Defendant arranging mortgage to purchase flat from claimant — Flat transferred into sole name of defendant — Defendant expressly declaring that property held on trust for claimant and another — Defendant disputing trust — Last-minute defence based upon illegality — Defendant alleging common intention to mislead mortgage provider — Whether defence raised too late — Whether defence capable of applying to facts
At all material times prior to the events giving rise to the dispute, the claimant and his wife held a flat, as an investment property, on trust for the claimant and K, a friend of the claimant, in equal shares. In February 1989, the claimant and his wife transferred the flat to the first defendant PK, who was K’s daughter. PK had arranged a fresh mortgage with Abbey National Building Society (the Abbey loan). The Abbey loan was applied towards the discharge of an earlier mortgage loan obtained by the transferors. Thereafter, the claimant continued to find tenants for the flat and to attend to outgoings. Later that year, a deed came into existence, apparently signed and executed by PK in July 1989, declaring that she held the flat on trust in equal shares for the claimant and her brother, the same having discharged all costs and expenses of the purchase of the flat.
In 1999, PK asserted that she was the sole owner of the flat. In December 2000, the claimant brought proceedings claiming a half-share in the property. In her defence (the main defence), PK denied that she was party to the trust deed. On the day of the hearing, PK’s solicitor purported to file an alternative defence based upon the submission that the alleged trust was illegal and unenforceable because the parties knew that the Abbey loan would be, and had been, obtained by PK falsely representing that she was buying the flat for her personal residence. The main defence was rejected for want of evidence, and the judge then turned to the illegality issue.
Held: The alternative defence failed.
Although the court had to be alert to questions of illegality at all times, particular care had to be taken where an unpleaded allegation emerged for the first time at the trial. Such a claim could not be allowed to succeed unless the court were satisfied that there was no palpable risk of injustice in so proceeding: see Birkett v Acorn Business Machines Ltd [1999] 2 All ER (Comm) 429. On the evidence before the court, there was such a risk.
In any event, the court was not being asked to enforce an allegedly illegal contract. Illegality did not call for consideration in cases where, as here, the court was concerned solely with the effects of an executed transaction. The nomineeship contended for by the claimant could be, and was, made out without relying in any way upon the alleged illegal motive: Tinsley v Milligan [1994] 1 AC 340 applied.
Tim Cowen (instructed by Kosky Seal) appeared for the claimant; the defendants did not appear and were not represented.
Alan Cooklin, barrister
