In Preedy v Dunne  EWHC 2713 (Ch), the High Court was required to answer a somewhat unusual question: if trustees (in this case of an estate under a will) make promises which are relied on to the promisor’s detriment, can that promise affect the beneficiaries of the trust? In other words, the court was required to assess whether trustees can bind the beneficiaries’ interest with an estoppel.
The facts were somewhat complex, but in essence, they involved representations made by trustees of an estate to one of the deceased’s sons. The property in question was a pub, called The Albert Arms, which formed part of Mrs Julie Montgomery’s estate. During her life Mrs Montgomery had been sole beneficial owner of the pub, and, on her death in 1997, her widow, Mr Montgomery, had taken over the day to day running of the pub. The will however stipulated that the property should be held on trust, with income and goodwill from the pub going to Mr Montgomery, with the help of Jonathan, one of their sons. The estate was then to be held in trust for equal shares for Jonathan and the two other children. The dispute arose when the trustees sought possession of the pub. Jonathan claimed that he was entitled to occupy the property for life by reason of detrimental reliance on certain assurances made to him by the trustees. He had expended considerable time, money and effort in running the business, and expected that occupation for life was to be his reward. Indeed, if these assurances had been made in a simple “single freeholder” situation, there seems little doubt that Jonathan would have succeeded in his claim to proprietary estoppel.
However, there were two aspects of this case which meant that some doubts emerged. Firstly, the question was whether the assurances had been given by one of the trustees or both, -. This was a largely factual question, but raised the issue as to whether one of two trustees can bind the other to his assurances by way of estoppel. Secondly, and more interestingly, the court was required to address whether even if the trustees themselves were bound, this could be said to affect the beneficiaries of the trust, .
On the first question, as a matter of evidence, the court concluded that only one trustee had made sufficient assurances to found an estoppel. Master Matthews therefore had to decide as a matter of law whether this could bind the other trustee. After having reviewed the general principles governing proprietary estoppel, and the need for unanimity of trustees in other areas (such as waiver of forfeiture for a lease), ( – ), Master Matthews considered the case where there are two beneficial owners of an estate and the action of one only gives rise to an estoppel, . In such a case, it is only the interest of that person that will be affected by the estoppel. In the instant case, Master Matthews concluded, the same reasoning ought to apply to the trustee situation. There is no reason why an innocent trustee should have their ability to carry out their legal duties affected by the unknown representation of the other.
Thus, unless, as a matter of evidence, it was possible to show either that the innocent trustee encouraged the promise to be made to the promisee; that the innocent trustees knew of the promise and stood by and said nothing; or one trustee was acting as agent for the other at the time of his representation, then the innocent trustee could not be affected by the estoppel.
The second point was concerned with whether such a representation, even if made by both trustees, would in fact be capable of binding the interest of the beneficiaries. This was a somewhat complex point and the reasoning of the court in this regard is not entirely satisfactory.
The first step in the court’s reasoning was to assess whether the trustees’ powers in section 6 TOLATA 1996 included the power to bind the beneficiaries of the trust to a mere equity arising by estoppel. Master Matthews concluded that it did not on the basis that, “a bargain for an interest in land which fails as a contract because of a lack of formality is not within s 6 and does not bind the beneficiaries as an exercise of trustees’ powers” . He reached this conclusion by considering that the powers conferred by section 6 were administrative, and not dispositive, despite the very wide wording of that section, . In this author’s opinion, to attempt to draw a distinction between “types” of transactions for the purposes of section 6 in this was is somewhat arbitrary. The rights which arise through estoppel may not arise in a “formal” manner, but it does not make them any less valid as property rights (see section 116 LRA 2002).
Nevertheless, after having concluded that section 6 did not allow the trustees to bind the beneficiaries to the estoppel, the next question was whether section 13 (occupation rights and variation by trustees) was relevant, . The section allows trustees to let one or more beneficiary occupy property to the exclusion of others, often in return for some for of occupation rent or similar. The court considered whether by promising to allow one beneficiary to remain in occupation, the trustees were estopped from relying on section 13 to continue to manage occupation on the land in a different fashion. The court concluded it did not, not least because if the trustees did so limit their powers, the remaining beneficiaries could simply apply to the court for an order for sale under section 14. Thus, Master Matthews held, “Section 13 is essentially a power of management of land that does not take away a beneficiaries’ [sic] interest in it. Proprietary estoppel, however, is a doctrine which alters beneficial interests”, .
Again, this reasoning is difficult in places. The first thing to note is that there is no reason why estoppel cannot affect the management powers of the trustees. The trustees may be estopped from exercising their management powers in any other than the way promised. This does not mean that the beneficiaries themselves lose an entitlement as such. Secondly, proprietary estoppel does not need to alter beneficial interests. Estoppel is regularly used in the context of “occupation for life” or similar without altering the beneficiaries’ rights to proceeds of sale etc.
The most significant difficulty with Master Matthew’s reasoning however relates to his treatment of licences. He reasons that:
Following this line of reasoning he concludes that, “a contractual licence could be created potentially binding on the trust estate and therefore on the beneficiaries” .
This is deeply problematic, not least because a clear line of case law highlights that a contractual licence is not akin to a property right – King v David Allen Billposting ( 2 AC 54, (HOL)), National Provincial Bank v Ainsworth ( AC 1175, (HOL)), Ashburn Anstalt v Arnold ( Ch 1, (COA)) etc. Furthermore, if section 6 gives the trustees power to create a “binding” licence, why does it not allow the creation of a “binding” estoppel? The distinction, if there is one, is, at least, not apparent from the reasoning of the court.
After reviewing the evidence, Master Matthews concluded that no such rights had in fact been generated, and his reasoning is therefore obiter. However, it is worth at least questioning some aspects of this reasoning and the general question as to whether trustee action can generate an estoppel which takes precedence over beneficiary rights ought to be addressed. It is a pity that the reasoning of the court in this case does not provide us with a clearer response to that question.