Iranian Offshore Engineering And Construction Company v Zavarei

A creditor may seek declaratory relief determining whether property held by a third party falls within freezing undertakings given to the court by that third party, even after the debtor’s bankruptcy. Such relief does not offend the pari passu principle where it preserves property for the bankrupt’s estate rather than securing an advantage for the applicant.

For a family home registered in one spouse’s sole name, equity follows the law. The party asserting a different beneficial ownership must establish the parties’ common intention by examining their whole course of dealing. Financial contributions are important, but do not automatically determine the beneficial shares. A party bearing an evidential burden must prove an affirmative case, particularly where the relevant documents are within that party’s control.

IOEC applied for declarations concerning Henfield Lodge, a property registered in the name of Delaram Zavarei, the wife of RMT, a judgment debtor and bankrupt. IOEC alleged that Zavarei held the property, wholly or partly, on resulting or constructive trust for RMT, so that it fell within freezing undertakings given by her under a consent order.

The court first considered jurisdiction, standing, discretion and the scope of the declarations. It then determined the parties’ beneficial interests by examining the purchase funding, the alleged loan of RMT’s share of earlier sale proceeds, and the evidence concerning other assets said to have funded the purchase.

1. Jurisdiction and discretion. The application was within the court’s jurisdiction. Insolvency Act 1986 s 285(3)(a) was directed to preventing one unsecured creditor obtaining an advantage over others. A declaration identifying property as beneficially belonging to the bankrupt, and thereby preserving it for the estate, did not contravene that purpose. IOEC had standing because it had a legitimate interest in ensuring that the property was not dissipated, and the application had practical utility.
2. Scope. The court could determine whether RMT had a lesser beneficial interest than 100%, although the application had principally been framed in binary terms. The parties had deployed the relevant evidence and no adjournment was required.
3. Beneficial ownership. For a family home registered in one person’s sole name, equity follows the law and the registered proprietor is presumed to be the sole beneficial owner. The party seeking to displace that position bears the legal burden. The inquiry is the parties’ common intention, actual, inferred or imputed, assessed from their whole course of dealing. Financial contributions may be decisive where other cogent evidence is absent, but do not automatically trump other factors.
4. Application. The court accepted that £1,180,000 derived from Zavarei’s share of the proceeds of sale of Woodruff Avenue and that RMT’s share had been personally loaned to her without conferring a beneficial interest in Henfield Lodge. Those matters gave Zavarei a beneficial interest provisionally calculated at 27.45%. She failed to prove that the remaining purchase funds were beneficially hers or personally borrowed by her. The evidence concerning Comparts, Unit 9402, the Swiss funds and the alleged loan from X was unreliable, incomplete or unsupported by documents.
5. The application therefore succeeded except in relation to the contribution represented by the Woodruff Avenue proceeds and the associated personal loan. The precise form of declarations and order was reserved for further submissions.