O’Kelly v Davies [2014] EWCA Civ 1606

Analysis

This appeal concerned a dispute over the beneficial ownership of the property whose legal title was at all times held by the appellant alone. At trial, the judge made the following findings:

1. (i) A former property had been purchased in the joint names of the respondent and appellant in 1987.
2. (ii) In 1991 the legal estate in that property was transferred into the sole name of the appellant to allow her to claim benefits as though she was a single woman living alone. The outstanding mortgage on that property at the time was converted to an endowment secured by a policy on the joint lives of the parties. Eventually the joint endowment policy was cashed in and the proceeds used in part repayment of the mortgage.
3. (iii) Despite the transfer of title to the appellant the respondent had continued to meet the mortgage repayments from his income.
4. (iv) In 2006 the respondent purchased the former property from the appellant with the aid of a mortgage and simultaneously the appellant purchased the property with the proceeds of sale and a mortgage. The reason for the sale of the former property was the appellant’s wish to move into the catchment area for their child’s preferred secondary school. The transfer of the property into sole name of the appellant was because the parties intended that the appellant should continue to claim benefits as though she was a single mother living alone. Had the former property been sold to an independent purchaser and the proceeds used to purchase the property, the property would have been conveyed into the appellant’s sole name for the exact same reasons.
5. (v) The respondent gave misleading information to HMRC and the Jobcentre as to the address at which he was living in order to support the appellant’s false claim for benefits.
6. (vi) The former property was let out by the respondent and the rental income was used in part-repayment of the mortgage. This was ultimately repossessed.
7. (vii) The respondent was the main breadwinner and met the mortgage payments of both properties. The appellant had not worked beyond the early 1990s. In 2009 the respondent had opened an account to receive his salary and in January 2010 the appellant was added as a joint holder of that account. Between February 2010 and December 2011 the appellant withdrew cash from the account and by the end of December 2010 the mortgage on the property had been reduced to £6,321, the majority of the reduction being cash repayments from the joint account.
8. (viii) Whilst the respondent worked abroad for long periods, the relationship between the appellant and respondent endured between 1985 and 2011. When the respondent was not working away from home he lived with the appellant and their child at the former property and then the property

On the basis of his findings of fact the trial judge found that there was no express agreement that the beneficial interest in the property should be shared but found that there was a common intention to share the beneficial interest in the property. Notwithstanding that the judge had held that the purpose for placing the properties into the names of the appellant alone was unlawful, he found that public policy, applied through the maxim ex turpi cause, did not prohibit the respondent from asserting his equitable interest in the property because he did not need to rely upon the illegality of the transactions to make good his claim. Accordingly he made a declaration that the appellant held the property on trust for herself and the respondent in equal shares.

The appellant appealed on two grounds (1) that the judge was wrong to infer a common intention to share the beneficial interest in the property and (2) that in order to make good his claim to a beneficial interest in the property, whose legal title was at all times held by the appellant alone, the respondent was required by the judge’s findings of fact to assert an unlawful agreement; thus public policy did not permit the respondent to enforce any equitable interest he may have had in the property.

Held (dismissing the appeal)

1. 1) The judge’s finding that the appellant held the equitable interest in the former property on trust for herself and the respondent was plainly open to him on the evidence he had heard. It followed that, subject to a satisfactory explanation for the subsequent purchase of the former property by the respondent alone, the former presumption of a resulting trust would have applied to the purchase of the property. There was no dispute between the parties as to the reason for the subsequent purchase of the former property and the judge accepted that the respondent wished to take sole responsibility for buying to let the former property. The joint resources of the parties from that sale of the former property were reinvested in the property. The court did not accept that the facts found by the judge were inconsistent with a common intention to share the beneficial interest equally. The judge examined the dealings between the parties post-October 2006 and for compelling reasons, found that the common intention subsisted as at the date when the dispute arose (at [31]).
2. 2) Equity will not come to the aid of a party who must rely on his unlawful purpose but if his right to an equitable interest in property can be identified without the need to rely on his unlawful purpose it can be enforced. In the present appeal the question was whether the respondent’s claim to a constructive trust founded upon the parties’ inferred intention amounted to an attempt to enforce unperformed provisions of an unlawful transaction. The starting point was that, subject to evidence of common intention, the beneficial interest was held solely by the appellant. The judge had examined the parties’ course of dealings in relation to the property including their respective contributions to the purchase by means of mortgage repayments and in consequence, identified their common intention that the appellant should hold the beneficial interest in trust for herself and the respondent. It was not necessary for the respondent to advance his unlawful agreement in order to make good his claim to a constructive trust. The unlawful purpose may have explained their conduct but it was the conduct itself that gave rise to the constructive trust. The conduct identified by the judge was not the making of the unlawful agreement but the course of dealing between the parties relating to their financial contributions to the purchases. That conduct supported the inference drawn by the judge and for that reason the intervention of public policy was avoided (at [20] and [29] to [34] (Tinsley v Milligan applied; Barrett v Barrett distinguished).

JUDGMENT PITCHFORD LJ: The appeal [1] This is an appeal from the decision of His Honour Judge Vosper QC, sitting at Swansea County Court on 14 March 2013, when he made a declaration that the defendant (‘the appellant’) holds the freehold property at 74 Lon Olchfa, Sketty, Swansea on trust for herself and the claimant …

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