R. 577, C.A.

Baden, Delvaux and Lecuit v. Societe General pour Favoriser le Developpement du Commerce et de l'Industrie en France S.A. [1983] B.C.L.C. 325

Barnes v. Addy (1874) 9 Ch.App. 244

Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. [1979] Ch. 250; [1978] 3 W.L.R. 712; [1979] 1 All E.R. 118, C.A.

Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. (No. 2) [1980] 1 All E.R. 393, C.A.

Blundell, In re (1888) 40 Ch.D. 370

Boursot v. Savage (1866) L.R. 2 Eq. 134

Carl Zeiss Stiftung v. Herbert Smith & Co. (No. 2) [1969] 2 Ch. 276; [1969] 2 W.L.R. 427; [1969] 2 All E.R. 367, C.A.

Competitive Insurance Co. Ltd. v. Davies Investments Ltd. [1975] 1 W.L.R. 1240; [1975] 3 All E.R. 254

Consul Development Pty. Ltd. v. D.P.C. Estates Pty. Ltd. (1975) 132 C.L.R. 373

Dearle v. Hall (1828) 3 Russ. 1

Diplock, In re [1948] Ch. 465; [1948] 2 All E.R. 318, C.A.

Habib Bank Ltd. v. Habib Bank A.G. Zurich [1981] 1 W.L.R. 1265; [1981] 2 All E.R. 650, C.A.

International Sales and Agencies Ltd. v. Marcus [1982] 3 All E.R. 551

Ipswich Permanent Money Club Ltd. v. Arthy [1920] 2 Ch. 257

Karak Rubber Co. Ltd. v. Burden (No. 2) [1972] 1 W.L.R. 602; [1972] 1 All E.R. 1210

Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [1968] 1 W.L.R. 1555; [1968] 2 All E.R. 1073

Taylors Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd. (Note) [1982] Q.B. 133; [1981] 2 W.L.R. 576; [1981] 1 All E.R. 897

Vane v. Vane (1873) 8 Ch.App. 383

Williams v. Williams (1881) 17 Ch.D. 437

Willmott v. Barber (1880) 15 Ch.D. 96

The following additional cases were cited in argument:

Allen-Meyrick's Will Trusts, In re [1966] 1 W.L.R. 499; [1966] 1 All E.R. 740

Baden's Deed Trusts, In re [1967] 1 W.L.R. 1457; [1967] 3 All E.R. 159; [1969] 2 Ch. 388; [1969] 3 W.L.R. 12; [1969] 1 All E.R. 1016, C.A.; [1971] A.C. 424; [1970] 2 W.L.R. 1110; [1970] 2 All E.R. 228, H.L.(E.)

Costabadie v. Costabadie (1847) 6 Hare 410

Harker's Will Trusts, In re [1969] 1 W.L.R. 1124; [1969] 3 All E.R. 1

Leek, decd., In re [1967] Ch. 1061; [1967] 3 W.L.R. 576; [1967] 2 All E.R. 1160; [1969] 1 Ch. 563; [1968] 2 W.L.R. 1385; [1968] 1 All E.R. 793, C.A.

Lindo v. Lindo (1839) 8 L.J.Ch. 284

Locker's Settlement, In re [1977] 1 W.L.R. 1323; [1978] 1 All E.R. 216

Nelson v. Larholt [1948] 1 K.B. 339

Swan, In re [1915] 1 Ch. 829

Tempest v. Lord Camoys (1882) 21 Ch.D. 571, C.A.

Turner v. Turner [1984] Ch. 100; [1983] 3 W.L.R. 896; [1983] 2 All E.R. 745


By clause 14 of a family re-settlement dated 20 December 1923, the future tenth Duke of Manchester, then known as Viscount Mandeville, assigned to trustees certain chattels to which he was entitled in remainder expectant on the death of his father, the ninth Duke, and he directed by paragraph (B) that they should be held

“Upon trust after the death of the present Duke or (if and so far as may be found practicable and convenient) during his lifetime to select and make an inventory or inventories of such of the chattels hereby assigned as the trustees in their absolute discretion may consider suitable for inclusion in the settlement hereby made (which selected chattels are hereinafter called ‘the selected chattels’) and to hold the residue (if any) of the said assigned chattels in trust for Viscount Mandeville absolutely.”

Paragraph 14(c) then provided that the released chattels should devolve with the settled hereditaments.

After the death of his father in February 1947, the trustees during 1948 and 1949 delivered to the tenth Duke certain of the chattels. Many of these were intended by him to be sold and were in fact sold, and others were retained by him unsold. No selection of chattels or any inventory had been made by the trustees in accordance with clause 14(B) of the 1923 settlement. In November 1977 the tenth Duke died and all the chattels subject to the trust came into the possession or under the control of his widow, the Dowager Duchess of Manchester.

By writ and statement of claim dated 29 June 1979, as amended, re-issued on amendment and re-amended, the plaintiff, the eleventh Duke, alleged against the remaining trustees of the 1923 settlement, inter alia, that in breach of trust they had failed to make any selection or inventory of the assigned chattels as required by the tenth Duke under clause 14(B) of the settlement; further, that they were in breach of trust in delivering certain of the chattels to the tenth Duke knowing that he intended to sell them and did sell them without accounting to the trustees for any part of the proceeds; further, that in taking possession of and dealing with the chattels delivered to him, knowing they were subject to the trusts of the 1923 settlement, the tenth Duke held them as a constructive trustee, and in causing them to be sold he was in breach of trust; further that the Dowager Duchess now held the chattels as a constructive trustee, alternatively, as a volunteer. The plaintiff claimed a declaration that, upon the true construction of clause 14 of the settlement, it was the duty of the trustees to select and make an inventory of such of the heirlooms, i.e. the chattels, as they in their discretion considered suitable for inclusion in the settlement and that in making such selection, they were bound to treat as suitable all articles other than those which, by virtue of their defective condition, were of no or trivial value. The plaintiff claimed an alternative declaration that the trustees had a duty to make an inventory within a reasonable time after the determination of the life interest of the ninth Duke, and that by their failure so to do, all the heirlooms (other than those of no or trivial value) were to be deemed to have been selected. Inquiries were asked for relating, inter alia, to the identity of the heirlooms at the date of the death of the ninth Duke.

Of the eight defendants to the writ, only the eighth, the Dowager Duchess of Manchester, took part in the proceedings. She was sued as executor of the will of the tenth Duke in relation to his assets not situated in the United States of America or Kenya. A stay of proceedings was ordered against the first defendant, National Westminster Bank Ltd., and the other defendants except the fourth and fifth, the remaining trustees of the 1923 settlement, but they took no part in the proceedings; they considered they would be sufficiently covered by the contentions advanced on behalf of the eighth defendant.

On 21 December 1983 after...

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