England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIS HONOUR JUDGE RUDD
SOUTHAMPTON COUNTY COURT

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 25th October, 2001

LORD JUSTICE MUMMERY :

Introduction

1. This appeal concerns an order made by HHJ Rudd in the Southampton County Court on 3 March 2000. He directed an immediate sale of Melville, Addison Road, Sarisbury Green, Southampton (the Property), which has been held in the joint names of the applicant, Mr Dear, and the respondent, Ms Karen Robinson since a transfer to them dated 3 August 1988. The Property consists of a bungalow and surrounding land, including some land at the back having a possible development value.
2. Mr Dear applied for permission to appeal against the order for sale. There is also an application for permission to cross appeal out of time by Ms Robinson's son, Aaron. Along with Mr Dear and Ms Robinson he claims to be a beneficiary under a Declaration of Trust of the Property dated 1 August 1988. His claim to a 50 % beneficial interest is, however, challenged by Mr Dear in other proceedings which have not yet been tried.
3. The most confusing (though not the only confusing) feature of this case is the complete volte face by both of the two principal protagonists on this appeal. Each of them now adopts the position previously taken by the other.
4. The essential issue between the parties is whether the Property, which has been occupied by Mr Dear for a number of years, should be sold now, as the judge directed, or whether the sale should be postponed and, if so, for how long and on what terms.
5. At the hearing before HHJ Rudd Ms Robinson sought an immediate order for sale in her amended application under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (the 1996 Act). Mr Dear contested the proceedings, as he wanted the sale postponed. As the judge made the order asked for by Karen Robinson, Mr Dear applied for permission to appeal. The application came before Clarke LJ, who adjourned it to be heard on notice, with the appeal to follow immediately if permission were granted.
6. Shortly before the adjourned hearing of his application Mr Dear changed his mind. He decided that he wanted the Property sold after all. He informed the court of his intention to discontinue his application for permission to appeal and to seek an order that Ms Robinson pay all his costs of the hearing below, which he had lost and is no longer seeking to appeal, and of the application for permission, which he wishes to discontinue.
7. Ms Robinson has also changed her mind. She does not want the property sold after all. She accepts that she cannot prevent Mr Dear from discontinuing his appeal from the sale order, but she can and does support Aaron's application for permission to cross appeal against the sale order.
8. Aaron wants the sale postponed for seven years on terms as to various lump sum payments and occupation payments to be made to him and his mother by Mr Dear while he occupies the property. Aaron's application for permission is opposed by Mr Dear, who advances the very arguments for a sale which he unsuccessfully contested below
9. So in this topsy turvey tale Mr Dear says that the decision that he originally wanted to appeal is in fact right, so he no longer wants to appeal it. And Ms Robinson says that the order she asked for and was granted is in fact wrong and should be reversed on the proposed cross appeal by her son Aaron. This only begins to make sense by reference to other proceedings involving Mr Dear's and Ms Robinson's interest in the Property.

The Pre-emption Proceedings

10. Mr Reeves, for whom Ms Robinson used to work, assigned to Mr Dear and Ms Robinson the benefit of a contract to purchase the Property on their granting to him a right of pre-emption by a deed dated 1 August 1988. They gave an undertaking to Mr Reeves that, for a period of 21 years from 1 August 1988, they would not sell the Property or offer to do so without first offering to sell it to him at a price to be determined in accordance with the terms of the deed. At that time Mr Dear and Ms Robinson were in a relationship. They lived together in the Property. They later split up. She went to the USA and married someone else, from whom she was later divorced.
11. In another appeal from a decision of HHJ Rudd this court handed down judgment on 1 March 2001 holding that the right of pre-emption was not vested in Mr Reeves, who unsuccessfully claimed to have validly exercised the right of pre-emption, as he had been declared bankrupt in March 1993: the right was "property" within the meaning of the Insolvency Act 1986 and had accordingly vested in his trustee in bankruptcy. The judgments of this court are reported in [2001] 3 WLR 662 sub nom Dear –v- Reeves.
12. Following that ruling Mr Dear bought the right of pre-emption from the trustee in bankruptcy. He intends to exercise it on the basis that the sale ordered by HHJ Rudd in these proceedings will trigger the right of pre-emption. This will enable him to acquire the Property, which he wishes to continue to occupy, at the price stipulated in the right of pre-emption, which is lower than he would otherwise have to pay for it.
13. This is obviously not acceptable to Ms Robinson or to Aaron. They submit that the Property should not be sold until after the right of pre-emption has expired in 2008 and that in the meantime the court should lay down the financial and other terms on which the sale should be postponed and on which Mr Dear is to continue to occupy the Property.

The Judgment

14. The judge ordered an immediate sale on the following basis:-

(a) It was agreed that he could reach a conclusion on the question of a sale without first determining the disputed entitlement to the beneficial interests in the Property. Mr Dear claimed that he and Ms Robinson were entitled to the Property in equal shares. The Declaration of Trust provided that Aaron was entitled to a 50% interest, the other two having 25% each. It was made clear by Ms Robinson that she intended to apply her share for the benefit of Aaron, who was then a minor (he attained the age of 18 on 19 May 2000) and was represented in the case by a litigation friend.

(b) It was assumed (wrongly) that Mr Reeves was entitled to the right of pre-emption and that he would exercise his right of pre-emption if he had the opportunity. If he did that, Mr Dear, who was living in the Property with his girlfriend and was paying the mortgage and other outgoings, would be left without a home and Ms Robinson and Aaron, who lived elsewhere, would be left with a sum which did not reflect its development value.

(c) Mr Dear wanted to buy out Ms Robinson's (and if necessary, Aaron's) interest without a sale of the Property which would trigger the right of pre-emption. In this way he would have the whole of the development value (if any) for himself.

(d) Ms Robinson, while recognising that a sale would trigger the right of pre-emption and give the hope of the development value to Mr Reeves, wanted an immediate sale, which would release a capital sum for Aaron's benefit and would also release her from the mortgage on the Property.

(e) Aaron wanted a sale and to be paid his 50% interest. He hoped at that time to go to university in the USA to study international finance His litigation friend had other ideas for the Property and proposed that it would be in Aaron's long term interests to postpone the sale on terms until after the right of pre-emption had expired, so that he could ultimately benefit from the development value of the Property.

(f) Mr Reeves was not a party to the proceedings (nor was his trustee in bankruptcy), but the indications were that Mr Reeves would exercise the right of pre-emption.

(g) The judge referred to the 1996 Act, noting that he had no power to alter the beneficial interests and that under section 15 he must take account of the intentions of those who created the trust of the Property and the purpose for which the Property is held.

(h) The duty to sell had arisen as Ms Robinson was no longer prepared to postpone the sale. She and Aaron wanted and needed capital now.

15. The judge concluded that "the natural and obvious answer is to order sale" for the simple reason that it was a trust the objects of which had failed.

The Applications and Appeals

(A) Mr Dear's Application

16. I would give Mr Dear leave to discontinue his application for permission on terms that the judge's decision to make no order for costs is undisturbed. There is no valid ground for interfering with that decision. Mr Dear lost the case. He no longer wishes to appeal against the result. I would decline to make an order for costs in his favour on the application for permission to appeal which he is discontinuing.

(B) Aaron Robinson's Application

17. I would grant an extension of time in which to appeal. I would also grant permission to appeal, allow the appeal and reverse the judge's order for an immediate sale of the Property. I would direct that the matter be remitted to the County Court to determine the terms on which Mr Dear continues to occupy the Property, including the amount of any occupation rent which he should pay. This court does not have the evidence to enable it to determine such matters itself. The order should also provide that all parties are to have liberty to apply generally to determine outstanding matters in dispute and to resolve matters which may arise as a result of any change in circumstances. I would not make any order as to costs on the application or on the appeal.
18. There has been a significant change in the circumstances of the parties since the decision of the court below, which justifies the grant of permission to appeal out of time and allowing the appeal.
19. The principal change occurred as a result of Mr Dear's acquisition of the right of pre-emption from the trustee in bankruptcy of Mr Reeves. Its effect on the case is most strikingly evidenced by the reversal in the attitudes of the beneficiaries whose wishes and interests the court should take into account.
20. The relevant factors now point to the court exercising its discretion under section 14 of the 1996 Act against an immediate order for sale. That course would be consistent with the wishes of the majority of the beneficiaries in value and it would not defeat the intentions of the settlors or the purpose of the trust. The position is as follows:-

(i) On the basis agreed in the court below that the question of a sale can be decided ahead of the determination of the beneficial interests in Mr Dear's challenge to the Declaration of Trust, the majority of the beneficiaries (i.e. Ms Robinson and Aaron, totalling a 75% share in the Property) are against an immediate sale.

(ii) Mr Dear is not prejudiced, as a beneficiary under the Declaration of Trust, by the court refusing to make an immediate order for sale. He can continue in occupation of the Property. He has never contended that he wants or needs a capital sum, which can only be realised by a sale.

(iii) Mr Dear is not entitled to complain in the present circumstances that he is prejudiced by the decision to reverse the judge's order for a sale. It is true that the order for sale made by the judge now works to his possible advantage, in his capacity as the holder of the right of pre-emption, and that the decision to reverse that order is potentially detrimental to him in that capacity. But there is a doubt as to whether, even if consideration of his interests in that capacity is relevant, he is beneficially entitled to the right of pre-emption. As indicated by Mr Phillip Jones on behalf of Ms Robinson there is a possible argument that he holds the right of pre-emption on a constructive trust for the other beneficiaries under the trust by reason of the rule that a trustee may not directly or indirectly profit from the trust. Mr Dear is a trustee, as well as a beneficiary, under the Declaration of Trust. The right of pre-emption now held by him would enable him to purchase the trust property, possibly at an advantageous price to the detriment of Ms Robinson and Aaron..

(iv) It would not, however, be appropriate to accede to Aaron's proposal to exercise the discretion of the court under section 14 to legislate in detail as to the terms on which the sale is to be postponed (including the payment of substantial capital sums by Mr Dear to Aaron and Ms Robinson) until after the right of pre-emption expires in 2008. There are uncertainties in the present situation which need to be resolved by agreement or judicial decision i.e. the question of Aaron's interest under the Declaration of Trust and the possible constructive trust of the right of pre-emption. I do not mention them in order to encourage yet more litigation in an already over-litigated dispute, but simply to explain the undesirability of attempting to see too far into the future in a dispute which has had more than its share of unexpected twists and turns. Even Aaron's plans have changed. The court has been informed that his immediate need for capital is less, as he has now applied to and been accepted at a number of British universities.

21. For these reasons I would make the orders indicated above.

LORD JUSTICE MAY

– I agree

Order: Appellant's application discontinued. Respondents give extension of time and permission to appeal. Appeal allowed with costs against Legal Services Commission. (Order does not form part of the approved judgment)