Fattal v Fattal [2022] EHWC 950 (Ch); [2022] PLSCS 68 is a useful case for practitioners as it provides a summary of the applicable principles in disputes concerning beneficial interests in sole ownership cases and proprietary remedies for mistake and void dispositions.
The dispute concerned the ownership of a valuable penthouse property overlooking Regent’s Park. The claimant and defendant were two brothers who, over the course of 50 years, had worked together to build successful businesses.
In 1972 the claimant purchased the penthouse in his sole name. Both brothers lived in the penthouse until 1990. At that time, the claimant orally agreed to transfer the penthouse to his brother for £400,000.
The claimant’s case was that he transferred the property to his brother in 2014 under a mistaken belief that his brother had paid him the agreed sum. The defendant’s case was that he and his brother had always held the beneficial interest in the penthouse as tenants in common in equal shares, pursuant to a common intention constructive trust. Accordingly he was buying out his brother’s 50% share. Additionally, he contended that he would have paid the agreed purchase price from one of the company accounts owned by him and his brother, a director’s loan account, a trust account or other similar device.
Relying on Stack v Dowden [2007] UKHL 17 and Jones v Kernott [2011] UKSC 53; [2011] PLSCS 264 the High Court observed where there was sole legal ownership, the starting point was a presumption of sole beneficial ownership. In such circumstances, the defendant had to prove his entitlement to a share of the beneficial interest.
The presumption that equity followed the law could be displaced by evidencing either expressly or by inference that the parties had a different common intention either when the property was first acquired or subsequently. The “centrality of intention” was key and would need to be ascertained in light of the whole course of conduct between the parties.
Each case turned on its own facts. In the present case, although the claimant was willing to treat the penthouse as a home for him and his brother, this did not give rise to a constructive trust without more. The claimant had personally paid the purchase price for the penthouse. It had been registered in his sole name. There was no common intention that the defendant would have an immediate beneficial interest nor was there any evidence of detrimental reliance by the defendant on the strength of any such common intention.
Additionally, the High Court found there was no evidence that the defendant had ever paid the claimant the agreed sum of £400,000. Although it was unlikely that the “ordinary man on the street” would have overlooked that fact the claimant’s oversight was understandable in light of his wealth and focus on his business affairs.
The High Court found the claimant was entitled to proprietary remedies. On the evidence, by 2018 the defendant knew the claimant was labouring under a mistake vis-à-vis his purported payment for the penthouse. There had been a void contract for the sale of the penthouse. Although partly performed by the claimant, it remained void. 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 the defendant held the penthouse on constructive trust for the claimant. 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.
In equity, the voluntary transfer could also be rescinded due to the claimant’s mistake under the principles laid down in Pitt v Holt [2013] UKSC 26. In any event, as there had not been a gift of the penthouse to the defendant nor did the presumption of advancement apply, the defendant was found to hold the penthouse on a resulting trust.
Elizabeth Dwomoh is a barrister at Lamb Chambers
