History The rule in Dearle v Hall has been controversial almost since its inception. In 1893, Lord Macnaghten said I am inclined to think that the rule in Dearle v Hall has on the whole produced at least as much injustice as it has prevented. But this has not stopped it from being extended from a rule regulating the priority of interests in trusts to the regulation of the priority of proprietary interests in debts and other similar intangibles, such as rights under contracts, which is considerably more important in terms of modern commerce. The actual decision in Dearle v Hall, on its facts, is relatively uncontroversial. The beneficial owner of a trust fund assigned it first by way of security to A, and then outright to B, in each case for valuable consideration. A had not given notice of his assignment to the trustees of the fund and, accordingly, when B made enquiries of them, he did not discover the existence of the assignment to A because the trustees were not aware of it. B did give notice of the assignment to the trustees, and then A subsequently also gave notice to them. Plumer MR and, on appeal, Lord Lyndhurst LC each decided that B took priority over A. Judgment was given in favour of B for two reasons. The first was based on the general proposition, that, as between two equitable interests, the first in time will only take priority if the equities are equal. In this case, by failing to give notice to the trustees, A had allowed the beneficiary of the trust to be able to hold himself out as being the unencumbered owner of the beneficial interest and had therefore enabled the beneficiary to hoodwink B into thinking he had not encumbered it. This is a perfectly straightforward application of the principle that the first in time will only prevail if the equities are equal and is not considered controversial. The second ground for the decision was that As failure to give notice had left the beneficiary of the trust in apparent possession of the trust fund, and A could not, therefore, rely on this assignment in a dispute with B. This latter ground has been criticised as it appears to be based on the concept of reputed ownership in bankruptcy law, which had never previously been employed in determining priority between competing equitable claims. Nevertheless, on the facts of the case most commentators feel that justice was done; A had allowed the beneficiary to commit a fraud on B, and therefore A should rank behind B. *** Is this an exception, a qualification or a proviso?***
Posted on: Wed, 29 Jan 2014 16:32:41 +0000
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