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Students of Dickens will be overjoyed to know that Bleakhouse is alive and well. Harpur v Levy & Ors represents the 16th year of litigation arising out of the will of the late Peter Rand. In this, the latest chapter, the trustee of the Peter Rand Trust sought equitable recoupment from the estate of the late Mr Rand. Mr Rand had transferred several properties to the trust. The properties were mortgaged and rent from them had been applied in payment of interest to the mortgagee. The trustee later sold some of the properties and paid out the mortgagee. He then sought to recoup these payments from Mr Rand’s estate, of which Mr Levy and others were the executors.
The issue was whether Rand, as settlor, intended the mortgage loans to be discharged out of trust property or his own property. The trustee contended that because Rand retained ultimate responsibility for repayments of the mortgage debt under personal covenants to the mortgagee he intended only to convey the properties to the trust and not the relevant mortgage debts. So, it was argued, when the trustee discharged these debts he was entitled to recoupment because he stood in the same position as a guarantor to a principal debtor. Neave JA gave the lead judgment. She held that the principles governing equitable recoupment had no application. Rather, the trust property was really the equity of redemption and this attracted an indemnity on the part of Rand. This flowed from an examination of the trust terms, the fact that trust income had been used to interest and that Rand, when trustee, had instructed an agent to sell the properties and repay the loans. Collateral evidence about the trustees’ intentions were ruled irrelevant.
This case demonstrates the critical importance of construing the trust instruments carefully and determining the correct equitable principle.