The liquidator of Harvard Securities Ltd, a stockbroking company, applied under the Insolvency Act 1986 section 112 to determine whether the company or its clients held a beneficial interest in shares of which the company held possession. Harvard Securities business was buying blocks of Australian or US shares, which it sold onto clients in parcels. It retained legal title of the shares, as a nominee for each client. But the parcels were not registered individually in the names of the clients. The company then went insolvent. It was also necessary to determine the applicable law. If the clients had a beneficial interest in the shares, it meant that they would not be available for the liquidator.
Judgment
Neuberger J held that English law applied to the US shares (Australian law to the Australian shares, up to those sold after the 14 July), and the clients did have a beneficial interest, as there was no need to segregate the property. In principle, it was a valid declaration of trust to say that a percentage of shares would be held on trust, as in the Court of Appeal's decision in Hunter v Moss.[1] But here, unidentified shares in a class were being treated as beneficial property. If the correspondence had specified the number of shares, there would have been a beneficial interest. Therefore, the clients did have an interest in the US shares. The liquidator was at liberty to sell the shares and account to the former clients out of the net proceeds of sale, pro rata, to their respective interests. Australian law was different for the shares acquired before 14 July 1986. In the course of his judgment Neuberger J said the following.[2]
55. While I am not particularly convinced by the distinction, it appears to me that a more satisfactory way of distinguishing Hunter from the other cases is that it was concerned with shares, and not with chattels.’ This is consistent with Re Rose, the basis identified (and said) unsatisfactory by Underhill and Hayton, and Atkin LJ said the words, 630, ‘ordinary operations of buying and selling goods’. Also there is a need to appropriate chattels before interests can transfer, but not so with equitable assignments of a debt or a fund.
56. Fourthly, as the editors of Meagher Gummow & Lehane on Equity Doctrines & Remedies (Third Edition) point out, the need for appropriation before any equitable interest can exist in relation to chattels can be contrasted with the absence of any such need before there can be an effective equitable assignment of an unascertained part of a whole debt or fund (see at paragraphs 679 to 682). This distinction is described by the editors as "very difficult to see"; nonetheless, they accept that, despite the criticism to which cases such as Wait have been subjected, it is unlikely that they will be overruled. The editors conclude:
"What must be appreciated, despite what has sometimes been said in reliance on the judgment of Atkin LJ..., is the narrow scope of the principle for which those cases stand: it applies only to contracts for the sale of an unascertained part of a mass of goods. So limited, the principle may still be regarded as anomalous but, perhaps, commercially convenient: see Re Wait at 636, 639, 640 per Atkin LJ."
57. The description of the sub-contracted grain in Wait, the client's wine in London Wine, and the customer's bullion in Goldcorp as "an unascertained part of a mass of goods" is quite apt. It would not, however, be a sensible description of the 50 shares in Hunter or, indeed, the shares in the present case. Mr Halpern pointed out that it is not really possible to identify, whether physically or by words, a proportion of a debt, whereas it is possible to identify chattels (by labelling or segregation) or shares (by reference to their number); he also pointed out that part of a debt or fund is fungible with the balance. For those two reasons, he submitted that the inconsistency suggested in Meagher Gummow & Lehane is not valid. There is obvious force in that point, but, in the end, it seems to me that, given that the distinction exists between an assignment of part of a holding of chattels and an assignment of part of a debt or fund, the effect of the decision in Hunter is that, in this context, shares fall to be treated in this context in the same way as a debt or fund rather than chattels.
58. In all the circumstances, therefore, it seems to me that the correct way for me, at first instance, to explain the difference between the result in Hunter, and that in Wait, London Wine and Goldcorp, is on the ground that Hunter was concerned with shares, as opposed to chattels.
59. To my mind, the provisions of cl. 5 and the correspondence and other documentation to which I have referred show that, as between Harvard and its former clients, a particular number of unidentified shares of a particular class in a particular company were being treated as the beneficial property of the client. Had the correspondence and internal records of Harvard gone one stage further, and identified the share numbers the subject of this arrangement, Mr Halpern accepts (quite rightly in my judgment) that the beneficial interest in the relevant shares would have been vested in the client. The only reason for contending that this is not the case is that the precise shares were not identified. In light of the decision and reasoning in Hunter, and the above discussion, I do not consider that it is open to me to hold that that aspect prevents Harvard’s former clients having a beneficial interest in the shares, so far as English law is concerned.
A lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the lienee and the person who has the benefit of the lien is referred to as the lienor or lien holder.
Salomon v A Salomon & Co Ltd[1896] UKHL 1, [1897] AC 22 is a landmark UK company law case. The effect of the House of Lords' unanimous ruling was to uphold firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue the company's shareholders for payment of outstanding debts.
The rule in Dearle v Hall (1828) 3 Russ 1 is an English common law rule to determine priority between competing equitable claims to the same asset. The rule broadly provides that where the equitable owner of an asset purports to dispose of his equitable interest on two or more occasions, and the equities are equal between claimants, the claimant who first notifies the trustee or legal owner of the asset shall have a first priority claim.
English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is a growing body of legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.
Re Jeavons, ex parte Mackay (1873) LR 8 Ch App 643 is a UK insolvency law case. It decided that a creditor could not reserve an obligation to himself in priority of other creditors if a company were to go into liquidation.
Re Vandervell Trustees Ltd [1974] EWCA Civ 7 is a leading English trusts law case, concerning resulting trusts.
Hunter v Moss [1994] 1 WLR 452 is an English trusts law case from the Court of Appeal concerning the certainty of subject matter necessary to form a trust. Moss promised Hunter 50 shares in his company as part of an employment contract, but failed to provide them. Hunter brought a claim against Moss for them, arguing that Moss's promise had created a trust over those 50 shares. The constitution of trusts normally requires that trust property be segregated from non-trust property for the trust to be valid, as in Re London Wine Co (Shippers) Ltd. On this occasion, however, both Colin Rimer in the High Court of Justice and Dillon, Mann and Hirst LJJ in the Court of Appeal felt that, because this case dealt with intangible rather than tangible property, this rule did not have to be applied. Because all the shares were identical, it did not matter that they were not segregated, and the trust was valid. The decision was applied in Re Harvard Securities, creating a rule that segregation is not always necessary when the trust concerns intangible, identical property.
The creation of express trusts in English law must involve four elements for the trust to be valid: capacity, certainty, constitution and formality. Capacity refers to the settlor's ability to create a trust in the first place; generally speaking, anyone capable of holding property can create a trust. There are exceptions for statutory bodies and corporations, and minors who usually cannot hold property can, in some circumstances, create trusts. Certainty refers to the three certainties required for a trust to be valid. The trust instrument must show certainty of intention to create a trust, certainty of what the subject matter of the trust is, and certainty of who the beneficiaries are. Where there is uncertainty for whatever reason, the trust will fail, although the courts have developed ways around this. Constitution means that for the trust to be valid, the property must have been transferred from the settlor to the trustees.
Resulting trusts in English law are trusts created where property is not properly disposed of. It comes from the Latin resultare, meaning to spring back, and was defined by Megarry VC as "essentially a property concept; any property that a man does not effectually dispose of remains his own". These trusts come in two forms: automatic resulting trusts, and presumed resulting trusts. Automatic resulting trusts arise from a "gap" in the equitable title of property. The equitable maxim "equity abhors a vacuum" is followed: it is against principle for a piece of property to have no owner. As such, the courts assign the property to somebody in a resulting trust to avoid this becoming an issue. They occur in one of four situations: where there is no declaration of trust, where an express trust fails, where there is surplus property, or upon the dissolution of an unincorporated association. Rules differ depending on the situation and the type of original trust under dispute; failed charitable trusts, for example, have the property reapplied in a different way from other forms of trust.
Re Bank of Credit and Commerce International SA [1998] AC 214 is a UK insolvency law case, concerning the taking of a security interest over a company's assets and priority of creditors in a company winding up.
Bristol & West Building Society v Henning [1985] EWCA Civ 6 is an English land law case that holds a person can consent to give up the right to an overriding interest in land, that will bind third parties, such as banks, that purchase a property. Although dealing with unregistered land, it is equally applicable in the case of registered land and now falls under the Land Registration Act 2002.
Westdeutsche Landesbank Girozentrale v Islington LBC[1996] UKHL 12, [1996] AC 669 is a leading English trusts law case concerning the circumstances under which a resulting trust arises. It held that such a trust must be intended, or must be able to be presumed to have been intended. In the view of the majority of the House of Lords, presumed intention to reflect what is conscionable underlies all resulting and constructive trusts.
Foskett v McKeown[2000] UKHL 29 is a leading case on the English law of trusts, concerning tracing and the availability of proprietary relief following a breach of trust.
Pennington v Waine[2002] EWCA Civ 227 is an English trusts law case, concerning the requirements for a trust to be properly constituted, and the operation of constructive trusts. The case represents an equitable exception to the need for a complete transfer of property in law.
Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd[2011] EWCA Civ 347 is an English trusts law case, concerning constructive trusts. Sinclair was partially overruled in July 2014 by the UK Supreme Court in FHR European Ventures LLP v Cedar Capital Partners LLC.
Re Goldcorp Exchange Ltd [1994] UKPC 3 is an English trusts law case by the Judicial Committee of the Privy Council decision on appeal from the Court of Appeal of New Zealand. It considers when there is sufficient certainty of subject matter to form a trust, and tracing. A company dealing in gold and other precious metals became insolvent and the Bank of New Zealand appointed receivers under a debenture. They in turn asked the High Court for guidance on how to treat the company's customers, and Thorp J refused the claims of most of the customers, leaving three categories to be settled on appeal. The outstanding issue was whether the customers had title to the gold on for them, and thus beneficiaries of a trust, or were merely unsecured creditors resulting from a breach of contract.
Re Lehman Brothers International (Europe) [2012] UKSC 6 is an English trusts law and UK insolvency law case, concerning the certainty of subject matter to create a trust.
Stichting Shell Pensioenfonds v Krys[2014] UKPC 41 was a decision of the Privy Council on appeal from the British Virgin Islands relating to an anti-suit injunction in connection with an insolvent liquidation being conducted by the British Virgin Islands courts.
Akers v Samba Financial Group[2017] UKSC 6, [2017] AC 424 is a judicial decision of the Supreme Court of the United Kingdom relating to the conflict of laws, trust law and insolvency law.
Byers v Saudi National Bank[2024] UKSC 51 is a decision of the Supreme Court of the United Kingdom in the long running litigation between the liquidators of SAAD Investments Company Limited and various parties relating to the alleged defrauding of the insolvent company by one of its principals.
References
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