Hidayat Ullah v Mohammed Anf Ullah & Anor

A fiduciary who deals with a beneficiary must show that the transaction was fair and honest, that no advantage was taken of the fiduciary position, and that full disclosure of all material facts was made. Knowledge of the transaction alone does not establish informed acquiescence. A fiduciary’s liability to account for an unauthorised profit does not depend on causation of loss.

On strike-out and summary-judgment applications, the court must determine whether the claim is legally unsustainable or fanciful, taking the claimant’s case at its highest and avoiding a mini-trial. Where the lower court’s assessment of the claim is legally flawed, its refusal to permit consequential amendments may also require reconsideration.

The claimant appealed against an order of His Honour Judge Dight CBE refusing permission to re-amend the particulars of claim and striking out proceedings. The claim concerned two properties purchased in the second defendant’s name, which a previous High Court judgment had found to have been held on trust for the claimant until the claimant’s bankruptcy.

The claimant alleged that the defendants breached fiduciary duties and the fair dealing rule by denying the trust, submitting a disputed proof of debt, and acquiring the trustee in bankruptcy’s rights for £55,000. He also sought to amend the claim concerning a National Westminster Bank account. The central issues were whether the pleaded claims had a realistic prospect of success, whether the trustee’s knowledge amounted to acquiescence, and whether the proposed amendments were abusive or barred by res judicata.

1. Appeal allowed. The judge was wrong to strike out the claim and his exercise of discretion refusing the proposed amendments was consequently flawed.
2. The fair dealing rule applies where a fiduciary contracts with the beneficiary or deals with trust property. The fiduciary bears the burden of proving that no advantage was taken, that full disclosure was made, and that the transaction was fair and honest. Disclosure must include all material facts which might reasonably affect the beneficiary’s concurrence. Mere knowledge of the transaction or of an underlying dispute is insufficient to establish informed acquiescence.
3. The claimant’s case was strongly arguable. On the assumed facts, the second defendant knew that he held the properties on trust, nevertheless denied that position, submitted a proof of debt relating to trust monies, and then sought to profit from the difficult position thereby created. The pleaded case therefore had a realistic prospect that the assignment could be rescinded or set aside.
4. A fiduciary’s liability to account for profit does not depend on causation of loss. The relevant question is whether the profit fell within the scope of the fiduciary duty. The judge therefore erred by focusing on whether the trustee in bankruptcy relied on the alleged representations or suffered loss.
5. The court rejected the submission that no fiduciary duty could arise before the earlier judgment declared the trust. That judgment declared a trust found to have existed from the properties’ purchase. The case was materially different from the constructive trust arising from a voidable transaction considered in Lonrho v Fayed.
6. The amendments concerning the fair dealing rule and the assignment were allowed. The amendments concerning the proof of debt and the National Westminster account were also allowed. Although the account’s beneficial ownership could have fallen within the earlier litigation, the alleged breach connected with the 2012 proof of debt arose after that trial and was not barred by res judicata.
7. The parties were directed to draw up an appropriate order. The court made no final determination of the merits.

• High Court (King’s Bench Division): Appeal from the order of His Honour Judge Dight CBE dated 20 September 2022. The order striking out the claim and refusing permission to re-amend was set aside.
• Earlier High Court proceedings: In [2013] EWHC 2296 (Ch), the court found that the two properties had been purchased with the intention that the claimant should have the beneficial interest, subject to the effect of his bankruptcy and the trustee’s subsequent assignment.