Order for rescission of notice to quit served by joint tenant in breach of trust
In Procter v Procter [2022] EWHC 1202 (Ch), in a judgment handed down on May 25, 2022, following a six day trial, the High Court held that, where A, B & C were joint tenants of a periodic tenancy, but held it on trust for a partnership of which A & B were the only partners; and C then sought to terminate that tenancy by serving a tenant’s notice to quit, against the wishes of A & B:
- C as a trustee owed fiduciary duties to A & B when deciding whether or not to serve a notice to quit
- C had acted in breach of those fiduciary duties when serving the notice to quit, having acted in her own interests and not those of the partnership of A & B
- the Court could and should remedy that breach of trust by ordering rescission of the notice to quit, as an equitable remedy, with the result that the periodic tenancy would continue.
The 92-page judgment of the High Court also deals with:
- The nature of the trust, where a tenancy is held on trust for a partnership
- The financial entitlement of a partner on retirement from a partnership
- The operation of estoppel by deed and estoppel by grant in relation to the assignment of freehold titles
- The law concerning concurrent leases
- The law of merger
- The application of the deemed vesting provisions of section 40(1) of the Trustee Act 1925 to a deed of appointment and retirement; and what amounted to a ‘contrary intention’ under s. 40(1)(a)
With regard to the notice to quit issue, the Court had previously held (Procter v Procter [2021] EWCA Civ 167, [2021] Ch 395) that the tenancy was an annual periodic tenancy subject to the Agricultural Holdings Act 1986; that the three joint tenants were two brothers and their sister; and that the three of them held the tenancy on trust for a partnership, of which the two brothers were the only partners. The sister had formerly been a partner, but had retired from the partnership in 2010.
The sister then served a notice to quit, seeking to determine the periodic tenancy, against the wishes of the brothers. She claimed that, as a joint tenant, she was entitled to do so.
The High Court held that:
- the sister, as a trustee of the tenancy, owed fiduciary duties to the partnership when deciding whether or not to serve a notice to quit. She was not a co-owner in equity, but was in the position of a trustee holding the property on trust for the partnership, and subject to quite different duties and obligations than a simple co-owner in equity. She owed fiduciary duties to act in the best interests of the partnership, not to act for a collateral purpose (her own self-interest), to preserve the trust property (which was a periodic tenancy, with an ability to prolong the same by not carrying out the step of serving a notice to quit), and to avoid a conflict between self-interest and duty.
- the sister had acted in breach of those fiduciary duties when she served the notice to quit: she was not acting bona fide in the best interests of the partnership when she served the notice, but had done so for a collateral purpose, namely to seek to put herself in a better position, and the clear intention and effect of serving the notice was to destroy rather than preserve the trust property
- the Court could and should grant relief in respect of that breach of trust, and the appropriate remedy was to make an order for rescission of the notice to quit. Rescission is a well known equitable remedy for breach of trust or fiduciary duty. There was no reason why a notice to quit could not be the subject of rescission in an appropriate case. The landlord was well aware of the circumstances that the notice to quit was served in breach of several fiduciary duties. There were no grounds as a defence to rescission.
Edward Peters instructed by Peter Williams of Ebery Williams acted for the brothers. The full judgment is here: https://www.bailii.org/ew/cases/EWHC/Ch/2022/1202.html
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