Transactions at an undervalue: trusts of land
Acknowledgement: Transactions at an undervalue: trusts of land | Practical Law
A recent Court of Appeal decision highlights important formalities for trusts of land, including the consequences of non-compliance with the correct formalities, and provides clarity to third parties who may seek to impugn or otherwise challenge trust arrangements. Companies may wish to review historic property holdings in order to confirm that any intended beneficial arrangements are properly evidenced by the legal owner’s signature.
The Court of Appeal’s decision in National Iranian Oil Co v Crescent Gas Corp Ltd highlights important formalities for trusts of land, including the consequences of non-compliance with the correct formalities, and provides clarity to third parties that may seek to impugn or otherwise challenge trust arrangements ([2025] EWCA Civ 1211).
The dispute
The case arose out of National Iranian Oil Company’s (NIOC) transfer of its legal title in a London property called NIOC House to an affiliated fund (the fund). It focused on:
- Whether documents signed in connection with a 2018 mortgage, which stated that NIOC held NIOC House on trust for the fund, were sufficient to evidence a declaration of trust under section 53(1)(b) of the Law of Property Act 1925 (1925 Act) (section 53(1)(b)).
- How any non-compliance with the section 53(1)(b) requirements would affect a later challenge under section 423 of the Insolvency Act 1986 (1986 Act) (section 423), which deals with transactions defrauding creditors.
Section 423 claim
Shortly after Crescent Gas Corporation Ltd obtained a substantial arbitral award of $2.4 billion against NIOC and secured permission to enforce this award, NIOC transferred legal title to NIOC House to the fund. Crescent sought relief under section 423 on the basis that the transfer was a transaction at an undervalue that was intended to put assets beyond the reach of creditors. NIOC’s primary defence, that NIOC House had always belonged to the fund under an Iranian-law concept known as amanat, was rejected because the acquisition funds had been advanced by way of a loan to NIOC and thereafter were not to be treated as the fund’s money. NIOC’s secondary defence relied on the 2018 mortgage documents, which referenced the fund’s beneficial ownership, as declarations of trust confirming the fund’s beneficial ownership.
The key legal issue was whether those mortgage documents satisfied the requirement of section 53(1)(b) that a declaration of trust over land be “manifested and proved” in writing signed by “some person who is able to declare such trust.”
High Court decision
The High Court held that while the mortgage documents were declarations of trust by NIOC, they did not create an enforceable trust ([2024] EWHC 835 (Comm)). This is because section 53(1)(b) requires a declaration of trust regarding land to be signed by the legal owner of the land, not an agent. Consequently, NIOC remained the beneficial owner of NIOC House. The court found that NIOC entered into the transfer with the purpose of putting assets beyond the reach of Crescent. It ordered that NIOC House be transferred with full title guarantee from the fund to Crescent. NIOC and the fund appealed.
Signing the declaration of trust
The Court of Appeal’s analysis of section 53(1)(b) proceeded in two steps, considering:
- Who must sign a declaration of trust regarding land.
- The consequences of not meeting the requirements of section 53(1)(b).
Who must sign.
The court concluded that the statutory language demands a signature by the legal owner, not an agent, when evidencing a declaration of trust over land. This reading was held to align with the historic purpose of the Statute of Frauds 1677 of preventing fraudulent practices, and with the 1925 Act’s careful reference to agents elsewhere when intended. For natural persons, this reading means that the personal signature of the settlor is required. For companies, the requirement is for a signature in a manner that constitutes the company’s own execution under modern company execution regimes. These regimes are set out in section 44 of the Companies Act 2006 for UK companies and in regulation 4 of the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 (SI 2009/1917) for overseas companies. An agent’s signature purporting to bind the company will be insufficient.
The court distinguished earlier authority that treated an agent’s signature as the company’s for some purposes, noting the evolution of corporate execution rules and the specific evidentiary function of section 53(1)(b) (UBAF Ltd v European American Banking Corp (The Pacific Colocotronis) [1984] QB 713). The mortgage documents in National Iranian Oil were executed by an officer of a subsidiary on behalf of NIOC; that did not amount to NIOC’s own signature for section 53(1)(b) purposes, nor did section 74(4) of the 1925 Act recharacterise the agent’s signature as that of NIOC’s.
Effect of non-compliance.
The majority of the court treated the absence of compliant written evidence at the relevant time as fatal to NIOC’s reliance on the alleged trust in Crescent’s section 423 claim (see box “Dissenting judgment”). For the purposes of determining whether the transfer of NIOC House was a transaction at an undervalue, the court assessed NIOC’s beneficial interest immediately before the transfer by reference to what could lawfully be “manifested and proved” at that time. Without compliant written evidence signed by NIOC, the court treated NIOC, not the fund, as the beneficial owner of NIOC House. On that basis, the subsequent transfer of NIOC House to the fund at non-market consideration could be impugned and set aside.
Outcome and practical implications
The court dismissed the appeal and upheld the order transferring NIOC House with full title guarantee to Crescent. The practical implications are twofold:
- Where land is intended to be held on trust, the evidentiary requirement is exacting: the writing must be signed by the legal owner in its own right. Companies must use prescribed methods of corporate execution. Signatures by agents or officers of other group entities, or documents that merely speak on behalf of the legal owner, will not suffice for section 53(1)(b).
- Timing is critical where claims by creditors under the 1986 Act are concerned. Courts may focus on section 53(1)(b) compliant writing that existed at the time of the impugned transaction. If compliant evidence emerges only later, it may not retrospectively shield an earlier transfer from being characterised as a transaction at an undervalue under section 238 of the 1986 Act or section 423.
Key takeaways for companies
If a property is to be held beneficially for an affiliate or a fund, it is important for companies to have in place contemporaneous documents that evidence the trust that have been signed by the legal owner in accordance with applicable execution formalities. Companies may wish to review historic property holdings in order to confirm that any intended beneficial arrangements are properly evidenced by the legal owner’s signature. The divergence between the majority of the court and Lord Justice Zacaroli’s dissent illustrates that debates about the conceptual status of unevidenced trusts continue. However, for creditor claims, a lack of compliance with section 53(1)(b) formalities when these claims are brought may weigh decisively in creditors’ favour.
Roger Elford is a partner, and Martha Lazanakis is a trainee solicitor, at Charles Russell Speechlys LLP.
