Ball & Anor v De Marzo

Misconduct by a claimant does not automatically defeat an equitable claim. The clean-hands doctrine requires an immediate and necessary relation between the misconduct and the equity sought. Where misapplied money can be traced into an asserted beneficial interest, the appropriate response may be a constructive trust protecting the victim, rather than denial of the interest and a windfall to others. A claim based on an express declaration of trust is not defeated merely because some contributed funds belonged to a third-party estate. The illegality framework requires assessment of the prohibition’s purpose, other relevant public policies and proportionality. Mortgage responsibility depends on the parties’ agreement, not merely on the mortgage’s security over the property.

The appellants appealed against an order of His Honour Judge Monty QC made in the County Court at Central London on 7 March 2019. The order declared that a residential property was held on trust for the respondent and the appellants, with the respondent entitled to a 37.5% beneficial share, ordered a sale, regulated the mortgage and sale proceeds, and awarded the respondent 70% of her costs on the indemnity basis.

The appeal challenged the respondent’s entitlement to equitable relief because funds used in the purchase had been obtained through a forged will, the treatment of the mortgage on sale, and the costs order. The central issues were whether the clean-hands doctrine or illegality required dismissal of the claim, how the parties’ agreement allocated responsibility for the mortgage, and whether the costs order was open to the county court judge.

1. Appeal dismissed, subject to variation. The order was varied to include a declaration that the respondent held the relevant part of her 3/8 share on constructive trust for the estate of Michael Ball, to the extent that estate money had funded the purchase.
2. The House Purchase Agreement was an express declaration of trust. As between the litigating parties, it entitled the respondent to a 3/8 beneficial share. The use of estate money did not require dismissal of that claim. Equity permitted the estate to trace its money into the share, while the respondent retained the part referable to her own money.
3. The clean-hands doctrine was limited. The misconduct had to bear an immediate and necessary relation to the equity sought. The respondent’s wrongdoing did not relate to the part of the share attributable to her own money, and denying the whole claim would prejudice the estate, the victim of the wrongdoing, while giving the appellants a windfall. The cases concerning fabricated evidence in support of an equity, including J Willis & Son v Willis and Gonthier v Orange Contract Scaffolding Ltd, were materially different.
4. Applying Patel v Mirza, the public interest was served by allowing the estate to trace its money and it would be disproportionate to deny the respondent’s claim insofar as it was based on her own money. It was unnecessary to decide whether the clean-hands doctrine and common-law illegality principles were distinct.
5. The mortgage was the appellants’ agreed contribution in return for their 5/8 share. The agreement therefore required them to discharge the mortgage from their share, rather than divide the net proceeds after redemption in the agreed proportions.
6. The costs order was within the range of orders reasonably open to the county court judge. The judge had considered the parties’ dishonesty, the failed issues and the change in the respondent’s case, and had given adequate reasons for awarding 70% of the respondent’s costs on the indemnity basis.

• High Court (Chancery Division): Appeal from the County Court at Central London dismissed, save for the addition of a constructive-trust declaration.
• County Court at Central London: His Honour Judge Monty QC declared that the respondent had a 37.5% beneficial share, ordered sale and made consequential mortgage, proceeds and costs orders.