If you found BAILII useful today, could you please make a contribution?
Your donation will help us maintain and extend our databases of legal information. No contribution is too small. If every visitor this month donates, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | ||
English and Welsh Courts - Miscellaneous |
||
You are here: BAILII >> Databases >> English and Welsh Courts - Miscellaneous >> Solomon v McCarthy (Trust law) [2020] EW Misc 1 (CC) (21 January 2020) URL: http://www.bailii.org/ew/cases/Misc/2020/B2.html Cite as: [2020] EW Misc 1 (CC) |
[New search] [Context] [View without highlighting] [Printable PDF version] [Help]
Case No: C01BS923
IN THE COUNTY COURT AT BRISTOL
CHANCERY BUSINESS
Bristol Civil Justice Centre
2 Redcliff Street, Bristol, BS1 6GR
Date: 21 January 2020
Before :
HHJ PAUL MATTHEWS
- - - - - - - - - - - - - - - - - - - - -
Between :
- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -
Jonathan Stanniland (instructed by Watkins Solicitors) for the Claimant
Christian Gape (instructed by Direct Access) for the Defendant
Hearing dates: 15-16 January 2020
- - - - - - - - - - - - - - - - - - - - -
Judgment Approved
HHJ Paul Matthews :
Introduction
1. This is my judgment on the trial of a claim made under the Trusts of Land and Appointment of Trustees Act 1996 concerning two properties in Bristol. The claimant is the registered proprietor of both of them. The claim was commenced by claim form issued on 26 September 2016, for declarations as to the beneficial ownership of the properties and for orders for their sale. It was accompanied by particulars of claim. A response was filed to the claim by the defendant acting in person. There were then various procedural hearings, culminating in a case management hearing on 28 September 2018, at which the judge gave what was in substance summary judgment in favour of the claimant. However, an appeal against that judgment was allowed on 2 April 2019.
2. Directions to trial were given by District Judge Watson on 9 August 2019, and an amended defence (drafted by counsel) was filed on 22 August 2019. A reply was filed on 13 September 2019. The matter was argued before me on 15 and 16 January 2020, when Jonathan Stanniland of counsel appeared for the claimant, and Christian Gape of counsel appeared for the defendant. I am grateful to both of them for their sensible and economical submissions, and the way in which they co-operated to overcome the various obstacles which littered the path to the conclusion of the trial.
4. At the outset of this claim, I observe that, although these questions come before the court following the breakup of a domestic relationship of some duration, this court is a civil court, and not a family court or a criminal court. It is not concerned as such with picking over the relationship between the parties or deciding whether, as alleged by the claimant, that relationship involved violence or abuse. It is concerned only with the issues that arise between the parties in relation to the beneficial ownership of the two properties. In some circumstances, there might be specific allegations of influence or even duress which might affect these questions. For example, a person might claim that a transfer of a property interest was made by means of undue influence or under duress. But there is none of that in this case. So I have to look at the principles of property law alone. The rights and wrongs of the personal relationship between the parties, whatever they are, do not affect that.
“but would be grateful to be advised of the outcome as any interest determined to be owned by Mr McCarthy may well vest in his bankruptcy estate”.
It was not submitted that by reason of the bankruptcy the defendant lost all standing to defend these proceedings.
Fact-finding and witnesses
10. In commercial cases, the courts rely very heavily on the documents which are produced in the transactions that lead to such cases. In domestic cases of this kind, there are far fewer documents, and they are generally not produced by business people to a business standard, but by ordinary people in a domestic context. Moreover, it is clear from the evidence in this case that the parties have either filled in or acquiesced or agreed to the filling in of some official documents without much regard for whether the information they gave was complete and accurate. So, although I take the documents into account, I do not give them the same kind of weight that I would as in a commercial case.
12. There were three witnesses called at this trial. The first was the claimant. She claimed to have reading and writing difficulties, although evidence was given that this was not true. In any event, she had not brought her glasses, and so all relevant passages from documents put to her were read out aloud to her. She also claimed to have been abused by the defendant during the relationship, although that too is denied by the defendant. Nevertheless I bear both of these claims in mind in considering her evidence. Her answers were often monosyllabic, and very frequently she was unable to remember facts or events about which she was asked. She also disclaimed knowledge about financial matters and mortgages in particular (though it seemed to me that she was well informed on some points). There were many gaps in her memory. She was very reluctant to say anything helpful to the defendant, even when it was obviously true. In my judgment she was mistaken on some significant points, as indeed she accepted when she was shown at the relevant documents. Overall, I do not feel able to place reliance on her evidence in the absence of other corroborative evidence.
13. The defendant, on the other hand, was very engaged in the process from the beginning, and gave lots of explanations. He accepted very properly that the documents he signed in the past might not always be completely true. As he put it, they were not sworn. On certain occasions in his evidence he became rather passionate. Overall, I considered he gave the impression of telling the truth in his evidence, even if sometimes he might be mistaken, and I am more confident about accepting his evidence than the claimant’s where they differed.
14. The only other witness called was the defendant’s aunt Velita Robertson. Although she has an address in Bristol, where she previously lived and worked full-time, she is currently living in The Gambia, although she returns to Bristol from time to time. A video link connection that had been attempted failed, and in the event the parties agreed that I should take her evidence by telephone. I bear in mind the limitations of telephone evidence, and also that Mrs Robertson is the defendant’s aunt, and that she was involved in some of the transactions with which I am concerned. But she was also a businesswoman who held a professional qualification (she is now retired), which means she has a reputation to protect. More importantly, I have to say that I was impressed with the quality of her evidence, which she gave clearly and without hesitation. She may have been sometimes reluctant to deal with points put to her, but she did not shy away from difficult questions, and gave answers in some cases which did not favour the defendant. I accept that she was seeking to assist the court and tell the truth. I have no difficulty in accepting her evidence.
Facts found
16. The claimant was the tenant of Ridgeway, which belonged to Bristol City Council. The defendant and their children lived there with her. In 2001 she exercised the right to buy, with the aid of a mortgage. The property was taken in her sole name, as that was the only way in which the right to buy could be exercised. But there is a deed of trust dated 4 June 2001, located only very recently, which declares that she holds Ridgeway on trust for both parties. It is accepted that this is a genuine document. Despite the allegations of an abusive and controlling relationship, the claimant does not claim to set aside the deed of trust, for example for undue influence or duress. Ridgeway has been remortgaged at several times in the past. As at 31 December 2018, the outstanding balance was £130,483.
21. As I have also said, the defendant was made bankrupt in 2015 on his own petition. This appears to have arisen out of an earlier claim to tax (on a transaction dating back several years) which subsequently went out of control, and by reason of interest and penalties became a much larger sum. The defendant was advised by his accountant that, rather than challenge the claim through the courts, he should simply go bankrupt, and that is what he did. As I have said, the official receiver’s position is that he wishes to be notified of the result of the litigation in case he wishes to argue that any beneficial interest to which the defendant may be entitled should have vested in the bankruptcy estate.
Ridgeway
22. I turn to consider Ridgeway in more detail. The claimant completed her acquisition of the property under the right to buy legislation on 4 June 2001, although it was not registered at the land registry until 24 August 2001. As I have already said, a deed of declaration of trust of 4 June 2001, executed by the claimant but not (in the version available to the court) by the defendant declares that the claimant holds Ridgeway on trust for the parties “absolutely”. The parties agree that this means that, subject to any equitable accounting, the property belongs to them beneficially in equal shares.
24. Millett J first held (at 1048G) that there was
“no distinction for this purpose between a beneficial tenancy in common and a beneficial joint tenancy”.
25. He went on (at 1048H-1049C):
“The guiding principle of the Court of Equity is that the proportions in which the entirety should be divided between former co-owners must have regard to any increase in its value which has been brought about by means of expenditure by one of them.
I must make it clear of course that, in deciding as I do that the wife is entitled as against the trustee in bankruptcy to credit for one half of any repairs or improvements, there has to be an enquiry as to the amount expended and the increase, if any, in the value of the property thereby realised. Much expenditure on property is not reflected in any increase in value, and most expenditure on property results in a much smaller increase in value than the amount expended. The wife will be entitled, as against the trustee in bankruptcy, to credit only for one half of the lesser of the actual expenditure and any increase in the value realised thereby.
The same applies in my judgment to any capital element in the repayment mortgage instalments. The repayment of the capital element in each instalment increases the value of the equity of redemption which in euros to the benefit of both joint tenants. Accordingly, the wife is entitled to credit for one half of the increase in value of the equity of redemption which results from the capital element of the mortgage payments since the date on which the husband left the property in 1983, and not merely since the date of the bankruptcy order.”
27. The defendant’s case is that he carried out significant work to the property as follows:
(i) building a loft extension;
(ii) building a triple garage;
(iii) rendering the house and garage;
(iv) repairing the roof;
(v) installing a new kitchen;
(vi) flooring throughout;
(vii) decoration throughout;
(viii) bathroom improvements;
(ix) annual boiler checks;
(x) electrical rewiring.
28. There is considerable disagreement between the parties as to how far this work was carried out by the defendant by his own expenditure, and if so how much value it added to the property. According to the statement of Millett J, the equitable accounting gives credit to the improving party for one half of the expenditure on repairs or improvements and the increase in value of the property, whichever is the less. This means that any improvement which the defendant claims to have made by virtue of his own labour or without expenditure on his part cannot be taken into account. Moreover, as Millett J says, the amount actually spent is no guide to the increase in value.
29. The problem for the defendant is that he has been unable to place before me at trial any reliable evidence of how much he has spent or how much value has been added. Immediately before the trial, and therefore long after the deadline for the service of evidence to be relied upon, the defendant sought to introduce into evidence a number of new documents said to relate to these works. In a preliminary issue dealt with at the beginning of this trial, I refused permission for these documents to be relied upon. (In any event, some of those documents referred only to small amounts of money which were not in any event clearly related to Ridgeway.) In effect, the only evidence which the defendant is able now to put forward of expenditure - as his counsel accepted in closing submissions - is contained in his witness statement, confirmed in his oral evidence. This says that he has spent £45,350 on the property. The only evidence of valuation is that the defendant says that in 2013 the property was worth £170,000, but by September 2018 it was worth £260,000. The claimant’s view is that by 2018 it was worth perhaps slightly less than that, say £240,000-£250,000.
31. In my judgment, I do not need to resolve these questions. I am satisfied that the defendant did spend some money on Ridgeway, and did carry out some work himself. But I am unable to say how much he spent, or what value that work actually added to the property, and I need both of them (because he would be entitled only to the lesser sum). I say this because (as to the first) I have no proper invoices or receipts, and, with respect, I do not think I can rely on the defendant’s memory to that degree of detail for such a significant amount of money, and (as to the second) because there are no proper valuations of the property taking into account the additions in value made by the particular works done, as opposed to the general increase in value of the property over time. In addition, some of the work appears to have been done before the claimant left in 2013, so a 2013 valuation does not help me in relation to that anyway. In these circumstances, I am unable to say that the defendant should have the benefit of expenditure or increase in value by way of equitable accounting, because I cannot say how much it is.
Order for sale?
“(1) The matters to which the court is to have regard in determining an application for an order under section 14 include—
(a) the intentions of the person or persons (if any) who created the trust,
(b) the purposes for which the property subject to the trust is held,
(c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and
(d) the interests of any secured creditor of any beneficiary.
[ … ]
(3) In the case of any other application, other than one relating to the exercise of the power mentioned in section 6(2), the matters to which the court is to have regard also include the circumstances and wishes of any beneficiaries of full age and entitled to an interest in possession in property subject to the trust or (in case of dispute) of the majority (according to the value of their combined interests).”
34. I can ignore the third and fourth of the factors in sub-s (1) (welfare of any minor who occupies the land, and interests of any secured creditor of a beneficiary), as having no application on the facts of this case. The first factor however is the intentions of the persons who created the trust. The deed of trust was expressed to be made by both the claimant and the defendant, though on the version available to the court only the claimant has executed it. But it is plain that making this deed was not a unilateral decision of the claimant, and that the defendant was the driving force. So realistically I must consider the common intention of the parties, as shown by the deed itself and all the surrounding circumstances. In my judgment, objectively speaking, the intentions of the parties were to provide a home for themselves and for their young children. The second factor is the purposes for which the property subject to the trust is held. Once again, objectively speaking, the purposes for which the property is held were to provide a home for the parties and their children.
35. The present position however is now different. The children have grown up and are self-sufficient (the youngest son attained 18 in 2015). The claimant has left the property, and only the defendant is left. On the face of it, therefore, the purpose for which the property was acquired and the intentions of the parties in acquiring it have been fulfilled. But I must also consider the circumstances of the beneficiaries. The claimant wants a sale, but the defendant does not. However, their beneficial interests in the property are equal. No evidence was put before me of any special adaptation of the property to the defendant’s own needs or as to any inability of his to secure other accommodation. Looking at the matter in the round, I can see no reason why the claimant should not now have the use of the value hitherto locked up in the property. In my judgment, the property should now be sold, the mortgage discharged, and the proceeds divided equally between the parties.
36. The defendant asks that, if an order for sale be made, he be allowed to buy the property. It is clear that the court has power to permit this in an appropriate case: Bagum v Hafiz [2016] Ch 241; Chaston v Chaston [2018] EWHC 1672 (Ch). In the present case the defendant is living in the property as his home, and the claimant is not. The defendant wishes to go on living there, and therefore wishes if possible to buy out the claimant. The claimant does not wish to live there and has expressed no interest in buying out the defendant. She would like the money. In these circumstances, I can see no reason not to allow the defendant to seek to buy the property. But it must be at the open market price for vacant possession, and must be done within a short time, if at all. In default of agreement between the parties as to the open market price, this will have to be fixed by an independent expert.
Morden
37. I turn now to consider Morden. This is a flat which was acquired by the defendant on a long lease from Bristol City Council through the exercise of the right to buy (the defendant being its tenant), the grant of the lease being registered on 17 June 2002. According to a statement from Bristol City Council, given at the time of the exercise of the right to buy, the valuation of the property was £36,000, from which was deducted a discount to which the defendant was entitled of £18,720, leaving a price to be paid of £17,280. The defendant paid cash, but had the benefit of a small personal loan. Subsequently the property was mortgaged to raise money (it is not clear what for) and it was also let, the rent being used to pay the mortgage interest. It is not clear which came first.
38. In July 2008, the defendant transferred Morden to the claimant. Completion occurred on 25 July 2008, and the transfer was registered on 31 July 2008. The defendant’s evidence was simply that he was having financial problems at the time because of attacks claim from the Inland Revenue. Velita Robertson’s evidence was that he wanted to transfer the property to someone he could trust so that his creditors would not get it, and then later he could take it back. Whatever the reason, the solicitors involved appear to have treated the transaction in their completion statement as a sale at a price of £120,000 (which is also stated in the land register). However, as the defendant accepted in evidence, that price was not in fact paid. What was paid was a sum of about £78,000 from the claimant’s new mortgagee, Bank of Ireland, to the claimant’s solicitors. Presumably this figure was calculated by reference to what the mortgagee was prepared to lend on the property with reference to the claimant’s income. The difference of about £43,000 was referred to in the completion statement as “gifted by seller”. Most of the £78,000 advanced by the mortgagee was then remitted by the claimant’s solicitor to the defendant’s solicitor. The defendant’s evidence was that he did not personally receive this. I do not think it makes much difference, but on the balance of probabilities I consider that he is right, and that this money, or most of it, went to pay off the existing mortgages or other charges that the defendant himself had placed on the property during the time that he was the owner.
41. The evidence for the particular trust for the sons is the defendant’s own evidence that that was what he intended, and the evidence of his aunt, Velita Robertson, that he wished to provide for his three sons at a time when he thought he was at financial risk. The defendant also said that he had a deed of trust prepared, just as for Ridgeway, but that this went missing when he was in hospital with a serious illness in recent times. The claimant points out there is no reference in the conveyancing file of 2008 to any deed of trust. However the claimant also accepted in evidence that Morden was the defendant’s property. He had owned it previously, he had transferred it to her but controlled it afterwards, and he paid for the mortgage out of the tenants’ rents. In my judgment the claimant’s evidence in her witness statement that she “has always accepted” it was to be owned equally between them is not supported, and I do not accept it.
42. I take account of the fact that none of the three sons has appeared to be joined to these proceedings, or adduced any evidence in them, to support the claim to a trust for their benefit. But I doubt that this is probative of anything. From the sons’ point of view they are bound whether they join in or not. If they join in, however, they may incur a costs liability. Their father, the defendant, is already making their claim. Why should they then join in? As to evidence, it is difficult to see what they can say about the events which happened when they were children. They would not have been directly involved or even consulted. Any evidence they could give would therefore be second-hand. Thirdly, two of the sons are also the sons of the claimant. They would naturally not be keen to intervene in a dispute between their parents. In any event, they could expect to benefit in due course either way, either from their father or their mother. So I am not impressed by the fact that they have chosen not to become involved.
43. Overall, I am satisfied that the claimant took the property on trust rather than by way of beneficial sale or gift. The question therefore is how far it can be established who were the beneficiaries of the trust. It is clear law that, where A conveys to B on trust for A, this can be proved without the need for signed writing complying with the Law of Property Act 1925, section 53(1)(b), because otherwise the statute would be used as an instrument of fraud: see eg Re Duke of Marlborough [1894] 2 Ch 133, Rochefoucauld v Boustead [1897] 1 Ch 196, CA. So, a fortiori, the existence of a trust itself can be so established. The problem is whether, where A conveys to B on trust for C, the trust for C can be established without compliance with the statute. In my judgment it cannot. It is not necessary to enforce such a trust in order to defeat a fraud by A. It is only necessary that there be a trust rather than an absolute gift. And to allow the trust for C to be enforced would leave the statutory requirement without effective scope. It is no doubt for this reason that the defendant argues that, the true transfer to the claimant not being a sale or a gift, but being a transfer on trust which has failed for want of statutory formality, the claimant must hold Morden on a resulting trust for the transferor, the defendant.
“Where land has been conveyed by A to B on oral trusts for C or for A, the interests of C or A are, in the absence of writing signed by B, fully protected against the by the maxim that equity will not allow the statute to be used as an instrument of fraud. However, in a competition between A and C the better view is that C cannot prove his claim due to the absence of writing satisfying [Law of Property Act 1925], s 53(1)(b), so that B holds on a resulting trust for A (assuming that C has not acted to his detriment in reliance upon having the equitable interest so as to obtain an equitable proprietary interest)…”
(I make clear that, although I am one of the editors of this work, this passage comes from a different part of the work from that for which I am responsible, and in any event the passage concerned appears to have been in the work for many years before I was involved.)
46. The claimant argues that this is the wrong approach. She invites me to apply the approach taken by Baroness Hale of Richmond in Stack v Dowden [2007] 2 AC 432 in cohabitation cases. The problem is that, on the face of it, the facts of this case are far removed from those of that case. Stack v Dowden was a case about
“the effect of a conveyance into the joint names of the cohabiting couple, but without an explicit declaration of their respective beneficial interests, of a dwelling house that was to become their home” (see at [40]).
47. This however is a case about the transfer by one cohabitant into the sole name of the other, with (as I have found) the intention that it should be held for the benefit of the transferor’s three sons, of a dwelling house that was not and would never become their home, and which, indeed, was held as an investment rather than as a home (cf Laskar v Laskar [2008] EWCA Civ 347, [17], per Lord Neuberger).
48. The claimant says that it was intended that Morden would ultimately be sold to repay the mortgage on Ridgeway, and therefore the principles in Stack v Dowden should apply. I accept that it was possible that Morden would be sold for this purpose, but not that it was inevitably going to happen. In any event I do not think that, even if it were true, this would turn the case into one where Stack v Dowden applied. I see no reason why ordinary resulting trust principles should not apply to resolve this situation.
49. In the present case, of course, there is the complication of the defendant’s bankruptcy in 2015, but the impact of that (if any) can be resolved hereafter. For present purposes, I reach the conclusion that the claimant holds Morden on trust for the defendant. Since the defendant does not want the property sold, and the claimant has no beneficial interest in it to vindicate or protect, I can see no good reason for ordering a sale, and none of the statutory factors point in that direction.
Conclusions
50. My conclusions on the whole case are therefore as follows. In relation to Ridgeway, I will make a declaration that the claimant holds the property on trust for herself and the defendant in equal shares, dismiss the counterclaim to an equitable accounting, and make an order for sale, but giving the defendant the opportunity to purchase Ridgeway within a (short) specified time at open market value, which in default of agreement will be fixed by an independent expert.