Murphy & Anor v Munir & Ors (Re Muhammed Munir)

A document is a sham only where the relevant parties intended it to create rights and obligations different from those appearing on its face, and intended to give that false appearance to third parties or the court. For a unilateral trust declaration, the settlor’s intention is decisive. A trustee’s lack of knowledge or indifference may nevertheless satisfy the common-intention requirement for a bilateral trust instrument.

The person asserting beneficial ownership different from legal ownership bears the burden of proof. Direct contributions, mortgage payments and conduct may support a constructive or resulting trust, but unsupported and inconsistent evidence will not suffice. Transactions at an undervalue or transactions defrauding creditors may be set aside under the Insolvency Act 1986.

Trustees in bankruptcy applied for declarations concerning several properties registered in the bankrupt’s name. They alleged that deeds of trust executed in 2007, 2008 and 2010 were shams, or alternatively transactions at an undervalue or transactions defrauding creditors.

The principal dispute concerned Stradbroke Drive. Babar Amin Chughtai and Perveen Mohammed claimed beneficial interests under a resulting or constructive trust and asserted that those interests overrode the mortgage charge. The court also considered the beneficial ownership of the remaining properties and a leasehold property.

The central issues were whether the trust deeds were intended to have effect, whether the claimants had proved a beneficial interest, and whether the alternative insolvency remedies were established.

1. Outcome. The court declared that the 2007, 2008 and 2010 deeds were sham instruments not intended to have effect. Alternatively, the 2010 deed was a transaction at an undervalue and the deeds were transactions defrauding creditors. The relevant properties and the leasehold interest were vested in the trustees in bankruptcy. The Claim was dismissed.
2. Sham. Applying Snook v London and West Riding Investments Ltd [1967] 2 QB 786 and Hitch v Stone [2001] EWCA Civ 63, the court could examine external evidence, including subsequent conduct. The intention was subjective. Artificiality or an uncommercial arrangement did not itself establish a sham.
3. For the unilateral 2008 deed, the intention of the settlor alone was decisive, following Painter v Hutchinson [2007] EWHC 758 (Ch). For the 2007 and 2010 deeds, a common intention was required, but it was sufficient that the trustee went along with the settlor’s wishes or did not care what was being signed. The court adopted the analysis in Minwalla v Minwalla [2005] 1 FLR 771, including its treatment of Midland Bank plc v Wyatt [1985] 1 FLR 696.
4. Beneficial ownership. Applying Stack v Dowden [2007] UKHL 17, the starting point was that beneficial ownership followed legal ownership, and the claimant had to prove otherwise. No credible evidence showed that Mr Chughtai funded the purchase of Stradbroke Drive, paid the mortgage throughout, or agreed that the property would be held for him. The resulting and constructive trust claims therefore failed.
5. The court relied heavily on the absence of contemporaneous documentation and applied the approach in Re Mumtaz Properties [2011] EWCA Civ 610. The inconsistent accounts, late reliance on the 2008 deed and conduct of the parties supported the conclusion that the deed was a sham.
6. Alternative insolvency grounds. The 2010 deed transferred beneficial interests for no consideration to associates while Mr Munir was insolvent or presumed to be insolvent, and fell within the relevant period under sections 339 and 341 of the Insolvency Act 1986. The deeds also had the purpose of insulating assets from creditors, engaging section 423.