Sale of land – Trustees – Trusts of Land and Appointment of Trustees Act 1996 – Property held on trust for mother and two sons as tenants in common in equal shares – One of sons moving out – Whether court having power to order sale of his beneficial interest to other son – Whether having power to order sale of entire property to other son – Extent of power under section 14 of 1996 Act – Appeal and cross-appeal dismissed
The first respondent and her sons, the appellant and the second respondent, owned a four-bedroom house in Islington, London, which they held on trust for themselves as tenants in common in three equal shares. The property was accordingly held on a “trust of land” for the purposes of section 1 of the Trusts of Land and Appointment of Trustees Act 1996. The two sons lived with the first respondent in the property, along with their wives and children, until tensions over the crowded conditions led to the appellant and his family moving out. A dispute arose over the property and the first respondent applied to the county court for an order for the sale of the appellant’s one-third beneficial interest to the second respondent, pursuant to the court’s discretionary power under section 14 of the 1996 Act.
Following the trial of a preliminary issue, the judge concluded that she had no jurisdiction to make an order in those terms. Instead, she made an order directing the trustees to sell the property, with the second respondent to have the opportunity to purchase it for a price to be determined on valuation evidence by the court and to be paid within six weeks of that determination, failing which the property should be sold on the open market with liberty for all the beneficial owners to bid for it.
The appellant appealed, contending that the judge had no jurisdiction to make such an order or, alternatively, that it had been an improper exercise of her discretion. By a cross-appeal, the first respondent argued that the judge had power to make an order in the terms originally applied for, namely for the purchase by the second respondent of the appellant’s beneficial interest. Issues arose as to the extent of the court’s discretionary power to make orders under section 14 of the 1996 Act in relation to land in co-ownership held on a “trust of land” within the meaning of section 1 of that Act.
Held: The appeal and cross appeal were dismissed.
(1) The court had no power under section 14 of the 1996 Act to order or direct one beneficiary under a trust of land to sell or transfer their beneficial interest to another beneficiary. By section 14(2), the court’s power was confined to making an order “relating to the exercise by the trustees of any of their functions”. It was no part of the functions of trustees of land to deal with or dispose of beneficial interests under the trust, whether by sale or otherwise, at least not directly. The exercise of the trustees’ undoubted power to sell the land might have the effect of turning a beneficiary’s interest into money, because the beneficial interest was overreached on the sale. The same applied to the power to partition, in the sense that part of the interest of a particular beneficiary in the land might be taken in exchange for equality money and, in effect, be transferred to another beneficiary under the trust. Furthermore, the ability of the court under section 14(2)(a) to relieve trustees of an obligation to obtain the consent of any person, including a beneficiary, enabled the court itself to give directions for a partition without the requirement imposed upon the trustees by section 7(3) to obtain beneficiary consent. However, the functions of the trustees in relation to sale and partition did not cease to be relevant functions for the purposes of section 14(2)(a) merely because the exercise of them might convert the interest of beneficiaries into money without their consent. The direct disposal of a beneficiary’s interest, whether on sale to another beneficiary or otherwise was simply not a function of trustees of land.
(2) The court did have power under section 14 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 was not being sold. It did not matter that such a sale had the same economic effect as a compulsory transfer of one beneficiary’s interest to another in exchange for money, which the court could not order. The fact that one transaction lay outside the functions of a trustee did not mean that another type of transaction had to do so as well, simply because it had broadly the same economic effect. A sale of the trust property to particular beneficiaries was merely one example of the trustees’ undoubted power of sale.
(3) A court order for the sale of the property by the trustees to a beneficiary would not fall foul of section 6(6) of the 1996 Act, so far as that provision precluded the exercise of the trustees’ powers in contravention of any rule of equity so as to be contrary to section 6(6) of the 1996 Act. The purpose of section 6(6) was not to define the extent of the trustees’ powers or even functions, but rather to prohibit the trustees from exercising them in certain ways. By contrast, section 14(2) gave the court the widest discretion to make orders relating to the exercise by the trustees of any of their functions, having regard in particular to the non-exclusive list of the matters to which the court was to have regard as set out in section 15(1) and (3). The clear object and effect of sections 14 and 15 was to confer on 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. Those provisions departed from the general rule of equity which required the trustees single-mindedly to advance the interests of the beneficiaries as a class, without preferring some of them over others.
That did not mean that the court would act unfairly, unjustly or capriciously as between beneficiaries in giving directions to trustees under section 14(2). It simply demonstrated that, in exercising its powers in circumstances where, necessarily, the beneficiaries would be in dispute with each other about what should be done with the trust property, the court was not rigidly constrained by those rules of equity which might, pursuant to section 6(6), constrain the trustees themselves. It followed that the judge’s order for the sale of the property, giving the second respondent an opportunity to be the purchaser if he paid the amount determined on valuation within the stated time, fell squarely within her jurisdiction under section 14(2)(a) of the 1996 Act.
(4) The judge’s order was not an improper exercise of her discretion. While it was an unusual form of order, it fell within the broad confines of the statutory discretion conferred on the court and the appellant had failed to show that the judge had taken into account irrelevant matters, omitted to consider relevant matters, or reached a decision which could not reasonably flow from an appropriate analysis of the relevant considerations. The judge had provided clear and cogent reasons, firmly grounded in the mainly uncontentious facts, for her conclusion that the order was best calculated to serve the differing interests of all the beneficiaries.
Nigel Woodhouse (instructed by Benchmark Solicitors LLP) appeared for the appellant; Andrew Skelly (instructed by Osbornes Solicitors LLP) appeared for the first respondent; Richard Owen-Thomas (instructed by direct access) appeared for the second respondent.
Sally Dobson, barrister
