Barrett v Barrett

A claimant cannot enforce an equitable proprietary interest where establishing that interest requires reliance on an unlawful purpose. The rule applies where the unlawful purpose shaped the transaction and the claimant must plead and prove the arrangement that concealed the interest from a trustee in bankruptcy. Mortgage payments may support a constructive trust, but they do not automatically establish a presumed resulting trust. Alternative claims in express trust, common intention, proprietary estoppel or Pallant v Morgan equity fail where each depends on proving the same unlawful arrangement. The court has no general discretion to enforce the proprietary claim despite the illegality.

The appellant appealed against an order of His Honour Judge Levy QC in the Central London County Court striking out his claim under CPR 3.4(2). He claimed that a residential property purchased and registered by his brother was held on trust for him, and sought the proceeds of its later sale.

The alleged arrangement was made while the appellant was bankrupt. It enabled the respondent to acquire the property in his own name while the appellant remained in occupation and concealed his beneficial interest from the trustee in bankruptcy. The central issue was whether the appellant could establish and enforce a beneficial interest without relying on that unlawful purpose.

1. Appeal dismissed. The strike-out was upheld because the pleaded claim could not succeed as a matter of law.
2. The claim was properly analysed as one for a constructive trust. It was not a presumed resulting trust based on contributions to the purchase price, since the appellant made no direct payment towards the purchase and was not liable to the mortgagee. Mortgage instalments may support a beneficial interest only where they are referable to an arrangement made at the time of purchase from which that intention can be inferred.
3. The principle in Tinsley v Milligan was applied. An equitable proprietary interest arising from an unlawful transaction may be enforced where the claimant can establish title without pleading or proving the illegality. Some reference to the parties’ arrangement is permissible, but the claimant cannot rely on the unlawful purpose itself.
4. Here, the unlawful purpose was not remote. The arrangement was specifically designed to conceal the appellant’s interest from the trustee in bankruptcy and thereby defeat the trustee’s statutory opportunity to claim after-acquired property. The purpose shaped the whole transaction.
5. The express trust, common intention constructive trust, proprietary estoppel and Pallant v Morgan alternatives all depended on proving the same arrangement and its unlawful purpose. They were therefore equally unenforceable. The court had no discretion to permit enforcement merely because the respondent had participated in the arrangement or had been enriched.

• High Court (Chancery Division): Mr Justice David Richards dismissed the appeal and upheld the Central London County Court order striking out the claim under CPR 3.4(2).
• Central London County Court: His Honour Judge Levy QC struck out the claim on the ground that it disclosed no reasonable grounds for bringing it.