Outer House grants wind-up powers to judicial factor of testamentary trust despite trustee opposition

The noter was appointed judicial factor of the Old Waughton Discretionary Trust upon the petition of one of the trustees, the truster’s wife. With special powers required to carry out his proposals in respect of the trust assets, a note came to be considered before the Outer House of the Court of Session.

The case was heard by Lord Richardson, with Fergus Colquhoun appearing for the noter and Roderick MacLeod for the respondent.

Note for special powers

In 2018, the Old Waughton Discretionary Trust came into effect upon the death of Mr Ian Wilson. The trust deed appointed a friend of Mr Wilson, the respondent, as trustee alongside Mr Wilson’s wife. Ownership of Mr Wilson’s East Lothian farm passed to the trust upon his death, with the trust assets to be administered to the benefit of Mrs Wilson or any other individual, or charitable or educational organisation, selected by the trustees.

In a letter of wishes signed alongside his will and the trust deed, Mr Wilson expressed his desire that suitable financial provision be made for his wife; that the farm should, if possible, be taken over by a young person interested in farming, failing which a suitable charitable institution; and that, in any case, the farm remain a single unit put solely to agricultural use.

Less than a year after Mr Wilson’s death, and with the relationship between the two trustees having broken down irretrievably, Mrs Wilson successfully petitioned the court for the appointment of a judicial factor on the trust assets. Alexander Lamb, the noter, was thereafter appointed and granted “the usual powers”. After several years of unfruitful inquiries, including from Mr Wilson’s niece, a candidate was found to take on the farm. Now wishing to sell the farm to that candidate, the noter brought proceedings to seek special powers; namely, powers to dispone the farm and to appoint that the trust fund be held absolutely for the benefit of Mrs Wilson.

Despite the accountant of court giving approval to the proposals, the respondent challenged the petition. He argued that the proposals would fail to obtemper Mr Wilson’s wishes as set out in his letter. The candidate found was not a young farmer, as Mr Wilson had suggested, and the appointment of Mrs Wilson as the trust’s sole beneficiary would give rise to a result arguably more generous than the “suitable financial provision” her late husband had envisaged. It remaining possible to administer the trust estate in line with Mr Wilson’s wishes, the respondent submitted, the court ought instead to appoint a new trustee.

Prolonged and continuing deadlock between trustees

Noting the legal basis of the note in section 7 of the Judicial Factors Act 1849, Lord Richardson began by explaining that: “[T]he issue which I require to consider is, essentially, whether, in all the circumstances, the powers sought by the noter are ‘expedient and consistent with due regard to the amount of the estate at the time’. Having heard the noter give evidence, it is clear to me that the starting point for the noter is the continuing deadlock between the trustees. That deadlock formed the basis upon which the noter was appointed as the judicial factor to the estate. Furthermore, it is that continuing deadlock which, in his view, is preventing the identification either of another beneficiary or a third trustee.”

He continued: “I am not persuaded by either of the arguments that were advanced on behalf of the respondent. As a preliminary point, I consider that it is striking that the respondent framed his arguments by reference to what was ‘necessary’. That is not the correct test. The wording of section 7 makes it clear that, essentially, I require to be satisfied that, in all the circumstances, the grant of the powers to the noter would be expedient. That is a different and significantly lower test than deciding that such grant is necessary. To put the point in a different way, the court could be satisfied that a proposed course of action was expedient even if there were possible alternatives. Whereas, where there are possible alternatives, it is much more difficult to demonstrate that the proposed course is necessary.”

Continuing to evaluate the cogency of the respondent’s arguments, Lord Richardson added: “The fact that the respondent has, in advancing his arguments, applied the wrong test may explain why those arguments seem to me to be rather beside the point. It is, of course, correct that the trust purposes remain. However, what the respondent overlooks is that, as a result of the deadlock between the trustees, it is extremely unlikely that any further progress will be made in achieving those purposes. In the same way, the respondent is correct that if a further trustee were assumed or appointed by the court, the deadlock might be broken. However, again, given the continuing impasse, it is not clear when, if at all, it is reasonable to consider that a third trustee will be assumed or appointed.”

Turning to the respondent’s arguments regarding the wishes of Mr Wilson, he continued: “…Mr Wilson recognised that he was not setting out a detailed set of instructions which ought to be carried out but, rather, a list of wishes to assist his trustees. Notably, he also recognised that none of his wishes might be capable of being carried out and he left matters to the discretion of his trustees … When the course of action proposed by the noter is considered against the background of the letter of wishes, I am unable to detect any significant contradiction.”

Lord Richardson concluded by observing that: “The course of action proposed by the noter broadly achieves the purposes for which the trust was established. As Mr Wilson wished, suitable financial provision for Mrs Wilson will be ensured and Old Waughton will continue to be farmed as a single unit in the hands of an individual with an interest in farming. Bearing in mind the prolonged and continuing deadlock between the trustees, the noter’s course of action appears highly expedient. Based on the evidence I have heard, there appears not to be any reasonable or realistic alternative. In my opinion, taking no action and simply allowing the trust estate gradually to diminish under the continuing burden of funding the judicial factory would not be a reasonable course of action. I am also not persuaded that the respondent’s suggestion of proceedings being brought seeking the appointment of a further trustee is either reasonable or realistic.”

The noter was accordingly granted the two powers sought.