Line v Baker and another2 follows a 50-year saga concerning the daughters of the owner of a Falmouth hotel: “The Palm Beach”. Following their father’s death and the disposal of the shares in the hotel company, Dr Baker and Mrs Gardner insisted that they could trace their equitable interest in their father’s estate through different dispositions to a residential property owned by Miss Line, the claimant. Miss Line, who had been gifted the shares in the hotel business by her mother, applied for a declaration that the defendants had no interest.

The main issues in dispute were:

  • Was the disposal of the shares in the hotel business a breach of fiduciary duty by the executor’s of the father’s estate?
  • If so, could the defendants trace their equitable interest through the various transfers of

property over the years?

While not creating any new law, the case is particularly interesting for its analysis of the second issue and the obiter comments on the application of the equitable rules on tracing.


The defendants’ inheritance included both the hotel property and 251 of the 500 shares in the company that carried on the hotel business. The remaining 249 shares in the company were owned by Miss Line’s mother.

When the defendants’ father died, the executors of his estate sold the hotel property to the hotel company for £11,500. The executors (the testator’s widow and her solicitor) then gifted the 251 shares to Miss Line’s mother for no additional price. Miss Line’s mother during her lifetime in turn made a gift of those shares to Miss Line, leaving her as the sole shareholder. The hotel company later acquired “Harrogate House” and transferred it to Miss Line at a significant undervalue by virtue of her shareholding. The hotel company was later wound up.

Dr Baker and Mrs Gardner argued that the executors gifted the shares to Miss Line’s mother wrongly and in breach of fiduciary duty. As neither Miss Line nor her mother were bona fide purchasers for value without notice, equity could demand that she hold the shares on trust for the defendants. The defendants also claimed that equity could also permit tracing their beneficial interest to a share in Harrogate House.


Mr Prosser QC ruled that both defendants had “no beneficial interest whatsoever” in Harrogate House because there had been no breach of fiduciary duty. As all of the original parties were long dead and the solicitor’s files had been destroyed, it had been particularly difficult for the defendants to prove such a breach.

On the available evidence, the executors of the estate had gifted the shares to Miss Line’s mother as “part and parcel” of an overall bargain for the transfer of the hotel premises made with Miss Line’s mother and the hotel company. The executors had acted on professional advice and the hotel company had been unable to pay its debts to the testator’s estates or to his other companies.

Accordingly, even though the shares had been transferred to Miss Line’s mother as a gift, it was appropriate, because the financial difficulties at the hotel following the testator’s death meant that the shares had no value at that time.


More interestingly, in relation to equitable tracing, the judge held that, had he found a breach of fiduciary duty, the defendants would have had an equitable interest in Harrogate House. Although obiter, this was possible because “the interest in the shares continued after Miss Line acquired them from [her mother] by way of gift, and because I am satisfied that Miss Line acquired Harrogate House from the company by virtue of her shareholding.”

In other words, it would have been possible to use equitable tracing to follow the original beneficial interest in the shares into Harrogate House because the transfers to Miss Line’s mother and Miss Line had been gifts for no separate consideration. The purchase of Harrogate House from the company at an undervalue was also only possible because of Miss Line’s shareholding, not as remuneration for past service to the company. Thus there had been no bona fide purchaser for value without notice to defeat an equitable tracing claim.

This case is therefore of some authority to show how equitable tracing can follow the beneficial interest in property, even if the valuable property is converted from a shareholding to a house following a sale at an undervalue and a winding up.