Julie Palmer & Anor v Daniel Sans

The court was asked to determine whether the bankrupt, Mr Collins, held legal title to Flat 2, Chestnut House on trust for the respondent, Mr Sans, such that a subsequent transfer and a charge would not be relevant to the bankrupt estate. The dispute turned on whether a common-intention constructive trust arose from an oral agreement in 2013 and whether Mr Sans had acted to his detriment in reliance on that agreement.

The judge applied the familiar principles from Stack v Dowden and authorities on common-intention constructive trusts and weighed contemporaneous documentary material against oral testimony (including guidance from Gestmin). Although there was no contemporaneous written trust, the tribunal accepted relevant parts of Mr Collins’ oral evidence and found corroborative facts: the property was valued at £90,000 in the Barclays mortgage offer yet transferred at an apparent undervalue; members of the Sans family lived in the property without paying rent; Mr Sans transferred an Audi to Mr Collins in 2016 as consideration for no further mortgage payments; and £15,000 later paid by Mr Sans’ parents was used to redeem the mortgage and transfer title. These matters constituted detriment and supported the inference of a common intention that Mr Sans held the beneficial interest.

Accordingly the court held that the Property was held on a constructive trust for Mr Sans and that there was no need to determine the trustees’ section 339 claim or the validity of the charge.

Background and parties. The applicants were the joint trustees in bankruptcy of Shaun Collins. They applied seeking various orders and declarations under the Insolvency Act 1986, including a challenge under section 339, in respect of the transfer dated 20 December 2021 of Flat 2, Chestnut House, Whimbrel Close, London (the Property). The respondent was Mr Daniel Sans. The central issue was whether, when the Property was acquired in 2013, Mr Collins held the Property on trust for Mr Sans.

Procedural posture and evidence. The hearing took place at first instance. Mr Sans did not attend trial; the judge allowed his written evidence to be adduced but indicated it would be treated with caution because it could not be tested by cross-examination. Mr Collins attended and gave oral evidence and was cross-examined. The documentary record included conveyancing papers, two TR1s, a Barclays mortgage offer valuing the property at £90,000, Land Registry office copy entries showing Mr Collins as proprietor, and an agreed valuation of the Property of £185,000 (current valuation). There was no contemporaneous written declaration of trust.

Nature of the claim and issues. (i) The trustees sought to establish that the Property formed part of the bankrupt estate and/or that a December 2021 transfer was an avoidable transaction under section 339. (ii) The court framed the central issue as whether a common-intention constructive trust existed arising from an oral agreement in 2013, and whether Mr Sans had acted to his detriment.

Court’s reasoning. The judge reviewed authority on constructive trusts and the weight to be given to documentary evidence and oral testimony (including Stack v Dowden, Thandi v Sands and Appleyard and Gestmin v Credit Suisse). The absence of contemporaneous documentation weighed against the claimant establishing a trust, but other factual features were highly material. The judge found it unlikely that Ms Newby would have agreed to sell at a substantial undervalue without some arrangement; the Barclays valuation at the time and the conveyancing papers were inconsistent with a genuine sale to third parties at the lower stated price. Corroborative features included: family occupation with no rent charged; Mr Collins’ acceptance that he took the legal title and did not charge rent; the transfer of a valuable Audi to Mr Collins in 2016 said to discharge further mortgage obligations; and a £15,000 payment in December 2021 by Mr Sans’ parents used to redeem the mortgage and enable transfer of title to Mr Sans. The judge accepted essential parts of Mr Collins’ evidence as truthful and concluded these matters amounted to detrimental reliance and supported an inference of common intention that the beneficial interest was Mr Sans’.

Result and consequence. The judge held that the Property was held on a constructive trust for Mr Sans. Because of that finding, there was no need to determine the trustees’ section 339 claim relating to the 2021 transfer or to decide the issues relating to the charge. The judge indicated costs would be considered at a later hearing.

At first instance, the court held that the Property was held on a constructive trust for Mr Sans. The judge accepted key aspects of Mr Collins’ oral evidence, found corroborative facts (discrepancy between valuation and sale price, family occupation without rent, transfer of the Audi as consideration, and a £15,000 redemption payment) amounting to detrimental reliance, and concluded a common intention trust existed. On that basis the trustees’ challenge under section 339 and the charge were unnecessary to determine.