John Milsom & Anor Gerald Martin Smith & Anor

Where an individual is the sole registered owner of property, the starting presumption is that they are also the sole beneficial owner. The person asserting a different beneficial interest must establish both the interest and its extent.

An oral declaration of trust is not readily saved from the writing requirement where the legal owner acquired the property from a third party and allegedly declared the trust contemporaneously or afterwards. A common intention constructive trust requires an agreement, arrangement or understanding that the claimant is to have a beneficial interest, together with detrimental reliance on it.

The court may assess the absence of evidence and the parties’ subsequent dealings when deciding whether those requirements have been established.

Enforcement receivers applied for a declaration that a property in Ascot was an available asset of Dr Gerald Martin Smith for enforcement of a confiscation order made after his convictions for theft and false accounting.

The respondents contended that the property had been beneficially owned by Dr Smith’s late mother, Phyllis Smith, and had passed to her estate. The case was advanced on the basis of an oral declaration of trust or, principally, a common intention constructive trust supported by detrimental reliance.

The central issue was whether the evidence rebutted the presumption arising from Dr Smith’s sole registered legal ownership.

1. The application succeeded. The court declared that the property was beneficially owned by Dr Smith and was subject to the confiscation order.

2. As sole registered owner, Dr Smith was presumed to be sole beneficial owner. The burden lay on those asserting otherwise to prove the existence and extent of a different beneficial interest, applying Stack v Dowden and Hudson v Hathway.

3. The principle preventing reliance on statutory formalities as an instrument of fraud did not apply. That principle concerns a transfer by a beneficiary to a putative trustee on an oral agreement that the property will be held on trust. This case concerned property acquired by Dr Smith from a third party, followed by an alleged oral declaration. The distinction was explained in Archibald & Archibald v Alexander.

4. A common intention constructive trust required an agreement, arrangement or understanding between the legal owner and putative beneficiary, together with detrimental reliance. The claimant must have done something which could not reasonably be expected unless they were to have an interest in the property.

5. The evidence did not rebut the presumption. The absence of contemporaneous documents, the mortgage application, dealings with Halifax, the charge granted to solicitors, and later mortgage arrangements were inconsistent with beneficial ownership by Dr Smith’s parents. The evidence supporting the respondents’ case was vague, unreliable and contradicted by documentary material.

6. The court declined to draw an adverse inference merely from Dr Smith’s failure to give evidence, while attaching no weight to his untested account in a letter. The absence of documents which he had every incentive to produce supported the inference that no such documents existed.