Real property – Equitable proprietary interest – Trust – Respondent registered proprietor transferring two properties to first appellant, who leased first floor of one property to second appellant – Respondent seeking declarations and injunctions concerning equitable proprietary interest in properties – High Court holding appellants held properties and lease on trust for respondent – Appellants appealing – Whether judge adopting inappropriate inquisitorial approach – Appeal dismissed
The respondent was the previous registered owner of two freehold properties at 19 Trent Gardens, Southgate and 67, Geldeston Road, London, E5. In 2016, the respondent transferred the properties to the first appellant via signed transfer forms for nil consideration. The first appellant then became the registered proprietor in place of the respondent and the properties were registered in his name.
The first appellant provided the funds to redeem the existing mortgage over No 19 to enable the transfers to be registered. He later gifted to the second appellant a 999-year lease of the first floor of No 67 and granted a charge over No 19 as security for a loan of £460,000. Both the lease and the charge were registered. On the evidence, the loan was used exclusively for the appellants’ own purposes and benefit.
No 19 was the respondent’s home, and he continued in occupation rent-free notwithstanding the transfer to the first appellant. No 67 was a rental property, split into two flats on the ground and first floors. The respondent continued to pay the utilities bills, insurance premiums and council tax for the properties.
The respondent sought declarations and injunctions in relation to equitable proprietary interests in the two properties. Alternatively, he claimed personal remedies by way of restitution or equitable compensation.
The High Court held that the first appellant held the two properties on trust for the respondent, and that the second appellant held a lease relating to one of the properties on trust for the respondent as well. The order also made consequential orders requiring transfer of the properties to the respondent, surrender of the lease and various financial remedies: [2020] EWHC 3055 (Ch). The appellants appealed.
Held: The appeal was dismissed.
(1) The appellants contended that the judge decided the case on the basis of an arrangement that the respondent had not pleaded and had expressly disavowed in cross-examination. In doing so the judge had crossed the line which separated adversarial and inquisitorial systems. It was fundamental to our adversarial system of justice that the parties should clearly identify the issues that arose in the litigation, so that each had the opportunity of responding to the points made by the other. The function of the judge was to adjudicate on those issues alone. Judges might sometimes think that their own theory better fitted the facts than that of either party, but if it was wholly outside the scope of the pleaded issues, that was nothing to the point. To decide a case on a basis that had not been explored in evidence or addressed in submissions was likely to leave at least one, if not both, parties with a profound sense of unfairness: Al-Medinni v Mars [2005] EWCA Civ 1041 and Satyam Enterprises Ltd v Burton [2021] EWCA Civ 287; [2021] PLSCS 47 applied.
(2) Those problems were all concerned with the interests of justice and, in particular, with circumstances which caused prejudice to the losing party. The common sort of prejudice which was to be avoided was that a new point had arisen in such a way that the losing party was not given a proper chance to call evidence or ask questions which could have addressed it. That was why the function performed by pleadings, lists of issues and so on, which was to give notice of and define the issues, was important; but it was also why a judge could always permit a departure from a formally defined case where it was just to do so. It was also why the judge’s function was to try the issues the parties had raised before them, rather than to reach a conclusion on the basis of a theory which never formed part of either party’s case.
By placing the emphasis on prejudice, the modern approach to the definition of the issues required judges to adopt a pragmatic approach in line with the overriding objective and not seek to be governed by unnecessary formality, provided always that it was just not to do so. The task was first to identify what case or cases the parties were advancing, second to compare that with the decision the judge made, and third, if need be, to identify what prejudice, if any, might have been caused to the appellants.
(3) Focussing on the pleadings, the judge in the present case reached a conclusion which was open to the court. The most important findings by the judge were that whatever the arrangement was, it was unwritten, it was not a gift or binding in honour only, it involved the transfer of the properties from the respondent to first appellant and the payment of money the other way and it involved using the properties as security to raise the funds that needed to be raised by the first appellant to pay the respondent.
Those were all matters which were either undisputed or were part of one or other party’s pleaded case (or both). In reaching those conclusions the judge was also rejecting distinct parts of each party’s case, as she was entitled to do. The judge’s conclusions were composed entirely of the acceptance or rejection of factual assertions which were pleaded.
(4) Looking at the matter purely in terms of evidence, the judge’s conclusions set against the body of evidence at trial, were all open to her. Standing back, the judge’s conclusion amounted to a particular intermediate combination of the various factual assertions making up both parties’ cases, and the combination itself was one that neither party had expressly pleaded. However, that was a commonplace in civil litigation. The circumstances in which that occurred would be infinitely variable and, in cases like this one, it presented no problems. The appellants were not ambushed or precluded from advancing submissions or evidence which they might otherwise have done. The appellants had not identified any step they might have taken, but were deprived of the opportunity to take, because of the way the case was decided. No prejudice to the appellants of any sort had been identified. This was not a case in which the judge adopted an inquisitorial approach or made any other error.
Nigel Woodhouse (instructed by Simons Rodkin Solicitors LLP) appeared for the appellants; Nicholas Trompeter QC (instructed by Ince Gordon Dadds LLP) appeared for the respondent.
Eileen O’Grady, barrister
