Davies v O’Kelly

Constructive trust – Unlawful purpose – Appellant and respondent purchasing property as family home – Property transferred into sole name of appellant in order to facilitate fraudulent claims for benefit by appellant as single mother – Respondent making financial contribution to acquisition of property – Whether respondent entitled to beneficial interest in property under constructive trust – Whether respondent able to establish beneficial interest without relying on illegal purpose – Appeal dismissed In 1987, the parties purchased a property in Swansea in joint names as their family home. In 1991, they transferred the property into the sole name of the appellant, who, in 2006, later sold the property to the respondent for £155,000. Simultaneously with that transaction, the appellant purchased a second property for £130,000. The first property was let out to tenants and the parties moved into rented accommodation while the second property was renovated. The appellant moved out in 2011 after discovering that the respondent was having an affair. The respondent subsequently brought proceedings in the county court, claiming a beneficial interest in the second property by way of a constructive trust. The judge found that, while the respondent had worked abroad for long periods, the parties’ relationship had endured up to 2011 and the respondent had been the main breadwinner, meeting the mortgage repayments on both properties. He held that it was the common intention of the parties that the respondent should have a beneficial interest in both properties and that the reason for the transfers into the appellant’s sole name was to enable her to make fraudulent claims for benefit as a single woman, and later as a single mother, living alone. He noted that, while the respondent had paid more in money terms, he did not seek more than an equal division of the beneficial interest, and he concluded that the appellant held the second property on trust for herself and the respondent in equal shares. The appellant appealed. She contended that the judge had erred in finding a common intention to share the beneficial interest in the property and she submitted that, in order to make goods his claim to a beneficial interest, the respondent had to assert an unlawful agreement such that public policy did not permit him to enforce any equitable interest that he might have had in the property. Held: The appeal was dismissed. Equity would not come to the aid of a party who had to rely on his unlawful purpose. However, if that party’s right to an equitable interest in property could be identified without the need to rely on the unlawful purpose, then it could be enforced. In the past, the courts would have applied analysed the situation by reference to a resulting trust, arising from the presumption that, where parties jointly contributed to the acquisition of a property, no gift was intended by one to the other such that each party took a beneficial interest according to their contribution, unless that presumption was rebutted by the countervailing presumption of advancement or by direct evidence to the contrary. The modern approach recognised that, in many domestic circumstances, it was no longer appropriate to adopt the resulting trust analysis and the courts should instead ask whether a constructive trust arose by reason of the actual or imputed intentions of the parties: Stack v Dowden [2007] UKHL 17; [2007] 2 AC 432; [2007] PLSCS 82 and Jones v Kernott [2011] UKSC 53; [2012] 1 AC 776; [2011] PLSCS 264 applied. The issue was therefore whether the constructive trust approach produced a different result in relation to illegality than the resulting trust analysis, under which the resulting trust arising from joint contributions to the purchase price would have relieved the respondent of the need to rely on the unlawful purpose. While a finding of a constructive trust might be precluded in a particular case by the need to advance the unlawful agreement in proof of the common intention to share the beneficial interest in property, whether that was so would depend on the nature of the case, the evidence advanced and the judge’s conclusions of fact. In determining whether the respondent held a beneficial interest by way of a constructive trust, the judge’s objective was to ascertain the common intention of the parties as to the beneficial interest in the second property, which required an examination of their whole course of dealing with the property. Although the judge found no evidence of an express agreement that the respondent was to have a beneficial interest in that property, he had inferred a common intention to that effect from their course of dealing, including the fact that the purchase of the second property was financed by the proceeds of sale of the first property, which the respondent had supplied, and that the respondent continued to be responsible for the major part of the family’s expenditure including repayments of the mortgage secured on the second property. The joint resources of the parties from the sale of the first property had been re-invested in the second property and the facts found by the judge were consistent with a common intention to share the beneficial interest equally. The judge had examined the dealings between the parties after 2006 and, for compelling reasons, had found that the common intention subsisted as at the date when the dispute arose. Accordingly, while the reason for purchase in the appellant’s sole name was unlawful, the acquisition of a beneficial interest in the property arose not from the illegal purpose but from the parties’ common intention, inferred from their continuing course of dealing. While the unlawful purpose might have explained their conduct, it was the conduct itself that gave rise to the constructive trust on the facts of the case. Accordingly, on the facts of the instant case, the judge had correctly found that the respondent did not need to rely on his illegal purpose in order to establish his beneficial interest in either property. In that respect, the outcome was no different, on the facts of the case, from the outcome on the resulting trust analysis: Tinsley v Milligan [1994] 1 AC 340; [1993] EGCS 118 applied; Barrett v Barrett [2008] EWHC 1061 (Ch); [2008] 2 P&CR 17; [2008] 2 EGLR 81 distinguished. Graham Walters (instructed by Paton & Carpenter Solicitors, of Llanelli) appeared for the appellant; the respondent appeared in person. Sally Dobson, barrister   Click here to download the transcript of Davies v O’Kelly