Nothing to Merge: LA Micro and the 'Momentary Trust'

private law

I. Introduction

If X holds legal rights on trust for Y, is there ever a moment in time (scintilla temporis) where Y may hold their beneficial interest on a sub-trust for X? The answer to this avowedly theoretical question about an ‘X-Y-X trust’ matters because it determines whether there was a “creation… of [a] constructive trust[]” under section 53(2) of the Law of Property Act 1925, thereby removing the need for signed writing.

In Frenkel v LA Micro Group (UK) Ltd,1 Lord Briggs (writing for a unanimous Supreme Court) answered in the affirmative. An X-Y-X trust may still exist despite “its unusually momentary existence”.2

This note argues that it may not, and that nothing turned on whether it could. English and Al-Sibaie have already shown where the analysis ought to have ended: the 2010 agreement was a surrender, a surrender destroys rather than transfers, and destruction is not a “disposition”.3 They have also asserted, rightly, that the scintilla temporis on which the judgment depends is “a conceptual impossibility” because “one cannot owe a duty to oneself”.4 This note accepts that destination and supplies the mechanics. It explains why a sole trustee can never acquire a beneficiary’s interest, and it extends the point from the simple case (X holds for X and Y) to the sub-trust case that the Court itself posited at [31] (X holds for Y; Y holds for X). On that analysis the X-Y-X trust is not merely momentary. It was never constituted.

The argument runs on four rungs, each independent of the last. First, there was no disposition, so section 53(2) was never needed. Secondly, even if there was, no vendor-purchaser constructive trust (‘VPCT’) could have arisen, because there was nothing to merge. Thirdly, even if a VPCT arose, it could not have carried the interest anywhere, because a sub-trust does not transfer its subject matter and section 53(2) protects a trust’s creation and operation, not a further disposition said to follow from it. Fourthly, even if it could, the anterior conditions for the trust were more doubtful than the concessions allowed.

Rungs two to four matter even though the first disposes of the case. The VPCT reasoning is the ratio; it will be applied by lower courts whatever is thought of the concession at [16]; and the dictum at [32] that oral agreements for the sale of equitable interests may be “self-executing” generally threatens the chains of sub-trusts on which the holding of intermediated securities depends. The conclusion is therefore not that the appeal should have been allowed. It is that the right result was reached by an unnecessary route, and that the route matters.

II. The Case

The case concerned the only two shares in LA Micro Group (UK) Ltd (‘UK’). The first share was held by Mr Bell (‘B’), and the second was held by Mr Lyampert (‘L’). Both B and L held their shares on express trusts: 49% for B and 51% for LA Micro Group Inc (‘Inc’), a Californian company owned equally by L and Mr Frenkel.

In 2010 L and Frenkel fell out, and Frenkel told B that he wanted nothing further to do with UK.5 B and L (acting also on behalf of UK and Inc) orally agreed to work together, to split UK’s profits equally, and that L would assume Inc’s substantial debt to UK, from which Inc was released.6 The courts below found an implied term that, instead of holding their shares on trust for B and Inc, B and L would henceforth hold their shares absolutely (‘the Agreement’).7 This effectively demanded three ‘conferrals’ of beneficial interests (with the word ‘conferral’ used broadly): first, Inc would ‘confer’ its 51% beneficial interest in B’s share to B; secondly, Inc would ‘confer’ its 51% beneficial interest in L’s share to L; finally, B would ‘confer’ his 49% beneficial interest in L’s share to L.

The effect of the Agreement was disputed from 2015. The fact that the ‘conferrals’ were made orally (in fact, impliedly) leaves them vulnerable to section 53(1)(c), which requires that “a disposition of an equitable interest… be in writing”. At a first trial Inc was held to have disclaimed its interest; that was reversed and the case remitted. At a second trial Judge Jarman found that the Agreement contained an implied term for the contractual surrender of Inc’s interest, held that a surrender was a disposition defeated for want of writing, but found for B on proprietary estoppel.8 The Court of Appeal reversed the estoppel finding on the evidence but held, following Neville v Wilson,9 that the Agreement was a specifically enforceable contract to transfer the equitable interests, giving rise to a VPCT sufficient “to carry the equitable interest” to B and L by virtue of section 53(2).10

There are two reasonable ways, however, for the Agreement to be effective despite being made orally: first, for the conferrals not to be regarded as “disposition[s]” under section 53(1)(c), and second, for the conferrals to have involved, nonetheless, “the creation… of [a] constructive trust[]” per section 53(2).

On the first way, Lord Briggs noted that the respondents (who wished to prove that the Agreement was effective) had conceded that Inc’s ‘conferral’ of beneficial interests “amounted to a disposition… within the meaning of section 53(1)(c)”.11 He lauds their concession as “rightly made”, noting the “unanimous” approval of an “ordinary, wide meaning” of “disposition” in Grey v Inland Revenue Comrs.12

On the second way, Lord Briggs found that section 53(2) could be invoked, and thus Inc’s ‘conferrals’ were effective. He undertakes three steps. First, the conditions for a constructive trust were fulfilled: “the VPCT is a constructive trust within section 53(2)”,13 notwithstanding academic controversy, and consideration was provided at the moment of agreement, so that B and L became beneficiaries under a bare trust.14 Secondly, the VPCT “provides all that is needed for completion of the disposal of Inc’s 51% beneficial interest”, both because the interest is “purely equitable” and because the purchasers were already the legal owners; it matters not whether this is described as the creation or the operation of the trust, nor whether it operated by way of sub-trust.15 Thirdly, contrary to the appellants’ submissions, the VPCT’s mere “momentary existence” was “no obstacle to [its] recognition”;16 this case is not concerned with “any recognition of a gap in time” but rather the VPCT’s “mechanical” role where “equitable interests in the two shares become merged in legal title to them”.17 The appellants’ contrary “destruction” analysis was rejected as a matter of substance, as a matter of mechanics, and as producing “irrational and arbitrary outcomes”.18

As an additional point, the respondents submitted that section 53(1)(c) only applies to dispositions of equitable interests in land. Lord Briggs noted that the argument “might have enjoyed real force” if it had been made “in 1926”,19 but concluded that the weight of precedent means that the respondents’ contrary construction is now unarguable.20

Overall, therefore, the Supreme Court dismissed the appeal, holding that the Agreement was effective.

III. Was There a Disposition?

It is submitted that there was no “disposition” per section 53(1)(c). The respondents’ concession and the Court’s affirmation of it are therefore regrettable. A concession on a point of law does not bind the court.21

A. A release, not a transfer

The parties agreed that each share should be held beneficially by its legal owner, which is what the trial judge found. That is a surrender, and a release operates to extinguish an interest rather than to assign it.22 The label the parties used is not determinative: as Lord Millett observed, even an instrument drafted as an assignment takes effect as a release if that is what it does, the difference being “one of substance not form”.23 The Court of Appeal came within a word of saying so, describing the effect of the Agreement as being “to surrender or give up” the beneficial interest.24

Lord Briggs’ answer was that the parties were “businessmen who no doubt thought in terms of ownership”,25 that the “substance” of the bargain was the conferring of Inc’s 51% share upon B and L, and that words like surrender and release “can include something being delivered up to someone else” and “are silent about what is then to happen to the subject matter in the hands of the deliveree”.26 But an equitable interest delivered up to the trustee of the very right to which it relates has nothing that can then “happen” to it. Lord Briggs himself said as much at [20]: where the legal owner is the 100% beneficial owner, “the legal title carries with it and confers full beneficial ownership, without the need for any intervention by equity”. And at [41] he conceded that “the only sense in which destruction is a proper description of this transaction is that it encapsulates the mechanics”. That concession is decisive, because section 53(1)(c) asks a mechanical question: what equitable interest subsisted, and what was done with it. The commercial objective of the parties is a description at a different level. As Lord Millett explained in Agnew v Commissioner of Inland Revenue, a court first ascertains the rights and obligations the parties intended to create, and then, as a matter of law and not of intention, categorises them.27 Here the parties intended an outcome: that B and L should own outright. The law determines the mechanism by which that outcome is reached, and the mechanism is that Inc’s rights against B and L ceased to exist.

It will be said that this is scholasticism: Inc ends up with nothing, B and L end up with everything, and the parties treated the transaction as a sale. The answer is that the law has already rejected the inference from economic equivalence to structural identity. As Lloyd LJ explained in Independent Trustee Services Ltd v GP Noble Trustees Ltd, and as the Supreme Court unanimously approved in Akers v Samba, a transaction may be “as effective as it would be if” it transferred an interest without being a transfer of that interest at all.28 The bona fide purchaser is the paradigm: the beneficiary loses everything, the purchaser gains everything, and nothing passes between them. Lord Hoffmann’s analysis of the cessation of a life interest is the exact analogue: when the tenant for life dies, “no property passes from the tenant for life to the remainderman. The latter’s interest falls into possession but he becomes entitled to possession by virtue of his own interest and not by having acquired that of the tenant for life.”29 The same is true of the trustee whose beneficiary releases.

It is telling that nobody in LA Micro doubted that B’s oral “transfer” of his 49% interest in L’s share to L took effect immediately.30 On the Court’s own logic that too was a disposition of a subsisting equitable interest which needed writing or a VPCT. That nobody worried about it suggests that everyone intuited what it was: a release.

B. Destruction is not a disposition

Four arguments support the proposition that the destruction of an equitable interest is outside section 53(1)(c).

First, purpose. As Lord Upjohn made clear, “the object of the section… is to prevent hidden oral transactions in equitable interests in fraud of those truly entitled, and making it difficult, if not impossible, for the trustees to ascertain who are in truth [the] beneficiaries.”31 A surrender necessarily involves the trustee, who must know of it. Here the trustees were parties to the Agreement. The mischief is absent.

Secondly, ordinary meaning. In Akers, both Lord Neuberger and Lord Mance held that while “disposition” is linguistically capable of covering the destruction of an interest, its natural meaning “carries with it the notion of a disponor transferring property to a disponee”.32

Thirdly, authority. The House of Lords in Vandervell v Inland Revenue Commissioners held that a beneficiary’s oral direction to his trustee to transfer shares to a third party absolutely was not a disposition of his equitable interest.33 The better explanation, as Nolan has shown, is that the equitable interest was overreached, that is, destroyed, so that the College took the shares free of any trust.34 If destruction were a disposition, Vandervell was wrongly decided; and the concession at [16] therefore places LA Micro in conflict with a unanimous House of Lords.35 The Court of Appeal’s decision in Re Paradise Motor Co Ltd, that a disclaimer is not a disposition, points the same way.36

Fourthly, the definition in section 205(1)(ii) does not stand in the way. “Disposition” there includes “conveyance”, which includes “release” and “disclaimer”. But the definitions apply only “unless the context otherwise requires”, and Re Paradise Motor shows that the context of section 53(1)(c) does require otherwise; the purpose of the section, directed at dealings hidden from the trustee, cannot sensibly reach a transaction of which the trustee is necessarily the recipient.37

C. The legislative history, and Grey

There is a fifth argument, which requires care because it walks into the holding of Grey itself. Section 53(1)(c) descends from section 9 of the Statute of Frauds 1677, which caught “all grants and assignments of any trust or confidence”.38 Whatever else may be said of that formula, it does not reach the extinction of an interest. The Law of Property Act 1925 was a consolidating Act, and a consolidating Act is presumed not to change the law.39 The taxpayer in Grey ran precisely this argument, and Viscount Simonds and Lord Radcliffe rejected it: the substitution of “disposition” for “grants and assignments” had been effected by the Law of Property Act 1922 as amended by the Law of Property (Amendment) Act 1924, which were amending statutes to which the presumption did not apply.40 That is holding (i) of Grey, and it cannot be side-stepped.

It can, however, be confronted. The premise of holding (i) is that the 1924 substitution was substantive. The historical evidence is that it was not. Sir Benjamin Cherry’s intention with regard to what became section 53(1)(c) was to modernise the language of its mother provision without changing its meaning;41 the same evidence that led Lord Briggs to accept that the respondents’ land-only argument “might have enjoyed real force” in 192642 bears on this point too. If that is right, then Grey (i) rested on an incomplete historical record, and the single word “disposition” cannot have silently annexed a category that its predecessor never touched. The extension of the section to destruction then lacks not only a purposive and a semantic warrant, but a historical one.

This point cuts further than the destruction cases, and it should be acknowledged. Taken to its conclusion, the statute would apply only to ‘grants and assignments’, which would unsettle a great deal of post-1925 case law.43 That ship has largely sailed: litigants have long relied on the wide meaning adopted in Grey. The narrower claim advanced here does not require its recall. It requires only that where the authorities have not already committed us, the original meaning should govern.

D. Have the authorities committed us?

Lord Briggs said that he had “no doubt” the concession was rightly made, “mainly because of” Grey.44 Three things may be said. First, Grey did not concern a bare destruction. It concerned a direction to trustees to hold for others, which on any view involved the creation of new interests, and neither speech identified the natural meaning of “disposition” that was said to cover it.45 Secondly, the Court of Appeal in Hudson v Hathway did hold that a surrender by an equitable joint tenant is a disposition, but it did so on the strength of Grey’s “wide import” and of statements in Newlon Housing Trust and IRC v Buchanan about different statutes with different purposes; Lord Neuberger’s caution in Akers that “all depends on the statutory context” was not applied.46 Thirdly, Lord Briggs’ endorsement of the concession was made on a conceded point which, as the Court itself emphasised, had not been argued.47 It is weighty, but it is not a decision, and it leaves Vandervell unexplained. A future court is not bound to follow it.

E. A consequence worth owning

Lord Briggs answered the appellants’ brutum fulmen objection by saying that “the obvious arena” for section 53(1)(c) is the disposition by way of gift, since equity does not perfect an imperfect gift.48 On the analysis here, a gratuitous surrender (as in Hudson v Hathway itself) equally requires no writing. That consequence should be accepted rather than hidden. The trustee is as necessarily involved in a gratuitous release as in a release for value; the mischief is as absent; and Re Paradise Motor already accepts the point for the gratuitous disclaimer. The section is not thereby emptied. It continues to govern what it was enacted to govern: the assignment of an equitable interest to a stranger, behind the trustee’s back.

IV. Was There a Constructive Trust?

Suppose the concession was rightly made. Section 53(2) would then be needed, and the question becomes whether a VPCT could have arisen. Before turning to Lord Briggs’ reasons, it is worth naming the conception of the trust on which they rest, because the errors that follow are not local slips. They are what that conception produces when pressed.

Lord Briggs adopts the businessmen’s frame of “ownership”.49 On that frame, the beneficiary of a trust owns the trust property in equity; the trustee owns it at law; and a transaction between them reunites what was previously split. The interest “becomes part” of the purchaser’s “beneficial ownership”; it “joins with” his existing interest; “the whole 100%” then “merges into” his legal title and “disappears”.50 Ben McFarlane has recently shown that this picture is not a stray metaphor but a settled judicial habit with identifiable costs, and that Lord Briggs is its most committed contemporary exponent.51 The picture is not always harmful; in most cases it reaches the same destination as the better analysis, and faster. LA Micro is different in kind. Here it generates, out of the requirements of its own picture, a trust that no one contends had any content, whose terms no one could state, and which is said to have lived and died in the same instant. A theory of the trust should be judged partly by what it is capable of positing.

The judgment is, moreover, at odds with itself. At [20] Lord Briggs correctly insists that “beneficial interest” and “equitable interest” are not interchangeable, and that the sole legal owner’s beneficial ownership is an incident of the legal title needing no intervention by equity. At [42] the same judgment has B’s equitable interest “joining with” A’s and “the whole 100%” merging. If [20] is right, A had no equitable interest for B’s to join.52

The alternative is not exotic. It is the orthodoxy of Westdeutsche, Livingston, Transphere, Carter Holt Harvey, Rojoda and Akers: a trust is an obligation engrafted onto a right held by the trustee, not a division of that right; and a person who holds a right absolutely does not hold two interests in it.53 The argument below is what follows when that orthodoxy is taken seriously on these facts.

A. What A has

To illustrate the merger, Lord Briggs describes a hypothetical where A holds title to land on trust for A and B as tenants in common in equal shares (effectively, an A-A&B trust). When “B agrees to sell her share to A”, Lord Briggs notes that “[n]o one would doubt” that A is acquiring B’s 50% beneficial interest, and that B’s beneficial interest “is not being destroyed”.54

On the contrary, it is submitted that many would doubt that A is ‘acquiring’ B’s 50% beneficial interest. The disagreement reveals starkly contrasting understandings of the nature of A’s beneficial interest under the trust before the sale by B.

How, then, might A’s rights under an A-A&B trust be best characterised? It is submitted that A’s rights are of a fundamentally different nature from those of B, and can only be defined with respect to B’s rights. A can never ‘acquire’ any portion of B’s beneficial interest, so A and B’s interests will never merge.

This follows from two premises.

First, a trustee’s duties under any trust are obligations owed towards their beneficiaries, engrafted or annexed to the trustee’s legal title.55 They may be characterised as restrictions on the manner in which a trustee may deal with trust assets (Carter Holt), or, as McFarlane and Stevens put it, a right against the trustee’s rights.56 Eleanor Eldridge’s refinement sharpens this, and the refinement matters here.57 It is difficult to say what it means for a claim-right to be subject to a duty. It is straightforward to say what it means for a power to be. Where A holds registered title on trust, A has powers: to transfer, to lease, to license, to sue a stranger, to invest. The trust consists in A’s coming under duties in relation to the exercise of those powers. The beneficiary’s interest is the existence and content of those duties, viewed from the other side. The fact that trusts now take some ‘proprietary’ effect (in terms of their binding nature against third parties and their assignability) does not detract from the fact that a trust has always been first and foremost a confidence between trustee and beneficiary:58 unlike other obligations concerning property ‘propertised’ in the sixteenth and seventeenth centuries, the existence of the beneficiary’s rights is dependent on the existence of the trustee’s.

Secondly, it is trite law that one cannot have a right against oneself. A cannot hold rights on trust for himself alone, just as A may not owe a contractual obligation to himself.59 The rule is not a formality. It reflects the relational structure of the obligation: where obligor and obligee are the same person, there is no duty to be performed and no one to demand performance.

Since A qua beneficiary cannot have a claim-right against A qua trustee, A’s rights under an A-A&B trust are best characterised as privileges, in the Hohfeldian sense, correlating to the absence of B’s claim-rights against A.60 In Eldridge’s terms, what A has is the unencumbered residue of A’s own duty-burdened powers: the extent to which A’s powers over the trust assets remain free of obligation. The figure “49%” or “50%” does not measure a thing A holds. It measures, from the other side, how far the burden on A’s powers extends.

B. Why nothing merges

This is why the interests cannot merge. Where A holds property on trust for himself (1%) and for B (99%), A’s powers are burdened to the extent of 99% of the value, and unburdened as to 1%. If B were to ‘confer’ 1% more of the ‘beneficial ownership’ to A, the burden contracts to 98% and the residue expands to 2%. Nothing has moved between them. In a hypothetical scenario where A continues to ‘receive’ more of the ‘beneficial ownership’, B’s claim-right dwindles further, and finally, where B releases entirely, B’s claim-right is extinguished and A’s powers are unencumbered. There is thus no scintilla temporis where “B’s… interest join[s] with that of A”. B’s interest and A’s interest are not two quantities of the same thing. One is a burden; the other is the absence of a burden. They cannot be added, because they are not commensurable.

Two objections must be met.

The first is that the law does recognise a “doctrine of merger”, which, Lord Briggs says, “does the rest”.61 It is true that when the sole beneficiary becomes the sole trustee the trust ends, and that lawyers have long called this merger. But the label is conclusory. It names the result (no trust) and not a mechanism, and what it describes is exactly the extinction of a burden that Lord Hoffmann describes for the life interest. Nothing in the doctrine requires the equitable interest to arrive in the trustee’s hands before it ceases; the doctrine says only that it ceases. “Merger” cannot therefore be used to supply the moment of arrival that the VPCT is said to occupy.

The second objection is Lord Briggs’ treatment of Abbey National v Cann and Southern Pacific Mortgages v Scott.62 Those cases refused to recognise a scintilla temporis between a purchaser’s acquisition of legal title and the grant of a charge, because purchase and charge were “one indivisible transaction”. Lord Briggs distinguished them: the present case “is also about an indivisible transaction… but not about any recognition of a gap in time between different parts of it”.63 With respect, the two halves of that sentence cannot both be true. The VPCT is said to exist “only momentarily”, occupying a scintilla temporis, between the making of the Agreement and the merger.64 Its entire function is to exist in that interval. If the transaction is indivisible, as Lord Briggs accepts, there is no interval. And section 53(2) protects the creation or operation of a trust that exists; it does not protect one which the law itself declines to give a moment in which to exist.

C. Why the X-Y-X structure never exists

This analysis applies not only to A-A&B trusts, but also to A-B-A&C trusts (involving sub-trusts), where A holds rights on trust for B, and B holds his equitable interest on sub-trust for A and C. C’s rights can be defined easily: C has claim-rights against B, with respect to B’s claim-rights against A (with respect to A’s ‘rights on trust’).

How might A’s rights under an A-B-A&C trust be defined? In an A-A&B trust, A qua beneficiary could not have a claim-right against A qua trustee. In an A-B-A&C trust, by contrast, it is not impossible per se for A to have a claim-right against B, who has a claim-right against A. After all, A can owe contractual duties to B while B owes contractual duties to A. The impossibility of an X-Y-X trust therefore lies in the content of the rights, not the mere fact of an X-Y-X structure.

What, then, makes an X-Y-X structure unstable? Consider three binding arrangements between X and Y.

Situation (i). X has a duty to deliver chattel 1 to Y. Y has a duty to deliver chattel 2 to X.

Situation (ii). X has a duty to pay Y £500. Y has a duty to obey X’s instructions on whether, if at all, to enforce Y’s right to ask for £500 from X.

Situation (iii). X holds £500 on trust for Y. Y holds his equitable right on trust for X.

In situation (i), X and Y have duties that are distinct, and there is no difficulty. Situations (ii) and (iii) are the interesting ones, and they are not distinguished by the presence of a trust: (ii) involves only personal rights. What they share is that X’s right is a right with respect to a right of Y’s, and the right of Y’s to which it relates is a right against X.

Situation (ii) survives, because X’s right and Y’s differ in content. X may direct Y not to sue; X cannot require Y to hold the £500 for X. Y’s underlying claim remains Y’s. Situation (iii) does not survive, and Eldridge’s insight makes the vice precise. Y’s interest under the head trust consists of claim-rights against X and, critically, of powers against X: above all the power under Saunders v Vautier to collapse the trust and call for the rights.65 A sub-trust of that interest in X’s favour would subject Y to duties, owed to X, governing the exercise of those powers. But the powers are powers against X. A power whose exercise is directed by the very person against whom it is exercisable has no content to exercise. Every performance Y could extract from X must be held for X; the sub-trust’s entire content is “undo the head trust”, which is the same as no trust at all. Y’s claim-right fares no better: it is a claim that X administer the trust, and a sub-trust for X would place the enforcement of that claim in X’s own hands, producing the absurdity, as Nam and Yean put it elegantly, that B might be liable to A qua sub-trust beneficiary for A’s own wrongdoing qua original trustee.66

The point is not that the resulting right is weak, or unenforceable, or short-lived. It is that its content cannot be specified. The two sets of obligations are mutually annihilating at the moment of their would-be creation; there is no state of affairs, however brief, in which both subsist. A duty whose content is exhausted by the will of its own beneficiary is not a duty that exists for an instant and then lapses. It is not a duty. There is accordingly no scintilla temporis, because there is no moment at which anything could be true of the supposed trust.

The appellants were therefore right about the conclusion, though the better reason is not that the X-Y-X trust is destroyed. It is that it was never constituted.

D. The scope of the argument

The argument does not prove too much, and its limits should be stated plainly.

Where B and C are both beneficiaries under a trust of which A is trustee, and B releases or assigns to C, C’s existing interest and B’s former interest are rights of the same kind, held against the same person, with respect to the same rights of A. Aggregation there is unproblematic. The analysis bites only where the acquirer is the sole trustee, because that is the only configuration in which the two positions are incommensurable.

It follows that the ordinary case of co-ownership is untouched. Where A and B hold legal title on trust for themselves as in Stack v Dowden or Jones v Kernott, each has rights against a body of trustees that includes another person, and each has an equitable interest in the ordinary sense.67 The X-Y-X objection has no purchase there.

One further consequence should be owned. If sole trustee A, holding for A (49%) and B (51%), purports to ‘assign his 49% beneficial interest’ to C, then on this analysis A does not dispose of a subsisting equitable interest, because he has none. He declares a trust of part of his legal right, which for personalty requires no writing and for land is governed by section 53(1)(b) rather than (1)(c). That is not a paradox. It is exactly what Westdeutsche, and Lord Briggs at [20], entail.

E. Arbitrariness and irrationality

Lord Briggs dismissed the idea of “destruction” as depending “entirely upon the happenstance that the purchaser of the relevant equitable interest is also the legal owner of the underlying property”, producing different results in “circumstances which are commercially indistinguishable”.68 He illustrated this with the appellants’ own concessions: they accepted that a VPCT would have arisen had Inc conferred its interests on the other trustee (L for share 1, B for share 2), or had Inc retained a nominal 1%.69

The first of those cases is indeed a transfer, since the acquirer is not the trustee of the interest acquired. But the second is not, and here the appellants conceded too much. On the analysis above, no conferral on the sole trustee is a transfer, whether of 1%, 50% or 51%. Had Inc retained 1%, B’s residue would have expanded from 49% to 99% and Inc’s claim-rights contracted correspondingly; nothing would have moved. The appellants’ error was to locate the impossibility in the merger, so that it appeared to bite only when the last percentage point was released. Once the impossibility is located where it belongs, in the incommensurability of what trustee and beneficiary hold, the “happenstance” disappears. Whether the purchaser is the trustee is the structural feature that determines what kind of thing each party holds.

English law already knows this to be structurally significant. The fair-dealing rule exists precisely because a trustee’s acquisition of a beneficiary’s interest is not commercially or legally indistinguishable from an acquisition by a stranger.70 A transaction the law singles out for a bespoke regime of disclosure and fairness is not one the law regards as arbitrarily distinguished.

Lord Briggs finally drew on “further irrational consequences” by imagining that B’s 49% and Inc’s 51% conferrals in respect of L’s share had been separated by five minutes.71 If B’s commitment came first, the appellants’ analysis means that no VPCT could have arisen for Inc’s; that conclusion, it is submitted, is correct. If Inc’s came first, Lord Briggs says the appellants’ analysis allows a VPCT to arise, since L would still hold on trust for B. On the analysis above, no VPCT could have arisen in either case: Inc’s interest differs in kind from L’s, and there is no scintilla temporis at which a transfer or merger could occur. But the deeper answer is that the objection dissolves rather than needing rebuttal. The asymmetry is generated entirely by the assumption that a VPCT is needed to save the transaction. Remove that assumption, as Part III argues we should, and both sequences work identically: in each, the releasing party’s claim-rights are extinguished, no disposition occurs, and no writing is required. An argument from irrational consequences is only as strong as the premise that produces them.

V. What the VPCT Could Not Have Done Anyway

Suppose all of the foregoing is wrong, and a constructive trust did arise. It still could not have done the work assigned to it.

A. A sub-trust carries nothing

Lord Briggs describes the VPCT as “provid[ing] all that is needed for completion of the disposal of Inc’s 51% beneficial interest[s], both because the interest to be transferred is purely equitable, and because the intended beneficiaries… are already the legal owners”.72 The latter reason might be tenable. The former is not.

A simple example may illustrate this. Imagine that A holds rights on trust for B. B tells C, orally, that B will confer half of B’s equitable interest to C. C provides the necessary consideration. Under the VPCT or ‘full performance’ principle, a bare trust of half of B’s beneficial interest arises for C. The goal, of course, is for A to hold on trust for both B and C as equitable tenants in common.

However, there is a substantial difference between C being a beneficiary under a sub-trust of half of B’s beneficial interest and C being a beneficiary under a simple trust alongside B. In the former, which is what actually happens, C has no rights against A; in the latter, C may enforce his rights directly against A. The fact that C’s interests are “purely equitable” in both cases does not alter the meaningful distinction between a sub-trust and a trust. The creation of a trust never involves “movement” of property in the sense of a conveyance of title from one person to another;73 there is no reason why this should be different for a sub-trust. The contrary view depends on the myth that the sub-trustee “drops out”, a myth expressly rejected by Lawrence Collins LJ in Nelson v Greening & Sykes (Builders) Ltd: saying that the practical effect is to get rid of the intermediate trust “is not the same as saying that as a matter of law it does get rid of the intermediate trust”.74 English and Al-Sibaie have shown that the same misconception underlies the reasoning of Upjohn J and Lord Radcliffe in Oughtred, of the Court of Appeal in Neville v Wilson, and of Nugee LJ below.75

This gives the precise answer to [30]. Lord Briggs said it “matters not whether this is described as the consequence of the creation or of the operation of the constructive trust”, since “[e]ither way section 53(2) protects that outcome”. But section 53(2) protects the trust’s creation and its operation as a trust: Inc holding its interest for B. It does not protect a disposition said to occur as a further consequence. The passage of Inc’s interest to B, if it occurred, would be a distinct event, which section 53(2) does not touch and section 53(1)(c) would catch. That is the flaw in Neville, which saw the section attach to the agreement (failing for want of writing) and then to the VPCT (saved by subsection (2)), the trust ‘dodging’ the issue arising from the parol agreement. It is a mechanism, not an explanation.

The consequences of the contrary view are serious, and Lord Briggs half-recognised them. At [32] he suggested that “every oral agreement for consideration to transfer an equitable interest in shares… is self-executing in the sense that nothing further need be done to transfer the full beneficial interest to the purchaser, apart from notifying the trustee under the rule in Dearle v Hall”, because “the VPCT does all the necessary heavy lifting… even where the purchaser is not the legal owner”. Two things may be said. First, Dearle v Hall is a priority rule for assignments; to invoke it is to presuppose that the equitable interest has been assigned, which is the very thing a sub-trust does not do. Secondly, if a VPCT of an equitable interest is self-executing, then, absent some explanation of the difference, so is any bare sub-trust, and every layer in a chain of sub-trusts collapses into the one above. Lord Briggs himself noted at [21] that “[t]here may be any number of sub-trusts, as is very common in the means whereby shares and derivatives are held… in the modern securities market”, and as Briggs J he held in Re Lehman Brothers International (Europe) that the English law analysis of intermediated securities depends on the ultimate owner’s interest being “held under a series of trusts and sub-trusts”.76 A doctrine under which sub-trusts self-execute is a doctrine under which that structure cannot be built.

Two further difficulties compound this.77 The first is that the VPCT arises to preserve the subject matter of the contract pending completion. Lord Briggs’ answer, that without a VPCT B and L would have been exposed to Inc’s insolvency or to a transfer by Inc to a third party,78 is a reason for having some protective device, not a reason why this one applies; and on the argument in Part III no interval, and so no exposure, ever existed. The second is the reliance on the maxim that equity treats as done that which ought to be done. A maxim is “not a specific rule or principle of law” but “a summary statement of a broad theme”.79 It is a considerable step from such a statement to the conclusion, going beyond even Neville, that an oral contract may operate as a conveyance in the face of a statutory formality requirement. Rose v Watson, on which Lord Briggs relied,80 concerned a purchaser’s lien over land, where the vendor necessarily retains legal title until conveyance; its dictum that “ownership… is, in equity, transferred by [the] contract” is the ownership picture speaking, and it says nothing about self-execution.

B. The anterior conditions

Lord Briggs treated the conditions for the trust as satisfied by concession: an interest in shares in a private company is unique, the Agreement was specifically enforceable, and consideration was provided at the moment of agreement, so that B and L took under a bare trust.81 There is a respectable argument, noted by Smith among others, that a bare trust for a purchaser who has provided full consideration arises under a ‘full performance’ principle distinct from the trust sub modo in Oughtred;82 but on the facts consideration was provided at the point of the Agreement, and this note takes no further point on it.

Three matters deserve more attention than the concessions allowed. First, the respondents had lost on laches and had “not at any stage sought specific performance”.83 If the VPCT operated by way of sub-trust, as [31] contemplates, then the availability of specific performance at the date of judgment would have mattered: “if the right to specific performance has been lost by the subsequent conduct of the party in whose favour [it] might originally have been granted, the vendor… has ceased to be… a trustee in any sense at all”.84 The self-executing characterisation is what allowed that enquiry, which the respondents had lost, to be bypassed. Secondly, the consideration moved from L, who assumed Inc’s debt.85 For share 1, the supposed purchaser was B, who gave Inc nothing. Equity does not assist a volunteer; whether a multi-party contract cures that is a question the judgment does not ask. Thirdly, an implied term that shares should “be held beneficially” by their legal owners is an unusual candidate for specific performance, since there is no act of Inc’s for the court to compel: the only ‘performance’ would be the execution of a written release, and it is difficult to see why equity should compel the very formality the statute demands in order to excuse compliance with it.

VI. Coda: The Applicability of Section 53(1)(c)

The foregoing also gives a better answer to the respondents’ further submission, that section 53(1)(c) should apply only to land. As Lord Briggs put it, there were three limbs to that argument:86 first, section 53 should be read within the context of the 1925 Act as a whole; secondly, the phrase ‘equitable interest’ is defined in section 1(8) as an interest in land; and thirdly, declarations of trust and contracts for sale with regard to personalty are not subject to the same formalities as real property. The argument was rejected out of hand: the weight of precedent means that the respondents’ contrary construction is now unarguable.

Lord Briggs’ view of statutory interpretation is controversial. The notion that one could get things ‘right’ after getting them ‘wrong’ for long enough is counterintuitive. The sentiment is, nonetheless, not uncommon. In recent years, a notion of ‘settled practice’ in interpreting Acts of Parliament has indicated at least some room for deference towards existing understandings.87 The same sentiment can be found when one turns to the validity of rules at common law: Serjeant Montague argued in Re Lord Dacre of the South, a case concerning the legal validity of the use, no less, that the length of time for which a certain legal understanding had held made it law even if there was no basis for it in the first place, particularly where it had engendered great reliance: communis error facit ius, ‘a common error makes law’.88 Lord Briggs’ appeal to the weight of precedent is a modern instance of that ancient argument, and it inherits its difficulties: it cannot say how long is long enough, nor why the reliance of practitioners should bind Parliament’s meaning, nor why it should not equally protect the settled assumption, older still, that a release requires no writing.

The better rebuttal to the respondents is not that their construction is unarguable, but that it is unnecessary. It is unclear whether Cherry’s intention affects the applicability of section 53(1)(c) to interests other than those in real property: there is evidence that section 9 of the Statute of Frauds was in fact thought to apply generally.89 Australian re-enactments are inconsistent: section 23C of the Conveyancing Act 1919 (NSW) coheres with the respondents’ view, while the Western Australian equivalent looks more like the 1925 Act.90 The respondents did not need to reopen that question. They needed only the narrower proposition that a release is not a disposition, which is supported by purpose, by ordinary meaning, by authority, and by the same legislative history on which their broader argument depended. The wider argument was, in this sense, a distraction from the better one that lay beneath it.

VII. Conclusion

The Supreme Court reached the right result. The Agreement was effective, and B and L hold their shares free of any trust. But it reached that result by holding that an oral contract can operate as a conveyance of an equitable interest notwithstanding section 53(1)(c), that a constructive trust can arise over an interest agreed to be given up, and that a trust can exist for an instant without ever having any content. None of this was necessary. Inc’s interests were extinguished, not transferred; extinction is not a disposition; and no writing was required.

The route matters because of where it came from. Each step follows from thinking about the trust as divided ownership. If the beneficiary owns the trust property in equity, then something must pass when the beneficiary lets go; and if something passes, a vehicle must be found to carry it; and if the vehicle can exist only for an instant, so be it. Begin instead from the proposition that a trust is a set of duties in relation to the powers a trustee holds, and every step disappears. There is nothing to carry, because nothing passes; and there is no momentary trust, because a duty owed to the person who alone may say what it requires is not a duty at all.

That is not a technicality. The ownership picture has elsewhere produced a rule of tort that no one defends,91 and an account of knowing receipt that cannot explain the claims that trustees and the Attorney General routinely bring.92 LA Micro now adds a trust with no content and no duration, and a dictum which, if followed, would make the ordinary sub-trust impossible. The cost of a picture that is nearly right is that it goes wrong in different places each time, and always for the same reason.

Footnotes

Footnotes

  1. Frenkel v LA Micro Group (UK) Ltd; LA Micro Group Inc v LA Micro Group (UK) Ltd [2024] UKSC 42, [2025] 2 WLR 1 [check for AC report]. ↩

  2. ibid [45]. ↩

  3. J English and J A Al-Sibaie, ‘Dispositions of Subsisting Equitable Interests and s 53(1)(c) of the Law of Property Act 1925’ [2024] Conv 140, Part 4 (‘Dispositions’); J A Al-Sibaie and J English, ‘The “Equitable Mechanics” of Constructive Trusts and Section 53(1)(c) of the Law of Property Act’ [citation to be supplied] (‘Equitable Mechanics’). ↩

  4. Equitable Mechanics (n 3), third problem. ↩

  5. LA Micro (n 1) [10]. ↩

  6. ibid [11]. ↩

  7. ibid [12]–[13]. ↩

  8. ibid [14]; LA Micro Group (UK) Ltd v LA Micro Group, Inc [2022] EWHC 1304 (Ch) [48], [59]. ↩

  9. [1997] Ch 144. ↩

  10. LA Micro Group (UK) Ltd v LA Micro Group, Inc [2023] EWCA Civ 214, [2024] Ch 1 [91]–[92]. ↩

  11. LA Micro (n 1) [16]. ↩

  12. [1960] AC 1. ↩

  13. LA Micro (n 1) [27]. ↩

  14. ibid [29]. ↩

  15. ibid [30]–[31]. ↩

  16. ibid [43]. ↩

  17. ibid [45]. ↩

  18. ibid [38]–[48]. ↩

  19. ibid [51]. ↩

  20. ibid [53]. ↩

  21. Armstead v Royal & Sun Alliance Insurance Co Ltd [2024] UKSC 6 [46], citing Bahamas International Trust Co Ltd v Threadgold [1974] 1 WLR 1514, 1525. ↩

  22. [2022] EWHC 1304 (Ch) [59]; Burton v Camden LBC [2000] 2 AC 399, 408 (Lord Millett). ↩

  23. Burton (n 22) 409. ↩

  24. [2024] Ch 1 [105]. ↩

  25. LA Micro (n 1) [39]. ↩

  26. ibid [40]. ↩

  27. Agnew v Commissioner of Inland Revenue [2001] UKPC 28, [2001] 2 AC 710 [32]. ↩

  28. Independent Trustee Services Ltd v GP Noble Trustees Ltd [2012] EWCA Civ 195, [2013] Ch 91 [106] (Lloyd LJ), approved in Akers v Samba Financial Group [2017] UKSC 6, [2017] AC 424 [52], [62]. ↩

  29. Newlon Housing Trust v Alsulaimen [1999] 1 AC 313, 317. ↩

  30. LA Micro (n 1) [17]. ↩

  31. Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, 311. See also J Hudson, B McFarlane and C Mitchell, Hayton, McFarlane and Mitchell: Text, Cases and Materials on Equity and Trusts (15th edn, Sweet & Maxwell 2022) [6-080]. ↩

  32. Akers (n 28) [73] (Lord Neuberger); see also [55], [66] (Lord Mance). ↩

  33. Vandervell (n 31). ↩

  34. R Nolan, ‘Vandervell v IRC: A Case of Overreaching’ [2002] CLJ 169. The alternative explanation offered by Lord Upjohn (at 311) and Lord Donovan (at 317), that “the greater includes the less”, accepts that there was a disposition of the equitable interest, and so cannot explain why writing was unnecessary: Dispositions (n 3) Part 4. ↩

  35. Equitable Mechanics (n 3), fourth problem. ↩

  36. [1968] 1 WLR 1125. ↩

  37. Dispositions (n 3) Part 4, noting that s 205 was not cited in Re Paradise Motor: B Green, ‘Grey, Oughtred and Vandervell: A Contextual Reappraisal’ (1984) 47 MLR 385, 394 n 43. ↩

  38. 29 Cha II c 3, s 9, collected Statutes of the Realm, vol 5 (Dawsons 1965) 340. ↩

  39. Farrell v Alexander [1977] AC 59, 72–73 (Lord Wilberforce), 82 (Lord Simon). ↩

  40. Grey (n 12) 13–15 (Viscount Simonds), 16–18 (Lord Radcliffe). ↩

  41. S Anderson, Lawyers and the Making of English Land Law 1832–1940 (Clarendon 1992) 311. [Confirm against Cherry’s own commentary on s 53 in Wolstenholme & Cherry’s Conveyancing Statutes and the 1924 Act, Sch 3, before publication.] ↩

  42. LA Micro (n 1) [51]. ↩

  43. Grey (n 12); Oughtred v Inland Revenue Commissioners [1960] AC 206; Neville (n 9); Hudson v Hathway [2022] EWCA Civ 1648, [2023] KB 345. ↩

  44. LA Micro (n 1) [16]. ↩

  45. Dispositions (n 3) Part 2: “neither Law Lord expressly identified the natural or ordinary meaning of ‘disposition’”. ↩

  46. Hudson v Hathway (n 43) [51]–[53]; Akers (n 28) [69]; Dispositions (n 3) Part 4. ↩

  47. LA Micro (n 1) [3], [16], [23]. ↩

  48. ibid [49]. ↩

  49. ibid [39]. ↩

  50. ibid [40], [42]. ↩

  51. B McFarlane, ‘The Nature of Equitable Property Revisited’ (2026) 79 CLP [pages to be supplied]; B McFarlane and R Stevens, ‘The Nature of Equitable Property’ (2010) 4 Journal of Equity 1. For the same conception at work, see Equity Trust (Jersey) Ltd v Halabi [2022] UKPC 36, [2023] AC 877 [250]; Byers v Saudi National Bank [2023] UKSC 51 [41]–[42]. ↩

  52. The inconsistency is also noted in Equitable Mechanics (n 3), first problem, which observes that Lord Briggs elsewhere treats “beneficial interest” as a third kind of interest (at [38]). ↩

  53. Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, 706 (Lord Browne-Wilkinson); Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694, 712; Re Transphere Pty Ltd (1986) 5 NSWLR 309, 311; Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524 [82]; Commissioner of State Revenue v Rojoda Pty Ltd (2020) 268 CLR 281 [44]; Akers (n 28) [50]. ↩

  54. LA Micro (n 1) [42] (emphasis added). ↩

  55. DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510, 519 (Hope JA), affd (1982) 149 CLR 431, 474 (Brennan J); Akers (n 28) [50]; Carter Holt Harvey (n 53) [27], [82]. ↩

  56. B McFarlane and R Stevens, ‘What’s Special about Equity? Rights about Rights’ in D Klimchuk, I Samet and H Smith (eds), Philosophical Foundations of the Law of Equity (OUP 2020) 191, 194–201. ↩

  57. E Eldridge, ‘Rights That’ (2024) 44 OJLS 808, discussed in McFarlane (n 51). ↩

  58. Delamere v Barnard (1568) 1 Plowd 346, 352; 75 ER 525, 535; Chudleigh’s Case (1594) 1 Co Rep 120a, 121a–b; 76 ER 270, 271 (Coke arg). ↩

  59. Westdeutsche (n 53) 706; LA Micro (n 1) [20]. [Re Selous [1901] 1 Ch 921 and Re Cook [1948] Ch 212 are sometimes cited; verify what each decides before relying on them.] ↩

  60. W N Hohfeld, ‘Some Fundamental Legal Conceptions as Applied in Judicial Reasoning’ (1913–14) 23 Yale LJ 16, 32–33. ↩

  61. LA Micro (n 1) [35]; see also [41]. ↩

  62. Abbey National Building Society v Cann [1991] 1 AC 56; Southern Pacific Mortgages Ltd v Scott [2014] UKSC 52, [2015] AC 385. ↩

  63. LA Micro (n 1) [44]–[45]. ↩

  64. ibid [15], [43]. ↩

  65. Saunders v Vautier (1841) 4 Beav 115; 49 ER 282. ↩

  66. Nam and Yean [full citation to be supplied]. ↩

  67. Stack v Dowden [2007] UKHL 17, [2007] 2 AC 432; Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776. The surrender in Hudson v Hathway (n 43) was likewise by one of two legal owners. ↩

  68. LA Micro (n 1) [46], [48]. ↩

  69. ibid [19]. ↩

  70. Tito v Waddell (No 2) [1977] Ch 106, 241 (Megarry V-C). The point is made against Lord Briggs by Televantos (n 77). ↩

  71. LA Micro (n 1) [47]. ↩

  72. ibid [30] (emphasis added). ↩

  73. Rojoda (n 53) [44] (Bell, Keane, Nettle and Edelman JJ). ↩

  74. Nelson v Greening & Sykes (Builders) Ltd [2007] EWCA Civ 1358 [57] (emphasis in original). See also C H Tham, ‘Exploding the Myth that Bare Sub-Trustees “Drop Out”’ (2017) 31 Trust Law International 76. ↩

  75. Dispositions (n 3) Part 4, discussing Oughtred (n 43) and Neville (n 9). See also Green (n 37); R Nolan, ‘The Triumph of Technicality’ [1996] CLJ 436. ↩

  76. Re Lehman Brothers International (Europe) [2012] EWHC 2997 (Ch), [2014] 2 BCLC 295 [163]; Equitable Mechanics (n 3), second problem. ↩

  77. A Televantos, case note on LA Micro [full citation to be supplied]. ↩

  78. LA Micro (n 1) [34]. ↩

  79. Corin v Patton (1990) 169 CLR 540, 557 (Mason CJ and McHugh J). ↩

  80. Rose v Watson (1864) 10 HLC 672, 678, cited at LA Micro (n 1) [36]. ↩

  81. LA Micro (n 1) [18], [25], [27], [29]. ↩

  82. L Smith [citation to be supplied]. ↩

  83. LA Micro (n 1) [17]. ↩

  84. Central Trust and Safe Deposit Co v Snider [1916] 1 AC 266, 272; Equitable Mechanics (n 3), second problem. ↩

  85. LA Micro (n 1) [11], [18]. ↩

  86. ibid [50]. ↩

  87. R (N) v Lewisham LBC [2014] UKSC 62, [2015] AC 1259 [94]–[98] (Lord Carnwath JSC); D Bailey, ‘Settled Practice in Statutory Interpretation’ [2022] CLJ 28. ↩

  88. (1535) YB Pasch 27 Hen VIII, fo 7, pl 22, translated in J Baker, Baker and Milsom Sources of English Legal History: Private Law to 1750 (2nd edn, OUP 2009) 127, 130. ↩

  89. Eg Jerdein v Bright (1861) 2 J & H 325, 330–31; 70 ER 1081, 1083–84 (Page-Wood VC); T Lewin, A Practical Treatise on the Law of Trusts and Trustees (A Maxwell 1837) 498; F W Maitland, Equity (2nd edn, CUP 1936) 108. ↩

  90. Property Law Act 1969 (WA), s 33(1)(c). ↩

  91. Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180, [2011] QB 86 [132]–[136], criticised in McFarlane (n 51). ↩

  92. Byers (n 51); C Mitchell and L Ho, ‘Knowing Receipt, Equitable Proprietary Rights, and Duties of Due Administration’ (2026) 89 MLR [pages to be supplied]. ↩