Sale of land – Specific performance – Constructive trust – Defendants purchasing properties previously owned by claimant from receivers – Claimant alleging oral agreement that first defendant sell properties back to claimant – Defendants disputing agreement – Claimant seeking declaration that defendants holding properties on constructive trust or order for specific performance – Whether claimant establishing case for specific performance – Whether properties held for claimant’s benefit on constructive trust subject to payment of purchase price – Claim dismissed
The defendants (a father and son) purchased 26 properties which were previously registered in the claimant’s name subject to mortgages with a bank. In July 2011, the bank appointed Law of Property Act receivers over the properties.
Between December 2011 and April 2012, the defendants purchased the properties. The total paid to the receivers for the properties was £2.25m. Prior to the appointment of the receivers, the claimant’s close family and friends had invested significant monies into the properties (the original investors).
The claimant found out that the receivers were about to auction the properties with reserves well below their value, which would result in the original investors losing their investments. Therefore, the claimant approached family and friends, who offered to loan funds to purchase the properties from the receivers (the alleged consortium).
The bank insisted that any properties purchased in more than one lot had to be purchased by a single nominated purchaser. The first defendant agreed to act as representative for the alleged consortium.
The claimant alleged that the parties had entered into an oral agreement whereby the first defendant would sell the properties back to the claimant within 12 to 18 months of the acquisition and at the same price that the first defendant had paid for them.
The receivers agreed to a lock-out period to 21 November 2011 subject to payment of a non-refundable deposit of £80,000. The first defendant paid that sum and a lock-out agreement was drafted by the receivers naming the claimant as the owner of the properties and the first defendant as the buyer.
The claimant sought a declaration that the defendants held the properties for his benefit on a constructive trust subject to payment of the purchase price or, alternatively, an order for specific performance of the sale agreement.
Held: The claim was dismissed.
(1) The evidence of the defendant’s expert witness supported a finding that the signatures on written agreements (the disputed agreements) signed by the parties were forgeries, as alleged by the defendants, including in particular an agreement dated 6 January 2013 (the sale agreement), which at the defendants’ request extended the time for completion of the repurchase of the properties to 12 months. However, that evidence was not by and of itself determinative of the issue. Where primary facts were in issue, they were determined by the judge, not by the expert, whose evidence was merely to be weighed in the balance in determining that particular issue.
(2) A trial judge when determining disputed facts had to be careful to avoid adopting a piecemeal and compartmentalised approach, but rather should stand back and consider the effects and implications of the facts found taken in the round.
The burden of proof rested upon the party making a disputed allegation. The standard of proof was the balance of probabilities. The party making the disputed allegation had to establish that more likely than not it was true. The correct position in relation to the standard of proof was that, while it was right to consider the inherent probability of an allegation in light of the particular circumstances of the case in determining whether it had been proved on the balance of probabilities, there was no legal requirement that the more serious the allegation, the more cogent the evidence needed to prove it. The civil standard of proof (balance of probabilities) did not vary with the gravity of the alleged misconduct: Bank St Petersburg PJSC and another v Arkhangelsky [2020] EWCA Civ 408 followed.
(3) In general, it was legitimate and conventional, and a fair starting point, that fraud and dishonesty were inherently improbable, such that cogent evidence was required for their proof. But that was because, other things being equal, people did not usually act dishonestly, and it could be no more than a starting point. Ultimately, the only question was whether it had been proved that the occurrence of the fact in issue, in this case dishonesty, was more probable than not. Dishonesty was often a matter of inference from circumstantial evidence, although the court should generally take great care when assessing whether or not inferences could properly be drawn in any particular circumstances. The court should necessarily avoid a piecemeal consideration of circumstantial evidence, albeit there dealing with a committal application to which the criminal standard of proof applied: JSC BTA Bank v Mukhtar Ablyazov and others [2012] EWCA Civ 1411 followed.
On balance, the claimant had forged the defendants’ signatures on the disputed agreements. The defendants had fabricated a story to the effect that the claimant had told them that the property portfolio belonged to a third party in an attempt to conceal the fact that they had known from the outset that the claimant owned the properties. However, lies in themselves did not necessarily mean that the entirety of the evidence of a witness should be rejected. Having found that the sale agreement was not a genuine document, the claim for specific performance failed: Clydesdale Bank plc v Workman and others [2016] EWCA Civ 73; [2016] PLSCS 43 applied.
(4) A common intention constructive trust could arise where there was an express agreement between parties as to the ownership of property which was relied upon by the claimant to his or her detriment such that it would be unconscionable for the defendant to deny the claimant’s ownership of the property: Matchmove Ltd v Dowding and another [2016] EWCA Civ 1233; [2016] PLSCS 341 applied.
In the present case, there was nothing inequitable or unconscionable in the defendants retaining the properties for their own benefit and no justification for regarding the defendants as bound by any interest to which the agreement gave rise. The claimant had failed to keep his side of the bargain by not progressing the renovations and arranging the bank finance as he promised, which left the defendants having to complete the purchases with very substantial bridging loans. Only after the defendants had spent considerable time, money and energy stabilising the position had the claimant sought to uphold an arrangement that he himself departed from many years ago, leaving the defendants to resolve a financial crisis not of their making.
Hugh Jory QC (instructed by UK Law Solicitors) appeared for the claimant; Stuart Hornett and Tom Frazer (instructed by Trowers & Hamlins LLP) appeared for the defendants.
Eileen O’Grady, barrister
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