Investors fail to establish trust rights over business assets

In the recent decision of North v Wilkinson [2018] EWCA Civ 161 it was held that an agreement contained in a letter between a sole trader and six investors in his business was insufficient to constitute the creation of a trust in favour of the investors.

This case had an interesting set of facts and, as the judge noted, no-one had been able to find any previous court case addressing a trust created by a sole trader of a share of his business.

Although trusts can arise by implication or by operation of law (for example where it would be wrong for a person holding an asset to deny the beneficial interest of another person in the asset), it is important for any individual or entity seeking to assert that a trust exists to ensure that a proper trust document is drawn up. This provides the parties with the opportunity to ensure that all eventualities are addressed and covered in the trust deed. This is something that the judge highlighted, noting that various permutations about how Mr North's business would be valued and managed were not covered in the letter that he sent to the investors, leading the judge to conclude that the letter was insufficient to constitute the creation of a trust.