TALVINDER SAHOTA v RAJAN SOHAL & Ors

A trust instrument is not a sham merely because the parties intend to rely on it selectively or keep a beneficial interest off the registered title. The essential question is whether the parties intended the instrument to create rights different from those appearing on its face and to use it to mislead third parties or the court.

An express declaration of trust may be varied by subsequent agreement. A charging order is not a charge on the property for the purpose of distributing sale proceeds under a trust deed where the deed refers to voluntarily created charges on the property.

Under Insolvency Act 1986, a transaction may be impeached where the debtor receives significantly less than the value of the consideration provided and one purpose is to put assets beyond creditors’ reach. Relief must restore the position and protect victims of the transaction.

The claimant sought to enforce a charging order against the first defendant’s alleged interest in 31 Windsor Road, Gerrards Cross. The defendants relied on three trust deeds dated 5 October 2012, 17 August 2015 and 17 May 2019.

The claimant challenged the deeds as late-created, sham or illusory instruments, disputed their effect on beneficial ownership and priority, and relied on section 423 of the Insolvency Act 1986.

The central issues were whether the deeds were valid and effective, whether the 2019 deed postponed the claimant’s charging order, and whether the transactions were liable to relief under the insolvency legislation.

1. 2012 Deed. The deed was valid and effective according to its terms. It created an equitable charge in favour of Mrs Veena Sohal for £2.5 million over 31 Windsor Road. The charge ranked ahead of the beneficial interests of Mr Rajan Sohal and Mrs Pooja Sohal. The wording concerning Mrs Veena Sohal’s age did not impose an obligation preventing her from selling or remortgaging. The deed was neither a sham nor an illusory trust.
2. 2015 Deed. The purported witness had not signed the deed. It therefore failed to take effect as a deed under section 1(3)(a)(i) of the Law of Property (Miscellaneous Provisions) Act 1989. It could operate as an agreement, but there was no sufficient evidence of consideration or detrimental reliance. It did not alter the parties’ pre-existing 50:50 beneficial ownership.
3. 2019 Deed. The deed was valid and replaced the 2012 deed. It converted Mrs Veena Sohal’s equitable charge into a beneficial interest in the first £2.5 million of net sale proceeds, after the registered charges of OneSavings Bank and Castle Trust and the costs of sale. The claimant’s charging order was not a charge within the meaning of the deed, and therefore did not rank ahead of Mrs Veena Sohal’s interest. The deed also transferred a 25% beneficial interest from Mr Rajan Sohal to Mrs Pooja Sohal.
4. Section 423 relief. The 2012 transaction was at an undervalue by £761,372.52 and was entered into for a purpose which included protecting Mrs Veena Sohal from Mr Rajan Sohal’s creditors. The claimant was capable of being prejudiced and had standing as a victim. The 2019 transfer of the 25% interest was also a transaction at an undervalue entered into for a prohibited purpose.
5. The appropriate relief was to reduce Mrs Veena Sohal’s interest under both deeds from £2.5 million to £1,738,627.48, and to re-vest the transferred 25% interest in Mr Rajan Sohal so that it was subject to the claimant’s charging order. The orders concerning Mrs Veena Sohal’s interests were conditional on compliance with CPR Practice Direction 17 paragraphs 1.3 and 1.5 by 5 October 2024.