Newman & Ors v Clarke & Anor

For summary judgment purposes, a claim may be determined where it turns on a short point of law and the court has the necessary evidence and adequate submissions. The rule against self-dealing does not prevent a trustee from exercising a contractual right created before the trustee assumed office. The same exception may apply where the pre-existing right is statutory and is exercised unilaterally. The relevant question is whether the later fiduciary relationship creates a new consensual transaction involving the trust property. Trustees generally act as a single body, so an act requiring unanimity is ineffective unless all trustees participate. A party need not ordinarily be given an opportunity to amend a pleading where the proposed amendment would introduce a substantially new claim and require the proceedings to be substantially re-started.

The defendants applied for summary judgment, alternatively to strike out the Particulars of Claim, in proceedings concerning a leasehold property and a trust holding the freehold reversion. The first defendant, a trustee and tenant, had served notice under the Leasehold Reform Act 1967 seeking to acquire the freehold and had applied to the First-tier Tribunal for determination of the price and transfer terms.

The claimants alleged breach of the rule against self-dealing and related breaches of trust. They also raised concerns about the defendants’ conduct of the tribunal proceedings and sought an opportunity to amend. The central issue was whether the tenant’s statutory right, derived from a lease granted before his trusteeship, was within the exception recognised for pre-existing rights.

1. The claim was summarily dismissed. The application turned on whether the claimants had a real prospect of establishing a breach, or imminent sufficient danger of breach, of the rule against self-dealing. There was no other compelling reason for a trial.

2. The court rejected the pleaded proposition that trustees owed a general duty to act unanimously. Trustees are generally regarded as a single body, so an act requiring unanimity is ineffective unless carried out by all trustees, as explained in Cowan v Scargill [1985] Ch 270.

3. The court approved the approach in Spiro v Glencrown Properties Ltd [1991] Ch 537. The rule against self-dealing concerns a consensual transaction and does not prevent a trustee from exercising a right created before the fiduciary relationship arose. In Mulholland’s Will Trusts [1949] 1 All E.R. 460, the option was created by the lease before the bank became trustee; exercising it did not create a fresh contractual relationship.

4. That exception was not confined to contractual rights. Since the first defendant’s statutory enfranchisement right derived from the pre-existing lease and was exercisable unilaterally, the exception extended to the right under the 1967 Act. The reasoning was supported by Vyse v Foster and Re McAdam, and Wright v Morgan was distinguished as involving a materially different right.

5. The concerns about the conduct of the First-tier Tribunal proceedings did not justify an amendment. Unlike Kim v Park [2011] EWHC 1781 (QB), the proposed amendment was not technical or apparent from existing evidence. It would likely introduce a wholly new claim, require substantial amendment of the defence and cause the proceedings to be substantially repeated.

6. The alternative strike-out application added nothing. The court therefore ordered summary dismissal of the claim.