The Court has handed down judgment in Cotterell v Allendale (2020 EWHC 2234 (Ch)) granting trustees' new powers pursuant to s57 of the Trustee Act 1925 and the Court's inherent jurisdiction. This is the first time the Court has granted a number of these powers in these circumstances using s57, thus setting a legal precedent.
The primary purpose of the court application was for the trustees to be granted the power to re-appropriate assets in order to allow the trustees to more easily move assets between the various family sub-trusts.
At the same time, the trustees sought further powers to be added to the family trusts. These further powers were designed to enhance the management and/or administration of the trust property in the future.
The trusts in question are for the benefit of Lord Allendale and his family. The main family trust was created in 1949 and therefore lacked some of the provisions more modern trusts now have as standard.
s57 of the Trustee Act 1925
The application was made pursuant to s57 of the Trustee Act 1925.
Under s57, the Court can grant trustees additional powers relating to the management or administration of the trust property provided that the trustees (i) currently lack the relevant power and (ii) the Court considers it “expedient” to grant the power.
Power to re-appropriate
The Court considered the power to re-appropriate first.
It was argued that the power was necessary so that the trustees could transfer assets between the various sub-trusts and thus allow the assets to be held in a tax efficient manner. It was also said to be generally desirable to have flexibility in easily moving assets in between the funds.
The Court agreed that the trustees currently lacked the proposed power, it would be expedient for them to have it, and so granted the power.
Other enhanced powers
The Court then went on to consider the further powers sought. These included a power to pay assets to a minor, to appoint investment advisers, to delegate the management of investments and also an authorisation to carry out self-dealing transactions. The rule against trustees entering into self-dealing transactions is one that provides protection for beneficiaries; but can create difficulties where trustees are trustees of related trusts, or shareholders of related companies or beneficiaries of the trust.
The important point was that there were no specific transactions currently being contemplated at the time of the court application – the powers were being sought to enhance the smooth running of the trusts in the future.
The Court considered the extent to which it can grant powers under s57 where there is no particular contemplated transaction/disposition and where the new power was of a general nature and not directly transactional. These two questions have been the subject of academic debate for some time.
After considering the case law and academic commentary, the Court agreed with the applicant trustees' argument that s57 can be construed to allow the court to grant general powers (not just in relation to contemplated transactions) provided that the powers involve or are linked to a potential transaction.
On this basis, the Court granted the main enhanced powers, including the authorisation to carry out self-dealing transactions, with the important protection that at least one of the trustees must not have any personal interest in any proposed transaction.
In addition, the trustees sought an additional power to pay remuneration to a trust corporation when appointed to act as trustee of the trusts. This power was sought under the court's inherent jurisdiction rather than s57 of the Trustee Act 1925. Again, the court recognised that it was not necessary for there to be a current intention to appoint a trust corporation on the proposed terms, it was enough that if, in the future, the trustees considered that the good administration of the trusts required there to be a remunerated trust corporation in place they now have power to do so.
The case of Cotterell v Allendale has expanded the circumstances in which s57 can be used to gain increased powers for trustees. This follows Withers' success in Gelber v Sunderland Foundation (2018] EWHC 2344 (Ch)) in which it was held for the first time that the Court's jurisdiction under 57 can be used to enhance powers to appoint or replace trustees.