“[The responsibility of a trustee] may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.”
“Restitutionary liability, applicable regardless of fault but subject to a defence of change of position, would be a better-tailored response to the underlying mischief of misapplied property than personal liability which is exclusively fault-based. Personal liability would flow from having received the property of another, from having been unjustly enriched at the expense of another. It would be triggered by the mere fact of receipt, thus recognising the endurance of property rights. But fairness would be ensured by the need to identify a gain, and by making change of position available as a defence in suitable cases when, for instance, the recipient had changed his position in reliance on the receipt.”
“While in general it may be possible to sympathise with a tendency to subsume a further part of our law of restitution under the principles of unjust enrichment, I beg leave to doubt whether strictliability coupled with a change of position defence would be preferable to fault-based liability in many commercial transactions, for example where, as here, the receipt is of a company’s funds which have been misapplied by its directors.”
“A common law liability in restitution depends on the defendant having been unjustly enriched by the receipt. The liability of a constructive trustee is essentially a custodial liability comparable to that of an express trustee, which is imposed on him because he has sufficient knowledge to affect his conscience.”
“When considering relief for the consequences of knowing receipt it is necessary to distinguish between proprietary and personal remedies. The beneficiaries or innocent trustees will pursue a proprietary claim by following the trust property wrongly transferred or tracing its inherent value into something substituted for it: Foskett v McKeown[2001] 1 AC 103 , 127–129 (Lord Millett). The claim for personal liability is for the recipient to account as a constructive trustee and will usually only be necessary where following or tracing is not possible because, for example, the property has been acquired by a bona fide purchaser for value without notice or has been dissipated and is otherwise no longer identifiable.”
“The beneficiaries will not be able to assert a proprietary remedy against trust property transferred by the trustees to a third party, even though the transfer involves a breach of trust, if, despite the breach of trust, the transfer is effective to overreach the trusts and equitable powers in favour of the beneficiaries, so that the property transferred is freed from those trusts and powers which attach instead to the proceeds of sale or other property acquired in exchange for the property transferred. Where the interests of the beneficiaries are overreached in this way, any proprietary remedy of the beneficiaries must be asserted against the traceable proceeds of the property transferred, not the property transferred followed into the hands of any direct or indirect recipient of it.”
“A purchaser of a legal estate from trustees of land shall not be concerned with the trusts affecting the land, the net income of the land or the proceeds of sale of the land whether or not those trusts are declared by the same instrument as that by which the trust of land is created.”
“If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.”
“[i]t is of the essence of such a claim that the beneficiary asserts that the recipient has, or had, the beneficiary’s property”
“Macmillan seeks both proprietary and personal relief, claiming restitution of the proceeds of sale of the shares and equitable compensation for loss …. Each of the defendants claim to have been, or in the case of Shearson Lehman to have derived title through, a bona fide purchaser for value of the shares without notice of Macmillan’s interest.”
“There is no doubt that the Berlitz shares in which the defendants claim security interests are the selfsame shares in which Macmillan’s beneficial interest formerly subsisted. That is not in dispute. The question is whether any of the defendants has acquired an interest in those shares which is superior to that of Macmillan.”
“In the former case [the plaintiff] relies upon his continuing equitable interest in the property under an express or resulting trust; in the latter upon an equity between the parties which may in appropriate circumstances give rise to a constructive trust. The distinction, which is crucial, may have been lost sight of in the language of some of the more recent decisions on knowing receipt.”
“In respect of the Berlitz shares there was no relationship of any kind between Macmillan and any of the defendants. There is no equity between them. In the absence of such an equity, any liability of the defendants to restore the shares or their proceeds to Macmillan or to pay compensation for their failure to do so must be based upon Macmillan’s continuing equitable ownership of the shares. In the language of restitution, Macmillan's claim must rest upon ‘an undestroyed proprietary base.’ Such a claim cannot succeed against a party who has under the applicable law acquired a title to the shares which is superior to that of Macmillan.”
“In my judgment, Macmillan’s claim is properly to be characterised as a restitutionary claim which depends upon establishing a continuing proprietary interest in the subject matter of the claim; each of the defendants claims to have acquired a security interest in that subject matter which is superior to Macmillan’s interest; and the question at issue is whether any of the defendants can identify a particular act or event which had the result of extinguishing Macmillan’s interest or postponing it to that of the defendant.”
“As is pointed by Millett LJ when sitting at first instance at Macmillan Inc v Bishopsgate Trust (No 3)[1995] 1 WLR 978 at page 989 (commenting on Norris v Chambres (1891) 29 Beavan, 246, affirmed 3 De Gex Fisher and Jones 583), where a plaintiff invokes the in personam jurisdiction of the English court against a defendant amenable to the jurisdiction and there is an equity between the parties which the court can enforce, the English court will accept jurisdiction and apply English law as the applicable law, even though the suit relates to foreign land. In contrast if the equity which is asserted does not exist between the parties to the English litigation, for example where there has been a transfer of the property to a third party with notice of an equity but by the lex situs governing the transfer, the transfer extinguished the plaintiff’s equity, the English court could not then give relief against the third party even though he is within the jurisdiction.”
“I agree. If A provides money to B, both being resident in England, to purchase landed property in his own name but for and on A’s behalf, and B does so, the consequences of that transaction are governed by English law. It would be absurd if they were governed by the law of the place where the property in question happened to be located. Such a rule would lead to bizarre results if, for example, A’s instructions were to buy properties in more than one jurisdiction, for the consequences of the same arrangement might then be different in relation to the different properties acquired. It would also lead to bizarre results if A left it to B’s discretion to choose the property to be acquired, since that would give B the unilateral power to decide on the legal consequences of the transaction which he had entered into with A.”
“Although the claims to personal and proprietary relief are separate, the appellant in the present case seeks to defeat them both by the same argument resting on the provisions of the RLO which, he asserts, have the effect that the appellant never received any trust property since any trust was eliminated at the moment of registration. The respondent has not sought to argue that, even if the proprietary claim is barred by the provisions of the RLO, the personal claim can nevertheless be advanced. Both sides appear to have proceeded on the assumption that knowing receipt claims, even though for personal relief, are properly viewed as a vindication of pre-existing property rights and are parasitic on those property rights and so are inappropriate against a purchaser who takes free from the prior trust interests by virtue of the Torrens system in question: see ‘Knowing Receipt and Registered Land’ by Matthew Conaglen and Amy Goymour in Constructive and Resulting Trusts ([ed. Charles Mitchell, 2010]).”
“The recipient’s personal liability to account as a constructive trustee by virtue of knowing receipt means that the recipient is subject to custodial duties which are the same as those voluntarily assumed by express trustees: see ‘Remedies for Knowing Receipt’ by Charles Mitchell and Stephen Watterson in Constructive and Resulting Trusts (ed. Charles Mitchell, 2010). The recipient’s core duty is to restore the misapplied trust property.”
“we would stress that the reason why this matters is not because the defendant must have been unjustly enriched, but because liability for knowing receipt depends on the defendant owing custodial duties as a trustee of the property. The strict insistence on receipt of property does not make sense, except on this assumption; and it helps to explain why knowing receipt should not be collapsed into either the wrong of dishonest participation in a breach of trust, or into a liability in unjust enrichment. If the only reason why it mattered that a defendant had received title to the property was to establish that the defendant had been enriched, then liability in ‘knowing receipt’ could be expected to arise in a much wider category of case, including, for example, cases where a defendant has never received any property, but has been enriched as a result of property having been used for his benefit, as in discharge of his debts. Yet the courts have specifically denied that ‘receipt’ has this extended meaning.”
“A recipient will [incur liability for knowing receipt] if he received the misapplied assets or their traceable proceeds beneficially, in circumstances where he cannot claim to take free of the beneficiaries’ interests, and if he knows that the assets have been transferred to him in breach of trust at the time he receives the assets, or if not, then at some later time whilst he still holds the assets or their traceable proceeds”
“Thus, if the respondent had not given value for the payment, she would, in my view, have been a trustee of the money, that is to say a constructive trustee, holding it on trust for the beneficiaries under the pension fund trusts. She would have been under no relevant duty as regards the money until she had notice of the interest of the beneficiaries. Once she had such notice, she would be under a duty not to part with the remaining funds (and the traceable proceeds in her hands of any which had already gone) otherwise than by restoring them to or for the benefit of the beneficiaries, in the present case by payment to the new trustee, the claimant. That is the equivalent of the relief to which the claimant would be entitled by way of its proprietary claim”
“The essence of a liability to account on the footing of knowing receipt is that the defendant has accepted trust assets knowing that they were transferred to him in breach of trust and that he had no right to receive them. His possession is therefore at all times wrongful and adverse to the rights of both the true trustees and the beneficiaries. No trust has been reposed in him. He does not have the powers or duties of a trustee, for example with regard to investment or management. His sole obligation of any practical significance is to restore the assets immediately”
“20. It is established by Court of Appeal authority (and was not challenged on this appeal) that, where under the lex situs of the relevant trust property the effect of a transfer of the property by the trustee to a third party is to override any equitable interest which would otherwise subsist, that effect should be recognised as giving the transferee a defence to any claim by the beneficiary, whether proprietary or simply restitutionary: Macmillan Inc v Bishopsgate Investment Trust plc (No 3)[1996] 1 WLR 387 . In that case, bona fide chargees for value of shares situated in New York and held on trust for Macmillan were thus able, by application of New York law, to take the shares free of Macmillan’s prior equitable interest of which the chargees had had no notice. As will appear, I do not consider that any different position would result under the Convention [i.e. the Convention on the Law Applicable to Trusts and on Their Recognition, scheduled to theRecognition of Trusts Act 1987 ]. 21. That does not mean that a common law trust cannot or will not exist in respect of shares, simply because the lex situs may treat a disposition of the shares to a third party as overriding any interest of the beneficiary in the shares. A trust existed in respect of the shares in issue in Macmillan v Bishopsgate until they were disposed of under the lex situs by transfer to bona fide purchasers for value without notice. But a common law trust can also exist in respect of shares, such as the Saudi Arabian shares presently in issue, even though Saudi Arabian law does not recognise equitable proprietary interests at all and may not (though this has not been investigated) give any effect at all to a common law trust. 22. A common law court concerned with Cayman Islands trusts in respect of Saudi Arabian shares will give them their intended effect to the greatest extent possible, having regard to the overriding effect of any disposition under their lex situs. This is so both at common law and under the Convention. Thus, as between the immediate parties to the present trusts, Mr Al-Sanea and SICL, Mr Al-Sanea cannot deny the validity or effect of the trusts, or assert a right to deal with assets subject to a trust or their proceeds as his own, simply because Saudi Arabian law does not recognise the trusts as giving rise to the separate equitable proprietary interest that would exist if the shares were situated in, say, the United Kingdom or Cayman Islands. If Mr Al-Sanea were to be the subject of bankruptcy proceedings or a receivership in the United Kingdom or Cayman Islands, it is equally clear that his creditors could not claim that the Saudi Arabian shares formed part of his estate in bankruptcy.”
“As Lord Mance JSC … points out, where the legal owner transfers the legal estate to a bona fide purchaser for value with no notice of the beneficial interest in breach of trust, the person who owned the beneficial interest does not by any means lose all its other rights. In particular, it retains all its personal rights against the trustee, ie the party who sold the legal estate. In other words, following the transfer of the shares in this case, SICL retained its personal rights against Mr Al-Sanea, but (assuming Samba was a bona fide purchaser for value without notice and subject to section 127), SICL lost any proprietary rights or interest it had in the shares.”
“83. There are a number of reasons why the proprietary interest of the beneficiary may not be effective or enforceable. Obvious examples include cases where the property or its traceable proceeds have been transferred to a bona fide purchaser for value without notice; and cases where the property has been consumed or destroyed, or has ceased to be traceable. But that will not affect the beneficiary’s personal rights, if any, against the trustee or his amenability to personal remedies. Those rights will remain enforceable, for example by an action for the restoration of the trust assets or for equitable compensation for their loss. The personal and proprietary rights of the beneficiary exist independently, and neither is dependent on the continued existence of the other. For this reason, the beneficiary’s proprietary interest in property is of limited practical importance. It is relevant only as between the beneficiary and a third party, or for the purpose of asserting a prior claim to specific assets in an insolvency. Even then, equity acts in personam by requiring the trustee to perform his trust or a relevant third party to account. … 86. In El Ajou v Dollar Land Holdings plc[1993] 3 All ER 717 , 736–737, the question was whether the recipient of trust money was accountable as a constructive trustee on the footing of knowing receipt when before reaching him the property had passed through the hands of persons in a number of civil law jurisdictions where equitable interests were not recognised and the legal owner was treated as having the entire interest in the property. The reason was that, as between the alleged constructive trustee and the beneficiary, the former’s amenability to personal remedies was unaffected by any issue as to existence of rights in rem …. A similar analysis was applied by the Court of Appeal in Lightning v Lightning Electrical Contractors Ltd (1998) 23 TLI 35 and more recently by Roth J in Luxe Holding Ltd v Midland Resources Holding Ltd[2010] EWHC 1908 (Ch) .”
“The foundation of the claim in knowing receipt … is that a person has got their hands on property which belongs to somebody else …. If that is the analysis … the foundation of that is that the assets do not belong in equity to the recipient; and the foundation of the fact that the assets do not belong to the recipient in equity is that the transfer by which the assets were transferred is a flawed transfer. It may be a voidable transfer, it may indeed, for example if a company’s assets are disposed of in a way that is ultra vires, be an entirely void transfer. But what gives the equity to the claimants is not the knowledge of the defendants by itself, or antecedent breaches of duty, but the fact that the transaction which is impugned is not one which transfers a good title to the recipient. It is in those circumstances that the recipient, unless a bona fide purchaser for value without notice, is liable, if he still has the property, to give it back, and can be made liable to account as constructive trustee, whether he still has the property or not, if he received it in circumstances that make his receipt unconscionable.”
“58. The effect of section 26 is that a disponee is entitled to proceed, in the absence of such an entry, on the basis that there are no limitations on the owner’s powers and the disponee’s title cannot be called into question. Under subsection (3), however, the disposition will not be rendered lawful. Disponors who have acted beyond their powers can, therefore, be called to account, and a disponee may not escape liability if privy to the disponor’s conduct. 59. For example, where the disposition is in fact unlawful, the consequences of that unlawfulness can be pursued so long as these do not call into question the validity of the disponee’s title. The example may be given of trustees of land, A and B, who had limited powers of disposition, but who failed to enter a restriction in the register to reflect this fact. If they transferred the land to a buyer, C, in circumstances that were prohibited by the trust, they would commit a breach of trust. Furthermore, although C’s title could not be impeached, the protection given by the section does not extend to any independent forms of liability to which she might be subject. Thus if C knew of the trustees’ breach of trust when the transfer was made, she might be personally accountable in equity for the knowing receipt of trust property transferred in breach of trust.”
“In summary, knowing receipt should be inapplicable against a registered purchaser who can claim the benefit of section 29. In general terms, outside the context of registered land, the knowing receipt claim is parasitic on the proprietary nature of the beneficiaries’ equitable interests in the trust property: it is a claim to vindicate those property rights once they are no longer able to be vindicated in specie. The purpose served by such claims runs directly counter to the purpose of section 29, which is to protect purchasers from the effect of pre-existing interests irrespective of whether the purchaser has notice of those interests. Although it seeks to achieve that purpose merely by ‘postponing’ the pre-existing interests to those of the registered purchaser, it would undermine the function of section 29 if that were used as a reason to allow the personal claim in knowing receipt where proprietary interests are no longer enforceable.”
“Speaking for myself, I have some difficulty in accepting that a personal claim is excluded in cases where the proprietary claim fails due to land registration. First, even if it is true that personal liability in knowing receipt requires a ‘proprietary base’ before the claim can be established, that is not the same as saying that the proprietary base must be maintained for it to succeed. If it were otherwise, there would not be much point in having a personal claim at all, because it would rarely be more useful than the proprietary claim. Secondly, liability in knowing receipt is not available against a bona fide purchaser for value because they are not ‘knowing’, not (I would suggest) because being such a purchaser kills the proprietary base for the claim. If this is correct, then the fact that a land registration statute might kill the proprietary base for the claim (which it did not in Arthur) does not protect a ‘knowing’ recipient from personal liability. These are, however, deep and treacherous waters, and they form part of a larger argument about the nature of receipt based liability.”
“Technically, personal liability is sufficiently distinct from proprietary liability (both in its operation as a claim against the person and its threshold of knowledge) that there appears to be no reason why statutory protection against the proprietary claim should affect the personal one. As a matter of policy, protection from a proprietary claim makes recourse to personal liability all the more essential. To put it the other way, it is difficult to see why a recipient of property with knowledge that it has been transferred in breach of trust or fiduciary duty should be able to use legislative protection from a proprietary claim to shield themselves from alternate liability. To do so appears tantamount to using statute as a cloak for fraud.”
“5.147 We also comment on the point of the effect of section 26 more generally. We reiterate that section 26 only operates for the benefit of preventing the validity of a disponee’s title from being questioned. Section 26 does not prevent beneficiaries from claiming personally against trustees for breach of trust. It also does not prevent beneficiaries from making personal claims against disponees …. 5. 148 Section 26(3) specifically provides: This section has effect only for the purpose of preventing the title of a disponee being questioned (and so does not affect the lawfulness of the disposition). 5. 149 In our 2001 Report we explained that, despite owner’s powers, knowing receipt claims could continue to be made against disponees: Although C’s title cannot be called into question, the protection given by [section] 26 does not extend to any independent forms of liability to which she might be subject. Thus if C knew of the trustees’ breach of trust when the transfer was made, she might be personally accountable in equity for the knowing receipt of trust property transferred in breach of trust. 5. 150 Our provisional proposal was couched in similar terms. We note that the matter is not beyond doubt; in particular, the High Court of Australia in Farah Constructions Pty Ltd v Say-Dee Pty Ltd held (in respect of equivalent Australian legislation) that recipient liability could not be imposed against a defendant who had statutory protection against the beneficiaries’ equitable interests. However, the Privy Council has expressed the opposite view. 5. 151 We have ensured that our recommendation and our clause to amend the LRA 2002 do not disturb this effect of section 26. Section 26, under the LRA 2002 and under our recommendations, is no impediment to any personal claims that a beneficiary of an equitable interest has, either against the trustees or the disponee; it solely operates to prevent the validity of the disponee’s title from being questioned.”
“46. I now turn to the alternative way in which the claimant puts his claim against Mr Khan, namely as an accessory to a dishonest breach of trust by Ms Raja. On this basis, the claimant seeks to make Mr Khan liable as a constructive trustee on the ground of his receipt of the Property with the requisite degree of knowledge of the alleged breach of trust and/or fiduciary duty by Ms Raja. The necessary degree of knowledge in cases of ‘knowing receipt’ is that it ‘should be such as to make it unconscionable for [the recipient] to retain the benefit of the receipt’: see BCCI (Overseas) Ltd v Akindele[2001] Ch 537 (CA) at 455E per Nourse LJ, with whom Ward and Sedley LJJ agreed. 47. If the requisite degree of knowledge on the part of Mr Khan is established, his liability as a constructive trustee arises as a matter of law and attaches to the Property while it remains in his ownership. It is a liability which affects his conscience directly, and is not dependent upon the survival of the claimant’s original beneficial interest as one which binds the Property in his hands. This way of putting the claim is therefore unaffected by the technicalities of overreaching and land registration, as [counsel for Mr Khan] rightly accepted. It follows that the critical issue on this part of the case is whether, on the facts, there is a serious question to be tried.”
“(i) Would Saudi Arabian law characterise SICL’s rights as being those of an owner of the shares, or only those of a person to whom Mr Al-Sanea owed personal obligations under an agreement (in other words: how would the Six Transactions be understood and characterised in a Saudi Arabian Court) (‘characterisation’)? (ii) If the answer is ‘the interest of an owner’, does Islamic law (and therefore Saudi Arabian law) in principle provide a remedy for SICL against a third party purchaser of SICL’s property, if the third party knew of the lack of authority of Mr Al-Sanea to sell (‘remedy against third party’)? (iii) If the answer to (ii) above is that such a remedy would in principle exist, whether the effect of the Saudi Arabian legislation governing share registration is to preclude that remedy against a registered proprietor in a case such as this, where SICL’s interest derives from an unregistered, off-market transaction (‘effect of registration’)?”
“Appellate courts have been repeatedly warned, by recent cases at the highest level, not to interfere with findings of fact by trial judges, unless compelled to do so. This applies not only to findings of primary fact, but also to the evaluation of those facts and to inferences to be drawn from them. The best known of these cases are: Biogen Inc v Medeva Plc [1997] R.P.C. 1; Piglowska v Piglowski [1999] 1 W.L.R. 1360; Datec Electronics Holdings Ltd v United Parcels Service Ltd[2007] UKHL 23 ; [2007] 1 W.L.R. 1325 ; Re B (A Child) (Care Proceedings)[2013] UKSC 33 ; [2013] 1 W.L.R. 1911 and most recently and comprehensively McGraddie v McGraddie[2013] UKSC 58 ; [2013] 1 W.L.R. 2477. These are all decisions either of the House of Lords or of the Supreme Court. The reasons for this approach are many. They include i. The expertise of a trial judge is in determining what facts are relevant to the legal issues to be decided, and what those facts are if they are disputed. ii. The trial is not a dress rehearsal. It is the first and last night of the show. iii. Duplication of the trial judge’s role on appeal is a disproportionate use of the limited resources of an appellate court, and will seldom lead to a different outcome in an individual case. iv. In making his decisions the trial judge will have regard to the whole of the sea of evidence presented to him, whereas an appellate court will only be island hopping. v. The atmosphere of the courtroom cannot, in any event, be recreated by reference to documents (including transcripts of evidence). vi. Thus even if it were possible to duplicate the role of the trial judge, it cannot in practice be done.”
“It follows that, in the absence of some other identifiable error, such as (without attempting an exhaustive account) a material error of law, or the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence, an appellate court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified.”
“In essence the finding of fact must be plainly wrong if it is to be overturned. A simple distillation of the circumstances in which appellate interference may be justified, so far as material for present purposes, can be set out uncontroversially as follows: (i) Where the trial judge fundamentally misunderstood the issue or the evidence, plainly failed to take evidence in account, or arrived at a conclusion which the evidence could not on any view support. (ii) Where the finding is infected by some identifiable error, such as a material error of law. (iii) Where the finding lies outside the bounds within which reasonable disagreement is possible.”
“12. So we come to consider what the court’s approach should be when the trial judge has heard expert evidence as to foreign law and made findings which are challenged on appeal. What difference does it make that these are findings of fact but of a ‘peculiar kind’ because they are concerned with issues of foreign law? 13. In our judgment, the answer varies according to the nature of the issue which arises in the particular case and the kind of decision which the trial judge and now the Court of Appeal is called upon to make. Sometimes the foreign law, apart from being in a foreign language, may involve principles and concepts which are unfamiliar to an English lawyer. The English judge’s training and experience in English law, therefore, can only make a limited contribution to his decision on the issue of foreign law. But the foreign law may be written in the English language; and its concepts may not be so different from English law. Then the English judge’s knowledge of the common law and of the rules of statutory construction cannot be left out of account. He is entitled and indeed bound to bring that part of his qualifications to bear on the issue which he has to decide, notwithstanding that it is an issue of foreign law. There is a legal input from him, in addition to the judicial task of assessing the weight of the evidence given. The same applies, in our judgment, in the Court of Appeal. When and to the extent that the issue calls for the exercise of legal judgment, by reference to principles and legal concepts which are familiar to an English lawyer, then the court is as well placed as the trial judge to form its own independent view.”
“Legal estates and equitable interests are, of course, concepts of English law which may not have their counterparts in the jurisprudence of other legal systems. Where, therefore, a question arises whether a transaction in England and governed by English law created a legal estate or an equitable interest in foreign property such as shares in a foreign corporation, then recourse must be had to the foreign law in order to ascertain, not how the interest resulting from the transaction would be characterised by that law, but what rights are conferred by that law on the owner of the interest. Once the nature of the interest is known, its characterisation as legal or equitable must be determined in accordance with English law.”
“ … the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
“ … the value of an asset to a particular owner or prospective owner for individual investment or operational objectives. Investment Value is an entity specific basis of value. Although the value of an asset to the owner may be the same as the amount that could be realised from its sale to another party, this basis of value reflects the benefits received by an entity from holding the asset and, therefore, does not involve a presumed exchange. Investment Value reflects the circumstances and financial objectives of the entity for which the valuation is being produced. It is often used for measuring investment performance.” [224] Liquidation value is defined in IVS 104 as: “ … the amount that would be realised when an asset or group of assets are sold on a piecemeal basis. Liquidation value should take into account the costs of getting the assets into saleable condition as well as those of the disposal activity.”
“ … the value of a group of assets that could be realised in a liquidation sale, given a reasonable period of time to find a purchaser (or purchasers), with the seller being compelled to sell on an as-is, where-is basis. The reasonable period of time to find a purchaser (or purchasers) may vary by asset type and market conditions.”
“The adjustment that is sometimes applied when the subject asset represents a large block of shares in a publicly-traded security such that an owner would not be able to quickly sell the block in the public market without negatively influencing the publicly traded price.”
“ … I do not agree with the claimants’ arguments that an assumed transaction in the property in question is wrong in principle as a basis for assessing the objective value of trust assets. In many cases, market value will be the most appropriate basis on which to assess the objective value of the property; however, market value is not necessarily the right basis of valuation in every case.”
“The purpose of the valuation in this case is to estimate (in the sense in which IVS 104 uses that word) in money terms the sum that will put the trust in the same position as if the misapplied property were still held for its benefit. The most appropriate basis of value should therefore be used to achieve that objective.”
“ … when valuing trust property, the court should adopt a basis of value that properly reflects the nature of the property as trust property. The monetary equivalent of the trust property is the money that would be realised by a trustee on a sale that was authorised by its powers of management, not in breach of trust. Only in that way will the defaulting trustee have restored the position of the trust, if not in specie then the full monetary equivalent of the trust property. If a notional sale on the transaction assumed in the standard definition of market value would be a breach of trust (e.g. because it would fail to avoid a diminution in the price that could reasonably be avoided, or because it would otherwise not obtain the full value of the trust property) that assumed transaction must be the wrong basis of value. On the other hand, if an alternative strategy could not reasonably achieve a better price, or if market value would itself reflect the price that should be obtained by the trustee, then market value is likely to be the right basis of value. Where the claimants go wrong is to assume or conclude that the true block discount resulting from the market value sale hypothesis could be avoided by pursing a different realisation strategy.”
“249. Both hypothetical seller and hypothetical buyer in a market value negotiation are assumed to be knowledgeable and prudent, and so will be well-informed about the seller’s alternatives to agreeing a price for a single transaction on the valuation date. I accept Mr Steadman’s evidence that any block discount in the market is likely to reflect the parties’ knowledge of the likely cost of the alternatives available to the seller, though it will not necessarily be identical to that cost, otherwise there is no incentive to the seller to sell to the buyer and the buyer would lose out on the bargain. If market value is determined in this way, as Mr Steadman proposes, it does not give rise to a discount that could reasonably have been avoided by a trustee selling the Disputed Securities: it gives rise to a discount that does not exceed the cost and exposure of any alternative course open to the trustee. That being so, Mr Steadman’s use of market value as a basis of valuation is not open to the claimants’ criticism that its assumptions are incompatible with the duties and powers that Samba would have as a trustee of the Disputed Securities. 250. For these reasons, I consider that the market value basis of valuation propounded by Mr Steadman is the appropriate basis of value in this case. In that context, the Black- Scholes put option model used by Mr Steadman as a component of the discount is clearly the right model for a market value valuation: it would be necessary to guarantee the receipt of the valuation date price over an extended dribble out period. The Finnerty model is appropriate only if one is seeking to guarantee sale of a large holding at whatever might be the reference price on a future date. However, the orderly liquidation value is inappropriate because it will expose the seller to a much greater” discount to reflect price uncertainty, delay and the risk of a fall in the market from extraneous factors. Mr Worsnip’s dribble out strategy is therefore better seen as the means of seeking to identify the approximate amount of a block discount than as a measure of liquidation value.”