Court of Appeal overturns first instance decision in favour of established doctrine

Background

Mr Ezair had entered into a contract of sale of his business, including a number of Properties, to a company that he controlled (“N”). The Properties were not in fact transferred but N could call for a transfer on 7 days’ notice.

In 2003 N contracted to sell the Properties to a company belonging to an off-shore family trust (“CSPL”). Again, the titles to the Properties were not in fact transferred but the Properties were treated as an asset of CSPL in its accounts.

The administrators of CSPL applied under Section 234 IA 1986 seeking an order that Mr Ezair transfer properties to them. Section 234 concerns “property to which the company appears to be entitled”.

First instance decision

At first instance the judge held that CSPL had an existing beneficial entitlement to the properties and ordered that they be transferred to the administrators. It was held that N's rights had passed to CSPL by constructive trust so as to give effect to the common intentions of N, CSPL and Mr Ezair, or by virtue of the equitable doctrine of conversion.

Court of Appeal decision

Patten LJ pointed out that it had been open to the administrators of CSPL to serve a completion notice and thereafter sue N for specific performance, which would require N to enforce its rights under the head contract to compel Mr Ezair to transfer the properties to N and then on to CSPL. However that could not support a claim under Section 234 which is concerned with property to which a company appears to have title without the need for contractual enforcement and a claim for specific performance. The outcome of the administrators’ application therefore turned on whether or not CSPL had an existing beneficial entitlement to the properties.

Following the rule in Berkley v. Poullet [1977] 1 EGLR 86, the Court of Appeal held that the contract of sub-sale did not confer on the sub-purchaser any interest in the trust of land created by the contract of head-sale. CSPL’s only rights were his contractual rights under the 2003 contract, including the right to compel N to complete the head-sale. There was no basis for the intervention of equity in this legal relationship by way of a constructive trust. Accordingly, CSPL had no existing entitlement to the properties and the Section 234 application must fail.

After the first instance decision but before the appeal was heard, N assigned the benefit of the head contract to CSPL, who gave notice upon Mr Ezair to transfer the properties.

Jacob Azouri Ezair V (1) Stephen Leonard Conn (2) Jonathan Avery-Gee (As Joint Administrators of Charlotte Street Properties Ltd) (2020)