A legal charge was valid and the lender was entitled to an order for sale

A trust is not a legal person, and has no legal identity and/or capacity to contract. Its assets are vested in trustees, who are the only entities capable of assuming legal rights and liabilities relating to the trust. Furthermore, English law does not distinguish between a trustee’s personal and fiduciary capacities pursuant to a contract. So trustees generally seek to limit any contractual liabilities that they assume to the trust’s assets. The litigation in Williams v Simm [2021] EWHC 121 (Ch) was the result of a dispute arising from the failure of the trustees of a family trust to repay sums advanced to finance a residential development on land in Cumbria. The lender had appointed receivers pursuant to the legal charge executed by the trustees. But they argued that the lender had contracted with the trust, rather than themselves as trustees, and that, because the trust was not a separate legal entity, there was no liability under the legal charge. The court accepted that the documentation demonstrated some confusion as to the true legal status of a trustee vis-à-vis the trust of which he or she is trustee and that it was, at one stage, envisaged that the beneficiaries would, themselves, execute the legal charge. The judge noted that the lender’s offer letters stated that the lender accepted that “the borrowers are acting as trustees… and have no personal liability for the loan”. But they also included a paragraph stating that “your property/assets may be repossessed in the event that you do not comply with all of the terms of the repayment of the loan” – and were superseded by a facility agreement, legal charge and loan agreements, which made it clear that the trustees’ liability was joint and several and was a personal liability that could be enforced against them. Furthermore, the legal charge included a provision that the trustees would pay the lender as and when the borrowing fell due, albeit that their liability was to be restricted to the proceeds of the assets charged. If liability was intended to fall upon the trust, the restriction of the trustees’ liability to the trust’s assets would have been unnecessary. The trustees also tried to persuade the judge that the lender had agreed contractual changes during a discussion onsite, which was subsequently confirmed by e-mail, which prevented it from enforcing its security. But the facility and loan agreements included an anti-oral variation clause providing that “no amendment… shall be effective unless it is in writing and signed by, or on behalf of, each party to it (or its authorised representative)”. And there was no such agreement to vary in writing signed by or on behalf of each party. Indeed, the lender’s e-mail, postdating the onsite discussion, included a provision expressly negating any suggestion that the electronic signature in the e-mail had authenticating intent. So the judge was able to apply the Supreme Court decision in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119, which confirms that the courts will respect parties’ agreements stipulating how any future variations to their contracts must be made. Consequently, the receivers were entitled to a declaration confirming that the legal charge was validly granted as security for the liabilities of the trustees under the facility and loan agreements, together with an order for the sale of the property.   Allyson Colby, property law consultant