Julie Palmer & Anor v Daniel Sans
[2024] EWHC 2685 (Ch)
Arron Kendall & Anor v Timothy Dorian Ball & Anor
28 March 2024
[2024] EWHC 746 (Ch)
High Court
Two company directors bought land needed for the company's business, using the company's money, but put it in their own names. The court said this was wrong; the land belongs to the company because the directors broke their rules by putting their own interests first. The land will go back to the company.
Key Facts
- •Sherwood Oak Homes Limited and Sherwood Oak Holdings Ltd (both in administration) sought a declaration that land (the Land) held by Timothy and Carol Ball (Respondents) is held on resulting and/or constructive trust for the benefit of the companies.
- •The Respondents are directors of the companies. Mr. Ball is the sole shareholder of Holdings.
- •The Land was purchased from Mansfield District Council for £156,500 and transferred to the Respondents jointly.
- •Homes, a subsidiary of Holdings, paid the purchase price from its bank account.
- •The Respondents claimed the purchase was made with Mr. Ball's personal funds, previously loaned to Holdings.
- •The Administrators argued resulting trust (Homes paid the price) and constructive trust (breach of director duties).
- •The companies faced significant financial difficulties at the time of the Land's acquisition.
Legal Principles
Section 234 of the Insolvency Act 1986 provides a summary discretionary remedy for an office holder to obtain property the company appears entitled to, but doesn't necessarily determine title.
Insolvency Act 1986, s. 234
Paragraph 63 of Schedule B1 to the Insolvency Act 1986 allows the administrator to apply to the court for directions in connection with his functions, including resolving disputes with third parties.
Insolvency Act 1986, Schedule B1, paragraph 63
A resulting trust is presumed when property is purchased in a stranger's name, and the purchase money was paid by the claimant as purchaser.
Lewin on Trusts, 20th edition, 10-021; Rochefoucauld v Boustead [1897] 1 Ch. 196; Princess Tessy of Luxembourg v Prince Louis of Luxembourg [2018] EWFC 23
An express declaration of trust in a conveyance is conclusive unless set aside or rectified; however, this doesn't preclude a third-party claim for a resulting trust if they were the true purchaser.
Goodman v Gallantia [1986] 2 WLR 236; Pankhania v Chandegra [2012] EWCA Civ 1438; Princess Tessy of Luxembourg v Prince Louis of Luxembourg [2018] EWFC 23
Company directors must avoid conflicts of interest (Companies Act 2006, s. 175) and act in good faith to promote the success of the company (Companies Act 2006, s. 172).
Companies Act 2006, ss. 172, 175
Breach of director duties can lead to a constructive trust as a remedy, even without misappropriation of existing assets.
Davies v Ford [2020] EWHC 686 (Ch); Re Bhullar Bros. Ltd [2003] EWCA Civ 424
Outcomes
The claim for resulting trust was rejected.
The evidence showed the Respondents intended to be the owners of the Land, even though Homes paid the purchase price. The payment wasn't made by Homes 'in the character of a purchaser'.
The claim for constructive trust was accepted.
The Respondents' acquisition of the Land constituted a breach of their directors' duties under s. 175 (and s. 172) of the CA 2006. They exploited an opportunity belonging to the companies, placing their interests in conflict with the companies. The Land was declared held on constructive trust for the companies.
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