NARENDRA KUMAR PATEL v GURDIAL SINGH MANN & Ors

The court determined that an oral agreement concluded by early May 2014 led to the claimant, Mr Patel, contributing 50% of the purchase funds for 28-32 Berrylands Road. The judge found that Mr Patel contracted with Mr Mann personally (not with the companies said to be involved), and that the parties intended that the Properties be held by them as tenants in common in equal shares.

Applying principles of trusts of land, the court held that (i) a common intention constructive trust arose in favour of Mr Patel for a half share; and alternatively a presumed resulting trust would arise given his contribution; (ii) it was expedient under section 41 of the Trustee Act 1925 to appoint Mr Patel as an additional trustee and to make a consequential vesting order; and (iii) a sale under section 14(2) of the Trusts of Land and Appointment of Trustees Act 1996 should be ordered, by auction unless agreed otherwise. The court also ordered rectification of the company registers of the defendant company and declared that Mr Patel had not been a director or shareholder of that company.

Background and procedural posture.

• The claim concerned ownership of the freehold of 28-32 Berrylands Road (registered in the name of Falcon Development (UK) Ltd (“D3”)). The claimant sought a declaration that the Properties were held on trust for him and Mr Mann as tenants in common in equal shares, appointment of the claimant as trustee (and consequential vesting), sale of the Properties, exoneration of the claimant from liabilities in respect of charges, and rectification of company registers.
• The claim was first instance in the High Court (Property, Trusts and Probate list). The second defendant (Falcon Investment Ltd) was later placed in administration; the administrator consented to limited continuation of proceedings on specified terms.

Key facts.

• The freehold was purchased in August 2014 and registered in the name of D3. The claimant paid £500,000 in instalments into a bank account under Mr Mann’s control between May 2014 and March 2015. The parties’ agreement was oral and evidenced principally by an email of 16 July 2014 setting out bullet points (purchase price, cost shares, allocation of rents and profit sharing).
• Dispute existed about whether the claimant was contracting with Mr Mann personally or with a company (either the project company D3 or Falcon Investment Ltd (D2)), and whether the agreed structure was direct co-ownership of the Properties or ownership by an SPV with the parties as equal shareholders.
• Borrowings were taken against the Properties by D3 and later refinanced; the judge found that Mr Mann had used the Properties as security in ways that benefited other entities he controlled.

Issues framed.

1. On what date and between whom was the purchase agreement concluded?
2. Did the agreement contemplate ownership by an SPV or by the parties directly and what were the relevant terms (rents, development, allocation of profits)?
3. Whether trust of land principles (common intention constructive trust or resulting trust) apply to give the claimant a beneficial half share?
4. Whether it is appropriate to appoint the claimant as an additional trustee and to order sale and rectification of company registers?

Court’s reasoning and conclusions.

• The court found an oral agreement had been made by 2 May 2014 at the latest. On balance of documentary and commercial evidence the claimant contracted with Mr Mann personally, not with D3 or D2; D3 had not been incorporated at the time the agreement was made and there was no novation.
• The email of 16 July 2014 was evidential of terms but did not show that an SPV was intended to be the registered owner; the allocation of rents and profits in the email (50/50) was consistent with direct co-ownership rather than shareholdings in an SPV. The parties had not concluded any detailed, enforceable agreement as to the form of any redevelopment.
• Given the claimant’s 50% contribution to the purchase price and the contemporaneous agreement about sharing rents and profits, a common intention constructive trust arose (and alternatively a presumed resulting trust would be established by the payments). D3 therefore held the Properties on trust for the claimant as to a half share.
• It was expedient to appoint the claimant as an additional trustee and to vest the Properties jointly in the claimant and D3 under section 41 Trustee Act 1925; a sale under section 14(2) Trusts of Land and Appointment of Trustees Act 1996 was necessary and should proceed by auction unless the parties agree otherwise. The court also ordered rectification of D3’s statutory registers and declarations that the claimant had never validly been a director or shareholder of D3.

The claim is allowed. The court found that (i) an oral agreement had been concluded by early May 2014 between Mr Patel and Mr Mann; (ii) the Properties are held on trust for Mr Patel and D3 as tenants in common in equal shares (a common intention constructive trust, alternatively a resulting trust); (iii) it was expedient under section 41 Trustee Act 1925 to appoint Mr Patel as an additional trustee and make a vesting order; (iv) the Properties should be sold under section 14(2) Trusts of Land and Appointment of Trustees Act 1996 by auction unless otherwise agreed; and (v) the company registers of D3 must be rectified and declarations made about the claimant’s non-appointment as director or shareholder.