Patel v Iqbal

A contractual promise to hold future receivables on trust may take effect in equity where the property is sufficiently identifiable and the agreement is given for value. An obligation to realise other assets may be subject to an implied limit reflecting the loss it was intended to remedy. Shares in a private company without a readily available market are, in principle, specifically enforceable. A contractual trust over company interests may nevertheless be confined to identified companies where the wider class of companies is not shown to satisfy the requirements for specific performance.

The claimant sought enforcement of a deed under which the defendant agreed to distribute specified property proceeds and other funds, transfer shares, procure a payment of £400,000, and declare trusts over interests in companies connected with a property development business.

The defendant was debarred from defending the claim after failing to provide an adequate affidavit of means. Judgment had already been entered for £1,025,000 concerning proceeds from two property sales. The remaining issues concerned the construction and effect of clauses 3.1 to 3.5, including whether trusts arose over future proceeds and company interests, whether shares were specifically enforceable, and the appropriate declarations, accounts and remedies.

1. Clauses 3.1 and 3.2. The provisions created an obligation to hold relevant future proceeds for the persons entitled under the agreed distribution waterfall. Applying the principle in Tailby v Official Receiver (1888) 13 App Cas 523 (HL), an agreement for value may bind future property when it comes into existence, provided the property is capable of being ascertained and identified. The deed supplied valuable consideration because it settled claims arising from the defendant’s misappropriation.
2. The obligation concerning funds which the defendant could raise from other assets was sufficiently certain, including in relation to paragraph (c) of clause 3.1. However, the provisions were subject to an implied term that they operated only until the misappropriated funds had been reinstated. The declaration was therefore limited to claims up to £5 million, with an account ordered subject to an appropriate de minimis threshold.
3. Clause 3.3. The agreement to transfer the claimant’s 25% interest in Hope Fostering Services Limited was specifically enforceable. Shares in a private unquoted company for which there is no readily available market are, in principle, specifically enforceable, following Mills v Sportsdirect.com Retail Limited [2010] EWHC 1072 (Ch). The claimant acquired a beneficial interest from the contractual transfer date, stated in the judgment as 25 January 2019.
4. Clause 3.4. The defendant had clearly breached his obligation to procure payment of £400,000 by Verdi Construction Limited. Damages of £400,000, with interest from 23 May 2019, were ordered.
5. Clause 3.5. An unconditional agreement to declare a trust over specific property for value can create a valid trust, but only to the extent that specific performance would be granted, applying Central Trust and Safe Deposit Company v Snider [1916] 1 AC 266. The declaration was accordingly confined to the defendant’s 66% beneficial interests in Verdi Construction Limited and Verdi Investments Limited. It was not extended to unidentified associated companies or special purpose vehicles, because the claimant had not established that all such interests would be specifically enforceable.
6. The claimant was granted the requested declarations, delivery order and accounts, subject to those limitations. The claims were stayed generally with liberty to restore.

This was a first-instance decision. The defendant had been debarred from defending the claim by an order of His Honour Judge Jarman QC dated 17 January 2020, following earlier orders concerning an adequate affidavit of means.