Constructive Trusts Flashcards
Frenkel & Anr v LA Micro Group (UK) Ltd & Ors [2024] UKSC 42
anticipatory constructive trust -
Reasoning:
The Supreme Court has held that a vendor-purchaser constructive trust ofscintilla temporisarises between the beneficiary and trustee, which itself effects the disposal of the beneficial interest (rather than providing interim protection and giving rise to a right to apply for specific performance to convey such beneficial interest) (§§30-36). By s. 53(2), because the disposal is by way of constructive trust, it falls outside the scope of s. 53(1)(c) LPA. The agreement may be made orally.
The Supreme Court also confirmed, dismissing the Respondents’ application for permission to cross-appeal, that s. 53(1)(c) LPA is not confined solely to equitable interests in land, but applies to personal property.
Holding: The Supreme Court unanimously dismisses the appeal. Lord Briggs, with whom the other justices agree, gives the judgment. The failure to comply with the requirement for signed
writing under section 53(1)(c) LPA did not prevent 2010 Agreement from taking effect. That is because section 53(2) LPA states that the requirement for signed writing does not affect the
operation of a constructive trust. The circumstances created by the 2010 Agreement gave rise to the operation of a purchaser-vendor constructive trust, and so the case fell within the
section 53(2) exception.
- If there is CT, then according to 53(2) the transaction is valid without writing.
- Interest in shares in a private company satisfies that requirement of uniqueness,
- The ‘conceptual quirk’ of the present case is that the VPCT provides all that is needed for completing the deal.
- But that does not mean that the VPCT had no job: Without it, the agreement would have left the legal owners of the shares exposed to remaining minority owners.
- The buyers ‘were businessmen who no doubt thought in terms of ownership, rather than in terms of the delicate mechanics of equitable and legal title, and the merger of one in the other’.
- Even from a ‘mechanistic’ perspective: ‘only when it became vested in each of them did their status as sole trustees of each share lead to the result that the equitable interest merged in the legal title’
Facts: LA Micro Group Inc agreed to transfer its 51% beneficial interest in each of the two issued shares in LA Micro Group(UK) Ltd, to their respective legal holders Bell and Lyampert. The Appellants argued that this agreement was ineffective because of the lack of signed writing under section 53(1)(c) of the Law of Property Act 1925.
Issue: Trust of shares and the holder of the Equitable Interest is transferring their interest to the holder of the legal interest
Appelants: The agreement will fail because it is oral – so the transfer did not happen. In substance, the implied term of the Agreement was simply for the destruction/extinguishment of the equitable interest therefore the agreement fails on 53(1)(c)
Defendant: Because this contract was one for a sale of shares in private company (giving rise to SP) => therefore, this contract creates a CT and CT enjoy the protection of 53(2) - for TOBL no need for writing.
Pallant v Morgan
anticipatory constructive trust -
Held: The court refused to order specific performance because of the lack of certainty as to the area and price. It found for P on the basis that there had been an agreement that the property was to be divided between them and, in reliance on this, P had refrained from bidding. The court ordered that the parties should seek to reach agreement on how the property was to be divided. If agreement could not be reached then the property was to be sold and any profit from the sale was to be divided equally between the parties.
In Pallant v Morgan ([1953] Ch 43) P and M were neighbours. Each of them wanted to bid for nearby amenity land. M suggested that they would each benefit if only one of them were to bid. If successful, they would divide the property between them. They had reached substantial, but not complete, agreement as to how the land was to be divided and on the valuation formula. On the basis of M’s assurance that they had an agreement, P did not bid. M’s bid was sucessful. He indicated that he intended to keep all of the land. P sought an order for specific performance or, alternatively argued that M held the land on trust for P and M.
Generator Developments Ltd V Lidl Uk Gmbh (2018) CA:
anticipatory constructive trust
Reasoning: (a) the case involved commercial parties, advised by lawyers, working at arms’ length towards the conclusion of an agreement for a commercial enterprise, the terms of which were never agreed.
(b) the proposed joint venture was expressly made “subject to contract”. That meant that neither party intended to be bound in law or in equity unless and until a formal contract was made and; each party reserved the right to withdraw until such time as a binding contract was made.
(c) the lock-out agreement was designed to protect the appellant and stated that neither party was committed to the transaction. It also showed that the appellant was relying on the prospect of a legally binding contract to protect it, rather than some ill-defined honourable conduct on the part of Lidl;
(d) in order to invoke the Pallant equity, the agreement in question must have been made by a person capable of binding the party in question, or who at least had ostensible authority. The appellant knew that Lidl’s board had not approved the joint venture;
(e) Lidl did not owe any pre-existing fiduciary duties to the appellant and had not acted as the appellant’s agent in buying the property;
(f) it could not be unconscionable to exercise a right which had been expressly reserved to both parties by means of the “subject to contract” formula. Nor could it be unconscionable for one party to follow a course which the other party had insisted was open to itself (paras 78-86
Held: In this case, they failed.
- Possible Justification:
- the plaintiff relied to his detriment on the defendant’s word = common intention
- The joint venture agreement created fiduciary relationship
A property development company appealed against a decision that it was not entitled to an equitable interest in land acquired for development by the respondent supermarket (Lidl).
The parties had entered into negotiations with a view to acquiring the property as joint venture partners. The vendor had accepted the appellant’s offer to buy the property and the parties had agreed that Lidl would be named as the sole purchaser in the heads of terms. A lock-out agreement was then entered into between the vendor, the appellant and Lidl. A joint venture heads of terms was drafted but never agreed or signed. Each draft was specified as “subject to contract”. Without agreeing the heads of terms, Lidl exchanged contracts and completed the purchase of the property shortly after the expiry of the lock-out agreement. After that, discussions between the appellant and Lidl continued for a short time, before terminating.
The appellant asserted that it had agreed that Lidl would acquire the property for their joint benefit, in furtherance of the joint venture between them, and that an equitable interest therefore arose under the principles in Pallant v Morgan [1953] Ch. 43.
Bailey v Angove’s PTY [2016] UKSC
fraud
Issues:
- Was the Court of Appeal correct to hold that the general rule that the authority of an agent can be terminated even if that is a breach of contract as between agent and principal, yielded to what the parties agreed should be their respective rights and obligations under the agency agreement?
- Was the Court of Appeal correct to hold that a constructive trust did not arise when D&D, as agent, received money from third parties for onwards transmission to its principal in circumstances where D&D was insolvent?
Held:
The Court found that the Court of Appeal had applied the wrong test. In order for an agent’s authority to become irrevocable it must first be agreed to be irrevocable, and the authority must be given to secure an interest of the agent. Such an interest may be a proprietary interest or a liability (generally in debt) owed to the agent personally. Lord Sumption pointed out that it was not expressly stated in the ADA that the authority to collect payments was irrevocable, nor was it stated that such an authority should survive termination. Therefore Angove’s termination of the agency agreement had the effect of ending D&D’s authority to collect the outstanding payments.
Although it was not necessary, the court went on to considerobiterthe second issue. On this point the justices agreed with the Court of Appeal that no constructive trust arose. The agency relationship between D&D and Angove was in the relevant respects one of debtor and creditor, and the fact that the money was received at a time when the agent’s personal liability to account to the principal would not be performed made no difference to the basis on which it held the money.
rejected the doctrine of remedial constructive trusts in english law
C is an Australian winemaker that entered into an agency and distribution agreement with the UK distributor, D, under which D will sell and collect payments for the wine as agent for C
D subsequently went into administration
C gave written notice of termination of D’s authority to collect outstanding balances for wine it had sold, stating that C will collect the balances directly from customers, and account to D for the commission
Administrators for D argued that it was entitled to collect the outstanding balances as its authority as agent was irrevocable
C argued that D’s authority had been revoked and in the alternative that the money collected by D will be held on constructive trust for them
C is keen for the outstanding balance not to be paid to D as it would be difficult to recover from D as an unsecured debtor of an insolvent company
FHR European Venture LLP v Cedar Capital Partners LLC ([2014] UKSC 45)
Remedial constructive trusts
at [47]: the remedial constructive trust is not part of the law of the UK.
see the facts and everything in other decks.
Ottaway v Norman [Ch. 1972] B
secret trusts
He also set out the essential elements: Brightman J “The essential elements which must be proved to exist are:
(i) the intention of A to subject C to an obligation in favour of B
The more uncertain the terms of the obligation, the more likely it is to be a moral obligation rather than a trust: many a moral obligation is far too indefinite to be enforceable as a trust.
(ii) communication of that intention to C; and
(iii) the acceptance of that obligation by C either expressly or by acquiescence.”
Held: Having heard the evidence, Brightman J found that Harry had established a secret trust in William’s favour. Harry had intended that Eva give the bungalow and its contents to William after her death, he had communicated that intention to her and that she had accepted that intention.
Brightman J also made other important points concerning secret trusts:
[a]he felt that it made no difference to the existence of a secret trust as to how the recipient was to carry out the testator’s wish. In other words, it did not matter whether the recipient was to carry out the trust through leaving property by will to the true beneficiary, as was Harry’s intention here, or if the property was to be left to the true beneficiary by means of an inter vivos gift; and
[b]it was not necessary for the establishment of a fully secret trust to show that the recipient had been guilty of committing a deliberate wrong in denying the existence of the trust. There was no evidence that Eva had purposefully sought to defraud William of his entitlement. She simply made an alternate will due to a friendship she had formed with Basil after Harry’s death.
Harry Ottaway wrote his will in 1960, in which he left his bungalow in Cambridgeshire together with its contents to his partner, Miss Eva Hodges, with whom he had lived for nearly 30 years. Harry died in 1963. Eva died five years later, having left the bungalow and the contents to the defendant, Mr Basil Norman. Harry’s son, William Ottaway, brought an action claiming a declaration that the house and its contents were rightfully his. The legal basis of his action was that his father had told Eva on a number of occasions that he wanted the bungalow and its contents to go to William on her death. Eva was to have the property for her life but thereafter it should go to William. William said that Eva had accepted this obligation by never disagreeing with Harry’s intention. Eva’s first will had indeed contained a provision leaving the bungalow and its contents to William. She made a later will in 1967, however, leaving the bungalow and the contents to Basil. The difficulty for William (as with all claimants alleging the existence of a secret trust) was that it appeared on the face of Eva’s will that Basil was the true and rightful recipient of the bungalow and its contents. William’s action was, therefore, based on the existence of a secret trust founded on the conversations between Harry and Eva.
McCormick v Grogan (1869) HL 2
fully secret trusts
Held: G does not hold on trust for M, as it was given to his discretion howmuch and to whom to appoint. But ‘[it] has been long established in Equity,that a person apparently taking property by devise or bequest from atestator with this knowledge of the existence of another instrument, whichhe actually or impliedly undertakes to carry into effect, will be fixed astrustee with the performance of such instructions and directions as aregiven in that other instrument’
= device helping you bypass the formalities of the Will’s act.
Facts: The deceased makes a will leaving all his property to Grogan –Grogan says “Is that right?” – the deceased tells Grogan that he will finda letter with the will in which he instructs him what to do with theproperty – the letter contains various instructions, including one to payan annuity to McCormick. But the letter also says “I do not wish you toact strictly to the foregoing instructions, but leave it entirely to your owngood judgment to do as you think I would if living…there cannot be anyfault found with you by any of the parties should you not act in strict accordance with it”.
Re Gardner (1920)
fully secret trusts
held: the death of the Bene does not invalidate the trust as it operates wholly outside the will.
principle: A secret trust is independent of the will; a secret trust does not fail even if the beneficiary dies before the testator
Facts: G beqeauthed her estate to her husband, “knowing that he will carry out my wishes.”
The husband found instructions in a memorandum to give to G’s nieces in a safe after G died. One of the nieces was already dead before G died, under common law a will fails if a beneficiary dies before the testator
Blackwell v Blackwell [1929] UKHL 1, [1929] AC 318
half-secret trusts
Held:The House of Lords established the validity of a half secret trust, satisfying the same basic requirements as a fully secret trust. Additionally,obiter, that should the secret trustee refuse to carry out the trust, this would not defeat the trust and a willing replacement would be appointed.
Facts:
- Through a codicil to his will, the testator left 12,000 pounds to five trustees, instructing them to invest it and use the income “as indicated by me.” They were also empowered to distribute 8,000 pounds “to such person or persons indicated by me,” with the remaining 4,000 pounds going to his will’s trustees.
- Before executing the codicil, the testator gave detailed oral instructions to one trustee, C., which all trustees understood and accepted. Soon after, C. created a written memorandum outlining the instructions, specifying that the interest from the 12,000 pounds should benefit a lady and her son, providing their full names and addresses.
- In response, the testator’s widow and son sued both the trustees and beneficiaries to challenge the 12,000-pound trust legacy’s validity.
** Issue: Why should we enforce this arrangement?**
Re Snowden [1979]
secret trusts
Held, that (1) the ordinary civil standard of proof was required to establish a secret trust; (2) the brother had only a moral obligation to distribute the residue, and he took it therefore free from any secret trust. (Dictum of Christian L.J. in McCormick v Grogan (1866) 1 Ir. Eq. 313, [1866] 1 WLUK 5 applied)
The testatrix, widowed and childless, gave the residue of her estate to her executors to hold for her brother absolutely. The brother died six days after the testatrix, having made his son his executor and sole residuary beneficiary. There was some evidence that she had told S, her executor, that she wanted to be “fair to everyone” and wanted her brother to “look after the division for her”. On a summons the question arose as to whether the gift of the residue to the brother was subject to a secret trust.
Re Freud, Rawstron v Freud [2014] EWHC 2577
secret trusts
**Held in favour the claimants: ** Clause 6 was expressed as a simple gift of residue and contained no mention of a trust. Considering the will as a whole, the fact that L had referred to the claimants as “Trustees” in cl.3 and cl.4, but only by their names in cl.6 was consistent with the interpretation that in cl.6 he intended them to take personally and absolutely, even though the words “absolutely” or “beneficially” were not used. In cl.3 and cl.4, R and P took in a fiduciary capacity, not a personal one. As R was L’s solicitor, as a matter of public interest the court had to be vigilant before accepting that she took beneficially, Rees Will Trusts, Re [1950] Ch. 204, [1949] 11 WLUK 54 followed. However, the law recognised secret trusts and one reasonable explanation for a beneficial gift to a solicitor was the intention to impose one. Having regard to the factual context, the only reasonable conclusion to be drawn from the change in wording of cl.6 was that L, who was professionally advised by the same firm of solicitors as for the previous will, did not intend to create a half-secret trust. In the light of the natural and ordinary meaning of the words used in cl.6, the overall purpose of the will, its other provisions, the material factual matrix when it was made, and common sense, the claimants’ interpretation was to be preferred
Dispute over a £42 million residuary estate of Lucian Freud
* Paragraph 6 of the will gave the residue of the estate to the claimants (who were the executors and solicitor and one of his daughter) jointly.
* Previous will had created a half secret trust, but this section was replaced in the new will.
* Was a secret trust was created on the face of the Will?
‘I GIVE all the residue of my estate… to the said Diana Mary Rawstron and the said Rose Pearce jointly’.
* Cs accepted the gift was held by them on half secret trust. D, Deceased’s son, claimed it was a fully secret trust. Why does it matter?
* A FST was valid on its terms. But a half-secret trust was only enforceable if Freud revealed the terms of the trust to Ts before or when he executed the will. Since that didn’t happen, the clause would be held invalid, an RT over the residue for the estate, and it would be distributed under the intestacy rules (and D would get a share).
Re Polly Peck International Plc (In Administration) (No.5) [1998] 3 All ER 812
Hussey v Palmer [1972] 1 WLR 1286
