Registered freehold property – Beneficial interest – Appellant and respondent holding as joint tenants in common in equal shares under express declaration of trust – Respondent claiming entitlement to entire beneficial interest – Whether court entitled to infer common intention of parties to that effect – Whether grounds to set aside declaration of trust – Appeal allowed The appellant and his aunt, the respondent, were the joint owners of a registered freehold property. The property had been purchased in 1987 for £18,500 with the assistance of a £17,500 mortgage loan and had been transferred into their joint names to hold as tenants in common in equal shares; the transfer contained an express declaration of trust to that effect. The appellant subsequently applied to the court for an order for the sale of the property and the division of the sale proceeds between himself and the respondent in equal shares. The respondent disputed that the appellant had any beneficial interest in the property. She alleged the existence of a common understanding between herself, the appellant and their wider family, at the time of the purchase, that the property was to be a matrimonial home for herself and her husband and that she was to be the sole beneficial owner. She alleged that her brother, the appellant’s uncle, had initially intended to carry out the purchase but that, since neither he nor the respondent was eligible for a mortgage, the appellant had been brought in as joint purchaser; the uncle had paid the deposit and the respondent had paid the mortgage instalments thereafter with little assistance from the appellant. Dismissing the claim, the judge found that the common intention of the parties, at all material times, had been that the house should be purchased for the benefit of the respondent. In reaching that conclusion, he took into account that the appellant had contributed very little to the purchase price, had never asked for any income from the property, never sought to live there and had previously done nothing to suggest that he claimed any entitlement to the property. The judge found that the appellant had been named as a joint owner only as an “expedient sham” in order to obtain a mortgage and that nobody, including the appellant, had ever envisaged that he would have any beneficial interest in the property. The appellant appealed. Held: The appeal was allowed. (1) The matters that the judge had taken into account would have been relevant if the property had been transferred to the parties as joint tenants with no indication in the transfer as to the beneficial ownership. However, where the parties had executed an express declaration of trust over the property in favour of themselves as tenants in common, and had therefore set out their respective beneficial entitlement as part of the purchase itself, there was no need to impose a constructive or common intention trust as to the beneficial ownership and it was impermissible to infer one: Stack v Dowden [2007] UKHL 17; [2007] 2 AC 432; [2007] 18 EG 153 (CS) distinguished. The express declaration of trust was to be regarded as conclusive unless the defendant could establish some ground on which she was entitled to set it aside: Goodman v Gallant [1986] 1 FLR 513 and Pettit v Pettit [1970] AC 777 applied. (2) Although a declaration of trust could be set aside for fraud, mistake or undue influence, the respondent had alleged nothing of the kind. The transfer could not be rectified on the grounds of mistake so as to omit the declaration of trust since there was no evidence that it had been inserted by mistake or that the parties intended to execute a transfer in materially different terms. (3) Nor could the declaration of trust be characterised as a “sham”, so as to entitle the court to go behind it. To establish that a trust was a sham, it was necessary to show both that the parties to the trust deed never intended to create a trust and that they intended to give a false impression to third parties or to the court. A document would be a sham if it was executed in order to give the appearance of creating legal rights and obligations between the parties that were different from the actual legal rights and obligations that they intended to create: Snook v London & West Riding Investments Ltd [1967] 2 QB 786 applied. That test was not met in the instant case. The parties had not entered into the declaration of trust in order to mask the true nature of their agreement from others. Although the transaction was one of convenience, and the appellant only participated in the purchase to facilitate the mortgage, that did not involve any deception of the mortgage lender or the court. There was nothing to suggest that the mortgage lender was concerned about beneficial ownership. The effect of the declaration of trust was to make the appellant an equitable tenant in common, regardless of what the parties might subjectively have intended, and to estop the respondent from denying the appellant’s title. Ian Lamacraft (instructed by BP Legal Solicitors, of Leicester) appeared for the appellant; John Small (instructed by Josiah Hincks, of Leicester) appeared for the respondent. Sally Dobson, barrister
Registered freehold property – Beneficial interest – Appellant and respondent holding as joint tenants in common in equal shares under express declaration of trust – Respondent claiming entitlement to entire beneficial interest – Whether court entitled to infer common intention of parties to that effect – Whether grounds to set aside declaration of trust – Appeal allowed The appellant and his aunt, the respondent, were the joint owners of a registered freehold property. The property had been purchased in 1987 for £18,500 with the assistance of a £17,500 mortgage loan and had been transferred into their joint names to hold as tenants in common in equal shares; the transfer contained an express declaration of trust to that effect. The appellant subsequently applied to the court for an order for the sale of the property and the division of the sale proceeds between himself and the respondent in equal shares. The respondent disputed that the appellant had any beneficial interest in the property. She alleged the existence of a common understanding between herself, the appellant and their wider family, at the time of the purchase, that the property was to be a matrimonial home for herself and her husband and that she was to be the sole beneficial owner. She alleged that her brother, the appellant’s uncle, had initially intended to carry out the purchase but that, since neither he nor the respondent was eligible for a mortgage, the appellant had been brought in as joint purchaser; the uncle had paid the deposit and the respondent had paid the mortgage instalments thereafter with little assistance from the appellant. Dismissing the claim, the judge found that the common intention of the parties, at all material times, had been that the house should be purchased for the benefit of the respondent. In reaching that conclusion, he took into account that the appellant had contributed very little to the purchase price, had never asked for any income from the property, never sought to live there and had previously done nothing to suggest that he claimed any entitlement to the property. The judge found that the appellant had been named as a joint owner only as an “expedient sham” in order to obtain a mortgage and that nobody, including the appellant, had ever envisaged that he would have any beneficial interest in the property. The appellant appealed. Held: The appeal was allowed. (1) The matters that the judge had taken into account would have been relevant if the property had been transferred to the parties as joint tenants with no indication in the transfer as to the beneficial ownership. However, where the parties had executed an express declaration of trust over the property in favour of themselves as tenants in common, and had therefore set out their respective beneficial entitlement as part of the purchase itself, there was no need to impose a constructive or common intention trust as to the beneficial ownership and it was impermissible to infer one: Stack v Dowden [2007] UKHL 17; [2007] 2 AC 432; [2007] 18 EG 153 (CS) distinguished. The express declaration of trust was to be regarded as conclusive unless the defendant could establish some ground on which she was entitled to set it aside: Goodman v Gallant [1986] 1 FLR 513 and Pettit v Pettit [1970] AC 777 applied. (2) Although a declaration of trust could be set aside for fraud, mistake or undue influence, the respondent had alleged nothing of the kind. The transfer could not be rectified on the grounds of mistake so as to omit the declaration of trust since there was no evidence that it had been inserted by mistake or that the parties intended to execute a transfer in materially different terms. (3) Nor could the declaration of trust be characterised as a “sham”, so as to entitle the court to go behind it. To establish that a trust was a sham, it was necessary to show both that the parties to the trust deed never intended to create a trust and that they intended to give a false impression to third parties or to the court. A document would be a sham if it was executed in order to give the appearance of creating legal rights and obligations between the parties that were different from the actual legal rights and obligations that they intended to create: Snook v London & West Riding Investments Ltd [1967] 2 QB 786 applied. That test was not met in the instant case. The parties had not entered into the declaration of trust in order to mask the true nature of their agreement from others. Although the transaction was one of convenience, and the appellant only participated in the purchase to facilitate the mortgage, that did not involve any deception of the mortgage lender or the court. There was nothing to suggest that the mortgage lender was concerned about beneficial ownership. The effect of the declaration of trust was to make the appellant an equitable tenant in common, regardless of what the parties might subjectively have intended, and to estop the respondent from denying the appellant’s title. Ian Lamacraft (instructed by BP Legal Solicitors, of Leicester) appeared for the appellant; John Small (instructed by Josiah Hincks, of Leicester) appeared for the respondent. Sally Dobson, barrister
