Bagum v Hafiz and Hai

23 Jul 2015

Bagum’s home was owned by her and her two sons as tenants in common in equal shares.  They were therefore all the trustees and beneficiaries.  She lived there with one son (Hafiz) and family, but the other son (Hai) and his family had moved out. The relationship between Bagum and Hafiz, and Hai, had broken down, and Bagum sought an order for the purchase by Hafiz of Hai’s one-third beneficial interest. 

At the trial of a preliminary issue, the judge concluded that she had no jurisdiction under the Trusts of Land and Appointment of Trustees Act 1996 to make such an order, but instead she made an order directing the trustees to sell the house, upon terms that Hafiz should have first opportunity to buy it at a price determined by the court, failing which it should be sold on the open market, with liberty for all the beneficial owners to bid. 

Hai appealed, submitting that the judge had no jurisdiction to make such an order and even if she had, it was not a proper exercise of her jurisdiction under s.14. The appeal was dismissed. The judge had been correct to hold that she had no power under s.14 to order or direct that one beneficiary under a trust of land sell or transfer their beneficial interest to another beneficiary. 

Although sale by trustees of a property to particular beneficiaries had much the same economic effect as a compulsory transfer of a beneficiary’s interest to particular beneficiaries in exchange for money, however, it did not follow from the fact that one type of transaction lay outside the functions of a trustee, that another type of transaction did so too, merely because it had the same economic effect.

A sale of a trust property to particular beneficiaries was merely one example of trustees’ undoubted power of sale, which occurred wherever trustees sold in the open market and a beneficiary was the successful bidder. The clear object and effect of s.14 and s.15 is to confer upon the court a discretion substantially wider than that of the trustees under equitable principles.  The court is required to consider not only the legal interests and the interests of the beneficiaries as a class, but also to consider under s.15(1)(a) the intention of the person who created the trust, under s.15(1)(c) the welfare of a minor in occupation, and under s.15(1)(d) the interests of secured creditors.

Although it was an unusual form of order, it fell squarely within the judge’s jurisdiction under s.14(2)(a); it was calculated to minimise the risks to the interests of Bagum and Hafiz and their families in continued occupation, and to the interests of Hai in obtaining the proper value of his interest.

Andrew Skelly acted for Bagum in this case in the Court of Appeal. For more information, please refer to the full judgment in Bagum v Hafiz and Hai [2015] EWCA Civ 801


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