The Lord Chancellor (As Successor To the Legal Services Commission) v Farooqi & Anor

In determining beneficial ownership of property acquired during a marriage, the court must consider the parties’ actual intentions in their domestic context and the objective evidence. Joint registration ordinarily indicates equal beneficial ownership, but that presumption may be displaced by subsequent dealings or an express agreement.

A transfer of property is effective according to its substance where the transferor intended to divest himself of both legal and beneficial interests. The court may recognise equitable accounting for expenditure by one co-owner, but that issue does not arise where the transfer itself has already determined the beneficial ownership. The court’s task is confined to the issues raised by the proceedings; a possible transaction-at-undervalue challenge under Insolvency Act section 423 was not determined.

The Lord Chancellor sought final charging orders over 4 Lorne Road and 10 Brook Road to recover defence costs incurred after Munir Farooqi’s criminal conviction. The proceedings were transferred from the County Court to the Chancery Division so that the court could determine whether Mr Farooqi retained any beneficial interest in the properties and, if so, its extent.

The properties had been acquired or held in different ways. The claimant relied on the legal title and the surrounding circumstances. Zeenat Farooqi relied on her financial contributions, the parties’ arrangements and later transfers into her name. The central issues were the beneficial ownership of each property and the legal effect of the transfers made in 1996 and 2010.

1. Beneficial ownership principles. The court applied the principles summarised in Stack v Dowden [2007] UKHL 17 and Jones v Kernott [2011] UKSC 52. The analysis must have regard to the domestic context, the parties’ conduct and the whole of the evidence. Joint acquisition ordinarily gives rise to equal beneficial ownership unless the contrary is established. The analysis in Jones v Kernott at paragraphs 51 and 52 did not address the separate case in which the parties had expressly agreed the beneficial ownership.
2. 4 Lorne Road. The property was initially acquired in joint names. The evidence did not establish any agreement that Mrs Farooqi was to be its sole beneficial owner from the outset. The ordinary presumption of equal beneficial ownership therefore applied initially. However, when the outstanding mortgage was paid off and the property was transferred into Mrs Farooqi’s sole name in April 1996, the transfer was intended to divest Mr Farooqi of all his interest. It transferred the entire legal and beneficial interest to Mrs Farooqi.
3. 10 Brook Road. Although Mrs Farooqi contributed the balance of the purchase price and later discharged the mortgage, the evidence did not establish that she was sole beneficial owner from the outset or that the mortgage payment altered the beneficial ownership. The transfer into her sole name on 22 January 2010 was nevertheless intended to remove Mr Farooqi’s entire interest and was effective to do so.
4. Equitable accounting and scope of proceedings. If the transfers had not determined the matter, equitable accounting could have given Mrs Farooqi credit for mortgage payments, with interest, applying the fact-sensitive approach described in Re Pavlou (A Bankrupt) [1993] 1 WLR 1046 and Wilcox v Tate [2006] EWCA Civ 1867. That issue was unnecessary to decide. A possible challenge under Insolvency Act section 423 was outside the present proceedings.
5. The court declared that Mr Farooqi had no beneficial interest in either property. The final charging orders were refused and the interim charging orders were to be discharged if necessary.

The proceedings were initially pending in the County Court at Manchester. By order dated 7 November 2017, they were transferred to the Chancery Division for determination of Mr Farooqi’s beneficial interests in the properties. This court determined those issues at first instance.