Family Law Hub

Pankhania v Chandegra [2012] EWCA Civ 1438

  • In a tweet: Be careful if you sign a declaration of trust!

    Summary: The parties were nephew and aunt. They had purchased a property in Leicester in 1987 for the sum of £18,500 with the assistance of a mortgage of £17,500. It was transferred into their joint names as joint tenants in common to be held in equal shares. The transfer document contained an express declaration of trust by Mr Pankhania ("Mr P") and Mrs Chandegra ("Mrs C") to that effect.   

    At first instance, Mrs C argued that she held the legal and beneficial ownership in her sole name - despite the express declaration, she submitted, there had been an understanding between the parties and within the wider family that she was to be the sole beneficial owner of the property and it was to be her matrimonial home; the first instance judge accepted her arguments and made a declaration to that effect. This entitled Mrs C to all the net proceeds of sale from the property. Mr P appealed the order on the basis that at no point in the judge's judgment had he referred to the fact that there was an express declaration of trust setting out the parties' respective beneficial interests; neither had it been clear that the judge had made a finding that, as per Mrs C's case, the transfer had been a sham. Mr P's case was that the property had been purchased in order to provide a home for his uncle (who had died in 2003) and, subject to that, was an investment for Mrs C and himself. The area of dispute at trial was therefore whether there was an underlying agreement or understanding capable of displacing the terms of the transfer.

    The first instance judge had directed himself by looking at the cases of Stack v Dowden [2007] UKHL 17 and Jones v Kernott [2011] UKSC 53. Having reflected on the evidence, he had concluded that Mr P had acquired a legal interest in the property by virtue of the transfer but it had not been accompanied by a corresponding beneficial interest due to the following reasons:  

    • Mr P had agreed that the beneficial interest belonged to the family, of which he was but a fraction;
    • he had become a joint tenant simply to enable or facilitate Mrs C's purchase of the house;
    • he may or may not have contributed a minimal £250 to the purchase price;
    • he had never asked for any income from the property; 
    • between at least 1989 and 2005 (and possibly longer), he had done nothing at all to assert or suggest that he had any entitlement to the property or in the property; and 
    • he had never sought to live in the property.

    Held: Mr P's appeal was allowed. An order for sale was made together with a declaration  that the parties were entitled to the net proceeds of sale in equal shares.

    Lord Justice Patten accepted that the judge's reasoning could not be criticised had this been a case where the property had been transferred to the parties as joint tenants with no indication in the transfer as to the beneficial ownership. The factors identified would all have been relevant to determining what the parties' intentions had been. But this had not been the issue that had been before the court. The parties had executed an express declaration of trust and had set out their respective beneficial entitlement as part of the purchase itself. There was no need for the imposition of a constructive or common intention trust of the kind discussed in Stack v Dowden nor any possibility of inferring one because such a declaration of trust was to be regarded as conclusive unless it was varied by a subsequent agreement or affected by proprietary estoppel.

    The judge's imposition of a constructive trust in Mrs C's favour had been impermissible unless Mrs C could establish some ground upon which she was entitled to set aside the declaration i.e. fraud, mistake or undue influence. Lord Justice Patten said that nothing of that kind had been alleged. The only ground that the judge had referred to for going behind the declaration was if the transfer were a sham. It was not clear if the judge had made a finding that the transfer had been a sham but, if he had, Lord Justice Patten observed, he would have been wrong - the evidence relied upon by Mrs C had been no more than the parties intending to agreeing that she should be the beneficial owner. This was not sufficient to establish that the transfer had been a sham. The effect of executing the declaration of trust had been to make Mr P an equitable tenant in common regardless of what the parties may have subjectively intended and to estop Mrs C from denying his title. Unless the conditions existed for the court to rectify the document, the parties were bound by the legal consequences of what they had signed.

Case note, published: 05/12/2012

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Published: 05/12/2012

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