Trustee acquiring property on his own account using trust property

In Tang Ying Loi v Tang Ying Ip ([2017] HKEC 204, CFA) D was the administrator of his father’s estate, his father having died intestate. D bought a property for himself for HK$27.3 million.

He obtained 40.4% of the funds used to purchase the property from cash forming part of his father’s estate. The plaintiff, D’s brother, argued that he was entitled to a share in the value of the property, which had increased in value since the purchase.

The Court of Final Appeal (Lord Millett giving the only full judgment) held that the plaintiff was entitled to this.

Since the estate had provided part of the purchase price, it had a proprietary interest in the property that had been acquired; this is not a question of tracing, the estate was a purchaser of the property ([17]).

When the beneficiaries discovered the unauthorised disbursement by D, they could elect either to reject or affirm the transaction. If P had elected to reject the transaction, he would have no interest in the property but D would be obliged to make good the amount missing from the estate accounts.

P had, however, elected to affirm the transaction (since the property had increased in value). This meant that P had a proprietary interest in the property but there was no deficit in the estate accounts.

Lord Millett explained that:

‘The policy behind a claim by a beneficiary for a breach of trust of the present kind is to deter the trustee from using the trust fund as his personal bank account, borrowing from it for his own private purposes and merely repaying the amount he has borrowed. Such conduct puts the trust fund at risk without hope of gain. Equity’s response is to insist that any profit is for the beneficiaries and any loss for the trustee.’ ([27])

D argued that the amount taken from the estate should be taken as a loan: he had always intended to repay it and had repaid it. This was unsuccessful: it was for the court, not one of the parties to the transaction, to determine the legal nature of the transaction ([19]).

Nor, despite what had been said in the courts below, was this a case of a trustee having made a secret profit; it was much simpler than that.

Michael Lower

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