Vashihan Ratnasingham v Andrew Lewis Hunt & Anor

Using a trust asset as security for finance does not ordinarily enable the beneficiary to trace into property acquired with the loan where the original asset remains in the same trust. The beneficiary may, however, obtain an account of profits where the trustee uses trust property for its own advantage, even if the security is not ultimately enforced.

A trustee must not self-deal with trust property unless the trust instrument clearly authorises it. An account of profits may be available even where the transfer was made at a fair value and the beneficiary cannot show conventional loss. The account remains discretionary and may allow credit for the trustee’s work, skill, additional security, expenses and other circumstances.

The appeal concerned an order made by HHJ Parfitt after a trial in the County Court at Central London concerning business dealings, properties and alleged agreements between Mr Ratnasingham and Mr Hunt.

Permission to appeal was granted on two grounds. Ground 2 concerned whether Mr Ratnasingham acquired an interest in the Albion Inn because Northdown, in which he held a beneficial interest, was used as security for finance used to acquire the Albion. Ground 4 concerned the valuation and distribution to Mr Hunt of the Folkestone Road property forming part of Bernard Smith’s estate.

The central issues were whether the security arrangements gave rise to a proprietary interest, whether they constituted breaches of trust entitling Mr Ratnasingham to an account of profits, and whether the distribution of the Folkestone Road property was made in breach of trust.

1. Ground 2. The appeal failed on the Commensurate Share Argument. The principle in Foskett v McKeown concerned tracing and following trust money into an acquired asset. It did not apply where Northdown remained held under the same trusts and had not been transferred. The fact that the charge may have assisted the lender’s willingness to lend did not permit tracing into the loan proceeds or the Albion.
2. The creation of security over Northdown nevertheless constituted a breach of trust. KPEL used property in which Mr Ratnasingham had a beneficial interest for its own private advantage in procuring finance to acquire the Albion. The security put his interest at risk, regardless of whether the lending was otherwise adequately secured or whether enforcement occurred. Any inferred consent was not informed consent.
3. Mr Ratnasingham was therefore entitled to an account of profits. The assessment was discretionary and had to follow settled principles, including the justice of the case and any delay. Relevant matters could include KPEL’s or Mr Hunt’s work and skill, the additional security over the Albion, the personal guarantee, loan interest, fees, legal costs and other expenses. The account could extend to income profits and capital gain, subject to proper calculation.
4. Ground 4. The court upheld the finding that the Folkestone Road property had not been shown to have been undervalued when distributed. The available evidence did not establish a material improvement in the market or that the life tenant had vacated, or agreed to vacate, by the date of the Distribution Accounts. The 2015 arm’s-length sale was not shown to have been at an undervalue.
5. Mr Hunt nevertheless breached the trust by transferring the property to himself rather than selling it as required by the Deed of Variation. The trust instrument did not exclude the equitable rule against self-dealing, illustrated by Keech v Sandford. Mr Ratnasingham’s contractual loss might be nil, but an account of profits remained an alternative equitable remedy. The account might also include any maintenance provision later released after the life tenant’s rights ended, subject to proof.
6. The matter was referred back to the County Court to determine the consequences of these findings, including the appropriate accounts and any issue concerning clean hands. The parties were encouraged to settle or use alternative dispute resolution.

• High Court (Chancery Division): Appeal from the order and judgment of HHJ Parfitt in the County Court at Central London. The appeal was allowed in part, with the matter referred back for assessment of the equitable relief.