Khan v Mahmood

INTRODUCTION

By an order dated 17 July 2020 and sealed on 7 August 2020 (the Order), District Judge Shorthose declared that:

“The Claimant and the Defendant are the joint legal proprietors of 1 Moor Park Drive, Bradford Moor, West Yorkshire, BD3 7ER (the Property (Footnote: ¹)), which they hold on trust for themselves as tenants in common in equal shares.”

The Order was consequential upon a substantial reserved judgment (the Judgment), handed down on 16 July 2020 after a trial of two days taking place on 5 and 6 March 2020.

The Claimant, Mr Tariq Hanif Mahmood – to whom I shall refer as the Respondent – is the nephew of the Defendant, Mr Sudagar Khan –who I shall refer to as the Appellant. On 19 November 1997, the Respondent and the Appellant jointly purchased the legal title to the Property. The legal title in the Property was held in the names of the Respondent and the Appellant as joint tenants. The question before the Judge was whether:

The Appellant appeals the Order on various grounds, which I set out more fully in Section C below. Each of those grounds contends that the Order was wrong in declaring that the Property was held by the Respondent and the Appellant in equal shares as tenants in common, and that the Order should be varied so as to declare that the beneficial interest in the Property was held on trust for the Appellant alone. Permission to appeal was given in relation to some grounds of appeal by the Judge himself; and, in relation to the remaining grounds, by me.

The Respondent, for his part, contends, in a Respondent’s notice, that the Order can be upheld on other grounds. Again, the contentions in the Respondent’s notice are set out in Section C below.

Before I do so, it is necessary to state the facts found by the Judge. Neither party sought to suggest that the findings of fact by the Judge ought to be or indeed could be revisited on appeal. As the Respondent’s counsel, Mr Russell, noted in his written appeal submissions, “[i]nsofar as [the Appellant] asks this Appellate Court to re-visit the Judge’s factual findings, there is no proper basis to do so, because the Judge’s factual findings were not plainly wrong”. I agree: indeed, I pay tribute to the clear and comprehensive nature of the Judge’s fact-finding exercise in the Judgment, which I adopt and set out in summary form in Section B below. Mr Aldis, counsel for the Appellant, made clear at the outset of his submissions that he was in no way seeking to re-visit the Judge’s findings of fact, but that the appeal could and should succeed on the basis of those findings.

THE FACTS (1) The Judgment

As I have said, this Section is essentially derived from the Judgment.

Purchase of the Property in 1997

The Respondent and the Appellant purchased the legal title to the Property in their joint names on 19 November 1997 for £45,000. (Footnote: ²) There was no mortgage (and never has been). The Respondent has never occupied the Property, which has been and continues to be the home of the Appellant and his extended family. (Footnote: ³)

The Property was valued as at September 2019 with a (then) current market value of £205,000. (Footnote: ⁴) Part of that value derives from the appreciation of property prices generally; but part is due to work done on the Property by or at the cost of the Appellant.

There was a significant dispute between the Appellant and the Respondent as to how the purchase of the Property was funded:

The Judge determined that as at the time of purchase, the Respondent did indeed contribute half the purchase price: (Footnote: ⁸)

“I have already stated my view that the only explanations for joint ownership in 1997 was the financial contribution by the [Respondent] or the sham arrangement to protect the Property from the [Appellant’s] wife in the event of a divorce. I am satisfied that there was no such agreement, which I find fanciful. The [Appellant] had owned Boynton Terrace (Footnote: ⁹) in his sole name and would have had to explain to his wife why the Property was co-owned with his nephew when the [Appellant] accepts that he had never been mentioned it [sic]to her. He did not retain any financial records such as evidence of monies being introduced by the [Respondent] (even if provided by the [Appellant]) as a paper trail to avoid his wife challenging the [Respondent’s] beneficial interest on a divorce. It is also far-fetched to imagine that between being rejected by the Bank in October 1997, (Footnote: ¹⁰) when he was presumably happy to purchase the Property in his sole name or in joint names with his wife, and completion one month later that he had now found the funds from the sources stated yet been convinced by the [Respondent] to set up the sham arrangements and buy the Property jointly. The [Appellant (Footnote: ¹¹)] has insisted that he put up all the funds without the need for help from the [Respondent], which begs the question as to why he even had the conversation with the [Respondent] leading to the sham ownership idea.”

All other things being equal, the inevitable consequence is that the beneficial interest was held on trust for the Respondent and Appellant equally as tenants in common.

Events in 2006/2007: their relevance and how they arose

Ten years after the Property was purchased, the Respondent was investigated by Gedling Borough Council and charged with benefit fraud following his failure to disclose his interest in the Property when claiming benefits in 2004. (Footnote: ¹²)

During the course of these proceedings, under caution and with legal representation, the Respondent admitted being the joint legal owner of the Property (as he had to, given the state of the Register), but asserted that his interest was only nominal and that he (together with the Appellant) held the entirety of the legal estate on trust for the

In order to divest himself of the legal interest in the Property – in relation to which the Judge made careful findings, to which I will come – the Respondent instructed John

The significance of the dealings in 2006/2007, and particularly the significance of the TR1, on the beneficial ownership of the Property was a point raised by the Judge at the conclusion of the trial: the Judge requested further written submissions on this point, and the Judgment deals not only with the initial beneficial ownership of the Property in 1997, but also with the possible transfer of that beneficial ownership in 2006/2007. (Footnote: ¹⁶) It is the Judge’s conclusions in relation to the transfer (as opposed to his conclusions on initial beneficial ownership in 1997) that are here in issue, and it will be necessary to set out the Judge’s findings in relation to the transfer in some detail. Before I do so, there are two preliminary points that must be made:

With these preliminary points in mind, I turn to the events of 2006/2007.

The events of 2006/2007

The Judge found as a fact that “[t]he first time that there was any suggestion of the [Respondent] not being a genuine 50% beneficial owner of the Property and not having made a financial contribution was the [Respondent’s] own evidence to the Council’s investigator in 2007 and subsequently his defence of the charges brought against him in Nottingham Magistrates later that year”. (Footnote: ²³)

It was shortly after his interview with the Council’s investigator that the Respondent instructed John O’Connor Solicitors to transfer his interest in the Property to the Appellant.²⁴ As to this: (Footnote: ²⁴)

Pausing there, it is necessary to identify the Judge’s findings as to the intentions of the respective parties at this point in time (that is, the time that the TR1 was excecuted). So far as the Respondent is concerned:

“Both parties accept that the executed TR1 was at least shown by the [Respondent] to the [Appellant] in 2007. (Footnote: ³⁰) I am satisfied that an original or even copy of the TR1 was not handed to the [Appellant] as he would surely have retained that and disclosed it as part of these proceedings and would almost certainly have tried to register it at some stage after he discovered that it hadn’t yet been done. I do not believe that the [Appellant] would have had any idea as to the importance of the TR1 or understood its significance and the need for registration. By being shown the TR1, it is more than likely that the [Appellant] would have believed that the Property was now legally his alone even if there had been no detailed discussions about the [Respondent’s] financial interest.”

Subsequent events

Although the TR1 was never submitted to HM Land Registry, the Respondent

Thereafter, relations between the Appellant and the Respondent soured “due to issues flowing from the breakdown of the [Respondent’s] marriage”. This was probably some

THE JUDGE’S CONCLUSIONS; THE GROUNDS OF APPEAL; AND THE RESPONDENT’S NOTICE (1) Resulting trust

As I have described, the Judge found that the beneficial interest in the Property was originally held 50%/50% as between the Appellant and the Respondent. That conclusion is not challenged, and represents the starting point for this appeal, which is concerned with the question of whether a different conclusion pertains by reason of events subsequent to the acquisition of the Property, and in particular the events in 2006/2007.

It is important to note that the Judge concluded that at the time of purchase of the Property, it was the common intention of the parties that the beneficial interest in the Property be held in this way. He then went on the say:

“128.

Although it is not yet clear what the practical effect will be of the Privy Council decision in Marr v. Collie, [2017] UKPC 17, which reasserted the principle that the starting point is the common intention of the parties even in non-domestic arrangements like this, Mr Aldis [counsel for the Appellant] concedes in any event that if I find that the parties contributed equally to the purchase price that on resulting trust principles the starting point is that they hold the beneficial interests equally.

129.

Based on my findings of fact as to the respective contributions and the jointlegal ownership, the burden of proof is on the [Appellant] to satisfy me that therewas a common intention of the parties to change their beneficial interests later.

130.

There is no suggestion that there has ever been a repayment of the [Respondent’s]contribution or that the [Appellant] has purchased the [Respondent’s] share. The[Appellant] instead relies upon the representation made by the [Respondent] in 2007that he had gifted his share to him as the criminal proceedings had convincedhim that his ownership had become too much trouble despite its apparent value.This was evidenced by the instruction of John O'Connor Solicitors and theexecution of the TRI which was shown to the [Appellant] by the [Respondent] andproduced in the Magistrates Court in late 2007.

131.

I have concluded that the [Appellant] has not discharged this burden of proof onthe balance of probabilities based on my findings of fact and that there was nonew actual or inferred common intention in 2007 or any time thereafter. The[Appellant] took no steps to check that the transfer had completed or to remedythe defective TRI and he did not rely upon the representation or sight of the TRIto act in any way differently towards the Property to his detriment after 2007.”

These findings were, of course, made in the context of the Judge’s consideration of whether the resulting trust that he had found to exist at the time of the purchase of the Property had subsequently changed so as to affect the 50%/50% beneficial holding he had found to exist at purchase. As is clear, he found no such change of intention. That finding is relevant not merely to the question of resulting trust (which is a point not on appeal before me) but to points which are on appeal.

Other contentions as to beneficial interest

Before the Judge, the Appellant contended that the beneficial ownership was not 50%/50% because:

The Appellant thus, in his grounds of appeal, contended that the Order was wrong in declaring that the Property was held beneficially for the Appellant and Respondent in equal shares, and that the Order should have declared that the Appellant and Respondent held the Property on trust for the Appellant alone because:

Permission to appeal

The Judge refused permission to appeal in relation to the Proprietary Estoppel Point. He gave permission to appeal on the questions of whether there had been a transfer of the Respondent’s beneficial interest in the Property, whether by equitable assignment or otherwise. (Footnote: ³⁹) Because I was concerned that the parties be clear to what was and what was not under appeal, by my order of 26 January 2021 I gave permission to appeal “in respect of all grounds of appeal pleaded in the Grounds of Appeal dated 31 July 2020 to the extent that permission was not given by the court below”. That included in relation to the Proprietary Estoppel Point.

I propose to consider these various grounds of appeal in the following sections of this Judgment. I consider the points in the following order:

The Respondent’s notice

The Respondent’s notice was filed out of time, and the Respondent had to apply for permission to rely upon it. For the reasons I gave at the hearing of the appeal, I gave the Respondent permission to rely on his Respondent’s notice.

The essence of the Respondent’s point in the Respondent’s notice was that the Order could and should be upheld on the ground that – even if one or more of the grounds of appeal should succeed – the Order should stand because the Appellant did not come to this court with “clean hands”.

I consider this point after I have dealt with the various grounds of appeal.

THE REGISTRATION GAP POINT

In Scribes West Ltd v. Relsa Anstalt (No 3), (Footnote: ⁴⁰) Carnwath LJ identified two (Footnote: ⁴¹) propositions that he regarded as “uncontentious”:

This is no more than an articulation of the doctrine that began with Walsh v. Lonsdale, (Footnote: ⁴²) and which applies in all cases where there is a statutorily prescribed mode for the transfer of an interest which is not (fully) complied with by the transferor. Provided there is a contract for the transfer of the interest, equity will look on that as done which ought to be done, and regard the owner of the legal interest or estate as holding it on trust for the (intended and contractually agreed) transferee. Essentially, all that equity is doing is giving effect to the intentions of the parties as incorporated in a formal agreement (i.e., an enforceable contract), instead of limiting the parties to their common law remedy of damages, which would in many cases be unsatisfactory.

The importance of a contract to transfer the property cannot be understated: equity does not – save in particular cases, to which I will come – lend itself to the perfection of imperfect gifts. A promise of a gift (i.e., one unsupported by consideration) will not, generally speaking, be enforced in equity. (Footnote: ⁴³)

This ground of appeal accordingly fails. There was no contract for the transfer of any interest in the Property and no “registration gap” where equity will protect the transferee pending formal transfer of the legal title. The “registration gap”, in the sense used by the Appellant, only exists in the time between the agreement to transfer and the final performance of that agreement (in this case by registration). There is no such “registration gap” in the present case.

THE IMPERFECT GIFT POINT

As I have noted, equity will not, generally speaking, “rescue” an ineffective gift. A gift of property – if complete and effective – will, of course, be respected. But a failed gift is, on the whole, just that – failed and ineffective.

“I take the law of this Court to be well-established, that, in order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him.”

There is, as Turner LJ stated, “no equity in this Court to perfect an imperfect gift”, save where this requirement is met.

It is fair to say that the statement of principle in Milroy v. Lord has undergone a degree of development over the years, culminating in the decision of the Court of Appeal in Pennington v. Waine. (Footnote: ⁴⁵) In that case, the Court of Appeal relaxed somewhat the strict requirement that everything must be done which, according to the nature of the property, is necessary to be done to effect the transfer. Pennington v. Waine concerned a gift of shares, which required the delivery of a share transfer. Arden LJ stated: (Footnote: ⁴⁶)

“…Even if I am correct in my view that the Court of Appeal took the view in Rose v. Inland Revenue Comrs that delivery of the share transfers was there required, it does not follow that delivery cannot in some circumstances be dispensed with. Here, there was a clear finding that Ada intended to make an immediate gift. Harold was informed of it. Moreover, I have already expressed the view that a stage was reached when it would have been unconscionable for Ada to recall the gift. It follows that it would also have been unconscionable for her personal representatives to refuse to hand over the share transfer to Harold after her death. In those circumstances, in my judgment, delivery of the share transfer before her death was unnecessary so far as perfection of the gift was concerned.”

The touchstone is one of unconscionability: (Footnote: ⁴⁷)

“If one proceeds on the basis that a principle which animates the answer to the question whether an apparently incomplete gift is to be treated as completely constituted is that a donor will not be permitted to change his or her mind if it would be unconscionable, in the eyes of equity, vis à vis donor to do so, what is the position here? There can be no comprehensive list of factors which makes it unconscionable for the donor to change his or her mind: it must depend on the court’s evaluation of all the relevant considerations.”

Accordingly, it follows that the mere fact that the Respondent failed to pay to his solicitor the £60 needed to effect registration, nor indeed the technical defect in the TR1 itself, is in and of itself sufficient to prevent equity from recognising the gift, although these are both factors pointing in the direction of equity not assisting. The question is one of unconscionability.

In this case, as it seems to me, it would be unconscionable to permit the Respondent to resile from his imperfect gift:

These factors, viewed in the round, render it, in my judgment, unconscionable for the Respondent to resile from his imperfect gift, and that was (and remained) the case from 2007, when the TR1 was executed. It seems to me that, from that point on, the Respondent (and, of course, the Appellant) held the legal estate of the Property on trust solely for the Appellant. I am conscious that, in reaching this conclusion, I am differing from the Judge, who concluded (Footnote: ⁴⁸) that these factors were insufficient to justify the intervention of equity. I differ from the careful Judgment of the Judge only with great hesitation, and certainly not on any point of fact. However, having considered the facts as found by the Judge and the law as it applies to those facts, I have reached the conclusion that the Judge was wrong on this point and that the appeal should be allowed. That is essentially for two reasons:

This ground of appeal accordingly succeeds. Although, strictly speaking, this renders it unnecessary for me to consider the remaining grounds of appeal, given that all of the grounds are closely related, and given that they were fully argued before me, it is appropriate that I consider them.

THE EQUITABLE ASSIGNMENT POINT

In the law of trusts, it is trite to refer to the so-called “three certainties”, namely:

These three certainties can helpfully be translated into the requirements for an (equitable) assignment of a chose in action. Thus, in order for there to be an equitable assignment, there must be:

Taking these three requirements in reverse order:

In these circumstances, and subject to the question of formalities, to which I will come, it seems to me apparent that the imperfect TR1 constituted or evidenced an equitable assignment on the part of the Respondent, assigning his beneficial interest in the Property (an equitable chose in action) to the Appellant.

Section 53(1)(c) of the Law of Property Act 1925 provides that “a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same…”. In this case, the only written instrument capable of satisfying this requirement is the TR1. Although plainly not intended for this purpose (the TR1 is intended to effect the transfer of a registered legal estate) it seems to me that the TR1 manifests all the necessary details for a disposition of an equitable interest and it is signed by the assignor, that is the Respondent.

Accordingly, I conclude that there was – in 2007 – an equitable assignment of the Respondent’s beneficial interest in the Property by the Respondent (as assignor) to the

For these reasons, this ground of appeal succeeds.

THE PROPRIETARY ESTOPPEL POINT AND THE CONSTRUCTUVE TRUST POINT

I can deal with these two grounds of appeal together, and briefly. At [135] of the Judgment, the Judge stated:

“I am satisfied that the [Appellant] did not rely upon that representation and sight of the TR1 to act to his detriment. He would have carried out the additional renovations anyway and had already planned to do so before 2007. The [Respondent] has already conceded reasonably in any event that credit will be given for the value of any improvements carried out by the [Appellant].”

Since – however it is framed – for a proprietary estoppel to arise there must be some kind of reliance, the Judge’s finding in the paragraph I have just quoted – which is entirely consistent with the rest of the Judgment – is fatal to any suggestion that an estoppel arose in this case. Had there been reliance, I would have been inclined to the view that the Respondent’s concession that credit be given for the value of any improvement would, in any event, have satisifed the estoppel. But, given the absence of reliance, it is clear that this ground of appeal must be dismissed.

So far as the constructive trust argument is concerned, on careful consideration of the submissions of the Appellant, this appears to be no more than a re-run of the resulting trust argument described in Section C(1) above. Again, it seems to me that whilst the relationship between resulting and constructive trusts continues to be an interesting one, it is the Judge’s findings of fact – set out in paragraph 25 above – that are fatal to this ground of appeal, and I accordingly dismiss it.

THE RESPONDENT’S NOTICE: “CLEAN HANDS”

As the Judgment makes clear, this is a case where neither party’s evidence, or case, was straightforward. In particular, the Appellant’s case as to the beneficial ownership of the Property on acquisition was rejected in limine, and in various other respects the Appellant’s evidence was regarded as unsatisfactory. However, I consider that it goes too far to say, as the Respondent contended, that the “[the Appellant’s] case was riddled with bad faith in relation to almost all of the disputed facts in issue before the court”. (Footnote: ⁵⁷)

The Judge addressed the evidence of both the Respondent and the Appellant in a balanced and measured way. Of the Respondent, the Judge noted that his evidence was “naturally tainted by his frank admissions in his written and oral evidence that he had in the past been prepared to give self-serving evidence which he knew to be false to achieve his objectives”. (Footnote: ⁵⁸)

Of the Appellant, the Judge said this:

“65.

The [Appellant] required an interpreter throughout which naturally inhibited theflow of his oral evidence. He is 67 and retired and appeared to have greatdifficulty in remembering in any detail the events of 1997 in particular.

66.

He too was passionate about his case. The Property is and has been his familyhome for up to three generations for 23 years and he has carried out somesignificant works on it including the loft conversion. The thought of having tosell his home is naturally distressing for him.

67.

Although I am mindful of my reference to the fallibility of memory, there weregreater inconsistencies and omissions in his evidence. For example, he omittedany reference to providing £20,000 in cash to the [Respondent] in his pre-actioncorrespondence and his witness statements. He also refused to concede that hehad at least considered taking out a mortgage on the purchase of the Propertydespite being shown the documentary evidence.

68.

While the [Appellant] Defendant asks the Court to take note of the [Respondent’s] admission thathe lied on a number of occasions about his ownership of the Property between2007 and 2012, I also have to recognise that, by entering into the sham ownership arrangement, the Defendant was also prepared to be deceitful towardshis wife and presumably the Court dealing with any financial remedyproceedings. As no divorce followed, this was not tested but it showed awillingness to go that far to protect his personal interests.”

It seems to me that these findings – whilst critical of both the Respondent and the Appellant – are insufficient to give rise to a finding (which the Judge did not make) that the Appellant’s behaviour was such as to deserve the characterisation that he did not come to this court with “clean hands”. (Footnote: ⁵⁹)

There is a more fundamental reason as to why the Respondent’s point is a bad one. In his submissions to me, Mr Russell, counsel for the Respondent, laid stress on the fact that it was the Appellant who was in need of equity’s assistance, and so it was his

“unclean hands” that were relevant here. In my judgment, that is not the case. I have found that the Imperfect Gift Point and the Equitable Assignment Point both succeed.

They succeed by reason of the Respondent’s conduct. It was the Respondent’s gift; and it was his assignment. These are unilateral actions by the Respondent, in which the Appellant’s conduct is of limited (I do not say no) relevance.

Even if I were of the mind to accept that the Appellant did not have “clean hands”, I would have rejected the Respondent’s contention on the ground that such “unclean hands” were irrelevant to the matters here at issue. Accordingly, I reject the point made in the Respondent’s notice.

CONCLUSIONS AND DISPOSITION

Accordingly, the appeal insofar as it is based on the Registration Gap Point, the Proprietary Estoppel Point and the Constructive Trust Point fails. However, the Imperfect Gift Point and the Equitable Assignment Point both succeed.

Furthermore, for the reasons I have given, I reject the “clean hands” contention raised by the Respondent in his Respondent’s notice.

As a result, the appeal succeeds and must be allowed.

I will leave it to the parties to seek to agree the appropriate order, failing which I will hear the parties on any consequential matters that cannot be agreed.

The Appeal is allowed and the order of District Judge Shorthose dated 17 July 2020 is set aside.

The Respondent’s Application is dismissed.

The claim (PT-2019-BHM-000014) is dismissed.

“The Respondent and the Appellant are the joint legal proprietors of 1 Moor Park Drive, Bradford Moor, West Yorkshire, BD3 7ER (“the Property”), which they hold on trust for the Defendant absolutely.”

The Respondent shall forthwith transfer his legal interest in the Property to the Appellant (“the Transfer”).

The court, pursuant to section 50 of the Trustee Act 1925, appoints the Appellant’s solicitor to transfer the Property.

The Respondent shall join and co-operate with the Appellant and do all such things, take all such steps and execute all such documents as are necessary to effect the Transfer.

If the Respondent fails to execute any document necessary to effect the Transfer within 7 days of being requested to do so in writing by the Appellant, or an authorised representative of the Appellant, a District Judge shall execute such documentation in place of the Respondent pursuant to section 39 of the Senior Courts Act 1981.

As regards the costs of these proceedings, both here and below:

Unless the parties agree, there be a detailed assessment of the costs. No order for payment on account of costs.

This order shall be served by the Appellant on the Respondent.