A partner’s word is not a deed!

The High Court, in a recent case concerning a property dispute of a former couple, provided a stark reminder of the legal principles governing the creation and enforceability of trusts over land.

Facts:

The case involved a former couple who were in a relationship from 2010 to 2021 and had two children together. The claimant, who had been made bankrupt in 2020, brought a Part 7 claim against the defendant, his former partner, for a declaration of his full beneficial ownership of two properties in Sheffield and one in London. The claim related to the London property was abandoned before trial. He also claimed damages of £6m for alleged misappropriation of trust funds. The damage claim was later dropped when it became clear the withdrawals were from a separate company account and not the personal trust account.

He alleged that the properties were purchased and money was placed into the defendant's name as part of a "sham" to protect these assets from an ongoing HMRC investigation. The claimant asserted there was an oral agreement that the defendant would hold the assets on trust for him and return them once his financial issues were resolved. The defendant, on the other hand, was the sole legal owner of the properties and bank accounts in dispute.

The defendant's defence was struck out due to procedural defaults, and she did not appear at trial. The case was complicated by the presence of interested parties, specifically the defendant's judgement creditors, who had a charging order over one of the properties.

Decision: 

The High Court gave a judgement of mixed outcome and, while the claimant won the claim with regard to one of the properties, his claim was dismissed with regard to the other property, the Turkish bank account, and the associated damages. The Court's reasoning was that the claimant failed to prove the existence of an express or constructive trust for the properties and the bank account. The Master concluded that the claimant's evidence was unreliable and inconsistent, and he could not overcome the legal presumption that the defendant, as the sole legal owner, was also the sole beneficial owner.

For both properties, the Master concluded that the claimant had failed to establish a common intention constructive trust. He found the claimant's testimony to be both contradictory and unpersuasive. The claimant's evidence about an oral agreement was found to be inconsistent, particularly regarding the timing and motivation for the alleged trust.

The Court considered the statutory declarations signed by the defendant to be a crucial piece of evidence, although their influence was limited.

The Master rejected the application of a resulting trust. He noted that in the context of a domestic or "quasi-matrimonial" relationship, the courts now favour the common intention constructive trust analysis. The claimant's own evidence about an alleged agreement between the parties was also inconsistent with the principle of a resulting trust, which is typically presumed in the absence of evidence of actual intention.

While the claimant had admitted an illegal purpose (i.e., hiding assets from HMRC), the Master decided that this would not, in itself, disentitle him from a remedy. Applying the principle from Patel v Mirza, the Master reasoned that, since the claimant was trying to "undo" the illegal act by reclaiming the assets, it would be disproportionate to use the illegality to deny him a remedy, especially since his claims had been purchased from his trustees in bankruptcy.

Implications:

This case underscores the high bar for a claimant to prove a beneficial interest in property when they are not on the legal title. The Master found the claimant's evidence unreliable and inconsistent, particularly in relation to his claims of an oral trust agreement and his respective financial contributions. 

To establish a constructive trust in a domestic context, a claimant must prove a common intention and detrimental reliance. However, simple financial contributions are often insufficient without a clear, shared agreement. The case strongly reinforces the legal principle that intention is key in establishing beneficial ownership. 

The judgement provides a clear lesson on the limitations of statutory declarations. While such a declaration can be effective in creating a trust, it can only do so from the date it is signed, and it does not have a retrospective effect. This means a declaration cannot be used to prove that a trust existed at an earlier date.

Finally, while the Court did not use the illegality to dismiss the claim (applying the principle from Patel v Mirza), the existence of a "sham" arrangement was a major factor in the Master's decision. The claimant’s own admitted illegal purpose further weakened his credibility, making his testimony about a legitimate trust agreement less believable. This shows that, even if an illegal act doesn't automatically bar a claim, it can heavily influence the Court's assessment of a party's honesty and the overall strength of their case.