Shah v Shah

A trustee’s duty to get in or protect a trust asset is governed by ordinary prudence, assessed in the circumstances known to the trustee. The duty is not absolute. It is shaped by the asset’s value, the prospects of success, the likely cost and the trust’s available resources. A trustee is not ordinarily required to use personal funds to pursue proceedings. A trustee is liable only for loss caused by the breach. Where the proposed steps would have been ineffective, no liability arises. A beneficiary who knowingly concurs in the trustee’s conduct may be precluded, on equitable grounds, from suing for the resulting breach.

The proceedings concerned the value of four plots in Bangalore acquired by Ashok Shah and his wife under agreements with Victorian View. Ashok held whatever contractual rights existed for himself and his brothers. Earlier orders required him to account for the value of his actual interest.

Jaivant Shah pursued a secondary claim alleging that Ashok had acted in wilful default and breached trust or fiduciary duty by failing to secure title, obtain sale deeds, pursue specific performance or otherwise maximise the value of the contractual rights. The issues were whether Ashok had breached his duties, whether Jaivant had concurred in his conduct, and whether any breach had caused loss.

1. Claim dismissed. Ashok’s interest under the indentures was a bare contractual interest with no marketable value. The amount for which he was required to account to Jaivant and Bharat was therefore nil.
2. The court treated wilful default and breach of trust or fiduciary duty as materially congruent in this context. The applicable standard was whether Ashok had exercised the care and diligence that an ordinarily prudent person in his position would have exercised in managing his own affairs, applying Speight v Gaunt [1883] 9 App. Cas. 1 and Re Owens [1882] 47 L.T. 61 (CA).
3. A trustee’s duty to get in a chose in action is not absolute. The required conduct depends on the asset’s value, the surrounding circumstances, the prospects of success, the risk of a legal or factual quagmire, and the resources available to the trust. It would be disproportionate to spend substantial trust resources on a weak or uncertain claim. The trustee is not required to act as a crusader for the trust.
4. The court interpreted Re Brogden (1888) 38 Ch D 546 as establishing that liability arises only where a lack of proper diligence is shown. Once that is established, the trustee bears the burden of showing that the loss would have occurred in any event. A trustee is not liable for loss which could not have been prevented.
5. There was no obligation on Ashok to use his own funds to pursue proceedings or preserve the assets. The absence of trust funds was not itself caused by any breach. The principle was supported by Hobday v Peters (No. 3) 28 Beav. 603.
6. On the facts, Ashok acted as an ordinarily prudent trustee would have acted. He maintained contact with Victorian View, sought information, considered the activities of VVLOWA and attempted to obtain value through possible sales. There was no realistic prospect of securing title because Victorian View had no valid power of attorney from the relevant landowners. Any proposed proceedings or other steps would have been ineffective.
7. Even if Ashok had breached his duties, the counterfactual loss claim failed because the suggested steps would not have secured good title or improved the brothers’ position. In addition, Jaivant had been informed of and had concurred in the approach taken. Following Re Pauling’s Settlement Trusts [1962] 1 WLR 86, as cited without disapproval on appeal [1963] 1 Ch 303, concurrence required awareness together with agreement or approval. That concurrence would have made it inequitable for Jaivant to sue.
8. The court further held that registration of a sale deed did not itself establish valid title. Ramachar v The State of Karnataka AIR2006Kant124 was explained as deciding only that a sub-registrar was not required to determine the validity of the underlying transaction; registration did not confirm the transaction’s validity.

The judgment describes earlier stages of the same litigation. A previous judgment after a seven-day trial dealt with accounting issues but left the valuation and trustee-duty issues unresolved: [2017] EWHC 2693 (Ch). A later judgment construed the relevant order and held that Ashok was to account for his actual interest, rather than the freehold value: [2018] EWHC 3213 (Ch). The present judgment determined the remaining claim and fixed the account at nil.