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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Page & Ors v West & Ors [2010] EWHC 504 (Ch) (12 March 2010) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/504.html Cite as: [2010] EWHC 504 (Ch), [2010] WTLR 1811

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		12 March 2010

1. Frank West, who had been twice married, died intestate on 9 December 1989.
2. The main asset of his Estate was a property ("the Land") believed to have been bought in 1937 by Frank's father. A family business was run there until Frank's death. Some members of the family are attracted to retention of the Land because of the family history, quite apart from financial considerations.
3. The Land is now run as, in effect, a small industrial estate, the business home to about 20 small enterprises. It lies in a Green Belt area and is generally regarded as something of an eyesore, factors which, the evidence suggests, would make any questions of ideas for redevelopment both interesting and controversial. The possibility of eventual redevelopment is not one which would be wholly ignored if a sale were to take place.
4. As described below, proceedings have come before Mr Justice Carnwath (as he then was) and twice before Mr Justice Neuberger (as he then was) (West v West [2002] EWHC 2778 (Ch), and [2003] EWHC 1483 (Ch) [2006] WTLR 157). I shall in general follow the practice from earlier hearings of referring to members of the family by their first names, although in Lucy Bunting's case I shall add her surname. Also, I shall round monetary amounts.
5. Frank's first wife was Edith. There were two children of that marriage, Geoffrey and Rosemary. Their 2010 birthdays take them to ages 78 and 76 respectively. Neither has any child. Rosemary is aware of these proceedings but has not participated.
6. Frank was survived by his second wife, Lucy. She died on 14 February 2006. There were also two children of this marriage, Judith, who is now Judith Bunting, and Paul (68 and 66 in 2010). Each of these in turn has two children: Lucy and Philippa Bunting and Matthew and Fiona West. These four (all of whom are of full age) are "The Grandchildren" as defined for the purposes of the Trust with which this application is concerned.
7. The proceedings before Mr Justice Carnwath were to determine a claim brought by Geoffrey against Frank's Estate, brought by Writ issued on 30 December 1991 against those to whom Letters of Administration had been granted, that is to say Lucy, Paul and Rosemary. Geoffrey had worked in Frank's business at the Land, and his claim to be beneficially entitled to the Land and the business thereon was essentially based on proprietary estoppel. The parties compromised that claim on 10 May 1996, the proceedings being stayed on terms which involved the establishment of the Trust. By that time the conduct of the defence was in the hands of Lucy and Paul, who appeared by Counsel; Rosemary appeared in person. The 2003 judgment of Neuberger J. explains how and why Messrs. Christopher Page and Nigel Morton, partners in Messrs. Charles Russell LLP, practising from Cheltenham, and to whom I refer as "the Trustees", became Trustees of that Trust.
8. The Schedule to the Order of 10 May 1996 provided for certain payments to be made, including payments to Lucy and Geoffrey. Paragraph 4 of the Schedule to the Order ("the Schedule"), established the Trust:

The Trustees shall hold the Land upon trust to sell the same with power to postpone such sale and shall hold the said proceeds of sale and the net rents and profits therefrom until sale UPON TRUST

(i) to pay one-half of the income therefrom to Geoffrey West for life;

(ii) on the death of Geoffrey West to pay one-half of the income therefrom to Rosemary West for life;

(iii) to pay the other one-half of the income to Lucy May West for life;

(iv) on the death of Lucy May West to pay one-quarter of the income therefrom to Paul West for life;

(v) on the death of Paul West to pay one-quarter of the income therefrom to Denise West [Paul's wife] for life;

(vi) on the death of Lucy May West to pay one-quarter of the income therefrom to Judith Bunting for life;

(vii) subject to the aforesaid trusts for the Grandchildren in equal shares absolutely.

9. Paragraph 6 of the Schedule provided that:

"The Trustees shall not sell the Land without the prior consent in writing of Geoffrey West and after his death Rosemary West."

This provision is often referred to as the veto.

10. Paragraph 8 of the Schedule provided that the parties should, within 3 months, execute a Deed of Family Arrangement giving effect to the trusts. This was never done.
11. The Schedule did not include any provision dealing with possible capital expenditure of the Trust or means of meeting it; in particular, no express power of borrowing was created.
12. The Trustees apply to the Court for orders which can be summarised as: to enable them to borrow, mortgaging the Land for that purpose; to determine the incidence (as between income and capital account) of interest payable on mortgage borrowing if they do so; to enable them to sell the Land, permitting them to do so without needing to obtain the consent of Geoffrey or Rosemary. The Trustees do not have a specific sale in view.
13. They apply in circumstances in which there are awkward problems about which the parties are unable to agree. For many years the Trustees have not had free capital available to meet items of expenditure chargeable to capital. They have therefore had to use income to meet such expenditure, and accordingly there are substantial arrears of payments due to income beneficiaries. The income beneficiaries are entitled to interest on the sums in question. Everyone wants the arrears and interest to be paid. The central problem is funding this, particularly bearing in mind the existence of the veto and that Geoffrey is for the time being opposed to there being a sale.
14. Matthew in his evidence referred to his dismay "at the waste of money due to dissention in the family." That the family does not function effectively for the purposes of the Trust was emphasised in Court by Paul. These comments are realistic. The frequent inability of the parties to agree produces litigation and its considerable cost. Neuberger J. commented in both judgments on the fact that the disputes had produced serious delay, and that he hoped that the finalisation of the dispute resolution would be achieved by the 2003 judgment. He said, in relation to one of the issues ([2003] EWHC 1483 (Ch) at [20]):

"Secondly, I consider that to include a provision such as that suggested by [counsel] would be a recipe for further argument and litigation, in light of the many disputes that there have been in relation to this estate. Accordingly, I think that this is a particularly appropriate case for ensuring a minimum risk of litigation in the future in any order I make."

15. Major issues before the Court in 2003 indeed arose from the fact that there was not free capital to meet capital expenses, and that there was a need for capital expenditure to be met out of income - already possibly £175,000 had been so met. The question what was to be "done about the reimbursement or crediting of money which the trustees will have and have had to pay out, which should properly be recovered from capital, but can only be recovered from income at the moment", was the subject of paragraphs 43 to 58 of Neuberger J.'s judgment. There was no dispute about the fact that any such payments should be debited to capital and credited to income account; the dispute was about interest. It was resolved by this declaration at (d) of the Order:

"that for the avoidance of doubt the income beneficiaries of the Land shall be entitled to be repaid out of capital any income of the Land which has been or may be applied in the future by the personal representatives of the Estate or the Trustees of the Land in defraying any expense or other liability of the Estate or the Trust of the Land which did not properly fall to be borne by the income of the Land and the sums payable to the income beneficiaries of the Land out of the capital of the Land should bear simple interest at the rate payable from time to time on the Lord Chancellor's special account plus one per cent and that such interest will begin to accrue from the date when the income beneficiaries of the Land would first have been entitled to payment of that income if the income had not been applied by the personal representatives or trustees in that manner."

16. I note that this refers to income of the Land having been, or prospectively being, applied in respect of payments of both the Estate and the Trust of the Land. Since then there have been other payments to be made on capital account, in respect of the Land, which have increased the balances on the cross-account between capital and income. Those balances have been further increased by the accrual of interest due from capital account to income account under the order.
17. A summary of capital expenditure met from income, and of interest, is provided on a spreadsheet exhibited in CJP4 to Mr Page's witness statement of 10 December 2009. On any view the balance on cross-account now exceeds £665,000.
18. There has been substantial change during the proceedings in the evidence of the amount owed on cross-account. The figures first given had, it emerged, been calculated on the basis of compound interest rather than the simple interest ordered by the Court in 2003. The witness statements, including those dealing with the possibility of obtaining mortgage finance, were almost all made when the figures were based on compound interest and when the balances on cross-account were suggested as over £900,000 in favour of the income beneficiaries, indeed reaching £930,000. However, in his fourth witness statement, made just before the hearing, Mr Page set out a revised calculation, based on simple interest. This calculation shows (among other things) the income beneficiaries' entitlement on cross-account from capital as £665,000, of which the income that Geoffrey is owed amounts to £337,000. These figures have yet to be checked and confirmed. There remains £75,000 of Inheritance Tax to be paid under the instalment option selected following Lucy's death. If one takes these latest figures, the position is approximately that the gross assets of the Trust are £1,600,000, the liabilities are £740,000, and the net assets are therefore £860,000. I am alive to the fact that the debt to the income beneficiaries may be around 42% of the value of the Land whereas until just before the hearing it appeared to be around 57%, a consideration which may make a lending proposition more attractive to lenders and may also lengthen the time horizon for the Trustees, as against the position as it appeared a few days before the hearing.
19. Despite views expressed by Paul in his 2009 witness statement, both Geoffrey and Paul now want the debts to them discharged. That is consistent with the purposes of the Trust. It is accepted that the debt to Judith would be discharged at the same time. As a main purpose of this Trust is that the income beneficiaries should be in receipt of income in their hands it would be most unsatisfactory, unless it were absolutely essential, that these arrears of income should remain unpaid or that income should go unpaid in the future. Lucy did not actually receive large amounts of the income which was arising during her lifetime. Geoffrey's evidence includes this passage:

"I am extremely concerned to be paid these monies, while I still have an opportunity to enjoy them. My primary wish is that these monies should now be paid."

And, as he put it in a letter:

"After being to Court 4 times I do hope that some settlement will be achieved and I get my money while I am hopefully still be able to enjoy some of it."

20. The purpose of the application is to enable the Trustees to have power sufficient to enable them to undertake, without anyone having a veto, transactions to fund payment of the sums due on cross-account. The differences arise as to what they should be enabled to do and, notably, if the chosen route is borrowing, where the interest cost of borrowing should lie.
21. The application to permit the Trustees to sell the Land without the consent of Geoffrey (or, after his death, Rosemary) is made under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 ("the 1996 Act") of which sections 14 and 15 provide:
22. — (1) Any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order under this section.

(2) On an application for an order under this section the court may make any such order—

(a) relating to the exercise by the trustees of any of their functions (including an order relieving them of any obligation to obtain the consent of, or to consult, any person in connection with the exercise of any of their functions), or

(b) declaring the nature or extent of a person's interest in property subject to the trust,

as the court thinks fit.

[I omit subsections (3) and (4), which are not material to this case.]

23. — (1) The matters to which the court is to have regard in determining an application for an order under section 14 include—

(a) the intentions of the person or persons (if any) who created the trust,

(b) the purposes for which the property subject to the trust is held,

(c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and

(d) the interests of any secured creditor of any beneficiary.

(2) In the case of an application relating to the exercise in relation to any land of the powers conferred on the trustees by section 13, the matters to which the court is to have regard also include the circumstances and wishes of each of the beneficiaries who is (or apart from any previous exercise by the trustees of those powers would be) entitled to occupy the land under section 12.

(3) In the case of any other application, other than one relating to the exercise of the power mentioned in section 6(2), the matters to which the court is to have regard also include the circumstances and wishes of any beneficiaries of full age and entitled to an interest in possession in property subject to the trust or (in case of dispute) of the majority (according to the value of their combined interests).

[I omit subsection (4), which is not material to this case.]

24. The application in connection with borrowing and mortgaging, which is made in part because the Trustees are doubtful whether they have implied power to borrow, a question which I am not asked to resolve, is made under section 57(1) of the Trustee Act 1925:

Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

25. In In re Downshire Settled Estates [1953] 1 Ch 218 it was held that this only provides jurisdiction where the proposed transaction is one which is specifically related to the management or administration by trustees of trust property. I consider that the proposal of borrowing in order to fund past or future capital expenditure of this Trust is specifically so related, the management and administration requiring that the Trustees establish means of meeting expenditure (including expenditure on litigation) properly to be debited to capital account. I do not consider that it would involve any variation of the beneficial interests.
26. I am required by section 15(1)(a) of the 1996 Act to have regard to the intentions of the person or persons (if any) who created the Trust (which I take to be their intentions at the time of so doing); and by section 15(1)(b) to have regard to the purposes for which the property subject to the trust is held; the remaining paragraphs of section 15(1) are not in point in this matter.
27. I am also required by section 15(3) to have regard to the circumstances and wishes of any beneficiaries of full age and entitled to an interest in possession in property subject to the trust or (in case of dispute) of the majority (according to the value of their combined interests). (The Mortgage Corporation v. Shaire [2001] Ch 743 at p.761G.)
28. There is direct evidence from Geoffrey as to his intentions when the Trust was established. He believed that the assets in Frank's Estate would provide sufficient capital apart from the Land to meet the Estate's capital liabilities (which was not in fact the case). He therefore expected that he would receive an income equivalent to half the income generated by the Land. He sets out that position in paragraph 9 of his witness statement of 31 March 2009 and that that was the basis on which he entered into the compromise; at paragraph 17 he says that he negotiated a veto on selling the Land so that he would be able to retain a full half share of the income generated by the Land; at paragraph 8 he says that he negotiated the veto so that he could be sure that the Land would not be sold and his income reduced.
29. As reflected by what is said in paragraphs 15 and 16 above, the position is that the fact that accrued income entitlements have not been paid out derives in part from the insufficiency of free capital in the Estate to meet its liabilities and in part from the fact that the Trust itself did not have capital other than the Land, and there has been capital expenditure for the purposes of the Trust to be met. According to the spreadsheet in CJP4, capital expenditure had been funded out of income to the extent of £47,208.05 by 5 April 1996, that is, shortly before the compromise and order of Carnwath J.
30. The evidence of Geoffrey to which I have referred deals explicitly with the first but not with the second of these problems. His case has, however, been argued on the basis that he considers that his income should not be diminished as a result of any need for capital expenditure to be incurred by the Trust. It is not clear that he had any subjective intention about that at the time.
31. There is, indeed, no evidence that the problem of the Trust being affected by the need for payments to be made by the Estate or for its own capital expenditure was considered by any one of the persons who created the Trust. Geoffrey points out that Lucy and Paul were administrators of the Estate, and that a letter from Mr Clive Morton, who became the Trust's accountant in 1994, dated 30^th September 2008, shows that a shortage of free capital was visible on accounts sent to the administrators on dates before the 1996 compromise (the accounts forwarded by Mr Clive Morton before that date appear to have been to 5 April 1994); Geoffrey believes that Lucy and Paul were aware that the Trust would need to pay capital expenses out of income, and he records that the settlement which was agreed was proposed by them.
32. There is no direct evidence of the subjective intentions of anyone other than Geoffrey at the time the Trust was established. Neuberger J. said that it was a matter of speculation, on the evidence before him, what the parties had thought at the time of the 1996 Order ( [2003] EWHC 1483 (Ch) at [38]). It is, however, proper to infer that the intentions did not include one that Geoffrey or Rosemary should have to consider the interests of persons other than themselves when considering whether to exercise the veto, but did include that all the beneficiaries should come to enjoy something of value.
33. As to the purposes for which the property subject to the trust is held: Mr Adkin, who appears for Geoffrey, said that the purpose of creating the Trust was to settle the 1991 litigation, but he accepted that that did not amount to a statement of the purposes of the Trust (nor of the purposes for which the Land is held). Those appear to me to have been and to be, essentially, to provide incomes for Frank's widow and children during their lives, and capital for the Grandchildren (who could of course retain the Land if it were still held and if they so chose).
34. The purposes do not appear to me to involve a special preference for Geoffrey or Rosemary at the expense of others, except to the important extent that they successively have the right to prevent the Land being sold and its proceeds being invested in different assets. In saying that I have regard to various factors, which include the existence of the veto. Firstly, the Trust dealt with the Land and the income therefrom, and envisaged successive members of the family enjoying the income therefrom. This does not naturally suggest that any one or more beneficiaries should be entitled to enjoy the income in a way which might well lead to other beneficiaries not being able to do so. (This is not only a question as between family generations: Geoffrey and Rosemary are a decade older than Judith and Paul.) Secondly, Geoffrey argued in 2003 that, in context, if money had to be taken from income to meet capital expenses it should be taken from Lucy's share in priority to his. The argument that Geoffrey had a preferential position in that respect was rejected by Neuberger J. ( [2003] EWHC 1483 (Ch) at [34]-[37]): in particular:

"there is simply nothing, in terms of words, in the agreement embodied in the schedule, or in the body of the order itself, which can fairly be read as even suggesting that, in the event of the property and other assets in the estate being insufficient to pay for outgoings, that Geoffrey's share of the income should be treated any differently from Lucy's."

I see no reason why the position should be different because Lucy has died and Paul and Judith have succeeded to her half-share of the income. The question is whether the veto affects the position (Geoffrey's stance carrying with it the real risk that the Trust may cease to be able to make any income distributions at some stage during Paul and Judith's lifetimes). Thirdly, the veto serves the significant purpose of enabling Geoffrey or Rosemary to prevent a change in Trust assets which might cause a reduction in current income to the Trust (even if such a change might offer advantages such as diversification and better capital growth prospects). It is not implicit that it serves a wider purpose of preferring Geoffrey and Rosemary, than that one.

35. To a very large extent purposes of the Trust have not so far been fulfilled. Lucy did not get to enjoy all her income. At the date of her death the latest calculations provided to me show she was owed £182,000, exclusive of interest. The position is similar for the next generation. The latest calculations show Geoffrey to be owed £260,000, and Paul and Judith £47,000 each (again, exclusive of interest).
36. I shall refer later to the wishes of the beneficiaries, particularly the beneficiaries with interests in possession (it being the latter to which the 1996 Act specifically requires me to have regard in relation to the application under that Act).
37. The potential means of the Trustees finding cash to enable the cross-account balances to be paid are 1) sale of the Land or 2) borrowing, which would clearly have to be secured against the Land. A sale at any time will lead to what may be a significant Capital Gains Tax liability (no estimate is available). A sale in the short term would be into a market which is uncertain. The parties are well aware that a sale now might well be for significantly less than would probably have been obtainable less than two or more years ago. Borrowing would create a need to service the loan, unless the interest were to be "rolled up", i.e. added to the debt to the lender.
38. Unless it were absolutely necessary, which it is not, I would not consider it appropriate to adopt the combination of ruling out the borrowing route and removing the need for consent to sale. To take that course would, in practice, force an early sale of the asset upon the parties. I agree with Mr Adkin that the trust will not, as he put it, "collapse" if there is no short term sale, and the Trustees' position is that the situation may become untenable in certain circumstances in the medium, but not in the short, term. The Trustees, their counsel Mr Legge told me, are thinking that the sensible time for a sale may turn out to be 2 to 3 years hence.
39. If one wishes both that the arrears of income be paid out and to avoid an early sale of the Land, then the Trustees should be empowered to borrow, and for that purpose they will have to mortgage the land for that purpose if they can sensibly do so. (It is not certain that mortgage funding can be obtained on any or acceptable terms. There is evidence (particularly that of Mr Harris, an independent financial adviser), that it may be available, but the interest terms could, on the evidence, be onerous.) It follows that an order empowering them to do so should be made under section 57 of the 1925 Act. Its precise terms will need to be agreed or determined on argument as, subject to what is said below, the only purposes of borrowing suggested are to enable the discharge of the debts owed to income beneficiaries and to enable future capital account expenditure to be made.
40. If an external loan is to be raised, certain questions will arise:

a. Will the interest be paid currently to the lender, or will it be rolled up to be paid later?

b. If paid currently, where will the cash come from?

c. Should the interest liability/payments be debited to capital or income?

d. What provision should be made for any other capital expenditure?

41. The third of these questions is asked of the Court.
42. There is no certainty at all that a lender will be prepared to lend on the basis of interest being rolled up - there is no evidence that one will. Unless such an arrangement is made, then interest can only be paid a) either by borrowing, or having a drawdown facility for, more than is needed to pay what is at the moment owed to beneficiaries, retaining a balance in hand to meet future capital expenditure and future payments of interest to the lender, or b) out of income.
43. It is common ground that in most circumstances, if Trustees have power to and do borrow then the interest liability should be charged to income account.
44. The usual incidence of expenses is discussed in Lewin on Trusts (18^th. Edition), Chapter 25, section 3, and this passage from Lord Templeman is cited:

"Trustees are entitled to be indemnified out of the capital and income of their trust fund against all obligations incurred by the trustees in the due performance of their duties and the due exercise of their powers. The trustees must then debit each item of expenditure either against income or against capital. The general rule is that income must bear all ordinary outgoings of a recurrent nature, such as rates and taxes, and interest on charges and incumbrances. Capital must bear all costs, charges and expenses incurred for the benefit of the whole estate."

(Carver v. Duncan [1985] AC 1082 at p.1120B-C.)

The editors of Lewin observe (citing, among others, the 2003 decision of Neuberger J. in this matter) that

"If trustees ... pay a capital expense out of income because capital money is not readily available, they must reimburse the income account out of capital. The amount being reimbursed should also be credited with interest on the sum paid out of it."

45. Mr Adkin argues that if a mortgage is raised to pay what is owed to the beneficiaries the resulting interest cost should not be debited to income, an argument which is not accepted by all beneficiaries. The Trustees' position on the debiting of interest is neutral.
46. Mr Adkin relies on the 1996 Schedule, on paragraph d) of the 2003 Order, and, so far as necessary, on the veto. Debiting interest to income would, he submits, subvert the principle of the 1996 agreement and the scheme of the 2003 Order, which was, in each case, that Geoffrey would get half the income from the Land. He also argues that if the Trustees are to have power to borrow and mortgage, this should be subject to Geoffrey having a veto.
47. Before discussing the argument, I mention that the 2003 decision did not specifically deal with the situation, not then under discussion, in which the Trustees take third-party borrowing so as to enable the income to be paid out to the income beneficiaries. The 2003 decision dealt with the situation in which large sums had accrued unpaid to beneficiaries over a long period and in which further large sums might continue to accrue over a longer period. (They did so, one of the reasons being the costs of proceedings, another being taxation following the death of Lucy.) It does not, to my mind, necessarily follow that the third-party borrowing situation should be dealt with in the same way. While the income beneficiaries are creditors of the Trust it would be inappropriate that they should be made to bear the interest with which they are to be credited.
48. The 2003 Order contemplates that payment of the arrears will at some stage be made, and that must be out of the proceeds of a sale or of proceeds of alternative borrowing, that is to say, borrowing other than what amounts to borrowing from the income beneficiaries who are in the position which one may describe as that of forced lenders.
49. The former would involve a large drop in the income of the Trust, and therefore of the amount accruing to Geoffrey.
50. The veto of course entitles Geoffrey to block a sale if he chooses, and in particular if he chooses because it would cause a drop in the income accruing to him. But it does not necessarily follow that if borrowing is incurred in order to enable him actually to receive what is accruing to him then the interest should be debited to capital account.
51. Accepting the general statement of principle that Geoffrey was to be able to receive half the income of the Land, I do not consider that a statement of the principle in those terms provides the answer to the question I have to decide. The formulation does not involve specific definition of what the "income" is. It is not suggested that it means the gross income: it clearly involves deduction of current expenditure. The general statement of principle does not answer the question what is properly to be deducted in order to identify the income to which the income beneficiaries are entitled.
52. It is argued that he bargained for and obtained the veto and he is entitled to benefit from it. That is a strong argument, but in turn raises the question of the extent to which he is entitled to benefit from it.
53. A further argument was made by Geoffrey in his evidence, where he makes the point that in effect the Trustees are borrowing from the income beneficiaries in order to meet capital expenditure. He says that this has been a benefit to the capital beneficiaries because it has enabled the Land to be retained and to increase in value. So, the argument goes, borrowing, which has been and will be incurred to fund expenditure on capital account, has been and will or is likely to be a benefit to the capital beneficiaries, and should be for the account of the capital beneficiaries.
54. I consider that there is an eventual problem with the argument based on the veto. This is that its logical conclusion is that, if interest on third-party borrowing is debited to capital account, it entitles Geoffrey to cause the Trust to have no net assets. If the argument is right, each year's pre-interest but post-current-expenditure income of the Trust accrues (whether paid out or not) to the income beneficiaries. But in each year the Trust accrues liabilities consisting of (a) that income accruing to the beneficiaries and (b) the year's cost of funding (which will increase, even at constant interest rates, if and as the funding increases). Accordingly (a) in each year the net assets of the Trust will be depleted by the amount of the year's cost of funding unless (b) the value of the Land grows. The cross-account position will of course worsen further if any capital expenditure has to be made out of income. If this process continues, the point may be reached at which the Trust still has an asset - the Land - which is generating income which accrues to the account of (at the moment) Geoffrey, Paul and Judith, but the net assets of the Trust are zero or negative. Even at this point, Geoffrey's argument must go, those beneficiaries continue to accrue the right to income, and he still has a veto over the sale. Thus the logical conclusion of the argument is one which is economically unsustainable.
55. It is not sufficient to meet that point to suggest (as was suggested) that Geoffrey's age is such that the point of zero net assets may never be reached during his lifetime. While that is true, it is no less so that that point might be reached. When I observed that, Mr Adkin countered by saying that at some stage before that point was reached the Court would indeed dispense with the need for his consent to a sale if Geoffrey himself refused the consent. That is correct recognition of the argument based on the veto being economically impractical.
56. Next, in most situations the income available for distribution to beneficiaries will normally be related to the amount of the net assets of a trust. If there had been sufficient capital apart from the Land, the income available for distribution would have been affected by payments being made from capital. There is no clear reason why the fact of the capital of the Trust being reduced should not impact on the income to be received by beneficiaries. While the veto serves the purpose of enabling Geoffrey to require the retention of the Land and generation of income from it, rather than from other assets which might be acquired if it were sold, I do not consider that its purpose was or included that the level of his income should be unaffected by the consequences of the Trust having to meet capital expenditure.
57. It is undoubtedly the case that the Land has increased in capital value. In 2003 Neuberger J. was told that the Land was worth about £1million ( [2003] EWHC 1483 (Ch) at [33]). The evidence before me shows a value in excess of £2million in 2006, but that the value has fallen back significantly since then, by perhaps 25%. On these figures, between the 2003 hearing before Neuberger J. and the hearing before me, the cross-account debt had increased by perhaps £½ million and the value of the Land had increased by a not dissimilar amount, having visited a peak on the way. (During that time the accounts for the years ending in 2003 and 2008 show that gross income from the Land increased by 26% and that income after tax increased by 46%.) Geoffrey's point that the change in capital values, as well as in cross-account liabilities, is relevant, has force from the figures. That force is limited by certain considerations. The debt to value ratio is undoubtedly higher than it was in 2003. Whereas there is certainty that if money is borrowed interest will have to be paid, there is no certainty of capital gain to match the interest cost (even ignoring the potential for tax liability associated with growth of capital value). And if interest is debited to capital rather than income account, then the Trust will have started to retread the same road, with the high probability that the full income entitlement of beneficiaries from the date of mortgaging will not be paid out and that cross-account debt will start to build up again.
58. If the Trustees borrow, the general position would be that interest would be debited to income account. In my judgment, if they borrow for the purpose of paying the sums accrued due to the income beneficiaries, it is also right that the interest for the borrowing for that purpose should be debited to income account. While the income beneficiaries are forced into the position of being creditors they get interest under the 2003 Order; as and when the debts to them are settled they will be back in the normal position of having to accept that when a Trust meets capital expenses there will be a diminution in the assets available to generate income.
59. I have considered the question whether there should be some differentiation given that income has borne some payments out of capital since before the 1996 compromise. I have concluded that if the Trustees borrow and discharge the indebtedness to the income beneficiaries one-tenth of the interest cost of the borrowing for that purpose should be charged to capital account. I have been reluctant to introduce that complication, but it seems to me fair given the focus of the Trust on the income derived from the Land, and Geoffrey's evidence that he thought the Estate had enough resources to meet its capital liabilities independently of the Land.
60. I do not consider that Geoffrey or Rosemary should have a power of veto over the borrowing and mortgaging. Given the objective of seeing that the income beneficiaries actually receive their money the Trustees need to be in a position in which they can act to achieve this. If there were a veto on borrowing or mortgaging, it might well be very difficult to achieve that objective.
61. I move from there to the question of sale, and the application to remove the veto, and in considering that I have regard to the factors identified in s.15(1)(a) and (b) of the 1996 Act, although the Act does not make them the exclusive matters to which to have regard.
62. The veto was freely bargained for and a matter of importance then and now. No case of urgency is made for its removal: there is no specific sale in view, and the Trustees are not seeking to sell in the short term.
63. Members of the family have made statements some of which give evidence about past matters and some of which give evidence of their present wishes.
64. Of Frank's children who have interests in possession:

a. Geoffrey opposes a sale for the time being. He is opposed to the removal of the requirement of his consent to a sale, separate reasons for the opposition being those I have set out in paragraph 60 above. In March 2009 he favoured the raising of a loan to enable the arrears of income to be paid, but he argued that the interest cost of this should be debited to capital account. He positively favours the raising of a mortgage. In a letter of 30 September 2009 his solicitors said that he would prefer a mortgage to a sale, even if the mortgage interest were to be charged to income.

b. Geoffrey also raises a point in relation to "hope value" on a sale. In his witness statement para. 22 asks that the Trustees be not allowed to agree an overage provision in a sale contract, thus being in the position that any sale must be for a price which obtains at the time of sale whatever benefit can be obtained from the possibility that some planning permission might be obtained later.

c. Paul, in February 2009, opposed a sale. He thought the Land could be improved with better management, and that income net of expenses could be improved (particular by reduced expenditure on disputes between the beneficiaries). He preferred that income should accrue to beneficiaries without being paid to them rather than that the Land should be sold. However, by the time of the hearing the payment of income arrears had moved up the scale of his priorities.

d. Judith wishes the Land to be sold "as soon as market conditions permit a reasonable price to be obtained"; she has no interest in a mortgage being obtained.

65. The weight of opinion there is against a sale, and, particularly, against a sale now. Rosemary, however, wrote to the Trustees in favour of a sale. I do not suggest that each of these opinions are of equal weight. Geoffrey bargained for and obtained a veto for himself and Rosemary, and he is the one person who has both current income from the Trust and a veto.
66. Of Frank's grandchildren:

a. Philippa's wishes are expressed identically with her mother's, i.e. that the Land be sold "as soon as market conditions permit a reasonable price to be obtained"; she has no interest in a mortgage being obtained

b. Lucy Bunting's position is expressed identically with her mother's and her sister's.

c. Fiona has said by e-mail to the Trustees that she supports her father's position.

d. Matthew wishes the Land to be retained, a short-term mortgage to be obtained, and mortgage interest debited to income. (It is not explained in his statement how he considers that the borrowing could be repaid without an eventual sale of the Land.)

67. In these circumstances the Grandchildren's opinions do not affect the issue.
68. A factor to be taken into account is the very great desirability of avoiding so far as possible any likelihood of family disagreement necessitating further application to the Court (as to which Neuberger J. commented in his judgments). A forceful argument in favour of the application to remove the veto is that if the veto remains there will probably be such disagreement. That disagreement will cost time and money if it has to be resolved by the Court. What is significant is that if there is a specific sale in prospect at that time the disagreement may make for serious commercial difficulty.
69. I did invite the parties to consider the possibility of making the maintenance of the veto contingent on other developments, such as difficulty in obtaining any, or any suitable loan, but their submissions made it clear that, however this were framed, this would be likely to be impractical or productive of dispute with the likelihood of litigation.
70. A second factor is that the presence of the veto may inhibit lenders.
71. The factors identified by Geoffrey, referred to particularly in paragraph 60 above, argue strongly for the veto's retention, but if the presence of the veto were shown to be a present obstacle to obtaining a loan on sensible terms I would unhesitatingly accede to the application: the problem of the accrual of unpaid income and arrears cries out for a solution.
72. That is not the situation, as I would expect that any obstacle from a lender's point of view could be overcome by Geoffrey and Rosemary waiving the veto as regards a sale at the instance of the mortgagee - and if they did not agree to such a waiver then either the arrears of income would not be paid out or they would be inviting a renewed application to the Court for the removal of the veto.
73. I have a strong disinclination to remove a veto that was part of a compromise unless it is really necessary to do so. (In re Buchanan-Wollaston's Conveyance [1939] Ch 738 was cited in this connection, but it is not necessary to have recourse to that pre-1996 Act decision.)
74. I have however come to the conclusion that it is necessary to do so, subject to the qualification that the Trustees should not (without the written consent of Geoffrey or, after his death, Rosemary) be able to sell on terms other than for full market value without overage.
75. The reasons, taking into account the factors mentioned as required by sections 14 and 15 of the 1996 Act, are these. While the veto has a very important purpose for Geoffrey and Rosemary, the commercial and management position of this Trust is awkward, and its purposes have been frustrated to a substantial extent and for a long time. Although there is evidence that mortgage funding may be made available, there is no actual mortgage offer, and it remains to be seen, in the light of this judgment, what offer can be obtained, and to be determined whether to accept it or not. There is no certainty as to the term of any loan which can be obtained, and there is no certainty that the terms proposed will be considered acceptable by anyone. Individuals' judgments may well depend on exactly what is offered, considered in the light of my decision on the incidence of interest. There are substantial prospects both that the judgments will be difficult and that there will be disagreement. There is a need for flexibility of decision-taking, without which another application to the Court is all too likely. While of course it is the function of the Court to resolve disputes at the parties' request, it is desirable in this case with its troubled and unsatisfactory history to minimise the risk of the parties having to make another request, especially as I can envisage such a request having to be made before payment of the accrued income has occurred if mortgage offers give rise to problems. I regard it as exceptional to take this course, especially with no specific sale in view, but without it this Trust is all too likely to continue to fail to fulfil its purposes.
76. The "hope value" point involves different considerations. The veto enabled Geoffrey (or Rosemary) to choose that a particular asset be retained if it suited him (or her) for income purposes. If the asset were sold against his or her wishes, perhaps reducing the income of the income beneficiaries, it would be unreasonable that, without consent of Geoffrey or Rosemary, the income should be further reduced by the terms of sale arguably reducing the immediate consideration (and therefore short-term income) for the possibility of future gain.
77. The essential conclusion is that the Trustees should be empowered to borrow, mortgaging the Land for that purpose; that interest on third-party borrowing for the purpose of paying monies due to income beneficiaries should be debited as I have indicated; and that the Trustees should be at liberty to sell the Land without needing to obtain the consent of Geoffrey or Rosemary.
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