27 July 2015

When property (land) belongs to more than one person and disagreements emerge about what to do with it, what can beneficiaries and trustees ask the court to do? The court has powers over land held for several individuals under the Trustees of Land and Trustees Act (TOLATA).

How wide is the court's jurisdiction under TOLATA? Can the court order one beneficiary to sell or transfer his interest to another beneficiary or direct trustees to sell the property to a particular beneficiary without the consent of the others? Those were the questions which faced the Court of Appeal in Bagum v Hafiz and Hai.

Mrs Bagum, a widow, and her two eldest sons (Mr Hafiz and Mr Hai) owned a house in three equal shares as tenants in common. The three had made a declaration of trust declaring themselves trustees of the property for the three of them in equal shares. Both sons had married and started families. Mrs Bagum, both sons and their families and two other children of Mrs Bagum's all continued to live in the property. Family tensions grew, and Mr Hai and his family moved out.

Mr Hai wanted to release some funds from the property in recognition of his share. After lengthy correspondence and disagreement amongst the family, proceedings were issued seeking an order that Mr Hai should sell his interest to his brother, Mr Hafiz.

Having considered the court's jurisdiction under s14 of TOLATA the judge decided that she didn’t have the power to make that order. Instead she ordered that the trustees sell the property with Mr Hafiz having a right of pre-emption at a price set by the court within a set timeframe, failing which the property would be sold on the open market with all parties at liberty to bid. Mr Hai appealed.

The reason for this distinction appears to have stemmed from the court’s analysis of both the practical outcome and of trustees’ powers. An order that Mr Hai transfer his interest to Mr Hafiz would have resulted in Mr Hai’s interest being disposed of (albeit for money) while Mr Hafiz’s interest increased to 2/3 and Mrs Bagum’s remained the same. The order made resulted in the sale of the property as a whole with a right of pre-emption to Mr Hafiz – hence, if he chose to buy, then Mr Hafiz would own everything and Mrs Bagum would have to sell her share too.

The court felt that it was not part of the trustees’ function to directly dispose of a beneficial interest under a trust so was not prepared to order the former. The court had no doubt that the trustees had the power to sell the land which might have the effect of overreaching the beneficiary’s interest and turning it into money. s14 could be used by the court to dispense with the need for the trustees to get a beneficiary’s consent so an order for a sale of the whole (even with a pre-emption provision) would still result in Mr Hai being bought out and was within the court’s jurisdiction.

The Court of Appeal upheld the judge’s decision unanimously. Although recognising that, to some extent, certainly from Mr Hai’s point of view, the difference between the order sought and the order granted was a distinction without a difference, the Court of Appeal agreed with the first instance judge that the order made fell within the court's jurisdiction under s14. The court drew an analogy with situations in which trustees sell in the open market and a beneficiary is the successful bidder. Given the nature of the property it was felt that an undervaluation was highly unlikely, so the certainty of an open market sale wasn’t needed. The judge's order was 'unchallengeable' and squarely within the court's jurisdiction.

Key contact

Kevin Kennedy

Kevin Kennedy Partner

  • Estates and Land
  • Private Wealth
  • Agricultural Disputes

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