Archive for the ‘unlawful’ Category

Common intention constructive trusts where the agreement is formed for an unlawful purpose: does Tinsley v Milligan apply?

December 15, 2014

In O’Kelly v Davies ([2014] EWCA Civ. 1606, CA (Eng)) the parties cohabited for many years. Title to the first family home had been in joint names at first. Title was then transferred into O’s sole name. When they moved to a second home, title to this was also in O’s name. D alone made all the mortgage payments. This was done to allow O to make fraudulent claims to state benefits. There was no express agreement that D was to have an equitable interest but both the first instance judge and the English Court of Appeal found that an agreement was to be inferred from the whole course of conduct between the parties relating to the property ([29] per Pitchford LJ).

The question was whether public policy prevented D from enforcing his claim to an equitable interest given the unlawful agreement upon which his claim rested. Did Tinsley v Milligan apply to a common intention constructive trust case where there was no presumption of resulting trust to help D? The Court of Appeal held that Tinsley v Milligan was equally applicable in this context. Since D needed only to plead the facts that gave rise to the implied agreement, and had no need to plead the unlawful purpose, he was entitled to rely on the Tinsley v Milligan approach:

‘It was not necessary for the respondent to advance his unlawful agreement in order to make good his claim to a constructive trust. As in Tinsley v Milligan the merits as between the parties are all one way. The issue is whether public policy should intervene to prevent the respondent from enforcing his interest. The conduct identified by the judge was not the making of the unlawful agreement (which was about purpose and not about shared equitable interest) but the course of dealing between the parties relating to their financial contributions to the purchases. While it is no longer appropriate to think in terms of an evidential presumption as to intention, the very conduct that, formerly, would have created that presumption supported the inference drawn by the judge and, in my judgment, for that reason the intervention of public policy is avoided.’ ([32])

This case can be contrasted with Barrett v Barrett where there was a need to plead the unlawful purpose given the equally plausible explanations advanced as to the reasons for which the payments had been made ([33]).

Pitchford LJ’s judgment is also worth reading as an example of the approach taken to implying a common intention after Jones v Kernott.

Michael Lower

No equitable interest where the claimant would need to rely on an unlawful agreement

August 17, 2012

In Barrett v Barrett ([2008] EWHC 1061) T and J were brothers. T owned the freehold of a house. T was declared bankrupt. J acquired the house from the trustee in bankruptcy and some years later he sold it. T claimed that J held the title to the house in trust for him. He alleged that he and J had agreed that J would be the ‘paper’ owner, holding the property on trust for T who would meet all of the outgoings (which would be chanelled through J). The aim was to avoid T’s trustee in bankruptcy having any claim to T’s beneficial interest.

The judge thought that this could not be a resulting trust case since T had not directly contributed to the mortgage payments or purchase price. He paid J and J made the payments ([24]). There were alternative explanations for the payments made by J to T (J alleged that they were rent payments). So there was a need to show that the payments were referable to the unlawful agreement (unlawful because it was entered into to avoid s333(2) of the Insolvency Act 1986). The common intention constructive trust claim failed because of the unlawful purpose. The same problem would be fatal to claims based on the agreement to found a claim of an express trust, proprietary estoppel or a Pallant v Morgan equity.

As David Richards J. explained:

‘Without that [unlawful] purpose the agreement or arrangement has no rational explanation. Thomas needs to allege and prove it in order to establish the agreement, but in doing so he relies on his own illegal purpose and thereby renders his interest unenforceable.’ [25]

Nor was the unlawful purpose too remote from the creation of the alleged beneficial interest. The whole purpose of the alleged agreement was to deprive the trustee in bankruptcy of the opportunity to acquire T’s beneficial interest in the property.

Michael Lower

Effect of unlawful alienation of Home Ownership Scheme flat

July 21, 2011

(Overturned by the CFA). The Housing Ordinance provides that unlawful alienations are void. Where a person other than the purchaser provides all or part of the purchase price and a resulting trust arises, the resulting trust is an unlawful alienation (unless the proper procedure for alienation is followed) and so void.

In Cheung Shu Yin v Yip So Wan ([2011] HKEC 841, CA) an elderly couple bought a Home Ownership Scheme flat  in Fanling. Their daughter-in-law provided much of the purchase price and so was entitled to a beneficial interest under a resulting trust. The steps required for alienation by an owner under the Home Ownership Scheme had not been followed. The Court of Appeal held that this resulting trust was void since the creation of the resulting trust was an alienation, the necessary approval for an alienation had not been obtained and the Housing Ordinance provided that unlawful ‘alienations’ are void.