Property – Beneficial interest – Proprietary estoppel – Bankrupt respondents being joint beneficial owners of property – Applicant with powers of trustee in bankruptcy applying for declaration as to beneficial interests in property – Whether respondents discharging burden of establishing property was gift to second respondent such that she had entire beneficial interest in property – Application granted
The first respondent and his wife (the second respondent) were the joint beneficial owners of a property known as Flat 5, 14 Montpelier Street, London SW7. The current value of the property was between £11m and £11.5m. He was declared bankrupt in Russia in 2019 and a Russian bankruptcy manager was appointed, who was believed to be equivalent to a trustee in bankruptcy under English law. The bankruptcy was recognised in this jurisdiction on 1 December 2020 by an order made pursuant to the Cross Border Insolvency Regulations 2006 and the UNCITRAL Model Law on Cross Border Insolvency.
The applicant, a designated person pursuant to article 21(1)(e) of the 2006 Regulations, applied for a declaration as to the beneficial interests in the property. The application also sought orders for possession and sale.
Under the terms of the order appointing him as a designated person, the applicant had all the powers of a trustee in bankruptcy under English law to be able to realise the assets of the bankrupt’s estate.
The first respondent initially asserted in his witness statement that the property was owned jointly. However, he subsequently asserted that he had gifted all his property and assets outside of Russia to his wife and children. The second respondent was herself made bankrupt in June 2021 and her Russian trustee in bankruptcy supported the present application.
Held: The application was granted.
(1) The application seeking possession and sale arose pursuant to section 14 of the Trusts of Land and Appointment of Trustees Act 1996. Additionally, one year had passed since the making of the bankruptcy order and therefore section 335A of the Insolvency Act 1986 applied. The property included a dwelling house which had been or was the home of the bankrupt. Therefore, after the period of one year, an order for sale and possession was to be granted unless exceptional circumstances had been established, as the interest of the creditors would otherwise outweigh all other considerations. There were no exceptional circumstances identified in the evidence.
The formalities required for the creation of a trust of land had to be evidenced in writing pursuant to section 53 of the Law of Property Act 1925. In the absence of a declaration of trust, there was a presumption that the beneficial ownership followed the legal title. The burden was upon those who sought to displace the presumption to establish why it should be displaced.
(2) In cases, such as here, where there was no express declaration of trust, in order to displace the presumption, it had to be established that: (i) the case fell within the domestic consumer context, such that the common intention doctrine applied; (ii) there was evidence of an actual common intention, in the form of an agreement, arrangement or understanding between the parties that the beneficial ownership should not follow the legal ownership, either at the date when the property was first acquired or at some later date; (iii) in the absence of such a common intention, there was an agreement, arrangement or understanding to that effect which should be inferred from the parties’ conduct; (iv) the claimant relied to her detriment on the common intention relied upon; (v) if there was an actual common intention, it extended, either expressly or by inference, to the shares in which the property was to be beneficially owned; and (vi) if the common intention did not extend to the shares in which the property was to be beneficially owned, what was a fair share having regard to the whole course of the parties’ dealing in relation to the property, and to both financial contributions and other factors: see Lewin on Trusts 20th edition, at paragraph 10-063.
(3) A common intention constructive trust was where the purchaser of property shared a common intention with the claimant that the claimant was to have a share, or an increased share, in the beneficial interest in the property either at the time of acquisition or at a later date and the claimant acted to her detriment upon the basis of the common intention. Equity would impose a constructive trust so as to give effect to the common intention constructive trust.
In relation to proprietary estoppel, a claimant was required to establish a promise which had been relied upon by the claimant to his or her detriment. Much would depend on the evidence before the court: Guest v Guest [2022] UKSC 27; [2022] PLSCS 169; [2022] 3 WLR 911 considered.
(4) Pursuant to CPR 32.5, deponents of witness statements were required to attend court at trial to give oral evidence unless the court ordered otherwise. Unless there was a proper hearsay notice (which there was not in this case), where a deponent did not attend, the court was not obliged to take into account the evidence which had been filed. Accordingly, it was for the court to determine whether to take the evidence into account and also what weight to give, if any, to that evidence: William v Hinton [2011] EWCA Civ 1123 considered.
In the present case, there were simply bare assertions made by the respondents which were inconsistent with an earlier witness statement provided by the first respondent who provided an unsatisfactory and unbelievable explanation as to why he signed it declaring that the beneficial interest was in equal shares. Equally, the evidence lacked the detail necessary for a court to be able to assess whether the presumption had been displaced, whether there was some other constructive trust arising or an estoppel. Little weight could be given to the respondents’ statements in this case. The documents which were included in the evidence did not assist them and did not go toward establishing the beneficial interest, or supporting a displacement of the presumption. The documentation produced by the respondents fell far short of displacing the presumption that the property was held in joint equal shares.
The appropriate declaration was that beneficial interest in the property was held in equal shares by the respondents. The evidence set out no exceptional circumstances pursuant to section 335A of the 1986 Act. Therefore, an order for possession and sale would be granted.
Daniel Lewis (instructed by Seladore Legal Ltd) appeared for the applicant; The respondents did not appear and were not represented.
Eileen O’Grady, barrister
Click here to read a transcript of Allen v Derev (a bankrupt) and another
