Sale of land – Trustees – Beneficial ownership – Claimant seeking declarations regarding properties in her name following breakdown of relationship – Whether properties held on trust for her and defendant in equal shares – Whether both properties to be sold – Whether defendant entitled to equitable accounting and declaration that property held on trust for sons – Judgment for claimant in part
The parties were in a relationship from about 1986. The claimant was the tenant of a property at 275 Ridgeway Rd, Bristol which belonged to the local authority. She lived there with the defendant and their children. In 2001, the claimant exercised the right to buy, with the aid of a mortgage. The property was in her sole name but a deed of trust declared that she held it on trust for both parties.
The defendant was also the council tenant of a property at 22 Morden Walk, Bristol. In 2002, he exercised the right to buy that property. With the discount available to a tenant, he paid a little over £17,000, mostly cash and with no mortgage. He took the property in his sole name. Subsequently, he mortgaged the property. He also let it, and used the rent to pay the mortgage interest. In 2008, the defendant transferred Morden to the claimant. The existing mortgage was paid off and a new mortgage taken in the claimant’s sole name. The property was still let, and the rent applied to pay the mortgage interest.
The defendant’s case was that the property was transferred to the claimant because he was having financial problems, but it was to be held by her on trust for his three (including her two) sons, and that a deed of trust was prepared to that effect.
In 2013, the relationship broke down and the claimant sought declarations that she held the two properties on trust for her and the defendant in equal shares, and that both properties should be sold. The defendant sought an equitable accounting in respect of his financial contributions to Ridgeway and a declaration that Morden was held by the claimant on trust for the defendant’s three sons.
Held: Judgment was given for the claimant in part.
(1) In an equitable accounting, the proportions in which a property should be divided between former co-owners had to have regard to any increase in its value which had been brought about by means of expenditure by one of them. The parties disagreed as to how far the defendant had carried out work by his own expenditure and, if so, how much value it added to the property. Equitable accounting gave credit to the improving party for one half of the expenditure on repairs or improvements and the increase in value of the property, whichever was the less. Any improvement which the defendant claimed to have made by virtue of his own labour or without expenditure on his part could not be taken into account. Moreover, the amount actually spent was no guide to the increase in value: Re Pavlou (a bankrupt) [1993] 1 WLR 1046 followed.
The problem for the defendant was that he had not provided any reliable evidence of how much he had spent or how much value had been added. Although the court was satisfied that the defendant had spent some money on Ridgeway, and carried out some work himself, it was unable to say how much, or what value it added to the property. Therefore, the court was unable to say that the defendant should have the benefit of expenditure or increase in value by way of equitable accounting.
(2) In considering whether an order for the sale of Ridgeway should be made under section 14 of the Trusts of Land and Appointment of Trustees Act 1996, the court had to have regard to the intentions of the person or persons who created the trust (section 15(1)(a)); and the purposes for which the property subject to the trust was held (section 15(1)(b)). In the present case, the common intention of the parties, as shown by the deed and surrounding circumstances, was to provide a home for themselves and their young children; and the purpose for which the property was held was to provide a home for the parties and their children.
The children had now grown up and were self-sufficient, the claimant had left the property and the parties’ purpose and intentions had been fulfilled. The parties’ beneficial interests were equal. Looking at the matter in the round, there was no reason that the claimant should not now have the use of the value locked up in the property. The property should be sold, the mortgage discharged and the proceeds divided equally between the parties.
The defendant should be allowed to seek to buy the property at the open market price for vacant possession, within a short time. In default of agreement as to the open market price, it would have to be fixed by an independent expert: Bagum v Hafiz [2016] Ch 241; [2015] PLSCS 230 and Chaston v Chaston [2018] EWHC 1672 (Ch) followed.
(3) Overall, the court was satisfied that the claimant took the property on trust rather than by way of beneficial sale or gift. It was clear law that, where A conveyed to B on trust for A, that could be proved without the need for signed writing complying with section 53(1)(b) of the Law of Property Act 1925, because otherwise the statute would be used as an instrument of fraud. The existence of a trust itself could be so established. Where A conveyed to B on trust for C, the trust for C could not be established without compliance with the statute. It was not necessary to enforce such a trust in order to defeat a fraud by A; only that there be a trust rather than an absolute gift. To allow the trust for C to be enforced would leave the statutory requirement without effective scope. In principle, if the court was satisfied that B was not intended to take beneficially but that the intended beneficiary, C, was defeated because of failure to comply with formality requirements, so that the intended trust failed, there should be a resulting trust for the transferor (A).
The court rejected the claimant’s argument that the approach in Stack v Dowden [2007] 2 AC 432 applied because the parties’ intended ultimately to sell Morden to repay the mortgage on Ridgeway. The facts of the present case were far removed from Stack v Dowden. Although Morden might be sold for that purpose, it was not inevitable. In any event, there was no reason why ordinary resulting trust principles should not apply to resolve that situation. Therefore, the claimant held Morden on trust for the defendant. Since the defendant did not want the property sold, and the claimant had no beneficial interest in it, there was no good reason for ordering a sale and none of the statutory factors pointed in that direction.
Jonathan Stanniland (instructed by Watkins Solicitors of Bristol) appeared for the claimant; Christian Gape (instructed by Direct Access) appeared for the defendant.
Eileen O’Grady, barrister
