- Mrs Justice Arden This
is a trustee's application for directions by the Court under RSC Order 85.
[The Court explained that the trustee was the sole trustee of the will of
the testator, who died leaving his residuary estate, including land, on trust
for his widow for life with remainder to his children. Following the death
of the life tenant the Defendants were now absolutely entitled to the residuary
estate. The application arose out of concerns over the potential effect of
the Environmental Protection Act 1990, which when brought into force
would impose a new and far-reaching liability regime on owners of land and
others for cleaning up contaminated land. The trustee sought directions as
to whether it had a lien over the trust fund for liabilities, including future
and contingent liabilities, in respect of land held by the testator and might
accordingly retain possession of the land, whether it should be at liberty
to invest and vary investments in accordance with terms of the testator's
will in relation to investments retained pursuant to its lien, to charge for
acting as trustee in accordance with the terms of the will and in relation
to the land to exercise all the powers of trustees of a trust of land, and
whether it should notify the beneficiaries where practicable of the proposed
exercise by it of its powers of investment and certain other powers about
which it sought directions in connection with the management of the land and
give the beneficiaries an opportunity to comment.]
Contaminated Land
- I will now give a brief (and
by no means comprehensive) description of the legislation affecting contaminated
land, so far as relevant to this application.
- The Environmental Protection
Act 1990, in Part IIA (as amended by the Environment Act 1995)
contains a new regime for dealing with contaminated land. However, the new
regime has yet to be brought into force. The Act is heavily dependent on statutory
guidance, which is still in draft and has yet to be finalised. References
to sections below are to sections in the 1990 Act as amended.
- Under the new regime, contaminated
land is defined (in section 78A(2)) as any land which appears to the local
authority in whose area it is situated to be in such a condition by reason
of substances in or under it that either:
- significant harm is being caused,
or there is a significant possibility of such harm being caused; or
- significant pollution of controlled
waters is being or is likely to be caused.
- Harm is defined as harm to the
health of any living organisms, any other interference with their ecological
systems and includes harm to property (section 78A(4)). "Substance" is defined
(section 78A(9) as any natural or artificial substance whether in solid, liquid
or gaseous form.
- Under the Act, a local authority
will be under a duty to inspect its area from time to time to identify contaminated
land (section 78B). There is a consultation period in which the local authority
must reasonably endeavour to consult the persons on whom a remediation notice
may be served as to what is to be done by way of remediation as well as allowing
for the possibility of negotiating an agreement for a voluntary clean up.
- After the consultation period
has ended the local authority must serve a "remediation notice" on each "appropriate
person" specifying what is to be done by way of remediation (section 78E).
"Remediation" includes clean up, the doing of works for the prevention or
minimisation of harm or the restoration of land to its former state and subsequent
inspections to keep the condition of the land under review (section 78A(7)).
However, the local authority can only require remediation for that which it
considers reasonable having regard to the cost and seriousness of the harm
(section 78E(4)). Failure to comply with a remediation notice without reasonable
excuse is an offence (section 78M).
- As I have explained, if land
is contaminated within the legal definition, statutory liability for clean
up costs attaches to the "appropriate person" or "persons" (as defined in
section 78F). There are two types of appropriate persons:
- the person or any of the persons
who caused or knowingly permitted substances or any of the substances to be
in, on or under the land; and
- if no such person has been found
after reasonable enquiry, the owner or occupier for the time being of the
contaminated land.
- Where a person is liable because
he caused or knowingly permitted substances to be on land, he can in principle
be held liable for the clean up costs referable to that substance (section
78F(3)). However, provision is made for the case where a chemical reaction
occurs and that substance indirectly causes pollution, and for the case where
that substance escapes on to other land. However, a person may be liable as
a person who has caused land to be contaminated even after he has sold the
land, and, even if he did not cause the land to be contaminated, it is arguable
that he could be liable as a person who knowingly permitted contaminating
substances to be on land if he sold the land knowing of the contamination
and not having removed it.
- "Owner" is defined as a person
(other than a mortgagee not in possession) who, whether in his own right or
as trustee for any other person, is or would be entitled to receive the rack
rent of the land. A rack rent means a rent reflecting the full annual value
(section 78A(9)). Thus a trustee may be an "owner" even though he has no beneficial
interest in the land. However, a person cannot by reason of being the owner
or occupier of land be made liable to take remediation measures on land which
he does not own (section 78K).
- While land can only be classified
as contaminated after the 1995 Act comes into force, it appears that it applies
even if the activities which cause the land to be contaminated occur before
that date.
- As mentioned above, statutory
guidance is to be issued. The draft statutory guideline provides that a person
may be excluded from liability where certain tests apply. Thus a person may
escape liability where that was incurred solely by reason of a specified activity,
for example, as owner of land, licensing its occupation by another, except
for the purpose of waste disposal, or issuing a statutory licence by reason
of which another person causes or knowingly permits the presence of pollutants.
Under another proposed test, a person will not be liable for pollution if
he caused or knowingly permitted the presence of contaminants but sold it
ensuring that the purchaser had information as to the presence of contaminants.
- Even though Part IIA of the Environmental
Protection Act 1990 is not yet in force, an abatement notice could be
served on the trustee as owner of the site under the existing statutory nuisance
provisions of the Act, and in addition the owner may be liable at common law
for nuisance or under the rule in Rylands v. Fletcher (1868) LR 3 HL 330.
Does the trustee
have a lien over the trust fund for the liabilities to which it may be subject
in respect of land held by the testator?
- This is the first question I
have to decide. Counsel for the trustee referred me to a number of authorities,
including Re The Exhall Coal Company Limited ex parte Bleckley (1866)
35 Beav. 449, Stott v. Milne (1884) 25 Ch D 710, Re Beddoe [1893] 1 Ch 547, Re Pauling's Settlement [1963] 1 AER 857 and Halsbury's
Laws of England, 4th Edition, Vol. 48 paragraph 785. These authorities
show that a trustee has a lien over the trust fund for his proper costs and
expenses and that these extend to an indemnity against future liabilities.
(In addition, there is authority for the proposition that the trustee will
be entitled to have proper protection from liabilities that he has incurred
as a trustee before he retires as a trustee: see Re Brockbank [1948]
Ch 206, 211 and section 19(3) of the Trusts of Land and Appointment of
Trustees Act 1996). The decision of Wilberforce J in Re Pauling's
Settlement (No.2) is instructive. The question was whether the existing
trustee should be replaced. The existing (among other things) trustee claimed
that it would be deprived of the security of the trust fund for costs in respect
of litigation against it as trustee. It also claimed that it would remain
liable for possible future estate duty in respect of advances made to the
children of the life tenant in the event of the life tenant dying within 5
years. Wilberforce J held that the trustee's right of indemnity extended to
any costs awarded in its favour and to the possible liabilities for estate
duty. In the circumstances, the Court declined to appoint new trustees until
the situation was clarified
- The lien extends to all the liabilities
of the trustee as such. In my judgment these include liabilities under Part
IIA of the Environmental Protection Act 1990 even though they are contingent
upon a number of matters, including the commencement of Part IIA.
- [The Court then dealt with certain
matters concerning the trust. ]
The trustee's
power to invest funds that it holds pursuant to its lien
- The testator's will gives the
trustee power:
"To invest trust
money and transpose investments with the same unrestricted freedom in their
choice of investment as if they were absolute owners beneficially entitled
and to purchase retain or improve a freehold or leasehold house or other dwelling
on trust for sale (with power to postpone the sale) to be used as a residence
by my wife or any one or more of my children or remoter issue."
- This is a wide power of investment.
Where, however, wide powers of investment are given to trustees, the beneficiaries
have the protection of the duties imposed on trustees by the general law.
Under the general law, the trustee must take such care as an ordinary prudent
person would take if he were minded to make for the benefit of other people
for whom he felt morally bound to provide (per Lindley LJ in re
Whiteley, Whiteley v. Learoyd (1856) 33 Ch.D 347). There is a further
principle which provides protection to beneficiaries of a trust and that is
the duty imposed by the general law on trustees to act fairly. Thus, in deciding
how funds should be invested, a trustee must act fairly as between the beneficiaries.
Hoffmann J explained some of the implications of this duty in Nestle v.
National Westminster Bank plc, (29 June 1988, unreported):-
"A trustee may
act fairly in making investment decisions which may have different consequences
for differing classes of beneficiaries ... The trustees have a wide discretion.
They are, for example, entitled to take into account the income needs of the
tenant for life or the fact that the tenant for life was a person know to
the settlor and a primary object of the trust whereas the remainderman is
a remoter relative or a stranger. Of course, these cannot be allowed to become
the overriding considerations but the concepts of fairness between classes
of beneficiaries does not require them to be excluded. It would be an inhuman
rule which required trustees to adhere to some mechanical rule for preserving
the real value of capital when the tenant for life was the testator's widow
who had fallen upon hard times and the remainderman was young and well off."
- The same point was made by Staughton
LJ in the Court of Appeal in the same case ([1993] 1 WLR 1260).
- Counsel's submissions were as
follows. The trustee has a right to be indemnified against liabilities which
it incurs as trustee, and it has a lien on the trust fund for this purpose.
Since the trustee's lien arises by operation of law, it is implicit in the
terms of trust that the trustee's powers to manage the trust property continue
to apply even where the lien has arisen. In those circumstances, on Counsel's
submission, the trustee when deciding what investments to make can take into
account its own interest by virtue of its lien. However, it must act impartially
as between itself and the other beneficiaries. Counsel was not aware of any
authority on this point.
- In my judgment Counsel's submissions
are correct. The law does not require the trustee to disregard its own position
and interest by virtue of its lien when it decides how to invest the trust
funds. It can take its position and interest into account. However, it must
act fairly as between the beneficiaries and itself. It must act in an even-handed
way, taking into account the different rights and interests of the parties
in the trust assets.
- This case is thus distinguishable
from Re Pauling's Settlement Trust (No.2). In that case, the trustee
had been held liable to refund substantial sums to the capital of the trust
fund. It claimed (in separate proceedings) the right to be recouped out of
the income of the trust fund, but the life interest had by then vested in
the Guardian Assurance Co as mortgagees. Wilberforce J held that it was not
necessary for the trustee to be in actual possession of the trust fund in
order to enforce any right of recoupment. The trustee, however, contended
that it had a right to control the investment of the trust fund so that it
was not invested in such a way as to prejudice its right to be recouped out
of income. Wilberforce J rejected that argument. It was the duty of any trustee
to exercise his powers of investment in such a way as to hold the balance
properly between capital and income, and to preserve an equitable balance.
In other words, the trustee in that case could not be in any better position
than the life-tenant, as its right of recoupment for the advances which it
was ordered to repay extended only to income. That is not the position in
the present case. The trustee's rights are not limited to the income of the
trust fund. Moreover, the trustee in this case does not claim that investment
decisions should be made in its interest alone.
- On Counsel's analysis, the power
to invest conferred by the will continues to apply. However, if there is any
doubt as to the power of the trustee in this case to invest monies which it
holds pursuant to its lien, in my judgment it should have the power conferred
by the will. This is consistent with the other investment powers which it
has. Even though this is a wide power, the beneficiaries have the protection
of the principles of the general law to which I referred above.
- [The Court then made a direction
that the trustee should have power to invest and vary investments in accordance
with the power of investment conferred by the testator's will in relation
to investments retained pursuant to its lien, that it should have power to
charge in accordance with the terms of the will and that in relation to the
trust land it should have power to exercise all the powers of trustees of
a trust of land.]
Consultation with
the beneficiaries
- [The trustee sought a direction
that so far as reasonably practicable before exercising any of the powers
set out in the Court's directions it should notify the beneficiaries of its
intention to do so and give them an opportunity to comment]
- The trustee has been advised
by other Counsel specialising in trusts as to its duties now that the interest
of the life tenant has come to an end. Counsel advised that
- "The life interest having terminated,
it is undoubtedly the trustee's duty to consult the beneficiaries as to their
wishes concerning the trust property and to have the fullest regard to those
wishes in deciding how to proceed in the best interests of the trust, subject
to the trustee's rights under its lien."
- Counsel further advised (among
other things) that the trustee should proceed along the following lines:-
"(1) keep the
beneficiaries informed and ascertain their wishes; ..."
- The direction sought by the trustee
- to notify the beneficiaries of its intention to exercise any of the powers
subject to the directions and to give them the opportunity to comment - does
not go as far as this.
- However, Counsel appearing on
this application submits that Counsel's advice set out above went beyond what
the law requires. Trustees have no obligation to consult the beneficiaries,
unless they are required to do so by the terms of the trust or there is some
relevant statutory provision. In this case there is neither any relevant provision
in the testator's will nor any relevant statutory provision. Neither section
26(3) of the Law of Property Act 1925 or section 11(1) of the Trusts
of Land and Appointment of Trustees Act 1996 (which would impose an obligation
to consult in certain circumstances) applies in this case.
- I accept that the trustee has
no obligation to consult, but I note what was said by Wilberforce J
at the end of his judgment in Re Pauling's Settlement Trust (No.2). Wilberforce
J expressed the hope and understanding that the trustee would give an undertaking
that
"they will confer
with the plaintiffs as to the investments held in the trust fund, and will
give consideration to every suggestion made by them with regard to the investment
and will not object to any suggestion that is made which is in reasonable
terms."
- Counsel told me that, in this
case, the trustee was not happy at the idea of putting itself in a position
where it was obliged to do what the beneficiaries asked unless it could think
of a good reason not to do so. The investment decisions might be complex,
the beneficiaries might disagree and in the immediate future the trustee's
lien would take priority. I accept the trustee should not be bound in any
way to act on the wishes of the beneficiaries. It suffices to say that the
trustee has a lien on the trust fund and income arising from it for liabilities
properly incurred by it as trustee, and thus a right which has priority over
the rights of the beneficiaries. On the other hand, I regard it as implicit
in the direction sought that the trustee should consider any comments which
the beneficiaries make, and take them into account to the extent appropriate.
In addition, the proposed direction imposes an obligation on the trustee to
make prior disclosure to the beneficiaries of the matters to which it applies.
Given the parties' potentially differing interests in those matters, I consider
that this is an appropriate and sensible discipline for the trustee. Accordingly
I propose to make the direction as asked.
