Louise Clark analyses a complicated dispute over establishment of a resulting or common-intention constructive trust.
Key points
- The presumption of a resulting trust is incompatible with a genuine loan arrangement
- A claimant must show detriment to establish a common intention constructive trust
In Ravendark Holdings Ltd v Rotenberg and others [2021] EWCA Civ 1661; [2021] PLSCS 192, an appeal from the Family Division, the Court of Appeal has considered the beneficial ownership of property and the circumstances in which a trust can be created.
The law
A resulting trust arises by operation of law, where property is acquired in the name of a party who pays nothing for it and is not intended to have a beneficial interest in it: in such circumstances the property is held by the registered owner on a resulting trust for the transferor. By contrast, a common-intention constructive trust arises where (i) there is an agreement, understanding or promise – whether express or implied – between the parties that, even though the property is registered in the name of one of them, both should have a beneficial interest and (ii) the other party has acted to its detriment in reliance on that common intention.
The background
Natalia Rotenberg (NR) and Arkady Rotenberg (AR) were married in 2005 and divorced in Russia in 2013. The case concerned a property in Windlesham, Surrey, which was acquired in 2012, when the couple were still married, in the name of Ravendark Holdings Ltd. Ravendark was a company registered in the British Virgin Islands, of which the ultimate beneficial owner was Dimitry Kalantyrskiy. The purchase price of the property of £27.5m was funded through a loan facility from Olpen Investments Ltd, a company incorporated in Cyprus and controlled by AR.
In July 2016, as part of a comprehensive financial agreement, AR was ordered to transfer the property to NR. He failed to do so and NR sought to enforce that order by seeking a declaration that AR was the beneficial owner of the property.
The decision at first instance
Moor J in the Family Division was satisfied the property had been acquired with the intention that it would be a matrimonial home. Kalantyrskiy had never been to the property and was not involved in its refurbishment. He had been used by AR to hide the true ownership of the property. NR had found the property, she and AR had negotiated the purchase price and the refurbishment works were done entirely at their instigation with funds provided by Olpen. The judge was satisfied that, since AR owned 99.5% of the shares in Olpen, the funds advanced by Olpen belonged to AR.
The judge declared the beneficial owner of Ravendark was AR and that Ravendark held the property on resulting trust for AR, who had provided the entire purchase price via Olpen. Ravendark was ordered to transfer the property to NR. The judge also declared that, on transfer of the property to NR, Ravendark’s liability to Olpen for the loan should be satisfied.
The appeal
The parties agreed that, having determined there was a genuine loan arrangement in place, the judge had been wrong to find a resulting trust because a loan is inconsistent with the presumption supporting the existence of a resulting trust, namely the making of a voluntary payment for the purchase of a property in the name of another. Such an arrangement could not arise as a matter of law (Lewin on Trusts, 20th edition).
The focus of the appeal was whether the judge’s findings supported NR’s alternative case of a common-intention constructive trust. NR argued that the judge’s conclusion that the property was held beneficially for AR was an unappealable finding and that all the elements necessary for a common-intention constructive trust were to be found in the judgment: the intentions of AR, the appellant and its nominee shareholder, which comprised an express agreement as to the beneficial ownership of the property combined with sufficient detriment with the provision of funds by AR through a third party. The objective of the entire structure was to hide the true beneficial ownership of the property.
The respondent argued that such a trust could not arise in a commercial context and that it would be unfair to Ravendark to dispose of the case on the basis of a constructive trust since there had been no such argument advanced before the trial judge. The judge had found that the debt due to Olpen exceeded £42m and that it was a liability to be satisfied. How could the judge have made a declaration that the loan was satisfied on transfer of the property to NR without Olpen being a party to the proceedings?
The decision
The Court of Appeal saw much force in NR’s argument that the judge’s findings were so adverse to AR that justice would be served by upholding the determination as to the beneficial ownership of the property. However, the judge’s decision that the property was held beneficially for AR was founded on his conclusion that the facts led to the creation of a resulting trust. If that conclusion was wrong, the decision on beneficial ownership was also unsustainable.
While it was arguable that a constructive trust could be established, the Court of Appeal was not properly and fairly in a position to determine the question because not all of the constituent elements, particularly the issue of detriment, were sufficiently explored at the hearing below. The case was remitted for a full rehearing and so that Olpen could be joined to the proceedings.
Louise Clark is a property law consultant and mediator
