Ali v Dinc & Ors

An unwritten agreement for the disposition of an interest in land is void under Law of Property (Miscellaneous Provisions) Act 1989, s 2. It cannot support enforcement of contractual payment obligations or a vendor’s lien, but a void transaction may be unwound through personal and proprietary restitution.

A transfer of property for a specified, restricted purpose may create a Quistclose resulting trust even where the property is land and no contract or express trust exists. The recipient must understand that the property is not at his free disposal. A registered disposition authorised by the trust may overreach the beneficiary’s interest; an unauthorised gratuitous disposition will not. Under the Land Registration Act 2002, s 26 protects legal title, not priority.

The claimant had transferred two properties to the first defendant, who became the registered proprietor. The parties agreed that the transfers were not intended as outright gifts, but disputed whether they formed a sale for £1.35 million or a financing arrangement under which the first defendant would raise funds and pay them to the claimant.

The first defendant later granted a 999-year lease of part of one property to the second defendant and a registered charge over the other property to the third defendant. The claimant sought declarations, re-transfer of the properties, surrender of the lease, payment of £1.35 million, equitable compensation and tracing remedies.

The central issues were the legal effect of the uncertain unwritten arrangement, whether the claimant retained an equitable proprietary interest, and the priority of that interest against the later registered interests.

1. Disposition between the claimant and the first defendant. The parties intended binding obligations, but neither proved the complete terms of the arrangement. Any intended contract concerning the disposition of land was void for uncertainty and, in any event, under s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 for want of writing. The claimant therefore could not enforce payment of £1.35 million or obtain a vendor’s lien.
2. Restitution and trust. A void transaction should ordinarily be unwound by counter-restitution. The first defendant’s repayment of the Santander charge was to be accounted for by subrogation or netting. Independently, the evidence established that the properties were transferred for the restricted purpose of raising funds for the claimant. The first defendant understood that he could not treat them as his own. A Quistclose resulting trust therefore arose, with the first defendant holding the properties for the claimant subject to a power to mortgage them to raise funds for the claimant. The trust did not require a contract, an intention to create a trust, or writing. The restrictions were sufficiently certain.
3. The first defendant breached his fiduciary obligations by using the loan proceeds for his own purposes rather than paying them to the claimant. The claimant was entitled to equitable compensation of £458,773.01, subject to necessary costs, or alternatively to trace the proceeds. He had to elect between inconsistent remedies.
4. Priority. Section 26 of the Land Registration Act 2002 did not prevent the claimant asserting priority. The charge to the third defendant was granted for the authorised purpose of raising funds and therefore overreached the claimant’s interest. The third defendant’s charge remained effective. The lease to the second defendant was gratuitous and unauthorised, so the claimant’s prior equitable interest prevailed notwithstanding registration. The second defendant held the lease on trust for the claimant and was required to surrender it.
5. As alternative reasoning, a presumed resulting trust was available because an outright gift was not intended, and s 60(3) of the Law of Property Act 1925 did not abolish that presumption.
6. The claimant was not entitled to recovery of the properties free of the third defendant’s charge as well as recovery of the loan proceeds, since that would produce double recovery.