Bonham v Fishwick (2008)
An allegation of wilful wrongdoing by trustees was not arguable where they had heeded the legal advice given by their counsel and solicitor.
The appellant trustees (B) appealed against a decision ((2007) EWHC 1859 (Ch), (2007-08) 10 ITELR 329) striking out their claim for breach of trust against the respondents (F) who preceded them as trustees of the relevant settlement. The settlement included shares in a company (M) which owned Bonhams, the well known auction house, and various properties. F, when they were trustees of the settlement, charged some of the trust shares in M as security for advances to be made to the settlement by a third party (P). F also granted P an option to purchase the shares. A sale of Bonhams was proposed to be preceded by a reorganisation of the business. F had to enter into a further option agreement with P in order to persuade him to consent to the sale of M's assets. F then paid P £742,392.92 for the value of his rights under the second option. B alleged breach of trust by F in making the payment to P under the second option, on the basis that they had acted against legal advice that the option, like the first option, was void as a clog on the equity of redemption. F denied breach of trust and relied on clause 17 of the settlement which exempted them from liability except in the case of wilful and individual fraud or wrongdoing. The judge struck out B's action on the ground that the claim for breach of trust could not be made good in the absence of sufficient particulars of wilful and individual wrongdoing and in the light of the advice given by counsel that the first option was not void. B submitted that counsel had advised that the first option was unenforceable as a clog on the equity of redemption and that F had had no power to grant a fresh option, and that there had been wilful wrongdoing on the part of F in acting against the advice of counsel that the first option was void and that F had no power to grant a fresh option.
The appeal turned on what was the legal advice given to and followed by F. If F did not act against legal advice obtained from their counsel and solicitor they would be entitled to rely on the exemption from liability under clause 17 of the settlement. An allegation of wilful wrongdoing by F would not be arguable if they heeded the legal advice in the opinion and advice letter. (2) On a fair and reasonable reading of the opinion and the solicitor's advice letter, F were advised that, in the opinion of counsel, the first option was valid and enforceable. Counsel was instructed to give an opinion on the validity of the option. He gave it, backed up by reasons. He correctly stated the law as laid down by the House of Lords at the beginning of the 20th century and gave reasons for his prediction that the House of Lords would depart from that decision, Samuel v Jarrah Timber & Wood Paving Corp Ltd (1904) AC 323 HL considered. F could not possibly be said to be guilty of wilful wrongdoing in accepting and acting on that opinion. (3) In granting the second option F were not going against the legal advice obtained. B's submissions on that part of the opinion were based on a fundamental misunderstanding about the basis on which counsel gave his opinion. As was made clear at the outset of his opinion, counsel was advising on the validity of the first option. His advice about the granting of a second option related to the circumstance whether, if the first option were void, it would be possible to resolve any doubts about its validity by granting P a new option. The advice simply did not relate to the second option or to the changed circumstances in which it was granted. P's consent was essential to the reconstruction of Bonhams which preceded the sale of the business. F's power to grant the second option in those circumstances was clearly set out in the settlement. (4) B's action was rightly struck out on the ground that clause 17 was available as a complete defence to F.