Property – beneficial ownership – Constructive trust – Resulting trust – First respondent wife applying for financial provision following divorce from second respondent husband – Property purchased by appellant with loan from company controlled by second respondent – Judge determining that appellant held property on resulting trust for second respondent and declaring he was sole beneficial owner of property – Appellant appealing – Whether judge’s findings supporting second respondent’s case that common intention constructive trust established – Appeal allowed
The respondents were married in 2005 and divorced in Russia in 2013. The appellant company was the legal owner of a property known as Upper Ribsden, Windlesham, Surrey which had been purchased with monies provided by a company (O) controlled by the second respondent husband to the appellant by way of a loan facility agreement.
The first respondent wife applied for financial provision under Part III of the Matrimonial and Family Proceedings Act 1984. The parties reached a comprehensive financial agreement. The judge acceded to the first respondent’s application that an order be made in the same terms as the agreement. By the order, the second respondent undertook and agreed to procure or carry into effect the transfer of the property into the sole name of the first respondent. The second respondent failed to comply with the order. In particular, the property was not transferred to the first respondent.
The judge determined that the appellant held the property on resulting trust for the second respondent and declared that he was the sole beneficial owner of the property and made consequential orders for the transfer of the property to the first respondent. The order also declared that, upon the transfer of the property, the appellant’s liability under the loan facility agreement would be satisfied.
The appellant appealed contending that the judge was wrong to find a resulting trust because the monies used to purchase the property were provided by O to the appellant by way of a loan. The second respondent supported the appeal on the basis that, as a result of the judge’s order, he had lost the value of O’s loan to the appellant.
Held: The appeal was allowed.
(1) It was conceded that the judge had found that the loan was a real loan and that, as a result, whatever other findings he might have made, his conclusion that the property was held on resulting trust for the husband could not stand. The first respondent now accepted that this was not a case where a resulting trust could arise, in the strict sense of that term, because the judge found that there was a legitimate loan agreement. A loan was inconsistent with the presumption supporting the existence of a resulting trust, namely the making of a voluntary payment for the purchase of a property in the name of another. Such an arrangement could not arise as a matter of law: Lewin on Trusts, 20th Ed [8-005] and [8-006] and Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 considered.
However, the second respondent filed a respondent’s notice seeking to uphold the judge’s determination that the appellant held the property beneficially for the second respondent on the alternative basis of a constructive trust.
(2) There was much force in the first respondent’s argument that the judge’s findings were so adverse to the second respondent that justice would be served by upholding the determination as to the beneficial ownership of the property. However, the judge’s conclusion that the property was held beneficially for the second respondent was founded on his conclusion that the facts led to the creation of a resulting trust. Once it was accepted that the latter conclusion could not stand, the former was also unsustainable.
A loan was inconsistent with the presumption supporting the existence of a resulting trust, namely the making of a voluntary or gratuitous payment used for the purchase of a property in the name of another. The second respondent had provided the purchase price and intended to retain the ownership of the property. The issue at the hearing of the appeal became whether the court could arrive at the same ultimate outcome but by way of a common intention constructive trust.
That course was not properly open to the appeal court and the right course was to remit the case for a full rehearing before a judge to be nominated by the President of the Family Division. Not all of the constituent elements were sufficiently explored either evidentially or legally at the hearing below, in particular in respect of the issue of detriment, to establish that a common intention constructive trust had been established.
(3) Contrary to the appellant’s submissions, it was arguable that the circumstances of the case were such that a constructive trust could be established. An express agreement, relied on to the detriment of a party claiming a beneficial interest, might found an interest under a common intention constructive trust outside the scope of the domestic consumer context. There was no reason why constructive trusts of a traditional kind might not arise in a commercial context: Agarwala v Agarwala [2013] EWCA Civ 1763 and Kahrmann v Harrison-Morgan [2019] EWCA Civ 2094 considered.
Whether that was right as a matter of law, it seemed clear that, if the judge had addressed the issue, he might well have determined that the present case did not involve a commercial transaction. In addition, an express agreement, relied on to the detriment of the party claiming a beneficial interest, might found an interest under a common intention constructive trust outside the scope of the domestic consumer context. The property was being purchased as a family home. The appellant’s case was that it was an investment but the judge clearly considered that it had a number of unusual features which were not compatible with it being a simple commercial transaction.
Whatever the cause, it was clear that the first respondent’s claim that the second respondent was the beneficial owner of the property had not yet been properly determined and that the appellant should have the opportunity of rearguing its case. O would need to be joined to the proceedings so that the true nature of the loan facility agreement and its legal effect could be fully determined at the rehearing.
Jonathan Seitler QC and Elizabeth Houghton (instructed by Farrer & Co Solicitors) appeared for the appellant; Fenner Moeran QC and Sassa-Ann Amaouche (instructed by JMW Solicitors LLP) appeared for the first respondent; Richard Todd QC and Simon Webster QC (instructed by Grosvenor Law) appeared for the second respondent.
Eileen O’Grady, barrister
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