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England and Wales High Court (Chancery Division) Decisions
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Cite as:  EWHC 3927 (Ch)
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The Rolls Building
London EC4A 1NL
B e f o r e :
SITTING AS A JUDGE OF THE HIGH COURT
| JOHN DAVID SHEFFIELD
|- and -
|JOHN JULIAN LIONEL GEORGE SHEFFIELD
LIONEL JULIAN SHEFFIELD
SIMON ROBERT ALEXANDER SHEFFIELD
(as Executors of JOHN VINCENT SHEFFIELD)
|JOHN JULIAN LIONEL GEORGE SHEFFIELD
|JOHN JULIAN LIONEL GEORGE SHEFFIELD
FERGUS HUGH STIRLING GRAHAM
NICOLA ELIZABETH ANNE GRAHAM
JOHN FRANK RATCLIFFE
SIMON ROBERT ALEXANDER SHEFFIELD
(as past and present trustees of the 1968 Settlement)
Mr Eason Rajah QC (instructed by Farrer & Co) for the Sheffield and Graham Defendants
Ms Constance McDonnell (instructed by Neale Turk) for Mr Ratcliffe
Hearing dates: 18-22, 25 and 27 November 2013
Crown Copyright ©
HH Judge Pelling QC:
i) The Claimant claims one quarter of the rent payable under the Lease between the trustees of the 1968 Settlement and Mr Monier-Williams. Aside from the general defences to which I refer further below, the Defendants contend that to order an account would be grossly disproportionate and thus a wrong exercise of discretion because the sums involved are small (the Claimant's maximum entitlement would be £250 per annum for about 3 years between the date of the 1983 Declaration (9 September 1983) and the commencement of the second farming partnership on 29 September 1986) and it is inferentially highly likely that the whole of the rent was consumed in meeting trust expenses;
ii) The Claimant seeks an account and payment over of Ό of the sums found due on the taking of an account of all sums received by JVS under the second farming partnership. Aside from the general defences relied on, the issue between the parties concerns the effect of the Claimant's signature of the Deed constituting the second farming partnership. The Defendants maintain that provides a full and complete answer to this claim. The Claimant maintains that he signed the document in ignorance of his right to receive Ό of the income under the terms of the 1983 Declaration and thus cannot be held to have released an equitable duty or concurred and acquiesced in what would otherwise be a breach of trust;
iii) It is alleged by the Claimant that the second FBT was let at an undervalue and that there should be an account or inquiry into the loss suffered and payment over of Ό of any sum found to have been lost to the 1968 Settlement as a result;
iv) It is alleged that the trustees for the time being have acted in breach of trust by failing to exploit the commercial opportunities represented by the shooting rights over Laverstoke. The Claimant maintains that a significant income could have been obtained from this source. The Defendants rely on the general defences but in addition deny that they were under a duty to commercially exploit the shooting rights having regard to the purpose of which Laverstoke was acquired, deny that it was in the best interests of the 1968 Settlement to exploit those rights commercially, maintain that such a course was contrary to the wishes of JVS and then Julian as beneficiaries of 75% of the 1968 Settlement;
v) The Claimant seeks an account in relation to rent that could have been but was not earned from the lease of 93-95 New Barn Cottages being property forming part of the 1968 Settlement and for compensation following a sale of these properties for what the Claimant maintains was an undervalue. Aside from the general defences relied on, the Defendants maintain that they sold at a price in excess of the highest valuation arrived at by two independent valuers and thus there was no breach of trust and this is so notwithstanding that the properties were sold to France's son;
vi) There is a claim made by reference to the occupation by JVS of New Barn House, New Barn Bungalow and 93 New Barn Cottage. Aside from the general defences relied on, the Defendants maintain that Laverstoke had been purchased with the intention of providing a home for him and his family, that as a beneficiary he was entitled to occupy trust property and having regard to the purpose for which the property was acquired it would have been unreasonable for the trustees to charge him an occupation rent;
vii) The final alleged breach that is relied on at this stage concerns the sale in 2010 by the trustees of the 1968 Settlement and the trustees of the AMS Will Trust of Freefolk House and some land to a third party purchaser. The property sold included 10.2 acres of land belonging to the 1968 Settlement and 46 acres of land that was part of the AMS Will Trust. The Claimant maintains that in fixing the value and apportionment of the price received, the trustees of the 1968 Settlement failed to take sufficient account of the Marriage Value attributable to the joinder of the 10.2 acres of 1968 Settlement land to the other land being sold. Marriage value is the amount by which the value of the property sold exceeds the separate value of the parcels of land constituting the unified holding. The Claimant maintains that since Simon (who was a trustee of the 1968 Settlement at the time) was one of the persons who were to receive part of the proceeds of sale there was a conflict and thus the trustees must be able to show that the land sold was properly valued and accounted for if a claim based on breach of trust is to be avoided. The Defendants maintain that independent valuation evidence was obtained from Mr Watson, that they acted in accordance with his advice and thus there was no breach of trust. In any event the trustees maintain that are entitled to rely on the statutory defence contained in s.61 of the Trustees Act 1925.
Organisation of this Judgment
i) The existence of the Arrangement and its effect if found proved;
ii) The effect in law of the 1983 Declaration;
iii) The Alleged breaches of Trust; and in relation thereto the applicability of the general defences relied on:
c) Laches and acquiescence; and
d) S.61 Trustee Act 1925.
I consider the existence and effect if proved of the Arrangement first because if the defendants succeed in proving the existence of the Arrangement and that it has the effect pleaded then its effect will be to modify the 1983 Scheme so as to prevent the payment of trust income to JVS from being a breach of trust and would preclude the Claimant from seeking damages for breach of trust on the basis that income could have been but was not obtained during JVS's lifetime.
The existence of the Arrangement and its effect if found proved
"[JVS] enquired whether the gift to grandson John would affect his right to income from the partnership. We explained that the gift was of the underlying asset; that [JVS] would continue to be a member of the partnership and a tenant of the land and would still be entitled to his salary from the partnership. The partnership will continue to pay rental income of £1,000 per annum to the landlords with the late Mrs Sheffield's will trustees continuing to take their three quarter share. Presumably the remaining quarter share would be payable to grandson John (?) (although the rental income was probably used in the payment of expenses anyway)
The partnership will determine as things now stand in September 1987. [JVS] and [Julian] are both keen for the partnership to continue after this date for a period of say 2 years with a view to being renewed every 2 years for a further 2 years. In this way [JVS]'s widow will be assured of a continued income for sometime after his death"
The points that emerge from this note are:
i) By this date (April 1983) the decision had been taken to benefit the Claimant;
ii) JVS was concerned to preserve his income from the estate until his death and for a period afterwards for the benefit of France;
iii) The basis on which it was contemplated that JVS's entitlement to the income was and would be preserved was by using the first farming partnership as the vehicle by which he was to receive it. This structure eliminated any problem arising from a declaration of trust in respect the entitlement to a Ό share in the income of the 1968 Settlement; and
iv) All parties contemplated that when what became the 1983 scheme was carried into effect, the Claimant would become entitled to Ό of the rent payable by the partnership to Mr Monier-Williams and by Mr Monier-Williams to the 1968 Settlement trustees net of any expenses that had to be met by the 1968 Settlement trustees.
"I have a draft Deed of Accession whereby grandson John is brought into New Barn Farm's Partnership
I have provided for grandson John to receive a nominal share of profits (0/01%) which will technically come out of your present 8% entitlement. After the gift he will automatically become entitled to one quarter of the rent paid by the partnership for the tenancy (the current rent being £1,000 per annum).
I have completed the preparation of a Deed of Gift of your quarter share in the Laverstoke estate to grandson John and I am just putting the final touches to the covenant which he is to make in favour of your wife regarding her occupation of New Barn House. I assume that either Julian or you has discussed with John the intention to make this gift so that when I write to him it will not come out of the blue. "
"Your grandfather, [JVS], will, I expect, have told you of his intention to transfer to you his share in the Laverstoke Estate and also his proposal that you should become a partner in the farming partnership.
Part of the estate in respect of which your Grandfather will give you an interest is New Barn House which as you know is occupied by your grandfather and Mrs Sheffield. He is anxious to safeguard the right of Mrs Sheffield to continue to live in the house in the event of his death, and the least complicated way of doing this is to ask you to enter into a covenant with your grandfather that you will not do anything to terminate or interrupt Mrs Sheffield's occupation of the property. The effect of this covenant will be that for so long as Mrs Sheffield wishes to live in the house, you will not be able to take any steps, or join with anyone, e.g. your partners in taking any steps to terminate her occupation.
Your signature of this covenant will be part of the whole transaction under which you receive an interest in the Estate and, if you agree with what is proposed, I should be grateful if you will sign the Covenant where your initials are pencilled in the presence of a witness and then arrange for it to be returned to me. The covenant should be left undated, since it will not be dated until the Declaration of Trust under which your [grand] father transfers the property to you is itself signed."
"Q. So far as reported by John, it goes on: "My father then told me that he had decided that I should receive my grandfather's quarter share. My father went on to make clear that I would not see any benefit from this gift until my grandfather passed on, which I accepted was true." Do you recall that kind of conversation with John?
Q. Is that an accurate description of the conversation that took place?
A. Yes. You must remember that it was a very important decision by my father and by me, because my father said that I could have it, but I agreed with my father that for estate duty planning purposes it might be sensible for my son, John, to have it. So it was not just something that occurred out of the blue and we did not take seriously. It was a very important decision.
Q. And that included the comment about the income position?
A. That was equally important for reasons that you have read and everybody else has read who have read the papers, that my father was dependent, particularly late on life, to a very large extent for the income from the estate to enable him to live."
Thus there is now agreement between Julian and the Claimant as to what was said as between them. It follows that what Julian told the Claimant was technically inaccurate and was or ought to have been known to him to be technically inaccurate because he had been present when Mr. Monier-Williams had advised him and JVS that the effect of the gift would be to entitle the Claimant to Ό of the net income of the 1968 Settlement. I accept however that Julian would have considered this to be a distinction without a difference because the income was so low and expenses consumed or probably consumed all of it. Nonetheless the description given was technically inaccurate, and was known or ought to have been known to him to be inaccurate.
This is to confirm our discussion on my handing over to you the Ό share of our farm here. The use of this house for France is dealt with in my will, but I would like her to have the use of the bungalow opposite which I built a year or two ago. Furthermore she might require one of the New Barn Cottages for a "daily" as we are somewhat isolated here. My main desire is that she will be treated by you as if I was still alive, & I am most anxious that she is not made to feel unwelcome here in any way whatsoever. At the moment all the rates, maintenance expenses of the properties are covered by the farm partnership, but deducted from the salary paid in lieu of rent. I would like this arrangement to continue if possible. I am afraid that you will not get much tangible benefit from this gift until I expire, but it should mean that our estate here can survive in one piece for the next generation. I know that you will be kind and considerate to France for my sake so that she can enjoy the rest of her life here. I realize that circumstances may arise, such as ill health, crippling taxation, or unforeseen calamities & you will have to use your own best judgement if & when this happens.
I am writing a similar letter to your father who will own the Ύ share of the farm. So it will be a joint effort when the time comes. This brings you my devoted affection with the certain knowledge that you will be as good a son to him as he has been to me. Grandpa"
The words that the family Defendants fasten on are those that I have underlined as demonstrating very clearly the existence of the Arrangement and the reference in the first line to "our discussion" as establishing that contrary to the Claimant's case there was a discussion between him and JVS at or about the time when the 1983 Declaration and the Covenant were signed and the 1983 Scheme took effect.
"Q. So you did not take any advice yourself about the terms of the declaration of trust when it was made. You just assumed that it would work in your father's favour.
A. Yes. We took legal advice and that was the advice we got. I was not very old and my father was very much the senior partner, if I can put it that way."
Julian's point that he was not very old was misconceived he was over 40 at the time and was as he admitted a senior manager in an industrial company and in any event is immaterial to the point now under consideration. The real point that emerges from this exchange is that at all times down to the execution of the 1983 Declaration, both JVS and Julian considered that JVS's income position had been secured by the structure that had been devised.
The Effect in law of the 1983 Declaration
" to assign to [the Claimant] [JVS's] entire beneficial interest in [Laverstoke] and [the Claimant] became the beneficiary in respect of that share in his place. It is not therefore correct in my view to say that the Trustees hold [Laverstoke] as to one quarter for [JVS] who in turn holds that share on trust for [the Claimant]. The Trustees have since 24 October 1983 simply held [Laverstoke] on trust as to one quarter for [the Claimant] direct. Where the holder of a beneficial interest under a trust declares a bare trust of that interest by way of sub-trust the trustees of the head trust hold directly on trust for the beneficiary under the sub-trust as Upjohn J put it in Grey v. IRC  Ch. 375 at 382, where a donor declares himself a trustee of an equitable interest for a donee the legal effect is that the trustees become trustees for the donee and the donor disappears from the picture. It follows that in my opinion the Trustees should since 24 October 1983 have paid one quarter of the income directly to [the Claimant] and should not have paid it to [JVS] at all. "
The Claimant asserts first that the 1983 Declaration is to be construed as if it was an assignment but secondly, if that is wrong, he adopts the analysis set out above, which he submits is supported by earlier authority including Burgess v. White (1759) 1 Eden 177 1 Blackstone 123, Grainge v. Wilberforce 5 TLR 436 and In re Lashmar  1 Ch 258. The Defendants contend that the 1983 Declaration is plainly a declaration of trust and that the Claimant's secondary position has become untenable in light of the decision of the Court of Appeal in Nelson v. Greening & Sykes (Builders) Limited  EWCA Civ 1358  1 EGLR 59, which was, of course, decided after counsel had provided his opinion.
Alleged Breaches of Trust - Income
Income referable to (a) the 1975 Lease to Mr Monier- Williams, (b) the 1995 Farming Business Lease and (c) 2005 Farming Business Lease
"37 [the Claimant] is estopped from claiming his strict legal rights under the 1983 declaration because of his knowledge of what was intended. In particular:
a. John knew at the time of the gift that in making the gift JVS did not intend John to receive any benefit from the [trust property] during JVS's lifetime;
b. By agreeing to accept the gift without demur or caveat, [the Claimant] encouraged JVS to believe that [the Claimant] would not claim any benefit from the [trust property] during JVS's lifetime
c. In reliance upon the above JVS made the 1983 declaration and has used and occupied the land without accounting to John "
I do not see how this defence can be maintained in the light of the findings I have made concerning the Arrangement. There was no agreement to the effect alleged. He was told that the effect of the 1983 Scheme was that he would get no or not much tangible benefit from the gift until after the death of JVS, but the Claimant did not know that the effect of the 1983 Declaration was to entitle him to 25% of the trust income until after he received a copy of the 1983 Declaration in or about late December 2004. He first made a claim in February 2005. What happened thereafter is set out below in the section concerned with laches and acquiescence.
" by his conduct between 1983 and 2005 (including in particular the matters set out in paragraph 15 above) [the Claimant] has encouraged JVS and the family defendants to believe that he had no claim to any income interest in [the trust property] during JVS's lifetime and that he agreed to JVS acting in respect of the gifted interest as if he were still the owner and John is estopped from now asserting otherwise."
Paragraph 15 refers at subparagraphs (a) to (c) to the signing by the Claimant of the Deed of Accession, the 1983 Declaration, and the deed of Covenant. This assertion depends on the Defendants succeeding in their allegation that there was an antecedent agreement or understanding to the effect pleaded in paragraph 13 of the Defence. There was no such agreement or understanding. The only understanding that John had of the effect of the gift and the documents he was signing is that he was to receive the 25% interest in the 1968 Settlement trust property on the death of JVS but either no or no tangible benefits before then. There was nothing within the documents he signed at that stage that disentitled him from receiving trust income and there was no agreement or understanding that he would not receive such income notwithstanding the terms of the 1983 Declaration. He accepted at face value what he was told by his father and grandfather would be the effect of the gift. He did not know that the documents that he was being invited to sign had a different effect.
Trustee Act 1925
Laches and Acquiescence
"Now the doctrine of laches in courts of equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because a party has by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of those cases lapse of time and delay are most material. But in every case, if an argument against relief, which would otherwise be just, is founded on mere delay the validity of that defence must be tried upon principles substantially equitable. Two circumstances, always important in such cases, are the length of the delay and the nature of the acts done during the interval, which may affect either party and cause a balance of justice or injustice in taking one course or the other, so far as relates to the remedy"
The effect of this was summarised in modern times by Moore-Bick LJ in P&O Nedlloyd BV v. Arab Metals Co and others  1 WLR 2288 at 2312H as meaning that " the question for the court in each case is simply whether, having regard to the delay, its extent, the reasons for it and its consequences, it would be inequitable to grant the claimant the relief he seeks".
"The Trustees were advised by your grandfather that all income arising from the Trusts was to be continued to be paid to your Grandfather during his lifetime and that this was part of the arrangement between yourself and your grandfather. Do you not agree with this?"
This is the first time when it was unambiguously asserted that no income was payable to the Claimant as the result of an arrangement made by him with his grandfather. The Claimant responded to this question by a letter dated 20 November 2006, in which he responded:
"No I do not agree that "all income arising from the trust was to be continued to be paid to" my "grandfather during his lifetime" and no I do not agree "that this was part of the arrangement between" myself and my grandfather."
That letter was acknowledged by Mr Ratcliffe's firm by a letter dated 22 November 2006.
" the trustee ought not to be allowed to shield herself from accounting for trust money in her hands simply by putting forward a document which has been signed and sealed without any knowledge of the real facts without any communication of their rights, though the release in its terms would bar the parties from insisting upon them.".
Discretion to Order an Account
The Second Farming Partnership
Alleged Breaches of Trust Unrealised Income
The 2005 FBL Alleged let at an Undervalue
"I am also delighted to learn that Martin Gower does not believe that there should be any problem in you retaining all the rent from the tenancy provided your grandson agrees to this proposal"
It is not suggested that any attempt was made to obtain the Claimant's agreement to this course.
S. 61 Trustee Act 1925
Occupation by JVS of New Barn House and associated property from 1980 to his death
"On any view JVS was a 75% income beneficiary of Laverstoke which had been purchased with the intention of providing a home for him as well as successive generations. His occupation is not a breach of trust nor would it have been reasonable for him to have been charged an occupation rent."
(a) the purposes of the trust include the making of the land available for his occupation (or for the occupation of beneficiaries of a class of which he is a member or of beneficiaries in general), or
(b) the land is held by the trustees so as to be so available."
"My late wife Anne and I bought [Laverstoke] in 1966 with the idea of creating an estate with a house to follow that we could manage enhance and enjoy during our lifetimes. And after us, it was our fervent wish that our son Julian and his heirs would continue to own and look after the estate for future generations."
The concept of enjoyment in the context of an estate with houses plainly includes the provision of a home for JVS and AMS. Unfortunately AMS died before the plan could come to fruition but there is nothing in the material I have seen that suggested the central notion that lay behind the acquisition was changed by the death of AMS. The notion that the properties be occupied by JVS and his immediate family as his home necessarily involved excluding the Claimant from occupation of those properties. The reality is however that this issue was never given any consideration by the trustees at any stage. The material that I referred to earlier in this judgment makes it abundantly clear that appropriate advice was given as to the effect of the 1983 Declaration but as far as I can see no consideration was given as to how that might affect the occupation by JVS of the properties after the 1983 Declaration took effect.
" a trustee who remains in occupation of trust property for his own purposes cannot be heard to say that he has not received any rents or profits in respect of the property. Having received rents and profits, because he is chargeable with an occupation rent, he cannot discharge himself unless he can show he has paid moneys away "
It is submitted that it follows that no part of the claim for 25% of what would otherwise be the proper occupation rent can be barred any more than the claim to recover rents and profits actually received after 24 October 1983.
Alleged Breaches of Trust Sales At Undervalue
93-95 New Barn Cottages
Spring Pond Properties
" Julian has made clear that he will accept that the Spring Pond properties are trust property but says that they should be transferred to him, with Julian effectively buying out [the Claimant's] 25% share at the current market value of the Spring Pond properties less a deduction to reflect Julian's expenditure on the renovations and maintenance Equitable accounting principles should apply "
The response to this is to be found in Mr Pymont's written closing submissions where he says that the Claimant" does not reject this approach in principle ".
The 10.2 Acres Issue
i) his claim to be entitled to 25% of the net income of the trust derived from farming activity from 24 October 1983 until the death of JVS subject to the point reserved concerning whether it is a proper exercise of discretion to direct an account of the sums due under the 1975 lease;
ii) His claim for breach of trust against JVS by failing to exploit the commercial opportunities represented by the shooting rights from the date of inception of the first FBT
iii) JVS's occupation of New Barn House subject to the legal points reserved and referred to in Paragraphs 155 and 156 of this draft judgment; and
iv) For all appropriate relief in relation to the Spring Pond properties where in practice the only issue that remains to be resolved is how the interest of the Claimant are to be protected down to the time when the sale to Julian can be completed.