This case was an appeal by trustees in bankruptcy against a decision that the bankrupt party did not have a beneficial interest in their former family home. Previously, there had been an express declaration of trust which stated that the couple held the property as joint tenants.
The Court in the first instance held that this express declaration had changed because of a common intention of constructive trust made at a later time and the separation of the bankrupt and his wife. The trustees’ appeal of this decision was dismissed by the Court.
The Court held that an express declaration of trust regarding the beneficial ownership of a property can be varied by something other than a formal agreement.
Background
In 2001, the bankrupt (B) and his wife (W) purchased a property as joint tenants with the intention it would become the family home (Property).
The couple separated in 2009 and B moved out of the Property. During the separation, B discussed not wanting to retain an interest in the Property and was happy for W to have the entire Property, so long as it was ultimately left to their two children. Upon this informal agreement, W paid all expenses relating to the Property.
B and W divorced in 2018 and trustees in bankruptcy (trustees) were appointed in 2019. In 2020, W issued a claim for a common intention constructive trust and/or proprietary estoppel in relation to the Property and sought an order that the beneficial interest in the Property was held for W alone.
At the first instance hearing, it was held that a common intention constructive trust had formed in 2009 as a result of B and W’s informal discussions and subsequent conduct, or, there was a proprietary estoppel. Therefore, W’s claim succeeded. The trustee’s claim for possession and sale of the Property was dismissed.
The trustees issued an appeal on the following grounds:
1. the express declaration of trust was conclusive, and the judge in the first instance wrongly treated it as only giving rise to a presumption;
2. the detriment suffered by W was wrongly held to be sufficient to establish the existence of a constructive trust;
3. the assurances made by B were wrongly held to be sufficient to establish proprietary estoppel or a constructive trust; and
4. if proprietary estoppel did arise, this happened after particular home improvements had been made by W.
Decision
Ground 1
The judge acknowledged that an express declaration of trust was conclusive. The judge, however, relied on Stack v Dowden [2007] NZHL 17 where it was stated that an express declaration of trust was conclusive unless varied by a ‘subsequent agreement’. It was for the Court to determine in this instance whether this variation needed to be by a formal agreement.
It was held that a ‘subsequent agreement’ capable of varying an express declaration of trust did not need to be a formal agreement compliant with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 but could include a common intention constructive trust.
Ground 2
It was held that there was a significant detriment, including that W declined ancillary relief proceedings in the divorce. Further, the benefit to W of having the Property to herself and the children was outweighed by her having to pay the mortgage herself. This furthered the argument that a varied agreement existed between the parties and that the Property was now W’s alone.
Ground 3
Regarding the third ground, the trustees heavily relied on correspondence from W’s solicitors at the time of the divorce. However, the district judge held that this only reflected W’s solicitors’ views and was not representative of the actual legal position at the time.
Ground 4
It was held that the trustees were incorrect in focusing solely on the home improvements.
Comments
The findings in respect of ground 1 are perhaps the most significant. In this case, it was held that an agreement that did not comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 could vary a pre-existing express declaration. There are many conflicting decisions in the High Court regarding this point which seems to suggest that similar issues will be dealt with on a case-by-case basis. However, this case firmly supports the argument that a non-written agreement can vary from an express declaration.
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