A vendor-purchaser constructive trust (VPCT) is not limited to transactions relating to land or cases where interim protection is required.
The Supreme Court has considered these issues in Frenkel v LA Micro Group (UK) Ltd and others [2024] UKSC 42.
The case concerned steps to restructure joint venture business arrangements. By an oral agreement in 2010, LA Micro Group Inc (“Inc”), owned by Arkadiy Lyampert and Roman Frenkel in equal shares, agreed to transfer its 51% beneficial interest in each of the two issued shares in LA Micro Group (UK) Ltd (“UK”) to their respective legal holders, David Bell and Lyampert.
Frenkel/Inc subsequently argued that the agreement was ineffective because there was no signed writing as required by section 53(1)(c) of the Law of Property Act 1925 for the disposition of an equitable interest or trust.
The Court of Appeal rejected the claim on the basis that the 2010 agreement gave rise to a VPCT which under section 53(2) was an exception to the requirement in section 53(1)(c). The 2010 agreement contained an implied term that Bell and Lyampert would be joint beneficial owners of UK, each holding one share, and Inc received valuable consideration for the agreement by immediate release of its debt to UK.
The Supreme Court had to decide whether the fact that the purchasers were sole trustees of each share as legal owner and already held 49% of the beneficial interest, meant that there could be no VPCT. The appellants argued that Inc’s equitable interest in the shares was in each case destroyed by becoming part of Bell and Lyampert’s 100% beneficial interest when they became the sole legal owner of each share.
Without the VPCT, Bell and Lyampert would remain minority owners of their shares and of UK and exposed to Inc’s transfer of its interest to third parties and its insolvency, for the period until an order for specific performance of the transfer of Inc’s shares to them could be obtained.
The VPCT provided not merely interim protection between contract and completion – as in most cases concerning VPCTs – but all that was needed to complete the disposal of Inc’s 51% beneficial interest, because the interest was purely equitable and because the intended beneficiaries already legally owned the two shares. There was no reason to deny the VPCT because it did not just provide interim protection.
Section 53(1)(c) was not limited to dispositions of equitable interests in land, and in substance there was no destruction of Inc’s beneficial interest in the shares. It became part of Bell and Lyampert’s interest.
Louise Clark is a property law consultant and mediator
