England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
HH JUDGE PELLING QC (sitting as a Judge of the High Court)
HC-2014-000072

		Royal Courts of Justice Strand, London, WC2A 2LL
		9 February 2018

Lord Justice David Richards:

Introduction

1. The issue on this appeal is whether a trust was validly created by the appellants' father in favour of the 1^st to 8^th respondents (the respondents) over undivided shares in a business venture carried on by him as a sole trader. The issue falls to be decided on the basis of the terms of documents prepared by the appellants' father, John North (Mr North), without any legal advice, construed against the relevant background facts as they existed at the dates of the documents.
2. The creation of a trust has significant, and generally irreversible, consequences. The settlor, by creating the trust, ceases to be entitled to the benefit of the property subject to the trust. If, as in the present case, he continues to hold the legal title to the property, he holds it, to the extent of the interest created by the trust, for the benefit of the beneficiaries of the trust and becomes subject to exacting fiduciary duties owed to the beneficiaries in relation to the trust property. The law therefore requires certainty on three crucial elements: the intended beneficiaries, the property to be subject to the trust and the intention of the settlor to create the trust. These elements must be established objectively by reference to the documents, words or conduct relied on as creating the trust. Statements as to the settlor's intention made subsequently are irrelevant. There is a parallel with the approach adopted to determine whether a contract has been made.
3. There is, in the present case, no issue about the identity of the beneficiaries, if the other two elements are established. They are the respondents. The points in issue are whether Mr North intended to create a trust and, if so, the property to be subject to the trust. These issues are closely linked.
4. Mr North died in February 2012, over four years before the trial, but so far as the claim to a trust rests on documents, as it very largely does, his evidence would have been irrelevant, as there was no real dispute about the background to the documents.
5. HH Judge Pelling QC, sitting as a Judge of the High Court, held that Mr North had validly created trusts in favour of the respondents, albeit "with some hesitation". Permission to appeal was granted by Lewison LJ.
6. The claim was for a declaration that a residential property in Rackheath, Norfolk which is occupied by Peter North (the second appellant) and his family was held on trust for the claimants (the respondents to this appeal). The claim was made on the basis that a mortgage loan used for its purchase had been repaid from funds that were subject to the trust. Legal title to the property was transferred to, and is still held by, the 9^th respondent, a company established by Mr North, If the funds were subject to the trust, the company had notice of that fact through the knowledge of Mr North.
7. Apart from the issue of the alleged trust, and on the assumption that it had been validly created, there were a number of defences and other issues before the judge, all of which he decided against the appellants and none of which are subject to this appeal.
8. The judge helpfully and concisely set out the background facts:

"5. Mr North designed a spallation drilling device and then a component based on his spallation drilling device that could be applied in the manufacture of vacuum cleaners and washing machines amongst other things. Having entered into a confidentiality agreement with Electrolux Floor Care and Light Appliances AB ("Electrolux"), a corporation that manufactures such products, in breach of that agreement Electrolux adopted Mr North's designs other than by agreement with him. He instructed an Attorney in Texas to commence proceedings for damages for breach of contract against Electrolux. Those proceedings were settled before trial by a payment to Mr North, net of the Attorney's contingency fee, of US$17,774,135.52 ("the damages").

6. The claimants allege that they invested significant sums of money with Mr North for the purpose of enabling him to develop and exploit his inventions. The claimants maintain that they all invested on the basis of agreements with, or declarations by, Mr North that they would each receive back their initial investment, a sum equivalent to 5 times their initial investment and a percentage "equity position" in "the venture" that was different for each investor but appears to have depended on mutual agreement and the amount invested.

7. It is the claimants' case that the damages were fruits of the venture and that following payment of the damages by Electrolux to Mr North they became entitled not merely to the return of their investment and the agreed uplift but a percentage share of the damages calculated by reference to their agreed percentage equity position. Mr North is said to have paid the investors all or most of their respective initial investments and the uplift but not any sum in respect of the investors' respective equity positions. None of the claimants maintain in these proceedings that they are entitled to recover anything other than the sums they maintain they are entitled to in respect of their respective equity positions.

8. Mr North's failure to pay the investors the sums they maintain they are entitled to in respect of their respective equity positions resulted in proceedings in the Chancery Division by the claimants ("the first claim") in which it was alleged that the damages were held on trust as to the sum of the amounts claimed by each investor by reference to their agreed percentage equity position. Mr North did not cooperate in the conduct of those proceedings but in the end the claimants in the first claim recovered a default judgment against Mr North for £2.138 million, which he failed to pay."

9. The basis of the respondents' claims is not identical. The first respondent, Mr Wilkinson, relies on a document dated 25 June 1997 and signed by himself and Mr North (the Wilkinson Agreement). The third to seventh respondents rely on letters in substantially similar terms signed by Mr North and sent to them in 1999 – 2000. The second respondent, Mr Winch, relies on oral discussions between himself and Mr North in November 1997 and May 2004 and the eighth respondent, Mr Thomas, relies on discussions with Mr Wilkinson. As it is not suggested that any of the trusts were created over interests in land, they could be created orally.
10. In order to determine whether Mr North intended to create trusts in favour of the respondents, it is necessary to examine the documents or discussions relied on, in the context of their surrounding circumstances. The question of whether there was sufficient certainty of subject, that is, sufficient identification of the property to be held on trust, is common to all the claims and I will address that first.

Certainty of subject-matter

11. In Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 at 705, Lord Browne-Wilkinson identified four propositions fundamental to the law of trusts. They included, first, that to establish a trust there must be identifiable trust property (leaving aside the special case of constructive trusts, which is not relevant to the present case) and, secondly, that "[o]nce a trust is established, as from the date of its establishment the beneficiary has, in equity, a proprietary interest in the trust property…enforceable in equity against any subsequent holder of the property (whether the original property or substituted property into which it can be traced) other than a purchaser for value of the legal estate without notice". At p.709, Lord Browne-Wilkinson said that "A trust can only arise where there is defined trust property; it is therefore not consistent with trust principles to say that a person is a trustee of property which cannot be defined".
12. It is worth recording that, so far as the researches of counsel and the court go, there is no decision of any court addressing a trust created by a sole trader of a share of his business. Nor has any discussion of such a trust been found in any textbook or precedents book. As will become apparent, even if such a trust is possible, it raises significant issues which one would expect to be addressed by anyone proposing to create such a trust.
13. Although the judge said that the property subject to the trusts that he found to have been created in favour of the respondents other than Mr Wilkinson and Mr Winch was the "the assets of, and goodwill associated with, the business carried on using the trading name Hydratherm", he did not explicitly identify the assets subject to the trusts in favour of Mr Wilkinson and Mr Winch. The Wilkinson Agreement and the first discussion with Mr Winch pre-dated the Hydratherm business by at least two years and eighteen months respectively (judgment at [25]), when Mr North had not yet developed the application of his spallation drilling technology to vacuum cleaners and washing machines. However, by a parity of reasoning, it is reasonably apparent that the judge considered that the trust in favour of Mr Wilkinson and Mr Winch covered the assets and goodwill of Mr North's business concerning "spallation drilling and its applications as well as the "Hot Dry Rock" programme", to quote from the Wilkinson Agreement.
14. I will assume – no-one has suggested the contrary – that there were at the date of the Wilkinson Agreement one or more assets falling within that description. It would seem likely that, if nothing else, Mr North had some intellectual property rights in respect of his spallation drilling technology. This is important because the creation of a valid trust requires the existence at that time of some assets to which the trust would apply: see Lord Browne-Wilkinson in the Westdeutsche case at p.705. If, however, there were no business assets at the time of the Agreement, there could not be a present trust, only an agreement to create a trust over future property, which would require consideration to be enforceable. The Wilkinson Agreement did not in my view contain any consideration moving from Mr Wilkinson. At most, it was an agreement to agree and hence lacked legal effect as a contract to create a trust.
15. Mr Munby, appearing for the appellants, submitted that there were three grounds on which the judge was wrong to hold that the property subject to the alleged trust was sufficiently certain.
16. First, there were insurmountable difficulties in identifying the relevant assets. Clearly, they did not include Mr North's personal non-business assets, but, without a separate business structure, it was impossible to draw the line with a sufficient degree of certainty. The example was given of a sum of money earmarked by Mr North for use in the business. Was it an asset of the business in circumstances where Mr North could change his mind and decide not to use it in the business?
17. I do not regard this as an insurmountable problem. The assets of a business will in the case of many assets be obvious. It is true that there may be difficult questions as to whether a particular asset falls for the purposes of a trust to be an asset of the business, but the courts have for many years had to resolve such issues. For example, there are numerous cases in which a testator has left his business, or one of his businesses, to a particular beneficiary, requiring the assets of the business, as opposed to the testator's other assets, to be identified. In In re Rhagg (Deceased) [1938] Ch 828, a testator bequeathed his business as a solicitor and the office furniture, law books and other articles in the office to his managing clerk, leaving the residue to charities. Questions arose as to whether the gift of the business included various assets, including the business premises and loans to clients. Simonds J held that they were included. At p.836, he said:

"There will, no doubt, often be room for controversy what are the assets of the business, whether it be an individual business or a partnership business. But, if an asset can properly be called an asset of the business, I see no reason for its exclusion from the bequest, unless a particular context makes exclusion necessary."

18. For another example, see In re White (Decd) [1958] Ch 762.
19. Second, Mr Munby submitted that assets of the business were a constantly changing collection of assets about which there would be uncertainty and over which a trust could not therefore be created. However, that constantly changing assets can form the subject of a valid trust is shown by the decision of this court in In re Lehman Brothers International (Europe) [2011] EWCA Civ 1554 at [69] – [77].
20. The submissions dealt with above would apply to a trust of the whole business as much as to a trust of a share of the business, but Mr Munby's third submission is directed specifically at the situation in this case of a trust of an undivided share of a business. He submitted that such a trust could not take effect on account of an insufficient identification of the assets subject to the trust. He referred to the decision of this court in Hunter v Moss [1994] 1 WLR 452, in which a trust of 50 shares out of a holding of 950 shares was held to be valid, notwithstanding that there was no identification of the particular 50 shares. This, submitted Mr Munby, represented a particularly generous application of a strict rule, although I think it fair to say that the decision in the Lehman Brothers case referred to above, in which Hunter v Moss was considered, goes further.
21. In my judgment, a generalised statement is insufficient and it is necessary to look at each class of asset of the business. In terms of certainty of subject, I do not see a difficulty in a trust of a share of an indivisible asset, such as real property, intellectual property rights or book debts. Having regard to Hunter v Moss and the Lehman Brothers case, there would not be an obstacle to a trust of an undivided share of a holding of securities or of a credit balance on a bank account (see Hunter v Moss at first instance: [1993] 1 WLR 934 at 941H). However, in the present case, Mr Wilkinson's beneficial interest would attach not to 5% of a credit balance on a particular date but to 5% of such fluctuating credit balance as from time to time existed during the currency of the trust. In my view, such a trust would not lack certainty of subject matter but it raises serious issues, which I address below, as to how such a trust was intended to operate, those issues being relevant to whether Mr North had the necessary intention to create a trust.
22. On one view, any chattels comprised in the assets of the business could not be the subject of the trust without identification of the particular chattels: see In re London Wine Co (Shippers) Ltd [1986] PCC 121, In re Goldcorp Exchange Ltd (in receivership) [1995] 1 AC 74 and In re Harvard Securities Ltd [1998] BCC 567.
23. However, in a case where A declares himself trustee of a 5% share of his business for B, it could take effect as an equitable tenancy in common between A and B in the agreed proportions: see In re London Wine Company Co (Shippers) Ltd at p.137.
24. The creation of a trust of a share in a sole trader's business undoubtedly causes difficulties, which have not been explored in any authority, but, as I see it, they go more to the question of intention than to the issue of certainty of subject-matter.
25. I therefore turn to the question whether a sufficient intention on the part of Mr North to create a trust of shares in his business can be found in the documents and discussions on which the respondents rely.

Mr Wilkinson's claim

26. The document on which Mr Wilkinson relies is dated 25 June 1997 and headed "Contract of Agreement between John North and Geoffrey Wilkinson including Provisional Terms and Conditions". It is signed by Mr Wilkinson and Mr North under the words "Agreed as written, read and understood".
27. It is necessary to set out the entire text of the document:

"Preamble

The underwritten is to be considered the understanding between the mentioned parties, and constitutes the formal contract between the nominated parties. A contract will be signed by both parties and come into effect for a period of five years (5 yrs) with three (5 yr) options, as from the funding of any given entity that will conduct the business of the company responsible for "Spallation Drilling" and its applications as well as the "Hot Dry Rock" programme. The initial terms and conditions will remain in effect for the five year period unless otherwise agreed in writing by both parties. The equity position granted to Geoffrey Wilkinson at the signing of this agreement will remain the property of Geoffrey Wilkinson for perpetuity.

Terms and Conditions.

Equity:

A five percent (5%), non dilutable, voting equity interest in the holding company, and/or any subsidiary company subsequently formed, heirs and/or successors of John North and Worldrill, will made [sic] available to Geoffrey Wilkinson at the signing of this contract and demonstrated by the issuance of stock certificates. An additional non dilutable, three percent (3%) equity interest in all subsidiary or associated companies registered outside the UK, and/or a three percent (3%) profits interest in any UK company doing business outside the UK will be granted to GJW. The equity position will cover the activities of any company or corporate vehicle, trust, partnership or similar of John North, his heirs or successors.

Geoffrey Wilkinson pledges that the above provision does not include any private trust or corporation set up by John North for the sole benefit of any heirs, assignees or successors of John North, [if] he donates or grants equity shares in the business, to same. John North covenants to donate, pledge or grant only that percentage of equity shares or interest to the trust or corporation owned outright by John North at that time.

Compensation:

An annual salary of (to be agreed) will be paid bi-monthly to Geoffrey Wilkinson as from the signing of, and funding of the first contract. Other increases will be provided for as soon as the cash flow (revenue) allows same to be applied.

Signed Bonus:

A cash sum (to be agreed) to be paid at the commencement of the contract.

Position:

A full main board directorship, with the position of CEO reporting straight to John North, as well as the board of directors.

Contract:

The duration of the contract will be for a period of Five Years (5 yrs) with three (3) five year options, commencing as from the signing and funding of the first contract with an outside agency.

Commencement:

At the first funding of the company by an outside agency."

28. I earlier mentioned that the relevant documents in this case were prepared without legal advice. Although the Wilkinson Agreement uses legal jargon, it does so in a way which shows that the parties had limited understanding of legal matters. To a lawyer, it borders in many places on the incoherent. But, as Mr Cadwallader for the respondents emphasised, there is no formality or particular language required for the creation of a trust. The court must examine the terms of the document to determine whether Mr North intended to create a trust and, if so, whether there is the certainty as regards the trust property required by the law.
29. Although the document is headed "Contract of Agreement", it did not in my view have contractual effect. Critical terms are subject to further agreement (both Mr Wilkinson's annual salary and signing bonus were to be agreed).
30. Whatever the contractual status of the Wilkinson Agreement, Mr Wilkinson's case rests on that part of it providing for the grant of an equity position to him. At the end of the Preamble, it is stated that the equity position is granted to him "at the signing of this agreement" and will remain his property in perpetuity. There follow two paragraphs against the side heading "Equity". The first paragraph is principally addressed to the issue of shares in one or more companies to Mr Wilkinson and involves no question of a trust. Mr Wilkinson's case for a trust of 5% (or 8%) of the business carried on by Mr North as a sole trader rests essentially on the last sentence of the first paragraph: "The equity position will cover the activities of any company or corporate vehicle, trust, partnership or similar of John North, his heirs or successors".
31. The judge said that "On its face, the Wilkinson Agreement was an agreement under which Mr Wilkinson would receive shares in a company to be formed…and would be employed as the CEO of that company". He observed that it was not on its face a declaration of trust. He said that it contemplated that at some stage in the future a company or companies would be formed with 5% of the shares being allotted to Mr Wilkinson, with an entitlement to an additional 3% shareholding in any non-UK company or to 3% of the profits made by a UK company carrying on business outside the UK.
32. The judge correctly directed himself that for this document to create a valid trust, the words used by Mr North must show an intention to create a trust and that the trust property should be sufficiently certain. He concluded, with some hesitation, that those requirements were satisfied.
33. The judge set out his reasoning at [30]:

"Whilst I accept that the Wilkinson Agreement has been formulated on the assumption that a company would be formed, and that Mr Wilkinson would have a shareholding in that company, I do not accept that the agreement was not intended to have any effect in the event that a company was not in the end formed. I reach that conclusion because of the final sentence in the sub-paragraph of the agreement entitled "Equity", which is to the following effect: "The equity position will cover the activities of any company or corporate vehicle, trust, partnership or similar of John North …". Like much else in the agreement, the language used is imprecise. It could have been intended simply as a means by which dilution could be avoided by aggregating all holdings held by Mr North or on his behalf and those connected with him in whatsoever form in the proposed company. However, construing the words used in their commercial context leads me to conclude that it is much more likely that the sentence was included in order to cater for the possibility that as the business referred to in the preamble developed it was decided in the end by Mr North not to carry it on using a corporate vehicle. That was an obvious risk for an investor investing before the company was formed and is likely to be one that someone in Mr Wilkinson's position would want addressed. This analysis is supported by the use of the phrase "…any given entity that will conduct the business of the company …" in the preamble and by the fact that the non-dilution issue had been expressly addressed in the opening sentence of the Wilkinson Agreement headed "Equity"".

34. At [31], the judge said that this conclusion was supported by later acknowledgements and admissions against interest made by Mr North, to which I will later refer.
35. As the judge observed in his judgment at [21], the Wilkinson Agreement is not on its face a declaration of trust and appears to be either an agreement or conditional agreement entered into in contemplation of events that did not happen. With the qualification that in my view the Agreement was not an enforceable contract because it was too uncertain in its terms, I agree with what the judge said.
36. While the judge accepted that the Wilkinson Agreement had been formulated on the assumption that a company would be formed and that Mr Wilkinson would have a shareholding in it, he did not accept that the agreement was not intended to have any effect if a company were not formed. For this he relied on the last sentence of the first paragraph under "Equity", quoted above. The judge concluded that this sentence was not aimed simply as a means by which dilution could be avoided but was included to cater for the possibility that Mr North might ultimately decide not to carry on the business using a corporate vehicle. This, the judge considered, was an obvious risk that someone in the position of Mr Wilkinson would want addressed.
37. From this analysis, which he considered to be supported by the acknowledgements and admissions detailed at [27] – [28], the judge concluded that Mr North manifested an intention to hold the assets of the business on trust for himself and Mr Wilkinson in the agreed shares.
38. It is the link between this analysis of the purpose of the last sentence of the first paragraph under "Equity" and the conclusion of a trust that is principally challenged on this appeal. The judge does not appear to have considered that his analysis could lead to a conclusion other than a trust, in particular a personal obligation, nor to have considered the difficulties involved in a finding of a trust which in turn suggest that Mr North cannot have intended to create a trust.
39. In my judgment, this challenge is well-founded. I have three principal grounds for this view.
40. First, the judge was right to identify as the primary purpose of the "Equity" section of the Wilkinson Agreement an agreement to provide Mr Wilkinson with an equity shareholding in the company that would carry on the business. That must inform the meaning to be given to the last sentence of the first paragraph dealing with Equity.
41. A shareholding would not give Mr Wilkinson any proprietary interest in the assets, gross or net, of the company. A share, as is often said, is a bundle of rights. A shareholding would give him a contractual right to share, subject to the articles of association of the company, in any dividends declared by the company and in any capital distributions, whether made on a liquidation or otherwise. The indirect "interest" of a shareholder is in the net assets and profits of the company. The assets of the company are, of course, first applied in the payment of its liabilities. A shareholding of 5%, or 8%, would give Mr Wilkinson no right or power to control the appointment of directors or their conduct of the business. The shareholding would not itself entitle Mr Wilkinson to any participation in or influence over the management of the business, although the Agreement envisaged that he would be appointed CEO of the company, albeit reporting to Mr North and the board of directors.
42. This is no template for a direct proprietary interest in the assets and goodwill of the business if carried on by Mr North as a sole trader. Just as a shareholding gives the shareholder contractual, and some statutory, rights against the company, so an agreement by Mr North to pay 5% or 8% of profits taken out of the business and of the proceeds of sale of the business would give Mr Wilkinson the equivalent rights if Mr North carried on the business in his own name. The main purpose of the Agreement therefore suggests that, if anything, contractual rights against Mr North were the intended effect of the critical sentence of the Agreement.
43. This approach is, in my judgment, strongly supported by the issues that the Wilkinson Agreement does not begin to address if a trust were intended. This constitutes the second ground for my conclusion.
44. First, how were the liabilities of the business to be dealt with? This is not an issue if the business were carried on by a company, as explained above. The judge held that the other respondents had a proprietary interest in the assets of, and goodwill associated with, the business, and presumably thought the same applied to Mr Wilkinson, although that is not spelt out in the judgment. If the judge meant that he was entitled to the agreed percentage of the gross assets, that cannot with respect be right. It is inconceivable that Mr North intended to give a proprietary interest in the assets, while not giving him any recourse as regards the debts of the business for which, as a sole trader, he would of course be personally liable. When, in the hearing of the appeal, Mr Cadwallader appearing for the respondents was asked about this, he submitted that Mr Wilkinson and the other respondents had a proprietary interest in the net assets. But, so stated, that cannot be right. Net assets are an accounting entry; they are the amount of the assets less the liabilities. They cannot form the subject-matter of a trust. It would no doubt have been possible for Mr North to have agreed that, in the event of a sale or other realisation of the business, he would hold 5% of the ultimate net proceeds on trust for Mr Wilkinson. But that cannot be spelt out of the Wilkinson Agreement. If it were clear that a trust was intended, the solution that equity might provide would be to charge the assets with payment of the liabilities. The significant point in the present context is that no thought at all had been given to this issue, an obvious issue to business people as well as to lawyers.
45. Nor had any thought been given to how the business would be managed if a trust were created. If the business were carried on by a company, the business would be managed by the directors, who in the discharge of their responsibilities would be subject to the duties now set out in sections 170 et seq of the Companies Act 2006. These are longstanding duties developed in the context of commercial concerns. They are significantly different from the duties of a trustee. Mr Cadwallader accepted that this was so, but submitted that the problem could be dealt with, if necessary, by application to the court for directions. It is difficult to imagine that any business people would think this a sensible way to proceed. If it was intended that Mr Wilkinson should have a direct proprietary interest in the assets of the business, the parties would have been likely to address the issue of management of the business, both as to rights of participation in management and as to the nature and extent of any restrictions on those responsible for management. The business was highly speculative and would likely involve the incurring of debts and liabilities which would not fit well with the conventional duties of trustees, but again no provision was made in this respect.
46. No thought was given to the rights, if any, that Mr Wilkinson might have to withdraw his share. Beneficiaries with fixed absolute interests are entitled, subject to practical difficulties of division, to call at any time for the return of their shares. This would not be the case with shares in a company. A shareholder would have no right to require his shares to be purchased by the company or others, in the absence of special provision to that effect, of which there is no hint in the Wilkinson Agreement.
47. The third ground for my conclusion is the simplest. The language of the Wilkinson Agreement is simply inapposite to create a trust, all the more so in the light of the considerations rehearsed above. The judge appears to have considered that the only way to give any effect to it was by way of a trust. I do not share that view. If effect was to be given to it, it seems to me that much the more obvious way would by way of a personal obligation on the part of Mr North of the type to which I have referred. Further, it is wholly unclear as to the time at which the supposed trust would take effect. The judge thought that it was an obvious risk that Mr North might in the end decide not to carry on the business through a company, but does that mean that the trust was to take effect not immediately but at some indeterminate time in the future? If so, that would be an agreement to create a trust, for which consideration would be required but is not, in my view, contained in the Agreement.
48. Although an intention to create a trust does not require the use of the word trust or similar language, there must be, as Scarman LJ said in Paul v Constance [1977] 1 WLR 527 at 531, "a clear declaration of trust and that means there must be clear evidence from what is said or done of an intention to create a trust". For the reasons given above, I do not consider that any such clear evidence is provided by the Wilkinson Agreement.
49. Nor do I think that the admissions and acknowledgements on which the judge relied provide support for a trust.
50. The acknowledgements comprised three lists, prepared in 2001, 2003 and 2006. The first is headed "shareholders list" and shows Mr Wilkinson with a 7% interest. It supported his case that he was entitled to shares in a company carrying applying the spallation technology to washing machines and vacuum cleaners, but it does nothing to support the existence of a trust. The other two lists show "company shares allowed [sic]". They also refer to partnership participation, but no-one has suggested that a partnership ever existed.
51. The admissions arose in the course of proceedings brought by the respondents against Mr North in his lifetime, alleging the same trusts as they advance in the present case. In a consent order made in those proceedings, Mr North admitted the trusts but denied that they extended to the damages recovered from Electrolux. Directions were agreed for the trial of that issue. Mr North subsequently admitted that he held agreed percentages of the damages on trust for Mr Wilkinson, Mr Formby, another respondent to this appeal, and Mr Day, a claimant in these proceedings but not a respondent to the appeal. Judgment on admissions was entered in favour of those parties. In the present case, the judge rejected Mr Day's case based on the same allegation of trust and he has not appealed. Mr North failed to comply with the directions in the consent order and judgment in default was entered against him in favour of the other claimants, who are respondents to this appeal. Mr North applied to withdraw the admissions on which the first judgment was based and to set aside both judgments. The application failed.
52. In dealing with Mr Wilkinson's claim, the judge did not rely on these admissions as support for his claim that the Wilkinson Agreement had created a trust but for his case that the trust extended to the washing machine and vacuum cleaner business and to the damages.
53. The judge addressed directly the significance of the admissions in his judgment at [42] in the context of a dispute about Mr Winch's percentage share, recording that they were not made in proceedings to which the appellants were parties and correctly holding that they were not bound by them. The admissions were "merely part of the evidence to be evaluated in order to arrive at a conclusion applying the relevant burden and standard of proof". I do not read the judgment as placing reliance on the admissions in support of the conclusion that a trust was created by the Wilkinson Agreement or, in the case of the other respondents, by later documents and discussions. It would not, in my judgment, be permissible to do so. The admissions were subsequent statements as to Mr North's subjective intention at the dates when the trusts were allegedly created. As such they are inadmissible as evidence of an intention to create a trust: see Lewin on Trusts (19^th ed. 2015) at 6-004 – 6-005 and the authorities there cited.
54. For these reasons, the judge was in my judgment wrong to hold that the Wilkinson Agreement created any trust over the assets of Mr North's business.

The claims of the fourth to eighth respondents

55. The claims of these respondents rest on letters sent to each of them in similar terms in 1999 - 2000.
56. The letters were headed "Hydratherm Energy International" and, in some of the letters, "A Division of Worldrill International" appeared immediately below this heading. The address of the "UK Office" was given. As the judge remarked, the heading to each letter suggested it was written by a company.
57. The text of the letter to Mr Formby, which will serve as an example, read as follows:

"This is to confirm Geoffrey Wilkinson has deposited on your behalf Four Thousand Pounds Sterling (£4,000.00) with Hydratherm Energy International as an investment into the company for the specific purpose of developing and building the third prototype cyclonic separator and centrifugal vacuum cleaner.

Hydratherm is pleased to grant an equity position of One Half of One percent (.500%) in the company and or its successors. Additionally, and upon a successful manufacturing rights payment being received by Hydratherm, a direct financial reward will be payable to you of five times (5 times) the investment for a total of twenty thousand pounds (£20,000.00), plus the original investment.

……

The company will in the near future go on to build and develop an ultra fast spallation gas jet/multi UHP hydro-jet drilling concept for ultra deep drilling and tunneling in the oil, gas, water, geothermal, mineral industries and urban infrastructure with the creation of underground chambers for the incineration of general and toxic waste, at 1,100 C subterranean and 5,000^oC surface plasma after-burning, of the waste flue gases, micro tunneling for cable and pipe laying for utilities, and the creation of "HOT DRY ROCK" super critical geothermal steam for cheaper heavy oil recovery and electrical power generation.

We have over the last several years in particular, contracted and worked with all of the principal oil companies as well as the universities in the USA and UK. Upon a successful demonstration of the concept we will be immediately considered the worlds leading authority in this field. The patents have been lodged and everything is ready for financing.

I would further confirm that the previous agreement still stands and that Hydratherm (Worldrill) will repay the principle [sic] and interest on the $30,000 and that the original one half of one percent (1/2%) be increased to one percent (1%).

I thank you for making this investment and look forward to meeting you soon when I am next in the United States."

58. The letter plainly reads as referring to an investment in a company. The first paragraph refers to "an investment into the company". The second paragraph states that "Hydratherm is pleased to grant an equity position of One Half of One Percent (.500%) in the company and or it's [sic] successors". The fourth paragraph states that "The company will in the future go on to build and develop…." In the case of Mr Wilkins, this impression was reinforced by the provision to him of documents purporting to be share certificates issued by Hydratherm Energy International in respect of stated numbers of "fully paid up Shares…in the above-named Company, And the subsequent Articles of Association of the new Company. Hydratherm Energy International Incorporated. Nassau, NP., Bahamas".
59. The judge held that the effect of these letters was to create a trust of the relevant percentage shares in the business being carried on by Mr North personally under the name Hydratherm. He said at [47]:

"In the context in which the word was used in the letters, the reference to "company" can only have been to Hydratherm. However, as is common ground, the business conducted under that name was never conducted by or transferred to a company and at the date when the letters were written it was nothing more or less than a trading name style or title used by Mr North. I have no means of knowing whether Mr North's reference to Hydratherm as being a company was the result of a lack of knowledge on his part as to what was and was not a company, or whether it was an attempt to deceive. It does not matter for present purposes. In my judgment the effect of what Mr North said was that he declared himself the trustee of the assets of the business conducted by him using the name style or title Hydratherm for otherwise what was set out in the letter could be of no effect."

60. He rejected the appellants' submission that the letters did no more than promise shares in a company and that, as the company was never formed, the investors had or may have had claims against Mr North for breach of contract or misrepresentation. The judge considered this to be a mistaken analysis:

"The letter does not contain a reference to a company to be formed but only a reference to "the company". As I have explained, in context that can only have been a reference to Hydratherm. That was not in fact a company but was the name style or title of an unincorporated business carried on by Mr North. What was being granted therefore was an equity position in that business – that is in its assets and goodwill."

61. The judge said at [49] that the effect of what was being promised "could only take effect as a declaration of trust of the assets and goodwill of the business conducted using the Hydratherm name". It did not matter that some or all of the investors thought their position was akin to that of a shareholder in a company "for if there was no company there could be no shares".
62. I am unable to share the judge's approach. It does not follow from the failure by Mr North to give effect to what he promised in the letters that he created an immediate trust of undivided shares in his business in favour of the investors. There were no words suggesting the creation of a trust, and no consideration given to the issues and difficulties involved in such a trust, to which I have earlier referred. The obvious consequence of the failure is not a trust but, as was submitted by the appellants, a claim for damages against Mr North.

Mr Thomas

63. Mr Thomas made an investment at much the same time as the fourth to eighth respondents but he had no direct dealings with Mr North, dealing instead with Mr Wilkinson. There is no reason to doubt his claim as to the percentage shareholding that he was to receive. At the same time, there is no reason to suppose that his investment was made on terms differing from those set out in the letters. Indeed, in his evidence Mr Thomas stated that he understood that he was investing in a company and that he "would, indirectly, through my shareholding, have an interest in all the assets of the Venture which would, by then, have been transferred to the company".

Mr Winch

64. The evidence of Mr Winch was that he made his investment in November 1997 following an approach from Mr Wilkinson, for which he was granted "1/8 of a percent in the Venture", increased in May 2004 to 1%. Mr North placed no restrictions "on my shares in the Venture". He said, "Although I knew at the outset that the company had not yet been incorporated, I regarded myself as being akin to a shareholder in a company in that I was receiving a share in all the assets of the Venture". Like Mr North, Mr Winch had died before the trial of these proceedings, so that the contents of their discussions could not be explored in cross-examination. In the light of the issues that I have earlier considered, I do not consider that a trust can be spelt out of this evidence, nor is it likely that Mr North intended to go further with Mr Winch than he had agreed with Mr Wilkinson or would later agree with the other respondents.

Conclusion

65. For the reasons given in this judgment, I would therefore allow the appeal as against all the respondents.

Lady Justice Gloster:

66. I agree with David Richards LJ that, in the circumstances of this case, including the terms of the documents relied upon by the respondents, no trusts over the business or the assets of the business were created. Accordingly, the appeal must be allowed.