Articles

Gill Steel, Law Skills 

Case Study

Your firm has administered the Rockwell Will Trust for thirty years. It arose under the Will of John Rockwell who benefitted his nephew Adrian with a life interest and on his death the remainder was to go to his children in equal shares. Should Adrian die without any children then the default beneficiary is Cancer Research UK.

John Rockwell’s executors and trustees were two partners in your firm, one of whom, Richard Stone, had known the family well. He retired from practice fifteen years ago and died last year. Until his death he would regularly pop into the office and over the years had helped the various trust administrators involved in the day to day administration of the trust.

Adrian Rockwell had been a real ‘man about town’ and Richard Stone had had to fend off a number of disappointed business associates and unhappy girlfriends over the years. He knew that Adrian had an illegitimate daughter, Jaycee, the result of a more long term liaison, but she lived as far as he knew in Barbados and no contact had ever been made on her behalf.

The trustees of the trust had changed from time to time and Richard had retired as a trustee when he retired from practice. He was not renowned for keeping tidy files and some of the early trust records were not in the best of order.

In keeping with his ‘fast lane’ lifestyle Adrian recently was killed in a boating accident. The trust was wound up. The administrator, satisfied that it all looked straight forward contacted Cancer Research UK to advise them of Adrian’s death and of their interest under the trust. She had no written record of Jaycee and had only worked for the firm for 12 months. She valued the trust fund and liaised with Adrian’s PRs in the settlement of the IHT.

Shortly after she received the receipt from Cancer Research UK for the final payment from the trust she takes a telephone call from a young lady in Oxford who was enquiring if the firm could put her in touch with Adrian her father. Her mother had known Richard Stone and given her the firm’s name. She had recently come to Oxford to study for a PhD and wanted to make acquaintance with her father.

The trust administrator was naturally shocked and after establishing Jaycee’s credentials wondered about the firm’s liability to the trustees and the effect on the partners in the firm.

What could the administrator have done? She may have thought that a s.27 Trustee Act 1925 notice was unnecessary in this case. Had she complied with the procedure would that have protected the trustees from personal liability to Jaycee since it would have provided notice to the whole world of the intention to distribute the trust and of the need to make any claim?

Recent case

The recent pension trust case of AON Pension Trustees Ltd. v MCP Pension Trustees Ltd. [2010] EWCA Civ 377 raises the prospect of liability for trustees winding up trusts in ignorance of possible beneficiaries even where notice has been given to the world at large under s.27.

This case makes the distinction between being on notice and having knowledge. In the particular case a pension fund was fully distributed to what was thought to be all of its members but in fact the trustees’ agents overlooked 30 eligible members whose records had been misplaced. Protection for the trustees was said to be afforded by the fact that the s.27 Act notice procedure was followed but both the Judge at first instance and the Court of Appeal denied protection because of the actual knowledge of the eligible members which the trustees knew about at one time but whose records went missing.

Application to case study

In the Rockwell Trust, Richard Stone had knowledge of the existence of Jaycee in his capacity as trustee it was just that the trust’s records did not reflect his knowledge which was not passed on through changes in trustees and trust administrators.

Even if the relevant trust administrator had done a s.27 Act notice it looks as though this would not have protected the firm as agents for the trustees from negligence because the trustees were imputed with knowledge of Jaycee and owed her a duty of care which they failed to discharge. The fund having been distributed the trustees are liable to account to Jaycee personally.

Relevance to every day practice

The moral of the story is to keep full and up to date trust records which are easily passed on from one administrator to another and always undertake a s.27 Trustee Act 1925 notice procedure before winding up the trust.