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Co-ownership disputes - Stack v Dowden

Stack v Dowden

Properties acquired for investment purposes

Erlam v Rahman
[2016] EWHC 111 (Ch)

Summary

An applicant in charging order proceedings failed to establish that she had a beneficial interest in the charged properties either by way of express declaration of trust or resulting trust. The principles of Stack v Dowden did not apply because this was not a domestic case but one were the properties were acquired for investment purposes.

Facts

D1 was the mayor of Tower Hamlets who was removed from his post following a challenge to the Electoral Commissioner based on fraud and corruption. Following that court case D1 was ordered to pay the legal costs. The Cs applied for a charging order over several of D1’s properties, however only one charging order had been made final when D1 made himself bankrupt.

D2 was D1’s wife. She claimed to have a beneficial interest in the properties. However because only one of the charging orders had been made final, the case proceeded as an application by D2 to vary that final charging order and all other applications were stayed.

The burden of proof was on D2 to show that she had a beneficial interest. She relied on a declaration of trust that she owned 74% of the beneficial interest. This had been drawn up by solicitors but was unclear and was never registered despite advice to D2 to do so. To the outside world, the couple dealt with the property as if it were wholly owned by D1.

D2 failed to call her husband to give evidence and she failed to provide any documentary evidence of her contribution to the purchase price. She also failed to obtain un-redacted copies of her husband’s bank statements showing the payments in she claimed to have made. The judge found her to be an unreliable witness and rejected her claim that the property was bought with the intention that it was to be a family home. That evidence contradicted the information on the mortgage application form provided by D1 that it was to be a buy-to-let property. D2 stated that the reason the family did not eventually live in the property was because her mother in law died and they stayed in D1’s family home to look after his father. D2 failed to provide a copy of the death certificate. The redacted bank statements produced by D2 of D1’s accounts showed that the amounts going in and out could not be found to equate to 74% of the purchase price. From the bank statements D2 produced there was no evidence she had the funds to make the payment she claimed to have made.

Issues

Whether the declarations of trust were definitive as to the position; if not,
Whether the court should apply the principles in Stack v Dowden [2007] 2 WLR 831, or should a resulting trust analysis apply.
What principles in deciding whether or not the declaration of trust was a sham.

Decision

The Chief Master found against D’s wife and dismissed her application. In relation to the issues he held as follows.

As a matter of construction, the declarations of trust were only intended to reflect whatever contribution had been made, and were significantly at odds with the true position.
Since this case involved properties acquired for investment purposes and did not involve a ‘domestic consumer context’, the common intention constructive trust approach in Stack v Dowden did not apply. Instead the court would apply the stricter resulting trust analysis (per Laskar v Laskar [2008] 1 WLR 2695, per Neuberger LJ at paras 15-19)). On the evidence, she had not made any financial contribution and so could not establish any interest.
As to ‘sham’, the court directed itself in accordance with Snook v London & West Riding Investment Limited [1967] 1 QB 786; Stone v Hitch [2001] EWCA Civ 63; and Swift Advances Plc v Ahmed [2015] EWHC 3265 (Ch) and concluded that there was ample basis for concluding that the declarations were shams.

Comment

Laskar was not cited in either Jones v Kernott [2011] 3 WLR 1121, Re Ali [2012] EWHC 2303 (Admin) or Capehorn v Harris [2015] EWCA Civ 955, although it involved the joint property interests of a mother and daughter, rather than husband and wife (or co-habiting partners) and may have been seen as forming a separate line of authority. However in that case Neuberger LJ distinguished what he described as a “domestic consumer context” from a commercial context. The former will primarily be a situation in which a home is being acquired by the parties, whether they are married or not. The latter situation will apply where the property is being acquired primarily for business purposes such as a buy-to-let. Where the commercial context applies the stricter resulting trust analysis will be applicable.

The Chief Master expressed some criticism about the way in which the applicant produced her evidence saying “I consider that it is appropriate in a case such as this, where a party seeks to establish a beneficial interest in a property by virtue of contributions made some years ago, to draw an adverse inference where there is a failure to place before the court evidence which could be obtained without any real difficulty without an adequate explanation (see Prest v Petrodel Resources Ltd [2013] 2 AC 415)”.

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