Paul David Allen v Khadzi-Murat Derev & Anor

Where property is registered in joint names, beneficial ownership is presumed to follow the legal title. The party seeking to displace that presumption must establish an express or inferred common intention, a constructive trust, or proprietary estoppel on sufficiently detailed and reliable evidence. Bare assertions, unsupported by contemporaneous documents and untested in cross-examination, may carry little or no weight.

After one year from a bankruptcy order, Insolvency Act 1986, section 335A requires possession and sale of a bankrupt's dwelling-house unless exceptional circumstances are established.

Paul Allen, appointed under the Cross-Border Insolvency Regulations 2006 to realise assets in a recognised Russian bankruptcy, applied for declarations concerning the beneficial ownership of a valuable London property held in the joint names of the bankrupt, Khadzhi-Murat Derev, and his wife, Zukhra Dereva. He also sought possession and sale.

The respondents asserted that the property had been gifted beneficially to Mrs Dereva and the children, despite the joint legal ownership. They did not attend the final hearing for cross-examination. The central issues were whether the presumption that beneficial ownership follows legal title had been rebutted and whether an order for possession and sale should be made.

1. The application succeeded. The court declared that the beneficial interest in the property was held by Mr Derev and Mrs Dereva in equal shares, and ordered possession and sale. The precise terms of the order were to be determined when the judgment was handed down.

2. Under CPR 32.5, a witness whose statement is relied upon is ordinarily required to attend trial for cross-examination. In the absence of a proper hearsay notice, the court retained a discretion whether to take the evidence into account and what weight to give it. Applying William v Hinton [2011] EWCA Civ 1123, the court gave little or no weight to the respondents’ vague and unparticularised statements, particularly because they had not attended for cross-examination.

3. The presumption that beneficial ownership follows legal title applied. The evidence did not establish an express declaration of trust, an actual or inferred common intention sufficient to support a constructive trust, reliance and detriment supporting proprietary estoppel, or any other basis for reallocating the beneficial shares. Earlier signed statements and correspondence consistently recording a 50 per cent interest each were materially inconsistent with the later account of a gift.

4. The court adopted the general principles summarised from Stack v Dowden [2007] AC 776 and Guest v Guest [2022] UKSC 27. The burden remained on those seeking to rebut the presumption or establish an estoppel.

5. The recognition order and appointment order entitled Mr Allen to bring proceedings to realise Mr Derev’s interest. The court did not finally determine whether the vesting provision in section 306 of the Insolvency Act 1986 applied to Mr Allen rather than the foreign office-holder.

6. More than one year had elapsed since the bankruptcy order. No exceptional circumstances were identified under section 335A of the Insolvency Act 1986. Possession and sale therefore followed.