Court authority piles up

By Kerry Bretherton QC & Katie Gray who appeared as counsel for the appellant.

A recent High Court decision suggests that serving a notice to quit is not a breach of trust.

In Pile v Pile [2022] EWHC 2036 (Ch) two brothers ran two businesses together: one a farming enterprise and the other a commercial venture. They had been in a partnership, which was subsequently dissolved. A dispute later emerged regarding two parcels of land: one occupied pursuant to a joint tenancy protected by the Agricultural Holdings Act 1986; the second a commercial lease with protection under the Landlord and Tenant Act 1954. It was common ground between the parties that neither the agricultural tenancy nor the commercial lease were ever partnership property.

The appellant entered into negotiations with the landlord. This was a matter of some concern for the respondent, who was worried that his brother intended to serve a notice to quit the tenancies in order to obtain a new tenancy of the land to a company of which he was a director and shareholder; something he had previously attempted. The respondent sought an interim injunction restraining the appellant from serving notice to quit and from entering into a new (sole) lease agreement with the landlord. At the interim hearing the circuit judge granted the injunction, albeit in more limited terms than were sought.

Outcome of the appeal

On appeal to the High Court, Zacaroli J allowed the appeal. He held that the service of a notice to quit a joint periodic tenancy by one of two trustees of a bare trust of land under the Trusts of Land and Appointment of Trustees Act 1996 could not amount to a breach of trust. He reached this conclusion notwithstanding the allegation that the notice was given in order to allow the trustee to obtain a personal benefit, namely a new lease of the land in his own name.

The judge accepted the arguments of the appellant that: (1) pursuant to Hammersmith & Fulham LBC v Monk [1992] 1 AC 478 a periodic tenancy only continues for as long as it is the will of both parties that it should. The continuation of the tenancy is the positive act, not the service of the notice to quit; (2) One of two joint tenants is perfectly entitled to bring the tenancy to an end if they no longer wish to be bound to continue the contract; and (3) Crawley Borough Council v Ure [1996] QB 13 and Notting Hill Housing Trust v Brackley [2001] EWCA Civ 601; [2001] 3 EGLR 11 confirmed that service of a notice to quit is not the exercise of a statutory or other power vested in a trustee. The judge concluded that if no trusts powers are being exercised, then there can be no breach of trust.

This case neatly demonstrates the distinction between the two strands of authorities that may apply to trustees of a joint periodic tenancy, following the comprehensive consideration of the relevant authorities in Proctor v Proctor [2022] EWHC 1202 (Ch). In a basic co- ownership trust under 1996 Act service of a notice to quit was not a function of a trustee and so the exercise of that right could not be restrained.

However, the judge considered that a breach of trust could occur where there was “a trust of a more specific character” in the line authorities which were determined after Keech v Sandford (1726) Sel.Cas,61 and developed the principle established in that case. In those cases, in which the courts had been willing to intervene to prevent action by a trustee, specific additional relationships existed. Examples cited to the judge by the parties included trusts of partnership assets such as Thompson’s Trustee in Bankruptcy v Heaton and others [1974] 1 WLR 605 or dissolved partnerships such as Harris v Black [1983] 83 PNCR 466 or Proctor; cases where there is a specific agreement such as Cork v Cork [1997] 1 EGLR 5; trusts where land is held for a third party or a minor and/or where the purpose of the trust is the provision of a marital home such as Protheroe v Protheroe [1968] 1 WLR 519. The appellant successfully argued that all of those cases in which judicial intervention was permitted involved one of these factors additional to the duties placed on the trustees deriving from the pure 1996 Act trust of land.

Practical application

The decision has wide practical implications, because it confirms that the service of a notice to quit in a “bare” trust of land situation can never be a breach of trust as the act itself does not amount to the exercise of a trust function. If a claimant is seeking to make a breach of trust argument in circumstances where the other party has served notice to quit, then it is crucial that all the elements of the trust are   pleaded, including full details of the purpose(s) for which the land is held. In order to raise an arguable case, such a claimant will need to show that the trust is something more than a standard co-ownership trust.

What remains to be seen is the extent to which one of two joint tenants will seek to argue that one of the additional factors exists in cases which may, hitherto, have been regarded as bare trust cases.

First published in the Estate Gazette on the 3rd of September 2022.