IN THE SUPREME COURT OF JUDICATURE
CHANCERY DIVISION
Before:
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Between:
Claimant
-and-
First Defendant
-and-
Second Defendant
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Tim Cowen (instructed by Kosky Seal) for the claimant.
The defendants were not represented and did not appear.
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1. The hearing of this matter concluded on 2nd May 2002 when, in view of the pressure on the lists and those waiting to commence the next case, I decided to consider my judgment, and deferred giving it.
2. This dispute is primarily about a residential property known as Flat 4, Thomas A’Becket Close, Wembley, Middlesex (“the Flat”). It is a long leasehold property which is registered at HM Land Registry under Title No. NGL 63008; it is held under a Lease for a term of 125 years from 25th March 1965 at a ground rent of £20 per annum. Garage 20 is included in the demise.
3. The principal people involved are the following:-
(i) Mr Devappa Govinda Poojary (“Mr Poojary”), the Claimant, who at the material time worked in the banking sector on the commercial side (and not in any residential mortgage department). He is married to Shobha Devappa Poojary;
(ii) Mr Kantilal Unnadkat, which is possibly also spelt with one “n”, (“Kantilal”); he was a friend of, and of the same generation as, Mr Poojary. In 1989 he was in about his upper fifties. As other members of Kantilal’s family are involved, I shall refer to him and them by their forenames to avoid confusion;
(iii) Miss Priti Unnadkat (“Priti”), the daughter of Kantilal; she does not appear to have used a last name with two “n”s in it. She later married and became Priti Kotecha, and went to live in India in 1991;
(iv) Mr Anil Kantilal Unnadkat, which is also spelt with one “n”, (“Anil”); he is the son of Kantilal and the brother of Priti. He is the Second Defendant. In 1989 he was in about his twenties.
4. As, matters have turned out, this case has also involved an interesting point on illegality, a last minute development.
5. On 7th July 1987 Mr Poojary and his wife purchased the Flat for £55,000 and it was transferred into their joint names. The purchase was a joint investment with Kantilal and the Flat was intended to be let out. The beneficial interest belonged to Mr Poojary and Kantilal in equal shares; they trusted each other and executed no document to that effect. £50,000 was borrowed from the Chelsea Building Society and the balance of the purchase price, the costs of the purchase, and the costs of redecoration, fitting out and furnishing the Flat for letting, together with any shortfall in income were all found equally by the 2 beneficial owners.
6. Shortly afterward Mr Poojary was transferred abroad by his employers to work in India and he took his wife with him, and during their absence Kantilal was in charge of the Flat, assisted by Anil.
7. In about May 1988 Mr Poojary and his wife returned from India to live in England, and as the Flat was then vacant they stayed in it pending their purchase of a family home. But, subject to this temporary residency, Mr Poojary wanted to sell the Flat. Kantilal disagreed and wanted to hold onto it. It is at this point in the story that certain matters have, since about 1989 or 1990, became disputed. What is not in dispute is that on or about 28th February 1989 Mr Poojary and his wife transferred the Flat to Priti, Kantilal’s then unmarried daughter who was living at Kantilal’s family home at 17 Park Mead, South Harrow, Middlesex; and that on or about 21st March 1989 Priti became the sole registered proprietor of the Flat; it has since remained registered in her name. A new mortgage was raised on the Flat by Priti with the Abbey National Building Society in the sum of £60,000 (Mortgage Account No. CJ 20757 UNA), and the previous Chelsea Building Society mortgage, then amounting to over £51,000, was paid off. I infer that it was a condition of the Abbey National mortgage, which was an interest only mortgage (i.e. there were no capital repayment instalments), that a low cost endowment policy should be taken out with Standard Life; it was a condition of the mortgage that the Standard Life policy should remain in force (see Abbey National’s letter dated 25th September 1990 at page 151 of the Trial Bundle) - this of course required the continuing premiums to be paid. A Standard Life policy was taken out by Priti on or about 23 rd February 1989 under policy number X26457849 (“the Policy”) with Priti being the person assured and also the life assured (a copy of this policy appears at page 141 of the Trial Bundle). The monthly premiums were £73.00 payable on the 23rd of each month, and the policy could be surrendered - see Condition 3.
8. There is a Declaration of Trust document whose authenticity is in issue; for convenience I shall refer to it as “the Declaration of Trust”. It bears the date of 24th July 1989. After reciting that Mr Poojary and Anil (not Kantilal) had discharged all the costs and expenses of the purchase of the Flat and had paid all mortgage instalments and all rates, rents and outgoings in respect of the Flat, it declared that Priti held the Flat upon trust to sell it and to hold the net proceeds of sale and the net income till sale for Mr Poojary and Anil as beneficial tenants in common. It purports to be signed and executed as a deed by Priti and witnessed by Kantilal giving his 17 Park Mead address. Kantilal moved away to live in Leicester in about 1990. Priti went to live in India in about 1991 and has resided there ever since.
9. The dispute as to beneficial ownership started to come into the open in late 1999 or early 2000; at about the beginning of March 2000 Mr Poojary applied to the Land Registry to register a caution against the Flat (it was formally registered on 7th March 2000) and got his solicitors to write to Priti in India on 6th March 2000 claiming that the Flat was held upon trust for Mr Poojary and Anil in equal shares, and asking for an account (page 103A of the Trial Bundle); a reminder was sent on 7th June 2000. English Solicitors acting for Priti replied on 7th July 2000 stating their understanding that the caution had referred to the Declaration of Trust “of which our client has no knowledge”, and asked for a copy, which was sent on 20th July 2000. On 16th August 2000 Priti’s solicitors wrote again, having received instructions from Priti; she denied signing the Declaration of Trust, and she asserted that she had purchased the property for investment purposes, that she owned the property and Poojary had no beneficial interest in it, that the recital of financial contributions in the Declaration of Trust was incorrect, and that Mr Poojary was not entitled to an account and should remove the caution. On 7th September 2000 Priti’s solicitors wrote to HM Land Registry and denied that Priti had signed the Declaration of Trust and further denied that Mr Poojary had any interest in the Flat; they were attempting to warn off the caution. This failed.
10. On 21 December 2000 Mr Poojary issued a claim form against Priti and Anil claiming a half beneficial interest in the Flat and the Policy, and relief consequential on that. This claim form was on 22nd January 2001 ordered to stand as the Statement of Claim. On 13th March 2001 Priti acting by the same solicitors put in her Defence effectively denying that Mr Poojary had any beneficial interest in the Flat and denying that she “was a party to any Trust Deed”. She stated that Anil managed the Flat for her. The Statement of Truth at the end said: “The Defendant believes that the facts stated in this Defence are true. I am duly authorised to sign this statement”, and then it was signed by Priti’s solicitor. Anil also put in a Defence, using the same solicitor - it is undated but appears to have been put in shortly afterwards; this is a very short and somewhat enigmatic document (deliberately so it seems to me) and can be taken as denying Mr Poojary’s claims; it also has a Statement of Truth, signed by the same solicitor.
11. By an Order dated 16th July 2001 the Defendant’s solicitors ceased acting, and, with the one exception mentioned below, the Defendants have not been represented by solicitors since, and have played no part in the action. This has meant that they have provided no disclosure, no witness statements and no instructions to the joint hand-writing expert (which should include sample signatures).
12. The trial started on 1st May 2002. On that morning and before it started, the Claimant’s solicitors and the Court received letters by fax dated 1 May 2002 from new English solicitors acting for Priti; these new solicitors explained that they had not yet received Priti’s papers (as her former solicitors were exercising a lien). They asked Mr Poojary’s solicitors to agree to an adjournment, and then wrote this paragraph:-
We are concerned, from the little information that we have obtained, that your client and our client’s father were party to an arrangement whereby they used our client as a nominee to obtain a mortgage advance from Abbey National Plc on the pretext that our client was going to reside in the property which is the subject of the claim. Both your client and our client’s father knew this was not correct, and also MIRAS relief was claimed in respect of the loan. Such an arrangement would, in our view, be illegal and not enforceable by virtue of the decision of the Court of Appeal in the case of David Birkett v. Acorn Business Machines Limited 1992 AER 429.
13. The letter was not accompanied by any appearance in Court by Priti (or Anil), even though the Claimant’s solicitors informed Priti’s solicitors that the case was continuing on 1st May 2002 and the next day. Nothing further was heard from Priti or her solicitors. On analysis, this letter sent on behalf of Priti effectively admits her trusteeship but makes an allegation of illegality.
14. I will deal with illegality later, and I now turn to the facts about beneficial ownership as I find them. I have seen Mr Poojary in the witness box and I find him to be an honest witness, and I accept his witness statement. I have also heard oral evidence from Mr Frits Cohen, the handwriting expert, which I will come to.
15. Mr Poojary and Kantilal had an equal beneficial interest in the Flat when it was acquired in the names of Mr and Mrs Poojary on 7th July 1987. The disagreement about what to do with the Flat in 1988 when Mr Poojary was looking to buy his matrimonial home resulted in the Flat being transferred to a new trustee, Priti, though the transaction was structured in many ways as a purchase by her for £70,000 from Mr and Mrs Poojary; certainly their solicitors Messrs. Vara & Co looked on it as a sale by them: see their letter, bill of costs and completion statement at pages 33 to 37 of the Trial Bundle. Mr Poojary has tried to obtain Vara & Co’s full file on this matter, but they have confirmed that the file has been destroyed, along with other files, in a fire. Priti paid no money of her own and paid no deposit; she took out the mortgage from the Abbey National Building Society in her fiduciary capacity and similarly with the Policy, which was an essential step in obtaining the mortgage. The premiums on the Policy were paid out of the income from the Flat or by the beneficiaries, and not by Priti out of her own money. As trustee Priti was entitled to be indemnified by her beneficiaries for any reasonable liabilities incurred by her as part of her duties, and I find that from time to time the beneficiaries provided funds to do this when the trustee account was not in surplus; these included payments by Mr Poojary of £2,500 on 14/3/89, of £1000 on 31/5/89 and of £500 on 21/6/89, as recorded in the account in the Trial Bundle at page 46; this page appears to be in Kantilal’s handwriting and came from the “Anil File” mentioned below. After the transfer to Priti in the first quarter of 1989, Mr Poojary continued to concern himself with finding tenants for the Flat, and in particular the Paddington Churches Housing Association Limited: see for instance the letter dated 25th April 1989 addressed to Mr Poojari at page 39 of the Trial Bundle.
16. I find that the Declaration of Trust, which is dated 24th July 1989, was duly executed by Priti, and that her signature on it was not a forgery. The expert Mr Frits Cohen concluded, as I accept, that it was highly probable that the signature on the Declaration of Trust was the same as the signature on the MIRAS form, his document Q2, and on the letter to Mr Sacre (who was arranging the Policy), his document C5. I find that Q2 and C5 were signed by Priti. The expert found the fluency of the signature on the Declaration of Trust to be further confirmation. The expert also discerned in the papers 2 groups of signatures or initials, the first being those of Priti; I find that the second group was in Anil’s handwriting; this is not surprising because he was managing the Flat after Kantilal moved to Leicester in 1990, and of course Priti had gone to live in India in 1991. As possible contenders for signing the Declaration of Trust we were able, successively, to eliminate Mr Poojary himself, Kantilal and Anil, and nobody else appears to have been closely involved in the transaction. The evidence of the signature on the Declaration of Trust being that of Priti is overwhelming.
17. The Declaration of Trust had not been requested by Mr Poojary, but was proferred to him by Kantilal in 1989, for reasons which are not clear but, I infer, may have had something to do with the latter’s intended move away to Leicester in 1990. Mr Poojary noticed the change of beneficiary from Kantilal to his son Anil in the Declaration of Trust, but as his own half beneficial interest was affirmed he was not concerned. When later the “Anil file” (as it became known at the hearing before me) was handed to Mr Poojary by Anil, there was nothing in it which he understood as contradicting his half beneficial interest.
18. Thus, subject to illegality, I would be prepared to make declarations that Mr Poojary has at all times had a half beneficial interest in the Flat and the Policy.
19. Priti’s solicitors’ letter of 1st May 2002 prays in aid illegality with a view to making Mr Poojary’s interest unenforceable. The illegality alleged is that there was an agreement to deceive Abbey National Plc into believing that Priti was to reside at the Flat. Though it does not in terms say so, the letter may have been intended to allege that further deceit (of the Revenue) was intended by Mr Poojary, with Priti claiming MIRAS relief though not resident.
20. Mr Poojary’s Counsel says that nonetheless he is entitled to succeed on 3 levels: put shortly, his submissions are:-
(i) these illegality allegations emerged very late, indeed on the first day of the trial, and in accordance with the Court of Appeal decision in Birkett v. Acorn Business Machines Limited [1999] 2 AER 429, I cannot be satisfied that there is no palpable risk of injustice in me dealing with the matter now;
(ii) on the facts, illegality is not made out and anyway the Abbey National affirmed their mortgage with express knowledge of letting;
(iii) even if the facts did support the illegality indicated in the previous paragraph of this Judgment, he relies on Tinsley v. Milligan [1994] 1 AC 340 as still entitling Mr Poojary to enforce his interest.
I now examine these 3 submissions.
21. The allegation of illegality did emerge at the very last minute, and in a very unhelpful way in the sense that it was unsupported by Priti adducing any pleading or any evidence or even appearing to argue the point. Of course a Court will want to consider questions of illegality once they come to its notice for “the court does not sit to enforce illegal contracts”; but the Court of Appeal in the Birkett decision was at pains to point out the injustice that may be caused by late allegations of this sort. Colman J. said in a passage starting at page 433h:
The application of these principles in a case where evidence or allegations of illegality emerge for the first time at the trial require particular care. The claimant may be taken by surprise and may be unable to adduce additional evidence for the purpose of rebutting an inference of illegality which the court might be entitled to draw ... notwithstanding the court’s duty to decline to enforce illegal transactions, it must not take that course unless it is satisfied that to refuse enforcement on the grounds of the perceived illegality would not involve any palpable risk of injustice to the claimant by reason of his inability to rebut the illegality by adducing evidence or making more comprehensive submissions. The court should not exercise its discretion against enforcement unless there is no material risk of injustice in this sense.
Sedley L.J. agreed and said at page 435a:
For reasons which appear clearly from the authorities cited by Colman J, it is only where the court can eliminate any possible answer with complete confidence that an unpleaded case of illegality should be allowed to succeed.
22. For my part, I am not satisfied that there is “no material risk of injustice”, as Colman J put it, or that I “can eliminate any possible answer with complete confidence” as Sedley L.J. stated. On this ground alone I would reject the illegality argument.
23. The facts to some extent influence my decision above. As far as the suggestion that the Abbey National were to be deceived into thinking Priti was residing at the Flat, my attention has been drawn to the letter dated 10th October 1989 (page 150 of the Trial Bundle) which was sent on behalf of Priti to the Abbey National (it seems that Anil himself initialled the letter on Priti’s behalf), and this clearly speaks of the “letting of the property”. The Lease to Paddington Churches Housing Association Limited (pages 8 1 to 85 of the Trial Bundle) did not begin earlier than 22nd May 1989 (the commencement date is not entirely clear), and it is evident that there had been correspondence prior to the letter of 10th October 1989; this earlier correspondence is not before the court. Clearly the Abbey National affirmed their mortgage with knowledge of the letting, even if they had previously been deceived. Mr Poojary denied in the witness box that he had made any such agreement. Deception is a serious allegation, and in any event I am not persuaded that this formed part of an agreement or arrangement made by Mr Poojary, and I reject this suggestion.
24. Priti’s solicitors’ letter of 1st May 2002 does not allege that there was a similar MIRAS fraud on the Revenue agreed to by Mr Poojary, though the subject of MIRAS is raised in the same context. My attention has been drawn to the fact that the MIRAS form signed by Priti and dated 14th February 1989 (pages 146 to 149 of the Trial Bundle) is the original form with the “Lender’s”, Revenue’s” and “Borrower’s” copies still attached, and that clearly this MIRAS form has never been used or distributed; it may have originated from the Abbey National whose reference is included in it. This original MIRAS form with all its copies was in “Anil’s file” handed to Mr Poojary by Anil several years after 1989, in 1997 or 1998. I infer that it was not intended to be used. My attention has also been drawn to an “accounts for the Flat” document which Anil sent to Mr Poojary on 1st March 1996 (page 50 of the Trial Bundle); at page 52 these show, towards the bottom, what appears to be a credit to the mortgage account of “MIRAS £396.52”. This relatively small amount is unexplained. This raises a query in my mind, but Mr Poojary told me in the witness box that he did not discuss MIRAS with Kantilal in 1989, and I believe him. I am not persuaded that a serious allegation that Mr Poojary agreed or arranged to deceive the Revenue by a MIRAS fraud has been made out, and accordingly I reject it.
25. In summary I accept Counsel’s submission on behalf of Mr Poojary that illegality is not made out on the facts.
26. Tinsley v. Milligan [1994[] 1 AC 340 is a majority decision of the House of Lords and, although not all jurisdictions have accepted it, it is binding on me. Counsel has submitted that the speeches of Lord Jauncey and Lord Browne-Wilkinson provide the clearest guidance, and I agree. Lord Lowry agreed with both of them: page 36811. Lord Jauncey extracted 3 propositions from the authorities, the first of which was that “the court will not give its assistance to the enforcement of executory provisions of an unlawful contract whether the illegality is apparent ex facie the document or whether the illegality of purpose of what would otherwise be a lawful contract emerges during the course of the trial”: page 366C. (I comment that this first type of illegality can be illustrated by the Birkett decision). Lord Jauncey’s second category is not here relevant, and his third category was that “it has ... for some years been recognised that a completely executed transfer of property or of an interest in property made in pursuance of an unlawful agreement is valid and the court will assist the transferee in the protection of his interest provided that he does not require to found on the unlawful agreement”: page 366F.
27. Lord Jauncey went on to say that the ultimate question is “whether the respondent in claiming the existence of a resulting trust in her favour is seeking to enforce unperformed provisions of an unlawful transaction or whether she is simply seeking to rely on an equitable proprietary interest that she had already acquired under such a transaction”: page 366G. Lord Jauncey concluded at page 367C:
However, as soon as the agreement was implemented by the sale to the appellant alone, she became trustee for the respondent who can now rely on the equitable proprietary interest which is thereby been presumed to have been created in her favour and she has no need to rely on the illegal transaction which led to its creation.
28. I can cite from Lord Browne-Wilkinson’s speech more shortly. At page 371F his Lordship said:
Where the presumption of resulting trust applies, the plaintiff does not have to rely on the illegality. If he proves that the property is vested in the defendant alone but that the plaintiff provided part of the purchase money, or voluntarily transferred the property to the defendant, the plaintiff establishes his claim under a resulting trust and “a plaintiff can establish his equitable interest in the property without relying in any way on the underlying illegal transaction.
At page 374C his Lordship added:
The equitable right, if any, must arise at a time at which the property was voluntarily transferred to the third party or purchased in the name of the third party
and at page 376E
Miss Milligan established a resulting trust by showing that she had contributed to the purchase price of the house and that there was common understanding between her and Miss Tinsley that they owned the house equally. She had no need to allege or prove why the house was conveyed into Miss Tinsley’s name alone, since that fact was irrelevant to her claim; it was enough to show that the house was in fact vested in Miss Tinsley alone.
29. In the present matter when the Flat was transferred into Priti’s name alone, she provided no consideration and at that time she became a trustee of the flat as to half on a resulting trust for Mr Poojary. I hold that that was their common understanding. Likewise in respect of his monetary contributions. As Lord Browne-Wilkinson said, there was no need to prove why the Flat was conveyed to Priti alone. Mr Poojary could rely on the equitable proprietary interest which was then created (or continued) and he has no need to rely on the transaction that led to that equitable interest.
30. Thus, had I found the facts differently and held that Mr Poojary had made an illegal agreement or arrangement in 1989, on the authority of Tinsley v. Milligan his equitable interest in the Flat would still be enforceable.
31. In conclusion on this point, the late raising of the allegation of illegality does not assist Priti to avoid the enforcement of her obligations as trustee towards Mr Poojary.
32. I wish to hear further submissions on the consequences of this judgment and how one can most effectively enforce a speedy but fair implementation of the trusts, bearing in mind the likely lack of cooperation from Priti and Anil. I will need assurance that the positions of Abbey National and Standard Life are not prejudiced. I will also wish to hear submissions on costs bearing in mind all the circumstances including (i) the untruthful statements about (a) the existence of Mr Poojary’s beneficial interest and (b) the execution of the Declaration of Trust, both in the correspondence and in the Statements of Truth in the pleadings (a serious matter), and (11) the late and unsupported allegation of illegality.