Hope for Trustees Concerned About Self-Dealing

Consequently the rule against self-dealing, where trustees dispose of trust property to themselves or a fellow trustee or where a trustee sells their own property to the trust, is strict.

Sometimes self-dealing is unavoidable and trustees wishing to enter into a transaction which may be in breach of the rule against self-dealing have been able to rely on their ability to seek prior authorisation from the court.

However, in April 2015, the High Court appeared to extend this rule, allowing courts to give retrospective approval to transactions trustees have already entered into which breached the rule against self-dealing.

Mills v Mills and others [2015] EWHC 1522 (CH)  involved a family trust of land with adult beneficiaries. However, the trust was complicated by also potentially being for the benefit of unborn beneficiaries. In 1993 two of the adult beneficiaries decided to sell a small plot of the trust land to the other trustees, in breach of the rule against self-dealing.

The trustees then became concerned that this sale of land could be voidable if a potential beneficiary was born who then chose not to consent to this transaction and therefore sought the court's approval of the sale. The High Court had to address whether the transaction could be overturned by an unborn beneficiary and whether the court had the power to do anything to rectify this situation.

Cooke J held that there was no reason why the court could not give retrospective approval to transactions where approval had not previously been sought because no one had been aware that such approval was necessary.

Just as when trustees seek prior approval of a transaction that may breach the rule against self-dealing, Cooke J noted that the Court are only likely to approve a transaction retrospectively if the transaction was:

• desirable
• in the interests of all the beneficiaries, and
• made at a proper price

Luckily for the trustees in Mills v Mills and others, the High Court decided that the sale of land was in the interests of the trust and its beneficiaries and the transaction was retrospectively authorised.

Trustees should still approach any transaction that may be in breach of the rule against self-dealing with the utmost caution. Despite this decision, it remains best practice to seek prior consent from all of the beneficiaries and if this cannot be achieved (where there are minor/disabled beneficiaries), trustees would be best advised to seek early authorisation from the court before entering into the transaction.

For more information, please contact Fiona Lawrence on 0117 314 5389

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