Osbornes successful in landmark Court of Appeal decision regarding the Trust of Land and Appointment of Trustees Act 1996 (TLATA 1996)30 Jul 2015
In the case of Bagum v Hafiz and Hai  EWCA Civ 801, the Court of Appeal considered, for the first time, whether the extent of its discretion under section 14, Trusts of Land and Appointment of Trustees Act 1996 (“TLATA”) permitted the Court to order one of the beneficiaries of the trust to sell his interest in a property to one of the other beneficiaries. The Court also considered the powers of the Court under s14 and s15 of TLATA when making an order for sale.
The property was owned by the Claimant, Mrs Bagum (C) and her two sons, the Defendants, Mr Hafiz (D1) and Mr Hai (D2). All parties had been living in the property. There was then a family breakdown which resulted in in D2 and his wife moving out. The parties executed a declaration of trust, as a result of which C, D1, and D2 became trustees of the property, holding the property on trust for themselves in equal shares. Following various attempts by D2 to force C to sell the property, C issued proceedings seeking an order that D2 sell his share to D1, or in the alternative for an order for sale. C wanted, if possible, to remain living in the family home (which had been purchased by her late husband). This position was supported by D1.
A preliminary issues trial was ordered to consider whether the Court had the power to make an order forcing D2 to sell his share of the property to D2. The first instance Judge found that TLATA did not provide power to the Court to make such an order. However, the judge made an unusual order for the sale of the property. The property was initially to be offered for sale to D1 at a price to be determined by the Court. If he did not complete the purchase within six weeks, it was to be offered for sale on the open market. This in effect gave D1 the first opportunity to purchase the property. This was an order C and D1 were content with, in that it afforded an opportunity for them and their other family members to remain living in the property, provided D1 were able to purchase the property within the 6 week period. The Judge made a finding that the purpose of the trust was for the property to continue to be used as a family home, as well as to protect the financial interest of all three parties in respect of the property.
D2 appealed against this order to the Court of Appeal. The Court of Appeal held, agreeing with the first instance Judge, that a direction to one beneficiary to sell to others would not be an exercise by the trustees of their functions, and thus not something that the Court could order under s14 of TLATA. The ambit of section 14, TLATA gives the Court a wide discretion in relation to “the exercise by the trustees of any of their functions”. However, directing one beneficiary to sell to another was not one of those functions.
The Court of Appeal then went on to consider whether the order made was open to the Judge. This was the point that D2 had appealed. The court held that, whilst it did not have the power to direct a disposal of a beneficiary’s interest, it did have the power 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 to. This power is not excluded merely because it has the same effect as the sale of one beneficiary’s share to another, which is excluded.
Lord Justice Briggs commented, at , 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. … 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”. The Court of Appeal thus found that the Court is not rigidly constrained in the exercise of its discretion by principles of the law of equity, although such principles constrain the trustees themselves.
The Court of Appeal also found that the Judge was entitled to make the order she had, even though it was not the usual order for sale that would be made (whereby all beneficiaries would be entitled to bid for the property). In reaching her decision the Judge had properly considered the purpose for creating the trust, namely to provide a home for C and D1 while securing D2’s financial interest. The Court did not consider there to be a significant risk of an undervaluation by an expert. D2’s appeal was therefore dismissed.
Associate solicitor, William Ford, represented the Claimant Mrs Bagum.