Energy: Requirements of a trust

In National Iranian Oil Company and another v Crescent Gas Corporation [2025] EWCA Civ 1211 the Court of Appeal clarified two points of practical importance where a trust relates to an interest in land.

First, agent signatures do not satisfy s.53(1)(b) of the Law of Property Act 1925 (“LPA”). A declaration of trust of land must be manifested and proved by writing signed by the person able to declare the trust; an agent’s signature is insufficient. Second, if a trust is not enforceable due to failures to comply with the requirements of the LPA, a subsequent attempt to transfer the legal interest will not be prevented from being a ‘transaction at an undervalue’ under the Insolvency Act 1986 when it comes to dealing with creditors of the party owning the legal interest. As such, the ‘trust asset’ may not beyond the reach of creditors.

In the context that many energy transactions involve interests in land, including UKCS oil and gas licences, and trusts are widely used in the energy sector, the majority decision of the Court of Appeal will be of practical relevance to those using trusts to protect projects structures and transactions that involve interests in land.

Facts

The respondent, Crescent Gas Corporation Limited (“Crescent Gas”), is a creditor of the first appellant, the National Iranian Company (“NIOC”). In 2001 Crescent Gas entered into a long term gas sales and purchase agreement with NIOC. In July 2009, Crescent Gas commenced arbitration proceedings as NIOC failed to supply any gas pursuant to that agreement. On 27 September 2021 (after extensive delays), the arbitral tribunal delivered a Partial Award on Remedies, ordering NIOC to pay US$2.4 billion. NIOC has failed to pay any part of the award.

On 15 August 2022, permission was granted to Crescent Gas to enforce the Award, and in November 2022, Crescent Gas sought to register an interim charging order against a property in London, which was registered in the name of NIOC called ‘NIOC House’ (“NIOC House”). Days after Crescent Gas moved to secure NIOC House (NIOC House having ‘an estimated value of at least £80-£104 million’ Crescent Gas Corporation Ltd v National Iranian Oil Company & Anor [2024] EWHC 835 (Comm) at 7) it discovered that NIOC had, within a week of permission being granted to Crescent Gas to enforce the Award, transferred the property to the Retirement, Savings and Welfare Fund of Oil Industry Workers Fund (the “Fund”) – the second appellant (the “Transfer”).

Crescent Gas consequently brought a claim for relief under section 423 of the Insolvency Act 1986 (“s.423”), alleging the Transfer was a transaction at an undervalue for the purposes of putting assets beyond the reach of a person who is making, or may at some time make, a claim against it. NIOC’s and the Fund’s primary defence was that s.423 did not apply to the Transfer because, NIOC and the Fund maintained, the Fund – and not NIOC – had in fact always been the true owner of NIOC House owing to an Iranian legal concept called “amanat”. Their secondary case concerned the fact that NIOC had declared a trust of NIOC House in favour of the Fund, owing to various declarations of trusts since the building had been bought. 

Commercial Court Decision

In short, at first instance, the Commercial Court rejected NIOC’s and the Fund’s argument based on Iranian law, finding that NIOC House had always belonged to NIOC under Iranian law (concluding that NIOC House had been purchased, not as NIOC and the Fund contended with money that belonged to the Fund, but with money which had been loaned to NIOC by the Fund). The Commercial Court also rejected the declaration of trust, and held that the Transfer fell within s.423.

The Commercial Court did, however, find that within documents relating to a mortgage granted by NIOC over NIOC House on 25 September 2019, in favour of Bank Melli (the “Mortgage”), and a document dated 9 January 2020, a Certificate of Title (as part of the same transaction) there was a valid declaration of trust in favour of the Fund. That notwithstanding, the Commercial Court held that the statutory writing requirement for a trust of land had not been satisfied because the documents were signed by an agent and not by NIOC itself (as the legal owner of the land). Without compliant written evidence, the Commercial Court treated NIOC as beneficial owner at the point of the Transfer and ordered that NIOC House be transferred, with full title guarantee, to Crescent Gas. The decision was appealed.

Court of Appeal Decision

Section 53(1) of the Law of Property Act 1925 ( the “LPA”) states:

“a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will.”

In relation to whether section 53(1)(b) of the LPA can be satisfied by an agent’s signature, the Court of Appeal decided:

1. That an agent’s signature is not enough to satisfy the writing requirement for a declaration of trust of land.
    
2. The written evidence of the declaration of trust of land must be “a signature personally by the settlor or, if relevant, the person holding the relevant interest which is the subject matter of the trust, and not by their agent”.
    
3. This applies to companies as well as individuals. A company can “act” only through people, but the question is not agency in general; it is whether the company itself has signed in a legally recognised way.

In relation to what the absence of compliant writing means at the point of transfer for s. 423 (does the court treat the trust as operative in substance, or must it proceed on the basis that the transferor remained beneficial owner?), the Court of Appeal reached a split decision:

1. All three judges accepted the orthodox view that section 53(1)(b) is about evidence, not validity, and that a trust of land can be validly declared even if not yet evidenced by compliant writing.
    
2. The critical question was whether the lack of sufficient writing to satisfy s.53(1)(b) of the LPA immediately prior to the Transfer has the consequence that the beneficial interest in NIOC House remained with NIOC, such that it was the Transfer which had the effect of transferring the beneficial interest to the Fund.
    
3. The majority (Falk LJ and Sir Julian Flaux) decided that, where compliant writing did not exist at the time of the impugned Transfer, the court must treat the transferor as beneficial owner when assessing whether there was an undervalue. From a practical valuation perspective, they considered that the only “consideration” NIOC received by transferring NIOC House was a release from a moral or conscience-based obligation under an unenforceable trust, which was worth far less than the property itself. On that footing, the Transfer depleted assets otherwise available to creditors and therefore fell within s.423.
    
4. Zacaroli LJ dissented. He considered that the lack of compliant writing did not alter the underlying split between legal and beneficial ownership once a trust had in fact been declared. If a trust has been declared, but there is insufficient evidence to satisfy s.53(1)(b), the trust is nevertheless valid. However, it is unenforceable. In his view, section 53(1)(b) should not be used against the landowner for whose protection it exists. He would have held that the Transfer merely perfected an existing beneficial entitlement and so was not at an undervalue.

For the above reasons, amongst others, the appeal was dismissed.

An appeal to the Supreme Court is pending.

Comment

Trusts are widely used in the energy sector. A few points of note arise from this decision of the Court of Appeal:

1. Interests in land: It is important to be mindful of a distinction between a trust in land and a trust not related to land.  As such, compliance with s.53(1) of the LPA will be relevant where English law applies.  Although this may sound of tangential relevance to most transactions, in R. (Benjamin Dean) v The Secretary of State for Business, Energy and Industrial Strategy [2017] EWHC 1998 (Admin), the Administrative Court decided that a UKCS petroleum licence was “essentially a property transaction, akin to a mining licence or a mining lease…more than simply a contractual agreement between two parties, it is a grant of an interest in land” the terms of which were “entirely consistent with a normal grant of property rights in a mining lease or a mining licence”. In this respect, it affirmed the position in Halsbury’s Laws (5th Ed) Vol 76 that “since minerals are part of the land it follows that a lease can be granted of the surface of the land and the minerals below”. As with mining leases and licences, the creation of the interest was achieved by the execution of a deed. The creation of a section 3(1) Petroleum Act 1998 licence by deed reflected the need for that formality when creating an interest in land. The use of the word “grant” in section 3(1) was indicative of an interest in land. Other examples of transactions involving land are that offshore wind developers hold Crown Estate seabed leases, and onshore energy infrastructure often sits on long leases/freeholds with easements for pipelines and cable corridors. As such, trusts in land have the ability to arise more commonly than sometimes thought in the energy sector.
    
2. Power of trusts: Where a trust is validly created, in a manner that is enforceable, it may have the benefit of protecting an asset from an allegation that a transfer is a transfer at an undervalue for the purposes of s423 of the Insolvency Act 1986 (putting assets beyond the reach of a person making a claim) or s.238 of the Insolvency Act (transactions at an undervalue), such that creditors of the transferor will not have a claim. Indeed, one of the reasons for creating trusts is to ensure that assets do not become part of insolvency process in circumstances that a counter-party becomes insolvent or otherwise defaults, such as to allow a swift transfer of that asset and continuation of the project or development.
    
3. Impact of decision: This decision is a stark reminder that statutory formalities matter, particularly where it comes to trust over land. Even where a trust has been validly declared and created, the absence of compliant written evidence may leave it unenforceable. The decision of the majority suggest that a valid but unenforceable trust may mean that, in addition to the beneficiary not being entitle to enforce the trust, a transaction to perfect legal assignment of trust property between the legal owner and beneficiary may be capable of amounting to a transaction at an undervalue by the legal owner for insolvency law purposes, which may give rise to creditor/insolvency practitioner claims under the Insolvency Act 1986.
    
4. Formalities: Where a trust subsists over land or an interest in land, strict statutory formalities apply, as the above makes abundantly clear. These requirements are substantive rather than technical. They determine whether a trust can be proved and enforced, which in turn (subject to appeal of this case) bears directly on any analysis under s.423 where assets are alleged to have been transferred at an undervalue and with a prohibited purpose.
    
5. Overseas companies: In respect of overseas energy entities, they should ensure that any trust of land governed by English law is documented and executed in compliance with the relevant formalities (i.e. adding in the defined term and removing an erroneous double comma): “Where reliance is placed on the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 (The “Regulations 2009”), compliance with the requirements of the regulation should be firmly established.
    
6. Attorneys and powers of attorney: The conclusion that an “agent” cannot sign to satisfy s.53(1)(b) LPA does not preclude execution by a duly appointed attorney where, as a matter of law, the attorney’s act is treated as execution by the principal.  For UK companies, section 47 Companies Act 2006 supports that outcome.  For overseas entities, regulation 4 of the Regulations 2009 may achieve the same result if the power is valid under the company’s home law and the instrument is expressed to be executed by the company. This remains largely untested, however.