Following the death of one of two brothers who had founded a large organisation consisting of an extremely successful entertainments and restaurant group as well as a large property empire, it was agreed between the second claimant, who was the widow of the deceased, and the defendant, who was the surviving brother and, together with the first and second claimants, executor of the deceased’s will, that the organisation would be demerged. It was known at the time of the demerger negotiations that some of the trading companies had possible claims for repayment of large sums of VAT. Those potential repayment claims were therefore contingent assets held by the trading companies. The claimants brought claims in contract and misrepresentation against the defendant alleging that, in his capacity as executor, he was in breach of the self-dealing rule and hence in breach of trust; and that he was in breach of fiduciary duty in failing to disclose the true value of the VAT repayment claims. The judge rejected each claim holding, inter alia, that the equitable claims brought against the defendant as executor based on self-dealing and non-disclosure failed because he was entitled to rely on the exoneration clause in the will. The judge stated that an executor was acting in the professed (or purported) execution of the trusts and powers of a will if he was dealing, (or purporting to deal) with the estate in his capacity as executor, and need not have the terms of any particular power in mind.
On the claimants’ appeal in relation to the construction of the exoneration clause—
Held, appeal dismissed. The exoneration clause, which was in common use and applied to lay executors and trustees, was to be construed as covering all categories of personal liability for loss to the estate. In entering into the demerger transaction the defendant had been acting in relevant respects in his capacity as executor and in the purported execution of the trusts and powers set out in the will. “Wilful and individual fraud or wrongdoing on the part of the trustee” which was excluded from the protection of the exoneration clause, meant knowing and deliberate breach of a relevant equitable duty or reckless indifference to whether what was done was in breach of duty, which had to be shown. Since the defendant had not deliberately held back information from the claimants knowing that he ought to disclose it to them and had not deliberately or consciously acted in a way which he knew to be wrong, he was entitled to rely on the exoneration clause. The claim for equitable compensation had not been made out (post, paras 27–44, 45, 46–67).
Romie Tager QC and Justin Kitson (instructed by Addleshaw Goddard LLP) for the claimants. Joe Smouha QC and Ciaran Keller (instructed by Debevoise & Plimpton LLP) for the defendant.