Collier v Collier

Equity will not enforce a transferor’s alleged beneficial interest where establishing that interest requires proof of an agreement designed to conceal it from creditors or another third party. The illegality operates as a procedural bar to enforcement, rather than preventing an equitable interest from arising.

The locus poenitentiae exception requires voluntary withdrawal while the dishonest purpose remains unperformed. It does not assist a person who leaves a scheme in place and later uses it successfully to defeat creditors’ security. An objectively established proprietary interest may be asserted without reliance on illegality, but an oral trust agreement made for the dishonest purpose cannot be enforced by the party relying on it.

A daughter held the registered freehold of two properties following her exercise of options contained in leases granted by her father. The father had funded most of one purchase and remained in possession of one property. He counterclaimed for declarations that the daughter held both properties, or the proceeds of sale of one of them, on trust for him.

His Honour Judge Rich QC held that the daughter had been the father’s nominee and declared that she held the relevant interests on trust for him. The judge found that the arrangements and later exercises of the options had been used to defeat mortgagees’ security.

The daughter appealed, contending that no trust agreement had been proved and that any alleged trust could not be enforced because it required reliance on the father’s illegal purpose.

1. Appeal allowed unanimously. The declarations and transfer order in the father’s favour were set aside. The father could not obtain equitable relief against the daughter’s apparent ownership.

2. Lord Justice Aldous held that the trial judge had wrongly treated a statement signed by the daughter’s mother as an authorised admission by the daughter. Nevertheless, he would not disturb the finding that an agreement creating a trust existed. On the judge’s findings, however, the agreement was not a bare trust: it required the daughter to be a nominee and the arrangements to be available for deception. The father could establish the alleged trust only by proving those illegal terms.

3. Applying Tinsley v Milligan [1994] 1 AC 340, the court held that illegality did not extinguish a proprietary interest but prevented its enforcement where the claimant had to rely on the illegality to establish it. The father’s claim therefore failed under the primary rule.

4. The locus poenitentiae exception did not apply. The leases and options were retained and then used in 1995–1997 to deprive the mortgagees of the value of their security. The dishonest purpose had been carried into effect; there had been no voluntary withdrawal before performance.

5. Lord Justice Chadwick also concluded that the evidence did not establish any pre-grant agreement that the daughter would hold the leaseholds as nominee. Lord Justice Mance would have upheld the finding of such an agreement, but agreed that binding authority required its enforcement to be refused because the father needed to rely on an agreement made to deceive creditors.

• Court of Appeal (Civil Division): Allowed the daughter’s appeal and set aside the trust declarations and consequential transfer order: [2002] EWCA Civ 1095.
• Chancery Division: His Honour Judge Rich QC held that the daughter held the properties and sale proceeds on trust for the father. No citation for that decision was stated in the judgment.