Writing for Issue 15 of TL4 Private Client Magazine, published in July 2024, Trust and Probate Litigation associate Judith Swinhoe-Standen considers several recent cases that dealt with the non-intervention principle, and what the courts’ conclusions might mean for future judgments.

In recent years, focus on the non-intervention principle has sharpened thanks to several cases concerning the court’s role in trustee decision-making. Traditionally, the court has tended to require trustees to do all the running, but these recent cases have seen it taking a more active role.

What is the non-intervention principle?

The question of (non-)intervention usually arises when a trustee asks the court to bless a momentous decision it proposes to take.

Myriad case law provides that the court’s role in trustee decision-making is limited to considering two simple questions:

• Is the trustee’s proposed decision within the scope of its powers?
• If so, is the proposed decision irrational?

The Bermuda Court of Appeal in XYZ Trusts [2022] emphasised that its consideration of these questions is supervisory and that a blessing application is “not an invitation for the court to chip in on its impressions and opinions on the best options available to the trustees”.

By extension, the court must not withhold its approval simply because it would not itself have exercised its powers in the way proposed. The court should not impose its own view of the merits of the proposed decision; its only decision is whether the trustee’s decision is one that no reasonable trustee could have reached.

Departing from the non-intervention principle

Courts considering blessing applications are generally reluctant to take a decision into their own hands, even when explicitly asked to do so. If there is any way the trustees can reach a decision without the court’s intervention, they must do so.

AB v CD and others [2019] illustrates this. The trustees had reached a deadlock and asked the court to decide for them. Even so, the court directed them to attempt again to reach a unanimous decision and to return to the court only if that proved impossible. Ultimately, the trustees were unable to reach agreement, so the court made the decision, but AB v CD shows that court intervention should be a last resort.

The court considered even more exceptional circumstances in Klug v Klug [1918]. One trustee (the beneficiary’s mother) objected to making a distribution to her daughter because she had married without her consent. The court considered that it was duty-bound to intervene because the mother’s reason for refusing the distribution was for a reason entirely unconnected to the trust.

Non-binding guidance

The above cases involve unusual circumstances, but the Jersey Royal Court’s recent decision to give non-binding guidance on the trustee’s proposals at an interim stage in restructuring proceedings was equally unusual.

Although it is not uncommon for the court to make observations or suggestions about a trustee’s proposed decision, the Jersey Royal Court explored the boundaries of the non-intervention principle in SG Kleinwort Hambros Trust Company (CI) Limited and others v B and others [2023]. The court gave directions for a timetable leading to an approval hearing of final restructuring proposals, including listing a three-day hearing to give non-binding observations on the proposal as it stood in outline form.

A group of beneficiaries appealed this direction on the basis that such non-binding guidance would represent the court taking an uncharacteristically active role in trustee decision-making process, thus breaching the non-intervention principle. The court dismissed the appeal, commenting that the non-intervention principle was sufficiently flexible to accommodate the giving of non-binding guidance and was not, in any event, outside the court’s statutory powers.

Over-interpretation

More recently, in A and B v C and D (2023), the Isle of Man High Court considered a trustee’s proposal to distribute part of a discretionary trust fund to the settlor’s widow (D) and then exclude her. D opposed this: she sought a third of the trust fund because she believed the settlor’s letter of wishes demonstrated that he wanted equality between her and the other principal beneficiaries (A and B, the settlor’s children from an earlier marriage). In contrast, the trustees considered that the letter of wishes asked that the trust be a long-term vehicle to benefit subsequent generations of the family, ie A and B’s issue.

At first instance, the court disagreed with the trustee’s interpretation of the letter of wishes and declined to bless its decision. It ordered the trustees to distribute a third of the fund to D on the basis that there was “only one way a reasonable trustee could determine what course of action to follow in the circumstances”.

A and B appealed to the Staff of Government Division (the SGD; the Isle of Man Court of Appeal), arguing that the lower court had breached the non-intervention principle. The SGD agreed, noting that the lower court had made an executive decision for the trustee in circumstances where there had been no surrender of discretion, no conflict of interest, no deadlock, and no case law supporting the exercise of the court’s inherent jurisdiction in this way. Furthermore, it said the lower court had been wrong to conclude there was only one way the trustees could correctly have exercised their discretion.

The SGD made some helpful comments about the court’s role in trustee decision-making. Importantly, it highlighted that the non-intervention principle should not be circumvented unless there was only one way for trustees to exercise a permissive power.

It also emphasised the limitations that should apply to the court’s role in trustee decision-making, describing the case as “an example of why the court should be very slow to assume a trustee’s responsibility, and why the categories of exercising the inherent jurisdiction to do so should be applied cautiously”.

What’s next?

Although SG v B tentatively extended the boundaries of the non-intervention principle at first instance, it is worth noting the Court of Appeal’s concluding remark. Despite dismissing the appeal, it warned that “nothing […] in this judgment should be interpreted as an encouragement to first instance judges either to depart from the non-intervention principle or to express provisional views as to the substantive content of any possible restructuring”.

This, coupled with the SGD’s remarks in A and B v C and D, indicates that the principle is not as flexible as it briefly seemed, and that future attempts to extend the principle will be reined in.