Archive for the ‘Breach of trust’ Category

Equity’s darling

September 17, 2013

In Pilcher v Rawlins ((1871 – 72) LR 7 Ch. App. 259) a father set up a trust for his children. There were three trustees, one of whom was P the children’s uncle (a solicitor). The trustees advanced money to R on the security of a mortgage (the mortgage deed explained the existence of the trust). Two of the trustees died leaving P as the sole trustee.

P and R connived in a fraudulent scheme. R (also a solicitor) prepared an abstract of title making no mention of the mortgage. R then purported to convey the property to S and L (who had no notice of the trust or the fraud). Immediately before that P executed a deed reconveying the property to R free of the mortgage (despite the fact that the loan had not been repaid). P and R agreed that the reconveyance to R would only be produced if necessary. S and L had no notice of this conveyance either.

The fraud came to light and the beneficiaries sought a declaration that they were the beneficial owners and an order that S and L convey the title back to the trust. They failed on the basis that S and L were bona fide purchasers for value without notice of a legal estate (Sir G Mellish LJ at 273).

Given the facts above, the conveyance of the property by P to R (with its reference to the trust) was an essential element of S and L’s title. This did not fix them with constructive notice. They had acted diligently and at the time of the purchase had reasonably believed that they had good title. The later conveyance to R only came to light in the course of the proceedings. At the relevant time, S and L had ‘neither knowledge nor means of knowledge’ of the trust (Sir G Mellish LJ at 274).

Michael Lower

Allegation of breach of trustees’ breach of duty: need to prove loss

December 11, 2012

In Man Ping Nam v Man Fong Hang ([2006] 4 HKLRD 484, CFA) the managers of a wui agreed to sell land to EY (a shell company) but without vacant possession and subject to severe restrictions on the permissible use. Shortly thereafter EY agreed to sub-sell to another company SLD at a considerably higher price but on terms that provided for a significant reduction in price if vacant possession could not be given and if it proved impossible to relax the restrictions on use. The transactions were later completed.

One of the members of the wui alleged a breach of trust in agreeing to sell at a substantial undervalue. The only evidence of this (given the unique nature of the land and the fact that it would be of interest only to a very limited set of buyers and middlemen prepared to take the risk of being able to sell on to them) was that the headline price in the sub-sale was higher than the price to be paid under the agreement with EY.

The Court of Final Appeal rejected this as evidence of a sale at an undervalue; the terms of the two transactions were radically different and there was no satisfactory way of comparing the two (or at least the plaintiff had not proved that this was possible). Hence, even if the managers’ conduct had been open to criticism, there was no evidence that any loss had been incurred by the wui.