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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bagum v Hafiz & Anor [2015] EWCA Civ 801 (22 July 2015) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2015/801.html Cite as: [2015] WLR(D) 329, [2015] CP Rep 44, [2016] Ch 241, [2015] WTLR 1303, [2015] EWCA Civ 801, [2015] Fam Law 1192, [2015] 3 WLR 1495

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
HER HONOUR JUDGE MAY QC
A10CL365

		Royal Courts of Justice Strand, London, WC2A 2LL
		22nd July 2015

Lord Justice Briggs :

Introduction

1. This appeal and cross-appeal against the Order of HHJ May QC made in the Central London County Court on 9^th September 2014 raises (so we were told by counsel) for the first time in this Court questions as to the discretionary power of the court to make orders under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 ("TOLATA"), in relation to land in co-ownership held on a "trust of land" within the meaning of section 1 of that Act. It replaces the jurisdiction formerly exercised in relation to land held upon trust for sale under section 30 of the Law of Property Act 1925.
2. By way of summary, the land in question ("the Property") is a four-bedroomed house in Islington, owned as tenants in common in three equal shares by the claimant, Mrs. Bagum, and her two sons, the defendants Mr. Hafiz and Mr. Hai. A dispute arose between them as to the use, enjoyment or disposal of the Property, and Mrs. Bagum sought an order for the purchase by Mr. Hafiz of Mr. Hai's one-third beneficial interest in the Property. At the trial of a preliminary issue, the Judge concluded that she had no jurisdiction to make such an order, but that she both could and should make an order directing the trustees to sell the Property, upon terms that Mr. Hafiz should first have the opportunity to buy it for a price determined upon valuation evidence by the court, failing which (within six weeks of that determination) the Property should be sold on the open market, with liberty for all the beneficial owners to bid.
3. By his appeal, Mr. Hai asserts first, that the Judge had no jurisdiction to make such an order and secondly, if she did, that it was not a proper exercise of her jurisdiction under TOLATA. By her Respondent's Notice (supported by Mr. Hafiz), Mrs. Bagum submits that the Judge did have jurisdiction to make the order which she had originally sought, namely the purchase by Mr. Hafiz of the beneficial interest of Mr. Hai. A further ground of Mr Hai's appeal, that the Order conflicted with an agreement for an open market sale already made between the parties, was not pursued.

Opinion

4. For the reasons which follow, I consider that the Judge was correct in her decision as to the ambit of her jurisdiction under TOLATA, and that her exercise of the wide discretion conferred by sections 14 and 15 of that Act, in making what may well be regarded as an unusual order, cannot be challenged by way of appeal. If my Lords agree, this appeal and cross-appeal should therefore both be dismissed.

The facts

5. There being no challenge to the Judge's findings of fact, I can take the summary which follows, with gratitude, from her concise ex tempore judgment.
6. Mrs. Bagum's late husband purchased the Property, in Copenhagen Street, Islington, as a right-to-buy tenant in 2003, two years before his death intestate. Those family members with an interest in his intestate estate gave up their interests to Mrs. Bagum, so that she became the sole registered owner of the Property. Both she, her three sons, and one of her daughters continued to live at the Property, to the purchase of which her two eldest sons, Mr. Hafiz and Mr. Hai, had made financial contributions. They both married and started families of their own. The increasingly crowded conditions in the house led to tensions, in particular between the two wives, which eventually led to Mr. and Mrs. Hai leaving to find separate rented property of their own. It has always been sensible common ground that the issues with which this appeal is concerned do not call for any apportionment of blame for that unfortunate division within the family.
7. Shortly before he left, Mr. Hai sought to protect his investment in the Property (which by then included his original contribution to its purchase and contribution to mortgage payments thereafter) by securing his mother's and brother's agreement to the making of a declaration of trust, by which they declared themselves to be trustees of the Property for the three of them in equal shares. It is the trust of land created by that document to which the invocation of the TOLATA jurisdiction relates.
8. I will let the Judge continue the story:

"5. There was for some time no communication at all between Mr. Hai and the rest of his family, finally he made contact using a cousin, Mr. Joyner, as a go-between. Through Mr. Joyner, Mr. Hai made various proposals to release some finds from the property to him through rental, remortgage or even sale. Eventually, the family agreed to sell, prepared the property, marketed it and obtained an offer. When it came to it however, Mr. Hai refused to sign the transfer document, instead offering to purchase the house himself. Mrs. Bagum, who had not wanted to move at all, refused to consent to this.

6. At this point in 2011, Mr. Hai instructed solicitors and litigation was threatened. Mr. Woodhouse, who represents Mr. Hai at this trial, acknowledged that the correspondence from Mr. Hai's solicitors at this time was aggressive and insistent. However, without giving any indication as to why, in about November 2011 Mr. Hai dis-instructed these solicitors and there was no further communication over the following nine months.

7. By September 2012, having heard nothing further, Mrs. Bagum's solicitors took the initiative, discovered a contact address and email for Mr. Hai and contacted him. They suggested valuing the property with a view to Mr. Hai selling his interest in it to Mr. Hafiz.

8. Proceedings seeking an order obliging Mr. Hai to sell his interest to Mr. Hafiz – alternatively, an order for sale – were issued in December 2012. Mr. Hai has served a defence and counterclaim for rent attributable to his one third share of the value of the property; also damages for certain insults which he says that he and his wide received at the hands of his family before they left."

9. Paragraph 9 of Mrs. Bagum's Particulars of Claim asserted that, in the light of the family division which I have described, she wished i) to sell the Property or ii) for Mr. Hai to sell his interest in the Property to Mr. Hafiz. She asserted that Mr. Hai had demonstrated a reluctance to co-operate with any sale or transfer of the Property to herself, to Mr. Hafiz or to a third party. By his Defence, at paragraph 3, Mr. Hai had pleaded:

"As to Paragraph 9, the Second Defendant (i.e. Mr. Hai) agrees that the Property should be sold."

He denied that he had been uncooperative to date.

10. At a case management hearing before HHJ Hornby, directions were given for valuation evidence by separate experts, with further provision for the appointment of a Single Joint Expert if the parties' experts could not agree.
11. After an attempt by Mr. Hai to strike out his mother's claim was withdrawn, HHJ Dight gave directions on 18^th July 2014 for the trial, as a preliminary issue, of Mrs. Bagum's claim for an order that Mr. Hai sell and transfer his interest in the Property to Mr. Hafiz. The order recited as follows:

"AND UPON the Court recording that if the Claimant does not obtain the relief sought in the trial listed below (namely an Order that the Second Defendant sell and transfer his interest in the Property to the First Defendant) the Claimant through her Counsel has stated that she wishes the Property to be sold on the open market and in light of such wish the Second Defendant through his Counsel has agreed that the Property should be so sold in that event."

12. As I have said, the Judge decided that she had no jurisdiction to make the order primarily sought by Mrs. Bagum for the acquisition of Mr. Hai's interest in the property by Mr. Hafiz. But nonetheless she ordered as follows:

"1. The Property should be sold on the terms set out in Paragraph 2.

2. The First Defendant shall have the opportunity to purchase the Property at a price to be determined by the Court at the trial referred to below. In default of the First Defendant completing the purchase within 6 weeks of the Court's determination of the price, the Property shall be sold on the open market by private treaty with liberty to all parties to bid."

She then gave directions for a trial at which the price at which Mr. Hafiz should have the opportunity to purchase the Property from Mr. Hai should be determined, as one of a number of issues, the remainder of which do not matter for present purposes.

TOLATA

13. TOLATA is described in its preamble as:

"an Act to make new provision about trusts of land including… amending the law about trusts for sale of land; …"

For present purposes, its relevant provisions are as follows. Section 6, headed General Powers of Trustees, provides:

"(1) For the purpose of exercising their functions as trustees, the trustees of land have in relation to the land subject to the trust all the powers of an absolute owner.

…

(5) In exercising the powers conferred by this Section, trustees shall have regard to the rights of the beneficiaries.

(6) The powers conferred by this Section shall not be exercised in contravention of, or of any order made in pursuance of, any other enactment or any rule of law or equity."

14. Section 7, headed Partition by Trustees, enables trustees of land to partition the land between beneficiaries of full age absolutely entitled in undivided shares to land subject to the trust, and provides for the payment of any necessary equality money. But sub-section (3) requires that this power may only be exercised with the consent of the beneficiaries.
15. Section 14, headed Applications for Order, provides as follows:

"(1) Any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order under this section.

(2) On an application for an order under this section the court may make any such order-

(a). relating to the exercise by the trustees of any of their functions (including an order relieving them of any obligation to obtain the consent of, or to consult, any person in connection with the exercise of any of their functions), or

(b). declaring the nature or extent of a person's interest in property subject to the trust,

as the court thinks fit.

…"

16. Section 15, headed Matters Relevant in Determining Applications, provides as follows:

"(1) The matters to which the court is to have regard in determining an application for an order under section 14 include -

(a) the intentions of the person or persons (if any) who created the trust,

(b) the purposes for which the property subject to the trust is held,

(c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and

(d) the interests of any secured creditor or any beneficiary.

…"

Sub-section (3) provides, save for irrelevant exceptions, that the matters to which the court is to have regard:

"also include the circumstances and wishes of any beneficiaries of full age and entitled to an interest in possession in property subject to the trust or (in case of dispute) of the majority (according to the value of their combined interests)."

Discussion

17. The first question, raised by Mrs. Bagum's cross-appeal, is whether the court has power under section 14 of TOLATA to order or direct that one beneficiary under a trust of land sell or transfer their beneficial interest to another beneficiary. In agreement with the Judge, and with the dicta of Mr. Thomas Ivory QC in Rahnema v Rahbari & anr (unrep) 26^th February 2008, I consider that the court has no such power. Section 14(2), which confers the relevant power, provides only that:

"The court may make any such order - … relating to the exercise by the trustees of any of their functions… as the court thinks fit."

It is, in my judgment, no part of the functions of trustees of land to deal with or dispose of beneficial interests under the trust, whether by sale or otherwise, at least not directly. Of course, the exercise of the trustees' undoubted power to sell the land may have the effect of turning a beneficiary's interest into money, because the beneficial interest is overreached upon the sale. The same may be said about the power to partition in the sense that part of the interest of a particular beneficiary in the land may be taken in exchange for equality money and, in effect, be transferred to another beneficiary under the trust. Furthermore, it is clear from the ability of the court under section 14(2)(a) to relieve trustees of an obligation to obtain the consent of any person (including for that purpose a beneficiary) that the court would itself have power under section 14 to give directions for a partition without the requirement imposed upon the trustees by section 7(3) to obtain beneficiary consent.

18. But the functions of the trustees in relation to sale and partition do not cease to be relevant functions for the purposes of section 14(2)(a) merely because the exercise of them may convert the interest of beneficiaries into money without their consent. By contrast, the direct disposal of a beneficiary's interest, whether upon sale to another beneficiary or otherwise is, quite simply, not a function of trustees of land.
19. The next question, raised by Mr. Hai's appeal, is whether the court has the power under section 14 to direct trustees of land to sell the trust property to particular beneficiaries, without the consent of the beneficiary or beneficiaries to whom the land is not being sold. Mr. Woodhouse, counsel for Mr. Hai, submitted that the court had no such power, for the following reasons:

i) Such a sale would have the same effect as a compulsory transfer of the non-consenting beneficiary's interest to the other beneficiaries;

ii) Such a sale would be contrary to the established rule of equity, that the overriding duty of a trustee of land, upon sale, is to obtain the best price for the beneficiaries as a whole, see Re Cooper & Allen's contract (1876) 4 Ch D 802, at 815, and Buttle v Saunders [1952] 2 All ER 193, at 195.

iii) Such a sale would also be contrary to the established rule of equity that trustees may not exercise their powers with a view to advance the particular purposes of one party interested in the execution of the trust at the expense of another party: see Harper v Hayes (1860) 2 Giff 210, at 216.

I will take those submissions in turn.

20. As to the first, I acknowledge that, save perhaps for certain tax consequences, a sale by trustees of the trust property to beneficiaries A and B has much the same economic effect as a compulsory transfer of beneficiary C's interest to beneficiaries A and B, in exchange for money. But it does not follow from the fact that one type of transaction lies outside the functions of a trustee that another type of transaction must do so as well, merely because it has broadly the same economic effect. A sale of the trust property to particular beneficiaries is merely one example of the trustees' undoubted power of sale. It occurs, for example, wherever trustees sell in the open market, and a beneficiary is the successful bidder.
21. As for the second and third submissions, I shall assume for the purposes of argument rather than by way of decision that the two principles relied upon by Mr. Woodhouse may constitute what are referred to in section 6(6) as rules of equity although, with respect to the parliamentary draftsman, I would regard equity as laying down principles rather than rigid rules. But the purpose of section 6(6) is not to define the extent of the trustees' powers or even functions, but rather to prohibit the trustees from exercising them in certain ways. It is in marked contrast with the effect of section 14(2), by which the court is given the widest discretion to make orders relating to the exercise by the trustees of any of their functions, having regard in particular to the non-exclusive list of the matters to which the court is to have regard, set out in section 15(1) and (3). If, for example, it was intended that the court should be constrained by an overriding requirement that the trustees obtain the best price for the land, it might be thought surprising that this requirement was not included in section 15(1) or (3), even as a relevant rather than decisive matter.
22. Mr. Woodhouse submitted that one consequence of his two supposed rules of equity was that a trustee could not be directed by the court to grant a right of pre-emption to a particular beneficiary which was, he said, the substantive effect of the Judge's Order, in favour of Mr. Hafiz. He was asked what would be the consequence, having regard to section 15(1)(a), of the existence of a letter of wishes from the person creating the trust setting out his desire that, before any sale, a named beneficiary should be granted such a right of pre-emption. He was forced to submit that the court would be obliged to ignore it.
23. More generally, I consider that the clear object and effect of sections 14 and 15 is to confer upon the court a substantially wider discretion, exercised upon the basis of wider considerations, than might be enjoyed by the trustees themselves, acting without either the consent of their beneficiaries or an order of the court. For example, section 15(1)(c) requires the court to consider the welfare of a minor in occupation of the trust property as his home, whether or not that minor is a beneficiary of the trust. Section 15(1)(d) requires the court to have regard to the interests of secured creditors (rather than merely to respect their strict legal rights). As I have illustrated, section 15(1)(a) may bring into play the intention of the person who created the trust that benefits be conferred upon particular beneficiaries. All this departs from the general rule of equity which requires the trustees single-mindedly to advance the interests of the beneficiaries as a class, without preferring some of them over others.
24. None of this means, of course, that the court will act unfairly, unjustly or capriciously as between beneficiaries in giving directions to trustees under section 14(2). It simply demonstrates that, in exercising its powers in circumstances where, necessarily, the beneficiaries will be in dispute with each other about what should be done with the trust property, the court is not rigidly constrained by those rules of equity which may, pursuant to section 6(6), constrain the trustees themselves.
25. This is not surprising. In general the use and disposal of land held upon a trust of land (which applies to all kinds of co-ownership) will be determined by the unanimous consent and direction of the beneficiaries. This has been the position for many years: see Saunders v Vautier (1841) 4 Beav 115, which established that beneficiaries of full age and sound mind acting unanimously may direct how the trust property is to be dealt with. The court's powers are there to enable the property to be dealt with justly and effectively when that basis of consent breaks down. That is why section 14(2) permits the court to relieve the trustees from obtaining consents, and why section 15(3) requires the court to have regard to (but not to be bound by) the wishes of a majority of the beneficiaries in the event of a dispute between them.
26. In the present case, the Judge's Order was that there should be a sale of the trust property, preceded by the conferring upon Mr. Hafiz, one of the beneficiaries, of an opportunity to be the purchaser, should he within the stated time pay the amount determined by a valuation of the property by the court. I consider that the Order made by the Judge fell squarely within her jurisdiction under section 14(2)(a) of TOLATA.

Discretion

27. There remains the alternative ground of Mr. Hai's appeal that the Order made was not a proper exercise of the Judge's discretion. In this respect, Mr. Woodhouse made the following points:

i) The Judge's Order was in conflict with the established equitable rules about obtaining the best price for all the beneficiaries, and avoiding the preferring of the interests of one beneficiary over another.

ii) The Order provided for no exposure of the Property to competitive bids, and it disabled Mr. Hai from bidding himself and, as a purchaser with a special interest, from outbidding the rest of the market to the mutual advantage of all the beneficiaries.

iii) By contrast, the Order preferred Mr. Hafiz's interests by giving him a right of pre-emption.

iv) The Judge ignored the fact that, by contrast with most of the reported cases, Mr. Hai was not seeking a sale of the Property at all, so that he should not have had his interest turned into money against his will.

28. The starting point for the evaluation of these submissions is that, on an appeal, this Court is concerned not with the question whether, in its view, the Judge reached the right solution, but whether her Order fell within the broad confines of the statutory discretion conferred upon the court. For that purpose the burden lies on Mr. Hai to show either that she took into account irrelevant matters, omitted to consider relevant matters, or that her decision was one which could not reasonably flow from an appropriate analysis of the relevant considerations.
29. Viewed in that way, I consider that the Judge's Order is unchallengeable. I acknowledge at once that it is an unusual form of order and that, in many similar cases, the court has ordered a sale of the trust property, with liberty to all beneficiaries to bid, thereby maximising the prospects of the achievement of best value. The Judge was plainly aware of this, as her references to the analysis of Mr. Ivory QC in the Rahnema case demonstrates: see paragraphs 23 and 24 of her Judgment.
30. She carefully analysed the intentions of the persons creating the trust, and the purposes for which the trust had been created, namely to secure the continued availability of the property as a home for Mrs. Bagum, Mr. Hafiz and their families, and to secure a financial interest in the property for Mr. Hai, whose impending departure with his family was by then already known: see paragraphs 4, 15, 20 and 22. She carefully considered the different interests of each of the beneficiaries, and set out their differing wishes in relation to the future disposition of the Property.
31. Mr. Woodhouse took the Judge to task for having treated Mr. Hai as wishing that the property be sold. This was indeed her understanding since, at paragraph 17, she said:

"All sides agree that there should be an order for sale."

In that respect she was in my view entitled to rely upon Mr. Hai's Defence, the relevant part of which I already have quoted.

32. It is plain that the Judge recognised that Mr. Hai did not wish to be bought out by his mother and his brother, and she took into account his concern about the risk that a sale to Mr. Hafiz at a valuation by the court might not achieve the highest price. Nonetheless, she was entitled to conclude that the fact that the Property was one of a number of similar properties in Copenhagen Street, Islington, meant that the risk of an undervaluation by an expert was low, due to the large number of available comparables: see paragraph 24.
33. All in all, I consider that the Judge provided clear and cogent reasons, firmly grounded in the mainly uncontentious facts, for her conclusion that the Order which she made was best calculated to serve the differing interests of all the beneficiaries. In particular, her Order was calculated to minimise the risks that the interests of Mrs. Bagum and Mr. Hafiz and their families in continued occupation, and the interests of Mr. Hai in obtaining a payment representing the proper value of his interest, might be materially compromised.
34. For those reasons, I would dismiss this appeal.

Lord Justice Bean

35. I agree.

The Master of the Rolls

36. I also agree.