HSBC Bank Plc v Dyche & Anor

A constructive trust may arise when land is transferred pursuant to a common intention that it will be held for another, even where the claimant had no pre-existing interest at the date of transfer. A trustee’s right to reimbursement for secured advances is consistent with trusteeship. Overreaching requires compliance with the statutory conditions governing a purchaser, trustees and payment of capital money. A dishonest trustee cannot purchase in good faith, and a mortgage granted by one of two trustees, with the advance paid to and applied by that trustee alone, does not overreach the beneficiary’s interest. Actual occupation may give the beneficiary an overriding interest under the Land Registration Act 1925.

HSBC sought possession of a property mortgaged by the first defendant, Mrs Dyche. The second defendant, Mr Collelldevall, claimed that he was the beneficial owner and that his interest had priority over HSBC’s mortgages.

The property had been transferred to the Dyches in 1994 after Mr Collelldevall’s bankruptcy. The court found that the transfer was made pursuant to an agreement that the property would be held for Mr and Mrs Collelldevall, subject to repayment of the mortgage finance. In 2002 Mrs Dyche transferred the property into her sole name, granted two mortgages to HSBC and used a forged tenancy agreement concerning Mr Collelldevall.

The central issues were whether a constructive trust arose, whether the 2002 transfer or HSBC mortgages overreached it, whether Mr Collelldevall’s interest overrode registration, and whether HSBC was entitled to possession.

1. Constructive trust. The 1994 arrangements created a common intention constructive trust. The property was transferred to the Dyches on the understanding that it would be held for the Collelldevalls. The transfer at an undervalue, the £8,000 contribution, the treatment of £17,000 as a loan and the repayment arrangements supported that conclusion. Continued occupation as the couple’s home also supported the inferred common intention.
2. The Dyches’ right to reimbursement and retention while the loan remained outstanding was consistent with their trusteeship. It did not postpone the creation of the trust. An accepted late payment did not repudiate the arrangement, and even an accepted repudiation would have left the trustees with remedies against the property or for the loan balance.
3. The parties intended the Collelldevalls to hold beneficially as joint tenants. Mrs Collelldevall’s death therefore left Mr Collelldevall solely beneficially entitled. The constructive trust could arise on the occasion of the registered transfer, notwithstanding Mr Collelldevall’s lack of a surviving pre-transfer interest.
4. Overreaching. The 2002 transfer was an unauthorised and dishonest breach of trust. Mrs Dyche was not a purchaser in good faith within section 205(1)(xxi) of the Law of Property Act 1925. The statutory requirements for overreaching were not otherwise met: the HSBC mortgages were granted by one trustee, and the mortgage advances were paid to and applied by her alone. Mr Collelldevall’s beneficial interest was therefore not overreached.
5. The transfer and first mortgage could not be treated as an indivisible transaction so as to avoid the statutory requirements. Abbey National BS v Cann [1991] 1 AC 56 was irrelevant to the issue, which had to be determined by the statutory conveyancing machinery.
6. Mr Collelldevall was in actual occupation. His interest therefore overrode HSBC’s registered mortgages under section 70(1)(g) of the Land Registration Act 1925, now replaced by paragraph 2 of Schedule 3 to the Land Registration Act 2002. HSBC could have protected itself by making direct inquiries of him.
7. On the evidence, Mr Collelldevall had paid or provided in kind the sums required to indemnify the Dyches for the Lloyds advance. He was entitled to a transfer of the property without further payment.
8. HSBC’s possession claim was dismissed. Mr Collelldevall was declared solely beneficially entitled, with an interest overriding HSBC’s mortgages, and entitled to a transfer free from them.