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SQ v RQ & Anor

[2008] EWHC 1874 (Fam)

Neutral Citation Number: [2008] EWHC 1874 (Fam)
Case No: FD05D01461 & FD07F00840
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

PRINCIPAL REGISTRY

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 31/07/2008

Before :

MRS JUSTICE BLACK

Between :

SQ

Petitioner

- and -

(1) RQ

(2) MQ

Respondents

And Between:

RQ

Claimant

- and -

(1) MQ

(2) FQ

Defendants

Mr. Nicholas Carden ( instructed by Messrs Sears Tooth ) for the Petitioner

Mr. Isaac Jacob ( instructed by Messrs Avetoom & Co ) for the 1 st Respondent/Claimant

Ms. Philomena Harrison ( instructed by Messrs RadcliffesLeBrasseur ) for the 2 nd Respondent/1 st Defendant

Mr. Nigel Thomas ( instructed by Messrs Thackray Williams ) for the 2 nd Defendant

Hearing dates: 29 th November 2007, 9 th , 23 rd , 24 th April 2008, 15 th May 2008, 9 th - 11 th , 18 th , 19 th June 2008, 31 st July 2008

Judgment

This judgment is being handed down in private on 31st July 2008. It consists of 49 pages and has been signed and dated by the judge. The judge hereby gives leave for it to be reported.

The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by name or location and that in particular the anonymity of the children and the adult members of their family must be strictly preserved.

Black J:

1.

W and H Q were married on 19 December 1998 and have one child, T who was born on 2 November 2001. W began divorce proceedings against H in February 2005. She claimed ancillary relief.

2.

There was an issue over the ownership of the matrimonial home,36 BR, which is worth approximately £2 million. H’s brother, M) is the registered owner of the property but W and H both asserted that it belonged beneficially either to them jointly or to H solely. This was disputed by M and by the father of M and H, F.

3.

H began proceedings in relation to 36 BR in the Chancery Division against M on 27 October 2006 in which he claimed, on various alternative grounds, that he was entitled to an order vesting the premises in his name or the joint names of himself and W. The property register at the Land Registry presently shows M as the proprietor of the property.

4.

On 2 November 2006, M was joined as a party in the ancillary relief proceedings.

5.

By sequential orders in March and April 2007 in the ancillary relief proceedings and the Chancery proceedings, the Chancery proceedings were transferred to the Family Division. The ancillary relief proceedings were also transferred to the High Court and the two sets of proceedings consolidated.

6.

On 29 November 2007, F was joined as a party in the consolidated proceedings.

7.

The ancillary relief proceedings could not be resolved until the question of the ownership of 36 BR was determined. It is with that issue that this judgment is concerned. It was clear in advance of the hearing before me that there would be insufficient time to conclude the ancillary relief proceedings in full and I directed that any remaining issues between H and W should be adjourned to a later date when, the parties agreed; they could be resolved by a District Judge.

8.

F is now 98 years old, having been born in December 1909. He spent his working life as a chartered accountant. He appears to have accumulated sufficient means to meet all his reasonable needs for the rest of his life. M and H are in their 50s. M is also a chartered accountant. His expertise is tax though he is now partially retired, extremely comfortably off and living in Monaco. R is a solicitor. His career has not been attended by the same success as M’s. He has had an intermittent problem with alcohol and has struggled at times to live within his means, requiring assistance in the past from F. I will set out later the impressions that I have gained of F, M and H from the papers and from their oral evidence but it is necessary first to set out something of the history that created the present issue.

The 1986 transactions

9.

F and his wife Mabel were married in about 1948. In 1949, M was born and in 1952, H. In 1954, F became the registered owner of 36 BR which became the family home. On 19 June 1986, Mabel Q died, aged 65. Her estate included a property in Suffolk called Sd which had been used for family holidays, some shares owned solely by her and some shares owned jointly with F. She left everything to F who became her executor.

10.

Mabel’s death was a shock to F. Being significantly older than his wife, he had expected that he would die first and his property would pass to her. It provoked him to look at the question of inheritance tax. As a result, certain transactions took place later in 1986 involving 36 BR and assets from Mabel’s estate. There is a divergence of evidence as to the precise nature of these transactions with F and M on one side of the divide and H on the other.

11.

Some features of arrangements in 1986 following Mabel Q’s death are beyond argument:

i)

On 17 August 1986, “in consideration of my natural love and affection for my sons”, F transferred 36 BR to M and H as tenants in common in equal shares. F executed this document, his signature being witnessed by H. The transfer shows stamps confirming that 50 pence was adjudged due in relation to it. M and H were registered as proprietors of 36 BR on 31 October 1986.

ii)

By a deed of gift also dated 17 August 1986, F gave his beneficial interest in Sd to H and M as tenants in common in equal shares. F, H and M all executed the deed. F’s signature is witnessed by M, H’s by Sergio Celant and M’s by no one. The deed of gift shows stamps confirming that 50 pence was adjudged due in relation to it.

iii)

By two further deeds of gift dated the same day, F gave to H and M, as tenants in common in equal shares, certain of Mabel’s shares (some solely owned by her and some owned jointly with him) and certain of his own shares (some solely owned by him and some owned jointly with Mabel). F, H and M all executed these two deeds and their signatures were witnessed by someone employed in the firm at which H was then working. The two deeds of gift were sent by H to the Inland Revenue for adjudication on 15 September 1986. Their stamps confirm that 50 pence was adjudged due in relation to each. No steps were taken, however, for many years to transfer the title to any shares to H and M.

iv)

F was to continue to live in 36 BR following the transfer of the property to M and H. A tenancy agreement (of which I have only seen an unsigned and undated copy) was drawn up under which M and H let 36 BR to F. The figure for the rent was established by a device which involved applying to the Rent Officer in the name of a third party who never actually intended to occupy the property for a registered rent. There is a notification from the Rent Officer dated 5 November 1986 of a proposal to issue a certificate that £1,500 per quarter would be a fair rent. That seems to have been the figure upon which the parties settled for the tenancy to F although a different figure appears for some reason in the tenancy agreement.

v)

It appears that in about September 1986, M and H both made wills . The copies in the bundle seem to be the drafts; they are unsigned and do not show a precise date. Each draft contains a preamble acknowledging the testator’s responsibilities to F “who has given to me a half share in the dwellinghouse known as [36 BR] which is let to him” and each brother bequeaths to F “all that my half interest in [36 BR]” provided F should survive him for 28 days, failing which the half interest goes to the other brother.

12.

There is a deed of variation in the bundle dated June 1988 in relation to certain shares left by Mabel to F which were to be given instead to M and H. I am not entirely sure how this deed of variation came into existence and how it ties in with the other transactions relating to Mabel’s estate but I do not think that anything turns on those issues. The copy in the bundle seems to be a draft. It does not specify an exact date in June and is not signed. H’s evidence is that he believes the deed was executed and he speculates that the shares were omitted from the deeds of gift of 1986 and were being brought into line by means of the deed of variation. F’s evidence is that he needed a capital gains tax calculation before he decided which of Mabel’s shares he would transfer to H and M and for that reason, the deed of variation was not executed until 1988; M gave a similar account in oral evidence.

13.

Precisely what has become of Sd is not entirely clear. Despite the 1986 deed of gift, it had remained in Mabel Q’s name. F’s oral evidence is that he sold it and the money went into his bank. M and H seem to accept that this is so. M said the sale was to a neighbour. From the documents, it is plain that the sale must have been some time after the start of 2005. Preceding the sale, various options had been discussed and, in particular, the issue of who would pay the CGT which might arise and for which H might technically be responsible. F seems ultimately to have agreed that he would pay it. H’s evidence is that the sale was against his wishes and in breach of his property rights but, whilst Sd is an important part of the background to these proceedings, it is not my remit to determine issues in relation to that property.

14.

What has happened in relation to the shares which were ostensibly given to H and M is not particularly in dispute; it too is simply unclear. In one way or another, M seems ultimately to have acquired de facto control of the majority of them although he regards himself as holding them for F, as indeed is his attitude to all assets deriving from F. F’s written evidence is that relatively recently he transferred the shares to M and released the title documents to him. In oral evidence he also mentioned having given M a power of attorney relating to the shares. M’s oral evidence was that in about 2001 or 2002, F had signed blank share transfer forms; they did not relate to specific shares and M did not have authority to use the forms until F was dead but he wanted the forms to avoid practical problems with the estate after F’s death. Dealing with the up to date position, he told me that the shares were “still a mess to some extent” but most had been transferred to him and were registered in his name or as belonging to an Isle of Man investment company of his. H is not privy to all the information available to F and M but also understands that the shares have now been transferred to M.

The terms of the 1986 transfers and gifts

15.

I turn now to the first of the central disputes in the case, that is the terms upon which the various gifts and transfers were made in 1986 and, in particular, whether they were absolute or conditional. In approaching this question, I have proceeded on the basis that although different assets were concerned and several documents used, the reality was that this was essentially one transaction. I say more about this later.

16.

W can contribute nothing to the debate because she was not part of the Q family scene at the time.

17.

F, H and M agree that the purpose of the transactions was to attempt to save inheritance tax by making use of the provisions exempting a donor from inheritance tax provided that he survived for 7 years after giving property away. In order that a transfer should be exempt, it had to be absolute. The Inheritance Tax Act 1984, as amended by the Finance Act 1986, provided that where “possession and enjoyment of the property is not bona fide assumed by the donee” at or before the beginning of the 7 year period or “the property is not enjoyed to the entire exclusion, or virtually the entire exclusion, of the donor and of any benefit to him by contract or otherwise”, the property concerned remained part of the donor’s estate and the attempt at tax saving would fail. F, H and M all knew this.

18.

H’s case is that the gifts F made in 1986 were absolute. F and M say that they were conditional.

19.

F’s account (with which M essentially agrees) is that he wanted to save H and M inheritance tax on his death whilst still ensuring he had sufficient income during his lifetime. He says he was concerned about the adequacy of his pension provision and “In essence I did not want to actually part with any of my assets during my lifetime or lose control of them.” He knew that for the tax to be avoided, the gifts had to look absolute so any conditions upon them had to be verbal. He says there were two face to face discussions on the subject of the proposed gifts. At the first meeting, he told his sons that he intended to give them the assets in equal shares but that he would retain control and ownership of them until he died. He said he would sign documents to show to the Inland Revenue, if necessary, to establish that the assets had been transferred to them but that he would require H and M to make a verbal promise to him that, as he puts it in his statement of April 2008, “they would not be getting any of my assets until I died, and that they would transfer the assets back to me at my request and without demur if I wanted them back”. He says the papers were drawn up and there was then another meeting. It took place at 36 BR. He said to H and M that he would not sign the papers transferring the assets unless they gave “a solemn and binding promise that the gifts would not vest until after my death”. He says he explained to them that he would be retaining the title documents and they would only receive them after his death. Both sons agreed to the conditions and “swore” to them. He then signed the documents but retained the title documents and, in particular, the deeds to 36 BR.

20.

H’s account of the exchange between himself, M and F in 1986 is very close to that of M and F with the one vital exception that his case is that F was simply seeking an assurance of help if he ran out of money, not requiring the imposition of conditions, and that nobody swore to anything. I am not sure he agrees that there were two meetings on the subject as opposed to one but nothing turns on that. H’s case is that he would not have agreed to such conditions as they would have amounted to an attempt to mislead the Inland Revenue. He describes that, in the course of discussions, F said he might live a long time (he was then 76) and he was concerned that he might run out of money and wanted an assurance that if he did, H and M would help him out. H and M gave him that assurance although H considered it unlikely that the eventuality would arise because he understood that F’s assets were substantial and thought that he would be able to live comfortably without the assets he was giving away. H says that F was also concerned about his occupation of 36 BR. H’s case is that he and M dealt with this understandable feeling of insecurity by the grant of the tenancy to F on proper commercial terms.

21.

I have reached a clear conclusion that the 1986 transactions were indeed subject to the conditions described by F and M and that is what I find on the balance of probabilities. I will explain my reasoning for that conclusion in due course but I want first to set out my impressions of each of the parties.

F Q

22.

F gave evidence in advance of the main hearing because it was felt prudent to conclude his personal participation in the proceedings promptly whilst he was sufficiently well. He was unable to travel from Alderney where he now lives and his evidence was given by video link which was entirely satisfactory. He was able to have breaks whenever he needed to do so but in fact made few special demands.

23.

H has asserted in these proceedings that F was acting under “extreme undue influence” from M and/or that his mental facility is significantly impaired. A statement was put in from EC who spoke of having met F at H and W’s wedding and of forming the view even then that he was “plainly…rather senile”. Mr EC’s statement records that he had formed the conclusion from things he had learned that F is “at best somewhat confused and would seem to be being manipulated by M”. When Mr EC gave oral evidence, it became clear that he was extremely partisan. He conceded that he approached the question of capacity as a property developer and not as a doctor and that by senility, he might have meant physical frailty. The thrust of his evidence was that any grandfather who could, as he saw it, attempt to evict a 6 ½ year old boy (T, who is his godson) from his home had questionable mental capacity.

24.

I was more assisted by two short reports from doctors in Alderney on F’s capacity and by hearing F and considering the documents than I was by Mr EC’s evidence. The doctor’s report relating to an examination of F in June 2006 describes his mental faculties as “amazingly good”. That relating to March 2007 describes him as “sound in mind, rational, orientated in time and place and remarkable for his age”. In the witness box, F came over as generally cogent. In some respects, I thought he did have a perfectly clear recollection and was giving a truthful account of events. There were other respects in which, for one reason or another, this was not so. There were times when he became confused by questions. To an extent, this was not at all surprising given the passage of time since some of the events that were being examined and the complexity and detail of some of the documentation. To take one very small example, he denied ever having been upstairs in the house in C Close where H and W lived before 36 BR but he must have been because the lavatory was upstairs. A more significant example was his reaction to questions from Mr Jacob on H’s behalf about the transfer of 36 BR in October 2000 in relation to which I thought he had considerable difficulty in following and recollecting which was never fully resolved. He said initially that he had not the slightest idea why, as M said was the case, he had asked M to enter into that transfer. Later, after many questions, Mr Jacob took F back to the same passage in M’s evidence and F dealt with it almost as if he had never had his attention invited to it, let alone only a few minutes before. On revisiting the issue this second time, he said he thought he did agree to the transfer of the property into M and H’s joint names from M’s sole name because it “seemed only reasonable at the time”.

25.

It is clear that there have been occasions in the last few years when, to put it fairly neutrally, F’s judgment and reasoning powers have been questionable. In late 2003/early 2004, he had a stroke, not the first he had had and not permanently disabling but more serious than the previous minor ones. This was the culmination of an ill-conceived expedition from Alderney involving the purchase of a second hand car in Manchester which he intended to use to visit Sd in Suffolk. The expedition ended abruptly at the roadside in Brighton where he was found by the police lost, cold and out of petrol. On 19 January 2004, M wrote to F, then recovering at H’s from his stroke, reviewing what had happened to him. In that letter he sets out his conclusion that F’s judgment and reasoning were not what they were and says,

“Before your trip to the UK, you were apparently in remarkable all-round condition for a man of 94. Whilst you had deteriorated both physically and mentally from the levels you were at say ten years ago – hardly surprising given your age – you still had all your faculties relatively intact. It appeared you were still able to look after yourself adequately and deal with all your own affairs. But recent events and a sober analysis will demonstrate that view to be somewhat optimistic.”

He sets out the options for F’s future living arrangements. His rather gloomy prognosis did not come to pass in that it proved possible to secure regular help for F in his own home in Alderney rather than F having to return to England but there can be little doubt that he was accurate in identifying a decline in F’s capacity. By 22 February 2005, however, he was satisfied that F was “entirely lucid” and remained “of full capacity” as he said in a letter to H, written after he had heard that H might be taking legal action against him in relation to F’s affairs. In a letter written by H to F in May 2005, H expressed disagreement with M’s assessment in the January 2004 letter that F’s faculties had faded and that he lacked good judgment and asserted that F was misguidedly letting M dictate his decisions when he could and should be dealing with things himself. On the other hand, in the same letter, he too accuses F of lacking good judgment, in his case in saying that he (H) was ungrateful with regard to 36 BR, and he says, “You have no idea how crossed your wires can get and I can only put this down to your advanced years.”

26.

There was no evidence to establish that F had acted at any time under the undue influence of M or anyone else, neither was it established that he was senile or that his mental capacity was impaired to the point where it would be impossible to rely upon his evidence. I formed the view that he was more reliable on some issues than on others. No doubt this can be said of many witnesses but I felt that in his case, in addition to all the other matters that one bears in mind when assessing a witness, it was necessary to take into account the impact of age upon his mental faculties. I also kept in mind the obvious alliance between M and F on one side against H and W on the other.

27.

There was no doubt about the strength of F’s feelings against H and, to a lesser extent, W. He has uninhibitedly expressed his sentiments about them in what he has written and in his oral evidence and there can be no mistake about the bitterness he has felt towards H over the years and his resentment of the legal action that H and W have taken against him. In a letter of 17 March 2008 to H, for example, he alleged that before the marriage, W had set out to find a provider and settled on H and F and that she was now trying to “filch my house”. He alleged that both H and W were motivated by greed. He called H a “rotter”, “a perpetual thorn in his Parents’ side, starting ….at prep school” and after setting out his considerable ill feeling, concluded with the words,

“I already cut you off a matter of years ago so unfortunately am denied the satisfaction of doing it again, for you are indeed the prodigal son personified, and deserve the soubriquet as they say “in spades”. May you burn in Hell.”

He told Mr Carden for W in cross-examination that W was a gold-digger and that he hated H, that H had “earned my hatred well and truly” and that H’s true desserts were to burn in hell.

28.

In order to undermine F and M’s version of events in 1986, it was suggested on behalf of H and W that F had plenty of money and no reason at all to be anxious about his financial future, therefore no need to impose any conditions on the gifts. It did not seem to me that it was profitable to pursue that argument because I concluded that there were almost certainly other reasons why F wished to remain the real owner of his assets. The view I formed of F, in part from the evidence in these proceedings but more so from what others said of him and from his actions and correspondence over the years, was that he was exceptionally careful about money, liked to be entirely in control of his own assets, and tended to use his resources as a means to exert control over his sons. This was particularly so with regard to H who lurched from financial crisis to financial crisis whereas M ultimately became considerably more wealthy than F. M said of F in oral evidence,

“Even today he is an astute investor, mostly successful in his investments, and he is fantastically mean/stingy. He resents spending even on himself.”

29.

It is common ground that F provided financial assistance to H in the past although F and M put the sum involved at considerably more than H does. A notable example was his payment of the deposit of £45,000 when H purchased a house at C Hill and the payment of some mortgage payments which H could not meet as a result of which his mortgagees were threatening repossession. Another example was, as F recalls it, the payment of £50,000 in total to banks for H. In a letter of 11 April 1996 to H, F put the figure at about £145,000 altogether. There are frequent references throughout the papers to H’s financial difficulties and F’s assistance. The letter of 11 April 1996 is, in my view, a good window through which to see F’s thought processes and the way in which he treated his power over his estate as a means to punish and control H. I have in mind particularly a long paragraph at the bottom of the second page of the letter in which F purports to revoke the 1986 gifts:

“In all these circumstances, and convinced that it could ultimately prove to be the only way of making you pull yourself together, if that is still possible, I am confirming that the instalment payable to UBC on 1 st June will be the last that I shall settle and that you must make your own arrangements after that. Further, I feel that the gift I made, subject to conditions it is true, soon after Mother’s death, was a mistake and that you may have banked on my death solving your problems. Believe me, it would not, as long as you maintain your present outlook. Money would melt in your hands. Be that as it may, I have decided to exercise the condition, under which I was entitled to revoke the gift at any time during my lifetime, and hereby notify you of the revocation, effective on and after 6 th April 1996 and request you to complete, should I require it, any documentation which may be necessary to give effect to my decision. I hereby also confirm that you may regard the money I have provided you with and also spent on your account by me – (I think about £145,0000 altogether) as forgiven and no longer owing to me (or M as the case may be) and you should therefore now be free of debt, apart from your mortgage and current utilities and taxes, unless you have without my knowledge incurred it since 1994. Hereafter, you will have to rely on my will for any further expectation from me, and I trust the element of doubt will bring you to your senses. ”

30.

In approaching F’s evidence, I additionally bear in mind what M told me about him, rightly I thought, which is that F changes his mind from time to time, sometimes deciding on something and then going back on it. One can see this in the papers. One can also see in the correspondence between family members how family relationships generally fluctuated. As counsel for W said in his final submissions, the Q men “appear to hate each other passionately – sometimes ”. The changeable feelings were not confined to the men, however. F’s view of W also underwent revision following her taking steps in relation to 36 BR and the break up of her marriage to H. From having praised her for her contribution to H’s more mature attitude to life and making a present to her of Mabel’s jewellery, he came to view her as motivated by greed to deprive him of his property and required that she return the jewellery.

31.

All in all, the case that F presented was consistent with what was apparent of his character. It fitted entirely that he should devise and execute a scheme which would save inheritance tax whilst leaving him in control of his own assets and, through them, his sons. It was also no surprise at all that much later on, he should become very angry in the belief that H and W were attempting to steal his property and convince himself that rather than seeking to secure a beneficial interest in it, they should be grateful for having been allowed to live in superior accommodation rent free.

M Q

32.

M is clearly a clever man with great expertise in tax affairs. He responded to the process of giving evidence with almost a competitive edge and might even have been enjoying the forensic challenge.

33.

He was more wily and cautious as a witness than his father. Liberated perhaps by a combination of his extreme age and his permanent residence outside England and Wales, F was totally candid and unrepentant about his intent to deceive the taxman. M was considerably less forthright than F in acknowledging that anything wrong had been done vis-à-vis the Inland Revenue in relation to the 1986 transactions. For example, he asserted that the tenancy and the ostensible payment of rent were merely to create an opportunity. He suggested that if F had released M and H from their 1986 promises at any point, the gifts could properly be treated as having been absolute from their inception and wanted me to accept that all he was doing was ensuring that this possibility was not scotched by F being treated as having reserved a benefit by virtue of having been allowed rent free accommodation for some years. The view he put forward was that nothing improper would have been done vis-à-vis the Inland Revenue unless and until a false return was made about F’s estate after F’s death. He said, in oral evidence, “It is possible that an Inland Revenue officer at the back of the court might raise a case of conspiracy to defraud, though I don’t think it would succeed, but that is the limit of what he could say as these were real transactions which were really carried out”.

34.

I will have to return to M’s idea that nothing wrong had yet been done in some detail later. Suffice it to say, for the moment, that I was left in no doubt that however properly he may act in dealing with the affairs of clients, when it came to the question of his own family’s dealing with the Inland Revenue, he was prepared to put aside his scruples. On 4 October 1993, he wrote to H with the annual information for his tax return ending with this comment,

“Good news. On 19 August 1993, FQ survived the 7 year period.”

If the 1986 gifts had indeed been absolute, this jubilation (albeit identifying the wrong date) would have been justified. However, if conditions had been imposed as M says, the passing of the 7 year period was only a cause for celebration if the intention was to conceal from the Inland Revenue when F died in due course that the gifts had all along been subject to reservations of benefit for F. I have no doubt that M would have been prepared to do this. It was a mainstay of the plan from the start. Ultimately, he agreed in cross examination that the good news was that they now had the opportunity to defraud the Revenue. If further confirmation is required of his attitude to the Inland Revenue in respect of questions of family taxation, one can look to a document that he drew up in around 1999/2000, entitled “Notes for FQ, RQ”. The final page culminates in “more radical advice in order further to compromise any possible IR attack”, dealing with ways in which to establish that F is no longer domiciled in England and including the following words, designed to address the fact that F would need to survive 3 years after his move to Alderney in order to achieve this objective,

“Even if father did not survive three years, this would still be a possible course; there would be no need to tell IR he had died. Even if IR did attack, IR will not know what the assets are and will probably be deterred.”

Asked about this in evidence, M said that what he suggested was not legal and he should not have contemplated it. However, he plainly did.

35.

At times, I felt confident that M was telling the truth in his evidence. At other times, I considered that his evidence to me was almost certainly less than totally F. The issue of the written confirmation that he sent to F on 27 September 2000 (referred to in paragraph 9 of his affidavit of 22 February 2007) is an example. It is inconceivable that he would have known the date of this confirmation so exactly had he not had a copy of it available to him when his affidavit was prepared but it has never been produced and, in oral evidence before me, he could not help as to where it was. I was forced to wonder whether this was because the terms of it would have been unhelpful in relation to the events of 2000.

R Q

36.

I have mentioned already H’s difficulty with alcohol. The evidence establishes that W was a good influence on him and that after their marriage, there followed some years of abstinence. However, before that, he drank and he has told me that he returned to drinking at times from about 2002. It affects him at times of stress, both in relation to his marriage and his family. In his May 2008 statement, he acknowledges his addiction as a curse that has caused pain and harassment to those around him, been a factor in the break up of his marriage to W and, recently, adversely affected his earning capacity. He says that the strain of litigation has had a very bad effect on him and makes it more difficult to return to being teetotal. Alcohol cannot be discounted as a factor that must have influenced H’s recall of events at times and his approach to life. In contrast, I do not set any store by his conviction for theft, whilst a student at Cambridge many years ago, which apparently arose from him taking books which had been left in a corridor. I did not consider that that shed any real light on his truthfulness or reliability as a witness now.

M Q

37.

I found W a convincing and, I thought, truthful witness whose evidence was considerably more straightforward than that of the other parties. She said that she saw a lot of F after her marriage to H and that they got on very well and liked each other. She found him a very pleasant person and called him Father. They were all very close and he was very proud of H at that time because he was sober. I entirely accept all of this. I also accept W’s evidence that she trusted F. I note that even after they were all at loggerheads over 36 BR, when she wrote to F on the subject in May 2005, she still addressed him as Father and ended her letter with a request that she and T could come to visit him in Alderney for a week. This might be passed off as a scheming attempt by a gold-digger to keep in favour but that would be wrong, in my view. W showed real emotion about the family situation during her evidence. She tried not to indulge this saying at first, “I am not upset” and then, when it was quite apparent that she was, saying simply, “I am, actually”. She was particularly (and I thought very genuinely) emotional when describing how, when she was pregnant, she had asked F to sort out the situation with regard to 36 BR and he said he would but later, after T had been born, told her he had lied. There is no doubt that she felt that she had trusted him and that he had betrayed her. The strain of the years of her marriage to H and her involvement with the Q family was evident.

Basis of my conclusion as to the 1986 agreement

38.

The papers contain relatively little that points towards the existence of verbal conditions attached to the 1986 gifts and H draws attention to this as a factor supporting his version of events, arguing that whatever the picture painted to the Revenue, there was no reason why internal family documents should not reflect reality, referring to the conditions if they really existed. One or two features of the early documentation are, however, noteworthy.

39.

The 1986 scheme is set out in a contemporaneous document which is almost all in M’s hand. It is headed “ New scenario re 36 BR” . The terms of the document make it clear that it must have been written at the latest some time in July 1986. It reads:

“1. FQ gifts 36 BR to MQ/RQ say July 1986 by way of land transfer as proposed.

2. RQ arranges stamping of land for 50p.

3. FQ retains stamped tfr in his hand. It appears there may be no (short) time limit for lodging the land tfr with the Land Registry.

4. RQ and MQ then as purported owners of 36 BR apply to Rent Officer to fix fair rent. Proposed tenant is (say) George Green.

5. [ sets out procedure for application to Rent Officer ]

6. [ ditto ]

7. Once fair rent is fixed it applies to the ppy and cannot be set aside. George Green decides he does not wish to rent 36 BR and MQ/RQ let to FQ at fair rent on a month to month tenancy (unfurnished ?).

…..[ the back of the document continues with the provisions intended to be included in M’s will ]”

40.

What is important about this document is the reference in paragraph 4 to H and M as “purported owners of 36 BR”. M told me he was careful with words and I thought that was probably correct so his choice of words in this document was likely to be precise and deliberate. This particular phrase, in my view, only makes sense as a reflection of the hidden reality that the gifts were not absolute. Plainly, the proposed application by George Green to the Rent Officer which the document contemplates is a fiction and I have considered whether it is for that reason that the brothers are described as “purported owners” rather than simply “owners”. That does not add up as an explanation. George Green could properly be described as a “purported tenant” or “purported proposed tenant” but, if F’s gifts were absolute, M and H would not be purporting to be owners, they would be the real owners. On the other hand, if F had reserved the rights that he and M say he had over 36 BR, M and H would indeed only be “purported owners”. No other cogent explanation for the phraseology used was proffered on behalf of H or W and I can think of none myself.

41.

I referred earlier in paragraph 34 to a document drawn up by M in about 1999/2000 entitled “Notes for FQ, RQ”. This document was drawn up at a time when H was happily married to W and relatively alcohol free and before the parties fell out in any fundamental way. M deals in it with the question of the shares given to himself and H in 1986. He records his wish to have these registered to “ensure the cementing of the IHT saving with no further risk” and that F would like the investments managed more actively and to be directly involved as much as possible. He expresses the view that both objectives could be achieved by this means:

“The portfolio would be formally split down the middle. Half each holding registered i-n-o RQ and half MQ. FQ would have to be confident RQ would not try to realise his shares. Surely he can be. ” [my italics]

There is reference a little later to F deciding what he would like to sell and H giving the chosen shares to M (who as a non-resident would not be paying UK CGT) who would realise them and put the proceeds in a fund “to be reinvested as for the house” i.e. (as stipulated earlier in the document) “retained whole by MQ and reinvested while FQ remains alive”. All of this is entirely in line with what M and F say was agreed in 1986. It is difficult to fit with H’s version of the 1986 agreement.

42.

The way in which the various assets were dealt with after 1986 is similarly supportive of F and M’s case as, in essence, F continued to treat them as his own. The “transferred” shares remained in F’s name and he received the dividends and any capital gains. He decided what shares to sell and whether to take up a rights issue. He did not include the dividends/capital gains on his tax returns. H and M accounted for them to the Inland Revenue but H, who was impecunious, was reimbursed any cost by F. Otherwise F retained all the profits. Except in so far as the taxman was concerned, he therefore remained to all intents and purposes the apparent owner of the shares and it was only relatively recently that any steps were taken to transfer title from him. He also dealt with Sd as if it was his property, keeping the proceeds when it was sold.

43.

In contrast to the shares and Sd, at first glance the tenancy with regard to 36 BR suggests there was a genuine transfer to H and M. However, I am entirely satisfied that the tenancy was nothing more than window dressing for the Inland Revenue. That is how F described it in evidence. M, rather more cagily, said it was to create an opportunity for tax saving if the conditional gifts became absolute later on; it would prevent the Inland Revenue arguing that F had continued to derive a benefit from the property by virtue of occupation at anything less than a full rent. H’s recollection of 1986 is not entirely clear or accurate, in my view, and I do not feel able to place reliance on his evidence about the tenancy. He suggested in oral evidence that the primary reason for it was to make F feel secure but this wish for formal security with regard to 36 BR seemed odd when, on H’s case, F was prepared to transfer the rest of his assets with only an informal assurance about his sons helping him out if he ran short of money in future. According to his May 2008 statement, H also vaguely recollected that there was a tax purpose to having a tenancy with a commercial rent fixed by the Rent Officer. It seems to me much more likely than not that the tenancy was nothing to do with F’s insecurity but was part of the inheritance tax saving structure set out in M’s “ New scenario ” document.

44.

Creating the tenancy was consistent either with a genuine absolute gift of the property to M and H or with a gift with conditions attached. However, when it came to the rent, the parties continued to behave between themselves as if 36 BR was F’s, thus lending further support for the conditions for which F and M contend. It will be recalled that the rent under the tenancy was £6,000 per annum. This sum does really seem to have been paid by F. M says it was and this is confirmed by his reference in his annual tax accounting notes to H to the difficulty in getting F to pay it up to date. M’s evidence, which I accept on this point, was that the rent was paid into the joint building society account in his own and H’s names and then, when the account was closed, he “accounted” to F for it. In relation to M’s share of the rent at least, the accounting has not involved any actual payment; M views the sum as F’s and considers that he is holding it on the 1986 conditions. No doubt H’s share of the accumulated rent has been handled similarly. Certainly H has never received any rent money. He explains this on the basis that M made it plain from the outset that he could not expect anything because any monies to which he was entitled would be offset against the undoubtedly substantial sums he had received from F by way of financial assistance over the years. In contrast to internal arrangements, vis-à-vis the Inland Revenue the family treated the rent as the income of H and M. It would be included on M’s annual note to H for H’s tax return along with the share dividends/capital gains and interest on the joint account and each year, H accounted for the rent and the other monies to the Inland Revenue and F provided him with a cheque to reimburse him for any tax to which it gave rise. In short, therefore, the Inland Revenue were given to understand that the rent (and the interest that accrued on it in the joint account) belonged to F’s sons (or at least to H) rather than F, but neither M nor H had the use of any of the money.

45.

H and M’s wills, both in the same terms in this respect, both made provision for 36 BR to revert to F if they predeceased him rather than treating the property as their own to dispose of. Whilst this might be explained away as filial devotion, looking at the terms of the wills as a whole and at their timing, it may be thought more likely that the provision was part and parcel of the 1986 rearrangement (as per M’s “ New scenario ” document) and designed to ensure that death would not defeat F’s conditions. It is not as if either M or H had no one else to whom to give the property; each had a spouse/partner to whom they gave other property in the will.

46.

To these indicators that I found in the documents and in the parties’ conduct as to where the truth lay, I would add that M gave a very clear account of himself and his brother swearing to the 1986 conditions and, like F’s account of this, I found it entirely credible.

Events in the mid 1990s

47.

H had a financial crisis in the mid 1990s. This is what he says of that period in his May 2008 statement:

“In or about 1993 I suffered considerable financial difficulties probably exacerbated by my drinking. I can well imagine that my family were exasperated by my behaviour. I was getting seriously into debt.”

48.

In the witness box, H tried to put the blame for his financial difficulties on F, asserting that F had failed settle his debts as had been arranged with F and M. He told me in oral evidence that he received a writ from Barclays towards the end of 1994 and they were about to get judgment against him.

49.

H had executed an enduring power of attorney dated 18 March 1994 appointing F and M to act on his behalf but more action was required. A transfer and deed of gift dated 23 April 1995 was drawn up whereby the legal title to 36 BR was transferred from the joint names of M and H to M’s sole name (as duly registered later in the year) and H purported to transfer his entire beneficial interest in the property to M. There was also an attempt by a trust deed, also dated 23 April 1995, to create a protective trust in relation to any interest H might have in the property. In his affidavit in the ancillary relief proceedings in March 2007, H says that the “legal title was transferred to my brother solely as he was living abroad and there seemed some future possible potential advantage from overseas resident ownership”. If and in so far as that implied that the looked for advantage was fiscal, it was misleading. The whole transaction was obviously designed to ward off creditors.

50.

The operative part of the trust deed reads:

“The Trustee [M] hereby declares that the beneficial interest in the Property shall henceforth be held as to one half share for himself absolutely and as to the other half as protective trustee for his brother RQ to the intent that he shall henceforth preserve protect and maintain the said half share of his said brother but without personal liability as trustee therefore.”

51.

The question was raised during the hearing as to whether this could be effective as a protective trust, given that it is designed to operate in relation to capital rather than income. However, as it was not necessary to determine this issue (or, similarly, what the property implications would be if the trust was indeed ineffective), I heard virtually no argument about it and do not intend to say any more on the subject. Before very long, events overtook these arrangements of the mid 1990s and nothing turns on them.

Revocation of gifts

52.

On 11 April 1996, F wrote to H purporting to revoke the 1986 gifts. I have already set out above the relevant passage from that letter. F was obviously furious and frustrated. H said in oral evidence that he did not know what F was talking about when he got the letter. He said the letter was unexpected and he thought it was the result of H being “a bit peeved”, just invective. He said he did not take the letter seriously and though they were meeting regularly, F never referred to it. They never discussed it. Certainly H did not reply to it which was, by all accounts, completely in character.

53.

The revocation, if that is what it seriously was, does not seem to have been conveyed to M. One consequence of that is that it is questionable whether, if it was operative at all, it operated in relation to his share of the 1986 gifts or just H’s. That was another topic on which there was no argument. Another consequence is that M continued to send H yearly notes of rent, dividends etc. for his tax return as if the situation remained unchanged. When he drew up his “Notes for FQ, RQ” in 1999/2000, he made no mention of the revocation of the gifts and set out the position (for example in relation to CGT on disposal of assets) as if H remained the apparent owner of the property concerned. F’s evidence was that he also went on paying rent.

54.

Even F may not have treated the 1996 revocation as final. He sought further satisfaction from manipulating the destiny of 36 BR on 11 March 2003, when he wrote to H,

“As I told you at Christmas, I have left the house to Theo and any other siblings, giving you and M the right to live in it as long as you maintain the house and pay the outgoings for Theo.”

F told me in oral evidence that he had never actually made a will leaving the property to T, he had just told M what he wanted. M’s later interpretation of the 11 March 2003 letter was that it was a revocation of the 1986 gift. In a letter to H dated 21 February 2005 he set out his understanding that in the 11 March 2003 letter, “Father informed you, as he has informed me, resting on the terms of the original gift: (i) the gift to us both of BR is withdrawn….”. He also passed on to H a message from F that “should you take any such action of any kind [legal action against M in relation to F’s affairs], he will reverse the arrangements over BR and withdraw your benefit from the remaining 1986 gifts, which latter action he tells me he has been considering in any event, since he now feels locked in because of the CGT penalties on realisation”. None of this sits comfortably with F having already revoked the entirety of the gifts to H in 1996. On the other hand, in the rather puzzling letter of 17 December 2004, F himself wrote to H and W of having repudiated his gift.

1999/2000

55.

The second major area of dispute in the case is what happened in 2000/2001 in relation to 36 BR.

56.

H and W’s case is that following discussions between them and F and M, there was an agreement in 2000 that they would undertake the renovation of 36 BR utilising the proceeds of their then home and another property owned by H and 36 BR would become their home and would belong beneficially to H. In reliance on this, they duly invested their money, put their time and effort into the work, and moved in.

57.

M and F argue, however, that the property is F’s. They deny there was any agreement in 2000 except in so far as F agreed that H and W could occupy the property as long as they paid for the upkeep. In so far as H and W spent any time and/or money on the property, it was not in reliance on any agreement or representations or warranties from either of them. M is intent on following F’s wishes in view of the 1986 conditions which he and F assert continued to govern family property transactions in 2000/1.They also argue that on 25 May 2005, in accordance with F’s wishes, M revoked the deed of gift of 31 October 2000. As to what rights, if any, they say H and W now have in relation to 36 BR, the pleadings deny that H has any beneficial interest in the property; the focus is upon there being at most some sort of right of occupation. Their case is not entirely consistent, however. The proposed right of occupation varied. On one view, it was a right for the family to occupy the property rent free for as long as they wished. Alternatively, it was a right to occupy the property rent free for as long as they wished provided that F did not decide otherwise. There are also indications that at times the possibility that H might be entitled to some other sort of compensation for the money he invested in 36 BR has presented itself to M and F.

58.

It is important to recall, when considering events in 2000, that this was a time when relationships between F and H were probably relatively calm and cordial. W was firmly on the scene and accepted to be a good influence. H was probably not drinking to excess.

59.

A number of other features should also be noted. Firstly, 36 BR was in a terrible state, as the evidence clearly establishes. F had done his best but he agreed in oral evidence that he had not dusted for 14 years and that a lot of work needed doing on top of the underpinning work which was required. M wrote in his 1999/2000 note that the décor had deteriorated sharply since Mabel died and in a letter to F following a visit to Alderney, where he had found F living in squalor, he remarked that it was much worse than 36 BR, conveying that 36 BR itself had been bad. In the pleadings, M admits that the property required a good deal of maintenance work although not that it was barely habitable. There were plainly possessions all over. W described how one room was full of magazines piled up. There were old tyres in the loft. One of the rooms upstairs smelled of dog urine from a dog that was not house trained. There were fleas which bit M and H on one of their visits and had to be removed by the council. The plumbing and wiring were pre-war. The garden was a jungle.

60.

Secondly, H and W were living in comfort in their property in C Close which was of a reasonable size, with two reception rooms and a conservatory. They had no children at the time although no doubt they were contemplating the possibility of starting a family as they did, with T, very soon after.

61.

Thirdly, M was living in Monaco and only visited this country from time to time. Undoubtedly it would have been a thorn in his flesh if he had had to take responsibility for works of any significance on 36 BR, even just the subsidence work, which would have had to be done, as a bare minimum, in preparation for a sale or letting of the property. Such a labour intensive asset in England would have had very little attraction for M and there would obviously have been a great deal to be said for relieving himself of all responsibility for it in return for a parcel of well chosen shares from F’s estate (which is what he ultimately earmarked for himself instead).

62.

Fourthly, F was thinking of moving out of 36 BR. He was exploring the possibility of going to live in Alderney. It seems he first visited Alderney, with M, in the autumn of 1999 and the evidence suggests he actually went there to live in about June 2000. Geography and the limitations of age would have made it quite impossible for him to be involved in managing repair and/or renovation works at 36 BR from there. However I have absolutely no doubt that he had strong emotional ties to the property which had been his home for nearly 50 years and would have been upset to lose the links with the past if it was sold.

63.

Fifthly, the evidence is clear that whilst there were some meetings/discussions directly between F and H and between F and both his sons, H and F each used M at times as an intermediary between them with regard to 36 BR, certainly once F had gone to Alderney, and that F relied on M to look after his interests in relation to the property. Increasingly following F’s move to Alderney, F and M formed an alliance against H and W. M accepted in evidence in answer to a question from me that in so far as F had any remaining rights in 36 BR, he acted as F’s agent throughout the transactions of autumn 2000. Subject to the issue over the share swap, with which I deal below, I am satisfied that F also saw it this way. M was clearly fulfilling a dual role, in so far as he had any legal/beneficial interest in the property himself at this point, acting both on his own behalf and on his father’s.

64.

It seems probable that F and his sons had various discussions around the question of what should happen to 36 BR before a decision was taken. M’s “Notes for FQ, RQ” in 1999/2000 say that the underpinning “should probably now proceed quickly but will not be completed before May”. At that point, F seems to have thought that a sale was the best course, following the completion of the underpinning.

65.

According to H and W, it was at a café in Richmond in January 2000 that the agreement upon which they rely had its genesis.

66.

M was not present on the day of the café outing so cannot give material evidence on the point.

67.

W, with whose evidence H agrees, says F told them then for definite that he was going to move to Alderney and said he thought 36 BR would have to be sold unless they became outright owners of the property. She says H said it would cost about £200,000 to put the property, which was dilapidated and needed substantial work, into habitable condition and they did not have that available and would have to raise the money, firstly by borrowing against C Close which was their home, and in the longer term by selling that and another property, D House, which H owned. She says F agreed that if they did the work, 36 BR would be theirs, subject to M’s agreement.

68.

F recollects a trip to Richmond with H and W at around Christmas 1999. His recollection, which W confirms, is that W was going for a hair appointment. He says that W left himself and H in the café and was away for a significant amount of time. After she had left, H told F that he might be interested in 36 BR; this is consistent with what F later said to H and W in a letter dated 13 December 2000 in which he says he is glad that they are excited at the prospect of living in 36 BR and says, “You did hint at the possibility that you might be interested when we were in Richmond….”. F says in his statement that he was surprised and asked H why he had not mentioned this only a few days earlier when they had had a meeting with M. F does not remember there being any response to that question. He denies that there was any discussion whilst they were at the café about what he intended to do with the property or that H went as far as to say that he wanted to live in the property. He asserts that he has never discussed 36 BR or any important financial issue in W’s presence. F says that he did not hear anything about H wanting to live in the property until M told him, whilst the underpinning was going on, that H had asked him to ask if he could live there. He did not want that because he would have preferred to sell it but decided that he was being a bit of a dog in the manger so said, via M, that he would permit this on condition that H paid the outgoings and looked after the property. He and H never had a direct discussion on the subject. He would never have agreed to H having 36 BR. He says, in his statement, “I find the idea nauseating. It was wrong in principle.” M confirms in his May 2008 statement that F stressed that H and W “should have no interest that might possibly be converted to R’s benefit”.

69.

In oral evidence, more detail of the café conversation emerged. W said they had wanted to include F in the trip because he was lonely sitting in the house. The idea was to have a day out when she had had her hair cut. She has long straight hair and her trim took 20 minutes or a maximum of 30 minutes at the hairdressers almost next door to the café. She recollects what she described as casual talk about concerns F had in relation to what would happen to 36 BR following his decision to move to Alderney, of which she learned for the first time there. It was a bit of a surprise to her that there was a conversation with F about the future of the property because H had led her to believe that it belonged to him and his brother but F was living there, it had originally been his house and he was the oldest person in the family who usually gets respected. She also commented, I thought perceptively, that this was a family house, F had memories of it with his wife and loved it and probably wanted to carry it on for generations. Her perception was that F never wanted to sell it, he wanted it to be there. She told counsel for RQ quite simply that she took from the conversation that the house would be theirs if they did the work. She said, “I felt comfortable and I trusted and believed in him.” Otherwise, she said, she would not have moved from her home.

70.

Several features of F’s account of the café episode as described in his oral evidence led me to question the accuracy of his recollection. Firstly, he thought that W was away for at least two hours having her hair cut. I prefer her evidence that she was only away a short time. Secondly, he said he and H were not sitting at the same table. They talked about insignificant things only. A friend of H’s was there too. It seemed improbable that that was really what happened, particularly if it had in fact gone on for two hours. I also thought it unlikely that if H had said at the café that he may be interested in 36 BR, the topic would have been left at that without further discussion. F had finally decided he was leaving for Alderney and the issue of what was to happen to 36 BR was very much a live one. I would have thought that an expression of interest on H’s part would therefore have been explored further as, indeed, H and W say it was.

71.

In contrast, I found W’s account of the meeting in the café credible. I preferred her evidence about it to F’s. In part, this was because of the way in which she came across in the witness box but I also found support for my acceptance of her account from other features of the case, particularly later events which I will set out. I find that there was, on the balance of probability, an agreement that if H and W did the work, over and above the underpinning, that was needed to make the house habitable, it would be theirs provided M agreed.

72.

Before I go on to events that followed the café conversation, I should note that what I have found happened at the café seemed to me to be further support for my conclusion that the 1986 arrangements had been conditional as F and M said. If, as H says, at that stage 36 BR was in the sole name of M and belonged beneficially to H and M with no conditions attached, what standing did F have in relation to any proposed changes in ownership? W says in her affidavit of December 2006 that she thought it strange when F said he thought the property would have to be sold unless they became the outright owners of it because her understanding was that H was a part owner but she did not say anything. I see no reason to doubt that she did indeed think H had been given part of the property outright. The picture I have formed of H from all the material in the case is that he would not have wished to convey to her the less palatable and more complex reality with regard to the 1986 transactions. I accept that she may well have thought it was explicable that F should be involved in determining the future of 36 BR because he was originally the owner of the house, he was living there and he was entitled to respect as the father of the family. H was in a different position. In my view, the reason he saw F’s agreement to the renovation project as so important was because he knew that in reality F was in control of the destiny of 36 BR. Accordingly, that there was this conversation in the café with F adds further support to my conclusion that the 1986 gifts were conditional.

73.

As is to be expected when examining events going back over some years, the chronology is not always exact and it would be a waste of time to attempt to be too precise about when things happened during 2000/01. However, there are a few dates and some facts which are more or less clear from contemporaneous documents and/or other evidence and will serve as a framework for my findings of fact on disputed matters from this period following the café conversation:

i)

F moved out in summer 2000.

ii)

M and H signed a transfer of 36 BR dated 24 October 2000 by which M transferred the property from his sole name into the joint names of himself and H to hold subject to a trust as tenants in common. The transfer was sent by H for adjudication and bears a stamp dated 9 January 2001.

iii)

M and H signed a deed of gift dated 31 October 2000 whereby M gave all his beneficial interest in the property to H and M and H declared and confirmed that they would hold the legal estate as trustees for H absolutely.

iv)

On 31 October 2000 (as the fax date recorded on it shows), M faxed to H a list of shares headed “earmark”. There are some disagreements around this episode but H and M agree that the purpose of the document was to identify shares that M would get from F’s estate. They total £800,000. M has noted on the document “No more than 50% of any 1986 gifted holding has been earmarked”. H relies on that as indicating that M was selecting shares which were not his already, which is, in my view, a proper inference.

v)

In November 2000, approximately £25,000 was raised by way of an additional mortgage on C Close. I accept that this sum and a large part of subsequent sums raised by H and W from the sale of C Close and H’s other property, D House, were put to the works on 36 BR. D House was sold on 7 December 2000 for £108,000 producing net proceeds of about £38,000. C Close was finally sold on 3 August 2001 for £428,000 producing net proceeds of £135,000.

vi)

In August 2001, H and W moved into 36 BR and they have lived there ever since.

vii)

F spent Christmas 2001 with H, W and T (who had been born on 2 November) at 36 BR. W’s mother was also staying at the time. W’s evidence was that there was a conversation about ownership of 36 BR in the kitchen during that time. There is a complete disagreement between her and F as to the contents of the conversation but, although F did say he was not sure that he could remember such a conversation at all, I was satisfied from other parts of his evidence that he did acknowledge that there was a dialogue between himself and W in the presence of W’s mother on the subject of the house.

74.

I must turn now to the more controversial elements of what followed the café conversation in January 2000.

75.

H’s case is that after the café conversation he took steps to further the plan for himself and W to renovate the property which would become theirs. His Particulars of Claim in the Chancery proceedings say that discussions culminated in an agreement on or about 31 October 2000, partly oral and partly written, to the effect that H and W would sell their properties and raise finance to repair and refurbish 36 BR as their home, H would give M the right to earmark assets from F’s estate from which he and M had inheritance expectations, M would transfer the legal title to the joint names of himself and H and transfer his entire remaining beneficial interest to H.

76.

The existence of the transfer dated 24 October 2000, the deed of gift dated 31 October 2000, and the earmark document faxed on 31 October 2000 confirms aspects of H’s account; where he differs from M and F is in relation to whether or not those documents were intended to give him and W any property rights and/or to take immediate effect. There may also be a little further support for H’s account in a letter from F to H on 11 March 2003 in which F says,

“ You forgot that when I left the house, we had all discussed at length how the house was to be dealt with and you had said nothing about wanting the house although you had said some time before that you might be interested. The only contribution you made during the discussion was to counter any proposal which contradicted your having the house. ” [my italics]

The last sentence of this passage shows that F at least acknowledged at that point that during 2000, before F left for Alderney in the summer, H was single mindedly intent on “having the house”, even though F does not accept that an arrangement of the type H and W describe was in place.

77.

M and F argue that the legal documentation generated in autumn 2000 was not intended to take effect immediately, that the deeds were to be held in escrow and that H was entitled to no more than some sort of right to occupy 36 BR. Their case is that F intended the property to be sold but relented after H repeatedly said that he wanted to live there. As M puts it in his affidavit of February 2007,

“By September 2000 he decided that R and M could occupy it so long as they had no interest that might possibly be converted to R’s benefit. As a condition of his occupation, R agreed to maintain the property and meet all the outgoings which I believe, in the main, he has done.”

78.

M agrees that H and W spent a significant sum on the property but says that the works were carried out without any prior discussion with himself or F. An informal valuation had been obtained for 36 BR of about £800,000. There does not seem to be much disagreement that about £200,000 was the sort of expenditure required (on top of the basic structural work of underpinning) to put it into a proper condition. The total of the list of expenditure set out in H’s most recent statement is in fact £203,350. I will return to examine the detail of the expenditure later on.

79.

Whilst the thrust of M’s argument is that all that H and W acquired was some sort of right to occupy 36 BR, as I said earlier, his case on the nature of their interest in the property has not always been entirely consistent. When he wrote to W’s solicitors on 24 May 2005 in detailed response to her taking action in 2004 in relation to the property, he did say that all that had in fact been offered to H and W was that they could occupy the house and that it was their own decision to carry out improvements, there having been no undertaking whatsoever by M or F in relation to that. However, elsewhere in the letter, he appeared to be agreeing that a trust was created in October 2000, albeit that he was complaining that H had induced him to enter into it by false pretences. He said,

“In face of my father being unwilling to go further, R said that he wished the trust in order to protect his investment in the renovation; he says a £200,000 renovation on a £1,000,000+ house. Thus a protective trust was established in order to protect R’s investment in refurbishing the property, whilst preventing R (or M) turning the property to personal account, as R had done at C Hill. Given the basis of the 1986 gift and my father’s clearly stated position, I certainly would not have entered into any document if I had thought it might make it possible for R to convert the property for his own benefit. R made it clear to me that he would not seek to break the trust or convert the property for himself.”

80.

I thought M’s letter to H of 29 April 2005 also arguably contained an implied acknowledgment that H and W might have some interest in 36 BR over and above the benefit of occupying it. In it M indicates that H must withdraw his action in relation to 36 BR and

“If you do not, Father has asked me to establish the means by which you and M might be deprived of all interest in BR, including any benefit of occupation. ” [my italics] ”

It seemed to me that M, precise as he was, would have been unlikely to use the phrase “ including any benefit of occupation” if he considered that H had only a right to occupy.

81.

Even in his own deed of revocation of 25 May 2005, M said that the deed of gift of 2000 was entered into “as security for those monies which R had expended so that R’s interest might be protected in the event of [M’s] death.”

82.

F has also spoken at times in terms suggestive of H having an interest in the property in addition to a mere right to occupy. He too wrote to H and W in the course of the discussions following W bringing the matter to a head. In one letter, dated 17 December 2004, he says,

“M said he had assured you that you and your family were secure in your possession of the house as long as you wished to continue living there, and I have not the slightest doubt that your call to me was with the same observations in mind. I confirmed M’s assurances too this afternoon and I do so here, again, in this letter, though I stated that this was always provided that you never attempted to pledge the property as you did very extensively with C Hill, though in the case of Bathgate, I think it beyond possibility anyway…

…. Though I do not know how much you have spent, you must have done very well indeed out of Bathgate , especially if you take all the money I have given you and M into account….” [my italics]

As with much of the correspondence, what F says in this letter is open to a number of interpretations and is somewhat contradictory but, as with M’s letter of April 2005, the passage in italics might indicate an implied acknowledgment that H and W have a beneficial interest in 36 BR although F and M have made much of the benefit to H and W of living in the property rent free and I entirely accept that another possible interpretation is that F was referring to the benefit of living there rent free for what would, by then, have been 3 years. On the other hand, had F had in mind the sum of £200,000 as H and W’s expenditure and had he been approaching matters without emotion, he could not properly have asserted that the property was worth a rental of around £66,000 per annum (£200,000 divided by 3 years occupation). The figures that have recently been given by Ms Long, the expert valuer, for probable rental values over the period from August 2001 to June 2008 range from £33,600 per annum to £42,000 per annum, nowhere near £66,000, still less the £70,000 per annum that M suggested in his February 2007 affidavit it would cost to rent such a property.

83.

Another letter of F’s, this time to M dated 24 June 2006, undoubtedly acknowledges that H would be entitled to monetary compensation for his investment in the property, albeit limited by all sorts of sums he intended to offset, going back to H’s tuition fees and maintenance whilst a student at Cambridge. In it F says,

“….since you are the present freeholder of 36 BR, and notwithstanding the fact that I have permitted R to live there, rent free for some years now, (at considerable personal sacrifice), it is my wish that you should enjoy the freehold entirely for your own benefit, subject only to paying R what he has failed to pay me, compensation, for his investment in the property payable when he moves out, provided it is without dispute or creating any similar bother or disturbance, and the measure of which will be the sum he can prove, to your satisfaction, he has spent for the refurbishment of, and which has added value to the house, less the total amount advanced or paid out for R’s benefit since he purchased the C Hill property, including the deposit on the purchase which I advanced plus all the money I paid for his tuition and maintenance, while at Cambridge university but do not think I included on the schedule in R’s file. I am being deliberately hard to reciprocate his retention of the entire proceeds of sale of C Hill and thereby ignoring my considerable stake overall. ”

84.

The transfer of 36 BR from M’s sole name was never registered at the Land Registry. It is necessary to examine why this happened because the failure to register the transfer, despite it being signed and stamped, might lend support to F and M’s case that it was not intended to be immediately operative.

85.

The transfer goes hand in hand with the deed of gift signed the week afterwards. H and W say that M retained the original of the deed of gift, faxing a copy of it to H but refusing to forward the original despite requests. M agrees that he retained the deed of gift. He says that this was pursuant to an agreement between himself and H that the deed of gift would be held by him and only produced in the event that he died before F or on F’s death and on condition that he received the shares of F’s that he had earmarked.

86.

M has produced a file note of his own which he says he kept with the deed of gift. It is dated 10 May 2001 and reads,

“At present, MQ is possessed of whole legal interest in the property. But he holds the equitable interest 50% for himself and 50% for RQ

This undated deed of gift is intended in due course to transfer that remaining 50% interest to RQ

The deed is not to be dated or handed over to RQ while FQ is alive, without FQ’s prior permission. In the event that I die before the 50% interest can be transferred to RQ (and while FQ is alive), this deed can be used to effect the transfer to RQ, if FQ wishes.”

A feature of this note is that the deed is said to be undated and M gives instructions that it is not to be dated while F is alive without his permission. The copy of the deed of gift that I have seen (with M’s witnessed signature on it) is, however, dated. To my mind, this discrepancy undermines his case in relation to the deed of gift.

87.

There is also a fax dated 6 June 2001 from M to H which, in my view, makes it quite clear that H was by then anxiously attempting to ensure that the position with regard to 36 BR was properly protected. The fax reads,

“Re your call on Monday while I was driving, here is a copy of the deed in your form of engrossment, executed by us both in escrow. I retain the deed and have left instructions that if I should predecease FQ, he is to be consulted to ascertain whether he is willing for the remaining legal interest to be assigned to you by way of the deed. In such instance, you would need to contact Sharon [M’s wife] or David [M’s friend].

I trust you will agree everything is now in order.”

In the light of the continuing influence that M was stipulating that F’s wishes would have over the future of the property, I doubt whether the fax provided much reassurance for H who, by then, must already have spent a considerable amount of money on the property and was still working on it. Many people in his situation would have been spurred to action at this point but this was a family situation and families do not always behave in accordance with normal commercial expectations. Furthermore, one has to bear in mind H’s character. W plainly had her work cut out persuading him to do anything to sort out the property situation and it is said that ultimately this issue was what finished their marriage.

88.

To return to the transfer and the reason why it was not registered, M and F say that it was because it was always the case that it would be held in escrow. If this was truly what was agreed, H’s conduct in early 2001 with regard to the registration of the transfer is puzzling. In his letter to H on 13 December 2000, F said, amongst other things, that he was glad that they were excited about living in 36 BR. H’s evidence is that a short time after the letter, he had a telephone conversation with F about

“registration of the Land Certificate and made it clear that I was acquiring the property, was doing a great deal of work to it, spending a lot of money on it and had completed the sale of 10 D Close. He agreed to send on the Land Certificate and could have been in no doubt about the position. He never sent the documents to the Registry and his confirmation to me was obviously a lie.”

There is a letter in the bundle dated 20 March 2001 from Qs (H operating in his professional guise) to the Land Registry which says that the writer is enclosing a form for registration of the transfer together with the Land Certificate and a cheque for the fee of £70. H’s evidence is that F had the Land Certificate so he sent the letter, the form and the cheque to F to send on to the Registry.

89.

Everyone agrees that the signed transfer did come into F’s possession. However, M and F dispute H’s version of how this came about.

90.

M says that everything was subject to F’s agreement. On his case, as set out in his statement of May 2008, the brothers had done the deal involving the deed of gift, the transfer and the earmarking of the shares in 2000 and F found out in about 2001 and was very angry. M says in that statement,

“I had thought F approved of this but he insists he did not…..When F learned that R had the signed transfer he demanded it back from him. I understand that R complied with this demand. F says when he received it he gave it to me. I recollect F told me he wrote “cancelled” across it and retained it for a while. I recollect that he later asked me what he should do with it and I suggested he should destroy it.”

In his affidavit of February 2007, he asserts unequivocally that F never agreed to the deal but says later,

“9. ….I discussed R’s request for the Deed of Gift and his proposed terms with my father during a telephone conversation on 17 September 2000 and understood him to agree this arrangement. He has subsequently informed me that he never agreed the proposed swap. There was therefore a misunderstanding between us or we have different recollections. Following the conversation I sent confirmation to him on 27 September 2000.

10. In October 2000 my father, when pressed further by R, agreed that I should transfer 36 BR from my sole name into R’s and my joint names. For that reason I executed a Deed of Transfer dated 24 October 2000 which was stamped in January 2001…..R still insisted that such interest would not be capable of conversion in any way without my collaboration so on that basis, despite his refusal to R earlier in 2000, my father asked me to enter into the transfer which I of course did. However, not long afterwards my father, remaining concerned, changed his mind and said it should not be done and he did not want me to proceed. By this time the transfer was with R and on my father’s request R returned it to him. Thus the transfer was never registered. My father said he wrote across it ‘cancelled’. Later, either I or my father destroyed it, I am not now certain who.”

91.

As for F, he says that he never agreed the swap, whether in September 2000 as M suggests or at all, and when he learned what had happened, he telephoned H and said he had to send him the transfer at once or he would be cut off from any benefit from F for ever. F said in oral evidence, “To my surprise, he sent it under cover of a letter with a cheque asking me to forward it to the Land Registry.” F did not do so. He marked the transfer cancelled and retained the letter and the cheque.

92.

As regards the difference of evidence between M and F over whether F’s approval was ever given to the swap arrangement – the only issue over which M and F disagree – I prefer the evidence of M. I find that F did agree to the swap. As to the sending of the transfer document to F, there seems to be no real debate between the parties that H did not just send F the land transfer but also the covering letter for the Land Registry and a cheque. It is simply incredible that H would do this if he was responding, as F says, to a demand that he return the transfer or be disinherited. That would have been chancing his arm in a very dangerous environment where disinheriting (thinking about it, threatening it and no doubt doing it if necessary) was very much an active pastime. It is much more probable in my view that H sent the documents in the form he did because he continued to believe that the property was to become his and he expected that F would unite the form, letter and cheque with the Land Certificate and send them on to the Registry for the necessary registration. Why F changed his mind at around this time, I do not know, but that is what seems to have happened. By then, however, H and W were well down the road of investment and work on 36 BR.

93.

I was puzzled at first as to why, if the intention of all parties was that H should become the sole beneficial owner of the property, the legal title was transferred from M’s sole name to the joint names of H and M, rather than simply into H’s sole name in October 2001. What in those circumstances would be the point of the device of a transfer into joint names and a deed of gift of M’s share to H rather than just a straight transfer of the whole legal and beneficial interest to H? Nobody could suggest a completely convincing reason during the hearing. It could have been part of a plan to ensure that H did not realise any benefit until F agreed/died but it would hardly be a very safe way to do it when taken in conjunction with a deed of gift giving the entire beneficial interest to H. Considering the matter after the hearing, it occurred to me that a more rational explanation may be that, in recognition of his forthcoming expenditure which it was acknowledged was going to be significant, the family did indeed intend H to acquire the whole benefit of the property without conditions but F and M understandably remained anxious, because of his quite recent financial history, that he should not be able to imperil it by borrowing against it. With H and M as joint owners, it would be difficult for H to charge the property without M being involved whereas that safeguard would not be there if H simply owned the legal and beneficial estates. That explanation would fit, for example, with what M said in his February 2007 affidavit (quoted more fully above in paragraph 90) which included that “R still insisted that such interest would not be capable of conversion in any way without my collaboration”. I have, however, borne in mind that I was not able to explore this explanation with counsel and that, had I done so, they might have pointed out flaws in it.

94.

The earmarking of the shares may also shed some light on the thinking of the parties. The property before renovation was thought to be worth about £800,000. The earmarked shares were worth approximately £800,000. It seems to me probable that the intention therefore was that each brother would take an equivalent amount from their father’s estate, one in the form of real property and one of shares. Mr Roberts, called as a witness on behalf of H, went to school with M and H and has consulted both of them over business matters. He gave evidence which I have no reason to doubt that M told him that he had agreed with H to exchange his half interest in 36 BR for certain shares that H would otherwise receive. M said to Mr Roberts that he was happy with the arrangement because he felt that the shares were likely to outperform the housing market. It seems to me that at around the time of the transfer and deed of gift in October 2000, M, at that point with F’s agreement, albeit that F may later have attempted to withdraw that, entered into a deal whereby, in return for H getting the 36 BR property, he would get shares to a similar value. The shares were not, it seems, to come to M before F died and it might be argued that that suggests that neither was anything to be definite in relation to 36 BR until then but, whilst I bear this in mind amongst all the other factors, I do not think there is anything conclusive to be drawn from it. M’s position was very different from H’s in that he was not about to begin spending a considerable amount of money on the shares whereas H was about to act irreversibly to his detriment in relation to 36 BR. M was also much more secure in his father’s affections and no doubt trusted that he could rely upon F not to deprive him of his proper inheritance in due course.

95.

The timing of all the October transactions is important. It immediately preceded the first tranche of money becoming available to expend on the property when the further advance was made on C Close and I am quite sure H was intent upon securing his position before he and W began to put time and effort into 36 BR. Would H have thought himself sufficiently protected if the transfer deed and deed of gift were in effect held to F’s order during his lifetime and depended on M not being obstructive thereafter? H and W were intending to leave a comfortable and adequate home and put all their energy and resources into 36 BR at a time when they were thinking of having a child. It is argued that by so doing they would relieve themselves of mortgage repayments so that they could manage to live on H’s meagre income from his practice. Against that, H and W do not accept that they were on their uppers. In any event, had they needed a cash injection, I see no reason to suppose that they could not, as an intermediate step, have sold D House relieving themselves of the mortgage on that and raising some capital. It was suggested that H might have been gambling on F dying very soon, taking a calculated risk that although all that was on offer was occupation for the time being, once F died, the property itself would come to him. Alternatively, it is argued that rent free accommodation in such a good property was worth what H and W invested. Those propositions seem to me decidedly weak. H had already received at least one indication of F’s ability to withdraw favours at will in the form of his retraction letter in 1996. It would have been extremely risky to sell up and invest in 36 BR in the knowledge that the family could be turned out on a whim by F, or indeed M.

96.

M and F’s case depends on them establishing that the October 2000 documents do not mean what they say and were subject to some sort of condition, the precise nature of which is not entirely clear except that it meant that H and W were not to be the owners of 36 BR, or not yet. I do not accept that that was so. I have found that the conversation with F in the café was as W describes. Thereafter, H drew up documentation that was designed to transfer the whole beneficial interest in the property to him and he and M signed it and agreed compensation for M in the form of the earmarked shares, M at that point having F’s consent, even though F may well have purported to withdraw it later. H and W took steps which would have been incredibly unwise if they were based only on the gamble that F would die soon and they would inherit or that he would permit them to live in the property as long as they wanted or, as F suggested in oral evidence, that they would be able to obtain the property illicitly by taking an action such as this through the courts. They behaved as if they were the owners of the property, investing all their money in it and considerable effort, supervising the insurance works and ultimately making it their home. As F says in his statement, he signed a mandate to allow the insurers to pay the contractor direct subject to the insurers and H being satisfied with the work and “R simply took over. He treated the house, its contents and the insurance negotiations as if he owned everything and did not refer a single matter to me or consult with me.” I find that H and W did all of this in reliance on the agreement that the property would be H’s. I do not accept that they were only promised some term of occupation of it. Furthermore, in my view, the evidence establishes that H drew up the transfer and the deed of gift in 2000 in order to put the agreement about the house into effect and thereafter he (joined by W) attempted to get M and F to fulfil their side of the bargain, in F’s case by forwarding the transfer to the Land Registry and, in M’s case, by returning the deed of gift to H. F and M had by then changed their minds.

Christmas 2001

97.

W gave what I thought was compelling evidence about Christmas 2001 which was their first Christmas in 36 BR following their moving in on 3 August 2001.

98.

F found that Christmas, which he spent staying with H, W and T at 36 BR, profoundly uncomfortable. He said so in a letter of 11 March 2003 to H.

99.

W told me that earlier in the year, when she was still pregnant, she was working in the garden when she had what she described as a “weird feeling”. This was to do with the fact that she had been assured that the house would be theirs if they did the work on it but she felt anxious about whether that was actually going to happen. We know about the telephone and fax exchange between H and M over the deed of gift in June 2001 which amply explains why she may have had an anxiety at around that time. W says in her statutory declaration that she rang F and asked him how the new property ownership arrangements with regard to 36 BR were progressing and he said everything would be fine, that the property was hers and H’s and that he would speak to M. She told me in the witness box that she rang F and said “Father, everything is going to be right isn’t it?” and he said “Don’t you trust me?” and that he was going to sort it out. She was reassured by this because she did trust F and F had considerable influence with M. I accept all of this evidence of W’s about this conversation.

100.

Her evidence is that at Christmas, she, F and her mother were in the kitchen at 36 BR. She was holding the new baby T in her arms. She said to F, “Father, you promised to put things right about this house” and he said, “Your husband is not trustworthy so it is better that things stay the way they are with M so you can trust M.” She said to him, “But you promised me to put it right”. She says F replied, in a very arrogant way, “So I lied”. W is obviously still affected by her feelings about this and became upset each time she was asked about it. She told H immediately about the conversation but he did nothing. He told her that she was not to worry and he would sort it out but there was no point arguing with his father.

101.

F denies there was any such conversation. In his statement he says that the subject of giving them 36 BR was never discussed and he never told W that he lied. In oral evidence, he was unclear whether he remembered an occasion in the kitchen or not. He said he did not remember holding the conversation at all but equally he appeared to agree to having been sitting in the kitchen whilst W and her mother were there and agreed that, as counsel for W put to him, he had said to her something along the lines of, “Well, you can trust M to make sure your occupation was secure.” Mr Carden took him to task over this, rightly, pointing out that he had said in his statement “I have not at any time discussed BR….with M….” whereas, even on F’s own account, this conversation in the kitchen was obviously a discussion with W about BR. F unsuccessfully attempted to limit the damage this caused to his credibility by saying that he did not regard this as a discussion about 36 BR but as “an entirely separate matter”.

102.

I do not accept F’s account of all of this and prefer W’s. It confirms that she had acted in relation to 36 BR under the clear impression that the property was to become hers and H’s or H’s. I dare say that she did not give particular attention at that point to which of those two possibilities it was because they were still very much married. The holding of the conversation confirms that a climate of anxiety had developed in the house over ownership, as the June 2001 telephone/fax exchange evidences in documentary form. I accept that H had also acted on the basis that they had been assured the house would become theirs and was trying to sort the situation out and secure their position but he was not succeeding. When W took the issue up with F directly on the telephone whilst she was pregnant, his reassurance on the telephone produced nothing and it was in these circumstances that she reverted to the topic at Christmas.

Revocation of the 2000 deed of gift by M in 2005

103.

After battle had been well and truly joined over 36 BR, M entered into a deed of revocation, dated 25 May 2005 (which he drafted himself), in which he asserted that the deed of gift of 31 October 2000 was revocable and purported to revoke it and thereby to return legal title, full beneficial ownership and possession of 36 BR to himself. He also declares in the deed of revocation that “any land transfer which may have been brought into existence in connection with the said Deed of Gift but which has not been registered at the Land Registry before the date of this Deed shall henceforth be null and void.” This passage was obviously written in the light of the knowledge that F had never sent on the necessary documents to the Land Registry so the 2000 transfer of the property into the joint names of himself and H had never been registered.

THE APPLICATION OF THE LAW TO THESE FACTS

2000

104.

Although the logical approach might be thought to be to plot the course of the legal and beneficial interest in 36 BR from 1986 to the present day in chronological order, determining the question of proprietary estoppel/constructive trust in the course of that process and in the context of a clear finding as to who owned the property by the beginning of 2000, it seems to me that the estoppel/constructive trust question can in fact be decided without first tackling the rather more difficult legal questions that arise in relation to events between 1986 and 2001 and is susceptible of a clear and relatively simple answer. I propose, therefore, to examine the arguments in relation to proprietary estoppel/constructive trust first and then to revert to the other issues to the extent that it is necessary.

105.

A proprietary estoppel arises (as stated in Taylor Fashions Ltd v Liverpool Victoria Trustee Co Ltd [1982] QB 133 ),

“If A, under an expectation created or encouraged by B that A shall have a certain interest in land thereafter, on the faith of such expectation and with the knowledge of B and without objection from him, acts to his detriment in connection with such land, a Court of Equity will compel B to give effect to such expectation.”

106.

It is not necessary for B to make a promise (by which I intend to signify, in a rather inaccurate one word shorthand, a whole range of conduct by B which might found a claim in proprietary estoppel) which is expressed to be irrevocable. It is the fact that A relies on the promise, to A’s detriment, that makes it irrevocable, Gillett v Holt [2001] Ch 210.

107.

As authorities such as Gillett v Holt make clear, the doctrine of proprietary estoppel cannot be treated as subdivided into a number of discrete and entirely separate components. The fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine and, in the end, the court must look at the matter in the round.

108.

No matter who owned 36 BR in law and equity, during the course of 2000 all relevant parties (F, M, H and W) were drawn into an arrangement in relation to the property which, to the clear knowledge of all of them, involved the following elements:

i)

H and W would sell assets, including their matrimonial home, to raise money with which they would renovate 36 BR

ii)

BR would become their home

iii)

They (or, at the least, H on their behalf) would become the owners of the property, the legal estate being transferred into the joint names of H and M and H acquiring the entire beneficial interest by virtue of a gift by M of his half to H

iv)

M would be compensated by earmarking shares in F’s estate to become his property.

109.

The first promise (to use inaccurate shorthand again) was F’s, made in the café in Richmond, that the house would be H’s or H’s and W’s. That was then approved by M who, by virtue of entering into discussions with H which culminated in the documentation of October 2000, perpetuated F’s promise on F’s behalf and added his own promise to the same effect. I do not accept that there were any conditions attached to these assurances that H or H and W would acquire the house by doing the work, whether by virtue of the conditions being carried forward from the 1986 transactions or by conditions being spelled out afresh in 2000. In 2000, the parties were embarking upon a venture which was wholly different in character from the arrangements they made 1986. The 1986 deal involved H and M neither in expenditure nor in rearrangement of their lives. As the parties intended it to operate, it was a deal which would merely alter the outward appearance of ownership and make very little difference to anyone’s day to day life. In contrast, as they all understood, the 2000 deal would involve H and W in making wholesale changes in their living arrangements and expending a considerable amount of money – the whole of their capital – on 36 BR. Nobody gave evidence that the 1986 conditions were explicitly reimposed. There was absolutely no reason why, had they been intended to apply, they could not have been articulated. Indeed, there was no reason why the documentation drawn up to give effect to the arrangement could not have shown them on its face. By 2000, the attempt to deceive the taxman was no more than limping along, if it had survived at all given that F had purported to revoke the gifts once already, in 1996, (although M did not seem to be aware of this). Nobody gave evidence that suggested that the appearance vis-à-vis the taxman was of the slightest interest by 2000. Furthermore, in my judgment, conditions of the 1986 type could not be implied when they would have been so prejudicial to the interests of H and W that they could not have been expected to enter into the agreement at all on those terms.

110.

H and W began to make a serious financial investment in 36 BR from November 2000 when they raised finance against C Close. The sale of D House followed in December 2000. Considerable effort was put into matters to do with the property, including a great deal of supervision of works and (particularly it would seem by W, despite her pregnancy during much of 2001) actual labour. The thrust of the evidence was that F, who had agreed to the arrangements in 2000, changed his mind in 2001. When he wrote his letter of March 2001 to the Land Registry for F to send on with the transfer document, cheque and land certificate, H was still under the impression that the property was to become his. By then, he and W had already acted very considerably to their detriment in reliance on the arrangement of 2000. It is not clear at precisely what point he and W would have become aware that F and M were no longer honouring the deal but it is not surprising that he continued to try to secure his position in accordance with it during 2001, as we see from the exchange involving the conversation with M in the car and M’s fax in June 2001, and that meanwhile works continued on the property, culminating in the sale of C Close and H and W moving into 36 BR at the beginning of August 2001. Given that H and W had acted to their detriment in reliance on the 2000 agreement, the assurance had become irrevocable well before they could have had any inkling that M and/or F were no longer content with the arrangement.

111.

In my judgment, these facts give rise to a clear proprietary estoppel. I will deal in due course with the issue of the form equitable relief should take.

112.

H and W argue in the alternative that 36 BR is held on constructive trust for H or for the pair of them. Proprietary estoppel and constructive trust are concepts which, over the years, have at times come so close to each other that it appeared that they may merge. In Stack v Dowden [2007] 2 AC 432, for example, Lord Walker acknowledged his own past encouragement that that should happen. However, he set out the reasons why he was now persuaded that this would be inappropriate as follows:

“37. I add a brief comment as to proprietary estoppel. In paragraphs 70 and 71 of his judgment in Oxley v Hiscock Chadwick LJ considered the conceptual basis of the developing law in this area, and briefly discussed proprietary estoppel, a suggestion first put forward by Sir Nicolas Browne-Wilkinson V-C in Grant v Edwards [1986] Ch 638 , 656. I have myself given some encouragement to this approach ( Yaxley v Gotts [2000] Ch 162 , 177) but I have to say that I am now rather less enthusiastic about the notion that proprietary estoppel and "common interest" constructive trusts can or should be completely assimilated. Proprietary estoppel typically consists of asserting an equitable claim against the conscience of the "true" owner. The claim is a "mere equity". It is to be satisfied by the minimum award necessary to do justice ( Crabb v Arun District Council [1976] Ch 179 , 198), which may sometimes lead to no more than a monetary award. A "common intention" constructive trust, by contrast, is identifying the true beneficial owner or owners, and the size of their beneficial interests.”

113.

From this, it appears that the significant difference between the two concepts is in the nature of the relief that a claimant will obtain. The claimant who establishes a proprietary estoppel may do less well than the claimant who establishes a constructive trust. In this case, however, I have reached the conclusion, for the reasons I set out below, that the minimum award necessary to do justice in the light of the proprietary estoppel established by H and W is for 36 BR to belong to H (or H and W). I can see no point, in the circumstances, in going in depth into the issue of whether the facts I have found also establish a constructive trust but I will set out my conclusions fairly briefly.

114.

As Baroness Hale put it in Stack v Dowden (a case of a cohabiting couple where the family home was conveyed into joint names but their beneficial interests in it were held to be unequal),

“The search is to ascertain the parties' shared intentions, actual, inferred or imputed, with respect to the property in the light of their whole course of conduct in relation to it.”

She made clear that each case turns on its own facts and that many more factors than financial contributions may be relevant in divining the parties’ true intentions as to their beneficial interests. The list that she gives in her speech (at paragraph 69) is particularly tailored to the most common situation in which a “common intention trust” may arise, that of the cohabiting couple, but it does show how widely the net must be cast in order to catch everything that may have a bearing on the issue.

115.

In the present case, the parties’ shared intentions are, in my judgment, clear from the agreement that was reached in 2000, culminating in the documentation that came into existence in October 2000. They all intended at that stage that the entire beneficial interest in the property should belong to H. In relation to proprietary estoppel, I have been content to say quite loosely that the estoppel operated in favour of H or H and W because I understand that there is no dispute between them as to how the benefit of the property will be shared between them in the ancillary relief context so there is no need for me to differentiate between them in these proceedings. However, in relation to the issue of a constructive trust, which issue is peculiarly dependant on what the shared intentions of the parties were, I can and probably should be rather more meticulous in setting out my conclusions. It seems to me that the contemporaneous documentation (whatever its precise legal effect) is drafted in such a way as to establish clearly that the common intention was that the beneficial interest in the property was to become H’s alone. I base this upon the deed of gift which was designed to transfer M’s interest not to H and W but to H. It is quite sufficient, in my view, to give rise to a constructive trust in relation to 36 BR in H’s favour.

116.

My conclusions in relation to proprietary estoppel and constructive trust are sufficient to dispose of this case. However, in deference to the considerable legal argument with which I have been provided and for the sake of relative completeness, I will indicate some of my other conclusions, albeit some of them rather briefly. In order to do so, I return to 1986.

117.

The various deeds in 1986 were unambiguous and, although in the case of other assets, the necessary steps were not taken to reflect the change in ownership of the asset concerned, the transfer of 36 BR was registered. Accordingly, on the face of it, M and H became the owners of 36 BR as tenants in common in equal shares. F argues that this does not represent the true position and that the property was held on trust for him. There seem to be at least two alternative formulations of this argument put forward by F and M. Firstly, a constructive trust is said to arise by virtue of the conditions imposed on the gift and secondly, the property is said to be held on trust for F by virtue of him having revoked the gift in 1996. In my judgment, neither of these arguments can be pursued by F and M. However they formulate their claim to the property, they have to rely on the conditions agreed as part of the 1986 transaction, whether per se or as the reason why F had power to revoke the gift. The 1986 agreement had an illegal purpose, namely to cheat the Inland Revenue of inheritance tax on F’s death. Reliance upon the conditions is reliance upon the illegal purpose and is not permissible. In contrast, H need only point to the existence of the transfer of 36 BR into the joint names of himself and M and need not refer to the illegal purpose, indeed he denied its existence. In these circumstances, he can establish title and it matters not that it was acquired in the course of carrying through an illegal transaction.

118.

I reach these conclusions by application of the authorities which deal with illegality, amongst them Tinker v Tinker [1970] P 136 (CA), Tinsley v Milligan [1994] 1 AC 340 (HL), Tribe v Tribe [1996] Ch 107 (CA), Taylor v Bhail [1996] CLC 277 (CA), Lowson v Coombes [1999] WLR 720, Collier v Collier [2002] EWCA Civ 1095.

119.

The parties are agreed that the classic statement of the law is to be found in Tinsley v Milligan . There, two women used funds generated by a joint business venture to buy a house in which they lived together. It was vested in the sole name of the plaintiff but on the understanding that they were joint beneficial owners. The purpose of the arrangement was so that false benefit claims could be made to the Department of Social Security which was duly done. The money obtained helped the parties in a small way with their bills. Subsequently, the defendant repented of the frauds and told the DSS. The parties quarrelled and the plaintiff moved out. The plaintiff claimed possession and asserted that she was the sole owner of the property. The defendant counterclaimed for an order for sale and a declaration that the plaintiff owned the property on trust for the pair of them in equal shares. Ultimately the defendant succeeded, having established a resulting trust by virtue of her contribution to the purchase price of the property and the common understanding of the parties that they owned the property equally. The focus has been upon the speech of Lord Browne-Wilkinson who was one of the majority. At 369C, he says:

“Neither at law nor in equity will the court enforce an illegal contract which has been partially, but not fully, performed. However, it does not follow that all acts done under a partially performed contract are of no effect. In particular it is now clearly established that at law (as opposed to in equity), property in goods or land can pass under, or pursuant to, such a contract. If so, the rights of the owner of the legal title thereby acquired will be enforced, provided that the plaintiff can establish such title without pleading or leading evidence of the illegality. It is said that the property lies where it falls, even though legal title to the property was acquired as a result of the property passing under the illegal contract itself.”

120.

At 376E, he puts it this way:

“In my judgment the time has come to decide clearly that the rule is the same whether a plaintiff founds himself on a legal or equitable title: he is entitled to recover if he is not forced to plead or rely on the illegality, even if it emerges that the title on which he relied was acquired in the course of carrying through an illegal transaction ”

121.

Lord Browne-Wilkinson contrasted a case such as Tinsley v Milligan where the claim can successfully be advanced in reliance on a resulting trust with a case where there is presumption of advancement. At 375C he says,

“In cases where the presumption of advancement applies, the plaintiff is faced with the presumption of gift and therefore cannot claim under a resulting trust unless and until he has rebutted that presumption of gift: for those purposes the plaintiff does have to rely on the underlying illegality and therefore fails.”

122.

Any attempt by F to establish a resulting trust founders by virtue the presumption of advancement. He transferred 36 BR for no consideration but, whereas that fact might have given rise to a resulting trust had the transfer been between strangers, F is presumed to have given the property to H and M because they are his sons. He could only counter this presumption by raising the conditions but, because they are an intrinsic part of the illegal purpose of evading tax, he cannot rely upon them.

123.

On F and M’s behalf, it has been argued that the doctrine of locus poenitentiae assists F to extract himself from this basic rule. The doctrine was considered in Tribe v Tribe . In that case, a father had transferred shares to his son for £78,000 which was not intended to be and never was paid by the son. The judge found the transfer had been made for an illegal purpose, namely with the intention of deceiving the father’s creditors when he was facing schedules of dilapidations in relation to two leases. The schedules of dilapidations were in the event never pursued. The father never showed the share transfer to the landlords or to any other creditor although it had been stamped. The negotiations with the landlords for release from the liability for dilapidations were carried out by the son alone and there was no need for recourse to deception. The father requested that the shares be transferred back to him and the son refused. The father succeeded in his action to recover the shares. Since the illegal purpose had never been carried out, he could lead evidence of the agreement that the son would hold the shares on trust for the father pending settlement of the dilapidation claims and thus rebut the presumption of advancement.

124.

Nourse LJ posed the question as being:

“whether, where the presumption of advancement applies, the transferor can still recover the property, on the ground that, although he is forced to rely on the illegality in order to rebut the presumption, the illegal purpose has not been carried into effect in any way.”

Millett LJ’s formulation was:

“whether, once property has been transferred to a transferee for an illegal purpose in circumstances which give rise to the presumption of advancement, it is still open to the transferor to withdraw from the transaction before the purpose has been carried out and, having done so, give evidence of the illegal purpose in order to rebut the presumption of advancement. ”

125.

The Court of Appeal answered the question in the affirmative. Nourse LJ put it this way:

“In a property transfer case the exception applies if the illegal purpose has not been carried into effect in any way.”

Millett LJ said:

“It is, however, also settled both at law and in equity that a person who has transferred property for an illegal purpose can nevertheless recover his property provided that he withdraws from the transaction before the illegal purpose has been wholly or partly performed. This is the doctrine of the locus poenitentiae and it applies in equity as well as at law: see Symes v. Hughes (1870) L.R. 9 Eq 475 for the former and Taylor v. Bowers (1876) 1 QBD 291 for the latter. The availability of the doctrine in a restitutionary context was expressly confirmed by Lord Browne-Wilkinson in Tinsley v. Milligan [1994] 1 AC 340 , 374.”

And later:

“At heart the question for decision in the present case is one of legal policy. The primary rule which precludes the court from lending its assistance to a man who founds his cause of action on an illegal or immoral act often leads to a denial of justice. The justification for this is that the rule is not a principle of justice but a principle of policy: see the much quoted statement of Lord Mansfield C.J. in Holman v. Json (1775) 1 Cowp 341 , 343. The doctrine of the locus poenitentiae is an exception which operates to mitigate the harshness of the primary rule. It enables the court to do justice between the parties even though, in order to do so, it must allow a plaintiff to give evidence of his own dishonest intent . But he must have withdrawn from the transaction while his dishonesty still lay in intention only. The law draws the line once the intention has been wholly or partly carried into effect.

Seen in this light the doctrine of the locus poenitentiae, although an exception to the primary rule, is not inconsistent with the policy which underlies it. It is, of course, artificial to think that anyone would be dissuaded by the primary rule from entering into a proposed fraud, if only because such a person would be unlikely to be a studious reader of the law reports or to seek advice from a lawyer whom he has taken fully into his confidence. But, if the policy which underlies the primary rule is to discourage fraud, the policy which underlies the exception must be taken to be to encourage withdrawal from a proposed fraud before it is implemented, an end which is no less desirable. And, if the former objective is of such overriding importance that the primary rule must be given effect even where it leads to a denial of justice, then in my opinion the latter objective justifies the adoption of the exception where this enables justice to be done.

To my mind these considerations are even more compelling since the decision in Tinsley v. Milligan [1994] 1 AC 340 . One might hesitate before allowing a novel exception to a rule of legal policy, particularly a rule based on moral principles. But the primary rule, as it has emerged from that decision, does not conform to any discernible moral principle. It is procedural in nature and depends on the adventitious location of the burden of proof in any given case. Had the plaintiff transferred the shares to a stranger or distant relative whom he trusted, albeit for the same dishonest purpose, it cannot be doubted that he would have succeeded in his claim. He would also have succeeded if he had given them to the defendant and procured him to sign a declaration of trust in his favour. But he chose to transfer them to a son whom he trusted to the extent of dispensing with the precaution of obtaining a declaration of trust. If that is fatal to his claim, then the greater the betrayal, the less the power of equity to give a remedy.

In my opinion the following propositions represent the present state of the law. (1) Title to property passes both at law and in equity even if the transfer is made for an illegal purpose. The fact that title has passed to the transferee does not preclude the transferor from bringing an action for restitution. (2) The transferor's action will fail if it would be illegal for him to retain any interest in the property. (3) Subject to (2) the transferor can recover the property if he can do so without relying on the illegal purpose. This will normally be the case where the property was transferred without consideration in circumstances where the transferor can rely on an express declaration of trust or a resulting trust in his favour. (4) It will almost invariably be so where the illegal purpose has not been carried out. It may be otherwise where the illegal purpose has been carried out and the transferee can rely on the transferor's conduct as inconsistent with his retention of a beneficial interest. (5) The transferor can lead evidence of the illegal purpose whenever it is necessary for him to do so provided that he has withdrawn from the transaction before the illegal purpose has been wholly or partly carried into effect. It will be necessary for him to do so (i) if he brings an action at law or (ii) if he brings proceedings in equity and needs to rebut the presumption of advancement. (6) The only way in which a man can protect his property from his creditors is by divesting himself of all beneficial interest in it. Evidence that he transferred the property in order to protect it from his creditors, therefore, does nothing by itself to rebut the presumption of advancement; it reinforces it. To rebut the presumption it is necessary to show that he intended to retain a beneficial interest and conceal it from his creditors. (7) The court should not conclude that this was his intention without compelling circumstantial evidence to this effect. The identity of the transferee and the circumstances in which the transfer was made would be highly relevant. It is unlikely that the court would reach such a conclusion where the transfer was made in the absence of an imminent and perceived threat from known creditors.

The doctrine of the locus poenitentiae

It is impossible to reconcile all the authorities on the circumstances in which a party to an illegal contract is permitted to withdraw from it. At one time he was allowed to withdraw so long as the contract had not been completely performed; but later it was held that recovery was barred once it had been partly performed: see Kearley v. Thomson (1890) 24 QBD 742 . It is clear that he must withdraw voluntarily, and that it is not sufficient that he is forced to do so because his plan has been discovered. In Bigos v. Bousted [1951] 1 All ER 92 this was, perhaps dubiously, extended to prevent withdrawal where the scheme has been frustrated by the refusal of the other party to carry out his part.

The academic articles Grodecki, "In Pari Delicto Potior Est Conditio Defendentis" (1955) 71 LQR 254, Beatson, "Repudiation of Illegal Purpose as a Ground for Repudiation" (1975) 91 L.Q.R. 313 and Merkin, "Restitution by Withdrawal from Executory Illegal Contracts" (1981) 97 LQR 420 are required reading for anyone who attempts the difficult task of defining the precise limits of the doctrine. I would draw back from any such attempt. But I would hold that genuine repentance is not required. Justice is not a reward for merit; restitution should not be confined to the penitent. I would also hold that voluntary withdrawal from an illegal transaction when it has ceased to be needed is sufficient. It is true that this is not necessary to encourage withdrawal, but a rule to the opposite effect could lead to bizarre results. Suppose, for example, that in Bigos v. Bousted [1951] 1 All ER 92 exchange control had been abolished before the foreign currency was made available: it is absurd to suppose that the plaintiff should have been denied restitution. I do not agree that it was correct in Groves v. Groves , 3 Y & J 163 , 174, and similar cases for the court to withhold its assistance from the plaintiff because "if the crime has not been completed, the merit was not his." [my italics]

126.

On behalf of F and M, it is argued that there has been no actual illegality and they can therefore, exceptionally, plead and rely upon the 1986 conditions despite their illegal intent. Both rely upon the fact that inheritance tax is only payable after death and argue that no part of the illegal purpose can possibly be carried into effect until after F’s death. At that point, it would be F’s executors who would decide whether or not to include 36 BR as part of F’s estate for tax purposes. F himself would never be party to any actual illegality and M, only if he was an executor at the time and omitted to declare the property.

127.

In order to deal with this argument, one must attempt to discern how far someone who has participated in a transaction with an illegal purpose can go before he will be deprived of the opportunity to rely on the illegal purpose in attempting to recover his property. This is not an easy task as the boundaries of the exception are not clear, as Millett LJ acknowledged in the passage I have quoted and as subsequent cases have demonstrated. Nourse LJ makes it clear that one must not confuse the transaction itself with the purpose. It is the purpose which has to have been carried into effect or partially carried into effect. The transaction itself may be and often is entirely unexceptional, as it is here, and in those circumstances it is irrelevant to this issue. It can be relied on by a participant in the illegal compact as the basis for his claim to an interest in the property and, similarly, its existence will not prevent there being a locus poenitentiae for a participant who wishes to withdraw from the illegal purpose and advance his claim to the property in reliance on the terms of the purpose.

128.

I have highlighted passages in Millett LJ’s judgment which seem to me to be of assistance in understanding how the doctrine operates in practice. He says that the claimant must have withdrawn from the transaction “while his dishonesty still lay in intention only” and that the line is drawn “once the intention has been wholly or partly carried into effect.” Some guidance as to when dishonesty lies in intention only may be provided by his fourth proposition of the present law in which he expresses the view that the transferor may not be able to recover his property “where the illegal purpose has been carried out and the transferee can rely on the transferor’s conduct as inconsistent with his retention of a beneficial interest.”

129.

I will refer briefly in a moment to decisions that have followed Tribe v Tribe but, on the basis of the law as stated in that case, it seems to me that F cannot establish that he has withdrawn from his illegal purpose soon enough. The earliest at which he might have withdrawn is in 1996 when he purported to revoke the gift, at least in relation to H; it may well be that that revocation, which was not conveyed to M and was in terms directed at H, was ineffective in relation to the gift to M and that that gift was not revoked until M learned of it, which appears to have been sometime in 2003. Giving F the benefit of the doubt however, and assuming that the revocation was fully operative at the earlier date, I ask myself whether any of F’s conduct up to that point was inconsistent with his retention of a beneficial interest. Although I would reach the same result even if I were to look at 36 BR alone, it seems to me that for this purpose, I can look at the 1986 transactions as a whole. M and F submitted otherwise. They pointed to the fact that the various assets were the subject of separate deeds although it was conceded in argument by Miss Harrison for M that that may simply have been because not all the deeds were available on the same day and I do not consider that the existence of separate deeds was in any way conclusive. The evidence of F and M was that H and M solemnly swore that they would respect F’s conditions. This was one umbrella promise, intended to overshadow all the 1986 transactions – the shares, Sd and 36 BR. What happened in summer 1986 was a package designed to put a major part of F’s estate beyond the reach of the Revenue. In many ways, F behaved thereafter as if he still did retain a beneficial interest in each of these items, threatening to take them back and purporting to revoke the gifts. There were other ways, however, in which he behaved inconsistently with the retention of a beneficial interest. He should have declared the dividends and capital gains in relation to the shares to the Revenue for taxation. He and his sons treated the money as theirs. They (or at least H, because M was living abroad and may not have been accounting to the Revenue here) included it in their tax returns and he omitted it from his. He signed a tenancy and apparently paid rent for 36 BR which, again, was treated as his sons’ income and not his. It sat in a joint account in his sons’ names, making interest which they (or at least H) included in their tax returns to the Revenue and F did not. Given that M’s case is that he holds that rent money on trust for F, F should have accounted for the interest himself. As a result of these accounting practices, the tax paid to the Revenue in relation to the shares and the interest was not paid at the higher rate as it would have been had it been declared as F’s income but either at the lower rate (which was all that H had to pay) or not at all (because M was non-resident). It is right to say that the Revenue had the unlooked for benefit of basic rate tax on the £3,000 per annum of spurious rent that the family attributed to H but that, in my view, is nothing to the point. Firstly, I think it unlikely that the question of the availability of the locus poenitentiae turns on whether anyone has yet suffered financial loss as a result of the actions of the transferor. Secondly, I cannot accept that it is open to the transferor to argue that he has done an account and (if it be the case) that, taken in the round, the tax of which he has deprived the Revenue is equalled or surpassed by the extra tax that the family had to pay to cement their deception.

130.

The 1986 transactions and the actions associated with them were put into effect to lay the ground for inheritance tax evasion. In my view, the “illegal purpose” to which F, M and H were parties should not be too narrowly defined. F and M would no doubt define it as “to save inheritance tax”, hence their argument that nothing relevant would happen until a false declaration was made after F’s death. If the definition is cast more widely as “to deceive the Revenue”, it can be seen that considerable steps have been taken towards this which have gone beyond the mere creation of authentic looking documents which have been kept within the family and moved into the realms of actually presenting a false picture to the taxman. By falsely representing to the Revenue (by false omissions from his own tax return and/or false inclusions on those of H and possibly, depending on what returns he made as a non-resident, M) that he was no longer the owner of the transferred assets, F has, in my judgment, partly carried the illegal purpose into effect and deprived himself of the chance of withdrawing from it and relying on it to establish either that he retains any share in the assets concerned on trust principles or that he was entitled to revoke the gifts.

131.

Mr Jacob on behalf of H relies on what Aldous LJ said in Collier v Collier [2002] EWCA Civ 1095 (a case in which a father purported to lease two properties to his daughter), dealing with a submission that the father had withdrawn and could rely on evidence that the leases had had an illegal purpose, said:

“I cannot accept that submission. The father’s pleaded case was that the properties were held on a bare trust, but his stated intention was that the leases would be held for himself but that if he died before that happened then the trust would not be disclosed and would terminate. The illegal purpose, which was to defraud the Inland Revenue, had been carried into effect. He had had the benefit of the illegal purpose for a number of years, namely to defraud the Inland Revenue if he died.”

On behalf of M and F, it is submitted that Aldous LJ’s remarks were obiter and should not be taken to establish that simply having transferred properties to a third party (subject to a secret reservation) and thereby acquired the opportunity for the saving inheritance tax if one dies is tantamount to carrying the illegal purpose of defrauding the Inland Revenue into effect. I accept that their caution about this is well placed. The other members of the court appear to have treated the intention (possibly) to defraud the Inland Revenue of inheritance tax as a very minor part of the transaction. The real purpose, still illegal, was to defeat the claims of the father’s creditors. As the judgment of Lord Justice Mance makes particularly clear, this he had actually done in relation to his mortgagees, albeit rather later than he expected he would need to and in different circumstances from those that appertained when the leases were originally granted.

132.

My attention was invited also to Painter v Hutchison [2007] EWHC 758 (Ch) in which the question was addressed of whether the illegal intention behind the execution of a declaration of trust had been carried into effect to the extent that it prevented Mrs Painter from asserting that a declaration of trust in relation to a property was a sham and that she was in fact the beneficial owner of the property. On very different facts from this case, the judge found that Mrs Painter was not so prevented for the reasons set out in paragraph 128 of the judgment. Although both Mrs Painter and her husband had said that the reason behind the execution of the trust was to distance the property from the Inland Revenue, that had not actually happened. Amongst other things, the declaration of trust was never shown to the Inland Revenue and Mrs Painter had declared the property to them as her asset.

133.

F and M relied on two other recent decisions, 21 st Century Logistic Solutions Ltd v Madysen Ltd [2004] EWHC 231 (QB and Barrett v Barrett [2008] EWHC 1061 (Ch) to illustrate where the boundary lies and to support their argument that the defence of illegality cannot succeed against F. These are cases which considered the slightly different issue of whether the illegal purpose was too remote from the agreement to taint it, 21 st Century in a contractual situation and Barrett in an action for a declaration of trust that the proceeds of sale of a property were held by one brother (J) for another (T).

134.

In Barrett v Barrett, the illegal purpose was to conceal T’s interest in the proceeds of sale from the trustee in bankruptcy thus preventing him from laying claim to property which the bankrupt (as T was) acquires after his bankruptcy commences. The judge records that,

“Mr Maynard submits that the tainted motive in this case is too remote to bar enforcement of T’s interest in the property or its proceeds. He points out correctly that the pleaded agreement or arrangement involved the creation of a new interest in favour of T, his original interest in the property having vested in his trustee in bankruptcy. The creation of such an interest was not of itself unlawful. The illegality lay in the failure to disclose the acquisition of this new interest to his trustee in bankruptcy.”

The submission that the tainted motive was too remote was rejected as not well-founded. The judge’s view was that the illegal purpose shaped the whole form of the transaction. Furthermore, even if the transaction had had a dual purpose and also been designed to preserve the family home, it would not assist T. F and M distinguish this from their case which they argue is much more akin to 21 st Century Solutions .

135.

In 21 st Century Solutions , in a contractual situation, the judge found that no step had been taken in the transaction in carrying out the fraud and that the illegal purpose was too remote to vitiate the contract. The illegal purpose in that case was to defraud the Customs and Excise (HMCE) of VAT. 21 st Century had entered into a contract to sell Madysen Ltd some computer processor units, VAT being added to the bill. 21 st Century had no intention of accounting to HMCE for the VAT or paying it; the plan was that the company would vanish. Madysen did not know this at the time of the contract. The CPUs were delivered but Madysen refused to pay on the ground of illegality. The judge held that the VAT element in the price paid for a supply is not held on trust for HMCE. The taxable supplier’s only material obligations under the VAT legislation are to account for the VAT at the end of each accounting period and to keep proper records. The use of the VAT element of the sale proceeds for some other purpose than the payment of VAT due to HMCE is therefore not unlawful. The judge said that it followed,

“that the fraud on HMCE intended by 21 st C would only have been finally committed when 21 st C failed to account to HMCE at the end of the relevant accounting period. The contract between 21 st C and Madysen was a straightforward agreement for the sale of goods. In and of itself it was a lawful contract. It provided the opportunity for [the individual who had incorporated 21 st C] to profit from the intended fraud but that was all: the crucial act that had to be performed to work the fraud was a failure to account to HMCE.”

136.

The argument for F and M is that the crucial act that had to be performed to work the fraud against the Revenue was to fail to include 36 BR in F’s estate after his death. Just as the contract of sale of the CPUs did no more than provide the opportunity to profit from the intended fraud, so the 1986 transactions only provided the opportunity later to defraud the Revenue and then, only if the executors were so minded at the time.

137.

To my mind, the instant case is much more like Barrett than 21 st Century Solutions . The contract with Madysen was, as the judge said, a straightforward agreement for the sale of goods; Madysen knew nothing of the illegality at the time of the contract and title to the goods really was going to pass to the company under it. In contrast, here, far from being too remote from the 1986 transaction, the illegal purpose was its essence, just as in Barrett . The real ownership of the assets was not altering. The intention was only to alter the appearance and the only reason to do that was so that, in due course, the Revenue could be deprived of inheritance tax on the assets. I do not, therefore, accept the argument that the illegal purpose of the Qs was too remote from the 1986 transaction to have any bearing on it.

138.

I have taken into account that H was as much part of the illegal purpose as F and M. That is irrelevant in the operation of the principles governing the illegal transactions. The courts have plainly felt uncomfortable at times with the results of the rules, which can seem sometimes to favour one of a number of parties who are all equally implicated in the illegal purpose simply by virtue of the accident of how a case has to be pleaded, but that is the way in which the law operates. I have also taken into account the curious paradox that in this case, the consequence of H’s defence of illegality succeeding would be that 36 BR would cease to be part of F’s estate and the Revenue would not receive inheritance tax on it. I have not ignored the interest of the Revenue (as I hope can be seen from my analysis of the issue of the locus poenitentiae) but this particular quirk should not, in my judgment, deflect me from a straightforward application of the principles.

139.

What consequences do these conclusions as to illegality have in relation to the ownership of 36 BR? In 1986, 36 BR became the property of H and M in law and in equity on a 50:50 basis, F being unable to rely on the conditions to prove otherwise. Neither can the 1986 conditions be carried forward to affect any future dealings with the property, tainted as they are by the illegal purpose, so what happened to the property after 1986 had nothing further to do with F. In 1995, H transferred his share of the property to M and M declared that he held H’s half share on a protective trust. I do not propose to go into the arguments as to the effect of that because the new deeds in 2000 override it.

140.

I have rejected M’s factual case that conditions were imposed on the deeds drawn up in October 2000 (the transfer of the title back into joint names and the deed of gift of M’s share to H). I have found that F gave his consent to the arrangement whereby the house was swapped for the shares although on what basis he would in fact have had any entitlement to impose any terms on that, given my findings about the impact of illegality, I am not sure. M suggests that he only signed the transfer on being assured by H that, putting it broadly, it could not be turned to his advantage. For the reasons I set out earlier, I cannot accept that when M executed the transfer he intended it to be anything other than what it appeared on the face of it i.e. a transfer which would be registered at the Land Registry in the ordinary way. I do not think he would have relied on assurances about the law from a brother whose legal skills he considered a joke and with whom he had a troubled relationship, where the transfer had a real potential significantly to affect his own financial interests. I suspect that he had to advance the argument that he was misled by H about the transfer because his approach to that transaction would otherwise undermine the credibility of his argument that the deed of gift which went with it, only a week later, was to be held in escrow. Why, it would obviously be asked, was the transfer not held in escrow too? M’s answer would be that he did not think it needed to be because of what H had told him about its effect.

141.

It is interesting that M’s argument in relation to the deed of gift is not principally that it was not delivered (although he seems to have retained the copy he signed after signing and having his signature witnessed) but that it was agreed that it was to be held in escrow. The suggested escrow conditions are difficult to understand. As pleaded in M’s points of defence they are “(1) that the deed of gift was only to be produced in the event that M predeceased H or, subject to the agreement of F, on F’s death; and (2) that, subject to the agreement of F, shares which H expected to receive on F’s death would be earmarked for M instead”. What M wrote in his fax of 6 June 2001 was rather different: “I retain the deed and have left instructions that if I should predecease FQ, he is to be consulted to ascertain whether he is willing for the remaining legal interest to be assigned to you by way of the deed.” I do not accept that there were any such conditions or that the deed was to be held in escrow at all. It was an operative deed of gift. The copy signed by M should have been returned to H.

142.

In these circumstances, there seems to me force in the argument advanced by H and W that either M is estopped by deed from asserting that 36 BR is anything other than the property of H alone or, in the alternative, that there was a concluded contract for the transfer of two interests in land, supported by the consideration flowing from the agreement of H and W to inject money and time into the renovation of 36 BR and H’s ceding of any rights in relation to the earmarked shares. Writing exists in the form of the transfer deed in relation to the transfer of the property from M’s sole name to the joint names of M and H and in the form of the deed of gift in relation to the transfer of M’s half share in the property to H which would unite the entire beneficial interest in H.

143.

By whichever route one takes, therefore, H is entitled to 36 BR. The routes relying in one way or another on the 2000 deeds lead automatically to the conclusion that the entire property must be transferred to him. However, I will return to the alternative routes with which I started this judgment and, in particular, deal specifically with the question of the appropriate remedy if H’s claim is based on proprietary estoppel.

144.

The court must take a principled approach to the question of what form the equitable relief should take in a case of proprietary estoppel and cannot exercise an unfettered discretion according to the individual judge’s notion of what is fair in a particular case. It does not necessarily follow that the claimant will have his precise expectation fulfilled. Gillett v Holt identifies that the court must look at the circumstances of the case. It must approach this task in a cautious way to achieve “the minimum equity to do justice to the plaintiff”. There is a wide range of possible relief. As it is put in Jennings v Rice [2002] EWCA Civ 159,

“There is a clear line of authority from at least Crabb to the present day which establishes that once the elements of proprietary estoppel are established an equity arises. The value do that equity will depend upon all the circumstances including the expectation and the detriment. The task of the court is to do justice. The most essential requirement is that there must be proportionality between the expectation and the detriment.” [Aldous LJ]

And, per Robert Walker LJ,

“45. Sometimes the assurances, and the claimant’s reliance on them, have a consensual character falling not far short of an enforceable contract (if the only bar to the formation of a contract is non-compliance with section 2 of the Law of Property (Miscellaneous Provisions) act 1989, the proprietary estoppel may become indistinguishable from a constructive trust: Yaxley v Gotts [2000] Ch 162 ). In a case of that sort both the claimant’s expectations and the element of detriment to the claimant will have been defined with reasonable clarity. A typical case would be an elderly benefactor who reaches a clear understanding with the claimant (who may be a relative, a friend, or a remunerated companion or carer) that if the claimant resides with and cares for the benefactor, the claimant will inherit the benefactor’s house (or will have a home for life). In a case like that the consensual element of what has happened suggests that the claimant and the benefactor probably regarded the expected benefit and the accepted detriment as being (in a general, imprecise way) equivalent, or at any rate not obviously disproportionate……

47.……If the claimant’s expectations are uncertain (as will be the case with many honest claimants) then their specific vindication cannot be the appropriate test. A similar problem arises if the court, although satisfied that the claimant has a genuine claim, is not satisfied that the high level of the claimant’s expectations is fairly derived from his deceased patron’s assurances, which may have justified only a lower level of expectation. In such cases the court may still take the claimant’s expectations (or the upper end of any range of expectations) as a starting point, but unless constrained by authority I would regard that as no more than a starting point.

48. I do not see that approach as being inconsistent with authority. On the contrary, I think it is supported by a substantial body of English authority….

50. To recapitulate: there is a category of case in which the benefactor and the claimant have reached a mutual understanding which is in reasonably clear terms but does not amount to a contract. I have already referred to the typical case of a carer who has the expectation of coming into the benefactor’s house, either outright or for life. In such a case the court’s natural response is to fulfil the claimant’s expectations. But if the claimant’s expectations are uncertain, or extravagant, or out of all proportion to the detriment which the claimant has suffered, the court can and should recognise that the claimant’s equity should be satisfied in another (and generally more limited) way.

51. But that does not mean that the court should in such a case abandon expectations completely, and look to the detriment suffered by the claimant as defining the appropriate measure of relief. Indeed in many cases the detriment may be even more difficult to quantify, in financial terms, than the claimant’s expectations. Detriment can be quantified with reasonable precision if it consists solely of expenditure on improvements to another person’s house, and in some cases of that sort an equitable charge for the expenditure may be sufficient to satisfy the equity ….But the detriment of an ever-increasing burden of care for an elderly person, and of having to be subservient to his or her moods and wishes, is very difficult to quantify in money terms. Moreover the claimant may not be motivated solely by reliance on the benefactor’s assurances, and may receive some countervailing benefits (such as free bed and board). In such circumstances the court has to exercise wide judgmental discretion.”

145.

When the appropriate remedy is being formulated, every case depends upon its own facts. I have had regard to all the circumstances. Amongst them, I must take into account what the parties originally intended, culminating in the documentation of October 2000. This was plainly that if H and W looked after the renovation of 36 BR, financially and by supervising and putting in their own labour, the house would be theirs. I have rejected the notion that this would be merely on the basis of an entitlement to occupy rent free, whether at will or for life. The deal involved the capital value of the property as well. This can be seen, in my judgment, from the share swap arrangement that M and H arrived at. H would have the house, then thought to be worth approximately £800,000 unimproved, and M would have shares worth approximately £800,000. I take into account that the intention seems to have been that M would only take the shares after F’s death but given his relationship with F, he would, justifiably, have been confident that he would, in due course, receive them. H was about to alter his position totally in reliance on the assurances he had been given and it was understandable that he would need to secure the benefit of what was to be his asset, 36 BR, sooner. He and W were giving up their established and comfortable home (and the opportunity to benefit from the undoubted rise in the value of that property and D House over the forthcoming years), putting in a very great deal of time and effort, spending money and relieving F and M of the burden of 36 BR. True, they were able to occupy it without rent or mortgage instalments to pay and the evidence of Ms Long shows that this was a significant benefit, although they did, of course, have responsibility for the normal outgoings and maintenance.

146.

It is submitted on behalf of F and M that H and W only expended a modest amount on repairs. H sets out in his statement of 6 May 2008 a long list of works which he says were done, together with costings. He says, and his evidence in cross examination underlined this, that he does not have invoices for all the works as much of the work was done by casual labour paid in cash, documents have been lost, and W and he did a great deal of work themselves which they have tried to cost out. The figures are questioned on behalf of F and M and it is argued that they are too high for a number of reasons including that a significant amount of work was in fact funded by the insurance claim in relation to the subsistence repairs, that figures for expenditure are overstated, and that the sum for labour of £50,000 is a convenient rounding up figure rather than a proper reflection of what labour they put in. It seemed to me that H could have done rather more to establish the figures as appropriate, not least by producing bank statements to show cash withdrawals, for instance, because on occasions large sums of cash were necessary to pay workmen. I did not conclude, however, that the failure to produce documentation of this and other kinds to substantiate the expenditure claimed suggested that the claim was false. It seemed to me more likely that it was a further example of H’s disorganisation and inertia. There are a number of reasons why expenditure of around £200,000 seems not at all unlikely. There was clearly a lot of work to do in addition to the subsidence works. It is known that this was about the sort of figure raised against C Close and then from the sale of that and D House. It is also noteworthy that there seemed to be a view at the time of discussions during 2000 that the work would be likely to cost about £200,000 and there is evidence to suggest that M himself may have floated that sort of figure. If the documentation setting out the details of the insurance claim and precisely how it was calculated is in the bundle, I was not taken to it because the issue of the figures for renovation was not dealt with in that sort of detail, although I did have my attention drawn to some of the (relatively limited) collection of invoices and other documentation that H had. Ultimately, although it was submitted that one or two items on H’s schedule duplicate insurance works, there really was very little of which that could be said. I considered the argument, explored in cross examination and set out in Miss Harrison’s final submissions for M, that H and W would have had to rely on their capital for living expenses because H earned little and W nothing. However, W’s evidence, which I accept, was that they did not have those sort of financial difficulties at that time. Ultimately, I was prepared to accept, on the balance of probability, that, although (given the lack of records) the apparent precision of the claim for £203,350 is probably not to be relied upon, somewhere in the region of £200,000 was spent by H and W on 36 BR from their own resources. That expenditure has to be seen against the value of the property, then worth about £800,000, but it can hardly be described as “modest” even in that context. It was all H and W had and not an insignificant sum by any means. In any event, expenditure is only one of the relevant features.

147.

Taking all the relevant circumstances together, equity can only be satisfied if 36 BR becomes the property of H.

148.

I intend to hand this judgment down without the attendance of counsel. In the event that all consequential orders can be agreed, they can be made on written application without a further hearing. If not, counsel should approach my clerk to arrange a convenient date for the parties and their counsel to attend.

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SQ v RQ & Anor

[2008] EWHC 1874 (Fam)

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