Commissioner of Stamp Duties V Livingston [1965] ac

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Commissioner of Stamp Duties v Livingston [1965] AC

Hugh Livingston died in Australia in 1948 leaving a will in which he appointed executors to administer his estate and directed them to transfer the residue of his estate (after paying all debts etc) to trustees to hold on trust for his widow and their children.

Before his executors had completed the task, Mr Livingston’s widow had remarried (so becoming Mrs Coulson) and then died herself.

In Australian law, as in English law, the property of someone who dies having left a will automatically vests in the deceased’s executors until they complete the administration of the estate and transfer the assets to those entitled under the deceased’s will. At the time when Mrs Coulson died, the title to all Mr Livingston’s property was therefore still held by his executors - they had not yet had time to complete the administration and transfer everything to the trustees to hold on trust for Mrs Coulsdon.

The question the court had to decide in this case was whether at that time, when the executors still held Mr Livingston’s Queensland property, Mrs Coulsdon had any beneficial interest in it. The question arose because under Queensland’s tax law, succession duty would be payable on all Mr Livingston’s Queensland property on Mrs Coulsdon’s death (as well, of course, as on Mr Livingston’s death) if she had a “beneficial interest” in it when she died.

The Privy Council held that she did not have a beneficial interest and therefore no succession duty was payable on her death:

VISCOUNT RADCLIFFE: . . . [If] there is to be [succession duty payable when Mrs Coulson died], it must be because she died owning a beneficial interest in real property in Queensland or had beneficial personal property interests locally situate in Queensland. . . .

When Mrs Coulson died she had the interest of a residuary legatee in [her husband’s] unadministered estate. The nature of that interest has been conclusively defined by decisions of long established authority, and its definition no doubt depends on the peculiar status which the law accorded to an executor for the purposes of carrying out his duties of administration. There were special rules which long prevailed about the devolution of freehold land and its liability for the debts of a deceased, but subject to the working of these rules whatever property came to the executor virtute officii came to him in full ownership, without distinction between legal and equitable interests. The whole property was his. He held it for the purpose of carrying out the functions and duties of administration, not for his own benefit; and these duties would be enforced on him by the Court of Chancery, if application had to be made for that purpose by a creditor or beneficiary interested in the estate. Certainly, therefore, he was in a fiduciary position with regard to the assets that came to him in the right of his office, and for certain purposes and in some aspects he was treated by the court as a trustee. Kay J in Re Marsden (1884) 26 ChD 783 at p 789 said:

“An executor is personally liable in equity for all breaches of the ordinary trusts which, in courts of equity, are considered to arise from his office.”

He is a trustee “in this sense”. It may not be possible to state exhaustively what those trusts are at any one moment. Essentially, they are trusts to preserve the assets, to deal properly with them, and to apply them in a due course of administration for the benefit of those interested according to that course, creditors, the death duty authorities, legatees of various sorts, and the residuary beneficiaries. They might just as well have been termed “duties in respect of the assets” as trusts. What equity did not do was to recognise or create for residuary legatees a beneficial interest in the assets in the executor’s hands during the course of administration. Conceivably, this could have been done, in the sense that the assets, whatever they might be from time to time, could have been treated as a present, though fluctuating, trust fund held for the benefit of all those interested in the estate according to the measure of their respective interests; but it never was done. It would have been a clumsy and unsatisfactory device, from a practical point of view; and, indeed, it would have been in plain conflict with the basic conception of equity that to impose the fetters of a trust on property, with the resulting creation of equitable interests in that property, there had to be specific subjects identifiable as the trust fund. An unadministered estate was incapable of satisfying this requirement. The assets as a whole were in the hands of the executor, his property; and, until administration was complete, no one was in a position to say what items of property would need to be realised for the purposes of that administration or of what the residue, when ascertained, would consist or what its value would be. Even in modern economies, when the ready marketability of many forms of property can almost be assumed, valuation and realisation are very far from being interchangeable terms.

At the date of Mrs Coulson’s death, therefore, there was no trust fund consisting of Mr Livingston’s residuary estate in which she could be said to have any beneficial interest, because no trust had as yet come into existence to affect the assets of his estate. The relation of her estate to his was exactly the same as that of Mrs Tollemache’s estate to that of her deceased husband’s, as analyzed in the well-known decision of Lord Sudeley v A-G [1897] AC at p 18 by Lord Herschell:

“I do not think [he was speaking of Mrs. Tollemache’s executors] that they have any estate, right, or interest, legal or equitable, in these New Zealand mortgages so as to make them an asset of her estate.”

It is evident that there would not have been the divisions of opinion in the Australian courts that have arisen in this case, if the proposition laid down by the Sudeley decision had always been regarded as being as final and comprehensive as, in their lordships’ opinion, it was intended to be. There has been a reluctance to accept Lord Herschell’s words at their face value and, it would seem, a feeling that they ought to be treated as subject to some limitation that does justice to the “interest” that a residuary legatee possesses in his testator’s estate. . . Basically, these criticisms appear to arise from an incomplete assessment of the legal position of assets which belong to an executor for the purposes of his administration and from a use of the word “interest” that is not sufficiently precise to meet the requirements of a taxing Act to which questions of locality and valuation are all important. Since these criticisms have been made, however, it is desirable that this opinion should notice and comment on them.

First, it is said that Sudeley’s case cannot properly be treated as laying down a general proposition about unadministered estates, because, if it were, such a proposition would be inconsistent with the earlier decision of the House of Lords in Cooper v Cooper (1874) LR 7 HL 64, 65). Cooper v Cooper was a case about election as between beneficiaries and had nothing to do with death duty or succession duty Acts. There had been an intestacy and a devolution of property on intestacy, and the only question to be decided was whether persons interested in the intestate’s estate could be put to their election between different interests at a date when the administration of his estate was still proceeding. The question was said to be whether they had by them an interest “sufficiently specific to raise a case of election”. It was held that they had. In the course of his speech in Cooper v Cooper Lord Cairns LC expressed himself as follows in describing the interest of next of kin in an intestate’s unadministered estate:

“… it was very much pressed on your lordships … that the interest of a next of kin in the estate of an intestate is an undefined and intangible interest, that it is a right merely to have the estate converted into money and to receive payment in money after the debts and expenses are discharged. My lords, no doubt the right of a next of kin is a right which can only be asserted by calling upon the administrator to perform his duty, and the performance of the duty of the administrator may require the conversion of the estate into money for the purpose of paying debts and legacies. But I apprehend that the rule of law, or the rule laid down by the statute, which requires the conversion of an intestate’s estate into money, is a rule introduced simply for the benefit of creditors and for the facility of division. For the benefit of creditors and the facility of division among the next of kin the estate is to be turned into money, but as regards substantial proprietorship the right of the next of kin remains clear to every item of the personal estate of the intestate, subject only to those paramount claims of creditors.”

Lord Cairns then referred at p 65 to a passage of Bacon’s Abridgment for authority for the law as he was stating it—a passage which, incidentally, supports his statement only to the extent that it lays down the undoubted rule that the interest of a person entitled to a distributive share on intestacy is transmissible, even though he dies in the course of the executor’s year, just as the interest of a residuary legatee in an unadministered estate has always been held to be transmissible—and continued:

“If we look on the Statute of Distributions, as I think that we ought to look on it, as in substance nothing more than a will made by the legislature for the intestate, and liken this to the case of a person having made a will, and having directed his debts and expenses to be paid, and having given over his clear residue to his widow and three children—if, I say, we look at the case as if it has assumed these features, I apprehend your lordships will be perfectly clear that the residuary legatees under such a will had a clear and tangible interest in specie in the Pains Hill estate, just in the same way as the youngest of the three brothers, Frederick John, who directly took one-third of the proceeds of the estate.”

It is said that Lord Cairns’ description of the next of kin as having a “substantial proprietorship” in every item of an intestate’s personal estate and of residuary legatees of what, presumably, he was regarding as an unadministered estate as possessing “a clear and tangible interest in specie” in a particular item of the estate contradicts the statement of the position which was made by Lord Herschell and others in the Sudeley case ([1897] AC at p 18). So indeed it does, in the sense that Lord Cairns’ words cannot be treated as an accurate statement of the law in the light of the later decision; but what is to follow from this? Cooper v Cooper, certainly, was not cited during the argument of Lord Sudeley v A-G, and it has apparently been suggested that, if it had been, the law as laid down in that case would somehow have been stated in a different or qualified form. Their lordships can give no encouragement at all to this speculation. The members of the House who decided Sudeley were dealing with a branch of the law that was familiar and well established, and they were dealing with it with the precision that they regarded as being required by the particular issue that was before them. The law as they there stated it was reaffirmed by the House in the same terms in Barnardo’s Homes v Income Tax Special Comrs [1921] 2 AC at p 8 and 10. It is sufficient to quote two short passages from speeches in that case. Viscount Finlay said at p 8: “The legatee of a share in the residue has no interest in any of the property of the testator until the residue has been ascertained. His right is to have the estate properly administered and applied for his benefit when the administration is complete”; and Viscount Cave said at p 10:

“When the personal estate of a testator has been fully administered by his executors and the net residue ascertained, the residuary legatee is entitled to have the residue, as so ascertained, with any accrued income, transferred and paid to him; but until that time he has no property in any specific investment forming part of the estate or in the income from any such investment, and both corpus and income are the property of the executors and are applicable by them as a mixed fund for the purposes of administration.”

. . . In their lordships’ opinion the truth of the matter is that Lord Cairns’ speech in Cooper v Cooper cannot possibly be recognised to-day as containing an authoritative statement of the rights of next of kin or residuary legatees in an unadministered estate. His language is picturesque, but inexact; and while it was no doubt sufficient to enforce the point with which he was concerned to deal, a beneficiary’s right or duty of election, and the decision of the case remains an authority on that point, it would be idle to try to set it up as an exposition of the general law in opposition to what was said and laid down in the Sudeley and Barnado cases.

A second line of criticism [of Sudeley] has occasionally been expressed to the effect that it is incredible that Lord Herschell should have intended by his proposition to deny to a residuary legatee all beneficial interest in the assets of an unadministered estate. Where, it is asked, is the beneficial interest in those assets during the period of administration? It is not, ex hypothesi, in the executor: where else can it be but in the residuary legatee? This dilemma is founded on a fallacy, for it assumes mistakenly that for all purposes and at every moment of time the law requires the separate existence of two different kinds of estate or interest in property, the legal and the equitable. There is no need to make this assumption. When the whole right of property is in a person, as it is in an executor, there is no need to distinguish between the legal and equitable interest in that property, any more than there is for the property of a full beneficial owner. What matters is that the court will control the executor in the use of his rights over assets that come to him in that capacity; but it will do it by the enforcement of remedies which do not involve the admission or recognition of equitable rights of property in those assets. Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.

Criticisms of this kind arise from the fact that the terminology of our legal system has not produced a sufficient variety of words to represent the various meanings which can be conveyed by the words “interest” and “property”. Thus propositions are advanced or rebutted by the employment of terms that have not in themselves a common basis of definition. For instance, there are two passages quoted by the learned chief justice in his dissenting judgment in this case which illustrate the confusion. There is the remark of Jordan CJ in McCaughey v Comr of Stamp Duties (1945) 146 NSWR at p 204: “The idea that beneficiaries in an unadministered or partially administered estate have no beneficial interest in the items which go to make up the estate is repugnant to elementary and fundamental principles in equity.”

If by “beneficial interest in the items” it is intended to suggest that such beneficiaries have any property right at all in any of those items, the proposition cannot be accepted as either elementary or fundamental. It is, as has been shown, contrary to the principles of equity. On the other hand, however, if the meaning is only that such beneficiaries are not without legal remedy during the course of administration to secure that the assets are properly dealt with and the rights that they hope will accrue to them in the future are safeguarded, the proposition is no doubt correct. They can be said, therefore, to have an interest in respect of the assets, or even a beneficial interest in the assets, so long as it is understood in what sense the word “interest” is used in such a context.

Similarly with the passage from the High Court’s judgment in Smith v Layh (1953), 90 CLR at pp 108, 109: “… it is not the consequence that the residuary legatee or next of kin has no right of property in the totality of assets forming the residue of the intestate estate. The beneficial interest is not vested in the legal personal representative, subject to the rights of creditors. The right of the next-of-kin or residuary legatee to have the estate properly administered and to receive payment of the net balance gives them an equitable interest in the totality and therefore in the assets of which it is composed.”

With all respect, that cannot be taken as an exact statement of the law without some further definition of terms. For its expressions would have to be reconciled with the authorities that deny to the residuary legatee any property at all in any specific asset while administration proceeds and with the fact that “residue” cannot come into existence in the eyes of the law until administration is completed. Therefore, while it may well be said in a general way that a residuary legatee has an interest in the totality of the assets, (though that proposition in itself raises the question what is the local situation of the “totality”), it is in their lordships’ opinion inadmissible to proceed from that to the statement that such a person has an equitable interest in any particular one of those assets, for such a statement is in conflict with the authority of both Sudeley and Barnardo and is excluded by the very premise on which those decisions were based. . .

. . . their lordships regard it as clearly established that Mrs Coulson was not entitled to any beneficial interest in any property in Queensland at the date of her death. What she was entitled to in respect of her rights under her deceased husband’s will was a chose in action, capable of being invoked for any purpose connected with the proper administration of his estate; and the local situation of this asset, as much under Queensland law as any other law, was in New South Wales, where the testator had been domiciled and his executors resided and which constituted the proper forum of administration of his estate. . .

Ayerst v C & K (Construction) Ltd [1976] AC 167

Mactrac Ltd went into compulsory liquidation in 1962 and its liquidator sold all its business to C & K (Construction) Ltd. In order to assess the tax liability of C & K (Construction) Ltd it was necessary to establish whether Mactrac retained the “beneficial ownership” of its assets when it went into liquidation.

The House of Lords held that the effect of a compulsory liquidation order was to divest the insolvent company of the “beneficial ownership” of its assets, even though title to those assets remained vested in the company:

Lord Diplock: . . . My Lords, the making of a winding-up order brings into operation a statutory scheme for dealing with the assets of the company that is ordered to be wound up. The scheme is now contained in Part V of the Companies Act 1948 [now the Insolvency Act 1986] and extends to voluntary as well as to compulsory winding up; but in so far as it deals with compulsory winding up its essential characteristics have remained the same since it was first enacted by the Companies Act 1862 . . . Upon the making of a winding-up order:

(1) The custody and control of all the property and choses in action of the company are transferred from those persons who were entitled under the memorandum and articles to manage its affairs on its behalf, to a liquidator charged with the statutory duty of dealing with the company's assets in accordance with the statutory scheme (s243). Any disposition of the property of the company otherwise than by the liquidator is void (s227).

(2) The statutory duty of the liquidator is to collect the assets of the company and to apply them in discharge of its liabilities (s 257(1)). If there is any surplus he must distribute it among the members of the company in accordance with their respective rights under the memorandum and articles of association (s265). In performing these duties in a compulsory winding up the liquidator acts as an officer of the court (s273), and if the company is insolvent the rules applicable in the law of bankruptcy must be followed (s317).

(3) All powers of dealing with the company's assets, including the power to carry on its business so far as may be necessary for its beneficial winding up, are exercisable by the liquidator for the benefit of those persons only who are entitled to share in the proceeds of realisation of the assets under the statutory scheme. The company itself as a legal person, distinct from its members, can never be entitled to any part of the proceeds. Upon completion of the winding up, it is dissolved (s274).

The functions of the liquidator are thus similar to those of a trustee (formerly official assignee) in bankruptcy or an executor in the administration of an estate of a deceased person. There is, however, this difference: that whereas the legal title in the property of the bankrupt vests in the trustee and the legal title to property of the deceased vests in the executor, a winding-up order does not of itself divest the company of the legal title to any of its assets. Though this is not expressly stated in the Act it is implicit in the language used throughout Part V, particularly in ss 243 to 246 which relate to the powers of liquidators and refer to "property ... to which the company is... entitled," to "property... belonging to the company," to "assets... of the company" and to acts to be done by the liquidator "in the name and on behalf of the company."

The question in this appeal is whether the legal title to its property which remains in the company after the commencement of the winding up still carries with it any beneficial interest in that property, so as to leave the property in the company's "beneficial ownership" within the meaning of s17(6)(a) of the Finance Act 1954.

My Lords, the concept of legal ownership of property which did not carry with it the right of the owner to enjoy the fruits of it or dispose of it for his own benefit, owed its origin to the Court of Chancery. The archetype is the trust. The "legal ownership" of the trust property is in the trustee, but he holds it not for his own benefit but for the benefit of the cestui que trust or beneficiaries. Upon the creation of a trust in the strict sense as it was developed by equity the full ownership in the trust property was split into two constituent elements, which became vested in different persons: the "legal ownership" in the trustee, what came to be called the "beneficial ownership" in the cestui que trust. But it did not follow even in equity that a person could only be the legal owner without being at the same time the beneficial owner in cases where it was possible to identify some other person or persons in whom the beneficial ownership had become vested. Executorship of an estate in course of administration provides one example which does not owe its origin to statute. No one would suggest that an executor, who was not also a legatee, was beneficial owner as well as legal owner of any of the property which was in the full ownership of the deceased before his death. He could not enjoy the fruits of it himself or dispose of it for his own benefit. Yet because an estate while still in course of administration was incapable of satisfying the technical requirement of a "trust" in equity that there had to be specific subjects identifiable as the trust fund, it was impossible to identify, at any rate in the case of residuary legatees, a person or persons in whom the beneficial ownership in any particular property forming part of the estate was vested: see Commissioner of Stamp Duties (Queensland) Ltd v Livingston [1965] A.C. 694, 707-708 per Viscount Radcliffe. Another example, which owes its origin to statute, is to be found in the law of bankruptcy. The legal ownership of the bankrupt's property becomes vested in the trustee in bankruptcy. Here, while the property is still being administered, not only is there a similar absence of specific subjects identifiable as the trust fund but also the fact that the right to share in the proceeds of realisation of the property is dependent upon the creditor making a claim to prove in the bankruptcy makes it impossible until the time for proof has expired to identify those persons for whose benefit the trustee is administering the property. Both these factors would, in equity, have prevented that property possessing those characteristics of trust properties which have the consequence of vesting the beneficial ownership of any part of the undistributed property in those persons who will eventually become entitled to share in the proceeds of realisation. Nevertheless, as the very word "trustee" used in the statute implies, the beneficial ownership is not vested in him. He cannot enjoy the fruits of it himself or dispose of it for his own benefit. He is under a duty to deal with it as directed by the statute for the benefit of all the creditors who come in to prove a valid claim. It is no misuse of language to describe the property as being held by the trustee on a statutory trust if the qualifying adjective "statutory" is understood as indicating that the trust does not bear all the indicia which characterise a trust as it was recognised by the Court of Chancery apart from statute.

The argument advanced for the appellant company is that it makes all the difference that, upon the winding up of a company, the company does not cease to be the legal owner of its property as does a person who dies or is adjudicated bankrupt. The contention is that so long as a person, in whom the full ownership of property has once been vested, continues to retain the legal ownership he can only be divested of the beneficial ownership as a result of its becoming vested in some other person or persons. This does not occur except where a "trust," in the strict sense as it was recognised in equity, is created in the property. Such a trust is not created by Part V of the Companies Act 1948 upon the making of a winding-up order; since, for the same reasons as apply in the case of bankruptcy, the persons-entitled to share in the proceeds of realisation of the company's property are not invested with the beneficial ownership of that property while it is still being administered by the liquidator.

My Lords, I do not see how it can make any relevant difference that the legal ownership remains in the person in whom the full ownership was previously vested instead of being transferred to a new legal owner. Retention of the legal ownership does not prevent a full owner from divesting himself of the beneficial ownership of the property by declaring that he holds it in trust for other persons. I see no reason why it should be otherwise when an event occurs which by virtue of a statute leaves him with the legal ownership of property but deprives him of all possibility of enjoying the fruits of it or disposing of it for his own benefit.

The nature of a company's interest in its assets after a winding-up order had been made first fell to be considered by the Court of Chancery under the Companies Act 1862. It was, perhaps, inevitable that the court should find the closest analogy in the law of trusts. In one of the earliest reported cases, In re Albert Life Assurance Co, The Delhi Bank’s case (1871) 15 S.J. 923, 924 Lord Cairns puts it:

"... the assets of the company from the moment of winding up, ... become fixed and inalienable; the executive and the direction of the company are unable to alienate them or to part with them for any purpose; they become fixed and impressed with the trust declared by s98," - (which corresponds to s257(1) of the Act of 1948) - "a trust by which all the assets of the company are to be applied in discharge of the liabilities of the company."

In the following year one finds Mellish L.J. equiparating the status of a company's assets under a winding-up order with the assets of a debtor in bankrupty or under a decree of the Court of Chancery in an administration suit: In Re General Rolling Stock Co (1872) 7 Ch.App. 646, 649.

The question of the beneficial ownership of the company's property was dealt with explicitly by both James L.J. and Mellish L.J. in In re Oriental Inland Steam Co (1874) 9 Ch.App. 557:

"The English Act of Parliament has enacted that in the case of a winding up the assets of the company so wound up are to be collected and applied in discharge of its liabilities. That makes the property of the company clearly trust property. It is property affected by the Act of Parliament with an obligation to be dealt with by the proper officer in a particular way. Then it has ceased to be beneficially the property of the company;..." (per James L.J. at p. 559).

"No doubt winding up differs from bankruptcy in this respect, that in bankruptcy the whole estate, both legal and beneficial, is taken out of the bankrupt, and is vested in his trustees or assignees, whereas in a winding up the legal estate still remains in the company. But, in my opinion, the beneficial interest is clearly taken out of the company. What the statute says in s95 is, that from the time of the winding-up order all the powers of the directors of the company to carry on the trade or to deal with the assets of the company shall be wholly determined, and nobody shall have any power to deal with them except the official liquidator, and he is to deal with them for the purpose of collecting the assets and dividing them amongst the creditors. It appears to me that that does, in strictness, constitute a trust for the benefit of all the creditors,..." (per Mellish L.J. at p. 560).

The authority of this case for the proposition that the property of the company ceases upon the winding up to belong beneficially to the company has now stood unchallenged for a hundred years. It has been repeated in successive editions of Buckley on the Companies Acts from 1897 to the present day. Nevertheless your Lordships are invited by the appellant company to say that it was wrong because it was founded on the false premise that the property is subject to a "trust" in the strict sense of that expression as it was used in equity before 1862.

My Lords, it is not to be supposed that in using the expression "trust" and "trust property" in reference to the assets of a company in liquidation the distinguished Chancery judges whose judgments I have cited and those who followed them were oblivious to the fact that the statutory scheme for dealing with the assets of a company in the course of winding up its affairs differed in several aspects from a trust of specific property created by the voluntary act of the settlor. Some respects in which it differed were similar to those which distinguished the administration of estates of deceased persons and of bankrupts from an ordinary trust, another peculiar to the winding up of a company is that the actual custody, control, realisation and distribution of the proceeds of the property which is subject to the statutory scheme are taken out of the hands of the legal owner of the property, the company, and vested in a third party, the liquidator, over whom the company has no control. His status, as was held by Romer J. Knowles v Scott [1891] 1 Ch. 717 differs from that of a trustee "in the strict sense" for the individual creditors and members of the company who are entitled to share in the proceeds of realisation. He does not owe to them all the duties that a trustee in equity owes to his cestui que trust. All that was intended to be conveyed by the use of the expression "trust property" and "trust" in these and subsequent cases (of which the most recent is Pritchard v M H Builders (Wilmslow) Ltd [1969] 1 W.L.R. 409) was that the effect of the statute was to give to the property of a company in liquidation that essential characteristic which distinguished trust property from other property, viz., that it could not be used or disposed of by the legal owner for his own benefit, but must be used or disposed of for the benefit of other persons.

The other members of the Court agreed

Re Ellenborough Park [1956] Ch 131

CA: Sir Raymond Evershed MR; Birkett and Romer LJJ

In the middle of the nineteenth century Henry Davies and Joseph Whereat owned the White Cross Estate, which was a large area of land facing the sea at Weston-super-Mare. They decided to develop part of the land as a residential estate. A central rectangular area of 350 x 100 yards was set aside as a park: this became known as Ellenborough Park. One side of Ellenborough Park bordered on the sea, and a road (Ellenborough Crescent) was constructed around the other three sides. The land bordering the other side of Ellenborough Crescent was divided into building plots, and each building plot was sold off to a purchaser. The intention was that each purchaser would build a house on the plot purchased, in accordance with plans drawn up by Davies and Whereat, who would retain ownership of Ellenborough Park and of all the roads, paths and other communal parts of the estate.

In the conveyances of each plot by Davies and Whereat (“the 1864 conveyances”) each purchaser was granted:

“the full enjoyment . . . at all times hereafter in common with the other persons to whom such easements may be granted of the pleasure ground set out and made in front of the said plot of land . . . in the centre of the square called Ellenborough Park . . . subject to the payment of a fair and just proportion of the costs charges and expenses of keeping in good order and condition the said pleasure ground”

Each conveyance also included a covenant by Davies and Whereat that, subject to each purchaser paying a proportion of the costs, they and subsequent owners of Ellenborough Park would

“keep [Ellenborough Park] as an ornamental pleasure ground . . . and also that they would not at any time thereafter erect or permit to be erected any dwelling house or other building (except any grotto bower summerhouse flower stand fountain music stand or other ornamental erection) within or on any part of the said pleasure ground . . . but that the same shall at all times remain as an ornamental garden or pleasure ground.”

After the death of Davies and Whereat Ellenborough Park ultimately became vested in trustees holding on trust for the Davies family (“the trustees”). Meanwhile, houses had been built on all the building plots and all the original purchasers had either died or sold their interests to successors.

During the Second World War Ellenborough Park was requisitioned by the War Office and compensation was paid to the trustees. After the war, when the property was handed back by the authorities, the trustees applied to the court to determine whether the then owners of the houses bordering Ellenborough Crescent (“the owners of the houses”) (i) had an enforceable right to use Ellenborough Park and (ii) were entitled to a share of the compensation.

Danckwerts J at first instance held (i) that the owners of the houses had easements conferring on them enforceable rights to use the park subject to payment of their proper contributions towards the expenses; and (ii) that the moneys received from the War Office should be applied by the plaintiffs in restoration of the park as a private pleasure ground, and that the balance of the compensation should be apportioned between the trustees and the owners of the houses.

The first defendant (one of the Davies beneficiaries) appealed to the Court of Appeal:
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