Property – Constructive trust – Beneficial interest – Claimant transferring property to first defendant subject to life interest – Parties falling out – Claimant seeking declaration that first defendant held property on constructive trust for him – Whether transfer further to express agreement that claimant discharge lending on property in defendant’s name subject to claimant’s life interest – Claim allowed
In 2007, the claimant bought a large property at Bourne End, Buckinghamshire. It comprised one residential building, a swimming pool and stable block on 10 acres of land. He spent about 18 months refurbishing and remodelling it into a luxury seven-bedroomed house.
In 2019, the claimant agreed with the first defendant to transfer the house to him subject to a life interest for the claimant and other conditions. He agreed to arrange replacement financing to remove the existing charges on the house in the first defendant’s sole name. The claimant would also provide the first defendant with sufficient income to service the loan and pay the substantial costs to maintain the house. He would continue to develop the property including the house as he saw fit to produce income and/or capital gain; likewise, the claimant would be responsible for the upkeep and generally have control over and use of the house and profit from any income for the remainder of his life.
In 2020, the claimant and the first defendant fell out. The claimant sought, amongst other things, a declaration that the first defendant held the house on constructive trust for him.
The issue was whether the transfer was made pursuant to the express agreement that the claimant would discharge mortgages on property in the defendant’s name subject to the claimant’s life interest in the property.
Held: The claim was allowed.
(1) By section 53(1)(b) of the Law of Property Act 1925 a declaration of trust as to land or an interest in land had to be manifested and proved in writing, which was agreed as not applicable here. However, the claimant could rely on section 53(2) of that Act which stated that the section did not affect the creation or operation of resulting, implied or constructive trusts.
Here, two forms of constructive trust were potentially present; first a common intention constructive trust and secondly one on the principles in Rochefoucauld v Boustead [1898] I Ch at 550.
The former obtained when it would be inequitable for the legal owner to claim sole beneficial ownership or a particular division subject to the following conditions being satisfied: (i) there was a common intention shared by both the legal owner and the claimant that the claimant should also have had a beneficial interest; (ii) the claimant had acted in reliance on that common intention; and (iii) the claimant had suffered detriment as a result of that reliance: Grant v Edwards [1986] Ch 638 and Hudson v Hathway [2022] EWCA Civ 1648; [2022] EGLR 10; [2023] KB 345 considered.
The Rochefoucauld form did not require proof of detriment, as the inequity arose by the action of using the formalities of the statute to deny the actuality of the transfer. It arose when it would be inequitable for the legal owner to deny or refuse to carry out the agreement to hold the property concerned, when that agreement was the sole basis on which the property was transferred.
(2) In matters relating to the title to land, certainty was of prime importance. It was not desirable that constructive trusts of land should be imposed in reliance on inferences from slender materials. The claimant had to prove on the basis of more than merely slender material that there was a sufficiently defined agreement shared between him and the first defendant had a sufficiently defined beneficial interest: Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044, Ashburn Anstalt v Arnold [1987] 2 EGLR 71, Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm), Archibald v Alexander [2020] EWHC 1621 (Ch); [2020] PLSCS 128 and Yalcinkaya v Hassan [2022] EWHC 2516 (Ch) considered.
If a property was transferred gratuitously to a person, only on the basis of their agreement to hold it on trust for some other person, equity would not allow the transferee to rely on the absence of a formal deed of trust and keep the property for himself.
(3) On the evidence in the present case, the claimant and the first defendant agreed or had a common intention that the transfer of the house in 2019 would be subject to certain conditions and/or limitations.
The agreement between the parties was one by which the claimant would continue to retain a beneficial interest for the rest of his life in the house post the transfer. Further, the claimant relied upon that to his detriment in that he was as a result thereafter unable to dispose of the house or in effect his previous equity in it to anyone else whether during his life or on death. That established a common intention constructive trust, based upon the common intent held by the claimant and the first defendant up to the transfer: Grant v Edwards considered.
(4) If the court was wrong in finding detriment, in any event, a Rochefoucauld constructive trust had arisen as it would be inequitable for the first defendant to exclude the claimant’s claim when the basis of the transfer was that the first defendant would hold the house for the claimant’s benefit during his life. It would be inequitable for the first defendant as a recipient of property to rely upon the absence of writing to defeat the claimant’s agreed interest.
The evidence before the court was substantive and convincing and far from being slender; certainty as to the basis of the trust as required in Ashburn was present. On the balance of probabilities, all of the conditions were satisfied and the transfer was in accordance with and subject to them. There was an express agreement between the parties which they actioned together.
Accordingly, the claimant was entitled to a declaration that the first defendant held the house on trust for him.
Gavin McLeod (instructed by Bartons Solicitors) appeared for the claimant; Piers Digby (instructed by Blaser Mills Law) appeared for the defendants.
Eileen O’Grady, barrister
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