Montrose Investment Ltd. v Orion Nominees Ltd. & Ors

A trustee’s breach of trust does not, without more, destroy its enforceable rights against a transferee of trust property. Where the transfer itself constitutes the breach, the trustee may still seek recovery of the property or its proceeds, or an account from the transferee. The relevant question is whether obligations arose between the trustee and transferee. A transferee who learns before distributing proceeds that the trustee remains the entity through which a beneficiary claims must account to the trustee. The trustee can then resolve the beneficial allocation between itself and the beneficiary.

Montrose held shares through Orion, its nominee. The High Court found that Orion had acted in breach of trust by exchanging shares and arranging for replacement shares to be registered or held through another nominee without Montrose’s consent. On the Part 20 claim, the deputy High Court judge held that Orion had no claim against Mr Upton, and that any claim to the shares or their proceeds had to be brought by Montrose.

The appeal on the principal breach-of-trust issue was compromised. The remaining appeal concerned whether Orion could require Mr Upton to account for proceeds representing the relevant shareholding, particularly after Mr Upton learned that Montrose continued to assert a claim through Orion.

The Court of Appeal unanimously allowed the appeal on the Part 20 claim. Lord Justice Waller gave the judgment, with Lord Justice Jonathan Parker and Lady Justice Arden agreeing.

1. Separate obligations. The court held that Orion’s breach of trust towards Montrose did not logically mean that Orion lost its capacity to enforce obligations arising between Orion and Mr Upton. The judge’s analysis that Orion had divested itself of any remedy against the transferee was therefore rejected.
2. Nature of the right. The issue did not require analysis by reference to a resulting trust or constructive trusteeship. The proper question was whether Orion retained an enforceable right to an account against the transferee. If Montrose had consented to the transactions while retaining its entitlement, Orion would plainly have remained the party entitled to the account. Similarly, Orion could have sought a declaration that Mr Upton held the shares for it.
3. Application. Although the transfer of the shares to Birchall was wrongful as between Orion and Montrose, Orion received shares in Birchall which Mr Upton held through Latour Trust for Orion. Mr Upton initially misunderstood the position, but before distributing the proceeds he knew that Montrose asserted a claim through Orion and that Orion had not dropped out. His obligation was therefore to account to Orion, leaving Orion to disentangle the interests for which it acted as nominee. The fact that Orion had breached trust towards Montrose was no answer to Orion’s claim.
4. Order. An account was ordered as between Orion and Mr Upton.

• Court of Appeal (Civil Division): unanimously allowed the appeal on the Part 20 issue and ordered an account between Orion and Mr Upton.
• Chancery Division of the High Court: on 10 September 2003, the deputy High Court judge held that Orion had no claim against Mr Upton and that any claim to the shares or proceeds had to be brought by Montrose.