The court should be reluctant to exercise its power to strike out or to give summary judgment on a controversial question in a developing area of the law.
The High Court has dismissed an application for summary judgment by the defendants in Lapome Ltd v Kemp and another [2023] EWHC 1564 (Ch); [2023] PLSCS 113.
The claimant alleged that the first defendant through his company, the second defendant, acted as buyer’s agents for the claimant in relation to the purchase of a property in Victoria Park Square, London E2 in October 2020 for £3.7m. In breach of fiduciary duty, the first defendant had procured an arrangement with the seller, who had an option to purchase the property for £2.9m. The second defendant paid £5,000 to the seller and then shared the costs and the £800,000 profit on the onward sale to the claimant, realising £400,000 (less costs) of undisclosed profit, which the defendants were liable to account for.
The first defendant argued that the actual profit made by the second defendant was £322,660. This sum was paid into a current account, linked to a reserve account, in the name of the second defendant. Since the value of the monies in both accounts, viewed as a single account, never fell below the value of the trust monies wrongfully received by the second defendant, the claimant was not permitted to seek a proprietary remedy against any property bought by the second defendant out of the current account. The defendants applied to strike out the claim.
Where trust monies are mixed with the trustee’s own monies, and the trustee spends or dissipates some of that mixed fund, the spent funds are attributed first to the trustee’s monies, leaving the trust monies intact: Re Hallett’s Estate (1880) 13 ChD 696. However, where mixed trust and personal monies are used to purchase an asset by way of substitution, and the trustee then dissipates what remains, the trustee is deemed to have used trust money to buy the asset: Re Oatway [1903] 2 Ch 356.
But what is the position where the trustee purchases an asset or investment from the mixed fund but the value of the mixed fund never falls below the amount of the trust monies originally paid in? Can the claimant cherry pick between solutions? The question is not settled and the court should be reluctant to strike out or give summary judgment on a controversial question in a developing area of the law. The question should be determined on the basis of facts found at trial.
Louise Clark is a property law consultant and mediator
