Qayyum v Hameed & Anor

A common intention constructive trust may arise where a party takes on a potentially significant personal liability in reliance on an agreement to receive an interest in land. That liability can amount to substantial detriment even though the other party has agreed, as between themselves, to bear the mortgage debt.

An innocent misrepresentation inducing the arrangement does not necessarily prevent the trust arising. Where the trust is institutional, the court declares a pre-existing property right rather than selecting what seems fair at trial. A strong starting point is whether equity would have granted rescission immediately after the trust arose. If rescission would be unavailable because the parties cannot substantially be restored, the misrepresentation will usually not prevent the trust, absent factors justifying a different result.

Mrs Qayyum appealed from an order of HHJ Purle QC in Chancery proceedings under the Trusts of Land and Appointment of Trustees Act 1996. The judge held that a 1991 deed had made her sole beneficial owner of a flat, but that a 2004 oral agreement and the parties’ entry into a Nationwide mortgage created a constructive trust under which she and her husband held equal beneficial shares.

The mortgage was taken out after the husband had been promised a half share. He charged that share and gave a personal covenant to the lender. Mrs Qayyum argued that he had suffered no substantial detriment and that his innocent misrepresentation about the effect of a freezing order made it inequitable to recognise the trust. She also sought permission to advance a late ground alleging a later oral agreement restoring her sole ownership.

The central issue was whether the 2004 arrangement gave rise to a constructive trust despite the innocent misrepresentation.

1. Appeal dismissed unanimously. Lord Justice Etherton, with whom Lord Justice Moore-Bick and Lord Justice Pill agreed, upheld the declaration that the spouses held the property in equal beneficial shares.

2. The judge was entitled to find that the 2004 arrangement was a composite agreement. Although the mortgage offer pre-dated it, the husband was not obliged to execute the mortgage until September 2004. He did so pursuant to, and in reliance on, an agreement that he would receive a half beneficial interest and funds for his expenses.

3. Execution of the mortgage, including a personal covenant for all obligations during its term, exposed the husband to a potentially significant liability. The risk had to be assessed when the mortgage was executed. The other spouse’s agreement to service the debt and the then value of the property did not make the detriment illusory or negligible. It would have been unconscionable to leave him with that liability while denying the promised interest.

4. The husband’s innocent misrepresentation as to the freezing order, and the parties’ associated mutual mistake, did not preclude the constructive trust. A common intention constructive trust is institutional: it creates property rights before proceedings, which the court declares. The inquiry therefore differs from a discretionary assessment of fairness at trial. The court should take as a strong starting point whether rescission of a concluded agreement immediately after the alleged trust arose would have been available. Here, the inability substantially to restore the husband after he had entered the mortgage meant that rescission would have been refused. The facts gave no reason to reach a different result for the constructive trust.

5. Permission to add a late ground alleging a subsequent 2005 agreement was refused because it had no real prospect of success. The first-instance judge was entitled to reject that assertion in light of inconsistencies in Mrs Qayyum’s evidence and letters.

• Court of Appeal (Civil Division): dismissed Mrs Qayyum’s appeal and upheld the order declaring equal beneficial ownership.
• High Court of Justice, Chancery Division (HHJ Purle QC): held that a 2004 constructive trust made the spouses equal beneficial owners, notwithstanding the earlier 1991 deed. The lower judgment’s citation is not stated in the judgment.