Vytas Karpavicius & Anor v John Waites

Where parties deliberately mislabel a purchase transaction to obtain a tax advantage, the court must determine its true substance rather than enforce the label. A resulting trust may therefore arise in favour of the person who provided the purchase price.

The modern illegality doctrine requires a principled assessment of the underlying prohibition, other relevant public policies and proportionality. Denying relief is not justified merely because the transaction had an unlawful purpose. Where the relevant tax was paid, the parties understood the true arrangement and the authorities retained enforcement powers, refusing to recognise the resulting trust would be disproportionate.

The appeal arose from an order of the Central London County Court dated 7 February 2023. The County Court declared that Mr John Waites was the sole legal and beneficial owner of land purchased in Mrs Zivile Karpaviciene’s name and ordered her to transfer it to him.

Mr Waites had provided the £230,000 purchase price. The parties had described that payment as a loan, while intending a joint development venture. The County Court found that the transaction had been deliberately labelled a loan to seek a stamp duty advantage, but that it was in substance a purchase by Mr Waites. The central issues were whether the parties’ description prevented recognition of a resulting trust and whether the illegality doctrine required that result.

1. The appeal was dismissed. The stay of execution fell away.
2. The court rejected the argument that describing the purchase-price payment as a loan prevented Mr Waites from asserting that he was the purchaser and beneficial owner. The true nature of the transaction depended on its substance, not the label adopted by the parties.