Property – Beneficial interest – Constructive trust – Respondent claiming beneficial interest in property registered in names of appellants – Judge declaring property held by appellants upon trust for respondent and appellants jointly – Whether judge wrong to allow respondent’s claim when part of contribution to purchase price belonged to husband’s estate – Whether doctrine of “clean hands” applicable – Whether mortgage repayable out of gross sale proceeds – Whether indemnity costs order appropriate – Appeal dismissed
A residential property known as 75 New Road, Abbey Wood, London SE2 was registered in the names of the appellants. In proceedings in the county court, the respondent, who was the step-mother of the first appellant, claimed a beneficial interest in the property. The property had been purchased for £400,000, to which the respondent contributed £150,000. The appellants had raised the balance by way of a mortgage on the property. The respondent had obtained the sum of £135,000 towards the purchase price when purporting to act as executrix of her husband (B’s) estate, having obtained probate of an apparent will. At trial, the respondent disclosed that the will was a forgery. B had died intestate. The sum of £135,000 contributed to the purchase price comprised part of his estate.
The court declared that the property was held by the appellants upon trust for the respondent and the appellants jointly. The respondent had a 3/8 beneficial share and the appellants held the remaining 5/8 as tenants in common in equal shares as set out in a written house purchase agreement between the parties. The judge made an order for sale of the property. The proceeds of sale were to be used to pay the costs and charges of the sale. The mortgage was to be discharged out of the appellants’ share. The respondent was entitled to 3/8 of the sale price, subject to payment of her share of the costs of sale. The appellants were ordered to pay 70% of the respondent’s costs of the claim, assessed on the indemnity basis.
The appellants appealed contending that: (i) the judge was wrong to hold that the respondent’s claim for equitable relief succeeded when part of the funds used to purchase the property did not belong to her, but to her husband’s estate; (ii) the respondent’s claim should have been dismissed because she did not come to court with clean hands; (iii) the mortgage should be repaid out of the gross sale proceeds before distribution of the balance; and (iv) the judge had erred in making the indemnity costs order.
Held: The appeal was dismissed.
(1) The respondent was guilty of taking and using money which did not belong to her but belonged to B’s estate. The victim of that wrongdoing was the estate. Equity’s response was to allow the estate to trace into the 3/8 share which the judge held that the respondent had in the property. To that extent, the respondent held the appropriate part of the 3/8 share as a constructive trustee for the estate. The judge was right to hold that, as between the parties, the respondent had a 3/8 share in the property. Since it was not yet possible to identify the amount which was subject to a constructive trust, a declaration would be added to the judge’s order to the effect that the respondent was a constructive trustee of her 3/8 share. It would go too far to dismiss the respondent’s claim when it appeared on the material before the court that some of the £150,000 was the respondent’s money.
(2) Equitable principles should produce the result that the victims of wrongdoing were protected. Any interest which the first appellant might have in the estate was in a different capacity from his interest in the property. It would not be equitable to allow him to receive a windfall as joint owner of the property at the expense of the estate. The contribution by the respondent of her own money did not involve any wrongdoing or inequitable conduct. The contribution of that money was distinct from the contribution of the estate’s money. Accordingly, the respondent’s wrongdoing was not related to her seeking the part of the 3/8 share which was referable to the contribution of her own money. Further, the claim put forward by the respondent was to enforce the house purchase agreement which amounted to an express declaration of trust in favour of the respondent. The agreement stated correctly that the respondent had contributed £150,000. The efficacy of the agreement did not depend on the £150,000 being her own money. Accordingly, the equitable doctrine as to clean hands did not lead to the conclusion that the court should deny to the respondent a declaration that she had the benefit of the express declaration of trust contained in the house purchase agreement: J Willis & Son v Willis [1986] 1 EGLR 62 and Gonthier v Orange Contract Scaffolding Ltd [2003] EWCA Civ 873 considered.
(3) At the date of the house purchase agreement, the parties were using the figure of £400,000 for the cost of buying the property. The parties also knew that the contribution being made by the appellants was money which they were borrowing, a sum of approximately £250,000. The respondent was not a party to that loan and there was no reason why her 3/8 share should be diminished by its redemption. The secured loan was agreed to be the appellants’ contribution to the purchase of the property in return for which they would have a 5/8 share of the property but not a 5/8 share of the net proceeds of sale after their loan was paid out of the gross proceeds of sale.
(4) It was open to the judge to make the order for costs which he made. The judge gave reasons why he made the order he did. Each reason was a proper reason considered in isolation and it was open to the judge to hold that the combination of those reasons led to his conclusion as to costs. The judge recognised that he had to evaluate a large number of competing factors in reaching his overall conclusion but it was not said that he omitted any relevant factor. Once the judge decided that the respondent should have some of her costs, but not all of them, it could not be said that a percentage of 70% was an impermissible percentage to award. As to the decision to award costs on an indemnity basis, the course taken by the judge was open to him and he gave clear reasons for his decision.
Lina Mattsson (instructed by Hodge Jones & Allen LLP) appeared for the appellants; Piers Hill (instructed by Geoffrey Leaver LLP of Milton Keynes) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Ball and another v De Marzo
