B e f o r e :
LORD JUSTICE MOORE-BICK
LADY JUSTICE BLACK
LORD JUSTICE VOS
|| Wilson Cotton
||(1) David Michael James Brudenell-Bruce, Earl of Cardigan
(2) Richard James Cameron Ford
(3) Thomas James Brudenell-Bruce, Viscount Savernake
(Transcript of the Handed Down Judgment of
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Ms Penelope Reed QC and Mr Thomas Entwistle (instructed by Thrings LLP) for the Claimants/Respondents
Mr Gilead Cooper QC and Mr James Weale (instructed by Berwin Leighton Paisner LLP) for the 1st Defendant/Appellant
Mr Christopher Tidmarsh QC (instructed by Forsters) for the 2nd and 3rd Defendants/Respondents
Hearing dates: 24th and 25th September 2014
HTML VERSION OF JUDGMENT
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- Everyone now agrees that Tottenham House, Savernake, Wiltshire ("Tottenham House") which is the principal asset of the Savernake Estate, must be sold. It has been unoccupied since the 1990s, is decaying fast, and is on English Heritage's 'at risk' register. It comprises two huge properties: the grade 1 listed house itself running to some 92,000 square feet, and the extremely dilapidated grade II* listed stable block amounting to some 24,000 square feet. The question in this case is simply whether the court should approve the proposed sale to the existing buyer.
- The Savernake estate is the generic name for a trust established by a conveyance dated 29th September 1951 (the "trust") of which the claimants in this action are the present trustees (Mr Wilson Cotton and Mr John Moore, whom I shall call "Mr Cotton" and "Mr Moore", together the "trustees"). Mr Cotton is a professional chartered accountant. In these proceedings (which I shall call the "approval action"), the trustees sought the approval of the court for their momentous decision to sell Tottenham House to an unnamed buyer ("Mr A") under a conditional contract for sale dated 19th August 2013 for £11.25 million (the "intended sale").
- The beneficiaries of the trust are the first defendant, the Earl of Cardigan ("Lord Cardigan"), and a settlement created on 27th May 1987 (the "1987 settlement"), of whom Mr Cotton and the second defendant in the approval action, Mr Richard Ford, are the trustees (the "1987 trustees"), and under which the third defendant, Viscount Savernake, Lord Cardigan's son, is the main beneficiary ("Lord Savernake"). The 1987 trustees support the trustees in seeking the approval of the intended sale. Lord Cardigan opposes the intended sale.
- Two judgments are under appeal. In the first, Mr Nicholas Lavender QC, sitting as a deputy judge of the High Court, decided on 23rd December 2013 to adjourn the trustees' application for the approval of the intended sale to be heard with the trial of an earlier action numbered HC12A03886 (the "removal action"). In the removal action, Lord Cardigan as claimant seeks the removal of the trustees broadly on the grounds that they are unfit to act. Mr Lavender stated in his order that he would have ordered that the trustees be authorised to complete the intended sale, were it not for Lord Cardigan's claims in the removal action. He also ordered that the court hearing the removal action would only reconsider whether the trustees should be authorised to complete the intended sale if it thought fit to do so.
- At the time of the hearing before Mr Lavender, the removal action was expected to be tried in March 2014. In the event, however, it was delayed, and the trustees applied successfully to Rose J under the liberty to apply allowed by Mr Lavender's order, effectively to lift the stay on the approval of the intended sale. Rose J's order in fact simply authorised the trustees to complete the intended sale. Lord Cardigan originally contended that Rose J was wrong to upset Mr Lavender's direction that the question of the approval of the intended sale should be available for reconsideration alongside the removal action. But this contention has been overtaken by the fact that the removal action was ultimately tried before Newey J between 3rd and 21st July 2014. Newey J has reserved judgment until after judgment in these appeals. He refused to hear evidence about, or to consider the approval of, the intended sale, because that issue was, as he saw it, already the subject of a pending appeal.
- In these circumstances, Mr Gilead Cooper QC, counsel for Lord Cardigan, submits in his supplemental skeleton argument that Mr Lavender's direction that the trustees' application for approval of the intended sale be adjourned to be heard with the removal action has "been rendered nugatory". Instead, Lord Cardigan submits that the main question before this court is whether Mr Lavender and Rose J were correct, in effect, to approve the intended sale.
- The parties differ as to whether the intended sale price is a good one that represents an opportunity not to be missed (as per the trustees), or whether the price is inadequate and has been the result of an ineffective and inadequate marketing exercise (as per Lord Cardigan). The intended purchaser, Mr A, would originally have ceased to be bound by the intended sale contract on 19th August 2014, but has agreed with the trustees to extend the long-stop date to 6th April 2015.
- The appeals raise questions as to the proper approach of the court to applications to approve a momentous decision made by trustees. The approval action was, as is normal, a claim brought under Part 8 of the CPR. There was no order for disclosure and the judges below heard neither oral evidence nor cross-examination. As will become apparent, that has provoked some discussion to which I shall return. The procedure for approval of a trustee's decision is to be contrasted with the procedure for challenging a trustee's decision after the event. In that situation the challenger would bring a claim under Part 7 of the CPR that would be tried in the normal way with disclosure and oral evidence.
- This case is somewhat unusual in that there is now, as I have said, no continuing dispute as to the trustees' actual decision to sell Tottenham House. What is in dispute is the process by which that sale should be achieved. Thus, whilst the court was asked to approve the intended sale itself, if it were to do so it would also be approving the process by which that sale had come about; otherwise, there would have been no point in the trustees approaching the court at all.
- Although the basic tests that the court will apply in dealing with an approval application have not been much in dispute, the argument revealed an important difference of approach between the two sides. In essence, it was as to the circumstances in which the court might approve a transaction when expert advice had been followed by the trustees. Mr Cooper's argument was that the expert advice that the trustees received raised a number of questions that ought to prevent the court approving the intended sale, whereas Ms Penelope Reed QC, counsel for the trustees, and Mr Christopher Tidmarsh QC, counsel for the 1987 trustees, submitted that if the trustees received and followed expert advice, they should not be required to second guess it and the court should not withhold its approval. As will appear in due course, I think it is important to distinguish carefully between allegations that trustees have not fulfilled their duties to the beneficiaries, and allegations that trustees' professional advisers have acted in breach of their duties to the trustees.
- In these circumstances, it has been necessary for this court to consider the facts in detail. Before doing so, however, it is useful to set out the uncontentious legal background.
The legal background
- In Public Trustee v. Cooper  WTLR 901, Hart J repeated Robert Walker J's now well-known categorisation of cases in which trustees may seek the approval of the court. These proceedings fell into the second of Robert Walker J's categories (see page 923 in Cooper), namely where there is no real doubt as to the nature of the trustees' powers and the trustees have decided how they want to exercise them "but, because the decision is particularly momentous, the trustees wish to obtain the blessing of the court for the action". In Cooper, Hart J said at page 925 that the duties of the court in a category 2 case depended on the circumstances of each case, but that in that case, it had to be satisfied, after a scrupulous consideration of the evidence, of three matters as follows:-
i) That the trustees had in fact formed the opinion that they should act in the particular way relevant to that case;
ii) That the opinion of the trustees was one which a reasonable body of trustees properly instructed as to the meaning of the relevant clause could properly have arrived at;
iii) That the opinion was not vitiated by any conflict of interest under which any of the trustees was labouring.
- In Richard v. Mackay 4th March 1987, (1987) 11 TruLI 23 (but also later reported at  WTLR 1667), Millett J said this as to the approval of the court at page 1671:-
"Where, however, the transaction is proposed to be carried out by the trustees in the exercise of their own discretion, entirely out of court, the trustees retaining their discretion and merely seeking the authorisation of the court for their own protection, then in my judgment the question that the court asks itself is quite different. It is concerned to ensure that the proposed exercise of the trustees' powers is lawful and within the power and that it does not infringe the trustees' duty to act as ordinary reasonable and prudent trustees might act, but it requires only to be satisfied that the trustees can properly form the view that the proposed transaction is for the benefit of beneficiaries or the trust estate.
It must be borne in mind that one consequence of authorising the trustees to exercise a power is to deprive the beneficiaries of any opportunity of alleging that it constitutes a breach of trust and seeking compensation for any loss which may flow from that wrong. Accordingly, the court will act with caution in such a case
- In Marley v. Mutual Security Merchant Bank  3 All ER 198, Lord Oliver expressed the test somewhat differently at page 203:-
"The question whether the trustee has demonstrated that the contract submitted for approval is in the best interests of the beneficiaries reduces, in such a case as this, to whether the trustee can satisfy the court that it has taken all the necessary steps to obtain the best price that would be taken by a reasonably diligent professional trustee. The question may equally well be expressed as whether the trustee has shown that it has fully discharged its duty. That question may appear to be very similar to the question whether to enter into the contract without taking further steps and without seeking the directions of the court would justify an action by the beneficiaries for misconduct justifying the removal of the trustee. Nevertheless there is an essential distinction in that, in such an action, the beneficiaries would be required to assume the positive burden of demonstrating a breach of fiduciary duty. A failure to do so does not demonstrate the converse, namely that the transaction proposed, because not proved to be a breach of fiduciary duty, is therefore one which is in the interest of the beneficiaries".
At pages 209-210, Lord Oliver dealt with the argument that a "bird in the hand was worth two in the bush" as follows, though his treatment was peculiarly particular to the facts of that case:-
"In the Court of Appeal, Rowe P regarded it as doubtful whether the respondent, having entered into the conditional contract, could even investigate an alternative offer, but regarded that offer in any event as unworthy of serious consideration because the respondent had no knowledge of the financial stability of the proposed purchaser and because, in postponing conclusion of the conditional contract whilst the matter was investigated, the respondent risked losing the 'bird in the hand'.
What the Court of Appeal appears to have overlooked entirely was that, having regard to the course which it was proposed to take as regards the obviously unsatisfactory features of the conditional contract - that is to say the treatment of moneys falling due to the estate up to the closing date and in the interest-free postponement of a substantial part of the consideration - the 'bird in the hand' argument ceased to have any validity at all, for the effect of the order proposed and finally made was that the respondent had, in any event, to reject the conditional contract as it stood and to negotiate fresh terms with the purchaser if it proved willing to consider them.
- Hart J in X v. A  1 WLR 741 cited Millett J in Richard v. Mackay supra and emphasised the need for the court to act cautiously as follows at paragraph 30:-
"I would add that an additional reason for caution is that for procedural and other practical reasons the adversely affected beneficiaries are likely to be at a relevant disadvantage in such proceedings (assuming even that they have been made parties, which will not always be the case) as compared with the position they might be in if pursuing a hostile action after the event either against the trustees for breach of trust or designed simply to set aside the transaction as flawed. In particular the extent to which it is possible, or (while future discretions remain to be exercised) politic, to obtain full disclosure of all relevant deliberations of the trustees, or to subject evidence to cross-examination, is likely to differ in the two types of proceedings".
- In Tamlin v. Edgar  EWHC 3949 (Ch), Sir Andrew Morritt cited the previous authorities and continued by emphasising the need for full disclosure by the trustees at paragraph 25:-
The very fact that the decision of the trust is momentous, taking that word from the description of the second category, and that the decision is that of the trustees, not of the court, makes it all the more important that the court is put in possession of all relevant facts so that it may be satisfied that the decision of the trustees is both proper and for the benefit of the appointees and advancees. It is not enough that they were within the class of beneficiary and the relevant disposition within the scope of the power. It must be demonstrated that the exercise of their discretion is untainted by any collateral purpose such as might engage the doctrine misleadingly called a fraud on the power. They must satisfy the court that they considered and properly considered their proposals to be for the benefit of the advancees or appointees. All this requires the full and frank disclosure to the court of all relevant facts and documents. The court is not a rubber stamp and parties and their advisors must be astute not to appear to treat them as such. The further evidence adduced since the first hearing of this application satisfies me on all those points but without it it is likely that I would have rejected this application".
- Both sides originally relied on the judgment of Briggs J in Jones v. Firkin-Flood  EWHC 2417 (Ch) at paragraph 281 concerning the circumstances in which a finding that trustees are unfit to act might affect the court approval of their actions. It is worth reciting his dictum in full, even though the relevance of the removal action to these appeals has now significantly reduced:-
"I am fortified in reaching my conclusion that I ought not to confirm or bless the provisional resolution by my perception, which I have already described in detail, that the Trustees had by their conduct prior to February 2008 demonstrated their collective and individual unfitness to be Trustees of this trust. It is most unusual for the court to be invited to bless a discretionary decision by trustees against such an unpromising background. Furthermore, it seems to me that the relatively limited role which the court has hitherto chosen to adopt in category (2) cases (within the Public Trustee v. Cooper analysis) may well have been developed in the context of decisions by trustees whose general fitness was not in dispute. For that reason I would add to the category of cases in which the court may feel insufficiently certain about the propriety of a proposed discretionary decision that it declines to bless it, without at the same time prohibiting it, a case just like the present, where the trustees have demonstrated a general unfitness to act, by conduct prior to the taking of the decision in question".
- I will return in due course to the way in which these various expressions of the appropriate tests and words of judicial caution are applicable in this case.
- One of the problems with this case has been the apparent paucity of information available as to the marketing history of Tottenham House. The following chronological summary is derived mainly from the material placed before the court by the trustees, but will be observed to be, in places, incomplete. I have tried, however, to include in their chronological place the important pieces of advice that the trustees received upon which ultimately the outcome of this appeal will turn. This has inevitably lengthened this judgment.
- On 3rd November 2008, the trustees were appointed to take over from Lord Cardigan and Mr Ford after significant earlier litigation.
- On 10th February 2010, Mr Andrew H Bates MRICS ("Mr Bates"), who was then a consultant to the surveyor's practice in which Mr Nigel E.C. Talbot-Ponsonby FRICS ("Mr Talbot-Ponsonby") was a partner, namely HLL Humberts Leisure Ltd. ("HLL"), met the trustees. Mr Bates's note recorded that, over the previous 12 months, HLL had received several approaches enquiring as to the availability of Tottenham House, but they had not been progressed due to the fact that there was an existing lease, although Mr Bates was of the view that "a full international marketing campaign would generate additional interest, even in the current climate".
- On 11th February 2010, Mr Bates emailed the trustees, copying Mr Talbot-Ponsonby, to say that, if the then existing lease of Tottenham House was forfeited, "HLL's advice would be to undertake a full open market sales campaign, to ensure that the best outcome was achieved". Mr Cooper places reliance on these early pieces of advice as showing what any trustees would expect, namely that an open market sale was likely to be required.
- On 17th June 2011, the pre-existing lease of Tottenham House for development as a hotel and golf resort was forfeited.
- In August 2011, the trustees initiated early discussions with Knight Frank concerning a proposed sale of Tottenham House.
- On 2nd May 2012, Mr Moore wrote an email to insurance brokers, copied to Mr Cotton, saying that: "we have put in place a programme to dispose of [Tottenham House] by way of sale. We have had a number of initial meetings with Knight Frank to prepare for the marketing of the property and we shall shortly proceed with implementation of the disposal plan, following up on interest expressed by a number of parties".
- On 18th June 2012, Knight Frank valued Tottenham House including the house, the stable block and 424.7 acres of surrounding land (including some 303.7 acres of pasture and 86.2 acres of woodland) at £5 million (the "1st valuation"). Knight Frank also valued that property together with a 139.2 acre deer park at £6.45 million. The values were said to be Market Values as defined in the RICS Valuation Professional Standards (March 2012) Global & UK edition (the "Red Book"). Tottenham House was valued, on the trustees' instructions, as a single private residence, but Knight Frank expressed the view that it was "very unlikely that the mansion will revert to some form of institutional use".
- On 5th October 2012, Lord Cardigan began the removal action against the trustees. He alleged breaches of confidentiality, financial mismanagement of the trust's assets, a want of honesty, or at any rate candour, endangerment to trust property, a refusal to make disclosures, hostility, breach of privacy, criminal conduct and unlawful payment of remuneration to Mr Moore.
- By early January 2013, Mr Talbot-Ponsonby had moved to GVA Grimley Limited ("GVA"). Mr Talbot-Ponsonby says in his later report dated 10th December 2013 (to which I shall return) that GVA had received an unsolicited strong expression of interest from Mr A in early January 2013.
- On 15th and 16th March 2013, the trustees entered into an agreement, on GVA's standard terms, with GVA for GVA to act as the trust's joint agent with sole selling rights to market Tottenham House and to seek to arrange a disposal of it.
- On 21st March 2013, GVA invited bids for Tottenham House from four interested parties "following a strictly limited, and confidential selective initial marketing", on the basis of "best and final offers" by Noon on 27th March 2013 (a period of some 6 days). It offered Tottenham House and the Stable Block, together with 372.5 acres (which it described as "plan A"), and Tottenham House and the Stable Block, together with 804 acres (which it described as "plan B"). Offers were required to include an assurance that funds were readily available to enable a swift purchase.
- The highest bid received by 27th March 2013 was from Mr A, who offered £11 million for Tottenham House on the basis of a cash offer for "plan B", together with an escalator clause of £150,000 above any higher bid. The under-bidder, Mr B, offered £10.95 million subject to planning permission for a hotel and 100 residential units. He verbally indicated he would be very interested in plan A for £12 million subject to planning. Mr C and Mr D offered lower sums.
- On 26th April 2013, Knight Frank's second valuation put the value of plan A at £5 million, and the value of plan B at £8.5 million (the "2nd valuation"). It will be noticed that the 372.5 acres included in plan A is smaller than the 424.7 acres valued at £5 million by Knight Frank in their 1st valuation. This discrepancy was not explained. The valuations were again said to provide Red Book values, and Tottenham House was again valued, on the trustees' instructions, as a single private residence. Knight Frank repeated that it was "very unlikely that the mansion will revert to some form of institutional use". The 2nd valuation was in similar form to the 1st valuation, but included some additional passages not included in the 1st valuation. These additional passages included the following on which the parties have placed considerable reliance:-
"3.8 Our instructions relating to our previous report and valuation as at 18 June 2012 were not to cover alternative uses nor were we to revisit the past planning history relating to hotel use. It should however be noted that the previous lessee forfeited the lease which had been granted and in effect walked away from the hotel/golf resort project without implementing the planning permission and Listed Building Consent.
3.12 Our valuation ignores any alternative use of Tottenham House and any potential uplift in value as we are to value it as a single private residence.
3.19 Our valuation excludes the special purchaser and during its preparation, we have been made aware that there are prospective parties interested in the property although it is not to be placed in the open market. For Tottenham House, without it being tested in the open market, it is not possible to establish whether the best sale price to reflect Market Value has been achieved. Our valuation provides an indication of Market Value, but ultimately for such a rare trophy asset, it is a case of what a willing buyer who had acted "prudently, knowledgeably and without compulsion" might pay in the open market. Therefore, there is a risk that any sale that has not been tested in the open market with marketing and publicity, may not achieve a sum which represents its Market Value. The uncertainty relates to those prospective purchasers whether in the local, national or international market place who might be interested in the opportunity to buy Tottenham House and its landholding. Notwithstanding the liability for the restoration of the Grade I mansion there are some high net worth purchasers who may regard Tottenham House as an opportunity for a lifelong project and legacy. Tottenham House with the stables, cottage and parkland offers that opportunity.
3.20 Tottenham House is an extraordinary property and has a chequered history in recent years. There is no direct local comparable evidence as to its value. Whilst our Market Value reported may be entirely reasonable on the basis of a valuation in accordance with the [Red Book], there is the risk that it could make very substantially more that the Market Value reported depending upon the interest and the numbers of interested parties. There may well be a scenario that prospective purchasers with global wealth who want ownership of an estate and a chance to leave an epitaph for the success of their life, would pay a premium above the Market Value reported. Measurement of the upside cannot be quantified easily and therefore avoiding the open market could potentially create uncertainty as to the true Market Value. The unknown level of costs for the restoration of a Grade I Listed property would be an issue for many prospective purchasers.
3.26 The property has been in the same ownership for many years. The last leasehold sale was as a hotel/golf resort although we have no further details about this. We have been informed of the current off market sale transaction with 3 interested parties but have no further details about this".
- On 30th May 2013, the trust's bank wrote to the trustees offering to extend the trust's facility of £1,803,000 until the end of March 2014, but saying that the trust did not have sufficient income to warrant a borrowing of this magnitude, so that the extension was on the strict understanding that the trustees were committed to achieving asset sales sufficient to repay the borrowing within the period of the loan. The bank said that the trustees had indicated that they were endeavouring to sell Tottenham House which it saw as a sensible proposal, and that it would not wish to be approached for additional facilities during the period of the loan.
- On 31st May 2013, Mr Talbot-Ponsonby, on behalf of GVA, wrote a report to the trustees ("GVA's 1st report") which recommended a 2-stage marketing process and the acceptance of Mr A's offer. Mr Talbot-Ponsonby said that HLL had provided advice to the trustees over some 12 years before GVA acquired HLL in May 2011. Again, the parties have placed considerable reliance on the detail of GVA's 1st report, and I will therefore set out the relevant passages in full as follows. It will be observed that the report is talking historically about the marketing process that had already been undertaken by the date of GVA's 1st report:-
"Proposed Strategy and Sale Process
GVA was formally instructed to act in a sale capacity by the Trustee by virtue of the signed Terms of Business contract, dated 15 and 16th March 2013
both as a joint sole agent and to recommend a strategy to the Trustees for the sale of Tottenham House and certain associated land. On acceptance by the Trustees of this strategy a sale process would take place.
This paper seeks to set out the approach and strategy adopted by the Trustees following our recommendations. Included in the report is a copy of a schedule of bids following receipt of the offers, in which the names have been removed for reasons of confidentiality.
In April 2012, the Trustees instructed and obtained a formal valuation from surveyors Knight Frank and who presented their findings in January 2013 based on a valuation date of June 2012. The valuation set a benchmark for considering the sale of Tottenham House and allowed the Trustees to construct their preferred strategy for a disposal by GVA.
Over a period of years GVA/[HLL], and the Trustees had received unsolicited expressions of interest from a number of parties although the Trustees had not been in a position to engage with these parties in any meaningful way due to the then incumbent lessee still remaining in place and the lack of a valuation benchmark.
However, with the benefit subsequently of achieving vacant possession of the property, and having the Knight Frank valuation to hand, the Trustees were in a position to instruct GVA to make their recommendations in respect of a possible sale. This was to be undertaken in a two stage sale process.
Stage One was predicated on achieving an overbid resulting from restricted marketing to verified and previously interested parties. The strategy involved an approach to the selected parties who were then to be given a short timescale within which to work up a bid. The reason for adopting this approach are set out later in this report. If the highest, or that which was judged to be the best bid received, was significantly in excess of the Knight Frank valuation sum, and sat well in the context of other bids received, then the Trustees would be in a sound position to make a justifiable decision to whether or not to sell.
Apart from anticipated overbid(s), the advantages of a restricted marketing include speed of transaction, and increased certainty with regard to previously verified parties. Both were important aspects for the Trustees in the light of the progressive dilapidation of the Listed structure and fabric of Tottenham House, and other buildings within the immediate demise. The property is currently listed as being a 'building at risk' by the Local Authority.
Stage Two would involve undertaking a wide, open market offering with a full marketing and public advertising campaign placed in the national, specialist, regional and local press. Stage Two would be invoked if the result of the private Stage One process did not achieve sufficient level of bids or failed to compare favourably with the Knight Frank market valuation.
The market for large dilapidated properties of this type represented by Tottenham House, is narrow and specialist and those individuals who have such requirements and the attendant skill-set for conversion may often prefer to operate on a one to one basis directly with the vendor/retained agent or, in parallel, a strictly limited short list of parties. This engenders the impression, and the actuality, that they are being given a privileged opportunity to work up a bid where they may have a better than average chance of successful acquisition. This in turn, provides encouragement for the selected offeror to expend the necessary time, energy and cost in constructing a considerable bid, and for the vendor, the comfort that any bid submitted is reliable and fully researched.
In our experience privately placed bidding opportunities of this nature, for property in this narrow sector of the market, is well established and may result, as in this example of Tottenham House in a premium bid, over and above the
Red Book valuation criteria. Such bidders may be described as 'Special Purchasers' within the meaning of the 'Red Book'.
From the Trustees' perspective, receipt of a high value offer from the Stage One process as above, has the added advantage of speed, confidentiality and much reduced costs of sale.
Summary of Strategy
The benefits of the Stage One process may be summarized as follows:-
1. The ability to secure a buyer's premium, (if available).
2. Speed of transaction providing early certainty and cost savings relating to ongoing finance costs, estate management issues and further deterioration of the building fabric and structure if a sale process should fail.
3. Significantly reduced level of marketing costs.
4. The ability to negotiate with known parties and the certainty which that brings.
5. An ability to restrict the potential for unhelpful press interest by a competitive process privately conducted.
The intent is that by placing a short list of 'special purchasers' known to be interested in securing the property in competition a high premium price is secured. By selecting a small number of special interest purchasers, known to wish to compete, such limited numbers, in our experience, will normally be prepared to expend time and cost preparing and working up their bids, which may not be the case in an open market sales context where they are competing with a large, generally less qualified market interest. In that scenario large properties generally considered to be uneconomic in this modern age, may linger for a long period without a sale and thus become 'stale on the market'.
In conclusion, the two stage sale strategy was designed to maximize the bids from the Stage One offerors by seeking a buyer's premium within the designed short marketing timescale, all to be judged against the Knight Frank valuation and against those other bids received.
Stage One/Marketing and Bid Process
Under the Stage One process agreed with the Trustees, offers were sought from three parties who had each confirmed in advance, that they were ready, able and willing to make cash bids, subject to contract only in accordance subsequently with a letter of offer prepared by GVA
This process resulted in three written bids, two of which were significantly in excess of Knight Frank's updated April 2013 valuation.
Offers were sought on two bases, first for the house, land and buildings shown on Plan A, which formed the basis of Knight Frank's 2012 valuation; and secondly on a larger area including the House and buildings identified on Plan B.
The Plan B basis was included in the bidding process due to one of the bidders specifically stating that he was primarily interested in acquiring the House but only with the larger area of additional land. The Plan B basis was therefore included in all three invitations to bid in order to ensure a fair, like for like bidding platform.
Upon receipt of the bids, the Trustees were advised that it was prudent to obtain from Knight Frank an updated valuation of the June 2012 report, and also to obtain an additional valuation of the Plan B option, with its additional land, which had not previously been addressed.
With the subsequently updated and additional valuations to hand the Trustees would then be in a position to decide whether to accept a 'subject to contract' cash only offer from the Stage One process or whether there was a requirement to instruct on a wider public Stage Two marketing initiative as indicated above.
Analysis of Offers Received and Recommendations
The marketing strategy generated four written offers which varied both in value terms and in content, but with one bid standing out as being significantly superior in terms of price and deliverability. This was the bid from the CEO of a major plc, Mr A, who offered in his own capacity, £11m for Tottenham House with the extended acreage, in total amounting to approximately 804 acres.
Mr A's offer was subject only to contract and we have been assured that he has the necessary funds in place to obviate the need for any formal valuation and/or third party bank financing. In addition, Mr A is prepared to acquire the property on the basis of its present planning status, ie, there is no planning conditionality within his offer, and his intention is to convert Tottenham House back to a single family dwelling.
Furthermore, Mr A offered to effect an 'attended exchange' within 5 working days of the receipt of the draft contract and legal pack, underlining his enthusiasm and financial capacity.
The next highest bid was from a consortium headed by Mr B, a former owner of a hotel group, at £10.95m, for the enlarged site. However, this bid was conditional upon planning for a hotel and residential development along similar lines to a previously planned development, whose consent has now lapsed. Mr B's lawyers confirmed that funding was available, but the purchasing entity was not yet formed and the shareholder's agreement was not in place
We believe that Mr A's offer of £11m which is 29.4% in excess of Knight Frank's valuation, represents the significant overbid we were hoping for by undertaking the two stage marketing process we described. We would also comment that in the present uncertain real estate market, any fully funded and unconditional offers at acceptable levels of value should, with all other matters being equal, be enthusiastically embraced. We can therefore recommend that the Trustees seriously consider accepting Mr A's proposal subject only to agreeing the contract".
- On 4th June 2013, the trustees circulated a briefing note to the beneficiaries explaining the advice received from Knight Frank and GVA, and saying that the "the trustees have decided that it is in the best interests of the beneficiaries to sell Tottenham House", that they had been advised to seek the authority of the court for the sale "given that this is a momentous decision on behalf of the estate", and asking if they were in favour of following GVA's advice.
- It is somewhat unclear what precisely occurred after the bids were received, but it appears that Mr A's offer was increased at some stage to £11.25 million, after a period of exclusivity had been allowed to Mr B.
- On 19th August 2013, the trustees entered into a contract for the intended sale of the property to Mr A's nominee company for £11.25 million. The intended sale was conditional on the court approving it, and had a long-stop date which was initially agreed to be 13th August 2014.
- On 23rd August 2013, the trustees issued the Part 8 claim form in these approval proceedings seeking an order that the trustees "may be authorised" to enter into the intended sale transaction to Mr A.
- On 1st October 2013, GVA provided the trustees with a supplemental report on the marketing of Tottenham House, explaining in some detail why they regarded Mr A's offer to have been superior to that of Mr B.
- On 9th October 2013, the trust's bank wrote to the trustees saying that it was pleased to learn that the trustees had exchanged contracts for the sale of Tottenham House, that the bank was not prepared to provide additional facilities, but would, as a gesture of goodwill release £100,000 from the security it held over £200,000 in cash.
- On 6th December 2013, Lord Cardigan's expert valuer, Mr George Nicholas of Jones Lang LaSalle ("Mr Nicholas"), said that "we would expect that a comprehensive and internationally exposed sales and marketing campaign would drive competitive tension among bidders and likely result in offers around £15 million with some taking a view that the previous planning scheme, or one similar to it could be reinstated, thus giving confidence beyond that figure".
- On 4th December 2013, Lord Cardigan's expert surveyor, Mr Charles H de N Lucas FRICS FAAV ("Mr Lucas") prepared an expert report for the court indicating that he considered the approach to only 3 (sic) interested parties to be very restricted, that there could be a substantially wider market for the property, and that an open market campaign would be required to achieve the interest of high net worth individuals, companies and developers.
- On 10th December 2014, GVA produced a response to the reports prepared by Mr Lucas and Mr Nicholas. GVA included the following:-
"The marketing of Tottenham House was initiated as a result of a strong expression of interest from Mr A to GVA in early January 2013. Correctly, the Trustees were not prepared to countenance the sale on a solus basis to Mr A, so GVA were invited to put forward a cogent sales strategy.
On the basis that other unsolicited interest had been received by the Trustees and GVA/[HLL] over a period of 10 or more years, a strategy was devised to test a limited marketing against a formal valuation that was being prepared by Knight Frank. This process was developed between January and March 2013 and the outcome was the selection of a carefully qualified short list of bidders who were invited to make their offers in a letter from GVA dated 22 March 2013.
This process had the advantage of being focused, time saving and cost effective, and was carried out in the knowledge that a limited confidential marketing can often generate best value.
If as a result of the short form marketing, no bids were received which were significantly superior to the Knight Frank valuation, detailed plans were in place to proceed immediately to a pubic offering of the opportunity.
In the event, four bids were received, two were residential in nature and two were commercial. The highest bid was for the residential refurbishment of the Listed structure. This bid was also unconditional and fully funded and came from a well known party in the real estate world.
No third party finance or formal purchase valuation was required by the bidder which is unusual in any market conditions or property sector, and is thus significantly beneficial to the vendors [original emphasis].
In addition, the bid compared very favourably with the revised Knight Frank report, being some 32% higher than their like for like valuation.
1) In [Mr Lucas's] para 4(2), we would like to point out that the property was openly marketed by Knight Frank and then jointly with [HLL], (now GVA), in the late 1990's and early 2000's, and has been known in the open market as a possible purchase, on and off, for at least 15 years.
4) In his para 4(3), Mr Lucas concludes that in his opinion, an open market sale is likely to result in a higher offer. Property sales and marketing are not precise sciences and it was GVA's opinion that a short form marketing, very private campaign would and indeed did, produce a special premium price.
The resulting proposal from Mr A was as 'clean' an offering that could be hoped for in the present market, as it gave certainty at a price that exceeded valuation and was ahead of the other interest.
It is worth emphasising that the bidders commented that they were only interested in engaging in the sale process on the understanding that they were competing in a narrow off market field".
- On 23rd December 2013, Mr Lavender adjourned the trustees' application for the approval of the intended sale to be heard with the trial of the removal action. He included in the order a statement that he would have ordered that the Claimants be authorised to complete the intended sale but for Lord Cardigan's claims in the removal action, and made the adjournment subject to the following terms:-
i) That the court hearing the removal action would only reconsider whether the trustees should be authorised to complete the intended sale if it thought fit to do so; and
ii) That the trustees would be authorised to complete the intended sale unless the court hearing the removal action made some other order in respect of the intended sale.
- On 13th February 2014, the trust's bank wrote to the trustees concerning the interest of £21,000 that was due on 2nd April 2014, and saying that the bank was not prepared to extend the facility, and that failure to rectify the default would give rise to their right to take action under the loan and the security.
- On 3rd March 2014, Lord Cardigan's solicitors wrote to GVA asking a series of questions concerning Mr A, seeking disclosure of the details and documentation concerning GVA's dealings with Mr A and the trustees, and for further details of those to whom Tottenham House had been marketed. The response, perhaps not altogether surprisingly, was that the information sought was confidential.
- On 18th March 2014, the trustees issued their application for immediate approval of the intended sale.
- On 27th March 2014, Lord Cardigan's solicitors reiterated to the trustees' solicitors the requests they had made on 3rd March 2014 to GVA. Direct responses were not received before the hearing that took place a few days later before Rose J.
- On 31st March 2014, Rose J ordered that Mr Lavender's order be varied to the effect that the Court authorised the trustees to complete the intended sale.
- On 2nd April 2014, the bank loan of £1.8 million fell due, but was not repaid by the trustees.
- On 2nd May 2014, Lord Cardigan's solicitors wrote to the trustees' solicitors asking them to answer 6 questions which they had invited the trustees to answer when providing their witness statements. The questions included inquires about how the 4 selected purchasers became aware of Tottenham House, how they were selected and on what basis, and how the marketing was undertaken. No answers were received beyond what was already in GVA's reports and the evidence, although Ms Reed has submitted that proper answers were already to be found in that material.
- Between 3rd and 21st July 2014, Newey J heard the removal action, and reserved judgment until after this appeal as I have already indicated.
- On 24th July 2014, Mr A entered into a deed of variation of his sale contract with the trustees to extend the long-stop date under the contract until 6th April 2015.
- On 19th September 2014, Mr B's solicitors wrote to Lord Cardigan and Lord Savernake improving their offer for Tottenham House under plan B to £11.5 million, but offering a £575,000 non-returnable deposit, and loan of £5 million to the trust on advantageous terms. The offer remained, however, subject to the grant of planning permission for an hotel and for residential development.
Mr Lavender's judgment
- Mr Lavender summarised the proper approach to the application in paragraph 52 of his judgment as follows:-
"Three points were not in issue. First, the trustees must make full and frank disclosure to the court. Secondly the trustees bear the burden of proof. Thirdly, if the court is in doubt it should withhold its approval. To these I add a fourth point, namely that it is clear from the authorities, to which I shall shortly refer, that the court should adopt a cautious approach to an application such as this".
He referred to pages 1671-2 of Millett J's judgment in Richard v. Mackay supra, to paragraph 30 of Hart J's judgment in X v. A supra, to page 925 of Cooper supra, and to paragraph 25 of Sir Andrew Morritt's judgment in Tamlin v. Edgar supra. In the light of all these authorities, he concluded at paragraph 58 that he had to decide whether the trustees had proved that their decision to enter into and complete the intended sale was one which reasonable trustees could properly take in the interests of the beneficiaries. It will be observed that this is an adaptation of the second of Robert Walker J's formulations cited by Hart J in Cooper supra.
- Mr Lavender then referred to Briggs J's judgment in Jones v. Firkin-Flood supra and concluded at paragraph 61 that "[b]ut for the removal action, I would have been minded to make the order sought by the trustees". His reasons can be briefly summarised as follows:-
i) Whatever allegations were made about the marketing process, the trustees have an unconditional contract for sale. Re-marketing would involve risk. It might result in a higher offer, but it might also involve the loss of the present contract.
ii) In the meantime, Tottenham House would continue to deteriorate, the trustees would have to pay for insurance and safeguarding, and would face at least the risk of action by the bank to recover its loan secured on estate properties.
iii) Reasonable trustees could properly take the view that it was in the interests of the beneficiaries to prefer the bird in their hand to a bird in the bush.
iv) It was not unreasonable for the trustees to rely on Knight Frank's advice, supplemented by that of GVA. Mr Lucas advising Lord Cardigan had accepted that it was reasonable to value Tottenham House on the basis of residential user.
v) It was not unreasonable for the trustees not to market Tottenham House publicly, since GVA had advised that "[a] limited confidential marketing can often generate best value".
Rose J's judgment
- Rose J decided at paragraph 20 of her judgment that she should "now lift the postponement of the order made by the judge in December
activate, so to speak, the approval of the sale
". Her reasons may be briefly summarised as follows:-
i) The removal trial was delayed, and judgment was likely to be reserved, so the then long-stop date under the intended sale contract of 19th August 2014 might be reached before judgment.
ii) The prospects of obtaining another better offer were very uncertain.
iii) Something had to happen to prevent the trust defaulting on its bank loan of £1.8 million. There was a material change for the worse in the trust's financial position since December 2013.
iv) Without a sale of Tottenham House, the bank might enforce its security over the other cottages belonging to the trust posing a risk to the trust's main sources of income. Sale of the other properties might not even generate enough to pay off the bank debt.
v) The situation in this case was very different from that in Jones v. Firkin-Flood supra.
The grounds of appeal and the issues for this court
- The underlying issue for this court is, as I have said, whether Mr Lavender and Rose J were right to think that the criteria for the approval of the intended sale were satisfied in this case. If that issue is answered positively, all the other issues fall away.
- That said, Lord Cardigan's grounds of appeal raised a number of other issues at a time before the removal action was tried. On any analysis, at least the last three of them are now of secondary, if not tertiary, importance, since the removal action has been tried and there is no possibility of Mr Lavender's order being reconsidered alongside it. I shall nonetheless set out all the issues originally raised by Lord Cardigan as follows, and will deal with the peripheral ones briefly, because Mr Cooper was somewhat reluctant completely to give them up.
i) Issue 1: Whether Mr Lavender (and to a lesser extent Rose J) failed to take proper account of the trustees' failure to make full and frank disclosure of:-
a) Payments of some £118,000 to Mr Moore, which the trustees admit to have been unauthorised (and which are, it is said, unlikely to be authorised by the court on the trustees' application in the removal action);
b) The fact that it was in the trustees' own interests for there to be an immediate sale;
c) The limited instructions given to Knight Frank, information concerning Knight Frank's and GVA's instructions, advice and the marketing of Tottenham House.
ii) Issue 2: Whether all or any of the following factors ought to have led Mr Lavender and/or Rose J to the conclusion that the sale ought not to be approved:-
a) Any lack of full and frank disclosure established under issue 1 above;
b) The fact that Knight Frank was not asked to value Tottenham House other than as a single private residence;
c) The fact that Tottenham House was never put on the open international market which Knight Frank said might mean that it may not achieve its market value, but was instead marketed within strict time limits to a limited number of interested bidders;
d) The facts that (a) Knight Frank was not asked for and did not produce their 2nd valuation, and (b) GVA was not asked for, and did not produce, GVA's 1st report until after the bidding process was complete;
e) The fact that it is unclear whether Knight Frank knew the level of the bids when it produced the 2nd valuation;
f) The rejection of the "bird in the hand" approach in Marley v. Mutual Security Merchant Bank supra per Lord Oliver at pages 209-210;
g) The need for the court to adopt a cautious approach to an application of this kind.
iii) Issue 3: Whether Mr Lavender and/or Rose J were wrong to conclude that the intended sale was the best offer reasonably available or that the trustees had acted reasonably and taken into account all relevant factors.
iv) Issue 4: Whether Rose J had the jurisdiction to approve an immediate sale, bearing in mind Mr Lavender's holding that it would be wrong for him, in advance of the decision in the removal action, to give an unconditional blessing to the intended sale. Lord Cardigan submits that Rose J, in effect, heard an appeal from Mr Lavender's decision, when no such appeal had been mounted, and such an appeal would anyway have gone to the Court of Appeal, not to another Chancery judge.
v) Issue 5: Whether Rose J was right to think that there had been a material change in circumstances after Mr Lavender's decision, caused by the delay in the trial of the removal action and/or the financial difficulties faced by the estate. Lord Cardigan suggests that Mr Lavender was aware of these possibilities.
vi) Issue 6: Whether Rose J wrongly rejected the possibility that other sources of finance could have been obtained instead of the sale of Tottenham House, either by reclaiming remuneration wrongly paid to Mr Moore, or by the sale of other estate assets.
- The 1987 trustees' respondents' notice seeking an order for sale whatever the result of the other appeals does not give rise to any distinct issues beyond those that I have mentioned.
Issue 1: Nondisclosure
- I start then with what is called "non-disclosure" in the Appellant's Notice, despite the fact that the issue is not truly about non-disclosure at all. The process adopted by the trustees was to seek the approval of the court for the intended sale. In order to succeed in such an application, the trustees must, as Sir Andrew Morritt made clear in Tamlin v. Edgar supra, put the court in possession of all relevant facts so that it may be satisfied that the decision of the trustees is proper and for the benefit of the beneficiaries. Moreover, it must be demonstrated that the exercise of their discretion is untainted by any collateral purpose. This process could be seen as one of "disclosure", but I would prefer to regard it as an evidential exercise. The trustees have the burden of proof and must, therefore, give the court all the information and disclosure that it requires to be satisfied that approval can be granted. If they fail to do so, they will not obtain the approval they seek. But the court may, in such a case, send the trustees away to produce more evidence. Whilst the process is not inquisitorial, it is part of the inherent jurisdiction of the court to supervise trustees. The court would be unwilling, I think, to countenance the refusal to approve a proper, and momentous, transaction on some technical ground based upon an incidental failure to produce adequate material to the court.
- Lord Cardigan's allegations of "non-disclosure" are to be viewed against that background. His first and most important contention is that Mr Moore failed frankly to inform the court that he had been paid some £118,000 by way of remuneration, which was not permitted under the terms of the trust, since he was and is not a professional trustee. Lord Cardigan's point is that the court ought to have been told that that sum of £118,000 was immediately due and payable to the trust and should have been factored in as a trust asset when the court considered the financial necessity of the intended sale. Moreover, Lord Cardigan points out that Rose J did not even mention the point in her judgment approving the intended sale.
- The trustees answer these points by saying that Mr Cotton exhibited the pleadings in the removal action to his first statement dated 23rd August 2013 in support of the approval action, and Lord Cardigan's Particulars of Claim clearly alleged that Mr Moore had been in receipt of unlawful remuneration. The trustees relied also on Mr Cotton's defence and counterclaim that was also exhibited and sought retrospective approval from the court for such payments. Mr Cooper's response is to say that, whilst the court does have jurisdiction to validate such payments retrospectively, it is a jurisdiction that is sparingly exercised (see Lewin on Trusts, 18th edition, 2008, at paragraph 20-175).
- There is no doubt, in my judgment, that the fact that Mr Moore had been in unlawful receipt of trust assets was relevant to the determination that both judges had to make. The monies ought properly to have been repaid pending the determination of the counterclaim in the removal action, and, had they been, the financial position of the trust would have been commensurately improved. That was a factor that should have been taken into account in determining the need for the intended sale.
- Having said that, it seems that Mr Lavender, at least, did take the point into account since he mentioned the removal action and the allegations made at paragraph 60 of his judgment. And the point is now academic since all parties are agreed that a sale is necessary. Accordingly, it does not seem to me that this contention can have any significant bearing on the outcome of this appeal. No doubt it will be a matter that Newey J will deal with in his judgment in the removal action.
- As to the other aspects of alleged non-disclosure, I do not think that Lord Cardigan's allegations reached first base. Put shortly, there was no question of the trustees having a conflict of interest in wanting to sell Tottenham House. Mr Cooper's suggestion that the trustees wanted to complete the intended sale so that they could bring the trust to a speedy end, and thus obtain relief from their responsibilities was simply a speculation. In any event, even if they were so motivated, that does not make them personally "interested" in the transaction in the technical sense. Even if it had, all are now agreed that there must be a sale and it is common sense that the sale should be sooner rather than later bearing in mind the trust's poor financial position.
- Finally, Lord Cardigan complains that inadequate information has been provided about the instructions given to Knight Frank and GVA and, most significantly, about the details of the marketing process that GVA undertook; in particular as to where Mr A came from, and the details of the advice that the trustees received. Those questions are again not really matters of "non-disclosure" but directly affect the question of whether the trustees have satisfied their burden of showing that they are proposing to act properly and for the benefit of the beneficiaries. I would propose therefore to deal with the point under the next heading.
Issues 2 and 3: Were the judges right to approve the intended sale?
- This is the crux of the case. Mr Cooper centred his oral argument on 3 main points as follows:-
i) The trustees ought to have taken notice of the serious caveats that Knight Frank inserted into their 2nd valuation to the effect that their valuations were not really reliable in the absence of a full open and international marketing campaign.
ii) The evidence of the limited marketing exercise itself was exiguous. There were numerous unanswered questions arising from GVA's reports as to how the selected bidders had been procured and selected, and the dealings that had taken place with them. The whole process was "shoddy".
iii) The advice that the trustees received was really recording a fait accompli. It was only provided after the deal with Mr A had been agreed. There never was intended to be a second stage to the marketing process. It had always been intended to sell to Mr A, who might for all the court knew be connected to GVA in some undisclosed way.
- These were powerful submissions, and they were most attractively presented. At one stage in the argument, the court asked whether Ms Reed wanted, on behalf of the trustees, to apply to put in further evidence to answer the questions that Mr Cooper had raised. The trustees ultimately, however, made no such application. Instead, Ms Reed and Mr Tidmarsh sought to show how all the supposedly unanswered questions, doubts and uncertainties that Mr Cooper had so persuasively raised were, in truth, a chimera that the court would be ill advised to heed.
Knight Frank's caveats
- Knight Frank put their caveats into their 2nd valuation, but not their 1st valuation. Ms Reed said that the caveats were inserted because they were protecting their backs. But it is true that paragraph 3.19, cited above in full, makes clear that there is a risk that any sale that has not been tested in the open market with marketing and publicity may not achieve a sum that represents its true market value. And examples have been provided that show situations in which keen, if not technically "special", purchasers have come forward from an open market campaign, and have been willing to pay 2 or 3 times the original valuation. Any trustee or beneficiary would be ill-advised to ignore such a possibility in the case of a unique asset such as Tottenham House.
- Ultimately I am not persuaded that the trustees were obliged, as Mr Cooper submitted they were, to ask further more searching questions about Knight Frank's caveats. Nor am I persuaded that the facts that an open market campaign appeared to be common sense and had previously been advised pointed clearly to the need for further action by the trustees. Essentially this is for the following reasons.
- Knight Frank were advising on valuation, and GVA were advising on marketing and sale processes. GVA in fact advised the trustees clearly and cogently that a limited directed marketing strategy was advantageous and appropriate. GVA gave good reasons for rejecting an open market campaign if the targeted approach produced the desired results. Those reasons were sensible and intelligible. They were, in essence, that the trustees needed a speedy, low cost sale. The specialist bidders that a targeted approach produced would not actually be interested in the property if there were an open market campaign, because they wanted the time and comfort of being allowed to work up their bids in a period of calm and confidence. Whilst perhaps counter-intuitive, a property with the difficulties and dilapidations of Tottenham House, might well secure a better price if marketed to those, and only to those, who had already expressed a real interest and had the money available. In my judgment, the trustees were entitled to take this advice. It was advice that effectively acknowledged and responded to Knight Frank's caveats. Of course, the trustees knew that no valuation could be certain without an open market offering. That was common sense, but in a sense it is always the case. And I do not accept that the trustees were obliged to second-guess the professional view of the experts they had instructed to market the property and to obtain the best price available in the circumstances.
- The history of Tottenham House was chequered indeed. It had been on and off the market for some time, and had been shown to be a commercially questionable proposition by the failed hotel and golf course project that resulted in the forfeiture of the pre-existing lease. GVA's view that an open market campaign was risky and undesirable, if a price in excess of the Knight Frank valuation were otherwise achieved, was entirely plausible and sensible. The trustees could reasonably have accepted it.
- It was also submitted that, for such a momentous decision, and bearing in mind Knight Frank's caveats, the trustees ought anyway to have obtained at least one more formal valuation. I do not think there can be rules about how many valuations are prudent. In this case, as can be seen from the expert evidence filed on behalf of Lord Cardigan, producing a reliable valuation of property such as Tottenham House is a difficult and expensive exercise. In reality GVA were well aware from their years of experience in dealing with Tottenham House of the parameters of appropriate value. I do not think that the trustees can be criticised in the circumstances of this case for not obtaining a third expert's opinion.
The evidence as to GVA's marketing exercise was exiguous
- This point also seemed compelling at first sight. GVA was somewhat coy about how Mr A and Mr B had appeared, saying only that they had made unsolicited approaches in January 2013. Mr Cooper was justified in asking why they should have approached GVA, when GVA was not even instructed until March 2013. But, on proper analysis, in my judgment, the point turned out to be insubstantial.
- First, whilst it is true that GVA did not tell the court who precisely they had approached or why the 4 bidders were ultimately selected, they did explain what they were looking for and why. They were looking for bidders who had the money, could complete quickly, and would enter into an unconditional contract. Those parameters were sound considering the trust's bad financial position. The bidders they chose broadly satisfied some or all of these requirements. Mr A satisfied them all. Of course, it is true that there might well be, out there, an oligarch or high net worth overseas individual or corporation willing to pay more. But the process of finding them is so filled with potential risk that the focussed targeted marketing operation utilising those who had already put themselves forward was, GVA thought, far preferable.
- I do not think that the trustees can be criticised for accepting GVA's clear view. They were the experts. They were accomplished and well-reputed in this market. One might ask how it would have helped if they had given the court more information about Mr A's history and antecedents and how he approached GVA in the first place. His bid is what it is and can be evaluated against the available expert evidence on its merits. It is true, of course, that GVA may have acted negligently in selecting the bidders. If, for example, they were later shown to have excluded a worthy bidder for an inappropriate reason, there might be a claim by the trustees against them. But there is no evidence of anything of the sort, and, in any event, as I said at the outset, there is a clear distinction to be drawn between the duties of the trustees to the beneficiaries and the duties of the experts to the trustees.
- This aspect of the argument raised in sharp focus the procedure that is adopted when trustees seek the approval of the court to a momentous transaction. The procedure is intended to be quick and accessible. The question was raised as to what ought to happen when issues of contested fact are raised that the CPR Part 8 procedure is not well adapted to resolve. As it turns out, in this case, it does not ultimately seem to me that such issues were central to the court's determination. But one can imagine cases where they would be. In such a case, the court can always order that the issues of fact are tried under the Part 7 procedure, or anyway after disclosure and oral evidence. I do not, however, think that such a situation would frequently arise, because the trustees are not asking the court to find facts. They are asking the court to decide whether they have presented sufficient evidence to satisfy it that the trustees have fulfilled their duties to their beneficiaries in deciding upon the transaction in question, and have formed a view which, in all the circumstances, reasonable trustees could properly have formed. This is a very different exercise from the situation, after the event, where a beneficiary is seeking to prove that the trustees have failed in their duties by selling, for example, at an undervalue.
- In this context, I should explain why the questions as to the limited marketing exercise did not need to be answered as matters of fact before the court. Put simply, in my judgment, they are all interesting questions, but of peripheral importance, unless there were, which there is not, evidence of wrongdoing in the process. The detail of how a professional marketing expert came by an interested bidder does not really matter. What is important is that that bidder fulfilled the desired criteria. Mr Cooper emphasised that the trustees must act as prudent men of business and obtain answers to questions that such a prudent person would ask. That is not in dispute. But in reality, GVA's reports, properly understood, provided the answers that a prudent man of business needed. The intended sale was advisable in preference to an open market campaign for the cogent reasons GVA gave.
- Finally, under this heading, I do not think that Mr Nicholas's valuation of some £15 million or the very recent improved offer from Mr B takes the matter any further. Mr B's offer is still conditional, and would open the trust to significant problems if the £5 million loan were made and then withdrawn. The trustees can still properly take GVA's advice that an unconditional contract is more advantageous. The higher valuation, which lacks any kind of specificity, does not impugn the detailed advice provided by Knight Frank and GVA.
Mr A was a fait accompli
- This was as close as Mr Cooper came to alleging impropriety. But he did not really allege it for very good reasons. He had no evidence on which to base such an allegation. As it seems to me, Ms Reed was right to say that the trustees' duty of disclosure would have required them to tell the court if they knew that GVA had improperly promoted Mr A's bid or if they were taking a secret commission. It may have looked possible that Mr A was always the preferred bidder from GVA's point of view, but there is nothing to suggest that that was for any other reason than that he satisfied the desired criteria and was extremely keen to acquire Tottenham House.
- The court cannot and should not speculate about possible wrongdoing in the absence of concrete evidence. Here there was none. The trustees' concern was to get the best possible price for Tottenham House as speedily and unconditionally as possible. It seems to me that GVA achieved that for them and they were justified in seeking to rely on their advice.
- I have, I hope, now dealt with Lord Cardigan's main points. Before leaving these aspects of the case, I should, however, mention two further matters.
Placing caution in context
- The first point is this. The authorities that I have mentioned above that emphasise the need for caution in approving a trustee's decision to undertake a momentous transaction need, I think, to be placed in context. The court will not approve a trustee's decision without a proper evidential basis for doing so. But the court should equally not deprive a trustee of approval without good reason.
- I was much struck in this case by the prospect that, if the appeal were allowed, the trust would be in an impossible bind. Ms Reed made it clear that the trustees could not possibly prudently go ahead with the sale to Mr A having been denied the court's approval. The trustees might in theory apply to the court again on new evidence, but more likely, they would be thrown into an open marketing campaign, against the advice of GVA, which they could ill-afford, and which would, very possibly, lose the specially interested purchasers who have done so much work to put their bids together. Moreover, the trust has no money. It has defaulted in repaying the bank, and has to expend large sums on insurance and upkeep. The bank will, in all probability, enforce the security it holds against three of the smaller properties on the estate. The effects of denying approval, if approval is truly warranted, are potentially dire.
- The decision that these trustees have reached is indeed a momentous one. The court is not a rubber stamp and must be cautious to ensure that it is satisfied that the trustees are indeed justified in proceeding in accordance with their decision. But the court should not place insurmountable hurdles in the way of trustees in the position of those before this court. The court has a supervisory jurisdiction that needs to be exercised in appropriate circumstances. Caution cuts both ways.
- Finally, in this context, the fact that the beneficiary is in a weaker position than he would be, after full disclosure and cross-examination at a trial of an action to challenge the trustees' actions, cannot, by itself, mean that the court should withhold consent. It is true that court approval will prevent a later challenge. But if the court is given sufficient and appropriate material on which to act, it should not withhold consent just in case something better might in the future turn up.
The other points raised in the grounds of appeal
- I am conscious that I have said little thus far about the other points, going to the approval itself, raised in Lord Cardigan's notice of appeal. For the sake of completeness, I should make it clear that none of them, in my judgment, is sufficient to impugn the judges' decision to approve the intended sale.
- Mr Moore's remuneration: This was, as I have said, a factor that ought to have been taken into account in considering whether to approve the intended sale, because it affected the financial position of the trust. Since it is now common ground that a sale is inevitable, the point is, as I have said, one for the removal action.
- Valuation as a single private residence: Lord Cardigan suggested that Knight Frank ought not to have been instructed to value Tottenham House only as a single private residence. This turned out to be a non-point, since it was clear from Knight Frank's valuations, GVA's advice, and the history of the property that this approach gave figures that were not inappropriate.
- The late provision of the valuers' reports: This attack concerned the fact that Knight Frank did not produce their 2nd valuation, and GVA did not reduce their advice to writing, until after the marketing process had been completed. Again, at first sight, the criticism seemed significant. But again, on analysis, there was, in my judgment, nothing in it. Knight Frank and GVA had been involved in one way or another all along, even if GVA only received formal instructions in March 2013. The process was correctly perceived as urgent. All that seems to have happened is that the trustees approved GVA's plans orally and the paperwork was put in place after the event. Whilst this might not have been the best way to proceed, the need for an early sale was pressing, and the trustees cannot be criticised for the delays in obtaining the reports.
- Knight Frank's knowledge of the bids when it produced its second valuation: This criticism turned out to be ill-founded. Knight Frank's 2nd valuation makes clear that they knew there had been bids but that they did not know what they were.
- Was a bird in the hand worth two in the bush? The truth in this case is that there was no bird in the hand until the marketing process was complete and the trustees had contracted with Mr A. There was also no real bird in the hand in the Marley case as Lord Oliver explained in the passage I have cited above. Whilst maxims and analogies can sometimes be helpful, in this case, I do not gain any assistance from considering whether the trustees were right to regard Mr A's "bird in the hand" as preferable to an international marketing campaign. The point is, as I have said, that the trustees were justified in acting on competent professional advice. There was no reason, in the circumstances that existed, for them to question or second guess that advice.
- For these reasons, in my judgment, Mr Lavender and Rose J were right to conclude that the trustees had shown that their decision to enter into and complete the intended sale to Mr A was one which reasonable trustees could properly take in the interests of the beneficiaries. Moreover, I have formed the view that the trustees have shown that in acting on GVA's professional advice, they will fulfil their duties to their beneficiaries.
Issues 4-6: Was Rose J justified in approving the sale having heard an application under Mr Lavender's liberty to apply? Was Rose J justified in thinking there was a relevant change of circumstances? Was Rose J justified in rejecting the possibility of other sales?
- I can deal with these issues together. None of them is any longer more than academic, since it is now accepted that, in the events which have happened, a sale is necessary, and the removal action has no direct bearing on the decision as to whether the intended sale should be approved. I can say, however, that I would have been very loathe to hold that Rose J's decision was fatally flawed because she reconsidered, at the trustees' urgent request, whether an immediate sale should be approved, when it became apparent that the trial of the removal action had been delayed and the financial position of the trust had deteriorated since Mr Lavender's decision to adjourn. The question of whether other properties might have been sold instead of Tottenham House has also been superseded and I propose to say nothing about it.
- For the reasons I have sought to give, I have formed the clear view that both Mr Lavender and Rose J were right to approve the trustees' decision to sell Tottenham House under the intended sale arrangements. I would endorse their decisions and dismiss both appeals.
Lady Justice Black:
- I agree.
Lord Justice Moore-Bick:
- I also agree.