Radich v Brown HC Blenheim CP 4/01

[2001] NZHC 741

IN THE HIGH COURT OF NEW ZEALAND
BLENHEIM REGISTRY CP 4/01

IN THE MATTER of the Declaratory Judgments Act 1908

BETWEEN PETER JOSEPH RADICH, DAVID SCOTT FERRABY, KENNETH JOHN FORREST, SAMFORD LEE MAIER & IVAN CARL SUTHERLAND
First Plaintiffs

AND MARLBOROUGH LINES LIMITED
Second Plaintiff

AND LLOYD GILBERT BROWN, JOHN WENTWORTH CUDDON, PETER JAMES FORREST, SIR EDWARD MICHAEL COULSON FOWLER, ROBERT PAUL HAM & THOMAS ROGER HARRISON
Defendants

Hearing: 8 - 9 August 2001

Appearances: M R Camp, QC, with M D O’Brien for plaintiffs
R A Dobson, QC, with P Gibson for defendants

Judgment: 13 August 2001

JUDGMENT OF DOOGUE J

Solicitors:
Bell Gully, Wellington, for plaintiffs
Gascoigne Wicks, Blenheim, for defendants

Introduction

[1] The first plaintiffs (“the Directors”) are the present directors of the second plaintiff (“the Company”). The defendants (“the Trustees”) are the present trustees of the Marlborough Electric Power Trust (“the Trust”) constituted by a trust deed of 28 April 1993 (“the Deed”). The Directors and the Trustees seek declaratory judgments from the Court in respect of issues arising out of the Deed.

[2] Under the Deed certain of its provisions can only be altered or amended by the Trustees with the approval in writing of the Directors and after a public consultative procedure: clause 14.1. The first issue which arises in the proceeding is whether the Directors are entitled to divest themselves of this power and, if so, what matters are material to their decision.

[3] The second issue arising is separate and distinct and relates to the voting powers of the Trustees when acting as shareholders of the Company. Under the rules relating to the Deed a quorum of the Trustees is four: Rule 7.1. Where there is a bare quorum present, the Trustees must be unanimous: Rule 7.2. If more than four Trustees are present at a meeting, the resolution must be passed by either all or all but one of the Trustees present: Rule 7.2. For a resolution to be passed in writing, all Trustees must agree: Rule 19. The Trustees are, by virtue of their office, the shareholders of the Company. The ordinary business of the Company can be dealt with by simple majority voting. The issue arises of whether the Trustees, when voting as shareholders of the Company in respect of business the subject-matter of the trust deed or generally which has not been dealt with by resolution of the Trustees, are entitled to pass resolutions by way of a simple majority or whether they are bound by the voting rules under the trust deed.

[4] Before dealing with these two separate and distinct issues, I need to refer, relatively briefly, to the legal and factual matrix in which they arise.

Background

[5] The litigation arises out of the changes to the ownership and administration of electricity generation and distribution in New Zealand during the 1990s. Electric Power Boards under the Electric Power Boards Act 1925 were replaced by energy companies under the Energy Companies Act 1992 (“the Act”). The Company is such a company. As a result, its principal objective is to operate as a successful business: s 36(1). The Act has specific provisions relating to situations such as the present where the company remains under public control.

[6] The background to the Act and its application in circumstances similar to the present, where the energy company operates on behalf of consumers rather than for individual shareholders, are traversed in earlier decisions of this Court: see The Hamilton City Council v The Waikato Electricity Authority & Ors (unreported, CP 21/93, High Court, Hamilton Registry, 7 July 1993, Hammond J), Auckland City Council v The Auckland Electric Power Board (unreported, CP 26/93, High Court, Auckland Registry, 16 August 1993, Williams J) and Manukau City Council v Lawson [2001] 1 NZLR 599. As is noted by Cooke P in Thames Valley Electric Power Board v NZFP Pulp & Paper Ltd [1994] 2 NZLR 641, 648-9, Parliament opted for a system of local initiative and input subject to ultimate Ministerial approval, and the Act did not require an establishing authority to follow any norm.

[7] The preference in Marlborough was to retain a form of public ownership within the framework of the Act, and that has occurred. The consequence was the Company and the Trust followed the establishment plan, which went through the public consultative process provided for under the Act and was approved by the Minister responsible subject, pertinently, to clause 14.2 being inserted in the Deed. .

[8] The Company was formed by its Power Board predecessor. The structure of the Company is orthodox. Shareholder voting is by simple majority. The vesting order in respect of the shares of the Company provided that all but 100 of 28 million fully paid up $l shares were to be held equally by the original six Trustees of the Trust “in their capacity as Trustees of the Trust”: clause 5(2) of the Energy Companies (Marlborough Electric Limited) Vesting Order 1993. The other 100 shares vested in the then Chairman of the Trust “in his capacity as nominee on behalf of the Trust”: clause 4 of the Vesting Order. The apparent anomaly in respect of the 100 shares was because of the then rules relating to the number of shareholders in a company capable of public listing.

[9] The settlors in respect of the Deed were the six original trustees and the Company.

[10] The principal provisions of the Deed are as follows [my emphasis]:

“WHEREAS

A. . . .

B. . . .

C. The Company wishes to establish the Marlborough Electric Power Trust to enable the Trustees to acquire the shares in the Company to be vested in the Trustees in accordance with the establishment plan.

D. The object of the Trust is to hold the shares in the Company on behalf of the Consumers and distribute to the Consumers in their capacity as owners, the benefits of ownership of the shares in the Company and to carry out future ownership reviews involving public consultation in accordance with the terms of this Deed.

1. DEFINITIONS AND CONSTRUCTION

. . . .

2. DECLARATION OF TRUST

. . . .

3. OBJECTS

This Trust has been established to enable the Trustees:

3.1 On Vesting Date, to receive shares in the Company vested in the Trustees by Order in Council made in accordance with section 47 of the Act.

3.2 If the Trustees so elect to subscribe for, purchase or otherwise acquire additional shares in the capital of the Company.

3.3 To retain and hold such shares until such time as following an ownership review held in accordance with Clause 4, the shares or a portion of them (if any) are sold, transferred or disposed of.

3.4 In the event of any sale, transfer or other disposition of such shares following an ownership review, to hold the proceeds of any such sale, transfer or other disposition upon the trust for capital in accordance with Clause 6.1.

3.5 To receive the Dividends and to distribute, pay, apply or appropriate the Dividends to or for the benefit of the Consumers in the manner provided in Clause 5 of this Deed.

3.6 Following the Termination Date to pay, apply and appropriate the capital of the Trust in the manner provided in Clause 6.2.

3.7 To encourage and facilitate the Company in meeting its objective of being a successful business by optimising the Company’s return on its assets, and to distribute to Consumers in their capacity as owners, the benefits of ownership of the shares in the Company.

4. REVIEW

4.1 No earlier than 5 years and no later than six years after the date of this Deed, the Trustees shall require the directors of the Company to prepare a report considering proposals and available options for the future ownership of the shares. . . . .

4.2 . . .

4.3 The Trustees and the directors of the Company shall in respect of the report and no later than 1 month after the date of the report, implement the Public consultative Procedure.

4.4 Following completion of the Public Consultative Procedure and in any event not later than 6 months after the report required by Clause 4.1 is completed, the Trustees and the directors shall meet and, after taking due account of the views expressed by the public and the directors the Trustees shall decide whether to:

(a) retain the shares in the Trust; or

(b) dispose of a portion of the shares and retain the remainder in the Trust; or

(c) dispose of all of the shares held by the Trust.

. . . .

4.7 If the postal vote confirms that the shares or any portion of them are to be distributed the Trustees shall request the directors of the Company prepare a Distribution Plan and if the directors fail to prepare a plan the Trustees shall prepare the Distribution Plan. The Distribution Plan shall contain the following details:

(a) to whom the shares are to be distributed;

(b) the time and manner in which the shares are to be distributed; and

(c) whether the shares are to be distributed to Consumers without consideration, to Consumers at a concessionary consideration or to any persons for proper consideration.

The Trustees shall consider any plan prepared and make such amendments to it as they consider shall be necessary after consultation with the directors of the Company.

. . . .

5. TRUSTS OF INCOME UNTIL DISTRIBUTION DATE

The Trustees shall stand possessed of the income arising from the Trust Fund upon the following trusts and with and subject to the following powers:

. . . .

5.2 The Trustees shall, subject to Clause 5.3 and Clause 5.4, pay apply or appropriate the whole or substantially all of the current net annual income in such manner and in such proportions as the Trustees in their absolute and unfettered discretion shall think proper for the benefit of the Consumers or such one or more of them to the exclusion of others or other of them in such manner and in such shares and proportions as the Trustees in their absolute and unfettered discretion shall think proper.

5.3 The Trustees shall in respect of any Dividend received be entitled to pay, apply or appropriate that income to Consumers in accordance with Clause 5.2 at any time during the Financial Year to which that Dividend relates or the following Financial Year provided however that the Trustees may defer payment, application or appropriation of any sum or benefit to any Consumer until the Trustees are satisfied that all liability for taxation in respect thereof has been discharged.

5.4 The Trustees shall request the directors of the Company to produce a report in respect of each Dividend received by the Trustees which report recommends an appropriate allocation of the Dividend amongst the classes of Consumer based on the contribution made by each class of Consumer to the earning of that Dividend and in such report the directors may classify consumers in any manner they see fit, and in exercising their discretion in accordance with Clause 5.2 the Trustees shall have regard to those recommendations.

. . . .

6. TRUSTS OF CAPITAL

6.1 Trusts prior to Termination Date: The shares in the Company or the proceeds of sale or other disposition of such shares shall be held by the Trustees upon trust to pay, apply or allocate the same, on or before the Termination Date for the benefit of the Consumers, or to the extent that the shares are sold in order to raise funds for the Company, for the benefit of the Company, in such manner and in such shares as the Trustees in their absolute and unfettered discretion consider fair and equitable.

[The termination date is 1 January 2072 or such earlier date is the Trust is wound up in terms of the Deed.]

. . . .

7. APPOINTMENT, RETIREMENT AND PROCEEDINGS OF TRUSTEES

. . . .

8. GENERAL POWERS

8.1 The Trustees may exercise the powers, authorities, and discretions conferred by this Deed in addition to and not by way of limitation of the powers, authorities and discretions conferred upon the Trustees generally by the Trustee Act (except where otherwise specified in this Deed). For the avoidance of doubt, the Trustees shall have no power, authority or discretion to participate in the management or operation of the Company and in exercising the powers conferred by this clause and Clause 9 the Trustees shall be restricted to exercising their rights as a shareholder subject always to the provisions of this Deed and in particular Clause 4.

. . .

9 SPECIFIC POWERS

The Trustees shall have and may exercise either alone or together with any other person or persons the following powers, authorities and discretions:

9.1 To Appoint Directors: To appoint directors of the Company in the manner provided by the Articles of Association of the Company provided however that prior to appointing any directors the Trustees shall make it known generally that prospective candidates as director are being sought and shall procure an independent evaluation by a professionally qualified consultant engaged by the Trustees of the prospective candidates and in exercising any right of appointment the Trustees shall have regard to the recommendations of the consultant so engaged.

. . . .

9.8 Shareholders powers: Subject to the provisions of this Deed, to exercise as the Trustees in their absolute discretion think fit all the voting powers attaching to any shares in the Company forming part of the Trust Fund.

9.9 Reorganisation, reconstruction, merger etc: To consider any recommendations made by the directors on any proposal relating to any reconstruction or amalgamation or merger of the Company or any modification of the rights of shareholders or any reduction of capital or subject to Clause 9.10, other dealing with such shares and after giving due consideration to the recommendations of the directors to make a decision in respect of any such proposal as the Trustees may consider in their absolute discretion shall be for the benefit of or in the interests of the Trust Fund and to deal with the shares held by the Trustees in any manner necessary to give effect to that decision provided however that the Trustees shall not agree to any proposal which would result in the sale or other disposal of any shares held by the Trust unless the Trustees have complied with Clause 4.

9.10 Increase in Capital: To consider any recommendation made by the directors on any proposal to increase the capital of the Company and after giving due consideration to the recommendations of the directors to agree to such a proposal if the Company requires additional equity capital and the Trustees and the directors shall endeavour to ensure that except where the interests of the Trust Fund require some other method of distribution any new shares shall be offered to the following classes of persons in the following sequence:

. . . .

. . . .

10. POWERS OF INVESTMENT

. . . .

11. ADVICE OF COUNSEL

12. DUTIES OF TRUSTEES

The Trustees shall:

12.1 subject to Clause 8, act as a diligent shareholder and in particular monitor the performance of the directors of the Company with respect to the Company’s statement of corporate intent, and exercise the rights of shareholders for the benefit of the Trust Fund and with due regard to the objective of the Company to be a successful business;

. . . .

12.8 within four months after the end of each Financial Year of the Trust, hold a public meeting in the District and at that meeting report on the operation of the Trust during the preceding Financial Year and on the financial statements of Trust for that Financial Year. The Trustees shall give not less than 14 days’ notice in a principal newspaper or newspapers circulating in that District of the holding of such a public meeting.

. . . .

12.11 at the meeting to be held in accordance with Clause 12.8 and while the Trustees are the majority shareholders of the Company comment on the Company’s compliance with its then current statement of corporate intent.

. . . .

13. INFORMATION TO THE PUBLIC

. . . .

14. VARIATION TO TRUST DEED

14.1 This Deed may be altered or amended by resolution of the Trustees unless the amendment relates to Clause 3, Clause 4, Clause 5, Clause 6, Clause 8, Clause 9, Clause 10, Clause 12, Clause 14, or Clause 15 of the Trust Deed and Rule 2 and Rule 4 of the Schedule or any definition of the terms used in such Clauses or Rules in which case no alteration or amendment may be made except by resolution of the Trustees which has been approved in writing by the Directors and the proposed amendment has been subject to the Public Consultative Procedure.

14.2 Notwithstanding clause 14.1 no alteration or amendment may be made to this Deed that has the effect of limiting or restricting the obligations or powers of the Trustees under this Deed to:

(a) review proposals and available options for the ownership of the shares held by the Trustees in the Company in accordance with Clause 4; or

(b) sell, transfer or dispose of the shares following an ownership review held in accordance with Clause 4.

15. WINDING UP OF TRUST

. . . .

16. INTERESTED TRUSTEES

. . . .

17. LIABILITY

. . . .

18. INDEMNITY

. . . .

SCHEDULE 1

RULES GOVERNING THE APPOINTMENT, RETIREMENT AND PROCEEDINGS OF THE TRUSTEES

. . . .

7. QUORUM AND RESOLUTIONS

7.1 A quorum at meetings of the Trustees shall comprise four Trustees. . . . .

7.2 Where four Trustees are present at a meeting resolutions of those Trustees shall be unanimous. Where more than four Trustees are present at a meeting resolutions should be passed if agreed to by all or all but one of the Trustees present at the meeting.

. . . .

19. RESOLUTIONS IN WRITING

A resolution in writing signed by all the Trustees or by all the members of a committee shall be as effective for all purposes as a resolution passed t a meeting of the Trustees or of such committee as the case may be duly convened, held and constituted. . . .

. . . .

SCHEDULE 2

PUBLIC CONSULTATIVE PROCEDURE

In respect of any provision of this Deed which requires the Trustees to implement a Public Consultative Procedure, the Trustees shall: . . . .”

[11] Each of the Trustees has signed a declaration of trust containing the following statements:

“. . . .

2. That I hold the Shares as the nominee of and on behalf of the Trust and I have no property or interest in the Shares whatsoever.

3. That I will deal with and dispose of the Shares and any profits arising from such Shares and exercise all voting rights conferred on me as the owner of the Shares and any other share allotted to me or subscribed for by me, for an on behalf of the Trust in accordance with any resolution made by the Trustees for the time being under the Trust Deed (the “Trustees”) and I agree to waive in favour of the Trust all dividends and profits payable to me as the holder of the Shares.

. . .”

[12] The structure put in place through the Company and the Deed is designed to protect the commercial objectives of the Company and the interests of the consumers.

[13] The essence of the arrangement is that the consumers get the benefit of the successful operation of the Company. It is the Directors’ objective to ensure that the Company is successful: s 36(1) of the Act. It is the Trustees’ responsibility, after taking advice, to appoint Directors with the requisite commercial acumen: clause 9.1 of the Deed. It is the Trustees’ responsibility to determine who benefits from the success of the Company: clauses 3.5 and 5 of the Deed.

[14] The provisions of the Act and the Deed and the structure put in place point to the Directors being responsible for the strength of the Company and for the Trustees to be responsible for the interests of the consumers, including ensuring that the right persons are appointed as Directors. The consumers are further protected by the public consultative process and through appointing the Trustees.

[15] It is apparent that there will necessarily be areas of possible tension between the Directors and the Trustees. The Trustees, in representing the consumers, will reflect the wishes of the majority of the consumers, but the majority of the consumers are not responsible for a corresponding share of the income of the Company. A minority of the community are responsible for a disproportionate share of the business and income of the Company. This is but one example of an area where those directly accountable to the consumers, the Trustees, are likely to reflect a different perspective from the Directors responsible for the operation of the Company as a successful business.

[16] I do not think it helpful or necessary to refer to the practice to date of the Trustees or the Directors in fulfilling their respective roles, or of the events which have brought this proceeding before the Court. It is clear that both the Directors and Trustees have acted in accord with the legal advice given to them as to the proper interpretation of the Deed and their respective powers. It is a little difficult to see how that practice can particularly assist in the determination of the questions before the Court. To refer to the events which have brought the proceeding before the Court would be unhelpful for the Directors, the Trustees and the electricity consumers in Marlborough. These proceedings are concerned with prospective powers and duties and not with what has occurred in the past. The sooner the parties put what has occurred in the past behind them the better.

The First Issue: The Directors’ Position Under Clause 14.1 of the Deed

[17] Before entering upon the differences between the parties, it should be emphasised that there is no dispute that the creation of the Company and of the Trust and the content of the Deed are to provide a balance between the public ownership of the Company and its control by independent directors. As already noted, there is an inevitable tension likely to arise at times between the commercial interests of the Directors in ensuring the Company operates as a successful business and the Trustees’ perspectives as to the best interests of the consumers.

[18] The essential difference between the advices given to the Directors and to the Trustees is that the Directors have been advised that they owe duties to both the Company and the consumers and that hence they have a fiduciary duty in respect of clause 14.1 which they cannot abdicate. The advice to the Trustees, on the other hand, has been that the Directors have no fiduciary duty to the consumers and can agree to the revocation, at least in part, of the power given to them under clause 14.1. The advice to the Trustees goes further: that in any event there is nothing to stop the Directors from agreeing to the partial revocation of their power under clause 14.1.

[19] I do not intend to address each and every one of the arguments put before me as I consider the answer as to the proper construction of the Directors’ position under clause 14.1 of the Deed to be relatively straightforward.

[20] For the Directors it is said that their approval role under clause 14.1 of any amendment to the clauses referred to in that clause is a fundamental part of the checks and balances which underpin the Company and the Trust arrangement. They see themselves as having a protective role which is intended to endure for the life of the Trust. It is submitted that they necessarily have a duty to act not only in the interests of the Company but in the interests of the beneficiaries of the Trust, the consumers. It is said that this conclusion follows from the construction of the Deed against the legislative and factual background and the law relating to trusts and fiduciary obligations.

[21] Specific reference is made to the role of the Directors acknowledged in the Deed in such clauses as 4, 5, 9 and 14.1, most of which have been cited above. It is emphasised that in all the important purposes of the Trust, namely distribution, ownership review and operation of the Company as a successful business, the Directors have a role. By contrast, the Trustees have a more limited role in respect of the operation of the Company, with their duties primarily being to hold the shares and distribute the benefits of ownership.

[22] It is submitted for the Directors that they are obliged to retain the powers held by them under clause 14.1 and to operate as a check on the Trustees. It is said that they must uphold the Trust intent in the interests of the consumers, the ultimate beneficiaries, and that they probably owe duties of a fiduciary character to exercise their powers consistent with the intent of the settlors. I was then taken through the law relating to powers linked with fiduciary duties which must be exercised, may not be released, and which, in the event of default, would be exercised by the Court. There was no real dispute about the law in this area, nor in respect of the law in relation to fiduciary obligations, and I find it unnecessary to traverse it.

[23] The real issue in this case is whether the Directors’ involvements under the Deed give rise to the Directors having a duty to the consumers as well as their undoubted duty to the Company. I can find nothing in the Deed which leads to that result. Although the Company was one of the settlors of the Trust, the Directors themselves are not parties to it and are not, so far as I can see, anywhere obligated to act in its terms. Rather, the Deed requires the Trustees to involve the Directors and gives the Directors power to act. The Deed places limitations upon the Trustees if the Directors have not been appropriately consulted. In that respect it should be noted that the Trustees have to consult not only with the Directors but with the consumers through the public consultative process.

[24] To me the position is reasonably clear, namely that the Directors owe no duty to the consumers. The consumers’ interests are protected first by the public consultative process and secondly by their representatives, the Trustees, who are elected by the consumers and obligated to protect the interests of the consumers. The role of the Directors under clause 14.1 of the Deed is simply to ensure that no step is taken under that clause which will impede or hinder the proper management of the Company in achieving its legislative objective. Clearly the Directors, in seeking to achieve that objective, will indirectly be working for the betterment of the ultimate beneficiaries, the consumers. However, I fail to see how that can create any duty, be it fiduciary or otherwise, by the Directors to the ultimate consumers. The Directors are bound to comply with the law relating to the Company. No doubt wherever the Directors are consulted by the Trustees in accordance with the Deed they will act appropriately to ensure that the interests of the Company are properly protected. It does not mean, however, that they have any duty to second guess the decisions of the Trustees as to the interests of the ultimate beneficiaries, the consumers. Under the structure entered into it is the Trustees who have the responsibility to the consumers on whose behalf the Trust holds the shares in the Company.

[25] To uphold the argument for the Directors would necessarily result in the Directors taking upon themselves the very decisions that the Trustees are obligated to make on behalf of the consumers. It is as if the Trustees were to take upon themselves decisions as to the management and operation of the Company. The latter is on its face bad and in conflict with the provisions of the Deed: clause 8.1. The former is equally in conflict with the spirit and nature of the Deed, and there is nothing from which the conclusion argued for on behalf of the Directors must necessarily be drawn. As was submitted for the Trustees, clause 14.1 should be given the meaning which furthers the purposes of the Deed rather than frustrating it. I have no doubt that the Directors are there to protect the Company and not the consumers. The Trustees are there to protect the consumers. Although there are no cases directly on point, this outcome is in keeping with the observations of Millett J in Re Courage Group’s Pension Schemes; Ryan & Ors v Imperial Brewing and Leisure Ltd & Ors [1987] 1 All ER 528.

[26] Even if I had been not of the view expressed, I would have found it difficult to accept that clause 14.1 should be rigidly interpreted in the way propounded for the Directors. It is clear that the Directors are under a duty to make a determination in respect of any resolution for amendment of one of the specified clauses passed by the Trustees. It is also clear that the consumers are the ultimate beneficiaries of the shares in the Company. To that extent the Directors can be said to have an indirect duty to the consumers. However, the purpose of clause 14.1 is clearly limited to enabling the Directors to protect the interests of the Company. There can be no other reason why the power for them to be consulted is created.

[27] In any event, I would have acceded to the argument for the Trustees that the very provisions of clause 14.1 would enable the Directors to release the power, wholly or partially, if they thought it in the interests of the Company to do so. In that context clause 14.1 is to be compared with the entrenched provisions of clause 14.2.

[28] However, the right of the Directors to release their power under clause 14.1 of the Deed does not translate into a duty to do so. Far from it. The Directors will necessarily have to consider any proposal of the Trustees on a case by case basis in accordance with the best interests of the Company in its commercial operation as a successful business as the touchstone. Whatever the past advice to the Trustees, it appeared to be clearly accepted for the Trustees that amendments to various clauses of the Deed, including 3.2, 3.7, 4.1, 4.7, 6.1, 8.1, 9.1, 9.10, 12.1, 12.9 and any other of the provisions referred to in clause 14.1 involving operational or managerial matters affecting the Company, could affect the interests of the Company and have the Directors seeking to retain their existing power under clause 14.1.

[29] The Directors will have to bear in mind that any amendment to clause 14.1 might affect the Company in the future. It is unlikely they would wish to release any power under clause 14.1 relating to clauses of the Deed which might impinge upon the operation of the Company in the future. Once released the power granted by clause 14.1 could not be regained. The Deed provides a balance between the public consultation process, the Trustees and the Directors. The Directors will no doubt be cautious before they surrender any part of their power under clause 14.1 which might affect their successors in office in the future. The Trustees are not intended to have any role in the operation of the Company: clause 8.1. To enable the Trustees to amend clauses of the Deed that might impinge upon the operation of the Company without the Directors’ approval could unwittingly give rise to the Trustees affecting the operation of the Company. The Directors and their successors should not have to fall back upon breach of trust allegations if that occurred. No doubt there will be an evolving and maturing relationship between the Directors and the Trustees in the future. However, the Directors and the Trustees will change from time to time. Those at present holding those positions must look at long term possibilities as well as the present. The Trust is, after all, one for 80 years.

[30] Thus, while the Directors are not precluded by law from relinquishing any part of the power vested in them under clause 14.1, they will necessarily have to be cautious in doing so. To do otherwise would be to affect the delicate balance the Deed seeks to achieve between the respective roles of the consumers, the Trustees and the Directors.

[31] The Directors have asked, given this outcome, whether the Court could give guidance as to the sorts of consideration the Directors should take into account in considering resolutions put before them by the Trustees under clause 14.1 of the Deed. As already indicated, I see the Directors’ role as being limited to protecting the position of the Company and its ability to operate as a successful business. Undoubtedly in different circumstances different considerations will apply in the making of that judgment. However, I find it difficult to see that any other considerations are ultimately relevant. If a proposed change appears to the Directors to advance the interests of the Company, they will no doubt look favourably upon it. If a proposed change appears to be possibly detrimental to the interests of the Company, they will no doubt look unfavourably upon it. It is not for them to concern themselves with the Trustees’ mode of decision-making or the Trustees’ assessment of the consumers’ interest or consumer support. The Directors are there to protect and advance the Company. The Trustees are there to act for their consumer constituency. There is also the public consultative process.

[32] On this first issue therefore the appropriate declaration appears to be that the Directors can agree to the amendment of clause 14.1 of the Deed so long as they are satisfied that the amendment either will advance the ability of the Company to operate as a successful business or cannot be detrimental either now or in the future to the Company operating as a successful business. I do not consider any other declaration is required.

Second Issue: Actions of Trustees as Company Shareholders

[33] The essence of the submissions for the Directors is that the Trustees, when acting as shareholders of the Company, may vote and otherwise act as shareholders only in accordance with a validly passed trustee resolution. This contention is based on the provisions of the Deed combined with the general law of trusts. It is accepted that the normal rule for unanimity where there are joint trustees does not apply in this case given the special provisions of the rules governing trustee voting.

[34] The Trustees accept that if a trustee resolution has been passed on any matter then all Trustees as shareholders are required to vote and otherwise act as shareholders in accordance with the trustee resolution. However, where the parties part company is that it is submitted for the Trustees that if there is no trustee resolution bearing on any particular matter then each of the Trustees as shareholders is entitled to vote and otherwise act as individual shareholders, subject always to acting in good faith for the objects of the Trust and otherwise subject to the Deed.

[35] The problem arises because the articles of association of the Company do not provide for the same voting regime in respect of the Trustees as shareholders as the rules relating to the Deed. So far as the Company is concerned, its operations must be in accord with the Companies Act 1993 and the provisions of the articles. The latter provide for shareholder resolutions to be carried by a simple majority.

[36] However, without going into the detail of the submissions for the Directors and the Trustees, it is clear that the Trustees as shareholders are obliged to exercise the voting powers attaching to any shares in the Company in accordance with the provisions of the Deed. Clause 9.8 of the Deed makes it clear that the Trustees’ powers as shareholders are subject to the provisions of the Deed. They are therefore subject to the voting regime imposed by the rules relating to the Deed. For the Trustees to endeavour to operate in respect of their shareholders’ powers independently of the terms of the Deed and the rules under it must therefore inevitably lead to a breach of trust by any Trustee so inclined. If any of the Trustees endeavoured to operate as shareholders without compliance with the provisions of the Deed relating to trustee voting, it would appear inevitable that an injunction could be successfully sought to prevent such conduct.

[37] I did not understand it to be argued for the Trustees that they were entitled to act in breach of their duties as Trustees. Rather it was argued that if the Trustees had not taken a decision as Trustees and were present at a meeting of the Company as shareholders then they were not obligated to act in accord with the provisions of the Deed. I simply cannot accept that argument, given the express provision of clause 9.8 of the Deed already referred to, and given the general law relating to the need for joint trustees to act unanimously subject to the terms of the appointing deed which in this case provide for all the Trustees, bar one where more than four Trustees vote, to agree.

[38] This may create problems for the Trustees at general meetings of the Company when in various circumstances they may not have had an opportunity to meet previously to consider the business of the Company and pass the requisite resolution.

[39] In the course of argument two possible solutions for the underlying problem for the Trustees were discussed. The first and most satisfactory solution would be for the articles of association of the Company to reflect the provisions of the rules relating to the Deed insofar as the voting of the Trustees as shareholders was concerned. If the voting rules of the Company in respect of the trustee shareholders reflected the rules of the Deed, the requirements of the Deed would automatically be complied with at the time of any voting by the Company. The alternative solution which may assist in the interim would be that at any meeting of the Company where the Trustees were voting as shareholders they would either conform during the course of the meeting with the requirements of the rules of the Deed relating to trustee voting or, where any item of business was contentious, they would seek a short adjournment to enable them to determine whether it was business upon which the Trustees had the required degree of unanimity to vote as shareholders.

[40] It may be that s 92 of the Companies Act 1993 prevents any notice of trust being entered on the share register. It may also be that there is nothing in the Company’s constitution or company law that entitles anyone to challenge or obstruct the exercise of shareholders’ rights by registered holders of shares. It may also be the case that there are slender twigs upon which it can be argued for the Trustees that where there are no decisions of the Trustees in accordance with the Deed they may act independently as shareholders at meetings of the Company. However, to permit such an outcome would fly in the face of the clear provisions of the Deed. The Trustees are after all only shareholders by virtue of their office and hold the shares on behalf of the Trust. Except to the extent the rules to the Deed provide otherwise, the Trustees must be unanimous in their decision-making. To permit the Trustees to operate by a simple majority in respect of company business clearly within the contemplation of the Deed would be to make a mockery of the Deed and its rules. The Court simply could not lend itself to a situation where Trustees as shareholders were permitted to be in breach of the terms of their trust.

[41] There will accordingly be a declaration that the voting and other rights attaching to the shares in the Company may only be exercised by the Trustees in accordance with the voting rules of the Deed.

Decision

[42] The Court makes the declarations set out in paragraphs [32] and [41] above. There is no order as to costs as these should appropriately be paid out of the monies of the Company. Leave is reserved to further apply in respect of costs should there be any need for any Court order to achieve that result.