Court considers fair dealing rule

The original claim concerned properties which were eventually found, following a trial in 2012, to have been held on trust by the son (S) for the father (F).

F had been made bankrupt in the interim, so the beneficial interest in the properties had vested in his Trustee in Bankruptcy (TiB). However, before judgment had been handed down in the original trial, the TiB (after inviting highest bids from F and S) had assigned any interest he had in the properties to S for £55,000. The TiB was aware of the ongoing litigation, and had seen the trial bundle.

F later took an assignment of any claims TiB had against S, and brought claims against S for breach of the fair dealing rule.

As S held the interest in the properties on trust for the TiB, he owed the TiB fiduciary duties. F alleged that S had breached the rule on fair dealing by failing to make full disclosure to the TiB, namely that he did in fact hold the properties on trust for him. The consideration of £55,000 which he then paid for the TiB’s interest had been a significant undervalue.

At a hearing in 2022 F’s claims were struck out, on the basis that S did not cause the TiB loss and/or that the TiB had not relied on misrepresentations. F appealed on various grounds.

The appeal judge summarised the law on fair dealing. Where a fiduciary contracts with his principle, it is a well-established principle that a transaction is liable to be rescinded unless the fiduciary can positively prove that the principal consented to the adverse interest and that disclosure was made of all facts material to the principal's decision. A beneficiary can set aside a transaction unless the trustee can show that:

1. They have not taken advantage of their position
2. They have made full disclosure to the beneficiary
3. The transaction is fair and honest

The appeal judge held that, in light of the factual findings in the original 2012 trial, S knew that he held the properties on trust for F, and had wrongly asserted in his defence of that claim that he did not. He created a dispute that he knew should not have existed. Having created this state of affairs, S then took advantage of his position and put in an offer to purchase any right that the TiB had in the properties, which was neither fair or honest. In the circumstances, it is clearly arguable that everything that subsequently occurred can be set aside.

F has a case with a realistic prospect of success, and the previous judge had been wrong to strike it out.  The claim was reinstated.

In regards to Ullah v Ullah [2023] EWHC 3313 (KB).