Property – Beneficial interest – Trustee in bankruptcy – Respondents holding former matrimonial home as joint tenants in common in equal shares under express declaration of trust – First respondent declared bankrupt – Applicants appointed as trustees in bankruptcy – Applicants seeking declaration as to beneficial ownership of property – Second respondent claiming entitlement to entire beneficial interest – Whether property transferred to second respondent by oral agreement – Declaration granted
The respondents were registered as the joint tenants of their former matrimonial home, known as Southview, Pollards Hill East in London pursuant to a deed in the form of Land Registry form TR1 which contained an express declaration of trust that the property was held by them as tenants in common in equal shares.
In March 2020, the first respondent was declared bankrupt, and the applicants were appointed as joint trustees in bankruptcy. The applicants sought a declaration as to beneficial ownership and an order for possession and sale of the property. The second respondent filed a witness statement in which she claimed that, pursuant to the terms of an oral agreement in 2017 bringing an end to their Islamic marriage, the first respondent agreed to transfer to her, and she now held, all the beneficial interest in the property.
The applicants’ claim for possession was brought pursuant to section 14(2) of the Trusts of Land and Appointment of Trustees Act 1996 and section 335A of the Insolvency Act 1986. Pursuant to section 335A(3), if an application for possession was made after one year following the vesting of a bankrupt’s interest in their trustees, the court would assume, unless the circumstances of the case were exceptional, that the interests of the bankrupt’s creditors outweighed all other considerations.
Held: The declaration was granted.
(1) In determining an application for possession pursuant to section 14 of the 1996 Act, the court ought to make such order as was just and reasonable having regard to: the interest of the bankrupt’s creditors; the conduct of the spouse, so far as contributing to the bankruptcy; the needs and financial resources of the spouse; the needs of any children; and all the circumstances of the case other than the needs of the bankrupt.
The starting point for the determination of the beneficial ownership of the property was the express declaration in the TR1. The respondents had executed an express declaration of trust over the property in favour of themselves as tenants in common in equal shares. Such a declaration of trust was regarded as conclusive unless varied by subsequent agreement or affected by proprietary estoppel: Stack v Dowden [2007] UKHL 17; [2007] PLSCS 82; [2007] 2AC 432 and Pankhania v Chandegra [2012] EWCA Civ 1438; [2012] PLSCS 241 considered.
(2) Proprietary estoppel was an equitable remedy pursuant to which the court might intervene in cases where it considered that reliance by a party on its strict legal rights would be unconscionable. If a defendant made a promise or assurance to the claimant that the defendant’s property was the claimant’s property or that the defendant had given or would give the claimant a right therein or a benefit over it, and the claimant acted to his detriment in reliance on that assurance, then equity would estop the defendant from asserting his full legal and beneficial ownership in the property or from causing the claimant to suffer detriment and from claiming that non-compliance with statutory formalities barred the claimant’s claim: see Underhill & Hayton: The Law of Trusts and Trustees, at paragraph 14.59.
To establish a proprietary estoppel claim, a claimant needed to prove: that assurances or conduct of the defendant in relation to identified property were sufficiently clear and unambiguous in all the circumstances to lead the claimant reasonably to rely on those assurances or conduct by acting significantly to his detriment, so that it would be unconscionable for the defendant to deny the claimant any remedy. The burden of proving that the requisite elements were present to establish a proprietary estoppel lay with the second respondent: Thorner v Major [2009] 2 EGLR 111 considered.
(3) It appeared to be the second respondent’s case that the express declaration of trust in the TR1 was varied twice by agreement: The first provided for her to gain 40% of the first respondent’s 50% share of the property, such that she would hold 90%, leaving him with 10%. The second provided for her to receive the remaining 10%, such that she now held 100% of the beneficial interest. Even setting aside the inconsistencies in her evidence, neither agreement was recorded in writing. There was consequently no agreement that met the requirements of the Law of Property (Miscellaneous Provisions) Act 1989 to supersede the express declaration of trust set out in the TR1.
Furthermore, there was no clear assurance to invoke the equitable principle of proprietary estoppel. On the balance of probabilities, the second respondent’s desire to own the property absolutely (and the alleged agreement between her and the first respondent on divorce) was to be revisited later, probably once the mortgage had been paid off. In reaching that conclusion, the court took into account the absence of any written note of such an important agreement being reached between parties apparently concluding the terms of their divorce/separation.
(4) On the balance of probabilities, at the time when the second respondent stated they effected an Islamic divorce, the respondents reached no more than an inchoate agreement in respect of the interest which she would eventually gain in the property, the terms of which would not be finalised until some time later. No final agreement was reached and no concluded assurance was given. Consequently, there was no assurance upon which to found a proprietary estoppel.
Even if that was wrong, it remained open to the second respondent to seek to argue that she was entitled to a beneficial interest in the first respondent’s remaining assets, albeit that as a result of the bankruptcy order made against him, she would need to persuade the court of her entitlement pursuant to a resulting trust. Therefore, as matters stood, there was no conclusive detriment suffered by her alleged reliance on on the alleged assurance.
(5) Accordingly, In the absence of a document satisfying the requirements of the 1989 Act altering the beneficial interests stated in the TR1 to be held by the respondents, and in the absence of grounds to establish proprietary estoppel, the applicants were entitled to a declaration that they and the second respondent were beneficially entitled to the property in equal shares.
James Freeman (instructed by Hill Dickinson LLP) appeared for the applicants; Richard Ascroft (instructed as Direct Access) appeared for second respondent.
Eileen O’Grady, barrister
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