Patel and Others v Shah and Others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MUMMERY,Lord Justice Keene,Mr Justice Sullivan,LORD JUSTICE KEENE,MR JUSTICE SULLIVAN,Lord Justice Jacob,Lord Justice Stanley Burnton,Lord Justice Mummery |
| Judgment Date | 15 August 2008 |
| Neutral Citation | [2005] EWCA Civ 157,[2008] EWCA Civ 979 |
| Docket Number | A3/2004/1637,Case No: A3/2008/1147 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 August 2008 |
[2005] EWCA Civ 157
Lord Justice Mummery
Lord Justice Keene
Mr Justice Sullivan
A3/2004/1637
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR KEVIN GARNETT QC
(sitting as a deputy judge of the High Court))
Royal Courts of Justice
Strand
London, WC2
MR DAVID HODGE QC (instructed by Messrs Russell Jones & Walker, London WC1X 8NH) appeared on behalf of the Appellants
MR GREGORY HILL (instructed by Messrs Harold Benjamin, Harrow HA1 3EQ) appeared on behalf of the Respondents
Crown copyright©
The main issue on this appeal is whether the claim by Mr Hetul Patel and three others (the claimants) to beneficial interests in various properties bought at auction and vested in the names of the defendants was rightly dismissed on the ground of laches.
The appeal is by the claimants against the order of Mr Kevin Garnett QC (sitting as a deputy judge of the Chancery Division) dated 15th July 2004. In dismissing the claimants' action he ordered that cautions registered against eight properties listed in a schedule to the order should cease to have effect. He also ordered the claimants to pay the costs and refused permission to appeal.
The commercial properties in question were purchased in the names of one or more of the defendants between February 1989 and March 1990 in circumstances that gave rise to resulting trusts in favour of the claimants' predecessor in title, a company called Greetflow Ltd. The proceedings were not issued until 5th March 2002, by which time the claimants had realised that the properties in question had recovered from the effects of the property slump, which occurred soon after they had been acquired, and that the properties had now produced income and capital gains. Although the witnesses at the trial had some difficulty in recalling events which had taken place ten or more years previously and their recollection suffered as a result, the judge commented that minutes of most of the important meetings and arrangements had been kept and the documents available provided the most reliable evidence of what had taken place.
The general defence raised by the defendants and upheld by the deputy judge in respect of all the properties in question was that, by reason of laches, the claimants lost the right to enforce against the defendants their claims to beneficial interests in the relevant properties. Mr Hodge QC, appearing for the claimants, characterised the principal point on the appeal as whether the equitable defence of laches, which was developed by the court of equity in connection with discretionary equitable remedies, is also available as a defence in an action by beneficiaries against their trustees for the recovery of trust property.
On the appeal, for which permission was given by Jacob LJ, the claimants seek a declaration that five of the eight scheduled properties, alternatively two of the five properties, were held by the defendants as trustees for the claimants. (I mention in passing that the claimants do not appeal against an adverse ruling by the deputy judge in respect of remaining properties, which are referred to in the judgment as "the Disputed Properties". The defences in those particular cases arose out of particular transactions involving the transfer of, or an agreement to transfer, the beneficial interests in exchange for being relieved from any liability to contribute to shortfalls in mortgage repayments in respect of the properties.) The claimants also ask on the appeal for an order for sale and for an account of the defendants' dealings with the properties which are subject to the appeal.
The Facts
The deputy judge summarised the factual background to the proceedings and the arrangements which had been made between the parties in paragraphs 2 and 3 of his judgment:
"2. The Properties consist of a number of commercial premises which were purchased in the names of the Defendants between February 1989 and March 1990. They were bought as separate joint ventures involving a number of different investors. In general terms, what happened was that individual properties were purchased at auction and investors were then found from amongst a circle of friends or business colleagues to contribute to the purchase price. All the Properties save one were purchased in the names of one or other of the Defendants. This seems to have been because the Defendants were able to raise finance and insurance for the Properties better than anyone else. The major part of the price was in most cases raised by way of mortgage in the name of the purchaser/trustee, to which the rental income made a contribution. At the time, the property market was rising and the general idea was that properties purchased in this way should be sold fairly quickly to make a profit. This is what happened in the case of various other properties that were purchased in this way by these investors but in the early 1990s the property market suffered a slump which meant these Properties could generally only be sold at a loss. In the event, a decision was generally made to hang on to the Properties rather than suffer the loss, even though in most cases there was a shortfall between the rental income and the mortgage repayments which had to be funded at a time when interest rates had risen from their 1989 levels. This action is concerned with eleven such properties.
3. There is now no dispute as to the beneficial interests of the original investors. Although, apart from one case, no declaration of trust or formal agreement was drawn up, a statement was prepared at completion by the solicitor acting for the investors which shows the relative contributions and usually also the size of the beneficial interests. Where the size of the beneficial interests is not recorded in this way, it is not in dispute that this is determined by the relative contributions."
The deputy judge made further findings of fact relevant to the issue of laches. He found that the four claimants are successors in title of one of the original investors, Greetflow Ltd. By two deeds of assignment dated 10th August 1992 Greetflow assigned its beneficial interest to the claimants for the sum of £1. The principal assignment contained this recital:
"(1) On or about 1989 to 1990 the Assignor contributed towards the purchase price of properties detailed in the schedule hereto ('the Properties') in partnership with certain third parties by oral agreement or written deeds of trust or otherwise in writing with the same and thereby acquired beneficial interests in the Properties in accordance with their contributions (the Assignor's share is detailed in the schedule hereto)."
The schedule to that assignment listed 11 properties, most of them being expressly stated to be subject to mortgage to a named bank or building society, though two of them were stated to be without a loan. The defendants were not informed of the assignments. The judge commented (paragraph 74 of his judgment) that no explanation was provided for this "which would seem to me to have been a natural thing to do unless perhaps it was appreciated that the assignees might come under onerous obligations." The judge rejected the claimants' evidence that the defendants had got to know about the assignments early in 1994.
On 14th September 1993 Greetflow was struck off the Register of Companies for failing to file accounts. It was duly dissolved. This fact was known to the claimants and the defendants. Greetflow was not restored to the Register until 2003 and only then was it done having regard to the nature of the claims made in the action.
The two properties which were purchased without the assistance of a mortgage were the subject of the claimants' alternative arguments on this appeal. The properties in question were 4/4A Northgate House, Market Street, Eckington, Derbyshire, which was sold in 1999 and in which Greetflow had a 1/7th interest, and 16 Fore Street, Saltash, in which Greetflow also had a 1/7th interest.
In the case of the mortgaged properties the anticipated mortgage payments exceeded the reserved rents in many, though not all, cases. Where there was a shortfall the original understanding of the parties was that the defendants would meet the shortfall in the first instance. They would then recoup their expense out of the sale proceeds. The intention was that the parties would sell the properties that they had acquired quickly and would take a profit. After the property market crash in the early 1990s it was no longer possible for the parties to trade properties in the way in which they could contribute to the shortfall out of the proceeds of sale of properties as things went along. The investors decided to hold the properties for the longer term. The shortfalls were to be repaid by the investors meanwhile. In general, the investors, such as Greetflow, were called on by the defendants to pay shortfalls in the sums stated in short, unparticularised accounts of annual shortfalls which were attributable to each investor. The accounts were prepared on behalf of the defendants and supplied to the other investors. Greetflow failed to pay its contributions, presumably, the judge commented, because it was not able to do so. It dropped out of the picture. The result was that the defendants had to make up the shortfalls from their own assets in various ways,...
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Case Note
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