Trustees: Beware of conflicts between your personal interests and those of the trust! (Manton & ors v Manton)

23rd February 2021 Will Disputes

The High Court, on the 29th January 2021, handed down its judgment in the case of Manton and others v Manton [2021] EWHC 125 (Ch). This is an interesting case concerning the removal of a trustee (despite the fact he was also a beneficiary) due to conflicts between his personal interests and the fiduciary duties he owed as trustee.

Background

The Warren Manton Children’s Settlement (“the Trust”) was established in 1999 by Lillian Manton. Lillian and her husband Edward Manton, had 3 children, Richard, Roger and Warren. The original trustees were Warren and his wife Madge, the first and second claimants in the action. The trust property was settled on discretionary trusts for the benefit of a class consisting of Warren and Madge’s own children, Paul (the Defendant), Tim and Joanne (the 3rd and 4th Claimants) and their respective remoter issue, spouses, widows and widowers, or a charity.

The trust owned, amongst other things, the entire share capital of a holding company which owned 2 subsidiary companies. All 5 parties to the claim were simultaneously the trustees of the Trust and the directors of the 3 companies within the trust. Paul and Tim acted as joint managing directors in the principal operating subsidiary company, whilst Joanne had a senior administrative role. A serious disagreement between Paul on the one hand and Tim and Joanne on the other led to these proceedings. Paul subsequently resigned as both a director and employee of the principal operating subsidiary company and went to work for a competing business incorporated by his wife. At this point, alarm bells should have been ringing as to how he was in a position to comply with his duties as a trustee in taking that step given the competing nature of the business. Many of the trading company’s former customers with whom Paul had previously dealt ceased to deal with the trust company and became customers of his wife’s business. The Claimants argued that Paul’s involvement with his wife’s company constituted a breach of his duty not to put himself in a position where his personal interests conflicted with his fiduciary duty as a trustee.

Paul also sought to argue that he should not be removed as a trustee because he retained an interest in the trust as a beneficiary and he was concerned as to how the remaining trustees may then act.

The Court’s decision

The overriding consideration here was the proper administration of the trust and the interest of the beneficiaries following Letterstedt v Broers (1884) 9 App Cas 371 & Thomas & Agnes Carvel Foundation v Carvel [2007] EWHC 1314 (Ch). Similarly, in following the approach to case management in cases such as Long v Redman and Schumacher v Clarke, the court placed a particular focus on the trust and the interests of the beneficiaries as a class distinct from the beneficiaries as individuals.

Furthermore, the court accepted that proof of loss was not a threshold requirement when considering the fiduciary conflict rule. HHJ David Cooke stated “it cannot be necessary to wait and see whether any loss actually results… in considering whether a trustee should be removed, when the court focuses on the proper administration of the trust and interests of the beneficiaries in securing its proper administration, a breach of duty which puts the trust at risk of loss is highly relevant, whether or not it can be demonstrated that the loss has actually occurred”.

Plainly, on the facts of the case, there was a real risk that one of the trust assets and therefore the trust, would suffer a loss as a result of Paul’s breach of his duty to avoid conflicts, specifically his involvement in a competing business which was taking customers away from one of the businesses in the trust.

Further, the Court did not accept that Paul should remain as a trustee given his status as a beneficiary and his concerns over what the trustees may then do. The remaining trustees would have duties to all the beneficiaries and in the event that they did exercise their powers to seek to exclude him in some way then there could be a potential breach of trust claim which would give him protection. In this case the Court clearly felt that Paul had contributed to the situation in which he now found himself and therefore had little sympathy for his concerns in this respect.

Conclusion

The judgment serves an important reminder of the implications of the no conflict rule and the extent to which it imposes restraints upon a trustee’s actions. The seriousness of a trustee’s fiduciary duty should not be underestimated. If there is any doubt then a trustee would be well advised to take legal advice before any such step is taken otherwise, like in this case, they could find themselves removed as a trustee even if they also have an interest in the trust as a beneficiary.

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Alison Parry is a Partner located in Manchester in our Will and Trust Disputes department

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