Newman v Clarke [2016] EWHC 2959 (Ch)

Analysis

On 20 December 1996 the first defendant settled £150,000 on an accumulation and maintenance trust for the benefit of inter alia the second and third claimant (‘the settlement’). On 11 April 1997 a lease of a certain property was granted to the first defendant. This lease was capable of being enfranchised under the Leasehold Reform Act 1967 (‘the 1967 Act’) such as to enable the first defendant to obtain the freehold interest in the property. On 19 June 1997, the freehold reversion of the lease was sold to the original trustees of the Settlement. On 25 June 1997, the first defendant became a trustee of the Settlement, replacing one of the original trustees. On 12 September 1997, the original trustees transferred the freehold reversion in the property to the trustees to hold on the terms of the settlement. The trustees were registered as the proprietors of the freehold interest in January 1998.

On 27 March 2015, the first defendant served a notice under the 1967 Act exercising or purporting to exercise his right under that Act to acquire the freehold interest in the property. This led to proceedings in the First-Tier Tribunal for a determination of the price and terms of the transfer to him of the freehold interest in the property.

The claimants, in separate proceedings, brought a Part 8 claim alleging that the first defendant was at risk of breaching the rule against self-dealing by acquiring the freehold interest in the property. They also alleged that the defendants were in breach of a duty to act unanimously.

The defendants applied for striking out or summary judgment in a claim against them by the claimants. It was argued on behalf of the defendants that the acquisition of the freehold title under the 1967 Act fell within an exception to the self-dealing rule which applied to the unilateral exercise by the trustee of a right granted to the trustee before the trusteeship came into existence. They relied upon the description of this exception in Spiro v Glencrown Properties Ltd [1991] Ch 537 by Hoffman J. The claimants contended that the exception did not exist, on the basis that what Hoffman J had said had been obiter, that in any event, In re Mulholland’s Will Trusts [1949] 1 All ER 460 did not support the point made by Hoffman J, and that in any event, the cases relied upon in Mulholland did not support the conclusion that such an exception existed.

Held (allowing the Application):

1. 1) If, on an application for summary determination which gave rise to a short question of law, the court was satisfied that it has before it all the evidence necessary for the proper determination of the question and the parties have had an adequate opportunity to address it in argument, the court should grasp the nettle and decide it: ICI Chemicals & Polymers Ltd. v TTE Training Ltd. [2007] EWCA Civ per Moore-Bick LJ applied
2. 2) This case stood or fell by reference to the exception to the rule against self-dealing. Praying in aid the general rule against conflicts did not take matters further than the rule against self-dealing.
3. 3) As to the claimant’s allegation that a trustee has a duty to act unanimously, it was more accurate to say that a trustee’s act which requires unanimity is of no effect unless carried out by all trustees: Cowan v Scargill [1985] Ch 270 per Sir Robert Megarry VC at 297. The claimants had no real prospect of establishing that the defendants are or are at risk of being in breach of such a duty and there is no other compelling reason why such a claim should be disposed of at trial.
4. 4) As it was indisputable that what Hoffman J has said in Spiro was obiter, it was necessary to consider:
5. a) whether Mulholland supported the dicta of Hoffmann J in Spiro; and
6. b) if it did, whether the dicta on which Wynn-Parry J relied in Mulholland on the issue support his conclusion in that case.
7. 5) As to the first question, Hoffman J had properly articulated what Wynn-Parry J had said in Mulholland.
8. 6) As to the second question, the cases relied upon by Wynn-Parry J did support the conclusion he reached that there existed an exception to the rule against self-dealing:
9. a) He correctly held that Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 did not deal with the interaction between the rule against self-dealing and a pre-existing contract.
10. b) He referred to dicta in Vyse v Foster (1872) LR 8 Ch App 309 and In re McAdam [1946] Ch 73 in support of his conclusion that there was an exception to the rule where the right in issue was a pre-existing one. In Vyse, Lord Cairns LC has made a point of general application that a testator or a settlor could not annul pre-existing rights by subsequently appointing the holder of those rights as executor or trustee (cf. McAdam at 79-80).
11. c) He correctly distinguished Wright v Morgan [1926] AC 788 as not on point.
12. 7) It followed that, as the right the first defendant enjoyed as tenant under the 1967 Act derived from a lease made before the first defendant became a trustee, the exception to the rule against self-dealing applied, namely that the rule only applied to consensual transactions and not to the exercise of rights which existed before the trusteeship came into existence, exercised unilaterally. This extended to statutory rights which are exercised unilaterally, including a tenant’s rights under the 1967 Act.
13. 8) As the exception to the rule against self-dealing did apply, the application should be allowed.

JUDGMENT MR JONATHAN KLEIN: [1] This is a judgment in an application by the defendants, William Edwin Clarke and Paula Louise Marks, for summary judgment, alternatively for the striking out of the Particulars of Claim, in a claim brought against them by the claimants, Deborah Verne Newman, Brooke Leverne Newman and Billy Clarke Newman. Mrs …

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