Rahnema v Rahnema & Anor

Where a marital agreement provides that property acquired during marriage is jointly owned, the court must identify when and beneficially by whom the property was acquired. A transaction expressed as a trust may, on its proper construction, be an outright sale subject to an equitable charge. A later trust deed cannot retrospectively alter the character of an earlier acquisition or defeat the other spouse’s accrued interest. An outstanding contractual balance remains a debt and reduces the property’s net value. Registration does not extinguish it. The agreement does not apply where the spouse acquired the asset solely as trustee or agent for another. Illegality connected with underpaid stamp duty did not deprive the parties of their contractual rights or enlarge the husband’s share.

Dr Rahnema appealed from a Chancery Division decision of Nicholas Warren QC, sitting as Deputy High Court Judge, concerning ownership of 28 St Edmunds Terrace and a Mercedes Benz car. The lower court held that the property was held by Mrs Rahbari on trust for Miss Ansari and that Miss Ansari owned the car.

The appeal concerned the effect of a subsisting marital agreement governed by Virginia law, the proper construction of a written agreement concerning the property, the later trust deed, the outstanding contractual balance, registration, stamp duty, and whether the car had been acquired by Mrs Rahbari as Miss Ansari’s agent.

1. Applicable law. In the absence of evidence about the effect of the agreement under Virginia law, the court proceeded on the assumption that it had the same effect as the law of England and Wales.
2. The property. Judge LJ gave the principal judgment. The written agreement of 3 May 1996 was properly construed as an agreement for the sale of the property to Mrs Rahbari. The reference to a trust described a temporary arrangement pending payment of the deferred balance. Mrs Rahbari acquired the beneficial interest subject to an equitable charge securing £280,000 and interest. Miss Ansari’s subjective intention could not alter that legal effect.
3. Under Clause IV of the marital agreement, property beneficially acquired by either spouse during the marriage became jointly owned. Mrs Rahbari acquired the relevant interest no later than 7 May 1996, when the legal estate was transferred and the transaction was completed. The trust deed executed on 15 May could not affect Dr Rahnema’s pre-existing interest, although it was effective in relation to Mrs Rahbari’s own share. The court left open whether Clause IV extended to property acquired from the wife’s pre-marriage funds, but stated that property received as a legacy during the marriage would fall within it and property held solely as trustee or agent for another would not.
4. The outstanding contractual obligation to pay Miss Ansari £280,000 and interest was not extinguished by the omission of her continuing interest from the register. Section 20 of the Land Registration Act 1925 had no relevant effect. The debt reduced the net value of the property for the purposes of the marital agreement and the husband’s equal share. The underpayment of stamp duty did not deprive either contracting party of the benefits of the agreement or increase Dr Rahnema’s interest. Full stamp duty was payable, and the judgment was to be sent to the Inland Revenue.
5. The car. The judge’s findings established that Mrs Rahbari purchased the car as Miss Ansari’s agent, using at least two-thirds of the price supplied by Miss Ansari and the balance advanced as a loan. The acquisition therefore did not fall within the marital agreement.
6. Peter Gibson LJ independently agreed with the property reasoning and order. May LJ agreed with both judgments and added that, given the disproportionate costs, the parties and advisers should be encouraged to pursue conciliatory negotiations.
7. The appeal concerning the property was allowed. Dr Rahnema was entitled to an equal share of its net value, subject to the contractual payment and interest due to Miss Ansari, any appropriate rent set-off, and payment of stamp duty. The appeal concerning the car was dismissed.

1. Court of Appeal (Civil Division): allowed the appeal concerning 28 St Edmunds Terrace and dismissed the appeal concerning the Mercedes Benz car.
2. Chancery Division: Nicholas Warren QC, sitting as Deputy High Court Judge, decided on 19 June 2001 that the property was held by Mrs Rahbari on trust for Miss Ansari and that Miss Ansari owned the car.