Knight & Anor v Knight & Ors

A trust of land may arise without using the word trust, although an express trust normally requires signed writing under the Law of Property Act 1925. Constructive and resulting trusts are outside that formality. A transferee may be unable to rely on the absence of writing where doing so would be fraudulent. An interest held by a person in actual occupation may override a registered disposition under the Land Registration Act 2002.

Illegality is assessed at the hearing by considering the purpose of the prohibition, other relevant public policies and proportionality. A trust will not necessarily be unenforceable merely because it was intended to shield property from bankruptcy where creditors were not harmed, the transaction was investigated, and denying relief would not advance bankruptcy policy.

The claimants, administrators of Stephen Knight’s estate, sought a declaration that proceeds from the sale of Close Court were held on trust for the estate. Stephen had transferred the property to Trevor Steel while facing bankruptcy, remained in occupation, and later arranged its transfer to the defendants. The defendants ultimately discharged the mortgage using money from Stephen’s inheritance. After Stephen’s death, the property was sold and the parties disputed entitlement to the proceeds.

The principal issues were whether Stephen retained the beneficial ownership through the successive transactions, whether his occupation protected his interest against the defendants under the Land Registration Act 2002, and whether illegality or public policy prevented enforcement of the trust.

1. Disposition. The claim succeeded. Close Court was beneficially owned by Stephen at his death and thereafter by his estate. The defendants held the sale proceeds on trust for the claimants as personal representatives.
2. An express trust does not require the word trust, or any particular words, if the intention is expressed or implied. Section 53(1)(b) of the Law of Property Act 1925 requires signed writing for an express trust of land, but the formality does not apply to constructive or resulting trusts under section 53(2). A trustee cannot rely fraudulently on the absence of writing: Re Duke of Marlborough [1894] 2 Ch 133.
3. The 1995 transaction created, at least, a resulting trust in Stephen’s favour. Trevor had acquired the property as Stephen’s nominee, subject to the mortgage and Stephen’s indemnity. Alternatively, the lack of signed writing could not be used fraudulently to defeat the intended trust.
4. When the property was transferred to the defendants, Stephen’s beneficial interest was protected by section 29 and paragraph 2 of Schedule 3 to the Land Registration Act 2002. He was in actual occupation, that occupation was obvious, the defendants knew of it, and no relevant inquiry had been made. Independently, the defendants intended to hold the property for Stephen.
5. The use of Stephen’s inheritance to discharge the mortgage did not vary the beneficial ownership. If necessary, it would have subrogated Stephen’s estate to the mortgage and entitled it to repayment of the money used.
6. The illegality issue was governed by the structured and proportionate approach in Patel v Mirza [2017] AC 467. The relevant time for assessment was the hearing. Bankruptcy policy protects creditors, but the transaction had been investigated, no creditor had been harmed, and refusal of relief would not enhance creditor protection. Making the trust unenforceable would therefore be disproportionate.
7. The later meeting between the parties did not itself alter the beneficial ownership, although it provided evidential support for the earlier arrangement. Consequential orders were left for agreement or further submissions.

First-instance judgment. No appellate history was stated in the judgment.