Commercial property — Joint venture — Investors claiming beneficial interest in properties purchased by respondents — Whether appellants losing right to beneficial interest because of delay in asserting rights — Appeal dismissed
The respondents purchased a number of commercial properties at auction between February 1989 and March 1990, when the property market was rising. They were bought as separate joint ventures and involved a number of investors, including the appellants’ predecessor, G (a company). The intention was to sell the properties quickly in order to make a profit. However, the property market slump of the early 1990s meant that the properties could generally be sold only at a loss. In the event, a decision was taken to retain them rather than suffer the loss, despite the fact that, in most cases, there was a shortfall between the rental income and the remortgage payments that had to be funded.
The investors were called upon to bear a proportion of the shortfall but, in effect, the respondents accepted the burden of the payments and G did nothing to meet its share. In 1993, G was dissolved, following which the respondents considered that its interests in the properties had been abandoned. However, in 1992, G had assigned those interests to the appellants, who asserted a beneficial interest in the properties as successors in title to G.
The judge found that, in all the circumstances, it would be unconscionable to permit the appellants toassert their beneficial right when the respondents had shouldered all the risks of the venture, while G and the appellants had done nothing. He accepted the respondents’ equitable defence of laches on the ground that the appellants had, for an unreasonable and unjustified time, neglected to do what should or could have been done to assert their claim or right, thereby causing disadvantage to the respondents. The appellants appealed. The main question was whether laches, as an equitable remedy, was available as a defence to an action by beneficiaries against trustees.
Held: The appeal was dismissed.
The modern approach to the principle of laches required a broad inquiry to ascertain whether it would be unconscionable in all the circumstances for a party to be permitted to assert its beneficial right. A court would not aid those who could be shown to have remained quiet in the hope of being able to evade responsibility in case of loss but of being able to claim a share of gain in case of ultimate success: Frawley v Neill unreported 1 March 1999 applied.
In the present case, the parties had not intended to create a trust whereby the trustee merely held property in trust for the beneficiary, but, rather, had meant to enter into a series of joint ventures with the aim of making a commercial profit. The fact that a resulting trust had been created as a by-product of those arrangements, and as a vehicle for accomplishing that aim, was incidental.
The beneficial investors were bound to contribute to the shortfall if the income from the trust property was insufficient, and the respondents were released from their equitable obligations to the appellants once their predecessors had departed from that arrangement.
David Hodge QC (instructed by Russell Jones & Walker) appeared for the appellants; Gregory Hill (instructed by Harold Benjamin) appeared for the respondents.
Eileen O’Grady, barrister
