Part I Introduction, 1 Introduction
- Performance of contract
1.01 The leading American treatise on trust law posits the general view that: ‘[t]he most important and perhaps the most interesting questions of the law of trusts are those that relate to trust administration’.1 Despite the learned authors’ enthusiasm for the law relating to trust administration, the means and manner by which the Court facilitates the due performance of trusts through the exercise of administrative functions has remained relatively unexplored.
1.02 This monograph analyses the administrative and protective jurisdiction of the Court to supervise and, if necessary, intervene in trust administration to facilitate the due performance of trusts within what is herein termed ‘the supervisory jurisdiction over trust administration’. The coherent principle that justifies and unifies the constituent aspects of the supervisory jurisdiction over trust administration is that the Court acts to facilitate the performance of trusts and thereby reasonably ensure their due administration. That central principle is borne out in the manner and the matter, the procedure, and the substance of the supervisory jurisdiction over trust administration. To make out the core claim regarding the fundamental importance of performance as a unifying principle within this area of trust law, an historical account is given of the origins and evolution of the supervisory jurisdiction over trust administration (Chapters 2 and 3), before analysing its constituent aspects in modern trust law and practice (Chapters 4–7), and then considering two areas of significant controversy in recent times on the borderline of the remedial and supervisory jurisdictions of the Court—that is, awarding ‘equitable compensation’ for breach of trust (Chapter 8) and judicial review of trustee decision-making (Chapter 9). Ancillary principles are also revealed along the way that guide the exercise of the supervisory jurisdiction for the benefit of, or in the best interests of, the beneficiaries, including expediency, judicial deference towards extra-curial (p. 4) trust administration, and protection of various persons interested in the due performance of trusts.
1.03 There are three aims of this introductory chapter. First, to sketch out the schematic for the monograph as a whole. A chapter-by-chapter breakdown in this section gives a sense of the core analysis and argumentation in the respective chapters, observing how each of those chapters contributes to the central aims and claims in the monograph and the overall understanding of the supervisory jurisdiction over trust administration. Second, the essential claims and general themes of the monograph are identified. Those claims and concepts form the narrative for the monograph. Third, the main themes and trends in the supervisory jurisdiction will be observed, including change and continuity in the supervisory jurisdiction over trust administration, as well as the attachment of supervisory jurisdictions to the legal institution of the trust internationally. The chapters provide the doctrinal, functional, and historical evidence to prove the core claims and explore those themes in greater detail.
1.04 It is often said that the best place to start is at the beginning. In the supervisory jurisdiction over trust administration, however, the beginning is somewhat vague. In Tudor times, the Court of Chancery developed doctrines and procedures in which we find traces of what would become a fully fledged administrative and protective jurisdiction to facilitate the performance of trusts in Equity. By the mid-18th century, a ‘noble, rational, and uniform system of law’ had arisen from the steady pursuit of plain principles in Equity.2 Chief amongst those principles was that the Court supervised the due performance of trusts and intervened if and insofar as was necessary to facilitate such performance. In part, the performance of trusts was underwritten by the Court because trusts came to be seen as a legal institution of immense importance in enabling many socio-economic purposes to be achieved in the necessary vicissitudes of life and the inter-generational transmission of wealth after death. By extension, an abstract concept of ‘the office of trustee’ was grafted onto each and every trust with a view to facilitating the performance of trusts above and beyond any person who might occupy that office from time to time. In the absence of any other mechanism to fill vacancies in the office of trustee, it fell to the Court to supervise offices of trusteeship to ensure, inter alia, that a trust would not fail for want of a trustee. Judicial supervision of this kind was an instantiation of a much broader, ‘most wholesome’, jurisdiction over persons responsible for the fiduciary administration of property to prevent ‘delay and embarrassment, and for the assistance and protection of that [fiduciary office-holder]’.3 Allied to the emergence of the principle of performance in Equity was a concern that the persons who occupied private offices of public importance required protection from the Court. The principle of performance was of such importance that the (p. 5) susceptibility of a trust to the control of the Court defined trusts as a particular kind of legal institution and informed the requirements for certainty in their creation. The Court ensured due administration to such an extent that performative justice administered in Equity became a pursuit for perfection with trust administration ‘paralysed’ whilst the Court aimed to achieve ‘complete justice’.
1.05 The ‘complete justice’ metered out in Equity produced injustice in delay and expense at large, especially as the volume of Chancery business increased into the 19th century. The problem was not the principle of performance per se but the exacting degree to which the Court attempted to make ‘perfect orders’ only after full accounts had been taken, inquiries pursued, and all parties possibly interested were notified of the pendency of the suit. Lord Bowen later observed of this period that ‘[Chancery] practice was as dilatory and vexatious as its standard of right and wrong was noble and accurate’.4 Instead of systemic reform, the focus was on bootstrapping the existing system. Performative justice in Equity could be achieved with more hands on deck; at least that was the idea. In 1813, an office for a third Chancery judge, styled the ‘Vice-Chancellor’ of the Court, was established. The futility of ad hoc staffing was laid bare a decade later: neither the three Chancery judges (Lord Chancellor, Master of the Rolls, and Vice-Chancellor) nor ‘three angels’ could possibly get through the work to be done in Equity. The problem with supplying more judicial resources was that the ‘old machine’, enabled as it was with ‘another wheel’, trundled on … and on. More wheels were added to the ‘old machine’ in 1841 with the addition of two more Vice-Chancellors of the Court. Still, the work did not abate and the arrears in Chancery business grew ever larger.
1.06 To the mid-19th century, Chancery practice was so inexpedient that Equity was the source of rampant injustice. Justice delayed was justice denied, in many cases. Charles Dickens immortalized the dire state of Chancery practice and procedure at this time in his serial publication, Bleak House, and in shorter periodical pieces. ‘Suffer any wrong that can be done you, rather than come here!’, was one damning indictment Dickens penned. Dickens’ depiction of the Court was not far off the mark. The Lord Chancellor, Lord Cottenham, observed, ‘[t]here is no doubt that parties only came to the Court of Chancery when dire necessity compelled them’.5 Pamphleteers prolifically ridiculed Chancery practice and strongly worded letters were sent to Parliamentarians. Root-and-branch attacks were made on the Court itself with suggestions made to hive off the administrative jurisdiction of the Court into an executive organ funded by fees levied on trust funds. The reigning monarch also called on Parliamentarians to improve the administration of justice, specifically in the Court of Chancery. Delay and expense became the catch-cry for Chancery reform, which was widely regarded as an ‘evil’ that brought ‘misery’. It took some time for enduring change to take place to the system itself. Ultimately, calls for the wholesale abolition of vast tracts of the supervisory jurisdiction over trust administration were resisted. In spite of the immense strain on the Court both from the sheer volume of its business and the weight of public disdain for the inexpediency with which the Court dispatched that business, it is remarkable that (p. 6) the Court, through a succession of esteemed judges during testing times, never faltered in adhering to the fundamental precepts that it was the ‘duty’ of the Court to ensure the due performance of trusts through the exercise of an administrative and protective jurisdiction.
1.07 Although the basic principles of performance and protection were sound, the mould of Chancery procedure needed to be broken. Legislative interventions and the venerable vision of a number of revolutionaries were required. The advent of summary procedures to enliven the supervisory jurisdiction for targeted intervention in trust administration was transformative. The statutory reforms in the mid- to late 19th century fragmented the superintendence of trusts by the Court into routine aspects that could be exercised more expediently to alleviate and overcome difficulties in the performance of trusts, without paralysing trust administration in the process. Bold by modern standards, those reforms form the basis for the supervisory jurisdiction over trust administration in modern times. As the chief aim of Chancery reform was expediency, the legislative provisions generally confirm, rather than create, the supervisory jurisdiction over trust administration. The admirable, evident, and main objective was to streamline the manner in which the Court supervised, and thereby facilitated, the performance of trusts in Equity. Where further protection for trustees was thought desirable in furtherance of a policy of attracting honest persons to assume offices of trusteeship, Parliament intervened to invest the Court with ample powers to protect trustees.
1.08 By contrast with the 19th century, the supervisory jurisdiction over trust administration has been relatively stable in the 20th century and into the 21st century, save in two respects that will be considered in Chapters 8 and 9 (ie ‘Part IV: Remedies’). With the exception of the ‘variations’ jurisdiction, which required statutory correction in the 1950s after the Chapman litigation, the Court continues to exercise the various aspects of the supervisory jurisdiction over trust administration as those functions were shaped and settled in the 19th century.
1.09 Part II comprises Chapters 4–7, which are principally concerned with mapping the contours of the supervisory jurisdiction over trust administration in modern trust law and practice, which is drawn from the beginning of the 20th century to the present day. The relevant chapters provide an expository account of constituent aspects of the supervisory jurisdiction over trust administration, highlighting the administrative and protective nature of those judicial functions and the manner in which those aspects facilitate performance. The aspects selected for analysis should not be regarded as exhaustive but are presented with a view to demonstrating the breadth and depth of the supervisory jurisdiction over trust administration in facilitating the performance of trusts and regulating trust administration. It is an essential feature of this administrative and protective jurisdiction of the Court that it should evolve to meet contemporary demands of society as reflected in trust administration.
1.10 The supervisory jurisdiction over trust administration has evolved in modern times to comprise twelve main aspects, each of which facilitates the performance of trusts whilst affording reasonable protections in fine balance. Those aspects have been grouped into four categories, principally for ease of reference but also because certain sub-themes can (p. 7) sensibly be observed from the relevant functions in supervising similar aspects of trust administration.
The first category groups those aspects in which the Court comes closest to performing the trust—that is, undertaking trust administration in its own right, standing in the shoes of the trustees (Chapter 4). The second category groups those aspects in which the Court regulates the office of trustee by appointing, removing, and remunerating trustees (Chapter 5). The third category groups those aspects in which the Court acts to secure the due performance of trusts by taking accounts, directing the disclosure of trust information, and ensuring that trust property is vested in the persons responsible for performing the trust (Chapter 6). The fourth category groups those aspects in which the Court supervises what may be regarded, strictly speaking, as the non-performance of trusts (in the sense that the Court is asked to authorize a departure from the original terms upon which the trust was settled). In this final respect, the Court sanctions breaches of trust, both prospectively and retrospectively, and supervises the variation and termination of trusts. Each of these groupings is analysed with a view to demonstrating that each of the relevant aspects is a component of a complex regulatory regime with respect to trusts that is essentially concerned with facilitating performance in various ways. No great store should be placed on the groupings. The relevant aspects come together as constituent parts of a coherent supervisory jurisdiction over trust administration.
1.11 As the supervisory jurisdiction over trust administration is administrative and protective in its essential nature and operation, its constituent aspects are distinguished from the remedial jurisdiction of the Court that is dependent on breach of trust and responsive to wrongdoing. The remedial and supervisory jurisdictions of the Court are not discrete silos for powers to be exercised in splendid isolation. The interaction between both jurisdictions is complex. A trust will not fail due to maladministration. A number of supervisory powers may be exercised to right the ship. Those powers are exercised in aide of performance and are not dependent on breach of trust. Where the Court awards equitable compensation for breach of trust, such compensation must be paid to reconstitute the trust fund so that the trust can continue to be performed. Only where there are no extant obligations left to perform can equitable compensation for breach of trust be paid directly to a beneficiary. The ability to make orders for the payment of such compensation directly to a beneficiary is best seen as a procedural mechanism that avoids the artificiality of ordering the trust to be reconstituted for the sole purpose of the relevant trustee paying that money over to the relevant beneficiary. If the trust is still in need of performance, however, performance remains paramount and any such compensation must be paid to a trustee—whether the incumbent trustee or a new trustee, if need be—so that the trust can be performed. The remedial jurisdiction of the Court, therefore, has a performative hook that preserves the supervisory jurisdiction over trust administration to facilitate performance of the trust above and beyond any maladministration.
1.12 As this monograph examines the administrative jurisdiction of the Court to supervise trust administration in which judicial intervention is not dependent on breach of duty by a trustee or wrongdoing, remedies for breach of trust fall outside the subject of analysis. Two important areas of trust law demonstrate the development of judicial functions on the borderline of the remedial and supervisory jurisdictions of the Court—that is, equitable (p. 8) compensation for breach of trust (Chapter 8) and judicial review of trustee decision-making (Chapter 9). Both of these areas have proven controversial in recent times with landmark decisions at the highest appellate level in England re-engineering both areas. At base, the recent developments in these areas involved a conflict between the remedial and supervisory jurisdictions of the Court in which the distinct principles and procedures that inform the exercise of both of those jurisdictions were pitted against one another in a battle for territory.
1.13 Traditionally, the Court supervised the taking of accounts in common form as a core feature of the supervisory jurisdiction over trust administration in which no misconduct or wrongdoing was required to be pleaded or proven to have accounts taken in that form. The right of a beneficiary to have an account taken and the corresponding duty to render an account arose by virtue of the primary legal relationship (or ‘fiduciary relation’) between the parties. In taking an account, the Court supervised a process whereby the beneficiary could object to entries or omissions in the ledger and in resolving those objections fix the liability of the trustee insofar as the basic accounting relationship between the parties was concerned. The judicial function of taking accounts in this way involved the primary supervision of basic duties of the trustee to ‘get in’ the trust property and to apply it according to the terms of the trust (a ‘custodial stewardship duty’6). By contrast to common accounting, accounts could be taken on the footing of wilful default, which was ‘entirely grounded on misconduct’.7 In this way, an accounting procedure fell squarely within the remedial jurisdiction (wilful default accounting) and another within the supervisory jurisdiction (common accounting). Prominent Equity judges, such as Lord Lyndhurst LC, Sir Richard Kindersley V-C, and Lord Lindley MR, emphasized that this distinction was not merely one of procedure but a fundamental one of kind.8 However, Chancery practice and procedure did not clearly delineate the remedial and supervisory jurisdictions of the Court. Over time, the lengthy inquisitorial process of taking accounts on the footing of wilful default was replaced by parties pleading discrete breaches of trust and praying for monetary relief. In modern times, awards for ‘equitable compensation’ for breach of trust have superseded the remedial procedure of accounting for wrongdoing on the footing of wilful default. If the remedial and supervisory accounting principles and procedures were kept distinct, the remedial power of awarding equitable compensation for breach of trust would be tangential to the core analysis in this monograph. However, two landmark decisions of the House of Lords and the UK Supreme Court have blurred the lines between the remedial and supervisory jurisdictions of the Court: the relevant decisions refer to the distinctness of the two different procedures (so-called ‘restitution’ as distinct from ‘compensation’) but breach-orientated principles are said to apply to both. The aim of Chapter 8 is to delineate between the remedial and supervisory accounting procedures.
1.14 At a level of abstraction, judicial review of trustee decision-making has also raised tensions between the remedial and supervisory jurisdictions of the Court, especially regarding whether a breach of trust is a precondition to enliven judicial intervention to set aside a (p. 9) decision of a trustee that is the product of a defective decision-making process. In contradistinction to many other jurisdictions, it has been authoritatively held that judicial intervention to review trustee decision-making is dependent on wrongdoing.9 It is, therefore, anomalous in the present schematic of the supervisory jurisdiction over trust administration insofar as that analysis draws a conceptual line between the remedial powers of the Court that are dependent on breach and the supervisory powers that are not dependent on wrongdoing. That aspect of Futter and the underlying conceptual issues it raises are the focus of Chapter 9. Traditionally, technical breaches of trust were masked by judicial review of trustee decision-making. A trustee either acts beyond the scope of their powers, thereby breaching a duty to perform the trust according to its terms (the relevant decision is ultra vires and void); or the trustee acts within the scope of their powers but in such a way that the trustee technically breaches a duty to consider relevant (but not irrelevant) matters, thereby ‘failing’ to adequately deliberate during the decision-making process (the relevant decision is intra vires but voidable). However, the question is not whether the trustee may be considered to have technically breached a duty in either case but whether trust parties should be afforded advantages in not needing to plead and prove a breach of duty to enliven judicial intervention in trust administration to set aside a defective decision. No breach of trust, let alone of ‘fiduciary duty’, was required to justify judicial intervention under the so-called rule in Hastings-Bass, thereby bringing trustees into close quarters with the Court in its supervision of trust administration. In replacing the rule in Hastings-Bass with the rule in Abacus v Barr, the Supreme Court fundamentally altered judicial review of trustee decision-making, resituating that judicial function firmly within the remedial jurisdiction of the Court dependent on breach of trust and proven wrongdoing.
1.15 A substantive conclusion rounds out this monograph by not only reflecting on the claims and themes development throughout the chapters but also exploring the implications that this work holds for the development of trust law, especially having regard to recent trends in contemporary trust law and practice towards extrajudicial mechanisms to supervise trust administration (eg alternative dispute resolution and the attachment of supernumerary office holders to trust administration, such as enforcers and protectors). The final chapter also explores the broader implications for private law and public law. The aim is to highlight areas for further analysis and to stimulate debate, as well as to consider the future trajectory of the supervisory jurisdiction over trust administration, in light of some of the future challenges.
1.16 The central policy that informs and shapes the supervisory jurisdiction over trust administration is facilitating the performance of trusts. Once that principle was entrenched as a maxim in Equity, it is unsurprising that regulatory functions would develop in every aspect (p. 10) of trust administration to ensure the due performance of trusts. As constituent aspects of a coherent jurisdiction, the supervisory jurisdiction is attached to each and every trust to ensure due performance from cradle to grave in the life of a trust. Those functions arise as a matter of necessity and must be undertaken by the Court in the absence of any other institution being responsible for the general superintendence of trusts. Two key characteristics recur across the practical instantiation of the core principle of performance in the supervisory jurisdiction over trust administration. First, judicial functions in the supervisory jurisdiction are essentially administrative in nature. Even though the relevant powers may be exercised against the background of controversy and wrongdoing, their purpose is to facilitate the ongoing performance of the trust. Second, the aspects of the supervisory jurisdiction are protective in various ways. The Court ensures, for example, that the settlor’s intention is carried out by enabling the trust to be performed. By extension, beneficiaries are also protected by the Court facilitating and reasonably ensuring due performance. The Court also affords protection to trustees in undertaking such performance not only by rendering assistance to overcome administrative difficulties but also to shield trustees of liability. Finally, third parties, such as creditors, are also protected by the Court supervising the due performance of trusts, which, for example, preserves the value of the trustee’s power of indemnity from the trust fund, as well as powers of subrogation with respect to that trust fund. The Court routinely strikes a balance between these different stakeholders in supervising trust administration.
1.17 An example of the administrative and protective quality of the supervisory jurisdiction over trust administration is given by the various powers to make vesting orders, thereby ensuring that trustees are vested with title to trust property and able to perform the trust.10 A less obvious example is the power to remove trustees, which is often loosely described as a ‘remedy’ for breach of trust.11 The inherent power of the Court to remove trustees is not remedial. If removal was intended to be ‘remedial’, it would be ineffectual. It would be shutting the stable door after the horse has bolted. In truth, the Court does not remove trustees for remedial reasons—for example, to compensate beneficiaries, to correct wrongdoing, or even to punish trustees. That the removal of trustees is not remedial is evident from the fact that trustees who do not commit any breach of trust may be removed from office. Conversely, a person may be allowed to remain in the office of trustee even though that person has committed a breach of trust. Breach of trust and removal of trustees do not correspond in a remedial sense. The function of removing trustees is not intended to remedy a wrong but is exercised to facilitate the performance of a trust and thereby reasonably ensure due administration. A person may be removed from the office of trustee if due performance of the trust or security of trust property is threatened or even just to make trust administration more workable prospectively. Thus, the inherent power of the Court to remove trustees is not punitive but performative. Its performative nature is borne out by the administrative and protective qualities of its exercise. A sensitive assessment is undertaken in the circumstances. The function of removing trustees is more meaningfully understood as an aspect of the supervisory jurisdiction over trust administration than in a remedial jurisdiction of the Court.
(p. 11) 1.18 A recurrent theme in the supervisory jurisdiction over trust administration is the notion that trustees must act ‘for the benefit of beneficiaries’, ‘in the best interests of the beneficiaries’, or some such similar phraseology.12 In a general sense, such expressions may convey the mandatory requirement of loyalty that is a constitutive element of every trust—trusts necessarily involve the fiduciary administration of property, paradigmatically for beneficiaries (or for the fulfilment of an objectively ascertainable and lawful purpose).13 More particularly, however, beneficial entitlements are created by the settlor, so the duty of a trustee to act ‘for the benefit of’ or ‘in the best interests of’ the beneficiaries will be baked into each and every trust and must be informed by a consideration of the terms of the trust and what performance requires in the circumstances.14 In The Pensions Regulator v Dalriada Trustees Ltd, for example, Nugee J held that the ‘governing principle’ of the Court’s ‘general supervisory jurisdiction over trusts’ is doing ‘what is in the interests of the beneficiaries’.15 It is, therefore, essential to know what those interests entail. This is another instantiation of the central principle of performance, which in turn requires a sensitive assessment in the circumstances. As Lord Nicholls observed extrajudicially:
Benefit and best interests are really interchangeable expressions. Both have a wide and elastic but not unlimited meaning. In this context, each requires an examination of the object with which the trust was established. To decide whether a proposed course is for the benefit of the beneficiaries or is in their best interests, it is necessary to decide first what is the purpose of the trust and what benefits were intended to be received by the beneficiaries. Thus, to define the trustee’s obligation in terms of acting in the best interests of the beneficiaries is to do nothing more than formulate in different words a trustee’s obligation to promote the purpose for which the trust was created.16
1.19 Like ‘benefit’ and ‘best interests’ of the beneficiaries, ‘performance’ is an enabling concept, the very purpose of which is to establish a broad, beneficent jurisdiction. Its malleability ought not be its downfall. Unnecessary restrictions should not fetter its flexibility or usefulness. A coherent and expansive jurisdiction has accrued around the maxim that the Court will supervise, and thereby facilitate, the performance of a trust. Ancillary principles have pooled around common areas in which judicial intervention is expedient. In making delicate discretionary decisions, judges routinely balance conflicting and diverse (p. 12) interests of stakeholders to determine the nature and scope of judicial intervention in trust administration. In moving beyond strict legality to acting for the ‘benefit’ and ‘best interests’ of beneficiaries, as well as considering the propriety of the trustee’s conduct, the Court applies ‘common sense’ to find pragmatic solutions to practical problems. Administrative difficulties arising in trust administration may also be overcome by using aspects of the supervisory jurisdiction over trust administration interchangeably.17 This is another reason why the various aspects of the supervisory jurisdiction over trust administration are best viewed as interconnected components that collectively facilitate the due performance of trusts.18
1.20 A number of aspects remain founded on an inherent jurisdiction to supervise trustees in their performance of trusts without any statutory basis for judicial intervention.19 Statutory reform has, however, played a crucial role in the evolution of the supervisory jurisdiction over trust administration—it has arguably enabled its survival. Legislative intervention has removed obstacles to enable the supervisory jurisdiction to be exercised more expediently. In this way, statutory provisions generally confirm, rather than create, the general basis for the exercise of the supervisory jurisdiction over trust administration, channelling its exercise for efficiency reasons.20 Parliament has not only streamlined the supervisory jurisdiction generally to achieve greater expediency in the dispatch of Chancery matters but also supplied the Court with powers interstitially.21 Despite extensive statutory reform, the Court may still undertake the general administration of a trust but prefers not to do so as there are more expedient means of facilitating performance than paralysing trust administration, so that the Court itself can execute a trust. Over time, the intention of Parliament in this area has generally been to supplement, rather than supplant, the supervisory jurisdiction over trust administration. Whether constituent aspects are inherent or statutory in provenance, the policy underlying the supervisory jurisdiction over trust administration remains performance.
1.21 The constituent aspects of the supervisory jurisdiction are instantiations of a broader administrative and protective jurisdiction that is exercised with a view to facilitating performance. Broad statements concerning the general basis of judicial intervention in trust administration in one aspect may be relied upon to justify intervention in another aspect and also to justify the development of emergent aspects—in doing so, the Court reaffirms the general basis for judicial intervention in trust administration and the interconnectedness of those (p. 13) components.22 Different aspects may be exercised interchangeably to facilitate performance expediently.23 Spliced together, the various aspects of the supervisory jurisdiction over trust administration are best seen as strands in a rope. It is, therefore, important not to lose sight of the underlying policy and principles that justify judicial intervention in trust administration generally.24 As Young J observed in Stevedoring Employees Retirement Fund Pty Ltd v The Association of Employers of Waterside Labour:
[T]he court has wide powers to intervene in the affairs of a trust in order to see that it does not fail as a result of the lack of a trustee or because there is some breakdown of the necessary machinery. In the appropriate case, the court may even act of its own motion [ … ] The exact boundaries of this principle remain unmapped [ … ] the rule is that the court may direct that a trust be carried out in the unforeseen events that have occurred since its inception in a way that as nearly as possible conforms to what the settlor would have done in the circumstances.25
1.22 Whilst the ‘principle’ of proactive, unrequested intervention in trust administration observed by Young J (at paragraph 1.21) remains ‘unmapped’, it is nevertheless a strong indication of the peculiarity of the supervisory jurisdiction over trust administration, especially the force of its underlying policy ambitions to see that trusts are duly performed. As a practical matter, it is important to understand that the constituent aspects of the supervisory jurisdiction over trust administration cohere around the central principle of performance by which the Court will lend its aid to ensure that a trust will not fail due to a breakdown in the necessary machinery required for its performance. As a jurisdiction broadly striving for expediency in facilitating performance, the supervisory jurisdiction over trust administration is reified by trust practice, ever responsive to the challenges of trust administration from time to time and the effective use of its constituent aspects.26 Despite the constant change in the subject matter of the supervisory jurisdiction, there is a distinct continuity over a considerable plane of time in the basic principles that unify the supervisory jurisdiction as the Court remains committed to doing that which is necessary to facilitate performance in modern times.
1.23 The Court’s supervisory jurisdiction has proved remarkably adaptive and responsive to the needs of trust administration over time in tailoring intervention to meet the needs of trust practice.27 As trust administration has become increasingly complex with the variety of purposes for which trusts may be created to fulfil, running the full gamut of diverse charitable to commercial purposes, the supervisory jurisdiction over trust administration (p. 14) has evolved to meet the day-to-day demands for facilitating the due performance of trusts. Even in challenging circumstances, the Court remains committed to assisting trustees.28 In Citibank NA v MBIA Assurance SA, for example, a trust was used to hold the benefit of a covenant to repay notes issued in order to raise the capital for Fixed-Link Finance BV (‘FLF’) to acquire debts (£304m and €395m) from the restructure of the Eurotunnel debt arrangements.29 The trust was structured such that: the beneficiaries under the trust were the holders of the notes; Citibank NA (‘Citibank’) was appointed to act as trustee; FLF was the settlor of the trust and was required to contribute to the trust by way of repayments on the notes it had issued; and MBIA Assurance SA (‘MBIA’) had stepped in to guarantee those repayments by FLF and bargained for the privileged position of being able to give certain directions to Citibank, pursuant to which Citibank was required to comply. After the trust was established, various Eurotunnel companies that were liable for the debt acquired by FLF went into insolvency in France. Upon the appointment of judicial administrators of those companies, a ‘Safeguard Plan’ was resolved to secure the position of creditors. MBIA issued a direction to Citibank regarding how to proceed in relation to the Safeguard Plan and directing the disposal of the FLF notes at the earliest available opportunity. Although not opposing the Safeguard Plan, one of the beneficiaries (‘QVT’) believed that the proposed disposal undervalued the notes and opposed the sale.30 In the face of this conflict, and adopting a ‘broadly neutral stance’, Citibank sought the Court’s guidance on how to proceed and was directed to follow the instruction given by MBIA.31 The Court responded swiftly, both at first instance (within a matter of weeks after the hearing) and on appeal (a little more than a month later), by determining questions as to how the trustee should act in difficult and urgent circumstances.
1.24 A reminder of the broad facilitative nature of the supervisory jurisdiction over trust administration was more recently issued in the exceedingly complex situation of the Lehman Brothers insolvency in which the trustees faced the difficult task of determining to whom distributions should be made where the trustees could not be certain who was entitled to the relevant property.32 At first instance, Blackburne J noted that the Court has ‘in the exercise of its trust jurisdiction, well-developed processes to assist the accountable trustee or other fiduciary’.33 Relevantly, the Court referred to the routine assistance that the Court may provide to trustees in authorizing distributions of a trust fund
where there can be no certainty that all of the claimants to it have been identified and the trustee desires the protection of a court order in the event that a further claimant should (p. 15) subsequently appear or matters subsequently come to light which question the basis on which the distribution is made.34
Recourse to the Court’s supervisory jurisdiction may be ‘simpler (and less costly)’ than complex processes for the promotion of schemes in the context of company administration and insolvency under the relevant statutory regime.35 In the Court of Appeal, Lord Neuberger MR also underscored that willingness of the Court to act even in the complex situation facing the administrators in the Lehman Brothers insolvency.36 After referring to the constraints on approving schemes under the statutory regime, Lord Neuberger MR not only expressed the ‘hope’ but the ‘expectation’ that ‘if the administrators decide to make an application under the Trustee Acts or pursuant to the court’s inherent equitable jurisdiction, in relation to dealing with beneficiaries’ rights, the court will provide effective assistance, by arriving at a practical and fair outcome, while ensuring that delay and cost are kept to a minimum’.37
1.25 The readiness and willingness of Chancery judges to assist trustees even in some of the most complex commercial situations demonstrates both change and continuity in the supervisory jurisdiction over trust administration over time, especially when the origins of the supervisory jurisdiction are recalled as essentially focused on assisting gratuitous, lay trustees with their performance of trusts for the transmission of intergenerational wealth among familial relations. There is no restriction on the aspects that may be developed as the supervisory jurisdiction over trust administration continues to fracture as judicial intervention in trust administration evolves over time with a view to facilitating the ongoing performance of trusts expediently for diverse socio-economic purposes. This monograph aims to reveal the skeleton of principle that underlies the supervisory jurisdiction over trust administration. No claim is made in this work that every bone has been picked. It may be that on an analysis of the essential principles and procedures underlying a certain judicial function in relation to trust administration, other aspects may emerge in the fullness of that analysis. In Jersey, for example, the law on ratification may be seen to have developed in this way. In Re Z Trust, Commissioner Clyde Smith observed that ‘the ratification order made in [Re the Representation of BB] was made in exercise of the court’s inherent jurisdiction to supervise and where necessary or appropriate to intervene in the administration of the trust, for the purpose of securing the competent administration of the trust’.38 The main aim of this monograph is to illuminate the central principles of the supervisory jurisdiction and sketch its main aspects so that it may continue to evolve coherently and be exercised productively.
1.26 Another case from Jersey might be noted insofar as it ties together many of the central claims and general themes considered in this chapter. In Re X (Trust), the Royal Court of Jersey considered an application for a direction by beneficiaries that they would be justified (p. 16) in pursuing a claim for breach of trust at the expense of the trust fund.39 The Court directed that the beneficiaries’ costs and disbursements of the contemplated litigation should be paid out of the trust fund from commencement of that action until two months after discovery. The reasoning of the Court on the basis of its jurisdiction to make such an order is of special importance. Following the landmark decision of the Privy Council in Schmidt v Rosewood in which the Board held that the judicial function to direct the disclosure of trust information was one aspect of the supervisory jurisdiction over trust administration, the Royal Court held in Re X (Trust) that, if it was in the ‘best interests of the trust’—and, therefore, ‘the beneficiaries as a whole’—judicial intervention in trust administration was justified. In Re X (Trust), the beneficiaries could potentially recover approximately £100 million for the trust if they were successful in their action for breach of trust in the contemplated litigation, which had reasonable prospects of success in the opinion of leading English counsel.40 In identifying the source of the Court’s jurisdiction, Deputy Bailiff Bailhache relevantly held:
If questions of disclosure of documents fall to be considered as an aspect of the Court’s inherent jurisdiction to supervise the administration of a trust [per Schmidt], why also should questions of the kind arising here not similarly be considered? [ … ] The Court’s inherent jurisdiction to supervise the administration of a trust is self-evidently a jurisdiction which the Court should exercise in the best interests of the trust. There is no logical reason why that exercise of jurisdiction should not extend in the Court’s discretion in an appropriate case, to making an order that the costs of legal action against the trustee be met out of the trust fund. That inherent jurisdiction is supplemented by—or supplements, or perhaps merely reflects, and we do not have to decide which, if any of those options in this case—[the statutory power of the Court, if it thinks fits, to make, inter alia, an order for the execution or administration of any trust]. [ … ] In the exercise of a discretion of this nature, the Court will clearly have to have regard to all the circumstances, and may have to balance the interests of different beneficiaries as well as the interest of beneficiaries and trustees, or conceivably the interests of beneficiaries and third parties. [ … ] At the end of the day, the question is whether the order sought is in the best interests of the trust, and thus of the beneficiaries as a whole.41
1.27 That finding is an orthodox application of the core principle of performance that unifies the various aspects of the supervisory jurisdiction over trust administration and exemplifies many of the claims and themes developed in this monograph. It demonstrates the way in which the Court may apply the central principle of performance to develop an emergent aspect within the supervisory jurisdiction and to extend the relevant principles coherently. Re X Trusts also provides a neat segue to consider one final theme and trend in the supervisory jurisdiction over trust administration—the attachment of distinct supervisory jurisdictions to facilitate the performance of trusts internationally.
1.28 Wherever the legal institution of trust has developed internationally by analogy with or inheritance from English law, trusts have generally taken with them a supervisory jurisdiction over trust administration in some sense. Principally, although not exclusively, the regulatory oversight of trusts is enjoyed by superior courts of record invested with plenary jurisdiction to facilitate the due performance of trusts with (or without) Equity.42 (p. 17) The supervisory jurisdiction over trust administration has shown remarkable resilience in attaching itself to trusts wherever they are located. In Jersey, for example, Commissioner Clyde-Smith observed in Re Representation of BB that ‘[t]he general principle guiding the court in the exercise of its [statutory] jurisdiction [ … ] and of its inherent jurisdiction is the welfare of the beneficiaries and the competent administration of the trust in their favour’.43 In these remarks and elsewhere, judges echo the fundamental maxim of Equity that the Court will supervise and, if necessary, intervene in the administration of trusts to facilitate due performance and afford reasonable protections to trustees and others—indeed, one of the landmark decisions reaffirming the complex nature of the supervisory jurisdiction over trust administration was not from England but the Isle of Man.44 There is a healthy correspondence between prominent trust jurisdictions comparatively in the development of supervisory jurisdictions internationally. Hopefully, this trend will continue. The future looks especially bright with a number of excellent initiatives that keep academics, practitioners and judges informed of key developments in trust law internationally—for example, specialized law reporting, especially the International Trust and Estate Law Reports (ITELR), specialist organizations, particularly the Society of Trust and Estate Practitioners (STEP), and excellent works on modern trust law and practice that both draw and focus on developments internationally, including trust commentaries and special volumes on comparative trust law.45
1.29 One of the reasons why it is practically important for comparative correspondence to continue is that the diverse socio-economic purposes for which trusts are created often extend beyond domestic borders with international dimensions arising in trust administration.46 The courts responsible for the superintendence of trusts internationally have generally been receptive to supervising trusts governed by foreign law by, for example, giving judicial advice to trustees, ordering accounts to be taken and even varying the terms of a trust.47 In Re Mirvac, for example, Austin J held, inter alia, that the Court had jurisdiction to provide judicial advice to responsible entities, including that they would be justified in taking certain action, notwithstanding that the trust instrument provided that the governing law was elsewhere.48 Where the administration of a trust is more closely connected to a foreign jurisdiction, the Court may combine distinct supervisory powers to appoint foreign trustees with other orders to revoke or vary the relevant trust, so that the trust property can be settled on a new trust governed by the law of a foreign jurisdiction.49 An interesting (p. 18) space to watch as the legal institution of trust continues to be adapted and exported to new jurisdictions, especially across the civil law tradition, is whether (and to what extent) a court of competent jurisdiction is invested with a supervisory jurisdiction over trust administration to facilitate the performance of those new trusts.50 Liberal interpretations of the Hague Trusts Convention already permit trusts to be created in some jurisdictions in which the only foreign element of a trust is the choice of law.51 In Italy, for example, an Italian settlor can create a trust with Italian trustees and beneficiaries and trust property situated in Italy but with England as the choice of law.52 The creation of ‘trusts’ as creatures of private international law places a burden on the judiciary in civil law jurisdictions, if the due performance of such trusts is to be supervised according to the law of a traditional trust jurisdiction, such as English law. Even in England, trusts remain exclusively supervised in a specialist division of the Court staffed by Chancery judges with relevant expertise long after the Judicature Reforms of the 1870s.53
1.30 This monograph draws on developments within the supervisory jurisdiction over trust administration from prominent trust jurisdictions internationally. The reason for doing so is not to blend those developments into one ‘monolithic’ common law.54 No claim is made that there is only one true supervisory jurisdiction over trust administration across every trust jurisdiction—my view as to the complimentary and symbiotic nature of the general and statutory law compels the opposite conclusion. It is a matter for each legal system to develop the administrative and protective jurisdiction of the Court to supervise trust administration. ‘Different folks need different strokes’, as Paul Matthews put it, ‘not one trust law under God’.55 The strokes not only change from jurisdiction to jurisdiction, especially in light of statutory codification and reform, but also the folks responsible for providing regulatory oversight of trusts (eg executive organs and private office holders, such as protectors), which influences the nature and extent of the supervisory jurisdictions of the relevant court of competent jurisdiction. Having stated the obvious, but nevertheless fundamental, importance of jurisdictional context to the supervisory jurisdiction over trust administration, the sources of law referred to throughout this monograph should be understood in their proper contexts.
1 Mark Asher, William Fratcher, and Austin Scott, Scott and Asher on Trusts (5th edn, Aspen 2006) 1021. A statement written by Austin Scott in the first edition of his treatise and carried through later editions thereafter, see eg Austin Scott, The Law of Trusts (Little, Brown & Co 1939) vol II, 824.
2 Burgess v Wheate (1759) 1 Eden , 28 ER 652, 670, 688 (Lord Mansfield CJ). See paras 2.35–2.36.
4 Lord Bowen, ‘Progress in the Administration of Justice During the Victorian Period’ in Committee of the Association of American Law Schools (ed), Select Essays in Anglo-American Legal History (Little, Brown & Co 1907) 516, 524.
8 Hodson v Ball (1842) 1 Ph 177, 41 ER 599, 601 (Lord Lyndhurst LC); Partington (n 7) 99 (Sir Richard Kindersley V-C); Re Stevens  1 Ch 162, 170 (Lord Lindley MR).
9 Futter v Comrs for HM Revenue and Customs; Pitt v Comrs for HM Revenue and Customs  UKSC 26,  2 AC 108, –, – (Lord Walker), endorsing Abacus Trust Co (Isle of Man) v Barr  EWHC 114 (Ch),  Ch 409,  (Lightman J).
10 See paras 6.31–6.37.
12 Armitage v Nurse  Ch 241, 253–54 (Millett LJ (with whom Hirst and Hutchison LJJ agreed); Reid v Hubbard  VSC 387 , –,  (Nettle J); Re H Trust  JLR 280  (Deputy Bailiff Birt); Crociani  UKPC 40,  (Lord Neuberger (for the Board)). See also Geraint W Thomas, ‘The Duty of Trustees to Act in the “Best Interests” of Their Beneficiaries’ (2008) 2 J of Equity 177.
13 Daniel Clarry, ‘Fiduciary Ownership and Trusts in a Comparative Perspective’ (2014) 63 ICLQ 901, 929–31; Daniel Clarry, ‘Mandatory and Default Rules in Fiduciary Law’ in Evan Criddle, Paul Miller, and Robert Sitkoff (eds), Oxford Handbook of Fiduciary Law (OUP 2019).
14 Reid (n 12) , –,  (Nettle J).
15 The Pensions Regulator v Dalriada Trustees Ltd  EWHC 4346 (Ch), . For the duty of the trustee to ‘exercise their powers in the best interests of the [ … ] beneficiaries’ under the general law, see eg Cowan v Scargill  Ch 270, 286 (Sir Robert Megarry V-C). For a statutory analogue, see eg Trustee Act 1925 (NSW), s 14B(2)(a).
16 Lord Nicholls, ‘Trustees and their Broader Community: Where Duty, Morality and Ethics Converge’ (1995) 9(3) Trust L Intl 71, 74. See also F&C Alternative Investments (Holdings) Ltd v Barthelemy  EWHC 1731 (Ch),  Ch 613,  (Sales J); Merchant Navy Ratings Pension Fund Trustees Ltd v Stena Line Ltd  EWHC 448 (Ch), , – (Asplin J) (‘first it is necessary to determine the purpose of the trust itself and the benefits which the beneficiaries are intended to receive before being in a position to decide whether a proposed course is in the best interests of those beneficiaries’.).
18 Wilcox v Poole  2 NSWLR 693, 698 (Mahoney J); Supreme Court Rules 1970 (NSW), r 68.2; Equity Act 1900 (NSW) s 11, Sch 4, r 1; William Parker, Practice in Equity (2nd edn, Law Book Co 1949) 18, 138.
19 See eg Letterstedt v Broers (1884) 9 App Cas 371, 386 (Lord Blackburn); Re Chetwynnd’s Settlement  1 Ch 692, 693 (Farwell J); Re Tollemache  1 Ch 457, 459 (Kekewich J); Pope v DRP Nominees Pty Ltd (1999) 74 SASR 78  (Bleby J); See v Hardman  NSWSC 287  (Bryson J); Schmidt v Rosewood  UKPC 26,  2 AC 709, 729, 734 (Lord Walker). See also Hall v Coultier  NICh 23,  (Horner J) (‘It is, of course, a cardinal principle of trust law that the High Court has an inherent jurisdiction to supervise the administration of trusts.’).
21 See paras 7.27–7.36 (on variations).
22 See eg Wendt v Orr  WASC 28, – (Commissioner Johnson QC); Tomasevic v Jovetic  VSC 223  (Sifris J); Colston v McMullen  QSC 292  (White J). See also Re X (Trust)  (2) JLR 260,  (Bailhache, Deputy Bailiff).
23 See eg Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, 440–41 (Shellar JA); See (n 19)  (Bryson J).
26 See eg Queensland Oil Shale Mining Industry (Superannuation) Ltd  2 Qd R 524, 527 (Williams J). See paras 7.05–7.09.
27 See Richard Nolan, ‘Invoking the Administrative Jurisdiction: The Enforcement of Modern Trust Structures’ in Paul S Davies and James Penner (eds), Equity, Trusts and Commerce (Hart Publishing 2017) 151, 156–68, 173–74; see also Richard Nolan, ‘ “The execution of a trust shall be under the control of the court”: A Maxim in Modern Times’ (2016) 2(2) CJCCL 469, 474–83.
28 Aside from the Citibank and Lehman cases (discussed), see eg Re MF Global UK Ltd (in special administration) (No 3)  EWHC 1655 (Ch),  1 WLR 3874, – (David Richards J); Perpetual Investment Management Ltd as Responsible Entity for 10 Schemes listed in the Summons  NSWSC 784,  –, –,  (Robb J); Re Worldspreads Ltd (in special administration) EWHC 1719 (Ch), – (Birss J).
30 Mann J was not willing to assume that the notes were, or would be, undervalued: Citibank (Ch) (n 29) –.
33 Lehman (Ch) (n 32) .
36 Lehman (CA) (n 32) .
38 Re Z Trust  JRC 48, (2016) ITELR 589, , explaining Re the Representation of BB  JRC 148, (2011) 15 ITELR 51, , citing Schmidt (n 19) ,  (Lord Walker); Re Duke of Norfolk’s Settlement Trusts  Ch 61, 78 (Fox LJ). cf Francis Tregear QC, ‘Putting it Right: Remedying Problems Arising from Defective Trustee Appointment’ (2013) 19(1) Trusts & Trustees 23–30.
39 Re X (Trust) (n 22).
43 Representation of BB (n 38) . See Trusts Law 1984 (Jersey), art 51 (as amended). See also Re WW and XX  JRC 231,  (Deputy Bailiff Bailhache) (describing the statutory power under art 51 of the Trusts Law 1984 (Jersey) as a ‘wide and vibrant jurisdiction’).
44 See eg Schmidt (n 19) ,  (Lord Walker).
46 See paras 5.10, 8.10–8.12. For an interesting recent example, see Akers v Samba Financial Group  UKSC 6,  AC 424; see also Justice David Hayton, ‘Proprietary Interests in Foreign Property: Equity’s Viewpoint’, Mark Hapgood QC and Alan Roxburgh, ‘Equity and Trusts’, Laurence Rabinowitz QC and Steven Elliott, ‘Restitution and Unjust Enrichment’ in Daniel Clarry (ed), The UK Supreme Court Yearbook, Volume 8: 2016–2017 Legal Year (Appellate Press 2018).
47 See eg Re Webb (1992) 57 SASR 193; Re PTA Institutional Services Australia Ltd  NSWSC 1294; Salkeld v Salkeld (No 2)  SASC 296. See also Re Dion Investments Pty Ltd  NSWSC 1941, – (Young AJ).
50 See Blandine Mallet-Bricourt, ‘The Trustee: mainspring, or only a cog, in the French fiducie’ in Smith (n 45).
51 Convention on the Law Applicable to Trusts and on their Recognition (1985), arts 6 and 8; see also Clarry (n 13) 918–20. But see Alfred von Overbeck, Explanatory Report on the 1985 Hague Trusts Convention (Bettmeralp 1985) 383–84, 397–400.
52 See eg M Lupoi, Trusts: A Comparative Study (Simon Dix trans, CUP 2000), 83, 201–05, 327–66, 368–86; Maurizio Lupoi, ‘The Hague Convention, the Civil Law and the Italian Experience’ (2007) 21 Trust L Intl 80, 834; Alexandra Braun, ‘Italy’ in John Glasson and Geraint Thomas (eds), The International Trust (Jordan Publishing 2006) 806, n 34. See also Clarry (n 13) 918–20.