The recent case of Caldicott v Richards serves as a valuable reminder to trustees to take care when self dealing.
In this case, despite the fact that the trustees had taken steps obtain the consent of the beneficiaries to the sale of shares to one of the trustees , the Court ruled that the self dealing rule applied because the trustees were unable to show that consent was fully informed. The sale was rescinded.
In fact, as the trustee in question was also a beneficiary and the trust was discretionary, the trustees could have exercised their dispositive powers in her favour under the terms of the trust. Unfortunately, this was not what they sought to do.
Courts have traditionally applied a pragmatic attitude to self dealing (also shown in this case) but Caldicott v Richards is illustrative that trustees who might potentially fall foul of the rule should tread carefully and make sure that they follow procedure to the letter.
A sale of shares in a family company by the trustees of a discretionary trust to one of the trustees was rescinded because it had not been shown that the beneficiaries had given their fully informed consent to the transaction, but the court declined to exercise its discretion to remove and replace the trustees.
