REGULATION OF TRUSTS OVER LAND
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8 Terms
Davis v Jackson
Facts
A wife bought a property herself and never intended for her estranged husband to live with her. The husband’s trustee in bankruptcy claimed he was entitled to payment of occupation rent by the wife, suggesting the husband and wife were joint tenants in equity. The trustee claimed, although he had not been excluded, it would be unreasonable for him to occupy, allowing him to claim rent.
On the unusual facts of the case → this cases raises issues in relation to the equitable accounting which should occur between the parties on the sale of a house which was declared in a LR transfer form to be on trust for W and H in JT the facts are unusual as at all material times the parties had been estranged and lived apart… the property was only transferred into joining names when the house was remortgages, but at no time did the husband pay any of the installments of either mortgage or contribute to any of the outgoings.
Outcome
Occupation rent was not granted to the trustee in bankruptcy. The court was not bound to apply the statutory regime contained in TOLATA when determining whether in order to a payment in respect of occupation of property by a co owner. → The default position where a trustee in bankruptcy is not in occupation and the co-owner is in occupation is that no occupation rent is payable. Here, considering the history prior to bankruptcy, it would not be unfair to deny occupation rent because A never intended or agreed to her husband living there.
On the default position: In most bankruptcies, the bankrupt’s unpaid creditors will be innocent parties with a legitimate expectation in repayment –where it would be unfair to allow an occupying co-owner to resist an order for sale and not pay rent, the default position can be changed.
These arguments are not conclusive, as they assume a trustee is always entitled to an immediate order for sale and that creditors should be compensated for delay.
When the property market is rising, the trustee may benefit from a delay.
What else can be recovered:
Improvements: “The general position is that a credit will be allowed to a party who has made payments in respect of repairs or improvements that have increased the capital value of the property.”
Mortgage installments: These can also be claimed.
The general principles of equitable accounting continue to apply as regards moneys paid and expenditure incurred jointly owned property
Money paid = The general position is that a credit will be allowed to a party who has made payments in respect of repairs or improvements that have increased the capital value of the property.”
Occupation rent = TOLATA
Ali v Khatib
Facts
C was the personal representative of his dead father. C and three other children benefitted under their dead mother’s will, which included a property. One son, now dead, had lived with the mother in the property and continued to occupy the property after death. C brought a claim against the deceased son’s wife for occupation rent.
Outcome
Occupation rent would not be awarded. The default position where one co-owner is not in occupation and another co-owner is in occupation is that no occupation rent is payable. Here, considering the history prior to bankruptcy, it would not be unfair to deny occupation rent because C was never intended to live in the property.
On Exclusion → judge did not err
On Occupation →
On the argument that A had not been in rent and so therefore: this argument is not open - there is no rule, eve in the case of a trustee in bankruptcy that an increase in the capital value of a property cannot be taken into consideration or that a trustee in bankruptcy or other co-owner must be awarded occupation rent in addition to the benefit they may derive from an increase in the value of the property
The default position at common law where one co-owner was in occupation and the other was not was that rent was not payable. The position was the same in equity unless there was an ouster or a letting to a stranger for rent (affirmed Jones v Davies)
There is no doubt there fore that the court is required to do braod justice between co-owners and to determine what would be fair. The position is no different where one co-owner has become bankrupt. His trustee in bankruptcy can be in no better position
Mortgage Corporation v Shaire
Facts
A and B were joint legal owners of their home. A did not know B forged her signature to secure mortgages over the house, so these took effect only against B’s share (25%). The mortgagee sought the sale of the house.
Outcome
The mortgage (the bank’s interest) should be converted into a loan, on which A would pay interest pending any future sale (failing this, sale would be ordered).
→ When an application is made under section 14(1), the court must consider both section 15(1) and section 15(3).
The chargee's interest is only one of the factors to be considered, and it should not be given more importance than the interests of the family living in the property.
The weight assigned to each factor in a particular case is at the court's discretion.
The court will not make an order until the parties have had the chance to assess the consequences of the court's conclusions on the law.
The effect of the Act
Yes it has changed the law → as a result of s15, the court has greater flexibility than heretofore as to how it exercises its jurisdiction on an application for an order for sale
There are certain factors which must be taken into account and, subject to the next point, there may be other factors in a particular case which the court can, and indeed should take into account
→ once the relevant factors have been identified, it is a matter for the court as to what weight to give each factor in a particular case
Position pre-TOLATA: There was no distinction between creditor and trustee in bankruptcy cases – the default position was that, except for in exceptional circumstances, the person wanting the sale would prevail (and that the interests of children and families in occupation would be unlikely to prevail).
TOLATA has changed the law: It has tipped the balance “somewhat more in favour of families and against banks and other chargees” due to “judicial dissatisfaction” with the law before. The court has “greater flexibility than heretobefore, as to how it exercises its jurisdiction on an application for an order for sale” – “the law has changed in a significant respect so that the court’s discretion is significantly less fettered than it was”.
Indications the law was meant to be changed: Parliament has specifically set out s15(2) factors, Parliament has required a different approach to be taken in creditor cases and the Law Commission’s proposals which were substantially adopted were to “consolidate and rationalise” the current law.
First National Bank v Achampong (disputes involving a secured creditor)
Facts
A and B co-owned their home and had granted a mortgage, but this was obtained by undue influence of A. Therefore, the mortgage only took effect against B’s 50% beneficial share. B left the home; A remained living there with two adult children (one mentally disabled) and infant grandchildren. The bank applied under s14 for sale of the property when B defaulted.
Outcome
Sale was ordered under s14. “Prominent” under the considerations in favour of this is the fact that “unless an order for sale is made, the bank will be kept waiting indefinitely for any payment out of what is, for all practical purposes, its own share of the property”. The trial judge was wrong in failing to consider the interests of the bank.
‘I regard it as plain that an order for sale should be made. Prominent among the considerations which lead to that conclusion is that, unless an order for sale is made, the bank will be kept waiting indefinitely for any payment out of what is, for all practical purposes, its own share of the property. While it is relevant to consider the interests of the infant grandchildren in occupation of the property, it is difficult to attach much if any weight to their position in the absence of any evidence as to how their welfare may be adversely affected if an order for sale is now made. It is for the person who resists an order for sale in reliance on section 15(1)(c) to adduce the relevant evidence.’
Relevance of other factors:
s15(1)(a) and s15(1)(b): The intention of A and B was to provide a matrimonial home for themselves and their children, but this “consideration is now spent The fact that the parties have divorced cannot hide their absence of contact and disguise the reality that the marriage is at an end. Therefore, the possibility the property may again be a matrimonial home is ignored.
Their children have long reached adulthood.
One adult child has a mental disorder but no evidence was adduced as to how an order for sale would affect her.
s15(1)(c): While it is relevant under s15(1)(c) to consider the welfare of the infant grandchildren, A failed to adduce evidence as to how their welfare would be adversely affected by an order for sale (the burden is on A).
White v White (Disputes between beneficiaries)
Facts
A and B were joint tenants of the legal title to a family home. A moved out; B remained in the home with children. A sought an order for sale of the home under s14 TOLATA.
Outcome
The sale was ordered. s15 does not attribute weight to each factor and the list is not exhaustive, so the judge could consider the mother’s circumstances (under s15(3) – the need to realise her only capital) and see them as weightier than the children’s welfare (s15(1)(c)).
On s15(1)(a): The intention must be “the intention of all the persons who created the trust and be an intention which they had in common” at the time of the creation of the trust.
Applied: The intention to provide a home for the children was only formed after the land was acquired.
On s15(1)(b): Purposes could arise informally, but they must be purposes subject to which the property is held. The purpose at the outset (which did not include the provision of a home) could only change if both parties agreed. Purposes can also change when the purpose has been exhausted or can no longer be performed.
Applied: There was no evidence A agreed to the extra purpose.
Bagun v Hafiz
Facts
A house was owned by three tenants in common in equity in equal shares: C (the mother) and her sons. C sought an order for H1 to sell his interest to H2 or alternatively an order for sale in the open market. The trial judge found she had no jurisdiction to make the order for H1 to sell to H2, but made an order allowing H2 to purchase the property at a court-determined price, and, if he failed to do so, for the property to be sold on the open market under s14 TOLATA
Outcome
The court had power to make the order for H2 to purchase the property under s14(2).
What s14(2) does not cover: Orders other than those relating to the exercise by the trustees of any of their functions – a court cannot compel one beneficiary to transfer to another, as directly disposing with beneficial interests is not a function of trustees.
This is the case even though indirect disposal of beneficial interests may be achieved through the trustee’s power to sell the land.
The current case does come within s14(2): Just because the order has the same economic effect as an order compelling one beneficiary to sell, does not mean it falls outside s14(2) – a sale of trust property is a power of a trustee.
Purpose of s6(6): Not to define the extent of the trustees’ powers, but to prohibit them from acting in certain ways. This is in contrast to s14(2), where the court is given the “widest discretion” to make orders, having regard to particular considerations.
If it is true that the court should be constrained by an overriding requirement that the trustee should obtain the best price (as argued to say it is outside s14(2)), then this would be a consideration in s15(1) or s15(3).
Purpose of s14 and s15: To “confer on the court a substantially wider discretion” than enjoyed by the trustees acting without the consent of beneficiaries – this “departs from the general rule of equity which requires the trustees single-mindedly to advance the interests of beneficiaries as a class, without preferring some over others”.
This is because the court can prefer the interests of some over others.
This is because the trustees’ powers will normally be determined by the consent of the beneficiaries, but these provisions are to be used when consent breaks down.
This is why s15(3) requires the court to have regard to the wishes of a majority in a dispute but is not bound by it.
When a court will interfere with a trial judge’s discretion: Only when the order falls outside the discretion allowed to the court, where it is shown she took into account irrelevant matters, failed to consider relevant matters or come to an unreasonable conclusion. Such is not the case here.
Re Citro [1991]
Facts
Two brothers were adjudged bankrupt and their beneficial interest in their respective homes was vested in their trustee in bankruptcy, who ordered sale. The trial judge ordered postponement of sale until the youngest child of each brother turned 16.
Decided under s30 LPA 1925, but noted the Insolvency Act 1986 would soon come into force, which would apply the same test.
Therefore, the trust was seen as a trust for sale
Outcome
The postponement was shortened. The personal circumstances of the wife, while being those that “engender [...] a natural sympathy in all who hear of them, cannot be described as exceptional”. The trial judge did not ask whether postponement would cause hardship to the creditors.
Whose interests shall be prioritised?: “The voice of the creditors will usually prevail over the voice of the other spouse” unless “exceptional circumstances” can be shown.
Exceptional circumstances: “Very special circumstances” or a “substantial case of hardship”.
This case is distinguished from Re Holliday: Iit is not uncommon for a mother with children to be evicted where the proceeds of her beneficial interest will not produce enough to buy a comparable home in her area).
The wife in Re Holliday was left with much less money on sale and the children were much younger than here.
End of collateral purpose: While the trust was a trust for sale, there can be a collateral purpose for the home to be enjoyed as a matrimonial home – during the existence of this collateral purpose, neither party can demand a sale of the property as joint owners.
Although the vesting of one of their interests in a trustee does not destroy the secondary purpose, the basis for their joint occupation has gone – the secondary purpose can only exist while the spousers are joint occupiers and joint owners.
Obiter
On Re Holliday - the only case (at the time) where exceptional circumstances had been found: This involved “exceptional facts” and can be distinguished from the current case. The exceptional factors found by the judge included i) impossibility of the wife securing another home, ii) upset of the children moving, iii) the unlikelihood of the creditors being caused hardship (this is the proper reason) and iv) none of the creditors thought fit to present a bankruptcy position.
Doubted all the grounds bar iii).
On the exceptional circumstances test (Bingham LJ): It might be that this test is more stringent than needed, but Parliament has approved it in the Insolvency Act 1986.
Comment
Neuberger J in Shaire - the case might be decided differently under TOLATA: “It does not seem to me unlikely that the legislature intended to relax the fetters on the way in which the court exercised its discretion in cases such as Citro and Byrne, and so as to tip the balance somewhat more in favour of families and against banks”.
Barca v Mears
Facts
C was declared bankrupt and D appointed as his trustee in bankruptcy, who sought a sale under s335A Insolvency Act 1986. The judge ordered the sale to proceed. C sought postponement until his special needs son completed his education, as sale would cause disruption.
Outcome
An order for sale was granted; the sale was not to be postponed.
Whose interests are to be preferred?: The creditors’ interests are to be preferred unless there are exceptional circumstances (distinct from the “usual consequences” of bankruptcy) – this is evident from the wording of s335A Insolvency Act (which gives statutory effect to Re Citro).
What counts as exceptional circumstances?: Cases identifying these tend to be confined to where the bankrupt or his or her spouse (s336) was “terminally or very seriously ill” – “inherently unusual” circumstances.
Applied - no exceptional circumstances: i) The creditors would be greatly prejudiced by having to wait three years for the son to finish school, ii) the sale of the property would produce a substantial surplus and iii) the son would not have to leave his school but could stay with his mother during the week
Obiter
Human rights considerations: Article 8 and A1P1 ECHR could be infringed. In most cases, a sale can be justified to protect creditors’ rights. However, the “narrow” exceptional circumstances approach which requires the court to adopt an “almost universal rule” of preferring creditors, ignoring any usual consequences could infringe this.
What a court should do when a statute is incompatible: Interpret it in a way which would achieve compatibility.
Strauss QC saw no reason to decide this point, but noted that, even if the most favourable view was taken, no order for sale would be granted.
What the problem is: Not the wording of the statute, but its interpretation which gives exceptional circumstances a narrow reasoning.
Comment
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