Piece of the puzzle: Iles v Iles

It is not uncommon for a trust deed to identify the subject matter of the trust by reference to a separate schedule. In the normal course, that schedule will be attached to the deed. What happens, however, when the schedule subsequently cannot be found? Is the trust sufficiently certain to be enforced? That was one of the issues the High Court was required to determine in Iles v Iles [2012] EWHC 919 (Ch).

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Rebecca was the only daughter of Margaret and Robert Iles. When she was four years old, Robert and Margaret purchased a plot of land on the periphery of the Forge Industrial Estate in Darlington (‘the 1983 land’) which, they declared in a deed, was to be held by them together with the income from the land on trust for Rebecca until she reached the age of 21, at which time it was to be transferred to Rebecca.

In 1989, by a further deed, Margaret and Robert exchanged with the local authority part of the 1983 land, together with part of Robert’s solely owned land on the periphery of the Forge, for other land at the centre of the Forge. Part of the local authority’s land was transferred to Robert and Margaret as trustees for Rebecca, and part was transferred to Robert beneficially.

Following the exchange with the local authority, the land at the Forge held by Margaret and Robert as trustees and by Robert for himself appeared on a plan, as the judge described it, as something like a “jigsaw puzzle”.

Robert and Margaret employed a surveyor to measure and mark out on a plan an area within their new holdings which was equivalent to that part of the 1983 land which had been given away in the exchange with the local authority. The area so identified was in the shape of a trapezium, most of which was land held by Robert and Margaret as trustees for Rebecca, but part of which was held by Robert beneficially.

Nothing further was done until 1992, when by a further deed, Robert transferred that part of the land within the trapezium which he held beneficially to himself and Margaret as trustees for Rebecca. A declaration of trust, executed later that year but backdated to the date of the transfer, recited Margaret and Robert’s ownership of the 1983 land and declared that land identified in a schedule to the declaration of trust was to be held on trust for Rebecca together with income from the land until she reached the age of 25.

Subsequently, the land within the trapezium was consolidated at the Land Registry and registered under a single title number. It was this land (‘the disputed land’) which formed the subject matter of the dispute.

Robert died in April 2000. During the course of the administration of his estate, Margaret was registered as the sole proprietor of the disputed land, it appears as a result of an error on the part of her legal advisers, who treated her as having taken the disputed land under Robert’s will rather than by survivorship.

In any event, it was common ground that Margaret had received all rents and income from the disputed land since the date of Robert’s death.

In 2004, just before her 25th birthday, Rebecca had a conversation with Margaret about the disputed land. The precise terms of that conversation were disputed, but it was common ground that thereafter Margaret paid Rebecca £200 per month from the rents from the disputed land, later increased. The relationship between Rebecca and Margaret broke down in 2008, at which time the payments ceased.

Principal issues

There were two principal issues for the judge, Briggs J. ?

1. The first was whether, in the absence of the schedule to the 1992 declaration of trust, there was a trust which was sufficiently certain to be enforced. ? Perhaps unsurprisingly, Rebecca sought to rely upon the extensive conveyancing history set out above, and argued that it was plain that the land which was referred to in the 1992 declaration of trust must have been the trapezium identified by the surveyor in 1989, which in turn was clearly intended to replace the 1983 land which was held on trust for her. Margaret simply argued that, in the absence of the schedule, the subject matter of the trust was insufficiently clear for there to be a valid trust.

2. The second issue was whether, if there was a valid trust, Margaret was entitled to relief under section 61 of the Trustee Act 1925, which permits a trustee to be relieved from the consequences of a breach of trust if they can show that they acted reasonably and honestly and that they ought to be excused from their breach of trust. ?

Margaret’s case was that she had known nothing of the existence of any trust in favour of Rebecca at any time, and that her signatures on the conveyancing documents and declarations of trust were provided at Robert’s request without her understanding or having explained to her any of the documents she was signing. Margaret said that the first time that she became aware of the trust was when Rebecca’s solicitors sent her a copy of the 1992 declaration of trust shortly before issue of the proceedings.

Rebecca conceded at trial that the evidence as to Margaret’s limited involvement with the trust land before Robert’s death meant that Margaret had a good case for relief for the period up to April 2000.

Thereafter, Rebecca pointed to Margaret’s signature on the documents (some of which were witnessed by a solicitor), to the monthly payments of £200 made after April 2004, and to Margaret’s attendance at the Forge to collect rents following Robert’s death (but before the reading of his will) as evidence that Margaret was well aware ?of the trust.

Even if she was not aware of the precise terms of the trust, Rebecca argued, Margaret should not be permitted to take advantage of her own failure to ascertain the true position through her professional advisers.

Key decisions

On the first issue, Briggs J found that the disputed land was held on trust for Rebecca. In doing so, he held that: ?

1. It was by no means certain that there had ever been a schedule attached to the 1992 declaration of trust.

2. If there had been such a schedule, ?it would have identified the disputed land.

3. In any event, the schedule would have been surplusage; it could be established from the undisputed conveyancing history that each of three constituent parts of the disputed land were in any event held on trust for Rebecca.

On the second issue, the judge found that Margaret knew that Rebecca was entitled to some of the rents from the Forge on and from her 25th birthday, and that such entitlement arose under some form of trust. He held that Margaret did not know about the ?precise terms of the trust, nor did she make any enquiries as to those terms.

When, in 2004, Rebecca brought up the issue of her entitlement under the trust, the judge found that Margaret simply offered her monthly payments by reference to what she could afford.

Applying the section 61 criteria, the judge held that Margaret could be excused for her lack of knowledge up until Rebecca’s 25th birthday, but thereafter she could and should have sought advice about Rebecca’s entitlement under the trust.

In failing to do so she forfeited the right to relief under section 61, and was liable to account to Rebecca from her 25th birthday. That finding, of course, was consistent with the timing of Margaret’s monthly payments to Rebecca.

The court ordered Margaret to transfer the disputed land to Rebecca, and that an account be taken of the sums due to Rebecca under the trust from her 25th birthday to date.

Practice points

Besides the obvious (but vital) importance of ensuring that trust deeds are always kept together with any schedules or appendices to which they refer, this case also demonstrates the importance of looking to other extrinsic evidence where a trust deed appears at first blush to be defective. Margaret’s solicitors spent many hours recreating the conveyancing history from a number of separate files, all of which were provided by Margaret’s previous advisers.

That painstaking work provided the basis for the judge’s findings in Rebecca’s favour on the first issue, but, equally importantly, it also allowed him to see the justice of the case. Once it was established that Margaret and Robert plainly intended to hold the disputed land on trust for Rebecca, it would have been a harsh judge indeed who allowed Margaret to take advantage of a technical point in order to avoid any liability to account under the trust.

This case is also a good example of a practical application of the criteria for granting relief under section 61 of the Trustee Act 1925. It shows that the court is not only concerned with a trustee’s actual knowledge, but also with what they ought to have known or discovered if they had acted reasonably (that is to say, their constructive knowledge).

Simon Goldberg is a barrister at Trinity Chambers and acted for Rebecca Iles