Evidence - Hearsay - Questions (1)

Q1. Alan is charged with the murder of his wife Bryony, the circumstances being that the couple were separated and engaged in bitter matrimonial litigation about the division of the matrimonial property. Bryony is found by Clive, a passerby, suffering from multiple stab wounds. Forensic evidence indicates that she has been lying in the spot where she is found for at least three hours. The prosecution has the following items of evidence.

(a) Clive, who will testify that when he found bryony she said to him “Alan is to blame, he would do anything to keep his money…” and thereafter she lapsed into unconsciousness and did not speak again before dying.

(b) Another witness, David, has given a statement that he saw a car which resembled Alan’s in the neighbourhood and has remembered three letters from the registration plate. David has since moved to Australia and has indicated to the prosecution that he will not return to testify because he is afraid of being prosecuted himself in respect of unrelated matters.

Answers:
Q1a) Apply s116: being dead
- BUT s124: Provides right to attack the reliability of the absent witness as if she’s present

Q1b) Apply s116: outside of the UK; fear – requires leave of court
- s124 applicable; but given the facts, his statement should be reliable
- Other prosecutions that are unrelated to the case are irrelevant

Q2. Graham is charged with unlawful possession of a firearm, making an unlawful threat to kill and causing grievous bodily harm with intent.
The circumstances are that following an argument in the street with Ingrid, a neighbour, he is said to have gone home, obtained a gum and advanced on Ingrid threatening to ‘blow her away’. Thereupon Harry, who was passing by and anticipated violence, attempted to intervene, but Graham struck him with the gun, causing a fracture to his skull. Once he had fallen to the ground Graham is alleged to have kicked him. Jane, who was driving past at the time, bundled Harry into the car and drove off. She stopped nearby and Harry told her what had happened to him. She then took him to hospital and called the police on Harry’s mobile phone. Jane’s call to the police was recorded and in it she gives an account of what Harry told her at the time. No-one obtained Jane’s name and address and she now cannot be traced.

Consider:-
(a) Ingrid made two statements, the first lacking in detail and inconsistent with the second, which contained graphic detail. In the course of giving evidence she broke down and refused to continue contending that she was intimidated by Graham glaring at her from the dock. She refused absolutely to continue giving evidence. The prosecution accordingly apply to put in evidence her second witness statement only, but the defence contend that both statements should be put in.

(b) Consider the police tape recording of the account by Jane of what Harry said.

(c) There is another eyewitness, Katrina, who refuses to come to court because she is scare of the defendant’s reputation. The prosecution seeks to put in her evidence, but the defence objects on the basis that Katrina has a string of previous convictions for theft, criminal deception and perjury.

(d) The gun is found in the hedge nearby. Unfortunately, before it can be fingerprinted or tested for the DNA of the victim, the police lose the weapon. Graham contends that no evidence can be put in about the finding of the gun because the police misconduct in losing it amounts to an abuse of process.

Answers:
Q2a) Apply s116: fear – require leave of court
- Apply s119: inconsistent statements – one statement goes in, the whole story (including the inconsistencies) goes in

Q2b) Involves multiple hearsay s121 CJA 2003
- Tape = document under s117
- Apply s116 for Jane’s unavailability: take enough efforts to find her to court’s satisfaction?
- Jane has to be identifiable: probably yes as she is not any person in the crowd

Q2c) Apply s116 for her fear – judge to decide whether to grant leave
- Previous convictions will be considered by the judge first
- s124 allow the defence to attack witness’ character (?)

Q2d) Refer to police’s misconduct / carelessness
- Defence can apply abuse of process
- Judge will either:
i/ require no mentioning of gun -> acquittal of first charge; or
ii/ be satisfied with other evidence and the case continues
Q3. Alan is a delivery driver for Brilliant Computers Limited. He is loading his lorry one day for a delivery to Continental Limited. On his way out of the warehouse he shouts to a colleague, Donald, “Tell the foreman I’ve loaded 25 computers for Continental Computers Limited”. Donald tells Eric the foreman and he writes up the delivery record book.
Alan delivers the load, but on the way back is killed in a road accident. A week later Continental Limited phones Brilliant Computers Limited to say that according to its records it is short of three computers because only 22 were delivered. Frank, who lives near the premises of Continental Limited is found in possession of three computers, but they cannot be positively identified as the missing ones. The shop from which Frank claims he bought them is no longer in business and the owner cannot be traced. The prosecution believes Frank must have stolen the computers from the lorry and he is charged with theft.

Advise on the following potential matters of evidence:
* For the prosecution:
i) The deliveries record books of Brilliant Computers Limited
ii) A statement from Frank’s former girlfriend to the police that Frank prides himself on making a living from stock “taken from the back of lorries”. However, she is too frightened to testify.
iii) Whilst searching Frank’s house, Tom a policemen takes a telephone call from a called who cannot be traced who says “Did it all go alright.. can we agree a price of a thousand pounds for those computers?”
On realizing that the person answering the telephone is not Frank, the caller rings off.

* For the defence:
iv) Frank has discovered that Alan had two previous convictions for theft from former employers and believes that he may have arranged for the theft of the computers himself, or falsely recorded how many computers he loaded on his lorry.
v) After the accident Alan said to the ambulance drive “I know I may not make it… I must clear my conscience… I sold those three computers”. He then died.

Answers
Q3i) Apply s117: business records are not hearsay; no need to show unavailability of the recorder

Q3ii) Apply s116: Fear requires leave of court
- s124 may be used to attack credibility of witness

Q3iii) Kearley is reversed by s115(3) CJA 2003

Q3iv) Previous conviction, spent or not?
- Evidential burden of the defence to raise a live issue so that judge will direct jury on it

Q3v) Apply s116: being dead: exception to hearsay rule

Evidence - Character Evidence - Questions (1)

Q1. Donna and Elizabeth both work for International Incorporated. They are charged with having systematically stolen goods from the warehouse over several months and with having assisted each other in smuggling the goods out of the premises past a security guard. Donna has a number of previous convictions for offences of dishonesty and one for a serious assault. Elizabeth has no convictions. Consider the following items of evidence in terms of admissibility and the practical consequences.
(a) Donna suggests that Elizabeth has often mentioned that she was ‘a bit hard up’ and might need extra money to support her boyfriend who does not work. Donna insists that she is not saying that Elizabeth did commit the offences, but suggests that ‘it may be a factor in explaining what happened’.
(b) Donna suggests that the manageress of her department, Fiona, is incompetent and keeps very poor stock records and that it may well be the case that nobody stole any goods at all. Fiona has been called to give evidence for the prosecution and has been cross examined to this effect by Donna’s counsel.
(c) Would it make any difference to your answer to Question (c) if Fiona had not been called as a witness?
(d) Donna testifies that she is happily married with children and her husband has a very well paid job and thus she would have no need for extra money and is unlikely to have stolen
(e) In summing up the judge tells the jury that so far as is known Elizabeth appears to have no criminal record and they should take that into account in any way they think appropriate

Answers:
Q1a) Attack on another person’s (here co-defendant’s) character; apply s101(1)(g) -> Donna’s bad character is admissible

Q1b) Attack on another person’s (here prosecution’s witness’s) character; apply s101(1)(g) -> Donna’s bad character is admissible

Q1c) the person in s101(1)(g) can be anyone, not only witness

Q1d) Apply s101(1)(f) to ratify a false impression

Q1e) Judge’s full direction to jury regarding the good character should include: (i) more likelihood to be believable; & (ii) less likelihood to commit crime
- Apply Vye direction
Q3. Graham has a number of previous convictions for dishonesty offences, including several for burglary. He is now charged with the burglary of a house belonging to Harriet, a lady of 85. The allegation is that he obtained entry to the house by pretending to be an official from the local council investigating the safety of asbestos allegedly used in the roof and while upstairs stole jewellery and other items.
Consider the prosecution’s application to put in evidence his previous character in the following alternative situations. If you conclude that the evidence would be admissible indicate how the judge should direct the jury about the use to which they may put their knowledge of this character.
(a) Graham testifies that he would never do something so dishonest and that at the time in question he was helping to run a charity stall for Oxfam in a town thirty miles away
(b) Three of Graham’s ten previous convictions demonstrate a similar method of operation, of approaching elderly householders and pretending to inspect the house on official business
(c) A crucial prosecution eyewitness is Ian, who has testified that Graham had discussed the possibility of ‘making a killing’ at Harriet’s large, isolated house. Graham causes Ian to be cross examined to the effect that his story is an invention and that he himself carried out the burglary
(d) Graham asserts in evidence that he is virtually certain that John, another criminal who has a grudge against him, carried out the burglary. John is not called as a witness for either party
(e) Explain how your answers would differ if Graham’s previous convictions included convictions for rape and for cruelty to animals, but none for burglary

Answers:
Q3a) If it is the whole defence -> admissible

Q3b) Similar method; s101(1)(d)
- Apply s103; admissible

Q3c) Character attack; s101(1)(g)
- Apply s101(1)(c): It is important explanatory evidence

Q3d) Apply s101(1)(g): Character attack; court’s discretion of admitting defendant’s bad character

Q3e) Much worse offence; not the same / similar kind of offences
- Prejudicial, inadmissible

Evidence - Burden & Standard of Proof - Questions (1)

Q1. Consider burden and standard of proof in the following cases:-
(a) Brian is charged with an offence under a statute, the relevant part of which reads:-
“It shall be an offence for a person to fish for salmon in one of the rivers designated in the schedule to this Act unless the person has a current licence.”

(b) Clive is charged with an offence under section 1 of the Abduction Act 2006, which reads:-
“It shall be an offence for a person to take an unmarried girl under the age of 16 out of the care of her parent or guardian without the consent of the latter.”
Clive wishes to raise the issue that the girl in question is over 16; married; and that he ahd the relevant consent.

Answers:
Q1a) Prosecution has to prove:
- It’s Briand (Identity)
- Designated river
- Brian is fishing
- Fishing for salmon

Who has got to prove ‘has a current licence’?
- Apply AG reference no.4 of 2004
- Less serious crime, switch burden of proof
- Likely that defendant has to prove

Q1b) Elements of crime:
- Unmarried
- Girl
- Under 16
- Out of care (for how long?)
- Without consent

Prosecution has to prove:
- Girl, not boy
- Under 16
- Unmarried

Who prove consent?
- Apply AG reference no.4 of 2004
- Serious crime, burden on prosecution

Q3. Consider burden and standard of proof in the following cases:-
(a) “Now the words “beyond reasonable doubt” mean just that. You shouldn’t be deflected from convicting by slight or fanciful doubts and you should treat the decision about guilt as you would treat a decision of reasonable importance in your own lives, such as for example whether you would take out a bank loan for home improvement.”

(b) “Now as we have heard this murder took place in 1996 and the accused, who agrees that he is an alcoholic vagrant, was not charged with it until 2004. At the police station he said that he couldn’t explain where he was at the time of the murder because he had no idea so long afterwards. However, he has chosen not to give evidence before you and in the circumstances it is up to you what you make of that refusal to testify.”

(c) “Now as we know on this rape charge, the defence is that the victim consented. Of course if that is established, then the defendant is entitled to an acquittal. There are no longer any technical rules about the value of the evidence of victims in this kind of case and it is simply a case of whose word you believe, so that you are completely sure.”

(d) “As we know this defamation case turns on the allegation in the Daily Bugle that the complainant had been stealing from her employers. As we have heard she was acquitted of any such charges in the Crown Court two years ago, but you must of course bear in mind the higher standard of proof there. All the defendant has to establish is that the plaintiff was really guilty in this case, whatever the decision the criminal jury came to.”

Answers:
Q3a) CA’s direction is never try to explain ‘beyond reasonable doubt’.

Q3b) The subject matter is the right of silence: judge can, not must, direct jury to make adverse inferences to silence
- S35 CJPOA: if defendant has nothing to answer, judge cannot direct jury to make adverse inferences

Q3c) Prosecution has to prove absence of consent
- The word ‘established’ = proved: this is completely WRONG to say something like this
- It is not clear just should be sure about defendant’s defence or prosecution’s version: the jury should be sure of HIS GUILT

Q3d) For defamation case, the burden of proof is on the defendant
- The last sentence is completely RIGHT

Evidence - Silence, Confession, S78 PACE - Questions (1)

Q1. Dennis and Eric are arrested on suspicion of involvement in a number of serious robberies. Both deny involvement.
(a) They are put in the same cell and their conversation is secretly tape recorded. In due course they begin discussing their lines of defence and indicate that they are going to fabricate an alibi in respect of some of the offences. Is this evidence admissible?
(b) How should the court approach the matter if Dennis contends that he had never previously been involved in any criminal activity, but was lured into participating in one of these robberies by an undercover police officer, without whose involvement he would never have participated?
(c) If Eric indicates that he does not intend to give evidence, what steps ought to be taken by the judge?
(d) The prosecution have a number of items of evidence which may favour Dennis and Eric and include witness statements which tend to imply that Dennis and Eric were not involved and that the offences were carried out by other persons. Explain the circumstances in which these should or must be made available to Dennis and Eric
(e) Dennis and Eric say that they require disclosure of certain details of the police operations against them. The prosecution contend that this information is protected by privilege. How, when, by whom, and on what criteria will this matter be determind?

Answers:
Q1a) Evidence admissible

Q1b) Apply Loosely and Khan

Q1c) Apply s35 CJPOA 1994
- Judicial warning on what will happen if he does not intend to give evidence -> direction of adverse inference

Q1d) Duty of prosecution to reveal unused evidence to defence

Q1e) Public interest immunity

Company - Corporate governance issues - Notes (1)

VII. Corporate Governance Issues

Grounds for disqualifications proceedings
CDDA 1986:
* Misconduct in connection with companies
s2 Conviction of indictable offence
s3 Persistent breaches of companies legislation
s4 Fraud / Breach of duty
s5 Summary convictions
* Unfitness
s6 Unfit directors of insolvent companies
s8 Unfit after company investigation
Secretary of State for Trade & Industry v Amiss 2003
- Director had engaged in behaviour that he knew to be dishonest. It was accepted that this dishonest behaviour was endemic within his industry but that did not excuse his actions
- His action were a breach of his fiduciary duty to the company and also the company’s to its clients
- Director was disqualified as a director for 9 years under s8 of CDDA 1986

* Others
s10 Wrongful trading
- Meaning of unfitness
Schedule 1 Part I
Schedule 1 Part II

Role of Board
- The older conception of the director’s role
- Increasing the number of non-executive directors
- Increasing the number of board sub-committees
- Separating the role of chairman and chief-executive

Combined (Corporate Governance) Code
- Cadbury Report 1992
- Greenbury Report 1995
- Hampel Report 1998
- Combined Code (v1 – 1998)
- Modern Company Law: Final Report (DTI)
- UK Govt’s ‘Post Enron’ initiatives
- Higgs Report
- Combined Code (v2 – 2003)

Operating & Financial Review (OFR)
- Came to an end in Nov 2005 when the Chancellor announced that the regulations implementating it would be repealed from Jan 2006.- A retreat by the Government from its attempt to introduce higher levels of accountability for directors

Company - Ultra vires & the authority of company agents - Notes (1)

VI. Ultra Vires & the Authority of Company Agents

Consequence of the transaction being held ‘ultra vires’:
(i) External
- Effect between company and 3rd party
- At common law the transaction was VOID: it could not be ratified
* irrelevant that 3rd party did not know, form the object clause that the capacity of the company did not cover the current transaction
* By the doctrine of ‘constructive knowledge’, she was deemed to know what the objects clause said, and what it covered
(ii) Internal
- Effect between shareholders and the directors
(a) the memorandum is part of s14 contract, i.e. the shareholder has invested her money on the assumption that it will only be used for lawful, intra vires purposes.
Therefore if the company purports to use the money for ultra vires purposes, she has a personal contractual right to stop the company so doing
(b) By making the company do something ultra vires, the directors have breached their fiduciary duties owed to the company.
Note that the duty is owed to the company, so the company alone can take action against directors to recover and loss suffered

Reform of CA 35
- abandon the external effects but to retain the internal effects, i.e. to make ultra vires contracts binding between the company and 3rd parties, but not to lose the rights of shareholders or of the company as against its directors

Consequences of lack of authority
(i) External
- The contract is voidable
- If the company wishes to avoid, then it can do so.
- If the 3rd party wishes to avoid, it is a bit more difficult
- If the company chooses not to affirm, the 3rd party might be able to sue the unauthorized agent with which it dealt for breach of warranty of authority

(ii) Internal
- To the extent that a shareholder can insist the company is properly run, then she can stop the company doing sth which has not been authorized by the proper person -> personal action
- if a person does cause the company to act in a way he was not authorized to make it do, then that person might breach their duties and be subject to action (action by the company)

Types of authority:
- Express authority
- Implied authority
- Ostensible authority
- Restriction authority in the company’s constitution- CA 1985 35A

Company - Minority protection & statutory remedies - Notes (1)

V. Minority Protection & Statutory Remedies

Winding up on the ‘Just & Equitable’ ground: IA 1986 s122(1)(g)
- Creditors, directors & ‘contributors’ can petition
- Shareholders can petition if she has a ‘tangible interest’ in the company, i.e. the company must be solvent
- Shareholders must have held shares for at least 6 months during the last 18 months: 6 month rule

What amounts to ‘just & equitable’ circumstances?
1. Contractual basis of jurisdiction
2. Breach of shareholders’ contract in the quasi-partnership
Ebrahimi v Westbourne Galleries 1972
- The company was treated as an incorporated partnership and wound up on the just and equitable ground
- 3 features of a quasi-partnership:
(i) A company formed on the basis of personal relationship between its members
(ii) Where all or some shareholders expect to participate in mgmt
(iii) Where there is a restriction on share transfers
- There is a wider equitable consideration: A limited company is more than a mere legal entry, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure

Re German Date Coffee 1882
- Wound up because of loss of company substratem

Re Brinsmead & Sons 1897
- Wound up because company was formed for a fraudulent purpose

Re Yenidje Tobacco 1916
- Wound up because the relationship between the company’s only two equal shareholders and directors broke down, leading to deadlock in management, and communications between them was only possible through a third party

Loch v John Blackwood 1924
- Wound up because of justifiable lack of confidence based on a lack of probity in the conduct and management of the company’s affairs, caused by a failure to hold meetings, prepare accounts and reports and to comply with audit requirement in the articles

O’Neill v Phillips 1999
- This is the first s459 case to be considered y HL
- This decision restricts the ability of members to bring an action under s459 CA 1985 to cases where there has been a breach of the company’s constitution, some other breach of duty or some other agreement which makes it inequitable to confine the members to their strict constitutional rights
- The ‘wider equitable considerations’ established by Ebrahimi case also apply to s459 actions

Secretary of State for Trade & Industry v Liquid Acquisitions 2002
- It was in public interest (IA s124A) to grant a winding up order when a company employed sales techniques involving misrepresentation and deceit
- Court ordered majority shareholder to pay the costs of the winding up. The shareholder was not a director but had been deeply involved in the misrepresentation and deceit
- If the company had to cover the costs of the winding up this would have the effect of taking money away from the creditors
- As such the majority shareholder – by virtue of his behaviour – should pay

IA 1986 s125: Offer to purchase a petitioner’s share must be a fair/ reasonable one:
(i) pro-rata & discounted offers
(ii) Bird Precision Bellows 1985
- The valuation was made as at the date of a consent order that the shares should be purchased at such price as the court should thereafter determine
(iii) Valuation of the company

Problems of valuation by auditors:
(i) Lack of independence (against the majority)
(ii) Lack of resource and power to investigate misconduct (compared to court)
(iii) Lack of transparency of valuation

Virdi v Abbey Leisure 1990 (?)
O’Neill v Phillips 1999
- See above

Unfairly Prejudicial Conduct CA 1985 s459 – 461
- Member and Transferee or shareholder by transmission can sue
- No definition of ‘interests of the members’: up to courts to determine

Re A Company (Lord Grantchester QC case) 1983
- s459 must be limited to conduct which is unfairly prejudicial to the interests of the members as members. It cannot extend to conduct which is prejudicial to other interests of persons who happen to be members: Restrictive start of the concept of a member’s interests
- However, now, it must take into account that the interests of a member are not necessarily limited to his strict legal rights under the constitution of the company. The use of the word ‘unfairly’ in s459 enables the court to have regard to wider equitable considerations

Re A Company (no 00447 of 1986) 1986
- This is an important decision on s459 as Hoffmann J relied on equitable considerations taken from the speech of Lord Wilberforce in Ebrahimi
- His Lordship has applied these equitable principles in O’Neill v Phillips as well
- Apply equitable considerations to s459 increases its flexibility, and removal as a director often forms a central plank of a petitioner’s allegation under it

Saul D Harrison & Sons 1995
- This is an important case on s459 for it develops the concept of unfairly prejudicial conduct. Hoffmann LJ was clearly not impressed by the ‘reasonable bystander test’ for the purposes of s459
- Articles of association are the starting points when deciding whether there has been unfairly prejudicial conduct, with legitimate expectations based on agreements outside the articles being taken into account in appropriate cases
- Followed Ebrahimi and applied ‘wider equitable principles’
- In deciding whether to continue the business of the company after its premises were compulsorily purchased, the directors took in to account the interests of the employees that they were required to do by s309 CA 1985

Citybranch Group , Gross v Rackind 2004
- CA s459 was sufficiently wide to encompass the situation: application of CA s459 to a holding company where the conduct complained of related to a subsidiary

- Interests were wider than rights and included ‘legitimate expectations’

Implied agreements for quasi-partnership – legitimate expectations found by courts on minority shareholder:
(i) To participate in management
(ii) To have the company properly run
Re London School of Electronics 1985
- Exploration of company assets, in this case students, can be unfairly prejudicial conduct
- It makes clear that a petitioner does not have to come to court ‘with clean hands’. This is in contrast with derivative (minority) actions
- Improver behaviour by the petitioner can, however, be taken into account when considering the relevant order to be awarded to the petitioner under s461 CA 1985
- The petitioner’s remedy was an order by the court under s461 that his shares be purchased by the respondents. However, in appropriate circumstances the court may order the majority shareholders to sell their shares to the petitioner

Re Elgindata Ltd. 1999
- There is little authority on the extent to which negligent or incompetent management of a company’s business may constitute conduct that is unfairly prejudicial to the interests of members for purposes of s459
- Two considerations are relevant: (1) It is not for the court to resolve disagreements between petitioners and respondents as to whether a particular managerial decision was, as a matter of commercial judgment, the right one to make, or as to whether a particular proposal relating to the conduct of the company’s business is commercially sound under s459; (2) Short of a breach y a director of his duty of skill and care there is prima facie no unfairness to a shareholder in the quality of the management turning out to be poor

(iii) To receive a reasonable return of their investment i.e. all the profits should not disappear in director’s fee, and some of the profits should be used to pay a dividend
Re Sam Weller & Son 1990
- The court would ordinarily be very reluctant to accept that managerial decision could amount to unfairly prejudicial conduct. On the other hand, conduct may be unfairly prejudicial to the interests of minority shareholders even if those responsible for that conduct may, as members of the company, have suffered the same or even greater prejudice

Re Jayflex Construction, McKee v O’Reilly 2003
- A breakdown in the relationship of trust and confidence in a quasi-partnership was not enough here to amount to unfairly prejudicial confidence. Both shareholders had unjustifiably charged personal expenses to the company and therefore the mutuality of the behaviour precluded either party relying on it for the purposes of s459

Backlash?
O’Neill v Phillips
- See above

Re Guidezone 2000
- The petitioner claimed that the company’s affairs were being conducted in a manner prejudicial to his interest as the remaining shareholders refused to sell the company’s principal asset, a hotel, so that he could realize his investment in the company. He based his argument on the ground that there was an understanding that the hotel was purchased on the basis that he should have the final say on running it, including when the hotel was to be sold and the company would up. The petition was dismissed. There was no unfairness and no agreement that the company would be run in the manner claimed by the petitioner

Remedies available:
Re Harmer 1959
- Court ordered an old, autocratic ‘governing director’ of a company he had found, and in which he retained voting control, to become a president for life, with no powers, and not to interfere in the mgmt of the company
- This sort of order is exceptional. Far more common is the order that the majority buy the shares of the minority petitioner

CA s459 Vs IA 125
- There is no obvious statutory rule that the petitioner must accept some ‘reasonable alternative remedy under CA s459

Re A Company (no 004377 of 1986) 1987 (?)

Decisions on right to leave of breakdown:
Re Yenidge Tobacco 1916
- See above

O’Neill v Phillips 1999- See above

Company - Majority rule & minority protection: The articles of association - Notes (1)

IV. Majority Rule & Minority Protection: The Articles of Association

Majority Rule – Majority are entitled to cast their votes in their own interests, rather than thinking (and doing) what is best for all the shareholders; or for the company.

Alternatives to majority rule:
1/ Require unanimity
Bowthorpe Holdings v Hills 2002
- Unanimous consent of the members will not validate a mala fides act. The same applies if the act raises:
- Solvency issues or
- Affects the position of the company’s creditors

Euro Brokers Holdings v Monecor 2003
- Unanimous informal agreement could alter procedures agreed in a shareholders’ agreement

2/ Require that decisions be taken ‘for the good of the company’
3/ Let some third party (e.g. arbitrator, courts) decide what should happen (by what criteria?)

Advantages of majority over the alternatives:
- Democratic & fair
- Efficient
- Avoids deadlock
- Avoids judicial interference in the company’s internal affairs

Risks of majority rule:
- All shareholders suffer at the hands of their directors
- The minority of shareholders is oppressed

Exceptions to majority rule:
(i) Personal Rights under Articles of Association
- 1985 CA s14
Hickman v Kent or Romney Marsh Sheep-Breeders’ Association 1915
- This is the leading case on the contractual effect of s14 CA 1985 (but attracted a lot of criticism)
- It is decided that only a member complaining about an article which affects him in his capacity as a member can enforce the articles: If the article in question affects the member in an outside capacity only, such as in his capacity as a director, then no reliance can be placed on the s14 contract
- The objection to this is that it does violence to the actual wording of s14, which refers to binding the company and its members in relation to ‘all the provisions of the memorandum and of the articles’, without any reference to the capacity in which the shareholder is affected.

- Implied & express ‘extrinsic contracts’
Pender v Lushington 1877
- Where a personal right of a member is infringed the rule in Foss v Harbottle has no application and the member can bring a personal action in his own name

Towcester Racecourse v Racecourse Association 2002
- The court declined to imply a term inconsistent with express terms in the articles into the articles of association

- 3 problems:
(a) Debate over ‘outsider’ rights:
Eley v Positive Govt Security Life Assurance 1876
- This case is cited as authority for the point that the articles do not constitute a contract between the company and outsiders. An outsider is either one who is not a member at all, or one who is a member but who is trying to rely on an article in an outside capacity, such as in his capacity as a director
- CA rejected the argument that even if the articles did not constitute a contract, they could be relied upon as evidence of an extrinsic agreement outside the articles

Beattie v E & F Beattie 1938
- CA accepted and applied the decision in Hickman’s case
- CA confirmed the traditional view of the s14 contract, that it can only be enforced by a member in his capacity as a member
- Here, Beattie was trying to enforce the arbitration article in his capacity as a director, which was fatal to his claim

Globalink Telecommunications v Wilmbury 2002
- A director’s indemnity provision in the company’s articles would not always be binding because the articles do not constitute a contract between the company and its officers. It will only bind the compnay if the provision is contained in a separate contract between the company and the officer.

(b) The ‘problem’ of internal irregularities
Pender v Lushington 1877
- see above

MacDougall v Gardiner 1875 (?)
- A company is entitled as against its members to enforce and restrain breaches of its regulations

(c) The problem of alteration
CA 1985 s9
Allen v Gold Reefs of West Africa 1900
- The statutory right of a company to alter its articles by a special resolution under s9 CA 1985 is subject to the test established in this case, namely, that the alteration must be ‘bona fide for the benefit of the company as a whole’
- If an alteration results in the breach of an extrinsic contract between the company and the shareholder, the company will not be able to justify the breach
- This decision shows that the alteration of an article will not necessarily be invalid merely because it affects only one individual shareholder

Russell v Northern Bank Development 1992
- A shareholders’ agreement not to increase the share capital of the company was valid and enforceable
- Although the company itself cannot be a party to an agreement not to alter its articles, the shareholders can so long as the agreement is contained outside the articles
- This represents a severe restriction on the statutory right of the company to alter its articles by a special resolution under s9 CA 1985
- The decision is being criticized by Farrar that it confirms the absolute prohibition on a direct contracting out of the statutory power but allows it effectively to be circumvented by agreement between shareholders: another triumph of form over substance in the law!

(ii) Shareholder agreement

(iii) Statutory remedies

Company - Directors: enforcement of duties - Notes (1)

III. Directors: Enforcement of Duties

Who can take action against the directors?
- Foss v Harbottle rule – Proper Claimant rule: Company can sue
- Who in the company: should be majority of the directors
- If directors decide not to sue: shareholders by special resolution can instruct the board to take action to use (Table A, art 70)
- If the majority of shareholders decide not to sue: Ratification by simple majority not to sue (including overturning a board decision to sue)
=> An ordinary majority of shareholders can decide the company NOT to sue, even if the board wanted the director to be sued. But they cannot decided the company WILL sue.
- Exception to the above flow is the derivative action: The court allows a minority shareholder, or minority group of shareholders, to bring an action ‘on the company’s behalf’. Because the action is on the company’s behalf, the benefit of the action (if it’s successful) goes to the company)
=> Majority rule v Minority protection (derivative action)

Use of minority protection:
(i) Fraud on the minority
- Generous rule to wrongdoing directors: 1. misconduct ratifiable; 2. self-interested vote to ratification
- Minority protection is to ratify such ratification: Fraud is the misconduct that cannot be ratified
- Transaction approach: the characteristic of the wrongdoing is crucial to the success of a derivative action

Cook v Deeks 1916
- Classic example of fraud on the minority: The contract belonged in equity to the company. The breach of duty by the directors in diverting the contract to another company could not be cured by ratification. Using their voting majority to pass the resolution was a fraud on the minority. The 3 directors had to account for the profits they had made on the contract

- misappropriation of corporate property (and perhaps opportunities) amounts to fraud
- Breach of duty would have been ratifiable?

Pavlides v Jensen 1956
- Mere negligence of directors does not amount to fraud
- No benefits were accrued to the directors

Daniels v Daniels 1978
- Follow Pavlides v Jensen that mere negligence of directors does not amount to fraud, BUT self-serving negligence that benefits a director will be treated as falling within the fraud on the minority exception to the rule in Foss v Harbottle

(ii) That the wrongdoers are in control of the company
Prudential Assurance v Newman Industries No 2 1982
- Where the company has suffered a loss, a shareholder cannot bring an action to recover losses resulting from the diminution in the value of his shares, as this merely reflects the losses suffered by the company. The company is the proper plaintiff unless the shareholder can establish a distinct claim

Smith v Croft No 2 1987 (?)

(iii) Wallersteiner orders
Wallersteiner v Moir No 2 1975 (?)
Smith v Croft No 2 1987 (?)

(iv) Reforming derivative actions
- From a characteristic-based wrongdoing transaction based approach vs a ‘voting based approach

(v) Court sanctioned relief
- CA 1985 s727: available for director who has acted honestly and reasonably and ought fairly to be excused

Company - Directors & their duties - Notes (1)

II. Directors & their Duties

Removing directors
CA 1985 s303 Removal of directors
s304 Director’s right to protest
s303(5)
s319
s459 Unfairly prejudicial
Bushell v Faith 1970
- Weighted votes in the articles in favour of a director on a resolution to remove him do not infringe s303 CA 1985
- Majority of HL felt that Parliament in s303 intended that an ordinary resolution to remove a director should suffice, but that shares which carried weighted votes did not infringe the section
- Removing a director under s303 may have serious consequences:
i/ It may have to pay damages to the removed director if there is a breach of an extrinsic service contract
ii/ If the company is a quasi partnership, the removed director may seek a winding up order under s122(1)(g) IA 1986
iii/ The removed director may have grounds for bringing a petition under 459 CA 1985 on the basis that the removal amounts to unfairly prejudicial conduct

Item Software v Fassihi 2003
- Company could rely on a breach of fiduciary duty as grounds for dismissal even if the breach was unknown at the time of the dismissal and even if the dismissal was unjustified in the absence of the breach of duty
- CA found that director’s duty to act in good faith in the best interests of the company included a requirement to disclose his own misconduct
- An employee whose employment terminated during a pay period was entitled under the Appointment Act 1870 to apportioned salary for the period before termination irrespective of the cause of termination

Director’s duties
(a) To whom are directors’ duties owed?
Percival v Wright 1902
- Enforcing rule in Foss v Harbottle 1843
- During negotiations the directors did not hold a fiduciary position as trustees for the individual shareholders
1/ The case establishes that the fiduciary duties of a director are not generally owed to individual shareholders but to the company
2/ The basic principle is that the duties are owed to the company and that only exceptionally will directors owe duties to shareholders where there is a special factual relationship between them
3/ Directors also owe a limited indirect duty to the company employees under s309(1) CA 1985, ‘to have regard in the performance of their functions the interests of the company’s employees as well as the interests of its members generally’. This does not offer much protection to the employees, for s309(2) states that the duty is owed to the company (and the company) alone and that it is enforceable in the same way as any other fiduciary duty owed to a company by its directors. The duty is only therefore owed to the employees indirectly via the company. An employee is not able to enforce a breach of the duty by taking a personal action against the directors. In the absence of any employee participation on the board of directors, employees of a company have no way of checking whether this duty is being observed
4/ Where the company is insolvent, the directors may owe duties to the company’s creditors. Again this is an indirect duty owed to the company which can be enforced by a liquidator

Prudential assurance v Newman Industries no2 1982
- Restrict shareholders’ losses that are merely ‘reflective’ of the company’s losses
1/ ‘Control’ of a company embraces both numerical control and control by the wrong-doers by their influence and also the apathy of the shareholders
2/ Prudential as a shareholder had not suffered any personal loss distinct from that of the company. Therefore, Prudential’s personal action, to which the representative action was linked, was misconceived

Johnson v Gore Wood 2001
- Confirmed & applied Prudential decision that where the company has suffered a loss a shareholder cannot bring an action to recover losses resulting from the diminution in the value of his shares, as this merely reflects the losses suffered by the company. The company is the proper plaintiff unless the shareholder can establish a distinct claim.

Giles v Rhind 2002 (?)
- Qualifying Prudential

Allen v Hyatt 1914
- Exceptions; where there is a special relationship between the director and the shareholder
- The directors approached the shareholders to give them options to buy their shares on the pretence that this would help with the negotiations for the sale of the company. This was in fact untrue and the directors intended to sell the shares and to keep the profit. It was held that the directors had become the agents of the shareholders and in this capacity owed them a fiduciary duty. They had to account for the profit that they had made.

Coleman v Myers 1977 (?)
- Exceptions; where there is a special relationship between the director and the shareholder

Platt v Platt 1999 (?)

Peskin v Anderson 2001
- 4 former members of the Royal Automobile Club complained that the directors did not inform them of negotiations to demutualise the club and therefore they were not entitled to share in the substantial cash benefits of around $34,000 each. The claim was rejected. There were no special circumstances so as to impose a duty on the directors to disclose the demutualization plans and negotiations.

Knopp v Thane Investments 2002 (?)
- Director’s failure to observe the articles rendered a contract contrary to the articles unenforceable

(b) Duty of care & skill
i/ Traditional view:
Re City Equitable Fire Insurance 1925
- Some of the directors were negligent but escaped liability due to art 150. The common law duty of a director is essentially subjective
1/ The directors would not have escaped liability for negligence today as exempting articles such as art 150 are prohibited by s310 CA 1985
2/ Skill & care of a director, attention to the company’s business and delegation of responsibility are the starting point on any discussion of the common law duties of a director.
3/ Judges will now apply the standard of skill and care laid down in s214(4) IA 1986 dealing with wrongful trading; and replaces the subjective test here to s214’s dual subjective & objective test

ii/ Modern developments
Contracts of employment
Dorchester Finance v Stebbing 1989
- 2 non-executive directors who rarely attended the company’s premises except to sign blank cheques, ‘not only failed to exhibit the necessary skill & care in the performance of their duties as directors, but also failed to perform any duties at all as directors of Dorchester.’

Company Directors Disqualification Act 1986 s6

IA 1986 s214
Norman v Theodore Goddard 1991 (?)
- Applied s214(4) standard

Re D’Jan of London 1993; Copp v D’Jan 1994 (?)
- A director who signed an insurance proposal form without reading it was negligent, applying the standard in s214(4) IA 1986 (instead of Re City Equitable Fire Insurance case’s subjective test)
- Together with Norman v Theodore Goddard, they have the effect of increasing the standard of skill and care that a director must exhibit towards his company
- Illustrate the operation of s727 CA 1985, which allows the court to relieve a director from a breach of duty if he has acted honestly and reasonably

Re Loquitur, IRC v Richmond 2003
- A dividend that had been declared based on incorrect interim accounts was unlawful
- Directors had breached the duty of skill & care
- Court held it had no jurisdiction to grant relief under CA 1985 s727

(c) Duty to act bona fide in the interest of the company
Re Smith & Fawcett 1942
- Directors must act in what they consider to be in the best interests of the company
- It is for the directors to decide what is in the company’s best interests – not for the court to impose its own view
- However, if NO REASONABLE DIRECTOR could have thought that a certain decision was in the company's best interests, then the court will intervene
- The end result is that directors enjoy substantial discretion, and the courts will interfere only rarely in cases of very obvious misconduct
* It is common to find share transfer restriction clauses in the articles of private companies. However, Stock Exchange rules prevent restrictions on the transfer of securities in listed public companies

Colin Gwyer & associate v London Wharf 2002
- Director who votes in breach of his fiduciary duty will not count for the purposes of a quorum
- If a company is in doubtful solvency the creditors’ interests must be the paramount concern for the directors. If they are not, the directors risk breaching their fiduciary duty

Extrasure Travel Insurances v Scattergood 2003
- Reaffirmation that incompetence will not amount to a breach of a directors’ fiduciary duty
- There is also an interesting interpretation of the proper purpose doctrine

Bhullar v Bhullar 2003
- Even though the family company had agreed not to buy any more property the directors had a duty to bring the opportunity to the attention of the company. They had not, therefore they were in breach of their fiduciary duty
- The test was whether ‘reasonable men looking at the facts would think that there was a real sensible possibility of conflict’ and the company did not have to show some kind of beneficial interest in the opportunity

Company’s best interests:
- shareholders’ interests?
- Board’s interests?
- Employees’ interests (CA 1985 s309)?
- Creditor’s interests?

(d) Duty not to act for a collateral purpose
- Directors exercise the powers they have been given only for the purposes for which they were given. This is an objective test (compare to act bona fide in the interests of the company). One can say objectively what were the proper purposes for which the power could be exercised, and then decide whether the directors did indeed exercise the powers for that purpose.
- E.g. Director’s power to issue shares: Director’s duty is to ensure that they use that power for good reasons, say to raise more capital for the company, rather than underhand reasons, say to dilute the holding of a shareholders or to stop someone taking over the company (who might be planning to remove the directors once they have gained control)

Howard Smith v Ampol Petroleum 1974
- The directors exercised their power to issue new shares for an improper purpose and the allotment was set aside
1/ Where the directors exercise a power with more than one purpose in mind, it is their primary purpose that has to be ascertained in order to determine whether or not they have exercised the power for its proper purpose
2/ The proper purpose for issuing shares is normally to raise additional finance (narrow view) or to secure the financial stability (wider view)

(e) No Conflict rule & No Profit rule
No Conflict rule
- A director cannot put himself in a position where his own interests conflict with the interests of the company

Aberdeen Railway Company v Blaikie Bros 1854
- A company contract in which a director was interested was voidable
- The decision in this case is the starting point when considering the validity of a company contract in which a director has or may have a conflict of interest. Where a director is interested in a company contract this raises a conflict or potential conflict. It is no answer to argue that the contract is a fair one or one that will benefit the company
- This common law position can be modified if the company has Table A as its articles of association. Art 85 allows a director to be interested in a company contract so long as he discloses the nature of his interest in the contract to the board of directors. Disclosure must be to the whole board and not merely to a committee of the board
- Allowing a director to be interested in a contract in this way under art 85 does not breach s310 CA 1985
- The breach of duty may also be ratified in the general meeting by the members acting by a simple majority. Further, the interested director can use his votes as a shareholder to help secure the necessary majority. Ratification will not be allowed where it amounts to a fraud on the minority

At common law, two ways of avoiding No-Conflict rule:
(i) Ratification by the shareholders
(ii)Waiver in advance: Table A art 85; notice of interest of director to the board; interested directors not vote on the matter art 94

Special rules on some contracts that are so fraught with dangers of conflict of interest
(i) Substantial property transactions CA 1985 s320 – 322
(ii) Payment to director for loss of office (golden handshakes) CA 1985 s312 – 316 (exception s316(3))
(iii) Long service contracts CA 1985 s319
Atlas Wright (Europe) v Wright 1999
- Duomatic principle, whereby the informal assent of all of the shareholders is treated as a resolution passed by the company, operates so as effectively to treat a company as having passed an appropriate resolution at the date and time at which all the shareholders assent to the transaction for the purposes of s319 CA 1985

(iv) Loans to directors CA 1985 s330

Guinness v Saunders 1990
- HL ruled that s317 was not applicable in this case because it was held that there was no contract between the director and Guinness (However, note that effect of non-compliance with s317 was not to make the contract void but voidable)
- HL confirmed the strict rule of equity prohibiting a director from placing himself in a position where his interests conflict with those of the company

Crown Dilmun v Sutton 2004
- A director who diverted a corporate opportunity to another company in which he was director was held to have breached his fiduciary duty
- The company in receipt of the diverted opportunity was also held liable to account as a result of its knowledge of actual dishonesty

No Profit rule
- A director must not make a profit out of his position as a director
Regal Hastings v Gulliver 1942
- The directors had in the circumstances made a profit out of their fiduciary position to the company and were liable to repay the amount they had made
- The chairman was not liable to repay the profit on the shares he found purchasers for since he did not take them beneficially and the purchasers were not in a fiduciary relationship to the company
- The solicitor was not liable to repay the profit. He was not a director and therefore he did not stand in a fiduciary relationship to the company
- No Profit Rule:The directors would have been allowed to retain the profit they had made if they had obtained the prior approval of the company in general meeting. This would have been a formality, assuming they controlled the majority of the voting
- The duty not to make a secret profit is part of the wider No Conflict Rule that is strictly applied: It is no answer for those who breach this duty to say that they acted bona fide throughout, or that the company could not have gained the profit

Keech v Sandford 1726
- The underlying principles that a fiduciary must not place himself in a position where his duty and his interest may conflict, and that a fiduciary may not retain a profit which he makes from the use of property subject to the fiduciary relationship or which he makes by reason of his fiduciary position go back to this 18th century case

IDC v Cooley 1972
- Cooley was in a fiduciary relationship as MD and he had allowed that duty and his own interests to conflict when he received information about the Eastern Gas Board project which he used for his own benefit. As MD he had a duty to pass on the information he received to IDC. He was liable to account to IDC for the benefits he received under the contracts
- Cooley was also liable on the alternative basis of damages for breach of his service contract
- It made no difference that the company was unlikely to be able to obtain the contract; the duty is a STRICT one

Contrast Commonwealth developments:
Peso Silver Mines v Cropper 1966
- Canadian case: A director was allowed to take the benefit of a contract personally, after it had been bona fide considered and rejected by the board of directors

Canadian Aero Service v O’Malley 1974
- The general standards of loyalty, good faith and avoidance of conflict of duty and self-interest to which the conduct of a director or senior officer must conform, must be tested in each by many factors
- Among them are:
- The factor of position or office held
- The nature of the corporate opportunity
- Its ripeness
- Its specificness
- The director’s or managerial officer’s relation to it
- The amount of knowledge possessed
- The circumstances in which it was obtained
- Whether its was special, or indeed, even private
- The factor of time in the continuation of fiduciary duty where the alleged breach occurs after termination of the relationship with the company
- The circumstances under which the relationship was terminated, i.e. whether by retirement or resignation or discharge

Island Export Fiannce v Umunna 1986
- A director who resigned and then obtained a contract similar to one that the company had earlier obtained was not in breach of his duty because:
i/ Although the company hoped for further orders there was no maturing business opportunity
ii/ The company was not actively pursuing further orders either when Umunna resigned or when he acquired the two contracts
iii/ His resignation was not prompted or influenced by a desire to obtain orders from the Cameroon postal authorities
iv/ He had not used confidential information belonging to the company
1/ This decision introduces a degree of flexibility when considering possible breaches of directors’ fiduciary duties and represents a move away from the rigid approach of Regal Hastings v Gulliver
2/ This approach reflect a trend towards certain Commonwealth authorities, e.g. Canadian Aero Service Ltd. V O’Malley
3/ This is supported by Bhullar v Bhullar's 'reasonable man' test

Dranez Anstalt v Hayek 2002- CA confirmed that while a former director may not use the trade secrets of a former employer, he may utilize knowledge and expertise he obtained as a result of holding his former position

Company - Veil Lifting - Notes (1)

I. Lift the Veil of Incorporation

Corporate Personality
Salomon v A. Salomon 1897
- A company has a separate legal personality from that of its members. On formation of the company a veil of incorporation is drawn over the company separating it from its members, director & creditors.
- Occasionally the court wil lift the veil of incorporation and disregard the corporate personality. Two such occasions include where fraud is present or the company is being used as an agent by the incorporator

Macaura v Northern Assurance 1925
- An unsecured creditor who is also a principal shareholder has no insurable interest in the company’s property
- No shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.

Corporate Regulation
If the law is to regulate corporations, then it has a basic choice between
(a) liability of the company itself: The law can stick with the basic idea that the company is a ‘personality’ in its own right, and therefore it is responsible for its actions. Thus, the company alone is responsible for the debts it incurs, for the contracts into which it enters, and for the torts and the crimes it commits; and
(b) ‘personal liability’ of corporate ‘insiders’ (e.g. directors or shareholders): Alternatively, the law can attach personal liability directly to particular human beings within the company. Individual directors might, in some circumstances, be held liable, then, for the crimes or the torts they commit in their running of the company, or even for company debts. It’s sometimes said that when the law does this, it is ‘Lifting the corporate veil’ which, usually ‘hides’ those individuals who stand behind the company.

Lifting the Veil
1. Judicial veil lifting:
(a) General:
Gilford Motor v Horne 1933
- An equitable remedy is rightly to be granted directly against the company which is a creature of the defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity

Smith, Stone & Knight v Birmingham Corp 1939
- Lifting the corporate veil between a group of companies
- Whether an agency relationship exists between one company and another, or between an incorporator and his company, is a question of fact. This decision (that the subsidiary company was operating as an agent on behalf of the parent company, and therefore the parent company could claim the compensation) is much criticized and the case law since then illustrates that establishing the fact of agency in such circumstances is both difficult and rare.

(b) Problem of corporate groups:
Lonrho v Shell Petroleum 1980 (?)

DHN Food Distributors v Tower Hamlets LBC 1976
- A group of companies was treated as one single economic unit
- This case was doubted by HL but was not overruled
- This case is considered to represent the high watermark of judicial lifting of the veil, while recent case law marked a return to the strict application of the Salomon principle

Woolfson v Strathclyde Regional Council 1978 (?)

Adams v Cape Industries 1990
- A parent company in the UK was not present in the United States simply because it had subsidiaries there: no veil lifting
- 5 points can be extracted:
(i) Save in cases that turn on the wording of particular statutes or contracts, there is no justification for lifting the veil in the interests of justice
(ii) There is no general principle that all companies in a group will be treated as one. Indeed the contrary is true
(iii) There is no presumption of an agency relationship between a parent and subsidiary company. Whether or not there is an agency relationship is a question of fact, and in the absence of an express agreement it will be very difficult to establish such a relationship
(iv) A company is entitled to organize the affairs of its group in such a way that the business carried on in a particular foreign country belongs to its subsidiary and not itself. In this way a company can ensure that any future legal liability falls on another member of the group rather than on itself. Regardless of its desirability, this is an inherent feature in English company law
(v) It is appropriate to pierce the veil where special circumstances exist indicating that there is a façade concealing the true facts and, in deciding this, the motive of the perpetrator may be highly material.

Ord v Belhaven Pubs 1998
- The court refused to lift the veil following the restructuring of a corporate group: No fraud was alleged and the defendant company was not a mere façade for the holding company. The true facts had not been concealed nor was there any sham. All the restructuring transactions that took place were overt transactions
- Overturned Creasey which can no longer be regarded as good authority

Barings v Coopers & Lybrand 2002
- A loss suffered by a parent company as a result of a loss at its subsidiary was not actionable by the parent – the subsidiary was the proper plaintiff

(c) Veil lifting through actions in tort
Williams v Natural Life Health Foods 1998
- A director was not personally liable for a tort committed by his company: The terms of the brochure were insufficient to amount to an assumption of personal liability by claimant for the company’s negligence
- As long as a director’s involvement is only ‘routine involvement for and through his company’, he will not be found to have assumed personal responsibility for the torts of his company

MCA Records v Charly Records 2003
- In order to hold a director liable as a joint tortfeasor, it was necessary and sufficient to find that he procured or induced those acts to be done by the company, or he and the company joined together in concerted action to secure that those acts were done
- When considering the liability of a director as a join tortfeasor:
(i) If all that a director is doing is carrying out the duties entrusted to him as such by the company under its constitution, the circumstances in which it would be right to hold him liable as a joint tortfeasor with the company would be rare
(ii) If, in relation to the wrongful acts which are the subject of complaint, the liability of the individual as a joint tortfeasor with the company arises from his participation or involvement in ways which go beyond the exercise of constitutional control, then there is no reason why the individual should escape liability
(iii) Liability as a joint tortfeasor may arise where, the individual ‘intends and procures and shares a common design that the infringement takes place

Koninklijke Philips Electronics NV v Princo Digital Disc GMBH 2003
- A company director was held personally liable for the company’s wrongful act

2. Statutory creditor protection
Insolvency Act 1986: s213 Fraudulent Trading
s214 Wrongful Trading
Re Produce Marketing Consortium 1989
- Two directors were found to have traded wrongfully and were ordered to make a contribution
(i) Only a liquidator can commence wrongful trading provisions. Given that the liquidators are paid out of the company’s assets, they are only likely to invoke the provisions in clear and straight-forward cases. Even if the court makes a wrongful trading order against the director, it has no power to direct which creditor should benefit from the contribution. The money will go into the general pot available to the creditors who will be paid according to the distribution rules on involvency
(ii) s214 is more like a threat to directors which a liquidator may use in order to seek a voluntary contribution from them. If a wrongful trading contribution is ordered by the court, it can at the same time make a disqualification order for up to 15 years against the director by virtue of s10 CDDA 1986

Re Oasis Merchandising Services, Ward v Aitken 1997 (?)

IA 1986 s214(7) – including shadow director
IA 1986 s251

Morphitis v Bernasconi 2003
- Not every fraud or fraudulent misrepresentation perpetrated by a company amounted to fraudulent trading under s213
- When a fraud on a creditor was perpetrated in the course of carrying on a business, it did not necessarily follow that the business was being carried on with the intent to defraud
- Court did not have a power to include a punitive element in the amount of any contribution to be made. Any punitive action would fall under CA 1985 s458

3. Crontractual Liability

4. Pre-incorporation contracts
Company Act 1985 s36C Personally liable
Phonogram v Lane 1982
- A music promoter was personally liable on a pre-incorporation contract under equivalent of s36C(1) CA 1985 to repay the money
- Under 36C(1) common law intention of parties to the contract has been replaced by a presumption that the individual contracting party will be personally liable on the contract, unless there is an agreement (express) to the contrary

Braymist v Wise Finance 2002
- An individual can enforce a pre-incorporation contract under s36C(1) CA 1985 as well as being personally liable on it
- If the identity of the contracting party is of crucial importance, or there has been a misrepresentation, then there is no question of the contract being enforceable on ordinary common law principles

Land - Trusts & Coownership - Cases (5)

Implied waiver
Paddington BS v Mendelsohn (1985)
- Doctrine of implied waiver (implied authorization through active support of mortgage, bank will take priority over beneficiary’s beneficial interest)
- One has waived one’s right as against the building society if one must have known of its charge over the property and have impliedly consented to its taking priority over one’s interest

*Abbey National BS v Cann
- Registration under LRA 1925; date for determining overriding interests; whether the relevant date for determining ‘actual occupation’ for the purposes of s70(1)(g) was the date of completion of the transaction or the later date of its registration
- This is a landmark decision on s70(1)(g) LRA 1925. Priori to their Lordship’s decision there was uncertainty as to the date when a claimant had to be in occupation by – the date of completion of the transaction or the later date of registration – in order to establish such as overriding interest. The case establishes that the relevant date for determining the existence of a s70(1)(g) overriding interest is the date of registration, but the relevant date for determining whether the claimant is in actual occupation for the purposes of para (g) is the date of completion of the transaction. The fact that a claimant must be in occupation before or simultaneously with the completion of the transaction (e.g. sale & mortgage) means that the changes of successfully establishing a s70(1)(g) overriding interest have lessened as a result of this decision. However, it will still be possible to claim s70(1)(g) overriding interest in the following situation: legal title to property in husband’s name alone, wife has a beneficial interest in the property and there is no mortgage. Subsequently, the husband takes out a mortgage and if the lending institution does not make inquiry of the wife it would in such circumstances be bound by the wife’s para (g) overriding interest (i.e. in such a situation the wife is in occupation before completion of the mortgage transaction.)
- Extension of Mendelson: beneficiary should have known mortgage is necessary, thus bank takes priority

Skipton BS v Clayton (1993)
- s149(6) was applied to an agreement which called itself a ‘licence’ but which the counrt found in reality to be a lease for life for a premium
- With premium having been paid, court orders a lease for life

Equity & Home Loans v Prestige
- 2nd mortgage pays off 1st mortgage, when 1st mortgage takes priority, 2nd mortgage take priority as well up to the unpaid sum of 1st mortgage

TLATA 1996
- s12 & 13: occupational expense
- s14 & 15: on sale

AJA 1970
- s36

LPA 1925
- s36(2)

Land - Trusts & Coownership - Cases (4)

Trust (cont'd)

Oxley v Hiscock (2004)
- CA considered that, where two persons contributed to the purchase of land conveyed into the name of one of them and where there was no agreement about the quantification of their respective shares, the court was entitled to take into account the whole course of conduct between the parties in determining what would be a fair share.
- From the decision in this case, it appears that the boundary between resulting and constructive trusts has shifted again. The CA stated that the relevant case authorities were unclear and that the trial judge had used the outdated and artificial approach of looking at the conduct of the parties throughout their relationship to see if a common intention could be inferred at the time the property had been purchased. A better approach would be to look at the situation from the perspective of overall fairness; that in such cases, once evidence had been found that the parties had intended shared ownership of some form, each party should be entitled ‘to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property.’ On the facts, given the defendant’s greater financial contribution, an equal division was not ‘fair’ overall
- Follow Cooke (Court will fall back to resulting trust principle of distribution based on original contribution only as last resort)

Cox v Jones (2004)
- In the recent case of Cox v Jones [2004], the parties were barristers who met in 1997 and became engaged in February 1998. Shortly after their engagement, Miss Cox moved in with Mr Jones, but the relationship was stormy and, three months later. Miss Cox moved out. The relationship continued. Miss Cox claimed that the engagement also continued, although Mr Jones denied this. The relationship itself lasted until May 2001, when it broke down permanently. Miss Cox claimed that the engagement had continued until May 2001.
Following the breakdown of the relationship. Miss Cox asserted the following claims:
The flat: that Mr Jones had purchased a flat as nominee for Miss Cox and held it on trust for her absolutely.
The Mill: that a second property. The Mill, which was purchased solely by Mr Jones, was held on trust for Miss Cox and Mr Jones in equal shares.
Beneficial interest in property
Once it has been determined that there was an agreement to marry, what legal claims are available to engaged couples over and above those available to couples who simply cohabit? Where an agreement to marry is terminated, such as in Cox v Jones, either party can apply under sl7 Married Women's Property Act 1882 (MWPA) in respect of any property over which either or both of them asserts a beneficial interest.
The MWPA is essentially a procedural provision to resolve questions as to title and is not a means of giving a title not previously in existence. The property must have been in existence whilst the agreement to marry was in force. However, under s7 Matrimonial Causes (Property and Maintenance) Act 1958, a claim can still be brought over property which no longer exists.
Section 2 of the Law Reform (Miscellaneous Provisions) Act (LRMPA) 1970 extends the class of potential litigants to engaged couples, as long as the claim is made within three years of the end of the engagement.
The applicant in the case of Mossop v Mossap [1998] relied on the LRMPA 1970. The judgment focused on whether engaged couples could rely on the same rights as married couples with regard to property. The applicant argued that, under the 1970 Act, beneficial rights were extended to protect engaged parties. Therefore, she claimed that the court should either order the transfer of part of her former fiancé’s interest in one of the houses he owned to her, or there should be an order for sale with the proceeds divided proportionately. She had not made any contribution to the purchase of the property in question, but it had been purchased during the engagement and they had lived there together.
The court dismissed her appeal, stating that while it was clear that parliament intended engaged couples to have similar protection to married couples, the drafting of s24 Matrimonial Causes Act 1973 necessarily barred engaged couples. The right to an order for sale or transfer could only be triggered following a decree for divorce, a decree of nullity, or a decree of judicial separation. Clearly, none of these applied to a couple who had never married and, therefore, there was no reasonable cause of action and the appeal was dismissed.
Balcombe LJ summarised as follows:
The Law Reform (Miscellaneous Pro-visions) Act 1970, s2, provides that engaged couples would have the right of husband and wife in relation to property but that means the right to apply as a husband and wife have a right to apply; it clearly does not mean, in my judgement, they have rights of divorced husbands and wives under the Matrimonial Causes Act 1973, so there is no jurisdiction to make a transfer of property order.
The decision
In summary, Mann J reached the following decision in the case of Cox v Jones:
The flat: Miss Cox was entitled to a declaration that she owned 100 of the beneficial interest in the flat. The basis of the purchase of the flat was that Mr Jones was purchasing the flat for Miss Cox as her nominee and not in his own right. Miss Cox had stopped her attempt to find alter-native methods of funding the purchase; she switched die purchase to joint names, then acquiesced in a purchase in Mr Jones' sole name and managed the flat thereafter. Those facts made it inequitable for Mr Jones to seek to claim the flat for himself and he therefore held it on constructive trust for Miss Cox absolutely.
The Mill: there was found to be an arrangement or intention about joint ownership of The Mill, but not as to the proportions of that ownership. Miss Cox's interest had to be such as the court considered to be 'fair having regard to the whole course of dealing between the parties in relation to the property'. Miss Cox had made a significant contribution to the extensive works done on The Mill, had stopped work to do so, and should therefore be entitled to 25 of the beneficial interest in The Mill.

Lightfoot v Lightfoot-Brown (2005)
- The claimant and the respondent were previously married. During ancillary relief proceedings the claimant agreed to transfer his share in the former matrimonial home to the respondent. Shortly after the divorce was finalized, the parties were reconciled and the claimant continued to live with the respondent in the former matrimonial home. The parties also agreed to re-marry and discussed redistributing their assets before the relationship broke down permanently.
- During this period, the claimant transferred the property to the respondent in accordance with the agreement reached during the ancillary relief proceedings but continued to make regular payments towards the mortgage, including one large capital payment. Furhter, the claimant paid for several improvements to the property. Based on these payments, the claimant said that he had acquired a beneficial interest in the property. The judge held that where there was no agreement or understanding between the parties that the claimant should have such an interest, the mere fact that he had made these payments could not give rise to and equitable interest.
- On Appeal, the claimant contended that the requirement for communication between the parties had been dispensed with by the recent case of Oxley v Hiscock (2004), which the trial judge had failed to consider. However, CA reaffirmed the need for communication between the parties as set out in Springette v Defoe (1992). Further the Court held that the need for communication could only be dispensed with when determining the size of the claimant’s share.
- The moral of the story is to ensure that intentions / beliefs as to beneficial ownership of a property are communicated and not to assume that another’s understanding of the arrangement accords with your own.

Curley v Parkes (2004)
- Curley v Parkes [2004] All ER (D) 344, states that any resulting trust arising with respect to property bought in the name of another will arise (if at all) at the time of the purchase.
- The claimant and defendant had been cohabiting in a house bought by the defendant and registered in her sole name. The claimant's employer subsequently required him to relocate.
- His employer offered financial help with the moving costs and with the purchase of a new property. As a result, the employer bought the property from the defendant. Then, in April 2001, another property was bought in the defendant's name alone. It was paid for by the proceeds of the old property, a mortgage in the defendant's sole name, and cash paid by the defendant. The defendant paid no part of the purchase price, despite receiving money under the relocation scheme. He also received a payment each month from his employer with respect to the higher mortgage payments.
- Between May and November 2001, the claimant paid the defendant about £9,000 in six instalments. This was to compensate the defendant for the deposit on the new property and for legal and removal expenses.
- On the subsequent break up of the relationship, the claimant argued that the property was held on a resulting trust by the defendant for the defendant and claimant. The claimant argued that that he had contributed to the purchase price of the property by the payments he had made in 2001.
- The court held that where property is bought in the name of another, a resulting trust would arise once and for all at the date the property was acquired. In this case, the court decided, there were no findings of fact to support the claimant's view that his payments of £ 9,000 (paid to compensate the defendant for the deposit, and in respect of legal expenses and removal costs had contributed to the purchase price of the property. Therefore, the claimant had no beneficial interest in the property under a resulting trust.

Burns v Burns (1984)
- This was a significant decision in respect of the ‘family home’. It dealt with a situation where a party (here the woman) who was not on the legal title but made an INDIRECT CONTRIBUTION to the acquisition of the property.
- The decision demonstrated that co-habiting couples do not enjoy statutory proection when a relationship breaks down. Further, it marked a decision retreat from the ‘new model constructive trust’. In holding that that the contributions of the woman did not give rise to a constructive trust in her favour CA was clearly stating that it did not have a broad adjustive discretion to impose a constructive trust in order to achieve a fair result. It is most unlikely that a ‘Denning CA’ would have achieved the same result. Further, the court concluded that there was no evidence of any agreement between the parties to share ownership of the house.
- no direct contribution: no resulting trust
- no intention: no contructive trust
-> Mrs. Burns got nothing

Land - Trusts & Coownership - Cases (3)

Trust
Midland Bank v Cooke (1995) CA
- Matrimonial home purchased by way of mortgage, money from husband and a wedding gift from Husband’s parents; Wife originally not on legal title; band commenced proceedings for monies due under the mortgage and possession in default; Wife claimed her consent to the mortgage procured by Husband’s undue influence; whether Wife had a beneficial interest in the property arising from her half share of the wedding gift from Husband’s parents; Quantifying beneficial interest under a resulting trust; whether Wife entitled to a half beneficial interest in the property
- The court would do this by looking at the whold course of dealing between the parties relevant to their ownership and occupation of the property and would not be confined solely to the financial contributions of the parties where the circumstances suggested that some other agreement as to shares in the property was appropriate: Apply broad brush approach even for resulting trust case
- This is a controversial decision because it is at variance with a range of established authorities, esp. the HL decision in Rosset
- Cooke in essence reaches 3 conclusions:
(i) where a partner in a matrimonial home not on the legal title established an equitable interest through direct contribution to the purchase price of the property the court would (in the absence of express evidence of intention) assess the proportions the parties were to be assumed to have intended for their beneficial ownership by looking at the whole course of dealing between them relevant to their ownership and occupation of the property and would not be bound solely to the financial contribution of the parties when the circumstances suggested that some other agreement as to shares in the property was appropriate. This conclusion is out of line with Bull v Bull and Sekhon v Alissa. It is submitted that the better view is that the non-owning party who makes a direct contribution to acquisition will have a share in the beneficial interest proportionate to her financial contribution
(ii) The court concluded that the presumed intention of the parties could be sufficient to bring about an enlargement of the claimant’s beneficial interest. This conclusion is out of line with Rosset
(iii) The case demonstrates that a spouse not on the legal title can acquire a beneficial interest in a house through a share of a wedding gift used to assist in acquiring the matrimonial home, and that such a contribution to acquisition will rank as a DIRECT one. This is IN LINE with McHardy & Sons v Warren
- Rebuttable presumption: Parent’s gift is to the couple, not the child of the parent

Lloyds Bank v Rosset (1990) HL
- Express constructive trust (with common intention)
- Title to registered land in Husband’s name alone; Wife made no financial contribution to acquisition; H without W’s knowledge secured a loan from the bank to renovate the property which was secured by a charge on the property; prior to completion of the sale the vendors allowed the purchasers and their builders to start the renovation work; W made a ‘work contribution’; subsequently H defaulted on the mortgage and the bank commenced proceedings for possession and sale; W resisted bank’s claim arguing that she had a beneficial interest that ranked as an overriding interest under s70(1)(g) LRA 1925; whether the relevant date for determining; actual occupation; for the purposes of para (g) was the date of completion of the transaction or its registration; whether W’s ‘work contribution’ gave rise to a beneficial interest
- This is a leading authority on the establishment of a beneficial interest by resulting and constructive trust by a party not on the legal title. Four key points should be noted:
(i) HL regard direct contributions (to the purchase price initially or by payment of mortgage instalments) by the non-owning spouse to the acquisition of the property as giving rise to a constructive trust. This is contrary to the establishment principle that such a contribution gives rise to a PURCHASE MONEY RESULTING TRUST.
(ii) In reality only a contribution to the purchase price or an express common intention were sufficient to establish a beneficial interest in property
(iii) HL has an unsympathetic view of the W’s ‘work contribution’: as a contribution to a property costing over $70,000 it was ‘so trifling as to be almost de minimis’ (an opposite end of the spectrum to Cooke v Head)
(iv) This decision confirmed Abbey National Building Society v Cann in holding that the relevant date for ascertaining actual occupation for the purposes of s70(1)(g) LRA 1925 was the date of completion of the transaction not the date of completion of the transaction not the date of its subsequent registration

Goodman v Carlton (Vajpeyi v Yusaf)
* I cannot find Goodman v Carlton, if you can find info on it, do let me know.

Vajpeyi v Yusaf [2003] All ER (D) 128 (Sep), (Approved judgment) is a recent case in which the claimant, who had given the defendant money to buy a house, failed in her claim to recover the house under a resulting trust. The court held that the money had been given as a loan and the defendant’s obligation to the claimant was completely discharged by repayment of the loan.

Le Foe v Le Foe (2001)
- A wife had made indirect financial contributions which enabled her husband to pay the mortgage. The mortgagee was seeking possession of the house, but the first instance court showed a greater willingness to regard indirect contributions as triggering a share: ‘… the family economy depended for its function on [the wife’s] earnings. It was an arbitrary allocation of responsibility that [the husband] paid the mortgage… whereas [the wife] paid for day-to-day domestic expenditure.’
- Follow Prestige

Land - Mortgage & Adverse Possession - Notes (1)

Mortgage general rule on timing”: Mortgagee can sell anytime; no duty to listen to mortgagor; can serve only his own interest

Basic principles of Mortgage:
(i) No irredeemability:
Fairclough v Swan Brewery
(ii) No clog on the equity of redemption: Collateral advantage – Tie ceases to exist when mortgage is redeemed
- Doctrine of restrained trade (contractual)
(iii) Once a mortgage, always a mortgage: cannot convert a mortgage into a sale – Options to purchase in the mortgage is void

Factors to amount points for adverse possession:
- Fencing, building, paving
- Not seasonal or temporary use of land

Land - Licences & Proprietary Estoppel - Notes (1)

Constructive trust: by expressed common intention or by conduct (contribution to purchase price or mortgage right at the start – later contribution doesn’t count; OR relationship started before the acquisition of the land – instead of one being a registered owner of some land already)

Base licence: can be revoked with reasonable time of notice (contrasted with contractual licence and estoppel licence)

Court’s practice: reluctant to give effect to promises which will force people whose relationship have broken down to live together; instead, damages / compensation will be ordered

Distinguish Proprietary Estoppel from Constructive Trust
- Both are equitable means: there are convergences of 2 doctrines
- However, proprietary estoppel is:
- Unilateral
- Promise of future land,
- Promisor being taken care of
- Ranges of remedy
- More flexible
- While constructive trust is:
- Mutual
- Agreement of sharing beneficial ownership of land
- Claimant will get what is agreed, nothing more
- What needs to be proved and what the remedy is are different for proprietary estoppel and constructive trust
- LP(MP)A s2: requirement of formality of contract in writing does not apply to constructive trust

Land - Landlord & Tenant - Notes (1)

Characteristics of lease:
- Exclusive possession
- Certainty of terms
- Formality

Definition of exclusive possession:
- Right of tenant to exclude the whole world including landlord

Land - Easement - Notes (1)

Right of way can be acquired by:
(i)Long use
(ii) Express grant
=> Determine the extension of right possible
- Harris v Flower (1904): Extension of that right of way to secure access to the garden area for parking thus extending the dominant tenement fell foul of Harris v Flower rule
- The question to ask is whether the new use ancillary (intimately connected) to the current use of right of way of dominant tenement

Land - Restrictive Covenants - Notes (1)

Usual Setting of a covenant issue:
Owner has 2 or more plots of land, at least one is sold to the purchaser with positive covenant (e.g. maintain repair) and/or negative covenant (e.g. not to use for business purpose); then at different times, owner sells the rest of land to X while the purchaser sells his to Y – there is no privity of contract between X and Y, nor privity of estate because it’s freehold land…
- What needs to be proved?
(i) Covenant has passed from Owner to X
(ii) Covenant has passed from Purchaser to Y

Burden passed from Purchaser to Y
- At common law, burden does not pass
- In equity, follow Tulk v Moxhay case (keep garden place uncovered):
-> Assist new owner to bridge the covenant
-> Stress of Doctrine of notice
* Positive covenants do not run at law or in equity, unless mutual benefit burden principle (which is narrowed by Rhone & Stephens)
* 4 conditions to meet so that covenants can pass to Y:
(i) Covenants must be negative (not to do something)
(ii) Benefit covenantee’s land (London County Council v Allen)
(iii) Intention for burden to run LPA s79 (Intention is presumed until being rebutted)
(iv) Registration:
(a) Unregistered land: LCA D(ii), registered against a person
(b) Registered land: Pre 1925 LRA, doctrine of notice; Post 1925 LRA, registration as minor interest against the land
* Owner cannot enforce covenants against sublease: except by doctrine of restrictive covenant for negative covenant

Benefit from Owner to X
- Common law rules do not apply if burden is relied on equitable rules for passing of burden
-> benefit has to be passed via equity as well
- Benefit has to touch & concern the land
(i) annexation: tied to the land (Federated homes: clear identification of benefited land; s78 will automatically annex covenant to a land if it is clearly identified in the coveyance)
-> 3 possible views of s78: (a) orthodox view – word saving; (b) s78 there is annexation intended to benefit only the clearly identified land; (c) s78 annexes whether land is clearly identified within the document or outside of the document
=> there is no conclusion of (b) or (c)
(ii) assignment: If annexation is expressly excluded; less important in practice
(iii) building scheme (Elliston v Reacher): only benefits can be passed automatically; burden still need to follow the 4 conditions above
-> Cannot have building scheme of only 2 plots; usually 4 plots or more

* For annexation, why land should be identified in the conveyance? It is a policy issue. For e.g. if Owner’s land has been passed to A then B then C; while Purchaser’s land has been passed to X then Y then Z
-> as Z, he will search LCA, he will see there is a covenant not to use the land for business purpose; but he won’t know who benefits from the covenants so as to negotiate with the covenantor if no identification of benefited land is recorded; Z will not know who can enforce the covenant against him either if he doesn’t comply to it.

Land - Mortgage & Adverse Possession (5)

4. In 1987 Miss Sprigg purchased Oaktree Cottage (registered land). The garden of the cottage backed on to a field from which its was separated by a wooden fence. The field formed part of the Blackacre whose owner, Lord Blacktown, intended to develop it as a caravan site for summer tourists. IN 1988 Miss Sprigg removed part of the fence and began cultivating vegetables on part of the field; in 1989 she built a chicken coop on the field and reared chickens there; in 1990 she fenced in that part of the field that she was using to protect her chickens from thieves and animals. In 1992 Miss Sprigg died leaving the cottage to her sister Maud. Maud continued to grow vegetables and rear chickens on the exclosed part of the field. In 1999 Lord Blacktown sold the field to Sunshine caravans and they wrote to Maud telling her that they proposed to develop the field as a caravan site and requiring her to vacate the field. Maud ignored the letter and in 2002 Sunshine Caravans commenced proceedings for possession.
Advise Maud.

- Maud might be successful if she satisfies LA s15’s 12-year requirement
- Adverse possession can be accrued: sale of land from Lord Blcktown to Sunshine Caravan does not stop time running
- It is likely that 1990’s fencing would start actual possession
- 1992 Maud got the adverse possession from Miss Sprigg: death of a squatter does not stop time running (Mount Carmel Investments v Peter Thurlow)
- Long term plan is irrelevant: not a bar even if squatter’s action is consistent with it
- Not sure if 12 years are elapsed because dates are unknown
- Old law: Sunshine Caravan holds legal title on trust for Maud; Maud can ratify register in her favour
- New law: 2002 LRA Schedule 6: Maud applies for registration; Paper owner in 2 years’ time to stop time running; If no action is taken, Maud can reply and replace Sunshine Caravan as the owner
- Unregistered Land: paper owner’s title extinguishes: but there is no transfer of title, i.e. no conveyance

Land - Mortgage & Adverse Possession (4)

3. In 1976 Richard granted James a 99-year lease on a property consisting of ahouse and a large garden (unregistered land). At the back of the garden was a big shed which James was hoping to convert into a studio when he had the time and money to do so. In 1987 William, the next-door neighbour, saw that the shed was unused and in bad repair; so he moved in, repaired it, put in electricity and has used it as a workshop and storeroom ever since. James never had the money to convert it into a studio and in 2000 he surrendered his term to Richard. Richard now wants to recover possession of the shed.
Advise William. What if the land had been registered?

Unregistered land
- Apply St Marylebone Property v Fairweather: Leasehold title rights is extinguished by adverse possession; but leasehold title to freehold is maintained – leaseholder and freeholder can sign a new lease to shut out the squatter

Registered land pre-1925
- Leaseholder will be holding the land on trust for squatter

Registered post 1925
- Valid surrender of trust to freeholder subject to overriding interest s70(1)(f)

Registered land post 2002
- Schedule 6
- Squatter has the right to apply for adverse possession: notice will be sent to leaseholder and freeholder to take action against adverse possession in 2 years- If no action has been taken, squatter can reapply and replace leaseholder and squatter becomes the new leaseholder

Land - Mortgage & Adverse Possession (3)

2. Buddy owned two shops in the High Street, one a grocer’s shop and one a baker’s shop. In 1998 he mortgaged the grocer’s shop to Calum (who had a confectioner’s shop) to secure a loan of $20,000. Under the terms of the mortgage Buddy agreed (i) to repay the loan in twenty annual instalments of $2,000 and not otherwise, (ii) not to sell confectionery in either of his shops for the duration of the mortgage, (iii) to sell the grocer’s shop to Calum at a fair valuation if Calum so requested in writing before 2008. Buddy now wishes to know the extent to which he is bound by these terms. He thinks that he can now find a mortgage elsewhere on more favourable terms and he would like to redeem the mortgage.
Advise Buddy.

- (i) can be redeemed, clause void: unconscionable
- (ii) upheld- (iii) void as the clause is not separate or independent to the mortgage terms