Category Archives: Constructive Trusts

Constructive trust used to validate verbal land contract

In Ghazaani v Rowshan [2015] Mr Rowshan owned a Leeds property. Dr Ghazaani relied on the doctrine of constructive trusts and/or proprietary estoppel and contended that Mr Rowshan held the Leeds property on constructive trust for him and should be compelled to transfer it to him.

There was an oral agreement under which Dr Ghazaani and Mr Rowshan agreed to exchange the Leeds property for a Tehran apartment together with an equality payment.

There was never any intention to enter into a formal written agreement. Dr Ghazaani and Mr Rowshan were quite content to proceed to completion on the basis of the oral agreement they had reached. At least by November 2011 all of the terms had been agreed between the parties. There were no further terms to be agreed between them.

Being an oral agreement normally Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 would make that agreement void – certainly as regards the Leeds property. It had been a matter of debate how far proprietary estoppel and constructive trusts could be used to get round the hardship and potential for injustice in this section.

In November 2011 Mr Rowshan granted Dr Ghazaani possession of the Leeds property and instructed a tenant of part of it to pay rent to Dr Ghazaani.

Between 2011 and 2012 Dr Ghazaani carried out significant alterations to the first floor of the Leeds property and had converted it into residential accommodation. Dr Ghazaani had spent £10,490 for the labour and a substantial amount was also spent on the materials. Dr Ghazaani retained possession of the first floor flat. He had 3 daughters and it had been occupied from time to time by two who were studying at Leeds University. The Transfer of the Tehran apartment to Mr Rowshan was made by a Transfer registered in November 2011. The 500 million IR equality money was paid to Mr Rowshan.

The High Court said Dr Ghazaani has made out his case for a constructive trust and/or proprietary estoppel and, in the exceptional circumstances, it would be unconscionable for Mr Rowshan to refuse to complete the Transfer of the Leeds property to Dr Ghazaani.

The parties should be put in the position they would have been if the contract had been concluded in November 2011.

So the court ordered Mr Rowshan to Transfer the Leeds property to Dr Ghazaani.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Brothers had operated all family properties and businesses as co-owners

The recent case of Bhushan & Ors v Chand [2015] concerned a family property dispute.

In the early period it was a traditional family under the close control of the head of the household, initially the husband and after his death his wife. All the sons of the family continued to pay over their wages to their mother who controlled the family’s money. The family home was transferred into her name, and it’s successor was bought in her name.

The mother received money from various sources and simply mixed it and applied it as she thought fit for the family’s benefit, either for daily expenses or in acquiring assets she expected to benefit her sons later.

The High Court said the mixing of funds under her control would make her the beneficial owner of the money each of her sons paid to her.

When an asset such as a house was bought with that money, the ownership of that asset would depend on her intention as expressed at the time, and was not to be treated as relating back to the respective contributions to the mixed fund.

It was the defendant brother’s case that he was or had been entitled either to the whole or some ascertainable share of the beneficial interest in the assets purchased from that fund merely because of his having paid an indeterminable part of the price out of his wages. The High Court said that was insufficient.

But neither had the claimant brothers established a general intention that there be common ownership of all the assets bought from the outset.

The High Court said insofar as assets were bought in his name from that fund, the prima facie position would be that they were legally and beneficially his, if no contrary intention at the time of purchase was proved.

However, if such a property was later sold and the money paid back to the mother, then ownership of that money would vest in her, again, subject to a contrary intention at that time being proven.

In that early period, there was no sufficient evidence of a contrary intention.

But later as the children grew older the evidence of what the family actually did overwhelmingly supported them having agreed to work together in business and build up assets in common.

All of the claimant brothers worked in the joint enterprise family clothes business much more consistently with being owners than with them being four unpaid employees dependant on generosity from a lead family member.

Investments were purchased from the funds of the family business for each brother without regard to their ostensible ownership of the business. The proceeds of those investments were used to buy properties which were not always owned by the same family members. Rental income from properties and cash accumulated were aggregated and applied without distinction as to their origin.

Whatever the distinctions as to ownership presented to outsiders, these did not correspond with the way the properties, businesses and their income were treated between the family members.

The nominal ownerships of the family businesses and the rental properties bore no relationship to the way in which the income and proceeds derived from them were used.

The decisions to use those funds were taken by family members other than the ostensible owners. Those members did not do so as assistants or secretaries to any lead family member.

When a major financial issue arose from the compulsory purchase of one of the properties, it was described to the professionals acting as being owned by all five and the proceeds obtained were predominantly reinvested in a club owned on the same basis.

Finally, there was evidence of arrangements between the brothers, supporting the existence of a common intention trust in that the defendant had acknowledged the existence of such an arrangement by discussing the division of assets, and, by beginning to compile his own list of the assets to be divided.

Anyone wanting to show a common intention constructive trust must have relied to his detriment on the agreement he, or she, argues existed.

That was easy here as each of the brothers himself worked in the various businesses bought or established, in circumstances where, prima facie, he would not otherwise be entitled to any reward from those businesses or interest in the assets.

In the circumstances it was unnecessary to go on to consider the doctrine of proprietary estoppel or the precedents set by the court decisions based on the previous case of Pallant v Morgan.

In any case the facts would not fit easily with Pallant v Morgan since there was no suggestion that one or more brothers had the opportunity to acquire particular properties but had instead stood back in favour of another.

An agreement for joint ownership fitted more easily with a common intention trust than a promise of an interest in the property of another.

Their respective cross entitlements under that ownership remained to be settled – being complicated by the fact that for some time the defendant had been operating the club and the other brothers had been operating the other businesses.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Estoppel based on promise of permanent home

In the Court of Appeal case of Southwell v Blackburn [2014] the Appellant and the Respondent had set up home together in Droitwich, in 2002. The Respondent, a divorcee with 2 daughters, had given up a secure tenancy of a property in Manchester, which she had spent roughly £15,000 on, based on his representations that she would have a long term home and the same security as a wife. The Appellant funded the purchase of the house with the equity from his old house and a repayment mortgage in his sole name which he alone repaid.

When the relationship broke down 10 years later the Respondent unsuccessfully claimed that the Appellant held the Droitwich house under a constructive trust for the benefit of both of them in equal shares. But the judge at first instance found she had an enforceable equity, in the Droitwich house, by operation of proprietary estoppel to the tune of £28,500.

It’s notable that the representations he made to her were specific as to the nature and extent of the “long term commitment” he gave her “to provide her with a secure home” but were not specific as to ownership of their new home.

The judge at first instance found that he had led the Respondent to believe she would have an entitlement which would, on any breakdown of the relationship, be recognised in the same way as the contribution of a wife to the assets of a marriage would be recogised on a marital breakdown. Without that she would not have given up her secure tenancy in Manchester.

His promise had not been of a half share in the house, but he had given her a promise of security, which he had failed to fulfil, and it would be unconscionable for the Appellant not to try to put her back in much the same position as she was before she gave up her own house.

The case is also significant in that much the larger part of her award was quantified not on what she spent on the Droitwich house but on what she had spent on the Manchester house, they not cohabited in, and that she had given up.

On top of her spending on her old home that she had given up, she had spent £4,000 – £5,000 as her contribution to setting up the new house with the Appellant. The Respondent had been relieved of her liability to pay rent in Manchester and had lived rent-free in Droitwich but her practical support had assisted him to increase his earnings by at least one major career promotion. The value of the new house had increased from £240,000 to £320,000. Allowing for inflation £20,000 was adjusted to the £28,500 she was awarded. That figure reflected the prejudice she had been subjected to by the Appellant not fulfilling his promise and should allow her to get back to her 2002 position.

The detriment to the Respondent had not been that she embarked upon a relationship with the Appellant but that she had abandoned her secure home in which she had invested, and she had then invested what little else she had in the Droitwich home even though she had no legal title to it.

It was that detrimental reliance which made the Appellant’s promise irrevocable and led to the conclusion that he could not conscionably go back on the assurance about her having a long term secure home.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Detrimental reliance meant informal land promise enforceable

Wherever a claimant acts in reliance on a promise to his detriment, the principal issues are generally whether: (i) the principle of promissory estoppel or proprietary estoppel applies; and (if the claim involves land), whether (ii) the claim is barred by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”), for a lack of the formalities required by the 1989 Act to support agreements for the sale of land.

The approach of the courts is to look at all the circumstances to decide how to achieve the minimum equity required to do justice, and to provide a remedy based either on the expectations of the parties, where the parties’ mutual understandings are obvious or some lesser remedy where those expectations are uncertain or extravagant or much greater than the detriment suffered by the claimant.

There are a wide range of reliefs available and it is not necessarily a case of providing compensation for either the detriment or the reliance or the expectation. The available discretion is wider than that and the remedy must be proportionate, taking into consideration the promise, and the benefit to the promisor and the detriment incurred by the claimant.

In Seward v Seward and another (2014) the claimant and his brother were the two sons of the defendants. Collectively, they owned and farmed 101 acres of land at Chudleigh, Devon.

The farm was then split between the claimant and his brother. The defendants retained some ownership.

It was later proposed to be sold for £830,000.

The claimant applied to court for a declaration that the defendants held the farm on trust for him absolutely.

The claimant had transferred to his brother his half share in another property that the brothers jointly owned, against the defendants’ promise that he would receive the whole of the farm after the first defendant’s death. The claimant was now enforcing that promise.

The defendants said they had never made the promise and that in any event the claimant had received from them gifts of land and financial support which would have satisfied any such promise.

The High Court said the claim fell within the doctrine of proprietary estoppel.

A representation had been made to the claimant and it would be unconscionable for the parents to go back on that representation. He had relied on that representation to his detriment by giving up half the jointly owned property in reliance on the promise that he would, in the future, receive a property worth a lot more. His detrimental reliance on that representation meant it could not be revoked.

Here the representations were as to future benefits and these might be affected by, and the promise conditional upon, unforeseen future events. But subject to that qualification, the remedy was to place on the land a remedial constructive trust. Equity was sufficiently flexible to allow this.

The remedy sought here was quite distinct from the enforcement of a contractual agreement, it was a promise, which was enforceable on the basis of a constructive trust founded on facts which had created a proprietary estoppel. Section 2 of the 1989 Act contained an express saving provision for constructive trusts so it was not a promise rendered void and unenforceable by that section.

The benefits actually received by the claimant had been insufficient to satisfy the equity which arose in his favour. Here the minimum equity required to do justice to the claimant was to award him the entire beneficial interest in the property.

The defendants were ordered to execute a declaration of trust of the property in favour of the claimant, but the defendants, and the survivor of them on death, were allowed to live there as long as they wished or required.

If the property needed to be sold, they would have to get the claimant’s agreement to it.

The claimant’s interest would then be transferred to any alternative accommodation which might be purchased and to the balance of any proceeds of sale.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Directors diverted Property Opportunity to their Own Company and breached Fiduciary Duties

Where directors encounter an opportunity in their role as a director or that they might and should implement for the benefit of the company they must exploit it for the benefit of the company and not seek to divert it for their own benefit. This rule applies equally where the shares of the company to which the opportunity is diverted are beneficially owned by the directors concerned.

This was the situation in Pennyfeathers Ltd –v- Pennyfeathers Property Company Limited (2013). In that case the directors were brought in to assist a company set up to use a land option held by 2 individuals. But they set up their own company Pennyfeathers Jersey Limited which proceeded to take a conditional contract in respect of the land and to enter options to acquire surrounding land.

The court lifted the corporate veil on Pennyfeathers Jersey Limited saying that its contracts where impressed with implied trusts in favour of Pennyfeathers Limited by virtue of the directors’ ownership and control of the Jersey Company and held that they and the directors were accountable to Pennyfeathers Ltd for their profit.

This position could only have been avoided if the relevant directors had made full disclosure to Pennyfeather’s Limited and got that company’s full approval by written resolution. In practice that could only have occurred had the 2 directors taken over Pennyfeathers Limited as well.

As usual this blog is posted out of general interest. It does not replace the need for proper legal advice in individual cases.