BARRETT v BARRETT

Resting upon the equitable maxim ‘he who comes to equity must come with clean hands’, the clandestine collusion between two brothers falls foul, when the agreement dissolves in favour of the abetting sibling. 

After lapsing into bankruptcy, a business owner tries to circumvent the dissolution process in an attempt to save his home from repossession.

In order to achieve this, he asks that his brother purchase the property from the bankruptcy trustees, before holding the house on trust until such time that the now appellant is able to regain legal title.

While agreeing to this proposition, the respondent approaches the trustee, before securing the property through cash downpayment and mortgage redemption, prior to allowing the appellant to regain occupancy.

A second agreement followed that enabled the appellant to make contributions to the mortgage repayments, as well as investing money into the maintenance of the home; again under the pretence that the respondent held the property on trust and nothing more.

Fifteen years after the repurchase, the respondent sold the property for significant profit, placing roughly half the proceeds in trust with his sister, who then refused to pay the money back, on grounds that the respondent had breached his agreement and duty as a trustee to his brother.

At this point, the appellant issued proceedings for its recovery, before the sister part-paid the appellant and placed the remainder in the hands of the court.

This resulted in the appellant issuing proceedings for the balance held, while the respondent counter claimed to defend his position . 

Relying upon the argument of numerous trusts (express, constructive, common intention and resulting) with which to recover the sale proceeds, it was argued that by selling the home, the respondent had unlawfully profited from his position as a trustee; and that as such, the money was now owed to the appellant and enforceable through equity.

This claim was struck out in the first instance, on grounds that equity will not allow a trust created through illegality to stand, and therefore no remedy in law could exist when the appellant had requested that the respondent purchase the home in order to avoid duties brought about under section 333(2) of the Insolvency Act 1986.

When heard in the Court of Appeal, the facts were revisited with little to no effect for the appellant, despite continued multiple arguments from his representative.

While the appellant accepted that the original agreement served two aims (retention of the home and avoidance of creditor payments), the Court would not ignore the reality that the same person seeking equitable remedy, was behind the illegal concept and undertaking of, a property purchase designed to undermine and breach the legal duty owed when winding down a business.

It was then, for that very simple and yet unmistakeable reason, that the judge upheld the previous findings and flatly dismissed the appeal, while reminding the parties that:

“[E]quitable proprietary rights are to be treated in essentially the same way as legal proprietary rights and will be enforced provided that the claimant does not plead or lead evidence of the illegality.”

JONES v KERNOTT

The inference or imputation of equitable and proprietary rights, are two very distinct approaches within the remit of court discretion, while this family law appeal case serves the merits of those distinctions well.

When an unmarried couple chose to purchase their first family home, it was executed under joint legal title.

While this itself is not an uncommon approach to home-buying, the eventual separation that followed, fractured the robustness of their intentions, and raised questions around the true feelings of the parties at the time the mortgage began.

During their time together and the period in which they started to raise children, the couple remained unmarried for reasons best known to themselves; however, after nearly nine years of shared occupancy (albeit with disproportionate financial contributions), the decision was made by the father to separate and leave the family.

When a failure to sell their property led him to purchase one of his own, his previously meagre financial contributions to the home and family were now funding his new purchase, while the mother and children remained in occupation, as she honoured the mortgage repayments without interruption.

Thirteen years after his departure, the respondent took steps to claim his share of the equitable interest held within the home previously shared; whereupon, his former partner initiated proceedings to prevent it.

Counter claiming under section 14 of the Trusts of Land and Appointment of Trustees Act 1996, it was her opinion that she was now the sole beneficiary of their family home, and that should the respondent feel he held any beneficial interest in that property, she was subsequently entitled to an equal share percentage of his.

The issues facing the courts ultimately stemmed from a lack of communicated intention (written or otherwise) by either party when purchasing the family home, along with the Stack v Dowden precedent when deciding the true intentions of cohabiting couples that have decided to terminate their relationship before dividing the assets of the property.

In cases that meet the requirements of such an approach, the outcome is fairly predictable; however, on this occasion the home discussed did not fall under sole legal title; and so, the inclination to apply it was reserved.

In the first hearing, the judge concluded that the shares held were ninety percent for the mother and ten percent for the father, based upon his agreement to sell, and the numerous events that followed (including his leaving and full investment into a solely occupied property of his own).

When challenged, the Court of Appeal found in favour of the Stack assumption that regardless of financial difference, the intention to purchase under joint title provides that equal shares are afforded the signing parties.

When heard in the Supreme Court, the question was whether automatic imputation of equitable rights could reasonably stand, when the actions shown by the father indicated his lack of interest in a home he no longer shared and had ceased contributing towards.

After a close examination of the validity of inference, it was agreed that there were indeed sufficient grounds to approximate beneficial interest, despite appreciation of the history behind unmarried couples, and the nature of intention by virtue of individual action, while the court also reminded the parties that:

“As soon as it is clear that inferring an intention is not possible, the focus of the court’s attention should be squarely on what is fair.”

VANDERVELL v IRC

Avoidance of duty through the floatation of a private business, was the driving force behind what some might describe as a text book error in accounting procedure, and one that on this occasion, left the owner (and his trusted colleagues) feeling less than savvy.

Having already positioned himself as a controlling shareholder, the director of a vibrant engineering company took steps to create a trust company, before appointing his three friends as trustees for the purpose of two previously created trusts.

When explained that making the firm open to public investment would attract increased wealth, the appellant expressed that he was now looking to set up another trust using 100,000 shares, in order to circumvent excess taxation through estate duty after his passing. 

The initial plan was that an employee trust could serve to not only benefit his workers, but help avoid the inevitable revenue claims; however, nothing went beyond the drafting stage.

After looking further afield, the appellant then chose to secure a pharmacology chair at a nearby surgical college, and set out to establish this at a cost of £150,000, as per the terms set by the institution.

When in many instances a simple cash payment would suffice, the appellant (under advisement by one of his accountant trustees), elected to have his bank transfer the shares to the college, whereupon dividends to the amount of £150,000 would be paid over a specific period.

With consideration of the plan to go public, the trustee then advised that the best course of action would be to request that the college allow for an option to repurchase the shares for a small sum, in order to prevent any concerns by potential stock market investors when assessing the pattern of ownership.

In light of this, the college were asked for their compliance, at which point they duly acquiesced, as their interests were purely fiscal.

This led to a deed of variation comprising payment of £145,000, followed by the immediate repurchase of the 100,000 shares for a sum of £5,000; after which, the property would be held upon trust by the trust company until such time as it would be decided by the trustees to place them in a suitable trust of their choice.

When carrying out the transfer, the bank were asked to leave the transferee name space blank, while following all other legal requirements for a successful gift.

It was made expressly clear by his letter, that the appellant had relinquished any interest whatsoever in the shares, and that the trustees were to act as they saw fit.

Upon receipt of the share certificates, the college signed themselves as shareholders, and were duly added to the company register, in accordance with company laws.

When the Inland Revenue learned of this transaction, it was claimed that the appellant had failed to act outside of his settlor obligations, and that under section 415 of the Income Tax Act 1952, it was declared that any income generated under a settlement paid to another person other than the settlor, and where the settlor has not released himself of his legal and equitable interest, the money will be construed as that of the settlor and taxed accordingly.

When brought before the courts, it was first found that the appellant had acted in error, and that liability to taxation was due.; however, when appealed the outcome was much the same, and so granted leave to present before the House of Lords, the judges took steps to examine the finer points of the transaction. 

While arguments as to section 53 of the Law of Property Act 1925 rested upon written dispositions (or a lack of it in this case), the root of the matter was more about the assignation of the shares, with the intention to recoup equitable and legal title upon the final dividend sum.

This was where the appellant contested that there had been no retention of interest, but rather an alternate means of investment and transferral to his trustees.

With a fiercely divided judgment, it was found on the facts that while the construction of a repurchase option was not entirely fatal to the existence of a disposition, the absence of a named transferee meant that until such time as one appeared, the shares and any revenue attached to them, remained the property of the appellant settlor.

Therefore, the implications of section 415 of the Income Tax Act 1952 remained in effect, and any undeclared revenue was now taxable, while the House reminded the parties that:

“The grant of an option to purchase is very different from a grant of a legal estate in some real or personal property without consideration to a person nominated by the beneficial owner.”

RE ROSE

van Dyck, Anthony; Lord Strafford (1593-1641), and His Secretary Sir Phillip Mainwaring (1589-1661); Birmingham Museums Trust; http://www.artuk.org/artworks/lord-strafford-15931641-and-his-secretary-sir-phillip-mainwaring-15891661-33207

Voluntary corporate dispositions, and the prerequisite of company procedures are inextricably linked, yet where discrepancies arise, it falls to equity to resolve the inadequacies argued, before choosing to act.

In this instance, the two gestures of a settlor were challenged by the Crown in the hope of securing estate duties post-mortem.

In 1943, an unlimited company owner took the practical steps of transferring two amounts of 10,000 shares to both his wife on the first count, and his wife and secretary on the second.

Acting under strict observation of the associated articles of memorandum, namely art.9 which read:

“[T]he company shall be entitled to treat the person “whose name appears upon the register in respect of any share” as the absolute owner thereof, and shall not be under any “obligation to recognize any trust or equity or equitable claim” to or interest in such share, whether or not it shall have “express or other notice thereof.””

And article 28, which also read:

“[T]he transferor shall be “deemed to remain the holder of such share until the name of” the transferee is entered in the register in respect thereof.” 

It was further indicated by article 29, that:

“Shares in the company shall be transferred in “the following form, or as near thereto as circumstances will “permit.”” 

On this occasion, the documentation used was fully compliant with the terms prescribed by the company articles, in that sealed written instructions meant that the husband had willingly relinquished himself of any proprietary and beneficial ownership in order for legal title to succeed; along with any liability for estate duty fees; hence, the company would only need to register the transfer before a specified date. 

For one reason or another, the registration was incomplete until two days after the exemption period; and so, a number of years after the settlor’s death, the Inland Revenue sought to recover the duties on both transfers, under the combined effects of the Customs and Inland Revenue Act 1881, the Customs and Inland Revenue Act 1888 and the Finance Act 1895.

When first heard, the judge awarded in favour of the transferees, whereupon it was appealed by the Inland Revenue Commissioners, who primarily relied upon Milroy v Lord to argue against the previous decision.

Having considered the facts of both matters, the Court refused to support the far-reaching contradiction of the appellants, who contested that as the transfer had not been successfully completed by registration within the determined period it was non-effectual; and so, represented nothing more than a promissory gesture; and yet, once completed the settlor was unable to reverse the transfer and so held the shares in death as he did in life.

While in Milroy the deed-poll constituted little more than a written instruction, the explicit nature of the instrument of transfer in this instance had made it quite clear that at the date of execution (roughly ten days before the exemption threshold lapsed), the husband had expressly ceased to hold any beneficial or proprietary interest in the shares; and that by virtue of the gift, all beneficial ownership rights were now conferred to the wife and secretary, despite the absence of legal title.

It was this minor, yet crucial technicality that distinguished itself from Milroy, and negated the position taken by the appellants when seeking payment.

Deciding in unison, the previous judgment was vehemently upheld, while the point made clear that when a settlor acts within his duties, and in as exhaustible a manner as possible, any uncertainty of legal title does not preclude the completion of a gift; and that where duty commands it, beneficial ownership is sufficient answer when legal title is peripheral to judicial determination, while reminding the parties that:

“[A]ny transaction of gift imports a donor and a donee, a disposition by the donor and receipt of the subject-matter of the disposition by the donee.”