Within the intricate landscape of trust litigation, a recent legal development may reshape safeguards for trustees. Co-authored by Paul Buckle, Director of Private Client Services, and Tracey Neuman, Private Client Executive at Ocorian, this article looks at a potentially serious limitation on the well-known Public Trustee v Cooper jurisdiction and its implications for trustees.
What is the significance of the Public Trustee v Cooper jurisdiction?
The role of a professional trustee includes making challenging decisions but with the option to seek the court’s blessing of any especially ‘momentous’ ones under the Public Trustee v Cooper jurisdiction.
Under this jurisdiction, the court blesses the decision if satisfied the trustee will act within its powers, reasonably and free of conflicts. Traditionally, this blessing protected trustees from subsequent claims of breach of duty, however, a recent decision of the English Court of Appeal, Denaxe Ltd v Cooper, has questioned the extent of that protection.
This newfound uncertainty has considerable importance for trustees and their insurers.
What makes Denaxe Ltd v Cooper unique?
Denaxe was unique for two distinct reasons. First, it involved receivers, not trustees, appointed by way of equitable execution over assets to secure debt repayment. The case accepted receivers and professional trustees were to be treated alike. Secondly, Denaxe wasn't a typical blessing application; instead, it was an attempt by the receivers to dismiss a claim by a debtor that the transaction by which the receivers sold the assets to pay the debt, which had received a Cooper blessing, was negligently undertaken because they sold the assets together, not separately. Because the transaction had been blessed, the receivers argued they had immunity from subsequent claims. It was this that made Denaxe unusual. No previous case had looked at the scope of a historic Cooper approval in the face of an actual claim.
Why did the Court of Appeal rule in favour of the receivers in Denaxe?
In the High Court, the receivers prevailed on conventional grounds, and later succeeded in the Court of Appeal as well. However, their victory wasn't grounded in the blessing providing immunity. Instead, it turned on the debtor's failure to raise the question of a split sale in the blessing hearing when it could and should have done. That failure meant the debtor was prevented from later arguing the point by the rule in Henderson v Henderson. Notably, in so finding, the Court ignored established trust law principles, saying there was no special rule by which receivers or trustees could be released from claims, beyond recognised grounds like Henderson. In cases where a decision received a Cooper blessing and a subsequent claim arises, the critical consideration is whether the blessing addressed and resolved the issues underlying the claim. Mere confirmation of the transaction's ‘reasonableness’ was unlikely to establish the receivers had met expected standards of care. Moreover, that the Cooper jurisdiction is intended to achieve expediency reduces the likelihood of judges using it for intricate factual or legal determinations.
How might Denaxe impact the Public Trustee v Cooper jurisdiction?
The Court of Appeal's stance raises concerns but may carry some validity. Even from a trust law perspective, it is hard to see how a determination that a transaction is within a trustee's powers, is reasonable, and is undertaken free of conflicts can establish a comprehensive immunity against any subsequent claims related to that transaction. Prior to Denaxe, it was evident that a trustee would lose protection if it failed to make full disclosure to the court or if it effected a decision different from that blessed by the court. In the Hawksford case in Jersey, a blessing of an asset sale on terms didn’t prevent a later claim that the asset could and should have been sold sooner. If one takes that reasoning further, then surely blessing a transaction undertaken in one form cannot prevent a claim that it should have been undertaken in a different form, where that alternative was never considered by the court.
How should professional trustees navigate this uncertainty?
The effect of Public Trustee v Cooper is now uncertain. Denaxe, an English Court of Appeal ruling, may not be followed by Channel Islands Courts, especially given it was not a trustee case. However, the Court emphasised the equivalence of treatment for receivers and trustees, and a Guernsey case, Canargo, has already done likewise. Ocorian, like many professional trustees, is vigilantly monitoring these developments. At present, until clarity emerges, the prudent approach aligns with the Denaxe judge's advice: when making a Cooper application, trustees should present to the court detailed particulars of any claim from which they wish to be released, as a broad release may not be available.
How can Ocorian help with contentious trust matters?
Cooper applications can easily become contentious trust matters. Ocorian has vast experience dealing with these matters, as well as other forms of trust disputes. In the unfortunate event of a family dispute or a breakdown in the relationship between trustees and beneficiaries, our acknowledged team of experts can act or become involved proactively to achieve a satisfactory and timely outcome.
Whatever the details of the dispute, we will act quickly to restore good order to structures.
Contact our team today to find out more about our contentious trust services.