Bagum v Hafiz & Anor

Under Trusts of Land and Appointment of Trustees Act 1996, the court cannot direct one beneficiary to sell or transfer a beneficial interest directly to another beneficiary. Such a disposition is not a function of trustees of land.

The court may, however, direct the trustees to sell the trust property to a particular beneficiary without the others’ consent. Sections 14 and 15 confer a substantially wider discretion on the court than trustees possess when acting without consent or a court order. The court is not rigidly constrained by equitable principles requiring trustees to obtain the best price and avoid preferring one beneficiary, although it must act justly between the beneficiaries.

A mother and her two sons owned a house as tenants in common in equal shares under a trust of land. After one son left the property, the mother sought an order requiring him to transfer his beneficial share to the other son, alternatively an order for sale.

HHJ May QC held that she could not compel a direct transfer of the beneficial interest. She instead ordered a sale on terms giving the resident son an opportunity to purchase the property at a price determined by the court, failing which it would be sold on the open market with liberty to all beneficiaries to bid.

The departing son appealed against the jurisdiction to make that order and its discretionary propriety. The mother cross-appealed on whether the court could compel the direct transfer originally sought.

1. Appeal and cross-appeal dismissed. The judge correctly identified the limits of her jurisdiction and made an order falling within the broad statutory discretion.

2. Section 14(2)(a) of the Trusts of Land and Appointment of Trustees Act 1996 authorises orders relating to trustees’ functions. Directly disposing of one beneficiary’s beneficial interest, whether by sale to another beneficiary or otherwise, is not such a function. The court therefore could not compel the departing beneficiary to transfer his share directly to his brother. A trustee’s sale or partition may convert or affect beneficial interests, but that consequence does not make direct disposal of those interests a trustee function.

3. A sale of the trust property to a particular beneficiary is an exercise of the trustees’ undoubted power of sale. It remains so although its economic effect may resemble a compulsory acquisition of another beneficiary’s interest. The court may therefore direct such a sale without the non-purchasing beneficiary’s consent.

4. Sections 14 and 15 confer a substantially wider discretion on the court than trustees possess when acting without consent or an order. Assuming that the duties to seek the best price and avoid preferring one beneficiary are rules of equity within section 6(6), they constrain the trustees’ exercise of their powers. They do not rigidly constrain the court. The court must consider the statutory matters, which may include the settlor’s intentions, the purposes of the trust, a minor occupier’s welfare, creditors’ interests and beneficiaries’ circumstances and wishes. It must nevertheless act fairly and justly between beneficiaries.

5. An appellate court may interfere with such a discretionary order where the judge considered irrelevant matters, omitted relevant matters, or reached a decision which could not reasonably flow from a proper analysis. None occurred here. The judge considered the trust’s residential and financial purposes, the beneficiaries’ competing interests and wishes, and the low risk of expert undervaluation. Her unusual order was supported by clear and cogent reasons and sought to preserve occupation while securing proper value for the departing beneficiary.

1. Court of Appeal (Civil Division): In [2015] EWCA Civ 801, unanimously dismissed both the appeal and the cross-appeal.
2. Central London County Court: HHJ May QC refused to compel a direct transfer of the beneficial interest. She ordered a sale which first gave one beneficiary an opportunity to purchase the property at a court-determined price, followed, upon non-completion, by an open-market sale with liberty to all beneficiaries to bid.