Key point
- The personal obligation to make restitution of a particular asset received under a void contract was rendered proprietary once the recipient was on notice that the asset could not be treated as his own
When property is registered in an individual’s sole name, the presumption is that he also owns the entirety of the beneficial interest. If an individual who has not made any financial contribution to the acquisition of the property claims an equitable interest, the route to establishing a share in the same is to claim a common intention constructive trust has arisen. This can be difficult to prove as one brother has discovered in the case of Fattal v Fattal [2022] EHWC 950 (Ch); [2022] PLSCS 68.
The road is long
William Fattal and Elias Fattal were brothers. They had worked hard over 50 years to build a successful business empire together. In recent years, their relationship had soured. This resulted in a dispute concerning the ownership of a property overlooking Regent’s Park.
In 1972, William purchased a penthouse flat situated on Nottingham Terrace, NW1. The penthouse was registered at the Land Registry in William’s sole name. He financed the acquisition and refurbishment costs with his own money and with the aid of a mortgage, for which he was responsible for meeting the payments. Both William and Elias resided at the property until William married in 1990. Elias paid some of the outgoings associated with the penthouse, but paid no rent.
Subsequently William orally agreed to transfer the penthouse to Elias for the sum of £400,000, which he did in 2014. William claimed that he transferred the penthouse in the mistaken belief that Elias had paid for the same. William brought a claim seeking equitable relief from the consequences of his mistake and other relief.
Elias defended the claim on the basis that he and William held the beneficial interest in the penthouse as tenants in common in equal shares pursuant to a common intention constructive trust. Elias claimed he had purchased William’s beneficial share by using monies from either one of their joint company accounts, a director’s loan account, a trust account or other similar device.
So on we go
Relying on Stack v Dowden [2007] UKHL 17; [2007] PLSCS 82 and Jones v Kernott [2011] UKSC 53; [2011] PLSCS 264, the High Court observed that in sole legal ownership cases the starting point was sole beneficial ownership. In the present case, the penthouse was conveyed into William’s sole name. The burden rested on Elias to show he had a beneficial interest as the non-owner.
The presumption that equity followed the law could be displaced expressly or by inference by Elias showing that the parties had a different common intention when the penthouse was first acquired or that a different common intention was formed afterwards, providing that there was some element of detrimental reliance.
Each case turned on its own facts, but it was important to ascertain the parties’ shared intentions, actual, inferred or imputed, with respect to the property. The “centrality of intention” was key and would need to be ascertained in light of the whole course of conduct between the parties. Further, other factors besides financial contributions could be important in divining the parties’ intention.
For I know
In finding for William, the High Court determined he had paid the entirety of the acquisition and refurbishment costs for the penthouse, including the mortgage instalments. The fact Elias had paid some of the associated outgoings did not equate to a financial contribution to its cost of acquisition.
There was no evidence to support a common intention to share the beneficial interest in the penthouse. Nothing in the course of dealings between the parties merited an inference being drawn that this was the intention of the parties from the outset or subsequently. The mere fact William was willing to treat the penthouse as a home for him and Elias did not, without more, give rise to a constructive trust. Elias was required to evidence a common intention that he should take an immediate beneficial interest in the penthouse, coupled with detrimental reliance by him on the strength of the common intention. He had failed to do so.
If I’m laden at all
Following an analysis of the transactions available, the High Court found no evidence of Elias having paid his brother for the penthouse. The mistake by William was understandable in light of his wealth and focus on his business affairs.
The contract for the sale of the penthouse was a void contract because it was not in writing. Although there had been part performance of the contract by William, it remained void. The transaction had to be unwound.
Relying on Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12 and Ali v Dinc [2020] EWHC 3055 (Ch), the High Court found that by 2018 Elias knew his brother was labouring under a mistaken belief that he had been paid the purchase price for the penthouse. Elias, therefore, held the penthouse on constructive trust for William. The personal obligation to make restitution of a particular asset received under a void contract was rendered proprietary once the recipient was on notice that the asset could not be treated as his own.
The voluntary transfer could also be rescinded in equity by virtue of William’s mistake under the principles laid down in Pitt v Holt [2013] UKSC 26.
Elizabeth Dwomoh is a barrister at Lamb Chambers
