When property held “in trust” is not a trust: the decision in Nazir v Begum [2024] EWHC 378

1. At first blush the decision of Freedman J in Nazir v Begum [2024] EWHC 378 (KB) appears counterintuitive. Section 33(1) of the Administration of Estates Act 1925 (“AEA”) states that:

“On the death of a person intestate as to any real or personal estate, that estate shall be held in trust by his personal representatives with the power to sell it”.

2. It might be thought that the effect of s.33 AEA is to vest legal title to the property of the estate in the personal representative, with the beneficial title vesting in those who will receive the estate’s property upon the conclusion of the administration. The decision of the High Court confirms that is not the case. Freedman J’s judgment provides a useful reminder of the nature of the obligations of personal representatives pending the conclusion of the administration of the estate.

The Facts 

3. The claim concerned a small parcel of disputed land near Bradford, situated between two properties known as Lower Rushton Road and Gurbax Court. The original registered proprietor of the disputed land and Lower Rushton Road was Mohammed Nazir, the Appellants’ father. Mr Nazir died intestate in 2010. At all times Mr Nazir and his family have lived at Lower Rushton Road. The Respondent is the registered proprietor of Gurbax Court.

4. The Appellants obtained Letters of Administration in respect of their father’s estate in October 2019. They became the registered proprietors of the disputed parcel of land in 2022.

5. In February 2022, the Appellants issued proceedings against the Respondent seeking possession of the disputed land. The Respondent defended the claim on the basis that she, and her husband, had adversely occupied the land for a period of at least 10 years. The relevant parts of the Land Registration Act 2002 (“LRA”) are s.98 and Schedule 6(1) which provide that:

“Land Registration Act 2002 section 98

(1) A person has a defence to an action for possession of land if— (a) on the day immediately preceding that on which the action was brought he was entitled to make an application under paragraph 1 of Schedule 6 to be registered as the proprietor of an estate in the land…”

“Right to apply for registration

1(1)…A person may apply to the registrar to be registered as the proprietor of a registered estate in land if he has been in adverse possession of the estate for the period of ten years ending on the date of the application.”

6. At trial, HHJ Walsh found in favour of the Respondent. He held that the Respondent had a valid defence pursuant to s.98 LRA and directed that the Respondent be registered as proprietor of the disputed land under s.98(5) LRA.

7. The Appellants were given permission to appeal to the High Court. They asserted that the Respondent could not establish the requisite 10 years of adverse possession under Schedule 6(1) of the LRA, due to Schedule 6(12) LRA which states:

“A person is not to be regarded as being in adverse possession of an estate for the purposes of this Schedule at any time when the estate is subject to a trust, unless the interests of each of the beneficiaries in the estate is an interest in possession.”

8. The Appellants sought to argue that the reference to “in trust” in s.33 AEA meant that the trust exception in Schedule 6(12) LRA applied to prevent the adverse possession claim.

The Decision 

9. Freedman J dismissed the appeal, holding that the fact of the estate being in administration during the alleged 10-year period did not operate as a bar to a claim for adverse possession. He did so for the following reasons (at [43] to [48).

10. First, Freedman J noted that the personal representatives of Mr Nazir’s estate were not trustees in the conventional sense. In this regard he referred back to Lord Diplock’s judgment in Ayerst v C & K (Construction) Ltd [1976] AC 167 at 175 (citing Commissioner of Stamp Duties (Queensland) v Livingstone [1965] AC 694), in which he held that:

“…an estate while still in the course of administration was incapable of satisfying the technical requirement of a “trust” in equity that there had to be specific subjects identifiable as the trust fund“.

11. That is because, for a trust to exist, there must be identifiable property, a trustee, and identifiable beneficiaries who can enforce the trustee’s duties. In the case of estates, however, the personal representative holds property without any differentiation between the legal and beneficial interests; the beneficiaries merely have the right to ensure that the representative duly administers that estate (Judgment at [43]). The assets of the ‘trust’ are unidentifiable until the administration ends. The beneficiaries are likewise unknown until the administration is brought to an end by the assenting of property to those entitled.

12. Second, consistent with the above, Freedman J considered that the sense in which the word ‘trust’ is used in s.33 AEA is to make the administrators subject to fiduciary obligations in the management of the estate, but not to make that which is not a trust into a trust.

13. Third, the Judge observed that if Parliament had wished to extend the ambit of the trust referred to in Schedule 6(12) LRA it could have done so expressly; for instance, by incorporating section 68(17) of the Trustee Act 1925 which includes personal representatives within the definition of ‘trustee’, and the duties incident to the office of personal representatives within the definition of ‘trust’.

14. Fourth, Freedman J acknowledged that the same conclusion on the interplay between s.33 AEA and Schedule 6(12) LRA had been reached by Judge Elizabeth Cooke (then a Judge of the First Tier Property Tribunal) in Best v Curtis [2016] EWLandRA 2015_130.

15. Finally, the Judge highlighted that Schedule 6(12) LRA states that the provision will not apply where “the interests of each of the beneficiaries in the estate is an interest in possession”. As the ‘trust’ established by s.33 AEA has no ascertainable beneficiaries, how could the exception apply? It might be said that a similarly broad interpretation applies to “beneficiaries” as it does to “trust”, such that the word includes those who would in the ordinary course acquire ownership at the conclusion of the administration. That seems to be a contrived interpretation, in circumstances where those “beneficiaries” do not in fact have any beneficial interest in the assets administered by the personal representative. This was therefore a further point evidencing that Schedule 6(12) applies to conventional trusts only, where there is separation of the legal and beneficial interests.

Discussion 

16. The judgment in this case is seemingly paradoxical. On the one hand it is remarkable. The effect of the decision is that despite property being held “in trust” pursuant to s.33 AEA, no trust in fact arises. On a natural reading of the wording of s.33 AEA, that is an unexpected outcome.

17. On the other hand, however, the decision is entirely principled. It is well established that a representative in their capacity as representative is not, strictly speaking, a trustee; there is no division of legal and beneficial title in relation to the administered property. The reference to “trust” in s.33 AEA (and other provisions of the AEA such as s.46) instead reflects the fiduciary nature of the representative’s position. As explained by Viscount Radcliffe in Livingston [1965] A.C. 694 at 707:

“…whatever property came to the executor virtute officii came to him in full ownership, without distinction between legal and equitable interests. The whole property was his. He held it for the purpose of carrying out the functions and duties of administration, not for his own benefit; and these duties would be enforced upon him by the Court of Chancery, if application had to be made for that purpose by a creditor or beneficiary interested in the estate. Certainly, therefore, he was in a fiduciary position with regard to the assets that came to him in the right of his office…”

18. The fiduciary obligations imposed on personal representatives serve an important function. They safeguard the interests of prospective beneficiaries of the estate (remembering that those beneficiaries have no legal right to the assets in question until the administration is complete), by ensuring that the personal representative can be held liable for maladministration. As they are fiduciary duties, breach of them may make the personal representative liable to account for any profits made regardless of whether the estate has suffered loss.

19. Nazir v Begum therefore provides important clarification not only on the relationship between s.33 AEA and the LRA, but also on the obligations of personal representatives more generally. Personal representatives owe fiduciary obligations in the management of the estate but are not ‘trustees’ of estate property in a conventional sense.

For more information:

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