By Rowan Morton
The Claimant’s own deceit to a lender and his creation of a sham lease were not sufficient to undermine his claim for a contradictory common intention constructive trust in a family dispute between father and son in Parker v Parker-Bowyer [2024] EWHC 2239 (Ch).
- A recent Judgment of 5 September 2024 in the Chancery Division’s Property, Trusts, and Probate list saw Deputy Master Linwood find that a constructive trust had been created despite a statutory declaration by the beneficiary that he held no interest in the property.
- In the opening paragraph Deputy Master Linwood recorded that it was an unusual claim, because the Claimant was required to prove that he was telling the truth about lying in a document and creating a sham lease to secure finance on the property in dispute.
- Mike, the Claimant, was father to two sons: Tom (the first Defendant) and Eddie. He had substantial business success and the family lived a life of commensurate luxury. He treated both sons equally and had placed substantial assets in their names when they were children.
- At the time the matter came to trial over three days in July 2024 Tom was 31 and Eddie was 34. The property in dispute had been bought by Mike in 2007, he had it extensively refurbished and remodelled into a 7 bedroom luxury home on 10 acres, with stables, a 6 car garage, three residential units and an office building.
- In 2019 Mike wrote to one of his lenders declaring that he had gifted the house to his son Tom, at a sales value of £2.65m, and that Tom would be generating a rental income of £8,500 pm. Mike provided a lease agreement for the £8,500pm, along with a statutory declaration prepared by solicitors, documenting that the transfer was a gift to avoid inheritance tax, he had no beneficial interest in the property and that he had obtained independent legal advice.
- Mike’s actual case was that there was a “behind the scenes” agreement that Mike would transfer the property to Tom on the condition that Mike would have control and use of the property for his lifetime and would be responsible for upkeep and development. Tom would refinance, clear the existing charges, and that the lease would be a sham, paid for by Mike.
- It was recognised that continuing to have an interest in the property would have meant that inheritance tax would have remained payable which rather undermined Mike’s suggested motives. His obvious knowledge of tax matters meant the only other outcome would have been him defrauding HMRC.
- Counsel for Tom presented a strong argument and one that would have been attractive to any legal team: there was a statutory declaration that completely undermined the Claimant’s case, that he himself wrote, along with emails to various parties confirming the contents were true. He should not benefit from his own dishonesty.
- Deputy Master Linwood disagreed. He found that the written declaration did not reflect the actual common intention of the parties and it was not an express trust (that would be a bar to any constructive trust argument) because it was not written or signed by the trustee but by the purported beneficiary.
- He bore in mind the thirteen axions of fact findings set out by Dexter Dias KC in Powell v University Hospitals Sussex NHS Foundation Trust [2023] EWHC 736 (KB) at [25].
- Despite having seriously reservations as to Mike’s honesty and integrity, the Deputy Master also heard from numerous close family members who supported the conditional agreement transfer, and gave compelling evidence as to the numerous family discussions about it. He therefore found that a common intention constructive trust did exist that gave Mike a lifetime interest, and that Mike relied upon that condition to his detriment by thereafter being unable to dispose of his interest in the property.
- The case is a telling tale that parties are at liberty to engage in behind-the-scenes common intention agreements that are not documented, and that if a written declaration is to become an express trust it must be written or signed by the trustee. In other words, the person holding the legal title.
- There was little documentary evidence in this case, but there was one email from Eddie prior to any dispute that recognised the conditional transfer. The Deputy Master analysed all of the witnesses and gave great weight to the accounts of those he considered to be the most credible and with the least to gain. If this had been simply a trial with the two witnesses if may well have produced a different result.
- I also considered whether there could have been an argument that Mike gave up his interest in the property by reason of section 53 of the Law of Property Act 1925. The difficulty Tom would have faced in pursuing that argument was that this was not a case where the beneficial interest in a jointly held property was being relinquished (as occurred by an informal email in Hudson v Hathway [2022] EWCA Civ 1648). This differed because it was a sole title case where the legal interest had been transferred.
- Had the common intention constructive trust case failed Mike would have also succeeded on the Rochefoucauld constructive trust principle, that it would have been inequitable for Tom as a recipient of property to rely upon the absence of writing to exclude Mike’s agreed benefit during his life.
Rowan Morton has an established practice at the Chancery Bar, with a particular interest in TOLATA cases involving construction and accounting.
If you require advice, or representation, you can contact the clerks on 01483 539131 or email them at clerks@guildfordchambers.com
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