Constructive Trusts II
Cases
Bristol and West Building Society v Mothew
[1998] Ch 1
MILLETT LJ: … A fiduciary is someone who has undertaken to act for or on behalf of another in a par ticular matter in circumstances which give rise to a relationship of trust and confidence. The distin guishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977). p. 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary. (In this survey I have left out of account the situation where the fiduciary deals with his principal. In such a case he must prove affirmatively that the transaction is fair and that in the course of the negotiations he made full disclosure of all facts material to the transaction. Even inadvertent failure to disclose will entitle the principal to rescind the transaction. The rule is the same whether the fiduciary is acting on his own behalf or on behalf of another. The principle need not be further considered because it does arise in the present case. The mortgage advance was negotiated directly between the society and the purchasers. The defendant had nothing to do with the negotiations. He was instructed by the society to carry out on its behalf a transaction which had already been agreed.)
The nature of the obligation determines the nature of the breach.The various obligations of a fiduciary
merely reflect different aspects of his core duties of loyalty and fidelity. Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity. Mere incompetence is not enough. A servant who loyally does his incompetent best for his master is not unfaithful and is not guilty of a breach of fiduciary duty.
In the present case it is clear that, if the defendant had been acting for the society alone, his admit ted negligence would not have exposed him to a charge of breach of fiduciary duty. Before us counsel for the society accepted as much, but insisted that the fact that he also acted for the purchasers made all the difference. So it is necessary to ask: why did the fact that the defendant was acting for the purchasers as well as for the society convert the defendant’s admitted breach of his duty of skill and care into a breach of fiduciary duty? To answer this question it is necessary to identify the fiduciary obligation of which he is alleged to have been in breach. It is at this point, in my judgment, that the society’s argument runs into difficulty. A fiduciary who acts for two principals with potentially conflict ing interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other: see Clark Boyce v Mouat [1993] 4 All ER 268 and the cases there cited. This is sometimes described as ‘the double employment rule’. Breach of the rule automatically constitutes a breach of fiduciary duty. But this is not something of which the society can complain. It knew that the defendant was acting for the purchasers when it instructed him. Indeed, that was the very reason why it chose the defendant to act for it. The potential was of the society’s own making (see Finn p. 254 and Ke//yv Cooper [1993] AC 205) …
That, of course, is not the end of the matter. Even if a fiduciary is properly acting for two principals with potentially conflicting interests he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other (see Finn p. 48). I shall call this ‘the duty of good faith’. But it goes further than this. He must not allow the per formance of his obligations to one principal to be influenced by his relationship with the other. He must serve each as faithfully and loyally as if he were his only principal. Conduct which is in breach of this duty need not be dishonest but it must be intentional. An unconscious omission which happens to benefit one principal at the expense of the other does not constitute a breach of fiduciary duty, though it may constitute a breach of the duty of skill and care. This is because the principle which is in play is that the fiduciary must not be inhibited by the existence of his other employment from serving the interests of his principal as faithfully and effectively as if he were the only employer.I shall call this ‘the no inhibition principle’. Unless the fiduciary is inhibited or believes (whether rightly or wrongly) that he is inhibited in the performance of his duties to one principal by reason of his employment by the other, his failure to act is not attributable to the double employment.
Finally, the fiduciary must take care not to find himself in a position where there is an actual conflict of duty so that he cannot fulfil his obligations to one principal without failing in his obligations to the other: see Moody v Cox [1917] 2 Ch 71 and Commonwealth Bank of Australia v Smith (1991) 102 ALR
453. If he does, he may have no alternative but to cease to act for at least one and preferably both. The fact that he cannot fulfil his obligations to one principal without being in breach of his obligations to the other will not absolve him from liability. I shall call this ‘the actual conflict rule’ …
In my judgment, the defendant was never in breach of the actual conflict rule. It is not alleged that he acted in bad faith or deliberately withheld information because he wrongly believed that his duty to the purchasers required him to do so. He was not guilty of a breach of fiduciary duty …
Breach of trust
It is not disputed that from the time of its receipt by the defendant the mortgage money was trust money. It was client’s money which belonged to the society and was properly paid into a client account. The defendant never claimed any beneficial interest in the money which remained throughout the property of the society in equity. The defendant held it in trust for the society but with the society’s authority (and instructions) to apply it in the completion of the transaction of purchase and mortgage of the property. Those instructions were revocable but, unless previously revoked, the defendant was entitled and bound to act in accordance with them.
The society’s instructions were not revoked before the defendant acted on them, and in my judg ment there was no ground upon which the judge could properly conclude that his authority to apply the money in completing the transaction had determined.
If his judgment in the present case is considered without the benefit of his later explanation in Bristol and West Building Society v May, May & Merrimans [1996] 2 All ER 801, it would appear that the judge was of opinion that the defendant’s authority to deal with the money was automatically vitiated by the fact that it (and the cheque itselO was obtained by misrepresentation. But that is contrary to principle.
Misrepresentation makes a transaction voidable not void. It gives the representee the right to elect whether to rescind or affirm the transaction. The representor cannot anticipate his decision. Unless and until the representee elects to rescind the representor remains fully bound. The defendant’s mis representations merefy gave the society the right to elect to withdraw from the transaction on discov ering the truth. Since its instructions to the defendant were revocable in any case, this did not materially alter the position so far as he was concerned, though it may have strengthened the society’s position in relation to the purchasers.
The right to rescind for misrepresentation is an equity. Until it is exercised the beneficial interest in any property transferred in reliance on the representation remains vested in the transferee. In El Ajou v Dollar Land Holdings Pie [1993] 3 All ER 717, 7341suggested that on rescission the equitable title might revest in the representee retrospectively at least to the extent necessary to support an equitable tra cingclaim. I was concerned to circumvent the supposed rule that there must be a fiduciary relationship or retained beneficial interest before resort may be had to the equitable tracing rules. The rule would have been productive of the most extraordinary anomalies in that case, and its existence continually threatens to frustrate attempts to develop a coherent law of restitution. Until the equitable tracing rules are made available in support of the ordinary common law claim for money had and received some problems will remain incapable of sensible resolution.
But all that is by the way. Whether or not there is a retrospective vesting for tracing purposes it is clear that on rescission the equitable title does not revest retrospectively so as to cause an application of trust money which was properly authorised when made to be afterwards treated as a breach of trust. In Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 Lord Goff of Chieveley said, at p.573:
Of course, ‘tracing’ or ‘following’ property into its product involves a decision by the owner of the original property to assert his title to the product in place of his original property. This is sometimes referred to as ratification.I myself would not so describe it,but it has, in my opinion, at least one feature in common with ratification, that it cannot be relied upon so as to render an innocent recipient a wrongdoer (cf. Bolton Partners v Lambert (1889) 41 ChD 295, 307, per Cotton U.; ‘an act lawful at the time of its performance [cannot] be rendered unlawful, by the application of the doctrine of ratification.’)
In Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 Lord Browne-Wilkinson expressly rejected the possibility that a recipient of trust money could be personally liable, regardless of fault, for any subsequent payment away of the moneys to third parties even though, at the date of such payment, he was ignorant of the existence of any trust. He said, at p. 705:
Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, i.e.until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are alleged to affect hisconscience.
Mutatis mutandis that passage is directly applicable in the present case. The defendant knew that he was a trustee of the money for the society; but he did not realise that he had misled the society and could not know that his authority to complete had determined (if indeed it had).He could not be bound to repay the money to the society so long as he was ignorant of the facts which had brought his author ity to an end, for those are the facts which are alleged to affect his conscience and subject him to an obligation to return the money to the society.
Before us the society put forward a more sophisticated argument. The defendant’s instructions, it pointed out, expressly required him to report the arrangements in question ‘to the society prior to completion’. This, it was submitted, made it a condition of the defendant’s authority to complete that he had complied with his obligation.Whether he knew it or not,he had no authority to complete.It was not necessary for the society to revoke his authority or withdraw from the transaction. I do not accept this. The society’s standing instructions did not clearly make the defendant’s authority to complete conditional on having complied withhisinstructions. Whether they did so or not is, course, a question of construction, and it is possible that the society could adopt instructions which would have this effect. But it would in my judgment require very clear wording to produce so inconvenient and impractical a result. No solicitor could safely accept such instructions, he could never be certain that he was entitled to complete.
Inmy judgment the defendant’s authority to apply the mortgage money in the completion of the pur chase was not conditional on his having first complied with his contractual obligations to the society, was not vitiated by the misrepresentations for which he was responsible but of which he was unaware, had not been revoked, and was effective to prevent his payment being a breach of trust. Given his state of knowledge (and, more importantly, that his authority had not been revoked). he had no choice but to complete.
Conclusion
In my judgment the defendant was not guilty of breach of trust or fiduciary duty.This makes it unneces sary to consider what the consequences of such a breach would have been. I would allow the appeal and set aside the money judgment. I would leave undisturbed the judgments for damages to be assessed for breach of contract and negligence, but make it clear that it does not follow that the society will establish any recoverable loss.
Ordinary commercial relationships, where the parties act independently in their own interests, are not fiduciary relationships. In Re Goldcorp Exchange Ltd [1995] 1 AC 74, the Privy Council refused to recognise the existence of any fiduciary relationship between a company which had sold gold bullion for future delivery, and its customers.Lord Mustill observed that ‘the essence of a fiduciary relationship is that it creates obligations of a different character from those deriving from the contract itself’, and that that was not the case here. One effect of the lack of a fiduciary relationship between the parties was that the customers were unable to trace in equity [see further Chapter 14].
Sargeant and another v National Westminster Bank
(1990) 61 P & CR 518
NOURSE LJ: The rule that a trustee must not profit from his trust holds that prevention is better than cure. While it invariably requires that a profit shall be yielded up, it prefers to intervene beforehand by dissolving the connection out of which the profit may be made. At that stage the rule is expressed by saying that a trustee must not put himself in a position where his interest and duty conflict. But to express it in that way is to acknowledge that if he is put there, not by himself, but by the testator or settlor under whose dispositions his trust arises, the rule does not apply .
In this case two of the testator’s children, as the trustees of his will, are the legal owners and trustees for sale of his three freehold farms. Under the terms of the will, each of them is absolutely entitled to one third of the net proceeds of sale and the net rents and profits until sale. They are also the tenants of the farms under tenancies which the testator originally granted to them and a deceased child during his life-time. The owners of the remaining third of the beneficial interest, subject to the tenancies, are the personal representatives of the deceased child …
Inow come to the first and second arguments which were advanced by Mr Romer on behalf of the administrators. Although he sought to keep them separate, they were both founded on the rule that a trustee must not put himself in a position where his interest and duty conflict. Mr Romer relied on the following passage in the judgment of Lord Herschell in Bray v Ford [1896] AC 44 which was described by Lord Upjohn in Boardman v Phipps [1967] 2 AC 46 as the best statement of the rule:
It is an inflexible rule of a Court of Equity that a person in a fiduciary position … is not, unless otherwise expressly provided, entitled to make a profit, he is not allowed to put himself in a pos ition where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is a danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule.
Mr Romer submitted that the trustees’ duty is to obtain the best price for the freeholds of the farms, which admittedly can only be obtained by a sale with vacant possession, whereas their interest is to preserve their tenancies and to sell subject to them, in which event the best price will not be obtained.
Mr Romer therefore submitted that if the trustees go ahead and sell subject to the tenancies, either to themselves orto a third party, they will be putting themselves in a positionwhere their interest and duty conflict …
What then happened on the death of Charles? He necessarily ceased to be a trustee of the will. His
estate retained his beneficial interest in the farms, subject to the tenancies. The arrangements between the children might have been such that his estate retained his interest in the tenancies as well. No doubt for a short period it did. But under the provisions of the partnership deed, to which Charles himself had been a party, the trustees acquired his share in the partnership, including his share in the tenancies. Thenceforth each of the trustees continued to have the rights of a tenant and a beneficiary. But Charles’ estate only had the rights of a beneficiary.
It cannot be doubted that the trustees have ever since been in a position where their interests as ten ants may conflict with their duties as trustees to the estate of Charles. But the conclusive objection to the application of the absolute rule on which Mr Romer relies is that it is not they who have put them selves in that position. They have been put there mainly by the testator’s grant of the tenancies and by the provisions of his will and partly by contractual arrangements to which Charles himself was a party and of which his representatives cannot complain. The administrators cannot therefore complain of the trustees’ continued assertion of their rights as tenants.
Since the absolute rule on which Mr Romer relies does not apply, there is no absolute requirement that the trustees should appoint a new trustee before making any sale subject to the tenancies. Nor is there any absolute bar to their selling to themselves so long as the tenancies subsist. On the other hand, they must continue to discharge their fiduciary duties to Charles’ estate in regard to the free holds, in particular by obtaining the best price for them subject to the tenancies. In the end, the basis for Mr Romer’s arguments was seen to be a fear or a suspicion that the trustees will not properly dis charge that duty. But there is no evidence either that they have failed to discharge their duties in the past or that they will fail to do so in the future. Without such evidence, it is wholly inappropriate for the court to interfere .
Re Mulholland’s WT
[1949] 1 ALL ER 460
WYNN-PARRY J: … It was contended that the plaintiffs, as beneficiaries under the will, were entitled to have the conveyance set aside because at the date when the bank exercised the option they were trustees of the property the subject-matter of the option; that, as trustees, they were not entitled to place themselves in a position where their duty and their interests conflicted; and, therefore, having accepted the executorship and trusteeship,they had effectively precluded themselves from exercising the option. But the principle … that the existence of the fiduciary relationship creates an inability in the trustee to contract in regard to the trust property … does not touch the position arising where the contract in question has been brought into existence before the fiduciary relationship.
Re Boles and British Land Company’s Contract
[1902] 1 Ch 244
BUCKLEY J: … Apart from any circumstances of doubt or suspicion, is there any rule of this Court that a person, who has ceased for twelve years to be a trustee of an instrument which contains a trust for
sale, is precluded from becoming a purchaser of property subject to the trust? I think there is not. The principle that lies at the root of this matter is that a trustee for sale owes a duty to his cestuis que trust to do everything in his power for their benefit, and is therefore absolutely precluded from buying the
trust property, irrespective of questions of undervalue or otherwise, because he may be thus induced to neglect his duty. Beyond that, if he retires with a view to becoming a purchaser so as to put himself in a position to do what would otherwise be a breach of trust, that will not do. But if he has retired and there is nothing to shew that at the time of the retirement there was any idea of a sale, and in fact there is no sale for twelve years after his retirement, is there anything to prevent him from becoming a purchaser? I think not .
Jefri Bolkiah v KPMG (a firm)
[1999] 2 AC 222
LORD MILLETT: Chinese walls are widely used by financial institutions in the City of London and elsewhere. They are the favoured technique for managing the conflicts of interest which arise when financial business is carried on by a conglomerate. The Core Conduct of Business Rules published by the Financial Services Authority recognise the effectiveness of Chinese walls as a means of restricting the movement of information between different departments of the same organisation. They contemplate the existence of established organisational arrangements which preclude the passing of information in the possession of one part of the business to other parts of the business. In their consultation paper on Fiduciary Duties and Regulatory Rules (Law Com No. 124) (1992), the Law Commission describe Chinese walls as normally involving some combination of the following organisational arrangements: (i) the physical separation of the various departments in order to insulate them from each other-this often extends to such matters of detail as dining arrangements; (ii) an educational programme, normally recurring, to emphasise the importance of not improperly or inadvertently divulging confidential information; (iii) strict and carefully defined procedures for dealing with a situation where it is felt that the wall should be crossed and the maintaining of proper records where this occurs; (iv) monitoring by compliance officers of the effectiveness of the wall; (v) disciplinary sanctions where there has been a breach of the wall.
KPMG insist that, like other large firms of accountants, they are accustomed to maintaining client confidentiality not just within the firm but also within a particular team. They stress that it is common for a large firm of accountants to provide a comprehensive range of professional services including audit, corporate finance advice, corporate tax advice and management consultancy to clients with competing commercial interests. Such firms are very experienced in the erection and operation of information barriers to protect the confidential information of each client, and staff are constantly instructed in the importance of respecting client confidentiality. This is, KPMG assert, part of the pro fessional culture in which staff work and becomes second nature to them. Forensic projects are treated as exceptionally confidential and are usually given code names. In the present case KPMG engaged different people, different servers, and ensured that the work was done in a secure office in a different building. KPMG maintain that these arrangements satisfy the most stringent test, and that there is no risk that information obtained by KPMG in the course of Project Lucy has or will become available to anyone engaged on Project Gemma.
I am not persuaded that this is so. Even in the financial services industry, good practice requires there to be established institutional arrangements designed to prevent the flow of information between sep arate departments … The Chinese walls which feature in the present case, however, were established ad hoc and were erected within a single department. When the number of personnel involved is taken into account, together with the fact that the teams engaged on Project Lucy and Project Gemma each had a rotating membership, involving far more personnel than were working on the project at any one time, so that individuals may have joined from and returned to other projects, the difficulty of enforcing confidentiality or preventing the unwitting disclosure of information is very great. It is one thing, for example, to separate the insolvency, audit, taxation and forensic departments from one another and erect Chinese walls between them. Such departments often work from different offices and there may be relatively little movement of personnel between them. But it is quite another to attempt to place an information barrier between members all of whom are drawn from the same department and have been accustomed to work with each other. I would expect this to be particularly difficult where the department concerned is engaged in the provision of litigation support services, and there is evidence to confirm this. Forensic accountancy is said to be an area in which new and unusual problems frequently arise and partners and managers are accustomed to share information and expertise. Furthermore, there is evidence that physical segregation is not necessarily adequate, especially where it is erected within a single department.
In my opinion an effective Chinese wall needs to be an established part of the organisational structure of the fir not created ad hoc and dependent on the acceptance of evidence sworn for the purpose by members of staff engaged on the relevant work.on.
Holder v Holder
[1968] Ch 353
HARMAN LJ T
at the time of the sale was himself still in a fiduciary position and, like any other trustee, could not purchase the trust property. I feel the force of this argument, but doubt its validity in the very special circumstances of this case. The reason for the rule is that a man may not both be vendor and purchaser; but [Victor] was never in that position here. He took no part in instructing the valuer who fixed the reserves or in the preparations for the auction. Everyone in the family knew that he was not a seller but a buyer. In this case [Victor] never assumed the duties of an executor. It is true that he concurred in sign ing a few cheques for trivial sums and endorsing a few insurance policies, but he never so far as appears interfered in any way with the administration of the estate. It is true he managed the farms, but he did that as tenant and not as executor. He acquired no special knowledge as executor. What he knew he knew as tenant of the farms. Another reason lying behind the rule is that there must never be a conflict of duty and interest, but in fact there was none here in the case of the third defendant, who made no secret throughout that he intended to buy .
Of course, I feel the force of the judge’s reasoning that if … [Victor] remained an executor he is
within the rule, but in a case where the reasons behind the rule do not exist I do not feel bound to apply it. My reasons are that the beneficiaries never looked to the third defendant to protect their interests. They all knew he was in the market as purchaser; that the price paid was a good one and probably higher than anyone not a sitting tenant would give. Further, the first two defendants alone acted as executors and sellers: they alone could convey: they were not influenced by the third defendant in connexion with the sales.
Boardman v Phipps
[1967] 2 AC 46
LORD COHEN: Wilberforce J and, in the Court of Appeal, both Lord Denning MR and Pearson U based their decision in favour of the respondent on the decision of your lordships’ House in Regal /Hastings) Ltd v Gulliver, reported at [1967] 2 AC 134. I turn, therefore, to consider that case. Mr Walton [for the trust] relied upon a number of passages in the judgments of the learned Lords who heard the appeal: in particular on (1) a passage in the speech of Lord Russell of Killowen where he says:
The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made.
(2) a passage in the speech of Lord Wright, where he says:
That question can be briefly stated to be whether an agent, a director, a trustee or other person in an analogous fiduciary position, when a demand is made upon him by the person to whom he stands in the fiduciary relationship to account for profits acquired by him by reason of his fiduciary position, and by reason of the opportunity and the knowledge, or either, resulting from it, is entitled to defeat the claim upon any ground save that he made profits with the knowledge and assent of the other person. The most natural and typical case of this nature is that of princi pal and agent. The rule in such cases is compendiously expressed to be that an agent must account for net profits secretly (that is, without the knowledge of his principal) acquired by him in the course of his agency. The authorities show how manifold and various are the applications of the rule. It does not depend on fraud or corruption.
These paragraphs undoubtedly help the respondent but they must be considered in relation to the facts of that case. In that case the profit arose through the application by four of the directors of Regal for shares in a subsidiary company which it had been the original intention of the board should be subscribed for by Regal. Regal had not the requisite money available but there was no question of it being ultra vires Regal to subscribe for the shares. In the circumstances Lord Russell of Killowen said:
I have no hesitation in coming to the conclusion, upon the facts of this case, that these shares, when acquired by the directors, were acquired by reason, and only by reason of the fact that they were directors of Regal, and in the course of their execution of that office.
He goes on to consider whether the four directors were in a fiduciary relationship to Regal and con cludes that they were. Accordingly, they were held accountable. Mr Bagnall [for Boardman] argued that the present case is distinguishable. He puts his argument thus. The question you ask is whether the information could have been used by the principal for the purpose for which it was used by his agents? If the answer to that question is no, the information was not used in the course of their duty as agents. In the present case the information could never have been used by the trustees for the purpose of pur chasing shares in the company; therefore purchase of shares was outside the scope of the appellant’s agency and they are not accountable.
This is an attractive argument, but it does not seem to me to give due weight to the fact that the appellants obtained both the information which satisfied them that the purchase of the shares would be a good investment and the opportunity of acquiring them as a result of acting for certain purposes on behalf of the trustees. Information is, of course, not property in the strict sense of that word and, as I have already stated, it does not necessarily follow that because an agent acquired information and opportunity while acting in a fiduciary capacity he is accountable to his principals for any profit that comes his way as the result of the use he makes of that information and opportunity. His liability to account must depend on the facts of the case. In the present case much of the information came the appellants’ way when Mr Boardman was acting on behalf of the trustees on the instructions of Mr Fox and the opportunity of bidding for the shares came because he purported for all purposes except for making the bid to be acting on behalf of the owners of the 8,000 shares in the company. In these cir cumstances it seems to me that the principle of the Regal case applies and that the courts below came to the right conclusion.
LORD HODSON: It cannot, in my opinion, be said that the purchase of shares in Lester & Harris was outside the scope of the fiduciary relationship in which Mr Boardman stood to the trust. The confidential information which the appellants obtained at a time when Mr Boardman was admittedly holding himself out as solicitor for the trustees was obtained by him as representing the trustees, the holders of 8,000 shares of Lester & Harris. As Russell LJ put it (1965] Ch 1992, 1031:
The substantial trust shareholding was an asset of which one aspect was its potential use as a means of acquiring knowledge of the company’s affairs, or of negotiating allocations of the company’s assets, or of inducing other shareholders to part with their shares.
Whether this aspect is properly to be regarded as part of the trust assets is, in my judgment, immate rial. The appellants obtained knowledge by reason of their fiduciary position and they cannot escape liability by saying that they were acting for themselves and not as agents of the trustees. Whether or not the trust or the beneficiaries in their stead could have taken advantage of the information is imma terial, as the authorities clearly show. No doubt it was but a remote possibility that Mr Boardman would ever be asked by the trustees to advise on the desirability of an application to the court in order that the trustees might avail themselves of the information obtained. Nevertheless, even if the possibility of conflict is present between personal interests and the fiduciary position the rule of equity must be applied. This appears from the observations of Lord Cranworth LC in Aberdeen Railway Co. v Blaikie Brothers (1854) 1 Macq 461,471.
Farrell v Maher
Circuit Cases.
16 May 1908
[1908] 42 I.L.T.R 156
Gibson J.
Longford, March 3rd, 1908; Dublin, May 16, 1908
Gibson, J.
This was an appeal from a decree in a suit brought by the plaintiff (who is a brother of Anne Maher, the defendant) establishing a trust against the defendant in respect of a small farm held by the defendant under a future tenancy created by Lord Longford, after eviction for non-payment of rent, in July, 1902. The facts were very loosely proved. The farm, originally held by the plaintiff’s father as yearly tenant under Lord Longford, was assigned to the plaintiff many years ago under a written instrument reserving a small part to the father. The plaintiff afterwards married and had one child, a daughter, who five years ago was sent to America. In 1894 the plaintiff became a lunatic, and was, until shortly before this suit, in the Mullingar Asylum. In 1896, an ejectment for non-payment of rent having been brought, the rent was paid by the defendant, who was in possession, and who maintained her mother and the plaintiff’s daughter. The defendants in that ejectment were John Farrell and the present plaintiff, Timothy Farrell. The former had obtained a fair rent order on July 22, 1895—how, does not appear—reducing the rent to five guineas per annum. A fresh decree in ejectment for non-payment of rent was obtained in 1901, notices were duly served, which expired in May, 1902, and possession was taken by the landlord through the sheriff early in July. The defendant was probably put back as caretaker. The defendant, having paid the sums due for arrears of rent and costs, £15 15s. and £1 10s., was taken on as a future tenant in July, 1902, the tenancy to begin as from the previous March. The plaintiff seeks to establish a trust in his favour in respect of this tenancy. For the defendant Mr. Henry contends that there was no such trust, and he relies on Hegarty v. Dillon (unreported) as being decisive. He has procured for me the papers in that case. The action, one of trespass, was brought by Thomas Hegarty, representative of Mrs. Stewart, against Dillon, as purchaser of a farm at a sheriff’s sale under an execution against William and James Hegarty. They had (as the jury found) fraudulently, to defeat creditors, procured the substitution of their sister, Mrs. Stewart, as tenant of the farm. An ejectment was brought against her for nonpayment of rent, she submitted (fraudulently, as the jury found) to a decree, notices were duly served, which expired on Dec. 3, 1890, and a new letting was made to her on Dec. 24, 1890, she paying the arrears, described by the Lord Chief Justice as a fine. The jury found her possession was, throughout, colourable. There was, however, no evidence that the landlord, in making the original change of tenancy or the new letting after the eviction, was in any way cognisant of any fraudulent purpose or agreement. The plaintiff being in possession under the will of Mrs. Stewart, the defendant Dillon entered relying on the sheriff’s deed. On the above facts, on a new trial motion, it was held by the Queen’s Bench Division and the Court of Appeal that the original fraud of William and James Hegarty did not make the execution valid, and that the defendant had no title as purchaser under the execution, which was invalid and ineffectual. Various reasons are assigned in the Queen’s Bench judgments on the new trial motion. Andrews, J., pointed out that creditors and others might be able to establish equities and show that the beneficial owners were William and James Hegarty, but he held that, the legal tenancy being vested in Mrs. Stewart, the sheriff could not seize and sell, equitable interests not being the subject of legal execution. The judgment was affirmed on appeal. Though there are dicta in the judgments favourable to the defendant’s contention, the actual decision does not rule the present case, where equitable interests alone are in question. Where the principle of graft would apply, from the fiduciary or quasi-fiduciary position of the parties, it is not excluded by the fact that the original lease has actually expired: Edwards v. Lewis, 3 Atk. 538; or has been evicted; or that the landlord has refused to renew to the cestui que trust:Keech v. Sandford, 1 Wh. & Tud. 24; Griffin v. Griffin, 1 Sch. & L. 352; Fitzgibbon v. Scanlan, 1 Dow 261; Kelly v. Kelly, Ir. R. 8 Eq. 403. The principle is founded on public policy. The trustee or quasi-trustee is disqualified from getting any personal benefit from his possession or relation to the land. Where the position of the new lessee is not strictly fiduciary, there is more difficulty. The strongest case in defendant’s favour is Re Biss, [1903] 2 Ch. 40. The solution of the question whether the new letting is an accretion to the old tenancy appears to me to depend on the facts as a whole, particularly the relation of the defendant to her brother. If the plaintiff had been a minor, the defendant would have found it difficult to resist a declaration of trust; but does the principle apply to a lunatic? I can find no authority to that effect, and, unless the defendant was, or professed to be, acting as the plaintiff’s agent *157 (of which there is no sufficient proof), I doubt if there was any fiduciary relation. Nor am I satisfied that the ejectment was suffered as a contrivance to get rid of the plaintiff’s title. The old tenancy was finally and completely extinguished, and a new tenancy of a different character was bona fide created by the landlord, who, doubtless, would have refused to make such letting to the lunatic. The reasoning in Re Biss appears adverse to making this new tenancy a graft on the old tenancy. If it was, the plaintiff could compel a transfer to himself, and thus force on the landlord a tenant whom he never would have dealt with or accepted. This is not per se an answer to the suit, but it is a circumstance of some weight. After the eviction, the landlord was master of the situation, and could refuse to let at all or could let to any one he might chose. Unless the defendant held a fiduciary position which would disable her from accepting any benefit arising out of her former or present possession, the new contract should prevail; it meant that the defendant was to be responsible for and pay the rent, and take the profits for her own benefit. There was no fraudulent contrivance. I am aware of no authority governing the present facts. In Nesbitt v. Tredennick, 1 B. & B. 29, where a new lease obtained by a mortgagee, after eviction and expiration of the redemption period, was upheld, the decision was largely based on the mortgagee never having been in possession. It therefore gives little help to the defendant’s argument. With some doubt I have come to a conclusion in favour of the defendant. Decree accordingly reversed, but without costs.
Nunan, Deceased;
Burton v Nunan
Court of Appeal.
20 January 1908
[1908] 42 I.L.T.R 31
Sir S. Walker, Bart. L.C., FitzGibbon, Holmes L.JJ.
Jan. 20, 1908
Appeal from a decision of the Master of the Rolls dated July 13, 1907, upon the hearing of an originating summons. The summons was taken out by the plaintiffs, Francis J. Burton and William J. Nunan, the executors of the will of William Nunan, deceased, for the determination of the following question:—Whether the devise and bequest contained in the said will, bearing date June 18, 1905, of the said William Nunan, deceased, in the following words—viz., “I leave, devise and bequeath the lands of Gooseberryhill which I hold, with the stock, horses and equipments of all kind, to my nephew, Joseph Tom Nunan”—is a valid devise or bequest of the said lands, or is a valid bequest of the said stock, horses and equipments, having regard to the provisions of a certain indenture of settlement dated July 28, 1860. By that settlement, executed on the marriage of William *31 Nunan (the deceased) with Ellen Burton, after reciting a certain indenture of lease of Dec. 19, 1855, whereby John Bagwell Creagh demised unto John Nunan, his executors, administrators and assigns, parts of the lands of Gooseberryhill as therein described, from the date of said lease, for the natural life of Jeremiah Boyan, son of Michael Boyan, of Greenfield, “and for and during the term of sixty-one years, to commence and be computed from March 25 next immediately previous to the day of the death of the said Jeremiah Boyan,” at the yearly rent of £60, it was witnessed that in consideration of the said intended marriage, &c., “John Nunan doth grant, bargain, sell, assign, transfer and make over unto the said John Burton and Thomas Nunan, and the survivor of them, his executors, administrators and assigns, the said part of the said lands of Gooseberryhill, comprised in and demised by the said recited lease,” to hold the same “unto the said John Burton and Thomas Nunan, their heirs, executors or administrators,” for the residue of the term for which the same were held upon the trusts thereinafter expressed. It was further witnessed that John Nunan also assigned and transferred, &c., “unto the said John Burton and Thomas Nunan, their heirs, executors or administrators, all and singular the cattle, horses, farming implements and other effects” then being on the said lands of Gooseberryhill, to hold “the cattle, horses, farming implements and other effects unto the said John Burton and Thomas Nunan upon the trusts” thereinafter expressed—that is to say (inter alia), upon trust to raise a jointure rent-charge for the said Ellen Burton in case she should survive her husband “without issue him surviving,” and “subject to the payment of said annuity during the life of the said Ellen Burton and the trusts hereinbefore and hereinafter mentioned, to hold said premises for the absolute use of said John Nunan, party hereto, or his heirs.” The deed then declared further trusts not material to the present case. The marriage between William Nunan and Ellen Burton was duly celebrated, and William Nunan entered into possession of the lands of Gooseberryhill and of the personal chattels, and continued to use and enjoy same until his death. He died on Nov. 2, 1905, leaving his wife, Ellen, him surviving, but leaving no issue of the said marriage. In 1897, while in possession and occupation of the lands, he purchased same from the landlord under the Land Purchase (Ir.) Acts, and the lands were registered under the Local Registration of Title (Ir.) Act, 1891, William Nunan being registered as the full owner thereof subject to equities. At the time of the purchase and registration Jeremiah Boyan, the life named in the lease, was still living. He died on Nov. 9, 1903, in the lifetime of William Nunan. William Nunan, by his will dated June 18, 1905, devised and bequeathed the lands of Gooseberryhill with the stock, horses and equipments of all kinds to his nephew, the defendant, Joseph W. Nunan, and charged the same with payment of an annuity of £40 to his widow for her life. He nominated as his executors the plaintiffs, Francis J. Burton and William John Nunan, to whom probate was granted on Jan. 26, 1906. John Nunan died in 1872. He did not mention the lands of Gooseberryhill or the said chattels in his will, nor did the will contain any residuary devise or bequest. He appointed his sons, William Nunan, John Nunan, junr., and the Rev. Joseph Nunan, his executors, and probate was granted to them on Oct. 19, 1872. William Nunan was the eldest son and heir-at-law of John Nunan, senr. There were five other children, some of whom had married and had large families. In the events which had happened the defendant, Joseph W. Nunan, claimed that the devise and bequest in his favour of the lands of Gooseberryhill and said personal chattels contained in the will of William Nunan was valid and took effect in his favour. On the other hand, it was contended that on the death of William Nunan the next-of-kin of John Nunan, senr., became entitled to Gooseberryhill and to the personal chattels. Accordingly a summons was taken out by the plaintiffs for the determination of the above question. The Master of the Rolls, in the course of his judgment, having referred to the operation of a lease made in such terms as decided in In re Crommelin, 1 Ir. C. L. R. 182, and Blackhall v. Nugent, 5 Ir. Ch. R. 323, and having referred to the words used in the settlement, said:—
When dealing with the land (the life being in being) it is to be observed it conveyed and limited it to trustees, their executors, administrators, and assigns; but when it comes to deal with chattels, the limitation is to “their heirs, executors or administrators.” … When I am asked to attribute a special meaning to the words “or heirs,” and to say that it is meant that John Nunan’s heir should take as persona designata, and that that was the sense in which the settlor used the term, I feel inclined to say that the settlor did not use the words “or heirs” in the sense imputed or in any sense at all. I consider that the settlor meant and intended that if the intended wife survived Wm. Nunan, and there was no issue living at the death of Wm. Nunan, that the property, leasehold and chattel, should go absolutely to old John Nunan, subject to an annuity of £40 for the wife. I am disposed to read the words “or heirs” as mere words to emphasise who was to take the property absolutely, and as superfluous. Even if that is not the true construction of the settlement, I find it impossible to decide that that ought to be read as giving the leaseholds and chattels, stock, &c., to the right heir of John Nunan. It is suggested that the scheme of the settlement was to keep the chattels and lands together. On the other hand it is said that pigs could hardly be regarded as heirlooms, and that that *32 was not what was intended. If there is any sense in the expression “or heirs,” the only meaning it can have is that if John Nunan was dead his heirs are to take the property. Once you arrive at this, that the expression is used by way of substitution, there is an end of the matter, because this is personal estate, and goes not to the heir as persona designata but to the next-of-kin. In the events that occurred, the life was dead, the reversionary chattel interest had become an interest in possession during the life of Wm. Nunan. and I am unable to attribute the subtle intention of enabling the heir of John Nunan to take. De Beauvoir v. De Beauvoir was mentioned, but it has no application to the facts of the present case.… . A point, however, arises under the Local Registration of Title Act, by reason of Wm. Nunan, while in possession as tenant-forlife under the settlement and while the life was in being, having purchased under the Land Purchase Acts. A vesting order, dated June 5, 1897, was made vesting the fee-simple to him subject to equities. [His Lordship referred to s. 14 (3) of the Land Purchase Act, 1887, and to ss. 28 and 30 of the Local Registration of Title Act.] It has been contended that the registration of the title had the effect of concentrating all estates in Wm. Nunan, and as he was not registered as limited owner, but as owner in fee-simple, he was entitled to retain the fee-simple against all-comers. But s. 30 must be read in connection with s. 29. The registering authority having adopted the course prescribed in sub-s. 3 by reference to the vesting order of the Land Commission, the estate taken by Wm. Nunan is apparently an estate in fee-simple, subject as stated in the Land Commission Order. I hold that, notwithstanding the purchase by Wm. Nunan, and the vesting order, and his registration as owner in fee, he remained tenant-for-life of the lands and the chattels under the settlement, and that the chattel term of years and the stock passed absolutely to the representatives of John Nunan.
From this decision the defendant, Joseph W. Nunan, appealed.
Representation
Doyle, K.C., for the appellant.
Serjeant O’Connor, K.C., and Carrigan for John Murphy, one of the next-of-kin.
A. M. Sullivan for the executors.
Authorities referred to:—
De Beauvoir v. De Beauvoir, 3 H. L. C. 524;
Longton v. Wilsby, 76 L. T. N. S. 770;
Phillips v. Phillips, 29 Ch. D. 673;
Hamilton v. Mills, 29 Beav. 193;
Norton on Deeds, p. 332;
Hare v. Savill, [1654] Brownlow and Goldsboro’ 19;
Sugden on Powers, 8th Ed., p. 58;
Long v. Rankin, ibid., App. 895;
Vignolles v. Bowen, 12 Ir. Eq. R. 194.
The Court was unanimously of opinion that the decision of the Master of the Rolls was perfectly right, and dismissed the appeal without having called upon counsel for the respondents.
Representation
Finnegan v Hand
[2016] IEHC 255
JUDGMENT delivered by Mr. Justice Michael White on the 10th day of March 2016
1. The plaintiff has issued proceedings against the defendant who is the administratrix of the estate of James Gartlan,(hereinafter called the deceased), seeking to enforce the doctrine of proprietary estoppel or, in the alternative, a constructive trust in respect of agricultural lands, farm buildings, fixtures, stock and machinery, the property of the deceased. In the alternative he claims monetary compensation based on quantum meruit.
Undisputed Evidence
2. The deceased was born on 6th October, 1933, and died on 12th March, 2009, aged 79. He was a bachelor who lived with his mother, Bridget, who died in 1984. He was an enterprising farmer who owned and farmed approximately 76 acres at Broomfield, Castleblayney, Co. Monaghan. The farm enterprise was primarily a dairy farm with some dry stock breeding.
3. The home farm on Folio 526 Co. Monaghan, was registered in the deceased’s name on 20th July, 1970 containing 3.4145 hectares or 8.44 acres. Folio 253F Co. Monaghan was registered in his name on 5th January, 1975, containing 7.1073 hectares or 17.6 acres. Folio 2806 Co. Monaghan was registered in his name on 23rd November, 1978 containing 11.1162 hectares or 27.5 acres. Folio 4539F Co. Monaghan was registered in his name on 29th December, 1983, containing 2.959 hectares or 7.3 acres. Folio 1411F Co. Monaghan was registered in his name on 26th January, 1978 and finally, Folio 126F Co. Monaghan was registered in his name on 26th July, 1985, containing 3.7307 hectares or 9.2 acres.
4. On his death he was survived by one brother and four sisters. Only one family member, the defendant, lived nearby at Lough Egish, Castleblayney, Co. Monaghan. Eugene Gartlan, his only brother, lived in England. His sister, Rosie O’Driscoll lived in Cork, another sister, Bridget Walker lived in Australia and another sister, Kathleen Culleton lived in England.
5. The farm was well run with good quality farm buildings.
6. The plaintiff was born on 25th September, 1959, and is married with three sons. He is from a family of thirteen children raised on a small farm and was a neighbour of the deceased. The plaintiff worked part time for the deceased from the age of eleven. He then left school at twelve years of age and began to work full time on the deceased’s farm to the deceased’s death on 12th March, 2009, and for a couple of months thereafter.
7. The plaintiff lived in a dwelling house in substandard condition on his father’s family farm, near the deceased’s farm. The plaintiff was never the owner of that property which was situated at Clonavogy Broomfield, Castleblayney. He applied to Carrickmacross Urban District Council for housing for himself, his wife and two children on 15th January, 1987 and was offered a dwelling house at 65 Cloughvalley, Carrickmacross but refused the offer.
8. In 1998, the deceased gifted the plaintiff and his wife a site on his lands part of Folio 1411F. The plaintiff and his wife, Nora Finnegan were registered as owners on 10th July, 2001 on Folio 11444F Co. Monaghan. The plaintiff and his wife constructed a dwelling house on the site and procured a loan from Irish Life and Permanent plc. There was no consideration paid by the plaintiff and his wife for the site but there was a consideration noted in the deed of transfer of £2,000. The agreed value of the site is €10,000.
9. Subsequent to the death of the deceased’s mother, Bridget, the deceased was a regular visitor to the plaintiff’s family home for Sunday lunch and on special occasions such as Christmas. Up to commencement of full time employment by Nora Finnegan, in 1995, she regularly cooked a meal for the deceased during the week and had it brought to him.
10. There was an allegation in the pleadings that the deceased lived in fear of the plaintiff. The evidence revealed a strong friendship between the deceased and the Finnegan family.
Allegation of Sexual Abuse
11. A difficult aspect of this case is an allegation by the plaintiff that he was sexually abused by the deceased from the age of thirteen in 1972 up to 20 years of age in 1979, when the alleged abuse stopped. The plaintiff alleged this was a frequent occurrence over the seven year period which caused the plaintiff great distress. The first time the allegations were made was during the currency of these proceedings when pleaded in the statement of claim served on 31st August, 2009.
12. The first reference in correspondence seems to be a letter of 20th August, 2009 from the plaintiff’s solicitors to the defendant’s solicitors, claiming that a reference to the sexual abuse in the statement of claim was publicised by the defendant. I can only presume that a draft statement of claim was furnished to the defendant’s solicitors prior to formal service.
13. The serious difficulty for the defendant is that the alleged sexual abuse was only disclosed by the plaintiff subsequent to the death of the deceased rendering it extremely difficult for the defendant to adduce any evidence to defend the allegation. The matter is further complicated by the plaintiff’s allegation that the deceased promised to give him his whole farm if he did not tell the gardaí.
14. The plaintiff stated the abuse stopped and the deceased felt sorry it had ever happened and that subsequently, they grew close and he trusted the deceased after that and developed a great friendship. The court heard evidence from Dr. Ann Leader, a consultant psychiatrist, in respect of this matter and the court was furnished with a report from Dr. Leader of 15th February, 2011. She assessed the plaintiff on 30th January, 2012.
15. The plaintiff stated in evidence that the abuse had no bearing on the subsequent relationship between him and the deceased from 1980 until his death in 2009. I do not consider it appropriate to rely on this aspect of the evidence to determine the plaintiff’s claim of proprietary estoppel, as I would consider it unfair to the defendant, who was a stranger to these allegations, and is not in the position to defend them. To make these allegations has not been easy for the plaintiff, and it has not undermined his credibility.
Disputed Evidence
16. The court heard the following witnesses, the plaintiff, Nora Finnegan his wife, Martin O’Sullivan, an agricultural consultant Dr. Ann Leader, Michael Finnegan, the plaintiff’s son, Donal McDaid, a neighbouring farmer who also had extensive experience in farm organisations and local cooperatives; Barney McMahon, the nearest neighbour to the deceased who was also a farmer; Pat Cunningham, agricultural contractor, and Patrick Finnegan the plaintiff’s brother.
17. Margaret Hand, Mr. Ronald McArdle , Raymond Murtagh a local farmer and Tom Ryan, the deceased’s accountant, gave evidence in defence.
18. Before dealing with the kernel of this dispute whether the deceased made any promises to the plaintiff, there is other evidence which is in dispute.
19. The first matter in dispute was the degree of commitment of the plaintiff to the farming enterprise of the deceased, the amount of time he spent working there, and also the role he played in the farming enterprise.
20. I consider the evidence of Mr. Donal McDaid, Mr. Barney McMahon and Mr. Pat Cunningham to be both independent and cogent and prefer it to the evidence of Raymond Murtagh. I am satisfied that the plaintiff devoted an extraordinary amount of time to his work on the deceased’s farm, working seven days a week from early in the morning to late in the evening and played a very significant part in the work of the farm.
21. The deceased also played a very active role in the management of the farm, was responsible for all financial matters and was a very active worker himself up to his death.
22. In 1987, when the deceased was 54 years of age, he suffered an accident on the farm when his leg was fractured and unfortunately, the fracture was not repaired properly.
23. There is controversy about the effect on him of this injury.
24. The court prefers the evidence of Mr. McMahon. The deceased was a great farmer and a great worker but the accident did affect him and he could not do heavy work after the accident and confined himself to light work. To the court that is logical because at the time of his injury, the deceased was 54 years of age while the plaintiff was 28 years of age, obviously much more capable of heavy work on the farm.
25. The court is also satisfied that the deceased developed a very close relationship with the plaintiff’s family. I accept that the deceased had good relations with his brothers and sisters, and that the defendant was a regular visitor to the deceased. However it does not seem that the Hand family were actively involved in working the farm or helping the deceased out on the farm but the Finnegan sons did help out on the farm. To the extent that the plaintiff is making the case that the deceased had a difficult relationship with his siblings, I do not accept that.
26. In respect of the remuneration paid to the plaintiff, the court has had the benefit of the evidence of Martin O’Sullivan, an agricultural expert and Tom Ryan the deceased’s accountant. Mr. O’Sullivan and Mr. McDaid who had experience in farming organisations described the plaintiff’s role as that of a farm manager, although accepting employing a farm manager on that size of a farm would not be economically viable.
27. I have not designated the plaintiff as a farm manager, but he was much more than a farm labourer. He was actively involved in managing the stock on the farm and carried out remedial construction work and general improvements to the farm. He worked much longer hours than the normal week for an agricultural labourer fixed at 39 hours per week by statutory instrument and worked weekends.
28. It is difficult to decide what contribution, if any, the plaintiff made to the deceased’s ability to buy more land. All the lands were acquired by the early 1980s when the plaintiff was a very young man, and while the underpayment to the plaintiff for his work during this period of time would have contributed to the ability of the deceased to save funds and to acquire extra land, I am satisfied that the acquisition of the lands was primarily the work of the deceased and his mother.
29. The plaintiff made a significant decision to his detriment in 1987 when he turned down the social housing in Carrickmacross. That meant that his family lived in substandard accommodation for a further fourteen years until the transfer of the site to them and the construction of the new house. I accept the evidence of the plaintiff that the deceased pleaded with him to stay close to the farm. This was of significant benefit to the deceased and to the detriment of the plaintiff and his family.
30. I accept the defendant’s evidence that the working environment suited the plaintiff who loved farming and was close to his original family home. However, that does not cancel out the detriment to him of very long working hours, low pay and substandard accommodation until 2001.
31. The court has to rely on the evidence of the plaintiff and to a lesser extent his wife, Nora, and Brother Patrick as to the alleged promises the deceased made to the plaintiff to leave the farming enterprise to him after his death.
32. Throughout the years the plaintiff worked on the farm, it is alleged the deceased made numerous promises to him, which led him to believe that the deceased would favour him in his will. Many of the alleged promises were indirect or oblique, but a few were allegedly direct promises.
33. Most of the alleged conversations were between the plaintiff and the deceased only and some oblique references in the presence of Nora Finnegan and another oblique reference allegedly in the presence of Patrick Finnegan.
34. The court is not relying on the alleged promise made by the deceased to the plaintiff when he was aged seventeen or eighteen years of age, in the context of an allegation of sexual abuse.
35. The extract from the evidence in the plaintiff’s submissions setting out these particular alleged promises, follows:-
• In or about 1997, when the deceased was about to go on holidays to Australia, he told the plaintiff that “if the plane falls out of the sky, you have nothing to worry about as I have all straightened up”.
• In or about 1999, the plaintiff told the deceased that he could no longer remain working fulltime for the deceased (the plaintiff’s sons having suggested to the plaintiff that he should move to the construction industry in Dublin where they were earning large wages), and the deceased said words to the plaintiff to the effect that “This will be yours after my day. The money in the Bank will be for my family”.
• In or about 2005/2006, the deceased said words to the plaintiff to the effect that “When I give you this farm, you will have to pay the Government about IR£300,000”.
• The deceased often said to the plaintiff “If you ever leave me, I will die.” The deceased used to refer to “our cattle”, “our field”, etc.
• In or about 2008, the deceased contacted Patrick Finnegan with a view to getting leave from Patrick Finnegan to lawfully use some of Patrick Finnegan’s lands, for the purpose of spreading slurry on same, having told Patrick Finnegan that the deceased intended to erect a slatted shed. Patrick Finnegan asked the deceased whether he did not have enough sheds already, to which the deceased replied (in the presence of the plaintiff) that same was for “Gerry here” indicating the plaintiff.
• In or around 2008, the deceased said to the plaintiff words to the effect that the plaintiff would have the farm when the deceased would go, and that the plaintiff would end up paying for the slatted shed.
• In respect of each time the deceased indicated to the plaintiff that the deceased would leave the deceased’s farm (machinery and stock) to the plaintiff, there was a witness present only on one occasion in 2008 when the deceased indicated that the slatted shed was for the plaintiff, and that witness was Patrick Finnegan.
The Law
36. The law is helpfully set out in Equity and the Law of Trusts in Ireland by Hillary Delany (5th Ed.) at p. 759 which states:-
“The basis of the doctrine of proprietary estoppel is to prevent a person from insisting on his strict legal rights where to do so would be inequitable having regard to the dealings which have taken place between the parties. It developed as an exception to the formalities required for the creation of interests in land and the rationale behind the doctrine could be said to be the prevention of unconscionable behaviour. It should be noted at this point while proprietary estoppel is almost exclusively invoked in the context of rights in or over land, it can extend to other forms of property.”
37. As Lord Walker commented in Thorner v Major [2009] 1 WLR 776 at 786 the doctrine of proprietary estoppel is based on three main elements: a representation or assurance made to the claimant; reliance on it by the claimant; and detriment to the claimant in consequence of his (reasonable) reliance. ‘However as Robert Walker LJ made clear in the course of delivering his judgment in the decision of the court of Appeal in Gillett v. Holt, [2001] Ch 210 at 225, the doctrine cannot be treated as if it can be ‘subdivided into three or four watertight compartments’. As he stated ‘the quality of the relevant assurances may influence the issue of the reliance’ and ‘reliance and detriment are often intertwined’. While it must also be borne in mind that the doctrine of unconscionability has come to play an increasingly significant role.
38. Dealing with the extent of the remedy at p. 784, Delany states:-
“It has been recognised that of all doctrines equitable estoppel is surely one of the most flexible and that the court must look at the circumstances of each case in order to determine how the equity which arises can be satisfied. It is also important to appreciate that the raising of an estoppel does not give rise to a particular form of remedy and that the remedy required to satisfy an equity varies according to the circumstances of the case. One of the most striking features of proprietary estoppel is the wide range of responses open to the court. An examination of the case law demonstrates that the remedies granted by the courts range dramatically and can extend to the conveyance of the fee simple interest or be limited to a licence to occupy property for life. In other cases, the equity has been held to be satisfied by the granting of a right of way or by the mere denial of the legal owner’s claim to possession. Clearly, flexibility is a hallmark of relief based on estoppel so, where appropriate, a fee simple interest in remainder has been granted or a conveyance of the fee simple ordered subject to the payment of compensation.”
Constructive Trust
39. Delaney in Chapter 8, p. 215 of Equity in the Law of Trusts in Ireland (5th Ed.) defines constructive trust:-
“As one which arises by operation of law and which ordinarily comes into being as a result of conduct and irrespective of the intention of the parties. In general terms, it can be described as a trust which is imposed by equity in order to satisfy the demands of justice and good conscience and to prevent a person deriving profit from fraudulent conduct or taking unfair advantage of a fiduciary position. As Deane J. stated in the Australian decision of Muschinski v. Dodds (1985) 160 CLR 583 at p. 614:-
‘Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.’”
The Remedial Constructive Trust
40. Delaney at p. 285 states:-
“Traditionally the courts in England and in this jurisdiction have labelled the constructive trust as a substantive institution although there have been some signs recently of a willingness to regard it as a more remedial concept. The institutional approach involves treating the constructive trust as a device which arises in certain defined situations, e.g. where there is a breach of fiduciary duty or the wrongful assumption of trust duties by a stranger to the trust.”
41. The following explanation of a remedial constructive trust has been provided by Piciocco [1989] 68 Can Bar Rev 315:-
“A plaintiff who requests a remedial constructive trust seeks a declaration that he has a beneficial interest in specific property owned, or in the possession of a defendant who has been unjustly enriched by that ownership or possession. If successful, the relief that the plaintiff obtains is proprietary in the sense that it gives the successful plaintiff rights in the specific property which are good, not only against the defendant, but also against most others, including especially the general creditors of the defendant.”
42. The distinctions between the institutional and remedial constructive trust have been explored by Tipping J. in the decision of the New Zealand Court of Appeal in Fortex Group Limited v. Mcintosh [1988] 3 NZLR 171 at p. 172. He stated that an institutional constructive trust is one which arises by operation of the principles of equity and whose existence the court simply recognises in a declaratory way, whereas a remedial constructive trust is one which is imposed by the court in circumstances where before the order of the court, no trust of any kind existed. The difference between the two types of trust in his view is that the former arises upon the happening of the events which bring it into being and its existence is not dependent on any order of the court whereas the latter depends for its very existence on such an order.
43. The plaintiffs counsel has opened in detail the House of Lords decision of Thorner v. Majors & Ors [2009] UKHL 18. This is an important decision from this court’s perspective as it deals with alleged assurances which were inexact and oblique in respect of future bequests, and also the overlapping nature of the remedies of proprietary estoppel and constructive trust.
44. Lord Hoffman at para 2 of the judgment stated:-
“Such a claim, under the principle known as proprietary estoppel, requires the claimant to prove a promise or assurance that he will acquire a proprietary interest in specified property. A distinct feature of this case (as Lloyd, L.J. remarked in the Court of Appeal (at paragraph 65), was that the representation was never made expressly but was “a matter of implication and inference from indirect statements and conduct. It consisted of such matters as handing over to David in 1990 an insurance policy bonus notice with the words “that’s for my death duties” and other oblique remarks on subsequent occasions which indicated that Peter intended David to inherit the farm. As Lloyd, L.J. observed (at paragraph 67) such conduct and language might have been consistent with a current intention rather than a definitive assurance. But the Judge found as a fact that these words and acts were reasonably understood by David as an assurance that he would inherit the farm and that Peter intended them to be so understood.”
45. At para. 3 Lord Hoffman stated:-
“The Court of Appeal said, correctly, that the fact that Peter had actually intended David to inherit the farm was irrelevant. The question was whether his words and acts would reasonably have conveyed to David an assurance that he would do so. But Lloyd, L.J. accepted (at paragraph 66) that the finding to what Peter would reasonably have been understood to mean by his words and acts, was a finding of fact which was not open to challenge. That must be right. The fact that he spoke in oblique and allusive terms does not matter if it was reasonable for David, given his knowledge of Peter and the background circumstances, to have understood him to mean not merely that his present intention was to leave David the farm, but that he definitely would do so.”
46. At para 14 of the judgment Lord Scott stated:-
“One of the features of the type of cases of which the present case is an example is the extent to which proprietary estoppel and constructive trust have been treated as providing alternative and overlapping remedies and, while in no way disagreeing with my noble and learned friends’ conclusion that David can establish his equity in Steart Farm via proprietary estoppel, I find it easier and more comfortable to regard David’s equity as established via a remedial constructive trust.”
47. At para 20 Lord Scott stated:-
“But cases where the relevant representation has related to inheritance prospects seem to me difficult, for the reasons I have given, to square with the principles of proprietary estoppel established by the Ramsden v. Dyson and Crabb v. Arun Dstrict Council line of cases and, for my part, I find them made easier to understand as constructive trust cases. The possibility of a remedial constructive trust over property, created by the common intention of understanding of the parties regarding the property on the basis of which the claimant has acted to his detriment, has been recognised at least since Gissing v. Gissing [1971] AC 886(see particularly Lord Diplock at p. 905). The inheritance cases of which Gillett v. Holt [2001] Ch 210, In Re Basham [1986] 1 WLR 1498 and Walton v. Walton (1994 CA Unreported) and, of course the present case are good examples, are, to my mind, more comfortably viewed as constructive trust cases. Indeed I think Mr Edward Nugee QC, sitting as a High Court judge in, In re Basham, was of the same opinion. After stating the proprietary estoppel principle (at p1503) he went on (at p. 1504). But in my judgment, at all events whether the belief is that A is going to be given a right in the future, it is properly to be regarded as giving rise to a species of constructive trust, which is the concept employed by a court of equity to prevent a person from relying on his legal rights where it would be unconscionable for him to do so.
And at p. 1505E, he referred to the detriment:-
“that the plaintiff must prove in order to raise a constructive trust in a case of proprietary estoppel”. For my part I would prefer to keep proprietary estoppel and constructive trust as distinct and separate remedies, to confine proprietary estoppel to cases where the representation whether express or implied on which the claimant has acted is unconditional and to address the cases where the representation are of future benefits, and subject to qualification on account of unforeseen future events, via the principles of remedial constructive trusts”
48. The dicta in Gillet v. Holt and Thorner v. Major are important.
49. The promise or promises may not be exact and to the point, but can be indirect and oblique. The promises are revocable until the person who has been promised acts to his detriment which has to be substantial. It is only then the assurances or promises become irrevocable.
50. The House of Lords decision in Thorner v. Major would suggest that it is open to the court where it has concerns about the uncertainty of the promise or promises in particular to a future promise of a bequest in a will, to hold that a constructive remedial trust arises.
51. There is no requirement in a claim for proprietary estoppel or constructive trust to have any note or memorandum in accordance with the statute of frauds.
52. The court has not relied on the quantum meruit claim, so the issue of the plaintiff’s claim for loss of earnings being statute barred does not arise.
53. I accept that the claims of proprietary estoppel and constructive trust on the one hand, and the monetary claim based on quantum meruit are mutually exclusive.
54. Laffoy J. in Coyle v. Finnegan, delivered on 25th October, 2013, regarded the English decision in Gillet v. Holt [1998] 3 All E.R. 917; (CHD) [2001] Ch 210; [2000] 3 WLR 825; [2000] 2 All ER 289, as an evolutionary process in the development of the doctrine of proprietary estoppel. Although Thorner v. Major [2009] 1 WLR 776, is referred to in the judgment, it is not considered in any detail. This Court would consider the decision of Thorner v. Major a further evolutionary step in the development of proprietary estoppel and, in particular, its overlap with constructive trust or constructive remedial trust.
Conclusion
55. The plaintiff has some credibility problems. The court considered Ronald McArdle a reliable witness. He stated that his father, Gene who was the administrator of the estate of his brother John McArdle, had an exchange with the plaintiff which he overheard. The plaintiff said to Gene McArdle that John had promised him a field for some work done. Ronald McArdle stated that his father gave the plaintiff €120 and asked him not to come back.
56. There was also a claim in a letter of 26th November, 1998, from Corrigan Coyle Kennedy McCormack Solicitors which named the plaintiff as a person giving instructions. It was alleged that his father had made him a promise in the following terms:-
“Not to worry this place will be yours after my day.”
57. The letter does not refer to the farm but the dwelling house and buildings and a small area of ground around the house in which the plaintiff and his wife and children had lived since their marriage in 1980 and which was the original family home of the plaintiff. The plaintiff in his evidence doubted that he had given specific instructions in relation to that matter. Mrs. Finnegan was adamant in her evidence that the house was in such bad condition that the family did not want to stay there.
58. I am satisfied that Nora Finnegan was a reliable and truthful witness. She stated in her evidence that, the deceased had made a number of oblique references in her company to the land. She described the substandard accommodation they were living in when they were offered the house in 1987 by Carrickmacross Urban District Council. She stated that they were very poor and they had no money. She stated that there was no internal water supply to their existing home. She stated she was very upset and cried for weeks when Jim persuaded Gerry not to move.
59. The court’s duty is to look at the evidence in the round and to look for some corroboration.
60. The plaintiff started to work full time for the deceased when he was a child of twelve years of age. He was bright at primary school but uneducated having missed out on any form of second level schooling. He was an excellent worker who worked long hours for the deceased which included weekends. He was substantially underpaid and was seriously exploited by the deceased in that regard. He worked full time on the farm from 1971 to 2009, 38 years in total. I am satisfied that the deceased relied heavily on the plaintiff and his family who were generous with their time.
61. The plaintiff and his wife declined social housing on 15th January, 1987 in Carrickmacross when living in substandard accommodation in the plaintiff’s family home. This was a significant imposition on the family as they were not in a position to move to new housing until 2001 when the deceased had previously provided a site on the lands in or around 1998.
62. I am satisfied that the plaintiff declined the social housing in Carrickmacross at the request of the deceased.
63. The objective evidence is that he worked on the farm for 38 years to an extent way beyond that required of an employee, that he was substantially underpaid and made a significant sacrifice in giving up social housing in 1987.
64. Despite some problems with credibility I accept his evidence that on different occasions, the deceased both directly and obliquely led the plaintiff to believe that he would, at least, name the plaintiff as a beneficiary in his will.
65. The court is satisfied that the plaintiff thought that he had assurances that he would benefit under the deceased’s will and relied on those assurances to his substantial detriment.
66. There was a lack of certainty in relation to the proposals made by the deceased. No exact lands or folios were identified. There was no evidence of active efforts to make a will. To the contrary, the deceased’s discussions with Mr. Ryan would suggest if he made a will, he intended to favour his nieces and nephews.
67. I rely on the House of Lords decision in Thorner v. Major & Ors [2009] UKHL 18, which I have already referred to, where the court found that a constructive remedial trust arose, notwithstanding that representations were never made expressly but were a matter of implication and inference from indirect statements and conduct.
68. When the evidence is examined in its totality, I have little doubt that the deceased was quite prepared to make promises which he did not necessarily intend to keep to ensure that the plaintiff continued to work for him, and that he enjoyed the comfort and companionship of the plaintiff’s family.
69. I accept the evidence of the defendant that the deceased remained an active farmer up to the date of his death, involved in the affairs of the farm, running all the financial management aspects of it and carrying out all types of work on the farm to 1987 and thereafter because of an injury and advancing years lighter work.
70. Because of the behaviour of the deceased in holding out to the plaintiff that he would be rewarded in the future with an interest in the farm which led to the plaintiff devoting a very substantial part of his adult life to work on the farm and also suffering the inadequate facilities of a substandard home for fourteen years, it would be unconscionable that the estate would accrue in its entirety to the blood relations of the deceased. While the court can hold that proprietary estoppel arises, because of the uncertain nature of the promises made as to the future intentions of the deceased, the court is of the opinion that a constructive remedial trust arises.
71. The court has discretion on the remedy to be provided to the plaintiff. The plaintiff should obtain a share in the farm, stock and machinery. As it is an equitable relief, I am not bound to transfer all the estate to the plaintiff as requested by him. That would be an injustice to the next of kin of the defendant.
72. The appropriate remedy is that the plaintiff be awarded half that portion of the estate which includes the farmlands comprised in all the Folios, half the value of the stock and machinery and miscellaneous items sold. Any money that was resting in bank accounts at the date of death should go to the next of kin rather than the plaintiff. The plaintiff should give credit to the defendant for the gift of the site which is valued at €10,000.
73. The court is not prepared to consider a claim for devastavit.
Re Frederick Inns Ltd
[1994] 1 ILRM 387
BLAYNEY J s”I would accordingly uphold the finding of the learned trial judge that the payments made by the four companies in reduction of the amounts owing by the other six companies were ultra vires and therefore void.
That brings me to the second issue to which I referred earlier and which is whether the learned trial judge was correct in the order he made in regard to how the ultra vires payments should be dealt with. He directed the Revenue Commissioners to credit to each of the four companies the difference between the amount of its contribution to the £1.2 million and the amount originally appropriated to it in reduction of what it owed to the Revenue Commissioners. This resulted in the entire of the contributions made by Frederick Inns Ltd, The Rendezvous Ltd and The Graduate Ltd being credited to those companies respectively and to £95,058 being credited to Motels Ltd, this amount being sufficient to discharge the entire of that company’s liability. The only sum which the learned trial judge directed to be repaid was the balance of Motels Ltd’s contribution which came to £651,919.
In my opinion the learned trial judge was not correct in directing that the ultra vires payments should be dealt with in this way. I am satisfied that the entire of these payments are held by the Revenue Commissioners on a constructive trust for the four companies and accordingly that they must be repaid to the companies without any deduction being made from them. I would respectfully adopt and apply the principle set out in the judgment of Buckley LJ (with whom Goff and Waller LJJ agreed) in Belmont Finance Corporation Ltd v. Williams Furniture Ltd (No. 2) [1980] 1 All ER 393 at p. 405:
“A limited company is of course not a trustee of its own funds: it is their beneficial owner; but in consequence of the fiduciary character of their duties the directors of a limited company are treated as if they were trustees of those funds of the company which are in their hands or under their control, and if they misapply them they commit a breach of trust ( In re Lands Allotment Co. [1894] 1 Ch 616 at p. 638, per Lindley and Kay LJJ). So, if the directors of a company in breach of their fiduciary duties misapply the funds of their company so that they come into the hands of some stranger to the trust who receives them with knowledge (actual or constructive) of the breach, he cannot conscientiously retain those funds against the company unless he has some better equity. He becomes a constructive trustee for the company of the misapplied funds. This is stated very clearly by Jessel MR in Russell v. Wakefield Waterworks Co. (1875) LR 20 Eq 474 at p. 479 where he said:
In this Court the money of the company is a trust fund, because it is applicable only to the special purposes of the company in the hands of the agents of the company, and it is in that sense a trust fund applicable by them to those special purposes; and a person taking it from them with notice that it is being applied to other purposes cannot in this Court say that he is not a constructive trustee.”
This passage was cited with approval by Slade LJ in Rolled Steel Products (Holdings) Ltd v. British Steel Corporation [1986] Ch 246 at p. 298, and he added this comment which is particularly relevant to the present appeal:
“The Belmont principle thus provides a legal route by which a company may recover its assets in a case where its directors have abused their fiduciary duties and a person receiving assets as a result of such abuse is on notice that they have been misapplied. The principle is not linked in any way to the capacity of the company; it is capable of applying whether or not the company had the capacity to do the acts in question.”
The ultra vires payments in the present case were made on the authority of the directors of the four companies and, being ultra vires, they constituted a misapplication by the directors of the companies’ funds and were found as a fact by the learned trial judge to be such a misapplication. The misapplication was a breach by the directors of their fiduciary duties and the monies were received by the Revenue Commissioners with constructive knowledge of the breach since, if they had read the memoranda of association of the four companies, as they could have done since they are documents of public record, they would have seen that the companies had no power to make the payments. It follows in my opinion that the Revenue Commissioners are constructive trustees of the sums which were the subject of the ultra vires payments and must repay them to the official liquidator for each of the companies. The particular amounts to be repaid are as follows:
TOTAL:
£172,000
£76,506
£68,517
£746,977
£1,064,000
in this court, has assumed a great importance in the case. It is clear both from that passage and from the tenor of his judgment as a whole, in particular from the three concluding paragraphs quoted below, that the judge was of the view that the defendant had no knowledge of the underlying frauds within the BCCI
group either in general or in relation to the 1985 and divestiture agreements in particular.
I would therefore allow this appeal and direct that these sums be repaid by the
Revenue Commissioners to the respective companies together with interest thereon at the statutory rate from time to time payable on judgment debts from 8 December 1986, being the date of the payment of the final instalment making up the £1.2 million, to the date of repayment.”
H.K.N. Invest Oy v. Incotrade Pvt Ltd
[1993] 3 IR 152
COSTELLO J
“The law
(iii) Equity
It is to be borne in mind (a) that our first concerns are with pre-incorporation contracts by which the first defendant purportedly agreed to supply services in consideration for the payment of commission and to refund the commission if the agreed services were not provided, and (b) that payments of commission were made pursuant to these purported contracts. The issue in the case is not the enforceability of the pre-incorporation contracts but the beneficial ownership of money paid under them. Secondly, the beneficial ownership of monies paid after incorporation also falls for consideration. If it can be shown that the monies were received by the second and third defendants as constructive trustees of the first defendant then it would follow (a) that the first defendant has a proprietary remedy against them for the return of the monies, and (b) their creditors cannot levy execution against these sums (by garnishee proceedings or otherwise) to satisfy debts that they may personally owe. Alternatively, if it can be shown that a fiduciary relationship existed between
them and the first defendant then they would hold the monies as constructive trustees for the first defendant.
I will consider firstly the position concerning monies received before incorporation by way of commission on pre-incorporation contracts. It seems to me that it would be straining past breaking point the concept of a fiduciary relationship to hold that such a relationship existed at a time prior to the incorporation of the first defendant. This was the view of Lindley L.J. in Lydney and Wigpool Iron Ore Co. v. Bird (1886) 33 Ch D 85. Dealing with a case in which the promoter of a company received a secret profit prior to incorporation the learned judge pointed out at p. 93 of the report:-
“lt is not correct to say that James Bird was the agent of the company when it did not exist, nor is it much less objectionable to talk of his being in a fiduciary relation to the company before the company had any existence.”
But he went on to point out at p. 94 of the report:
“[It] is perfectly well settled that a promoter of a company is accountable to it for all moneys secretly obtained by him from it just as if the relationship of principal and agent or trustee and cestuis que trust had really existed between them and the company when the money was so obtained.”
Although, the second and third defendants may not have been fiduciaries at the time they received the pre-incorporation commission I think they received it as constructive trustees. constructive trust will arise when the circumstances render it inequitable for the legal owner of property to deny the title of another to it. It is a trust which comes into existence irrespective of the will of the parties and arises by operation of law. The principle is that where a person who holds property in circumstances which in equity and good conscience should be held or enjoyed by another he will be compelled to hold the property in trust for another (Hanbury “Modem Equity” p. 218; Hussey v. Palmer [1972] 1 WLR 1286 at p. 1290 per Lord Denning M.R.).
It will help the analysis in this case, I think, if I first examine a situation in which no fraud is involved. Let me assume that a promoter who is to be a controlling shareholder in a company shortly to be incorporated purports to contract in the name of a company and receives advance commission for services which the company is to render. In such circumstances he has received the commission for the benefit of the company which is to be incorporated and not for his own benefit. If, before the company is incorporated and before it has either formally or informally had an opportunity to ratify the contract, he is adjudicated a bankrupt and ratification then takes place a question would arise as to whether the creditors in the bankruptcy of the promoter are entitled to the commission or whether it can be claimed by the company. It seems to me that as a matter of equity and good conscience the court should uphold the company’s claim. The commission was never beneficially owned by the promoter – he held it in trust for the company which he was forming and which was to perform the services he had agreed would be performed. If this was not the case (a) considerable injustice could be suffered by the company, its shareholders or creditors who were deprived of the commission whilst (b) the creditors in the bankruptcy would obtain a greater interest in the property than the bankrupt himself enjoyed. It seems to me therefore that the court should hold that the promoter of a company who received payment on behalf of a company which he is incorporating and pursuant to a pre-incorporation contract which the company is empowered to ratify holds the commission as a constructive trustee for the company.
I think the same principle would apply even if the company did not formally ratify the contract because as a matter of law the payments made in the circumstances I have outlined would have been received by the promoter as a trustee for the company he was proposing to establish and did in fact establish. And I do not think that the fraud of the promoters can affect this position. The fact that the promoters did not pay the commission to the first defendant and that they had no intention of supplying the promised services when they received it and that they misapplied the funds they received does not, in my view, affect the trust which arose when they received the monies; what they did was to act in breach of trust, not disestablish the trust by their fraud.
It follows therefore that in so far as the monies in the two accounts I am considering represent the balance of commissions received prior to incorporation on the 13th August, 1991, this balance is held in trust for the first defendant and cannot be the subject of a garnishee order.
The monies in the accounts may represent in whole or in part commissions paid after incorporation in respect of pre-incorporation contracts or post incorporation contracts and which should have been paid over to the first defendant but instead were retained by the second and third defendants for their own use. The position in such cases is clear. If they had been appointed directors of the first defendant (the evidence does not disclose whether formal appointments were ever made) they would have a fiduciary relationship with the first defendant. Even if they had not been formally appointed they would have received the commission as agents for the first defendant and a fiduciary relationship would also exist. As fiduciaries they would hold the commission on a constructive trust for the first defendant. It follows therefore that as all the monies in these accounts are trust monies to which the first defendant is beneficially entitled they cannot be the subject of execution by any of the creditors of the second or third defendants, including execution by means of garnishee proceedings. I will therefore refuse to make absolute the order of garnishee and discharge the conditional order. I think it would be appropriate also to make a declaratory order that the liquidator is entitled to the monies in these accounts as assets of the company.
With respect to the motion of the 26th February, 1992, this raised questions
as to the ownership of the proceeds of sale of four motor cars and two motor cycles. It has been agreed that these issues can more appropriately be dealt with by an application by the liquidator in the winding-up of the first defendant and so no order is now required on this motion.”
UK Cases
Re Sharpe
[1980] 1 WLR 219
BROWNE-WILKINSON J: … Even if it be right to say that the courts can impose a constructive trust as a remedy in certain cases-which to my mind is a novel concept in English law-in order to provide a remedy the court must first find a right which has been infringed. So far as land is concerned an oral agreement to create any interest init must be evidenced in writing: sees. 40 of the Law of Property Act 1925. Therefore if these irrevocable licences create an interest in land, the rights cannot rest simply on an oral contract. The introduction of an interest under a constructive trust is an essential ingredient if the plaintiff has any right at all. Therefore in cases such as this, it cannot be that the interest in property arises for the first time when the court declares it to exist. The right must have arisen at the time of the transaction in order for the plaintiff to have any right the breach of which can be remedied. Again, I think the0. H. N. Food Distributors Ltd case [1976] 1 WLR 852 shows that the equity pre-dates any order of the court. The right to compensation in that case depended on substantive rights at the date of com pulsory acquisition, not on what remedy the court subsequently chose to grant in the subsequent litigation.
Accordingly, if I am right in holding that as between the debtor and Mrs Johnson she had an irrevoc
able licence to remain in the property, authority compels me to hold that that gave her an interest in the property before the bankruptcy and the trustee takes the property subject to that interest. In my judg ment the mere intervention of the bankruptcy by itself cannot alter Mrs Johnson’s property interest. If she is to be deprived of her interest as against the trustee in bankruptcy, it must be because of some conduct of hers which precludes her from enforcing her rights, that is to say, the ordinary principles of acquiescence and !aches which apply to all beneficiaries seeking to enforce their rights apply to this case.
I am in no way criticising the trustee in bankruptcy’s conduct; he tried to find out if she made any claim relating to the £12,000 before he contracted to sell the property. But I do not think that on ordin ary equitable principles Mrs Johnson should be prevented from asserting her rights at this late stage. She is very old and in bad health. No one had ever advised her that she might have rights to live in the property. As soon as she appreciated that she was to be evicted she at once took legal advice and asserted her claim. This, in my judgment, is far removed from conduct which precludes enforcement by a beneficiary of his rights due to his acquiscence, the first requirement of acquiescence being that the beneficiary knows his or her rights and ..
Accordingly, I hold that Mrs Johnson is entitled as against the trustee in bankruptcy to remain in the property until she is repaid the sums she advanced. I reach this conclusion with some hesitation since I find the present state of the law very confused and difficult to fit in with established equitable prin ciples. I express the hope that in the near future the whole question can receive full consideration in the Court of Appeal, so that, in order to do justice to the many thousands of people who never come into court at all but who wish to know with certainty what their proprietary rights are, the extent to which these irrevocable licences bind third parties may be defined with certainty. Doing justice to the litigant who actually appears in the court by the invention of new principles of law ought not to involve injus tice to the other persons who are not litigants before the court but whose rights are fundamentally affected by the new principles …
Banner Homes Group pie v Luff Developments Ltd (No. 1)
(2000] Ch 372
CHADWICK LJ . the present appeal provides the first opportunity, so far as I am aware, for this court to consider the basis and scope of what may be called the Pallant v Morgan equity in a case in which reliance has to be placed upon it by the appellant. In my view there is no doubt that such an equity does exist and is firmly based. It is an example of the wider equity to which Millett J referred in Lonrho pie v Fayed /No. 2) (1992] 1 WLR 1, 9-10:
Equity will intervene by way of constructive trust, not only to compel a defendant to restore the plaintiff’s property to him, but also to require a defendant to disgorge property which should have acquired, if at all, for the plaintiff. In the latter category of case, the defendant’s wrong lies not in the acquisition of the property, which may or not have been lawful, but in his subsequent denial of the plaintiff’s beneficial interest. For such to be the case, however, the defendant must either have acquired property which but for his wrongdoing would have belonged to the plain tiff, or he must have acquired property in circumstances in which he cannot conscientiously retain it against the plaintiff..
It is important, however, to identify the features which will give rise to a Pallant v Morgan equity and to define its scope; while keeping in mind that it is undesirable to attempt anything in the nature of an exhaustive classification. As MillettJ pointed out in Lonrho pie v Fayed /No. 2) [1992] 1 WLR 1, 9b, in a reference to the work of distinguished Australian commentators, equity must retain its ‘inherent flexi bility and capacity to adjust to new situations by reference to mainsprings of the equitable jurisdiction’. Equity must never be deterred by the absence of a precise analogy, provided that the principle invoked is sound. Mindful of this caution, it is, nevertheless, possible to advance the following propositions.
(1) A Pallant v Morgan equity may arise where the arrangement or understanding on which it is based precedes the acquisition of the relevant property by one party to that arrangement. It is the pre acquisition arrangement which colours the subsequent acquisition by the defendant and leads to his being treated as a trustee if he seeks to act inconsistently with it. Where the arrangement or under standing is reached in relation to property already owned by one of the parties, he may (if the arrange ment is of sufficient certainty to be enforced specifically) thereby constitute himself trustee on the basis that ‘equity looks on that as done which ought to be done;’ or an equity may arise under the principles developed in the proprietary estoppel cases. As I have sought to point out, the concepts of construct ive trust and proprietary estoppel have much in common in this area. Holiday Inns Inc v Broadhead, 232 EG 951 may, perhaps, best be regarded as a proprietary estoppel case; although it might be said that the arrangement or understanding, made at the time when only the five acre site was owned by the defendant, did, in fact, precede the defendant’s acquisition of the option over the 15-acre site.
(2) It is unnecessary that the arrangement or understanding should be contractually enforceable. Indeed, if there is an agreement which is enforceable as a contract, there is unlikely to be any need to invoke the Pallant v Morgan equity; equity can act through the remedy of specific performance and will recognise the existence of a corresponding trust. On its facts Chattockv Muller, 8 ChD 177 is, perhaps, best regarded as a specific performance case. In particular, it is no bar to a Pallant v Morgan equity that the pre-acquisition arrangement is too uncertain to be enforced as a contract-see Pallant v Morgan (1953] Ch 43 itself, and Time Products Ltd v Combined English Stores Group Ltd, 2 December 1974- nor that it is plainly not intended to have contractual effect-see Island Holdings Ltd v Birchington Engineering Co. Ltd, 7 July 1981.
(3) It is necessary that the pre-acquisition arrangement or understanding should contemplate that one party (‘the acquiring party’) will take steps to acquire the relevant property; and that, if he does so, the other party (‘the non-acquiring party’) will obtain some interest in that property. Further, it is neces sary that (whatever private reservations the acquiring party may have) he has not informed the non acquiring party before the acquisition (or, perhaps more accurately, before it is too late for the parties to be restored to a position of no advantage/no deteriment) that he no longer intends to honour the arrangement or understanding.
(4) It is necessary that, in reliance on the arrangement or understanding, the non-acquiring party should do (or omit to do) something which confers an advantage on the acquiring party in relation to the acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It is the existence of the advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which leads to the conclu sion that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the arrangement or understanding which enabled him to acquire it. Pallantv Morgan [1953] Ch 43 itself provides an illustration of this principle. There was noth ing inequitable in allowing the defendant to retain for himself the lot (lot 15) in respect to which the plaintiff’s agent had no instructions to bid.In many cases the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market. That will usually be both to the advan tage of the acquiring party-in that he can bid without competition from the non-acquiring party-and to the detriment of the non-acquiring party-in that he loses the opportunity to acquire the property for himself. But there may be advantage to the one without corresponding detriment to the other. Again, Pallant v Morgan provides an illustration. The plaintiff’s agreement (through his agent) to keep out of the bidding gave an advantage to the defendant-in that he was able to obtain the property for a lower price than would otherwise have been possible; but the failure of the plaintiff’s agent to bid did not, in fact, cause detriment to the plaintiff-because, on the facts, the agent’s instructions would not have permitted him to outbid the defendant. Nevertheless, the equity was invoked.
(5) That leads, I think, to the further conclusions: (i) that although, in many cases, the advantage/ detriment will be found in the agreement of the non-acquiring party to keep out of the market, that is not a necessary feature;and (ii) that although there will usually be advantage to the one and correlative disadvantage to the other, the existence of both advantage and detriment is not essential-either will do. What is essential is that the circumstances make it inequitable for the acquiring party to retain the property for himself in a manner inconsistent with the arrangement or understanding on which the non-acquiring party has acted. Those circumstances may arise where the non-acquiring party was never ‘in the market’ for the whole of the property to be acquired; but (on the faith of an arrange ment or understanding that he shall have a part of that property) provides support in relation to the acquisition of the whole which is of advantage to the acquiring party. They may arise where the assist ance provided to the acquiring party (in pursuance of the arrangement or understanding) involves no detriment to the non-acquiring party; or where the non-acquiring party acts to his detriment (in pur suance of the arrangement or understanding) without the acquiring party obtaining any advantage therefrom …
The Pallant v Morgan equity does not seek to give effect to the parties’ bargain, still less to make for
them some bargain which they have not themselves made, as the cases to which I have referred make clear. The equity is invoked where the defendant has acquired property in circumstances where it would be inequitable to allow him to treat it as hisown; and where, because it would be inequitable to allow him to treat the property as his own, it is necessary to impose on him the obligations of a trustee in relation to it. It is invoked because there is no bargain which is capable of being enforced; if there were an enforceable bargain there would have been no need for equity to intervene in the way that it has done in the cases to which I have referred …
As I have sought to show, the Pallant v Morgon equity is invoked where it would be inequitable to
allow the defendant to treat the property acquired infurtheranceof the arrangement or understanding as his own. It may be just as inequitable to allow the defendant to treat the property as his own when it has been acquired by the use of some advantage which he has obtained under the arrangement or understanding as it is to allow him to treat the property as his own when the plaintiff has suffered some detriment under the arrangement or understanding.That, as it seems to me, is this case.
For those reasons I would allow this appeal. In the circumstances that it was always in contemplation that a single enterprise company-which, in the event, was Stowhelm-should acquire the site as its own asset, so that the parties should participate as the holders of shares in that company rather than as the joint owners of the site itself, my present view is that the appropriate order is that sought in the notice of appeal, namely, that the shares in Stowhelm are held, as to one-half, upon trust for Banner. If necessary, I would order a sale of all the shares in Stowhelm held by Luff and a division of the proceeds. But I am conscious that there may have been dealings in the shares in Stowhelm since the acquisition of the site; and, if the parties cannot agree on the appropriate form of order in the light of the decision of this court, I would think it right to hear further submissions on that question before reaching a concluded view.
Peter Button, William Tebbit v David Phelps et al.
(2006) EWHC 53
ROBERT ENGLEHART QC (sitting as a Deputy Judge of the Chancery Division):
For the circumstances in which equity will impose fiduciary duties upon a party Miss Hilliard empha sised a well known passage from the judgment of Millett U, as he then was,in Bristol and West Building Society v Mathew [1998] Ch 1 at 18:
A fiduciary is someone who has undertaken to act for oron behalf of another in a particular mat ter in circumstances which give rise to a relationship of trust and confidence.The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his principal.
It seems to me that there is a powerful argument for saying that this was a joint venture under which all parties were agreeing to work together for a common aim, the acquisition of the …assets, and which would give rise to fiduciary duties upon the participants. Plainly, the parties cannot have envisaged that any one of them would be free to undermine the whole purpose of the venture by promoting a rival bid, although of course it has to be said that such conduct was in any case precluded as a matter of contract. Nevertheless, on reflection and analysis of the heads of terms I have concluded that this cannot be categorised as a case in which Mr Phelps was undertaking to act, in the words of Millett U, ‘for or on behalf of’ the other parties. Under the heads of terms, aside from making or procuring financial contri
butions, the members of the management team, including Mr Phelps,have no clear roles at all.
There was nothing which members of the management team were to do for or on behalf of the others. In the result, I do not consider that this was a relationship upon which a fiduciary duty in equity should be superimposed on Mr Phelps’s contractual obligations. His liability for having promoted the Stripefresh bid while contractually bound to the Ryeheath bid is a liability for damages for breach of contract, not a liability for an account of profits for breach of fiduciary duty.
Cox v Jones
[2004] EWHC 1486 (Ch).
MANN J …looking at all the evidence, I find that the basis of the acquisition of the Flat, under which both Mr Jones and Miss Cox operated, was that he was purchasing for her, as her nominee (though that word may not have been used) and not in his own right. Both parties acted on that footing-Miss Cox when she “diverted” the purchase into what she thought was joint names and then acquiesced in a pur chase inMr Jones’s sole name, when she didnot pursue her idea of getting assistance from her parents; when she paid money towards the purchase price; when she accepted a loan from Mr Jones; when she managed the Flat thereafter; and when she took the utility accounts into her sole name.
. . . Miss Cox’s belief that she would have an interest in the property was entirely reasonable indeed, on my findings, it was the whole purpose of the acquisition.In addition she suffered some detri ment in assuming a liability for the utility bills (which, in the circumstances of this case was slight), and in managing the lettings (which was more significant). and in providing part of the purchase price from her own resources (which is also significant). However, I do not think that the answer to this case lies in the line of cases principally relied on by Mr Roberts, which are the familiar cases which rely principally on some form of contribution by a cohabitee towards the acquisition or improvement of property. The answer lies in the slightly different, though probably conceptually related, line of cases involving one person standing aside from purchasing a property on the understanding that another purchaser would take the property and provide an interest to the former. The cases are identified and discussed in Banner Homes Group pie v Luff Developments Ltd (2000] Ch 372, [2000] 2 All ER 117. One of the cases cited was Holiday Inns v Broadhead 232 EG 951. During an unreported interlocutory hearing Megarry J is recorded as saying the following (as appears from the judgment in Banner Homes at p 391, where it is cited with apparent approval):
“It seems to me that if A and B agree that A shall acquire some specific property for the joint bene fit of A and Bon terms yet to be agreed, and B,in reliance on A’s agreement, is thereby induced to refrain from attempting to acquire the property, equity ought not to permit A, when he acquires the property, to insist on retaining the whole benefit for himself to the exclusion of B.”
These remarks were made in the context of considering Pallant v Morgan, a case in which two parties agreed that one would not bid at auction for one of two lots on the footing that the other would bid for both and would sell one plot to the non-bidding party. The effect was that the bidding party (who was successful) held the combined property on trust for both of them. That dictum would certainly cover the facts of the present case as I have found them to be, save for the reference to “terms to be agreed”, because in the present case the terms were agreed (so far as they concerned the quantum of beneficial interest). thus making equity’s job slightly easier (in terms of quantification of interest).
In Banner Homes Chadwick LJ went on to consider the “Pallant v Morgan equity”. The case itself, and Chadwick LJ’s analysis of it at p 397, makes it clear that it operates via the mechanism of the imposition of a constructive trust. He cites from Lonrho pie v Fayed (No. 2) [1991] 4 All ER 961, [1992] 1 WLR 1 at 9-10:
“Equity will intervene by way of constructive trust, not only to compel a defendant to restore the plaintiffs property to him, but also to require a defendant to disgorge property which should have been acquired, if at all, for the defendant.”
Having then referred to the inherent flexibility necessary in the implementation of equitable remedies, he then advanced (inter alia) the following propositions which can be applied to the present case:
“(1) A Pallant v Morgan equity may arise where the arrangement of understanding on which it is based precedes the acquisition of the relevant property by one party to the arrangement. It is the pre-acquisition arrangement which colours the subsequent acquisition by the defendant and leads to his being treated as a trustee if he seeks to act inconsistently with it.”
In the present case, on my findings, there was a clear arrangement that Mr Jones would hold as trustee. and not beneficially at all. That was the underpinning of the whole arrangement, and it was made before the acquisition. It certainly colours the subsequent acquisition, because without it there would, I find, have been no purchase at all.
“(3) It is necessary that the pre-acquisition arrangement or understanding should contemplate that one party (“the acquiring party”) will take steps to acquire the relevant property; and that, if he does so, the other party (“the non-acquiring party”) will obtain some interest in that prop erty. Further, it is necessary that (whatever private reservations the acquiring party may have) he has not informed the non-acquiring party before the acquisition (or, perhaps more accu rately, before it is too late for the parties to be restored to a position of no advantage/no detri ment) that he no longer intends to honour the arrangement or understanding.”
This requirement is fulfilled in the present case. Mr Jones was to acquire it, and he did not tell Miss Cox that he intended to own it beneficially until much later. Indeed, I find that on the facts it did not occur to him to do so until some time after the rift between them.
“(4) it is necessary that, in reliance on the arrangement or understanding, the non-acquiring party should do (or omit to do) something which confers an advantage on the acquiring party in relation to the acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It is the existence of the advantage to the one, or the detriment to the other, gained or suffered as a consequence of the arrangement of under standing, which leads to the conclusion that it would be inequitable or conscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the arrange ment or understanding which enabled him to acquire it.”
These criteria are fulfilled. Mr Jones had the benefit of being able to acquire the property swiftly and in circumstances in which the market had not been tested in relation to it. He benefited from Miss Cox’s good relationship with the personal representative of the deceased owner. He also had the “benefit” of the moneys provided by Miss Cox, and of her property management activities thereafter. For her part Miss Cox suffered a detriment in that she did not pursue her own attempts to acquire the property her self in her sole name. It was not conclusively proved that those attempts would have been successful. The assistance to be provided by her parents was not finalised-indeed, it was not discussed much. However, it was far from being a merely fanciful possibility, and I find that her parents would have assisted if they could. Her stopping these activities was a clear detriment. It should be noted that in Banner Homes the claimant was unable to say clearly when it was that it would have sought to acquire the site itself were it not for the arrangement which left it to the defendants to acquire it (see page 382). This was still a detriment-see page 400.
“(5)…(ii) that, although there will usually be advantage to the one and correlative disadvantage to the other, the existence of both advantage and disadvantage is not essential-either will do. What is essential is that the circumstances make it inequitable for the acquiring party to retain the property for himself in a manner inconsistent with the arrangement or understanding on which the non-acquiring party has acted.”
In the present case there is both advantage and disadvantage, and the clearest possible case for say ing that it would be inequitable for Mr Jones to hold the Flat for himself absolutely. There was an under standing that it would be bought for her; on that footing she stopped her attempt to find methods of funding the purchase; she switched the purchase to joint names, then acquiesced in a purchase in his sole name; she then managed the Flat thereafter. All that makes it inequitable for Mr Jones to seek to claim it for himself, and he therefore holds it on constructive trust for her absolutely.
Bannister v Bannister
[1948] 2 All ER 133, Court of Appeal
SCOTT LJ: The conclusion …reached by the learned county court judge was attacked in this court on substantially the following three grounds:-First, it was said that the oral undertaking found by the learned county court judge to have formed part of the agreement-namely, that the plaintiff would let the defendant stay in No. 30 as long as she liked rent free-did not, as a matter of construction of the language used, amount to a promise that the defendant should retain a life interest in No. 30, but amountedmerely to a promise that the plaintiff would allow the defendant to remain in No. 30 rent free as his tenant at will.Secondly, it was said that, even if the terms of the oral undertaking were such as to amount to a promise that the defendant should retain a life interest in No.30, a tenancy at will free of rent was, nevertheless, the greatest interest she could claim in view of the absence of writing and the provisions of ss.53 and 54 of the Law of Property Act, 1925.Thirdly,it was said that a constructive trust in favour of the defendant (which the absence of writing admittedly would not defeat) could only be raised by findings to the effect that there was actual fraud on the part of the plaintiff and that the prop erty was sold and conveyed to him on the faith of an express oral declaration of trust which it would be fraudulent in him to deny. It was, accordingly, submitted that the learned county court judge’s conclu sion that there was a constructive trust could not stand since it was negatived by his finding that there was no fraud in the case and by the absence of any evidence of anything amounting to an express oral declaration of trust.
As will be seen from what is said below, the second objection (based on want of writing) in effect stands or falls with the third, and it will, therefore, be convenient to deal with that next. It is, we think, clearly a mistake to suppose that the equitable principle on which a constructive trust is raised against a person who insists on the absolute character of a conveyance to himself for the purpose of defeating a beneficial interest, which, according to the true bargain, was to belong to another, is confined to cases in which the conveyance itself was fraudulently obtained. The fraud which brings the principle into play arises as soon as the absolutecharacter of the conveyance isset up for the purpose of defeat ing the beneficial interest, and that is the fraud to cover which the Statute of Frauds or the correspon ding provisions of the Law of Property Act, 1925, cannot be called in aid in cases in which no written evidence of the real bargain is available. Nor is it, in our opinion, necessary that the bargain on which the absolute conveyance is made should include any express stipulation that the grantee is in so many words to hold as trustee.It is enough that the bargain should have included a stipulation under which some sufficiently defined beneficial interest in the property was to be taken by another. The above propositions are, we think, clearly borne out by … Rochefoucauldv Boustead. We see no distinctionin principle between a case in which property isconveyed to a purchaser on terms that the entire benefi cial interest in some part of it is to be retained by the vendor … and a case, like the present, in which property is conveyed to a purchaser on terms that a limited beneficial interest in some part of it is to be retained by the vendor.We are,accordingly, of opinion that the third ground of objection to the learned county court judge’s conclusion also fails. His finding that there was no fraud in the case cannot be taken as meaning that it was not fraudulent in the plaintiff to insist on the absolute character of the con veyance for the purpose of defeating the beneficial interest which he had agreed the defendant should retain. The conclusion that the plaintiff was fraudulent, in this sense, necessarily follows from the facts found, and, as indicated above, the fact that he may have been innocent of any fraudulent intent in tak ing the conveyance in absolute form is for this purpose immaterial. The failure of the third ground of objection necessarily also destroys the second objection based on want of writing and the provisions of ss. 53 and 54 of the Law of Property Act 1925.
In the result, we hold that the appeal fails and the order of the learned county court judge should be affirmed, but in the interests of accuracy we think his order should be varied by substituting a declar ation to the effect that the plaintiff holds No. 30 in trust during the life of the defendant to permit the defendant to occupy the same for so long as she may desire to do so and subject thereto in trust for the plaintiff. A trust in this form has the effect of making the beneficiary a tenant for life within the meaning of the Settled Land Act, 1925, and, consequently, there is a very little practical difference between such a trust and a trust for life simp/iciter. The appeal will be dismissed with that variation in the form of the order. The plaintiff must pay the costs of the appeal.
Binions v Evans
[1972] Ch 359, Court of Appeal
LORD DENNING MR: Suppose, however, that the defendant did not have an equitable interest at the outset, nevertheless it is quite plain that she obtained one afterwards when the Tredegar Estate sold the cottage. They stipulated with the plaintiffs that they were to take the house ‘subject to’ the defend ant’s rights under the agreement. They supplied the plaintiffs with a copy of the contract: and the plain tiffs paid less because of her right to stay there. In these circumstances, this court will impose on the plaintiffs a constructive trust for her benefit: for the simple reason that it would be utterly inequitable for the plaintiffs to turn the defendant out contrary to the stipulation subject to which they took the premises. That seems to me clear from the important decision of Bannister v Bannister [1948] 2 All ER 133, which was applied by the judge, and which I gladly follow.
This imposing of a constructive trust is entirely in accord with the precepts of equity. As Cardozo J once put it: ‘A constructive trust is the formula through which the conscience of equity finds expres sion’, see Beattyv Guggenheim Exploration Co. (1919) 225 NY 380,386: or, as Lord Diplock put it quite recently in Gissing v Gissing [1971] AC 886, 905, a constructive trust is created ‘whenever the trustee has so conducted himself that it would be inequitable to allow him to deny the cestui que trust a bene ficial interest in the land acquired’.
I know that there are some who have doubted whether a contractual licensee has any protection against a purchaser, even one who takes with full notice. We were referred in this connection to Professor Wade’s article ‘Licences and third parties’ in (1952) 68 LQR 337, and to the judgment of Goff Jin Re Solomon, a Bankrupt, ex parte Trustee of the Bankrupt v Solomon [1967] Ch 573. None of these doubts can prevail, however, when the situation gives rise to a constructive trust. Whenever the owner sells the land to a purchaser, and at the same time stipulates that he shall take it ‘subject to’ a contrac tual licence, I think it plain that a court of equity will impose on the purchaser a constructive trust in favour of the beneficiary….
In many of these cases the purchaser takes expressly ‘subject to’ the rights of the licensee. Obviously
the purchaser then holds the land on an imputed trust for the licensee. But, even if he does not take expressly ‘subject to’ the rights of the licensee, he may do so impliedly. At any rate when the licensee is in actual occupation of the land, so that the purchaser must know that he is there, and of the rights which he has: see Hodgson v Marks [1971] Ch 892. Whenever the purchaser takes the land impliedly subject to the rights of the contractual licensee,a court of equity will impose a constructive trust for the beneficiary. So I still adhere to the proposition I stated in Errington v Errington and Woods [1952] 1 KB 290, 299; and elaborated in National Provincial Bank v Hastings Car Mart [1964] Ch 665, 686-9, namely, that, when the licensee is in actual occupation, neither the licensor nor anyone who claims through him can disregard the contract except a purchaser for value without notice.
MEGAW LJ: In my view, Judge Bulger was right in holding that the effect was the same as the effect of the agreement considered by this court in Bannisterv Bannister [1948] 2 All ER 133.
… the plaintiff holds No. 30 in trust during the life of the defendant to permit the defendant to occupy the same for so long as she may desire to do so and subject thereto in trust for the plain tiff. A trust in this form has the effect of making the beneficiary a tenant for life within the mean ing of the Settled Land Act 1925, and, consequently, there is very little practical difference between such a trust and a trust for life simpliciter.
As was said by the court, at p. 136:
Similar words in deeds and wills have frequently been held to create a life interest determinable (apart from special considerations introduced by the Settled Land Act 1925) on the beneficiary ceasing to occupy the premises.
I confess that I have had difficulty in seeing precisely how the Settled Land Act of 1925 was applicable. But the court inBannisterv Bannister [1948] 2 All ER 133 so held, and I am certainly content, and we are probably bound, to follow that authority. I see no relevant distinction. The fact that the transaction the creation of the trust-was there effected orally, whereas here there is an agreement in writing, surely cannot be a ground for saying that the principle is not here applicable. The fact that there is here express provision for determination by the beneficiary cannot provide a relevant distinction. The defendant in Bannister v Bannister [1948] 2 All ER 133 was free to give up occupation whenever she wished. The fact and nature of the obligations imposed upon the defendant by the agreement in the present case must tend in favour of, rather than adversely to, the creation of an interest in land, as com pared with Bannister’s case.
I realise that the application of the Settled Land Act 1925 may produce some odd consequences; but no odder than those which were inherent in the decision in Bannisterv Bannister [1948] 2 All ER 133. I do not find anything in the possible, theoretical, consequences to lead me to the conclusion that Bannister’s case should not be followed.
The plaintiffs took with express notice of the agreement which constitutes, or gives rise to, the trust. They cannot turn the defendant out of the house against her will; for that would be a breach of the trust which binds them.
If for some reason Bannister v Bannister [1948] 2 All ER 133 did not apply, so that there would then be no trust and the defendant would possibly have no ‘interest in land’ within the technical meaning of those words, there would none the less be a continuing contractual obligation as between the trustees and the defendant. It would then be what is sometimes called an irrevocable licence. It would be irrev ocable-that is not determinable by the licensors, the trustees, without the consent of the licensee, the defendant-because it is founded on a contract. The agreement was based on consideration-the provisions made by the defendant as her side of the agreement. That irrevocable licence, that con tractual right to continue in occupation, remained binding upon the trustees. They could not, and did not, free themselves from it unilaterally by selling the land to the plaintiffs. As the plaintiffs took with express notice of, and indeed expressly subject to, the agreement between the trustees and the defendant, the plaintiffs would, on ordinary principles, be guilty of the tort of interference with existing contractual rights if they were to evict the defendant. For that would be knowingly to interfere with her continuing contractual rights with a third party, the trustees. In the ordinary way, the court would inter vene to prevent the plaintiffs from interfering with those rights. I should have thought that ordinary principles of equity would have operated in the same way. However, it may be that there are special technical considerations in the law relating to land which would require to be reviewed before one could confidently assert that the ordinary principles as to the protection of known contractual rights would apply. There are, for example, passages in the speech of Lord Upjohn in National Provincial Bank v Hastings Car Mart [1965] AC 1175, 1239, which indicate doubts and difficulties in this sphere. Since, in my opinion, this case is governed by BannistervBannister[1948] 2 All ER 1331do not think itis neces