Summary

An oral agreement to divide the interest in a property was valid despite the Law of Property Act 1925 s.53 : the agreement had been acted on, giving rise to a constructive trust, which took it outside the section by virtue of s.53(2).

Facts

The applicant creditor (C) applied for an order for the sale of a property of which the respondent debtors (H and W) were registered proprietors, and a declaration as to H and W's beneficial interests. H had lived and worked abroad, and had purchased the property for W to live in. In 1991 H and W executed a deed under which H held his interest in the property on trust for W absolutely. By 2004 H had become subject to a freezing injunction on C's application. H mistakenly understood the freezing injunction to mean that he had to be able to demonstrate that he had free assets in excess of the limit fixed under it. By an oral agreement, W agreed that H should be released from his trusteeship of the beneficial interest. W then borrowed money against her share and this was used to fund H's defence against C. The following year, H and W found that their understanding had been mistaken and sought to revoke the 2004 agreement. C later obtained two charging orders against the property. W argued that H had no interest in the property because (1) it had been bought for her alone, and she and H had agreed and intended that she would be the sole beneficial owner; (2) the 1991 deed had meant that she was the sole beneficial owner; (3) although the 2004 agreement purported to divide the beneficial interest 50/50 between H and W, since it was an oral agreement it could not be relied on because of the Law of Property Act 1925 s.53, and because it had been procured by a false statement made by H. In any event, the agreement had been revoked by the further agreement in 2005; (4) she had acquired an increased share in the property under the Matrimonial Proceedings and Property Act 1970 s.37 by reason of improvements she had made to it.

Held

(1) The presumption in a transfer into the names of joint proprietors in a domestic context was that the legal and beneficial interests coincided, Stack v Dowden (2007) UKHL 17, (2007) 2 AC 432 applied. That was not rebutted by the circumstances of the property's acquisition. Although the property had been bought for W's residence, that was not the same as buying a property for her sole beneficial ownership. (2) The 1991 deed made W the sole beneficial owner from the date of its execution, subject to its admissibility. Although the deed appeared not to have been stamped as required under the Stamp Act 1891 Sch.1, the court could accept an undertaking from W's solicitor to have the copy stamped. No authority required that the original also had to be stamped, Nally v Nally (1953) IR 19 considered. Further, it would be wholly disproportionate to exclude direct evidence of beneficial ownership of a property worth £500,000 because of the non-recovery of stamp duty not exceeding £30. (3) The effect of the 2004 agreement was that H and W held the property 50/50. The beneficial interest could be transferred despite s.53 of the 1925 Act, because s.53(2) provided that the section did not affect the creation or operation of constructive trusts. The property had been held on trust for W since 1991, but there was no reason why the parties should not change that if they so agreed, and the 2004 agreement, though merely oral, was acted on. If it was acted on, it could give rise to a constructive trust that would take an oral agreement outside the section, James v Thomas (2007) EWCA Civ 1212, (2008) 1 FLR 1598 considered. Some compelling evidence of an agreement to change the beneficial interest, rather than inference from conduct, was required, and was present in the instant case. The alleged abandonment of that position in 2005 was insufficient to give rise to a constructive trust. It was nothing other than an oral agreement, and the parties had not acted on it. It was therefore caught under s.53. Nor was it inequitable for the 2004 agreement to be relied on because it had been procured by a false statement made by H: it was accepted by W that H had been acting under a misapprehension and genuinely believed that the effect of the freezing order was as he had stated it to be. (4) The vast majority of the improvements on which W placed reliance had taken place by the time of the 2004 mortgage, from which point the parties were treating themselves as holding the property 50/50. For the beneficial interest to be altered under s.37 of the 1970 Act, substantial expenditure after that date was required, and the expenditure thereafter was not substantial.

Application granted