Palmer v Sans: Chancery Division [2024] EWHC 2685 (Ch)

Introduction

In this case the Court applied traditional constructive trust principles to disputed facts in order to determine whether a specific property came within the estate of a bankrupt.  It will be of interest to practitioners advising in the area of challenged transfers in the context of insolvency.

The Trustees in the bankruptcy of Shaun Collins made an application pursuant to s.339 Insolvency Act 1986, to challenge a disposition of land.  The land in question was a flat and the disposition was a 2021 transfer of a flat in London.

It was universally accepted that the relevant transfer was at an undervalue. The agreed value of the flat at that time was £185,000.

The Court was required to determine whether Mr Collins, the legal owner of the flat, held it on trust for the Respondent since its purchase in 2013.

The Respondent did not attend trial and although his evidence was accepted, limited weight was given to that evidence due to the lack of cross examination, especially as the trust was purportedly an oral agreement. Mr Collins did attend and face cross examination.

Factual Background

The Respondent’s grandmother purchased the flat in 2003 for £47,000. In 2013, the Respondent attempted to assist his grandmother, who had developed Alzheimer’s, with the mortgage payments by obtaining an additional mortgage in his name. He was unable to do so.

Mr Collins assisted the Respondent by taking out a buy to let mortgage in his own name and being transferred the legal title to the flat. Although he paid nothing for the purchase, Mr Smith did agree to be liable for the remaining mortgage payments of £50,000.

The Respondent claimed that there was an agreement that the Respondent would own the beneficial interest and satisfy all expenses associated with the flat, including the mortgage payments. The Trustees in Bankruptcy denied the flat was held on trust for the Respondent and alleged that both the legal and beneficial interest belonged to Mr Collins, such that it formed part of his estate, subject to his bankruptcy and thus available to creditors.

In the following years, the Respondent’s family lived in the property but were charged no rent by Mr Collins. The Respondent purportedly made cash payments for the mortgage to Mr Collins until 2016 but provided no documentation. Further mortgage payments were settled by the transfer of an Audi vehicle worth £44,000 in 2016 and a transfer of £15,000 in 2021.

In 2021, a TR1 (transfer of the whole) was executed, and the legal title was transferred to the Respondent.  At this time, Mr Collins was facing bankruptcy following proceedings brought against him by his former partner. The Trustees asserted that, with the risk of bankruptcy, Mr Collins transferred the flat to the Respondent to put it out of the reach of creditors.

The question was whether the judge accepted there was an oral agreement in 2013 which would amounted to a constructive trust.

Held

Deputy Insolvency and Companies Court Judge Raquel Agnello KC placed little to no weight on the absent respondent’s evidence, but did find Mr Collins to be credible, particularly as there appeared to be little reason for him to be untruthful.

The Court held that there must have been an agreement in place in 2013 because:

1. The Respondent’s family would not allow the Respondent’s friend to acquire the flat at a significant undervalue.
2. Mr Smith did not charge rent for the Respondent’s family living there,
3. The agreement to transfer the Audi and the £15,000 payment provided evidence of detrimental reliance and supported the Respondent’s argument that there was a constructive trust over the flat.

The Court found that the flat was held on constructive trust for the Respondent. Since the beneficial interest of the flat was already with the Respondent, the legal transfer had no relevance under s.339 IA 1986, in that the legal estate had no value at that time and as such the transfer was nothing more than a formality.

The Trustees’ application was failed, without the need to consider the question of whether the transfer was at an undervalue.

Article by Lauren Godfrey