England and Wales High Court (Chancery Division) Decisions

Chancery Division

		17 March 1976

1. Giving judgment, GRAHAM J said: This is an action for breach of trust in which the plaintiff, Mr Peffer, claims that both the first defendant, Mr Rigg, and the second defendant, Mrs Rigg, have committed breaches of trust in respect of the title to and letting of a house at 103 Leighton Road, London NW5, in the parish of St Pancras in the borough of Camden. The title No 425862 was first registered in the Harrow and District Land Registry on January 8 1932. The main actors in this unfortunate dispute are the plaintiff and his wife, and the first and second defendants who were for part of the material time married but who were divorced in 1971, the decree nisi being dated July 8 1971. The second defendant and the plaintiff's wife are sisters and daughters of a Mrs Bingley who, until her death on August 10 1970, lived on the ground-floor and basement flat in the house.
2. No 103 Leighton Road had been lived in by Mrs Bingley since about 1935 when her husband and she first became tenants. She had been a widow for some years prior to the events with which we are concerned. Their two daughters of course lived with them in their childhood days. In the year 1962 the position was that the house was divided into three parts, the owners, whose name was Hutchinson, occupying the top-floor flat and Mrs Bingley occupying part, but not I think the whole, of the area below. In 1962 the owners decided to sell and the family, as they have been called, mainly to provide security for Mrs Bingley but also to provide a useful investment, decided to purchase the freehold. In order to obtain the highest possible mortgage and as big an improvement grant as possible matters were arranged between them as follows. The house was purchased in the name of the first defendant for £ 2,500. He was at that time a warrant officer, first class, and a conductor of ordnance, and was more likely to get a mortgage on the basis of being a new owner-occupier than the plaintiff, who was already the owner of a house in the same borough. They were in fact given a mortgage of £ 2,000. The plan was to reallocate the accommodation in the house and to turn it into two flats, the upper floor, and the first or ground floor and basement respectively. This, incidentally, enabled them also to get two improvement grants of £ 400 each, one for each flat. The conversion work was put in hand and executed for £ 1,815 and a further advance on mortgage of £ 400 was obtained. The council, it seems, was left with the impression that the first defendant was to be in possession as owner-occupier of the top flat. This was not in fact the case at any time, and the necessity to keep the facts from the council may have led to a number of the difficulties which arose. The upshot of the whole transaction was that they bought and converted the house into two flats, subject to the repayment of the mortgage, at a cost to themselves of some £ 115, as shown on page 1 of the accounts bundle. From their point of view it was clearly a very satisfactory piece of business.
3. The agreement was that the freehold property should be held by the first defendant on trust for the plaintiff and himself as tenants in common in equal shares and that both of them would contribute to future outgoings and maintenance in equal shares, a balance between them being struck from time to time. At the end of 1962 Mrs Bingley was the only resident at no 103, but when the conversion had been completed tenants by the name of Stranahan were found for the top floor, their choice, partly at any rate, having been determined by their willingness to help Mrs Bingley in practical matters if she needed it. From then on the plaintiff and first defendant each at various times paid money for outgoings and they had a reconciliation generally at the end of the year or at some other convenient time. All went smoothly until late in the year 1967 when matrimonial difficulties arose between Mr and Mrs Rigg. He had been working in a bomb disposal unit in London, but when the trouble arose he arranged for his wife and daughter to go to live with Mrs Bingley and he returned to an army post in Germany. He says he did not see his wife again until the hearing of the case, though he did have communications with her as appears from the evidence and correspondence. The plaintiff, about this time, and no doubt partly because of the knowledge of the matrimonial troubles between the Riggs, became concerned about the safety of his investment in no 103 and approached Mrs Rigg and suggested that, in case the first defendant might do something silly with the property, she should obtain an acknowledgment from him that he held the property in trust for the plaintiff and himself. She telephoned her husband and he first sent her the acknowledgment on page 3 [of the bundle of correspondence], dated November 20 1967. Later, on May 30 1968, the first defendant and the plaintiff formally entered into the trust deed (pages 6 and 7). This deed makes it clear that the first defendant is registered as proprietor of the freehold of no 103 but holds the property on behalf of himself and the plaintiff as tenants in common and equal shares. It also records the covenant by the plaintiff to be responsible for half the cost of the mortgage payments and other outgoings.
4. Now late in 1967 or early in 1968 the upper-storey flat again became vacant and in 1968 the Rent Act of that year creating protected tenancies was passed. The plaintiff stated that he thought about the matter and realised that if the top flat was again let the tenancy would be a protected tenancy under the Rent Act with the result that the house could not be sold with vacant possession. This would mean that the value of the investment in the house would be lessened. In view of these uncertainties as to the future, having regard particularly to the domestic difficulties of the first and second defendants, he came to the conclusion that the flat ought not to be let again and he said he made these views clear to the first and second defendants. The Stranahans had moved out, according to the plaintiff's evidence, after the first defendant had signed the deed on May 30 1968, when he was on leave in this country. The flat had apparently fallen into some disrepair during the Stranahans' occupation and it was repaired and redecorated after they had moved out and these repairs were completed by September 1969 or thereabouts. The financial position in general had been that if the top flat was let the whole operation was largely self-financing because the rent received for the flat would more or less balance the mortgage payment and at the end of 1969 there was about £ 2,600 outstanding on the mortgage, the house being worth perhaps something of the order of £ 8,000 at that time. On October 12 1969 (see p 9) the plaintiff wrote to the first defendant, who had returned to this country after discharge from the army in April 1968 and was then, in October 1968, living at 22 Woodleigh Court, Stuart Crescent, Wood Green. After referring in the first paragraph to his 'disagreement' with Mrs Rigg ('Irene') about the future of the house, he went on to make three alternative suggestions for the future of the property--none of these involves reletting of the top floor. This letter, to my mind, clearly indicates that there had been a prior discussion between the plaintiff and Mrs Rigg which had probably been heated, but certainly had resulted in disagreement. The plaintiff says that all he had done was to make clear that he wanted to sell the house and for that purpose did not want a relet but would like Mrs Bingley and Mrs Rigg to find other accommodation which he thought and suggested they would be able to do by using money out of the proceeds of sale. Mrs Rigg in effect says that the plaintiff was very unpleasant and threatened to turn her and her mother out of the flat. I think the proper inference from the evidence as a whole and the correspondence is that the meeting was heated and that there was stalemate at the end of it, the plaintiff saying that if they would not go out then, until the situation was resolved, they could not expect help from him with more money as in the past, and Mrs Rigg saying that she and her mother most certainly were not going to move out so that the whole property could be sold with vacant possession. What then happened was that the defendants, without further discussion with the plaintiff and without telling him what they were doing, did in fact find new tenants for the top flat, Mr and Mrs Lewis. They took possession of the top flat on September 26 1969. Rumours of the letting may have come to the ears of the plaintiff and this is no doubt why he wrote the letter of October 12 (p 9) in the terms in which he did. One of the issues between the parties is whether or not this letting without the plaintiff's approval, and indeed without reference to him at all, with the result that a protected tenancy was created, is a breach of trust by the first defendant. The first defendant says, as is recorded in his letter of November 5 1969 (p 13) that he had a telephone conversation with the plaintiff in which the plaintiff had stated that the second defendant had turned down all his suggestions (referring to those made at his interview with her) and went on, 'In that case I am not prepared to spend any more money on the property and wash my hands of the situation.'
5. This is an important part of the story, because the second defendant's defence to the relief claimed against her was that she thought the plaintiff had given up any legal or other interest in the property by the time the beneficial interest in it was purported to be conveyed to her. Her belief was based, she said, on what the plaintiff had said to her and on what her husband had told her that the plaintiff had said in the telephone conversation with him. This was, as she said she thought, confirmed by several letters (nos 9 to 13) which she agrees were sent to her by her husband. I shall return to this in due course.
6. Matters proceeded with little if any communication between the plaintiff and the defendants. In 1971 the first defendant filed divorce proceedings. On March 11, from paragraph 7 of the petition, p 18, it is seen there is set out a proposed agreement by the first term of which the first defendant was to 'transfer to the respondent the freehold property, being the former matrimonial home at 103 Leighton Road . . . and she shall receive all rent from the part of the home which is let and she will undertake the repayment of the mortgage instalments due and the existing mortgage advance.' This was followed by a letter (p 23) from the second defendant's solicitors to the first defendant's solicitors to the same effect and an acceptance from Mrs Rigg's solicitors appears on p 25. The decree nisi embodying the agreement was granted on July 8 1971. The transaction is a peculiar one because, from all the evidence, I feel quite sure, and find to that effect, that both the first and second defendants were perfectly well aware throughout that the first defendant, though the house was in his name, only had a half share in it and that he held the other half in trust for the plaintiff. However, neither of the
   defendants apparently told their solicitors that this was so, and in view of the language used, though the words in the decree nisi are 'his interest,' which could of course mean a half interest just as much as the whole interest, I suspect the court may well have thought that the whole interest was being transferred. This finding as to the defendants' knowledge seems to me to be fundamental to the determination of the questions of transfer and ownership. Whatever therefore the transfer of March 21 1972 may say, and it is entitled 'Transfer of Whole' and describes the first defendant as transferring as 'beneficial owner,' I am sure both defendants at the time of the divorce and of the later transfer, knew perfectly well what the true position was and that there was no representation by the first defendant to the second defendant on which she can found her claim to contribution. I have some sympathy for her because, though one of course does not know all the facts, she was undoubtedly placed at the time in a very uncomfortable position by the divorce proceedings, and, as she said, all she was interested in was 'to ensure that she and her daughter continued to have a roof over their heads.' I think it may well be that she has now persuaded herself that in fact her husband did represent to her that he had acquired the whole beneficial ownership of no 103 and that she was going to get the whole property in the house for herself. I have to look at the matter, however, as of the time in question when the events took place and I cannot accept that this was the position then.
7. Equally, I suspect the first defendant, in view of his disagreement with the plaintiff as to the future of the house and his decision to obtain a divorce because his marriage had completely broken down, was anxious to divest himself of the trust and any further responsibility for arranging for the maintenance of the house and for paying the outgoings, including the mortgage repayments. From this point of view the agreement of his former wife to step into his shoes as trustee was an excellent arrangement, leaving him free of troubles in this connection, apart from having to pay maintenance at an appropriate rate for the future. From his point of view so long as he could get her to assume his responsibility qua the plaintiff, that was good enough, and even if he had thought his wife was not clear as to the ownership I doubt if he would have been scrupulous to emphasise to her what the true position was. I was not impressed by the way in which he gave his evidence and he had a tendency, when he thought a question was awkward, to try to avoid giving a straight answer and to start excusing himself for doing what he had done. Nevertheless, on balance, whatever he may have said or left unsaid, I do not think Mrs Rigg, at the time, thought that he was free to convey the whole property to her. After the hearing had concluded it occurred to me that on findings which I might make and which I have in fact set out above, there were possible legal conclusions upon which I ought to hear argument by counsel since they had not so far been dealt with. After informing counsel of the position and of the points upon which I desired to hear such argument there was a further hearing.
8. As a result a number of matters now remain to be dealt with. Firstly, was the letting to Mr and Mrs Lewis by the defendants a breach of trust qua the plaintiff? I do not think so. It seems to me quite clear that the plaintiff had told the defendants that he was not going to pay out further money in respect of this house until the argument as to its future was resolved. Faced with this refusal the defendants were in the position of having to provide for the mortgage repayments without there being any money coming in. The alternatives were to find somewhere else for Mrs Bingley to live and then to sell with vacant possession after turning her out, or to sell subject to her continuing to live there, a course unlikely to succeed or unlikely at any rate to result in a high price, or to relet the top-floor flat and carry on as before, with the rent for this flat balancing the mortgage repayments. In my judgment, the last course seems to have been at least as sensible as, if not more sensible than, either of the others and I do not think that in the circumstances Mr Rigg can be blamed for following it. In so doing he seems to me to have acted honestly and reasonably and as prudently as he would be likely to have done in relation to his own affairs. I am not therefore prepared to hold that any breach of trust was committed by this transaction.
9. The purported transfer, however, of the whole of the beneficial interest in the property by the first to the second defendant on the occasion of the divorce agreement, in the light of their knowledge of the true facts as I have found them, seems to me to be in a very different position. It was argued by Mr Banks for the second defendant that the property was transferred to her for valuable consideration as part of the divorce agreement and that, therefore, the combined effect of sections 20 and 59 of the Land Registration Act 1925 protected the second defendant against any claim or interest of the plaintiff because there is no entry on the register in his favour prior to the transfer to the second defendant. This argument would be convincing if it were not for my finding that the second defendant at the time knew perfectly well that the first defendant could not transfer to her more than a half share of the property. It is this knowledge which seems to me to cause great difficulty to her and prevents her argument succeeding for a number of different reasons put forward by Mr Poulton at the second hearing. He argues firstly that the purported transfer (correspondence, p 56) from the first to the second defendant of the beneficial interest on the whole of the property of 103 Leighton Road was expressed to be for the consideration of £ 1. This is nominal consideration and not valuable consideration and it follows that the second defendant is not protected by section 20 of the Land Registration Act 1925. In accordance with the provisions of subsection (4) she can only take subject to any minor interests subject to which the first defendant held the same. He was party to the trust deed of May 30 1968 (correspondence, p 6), and clearly had notice of the plaintiff's half interest in the property. The second defendant can therefore only take subject to the minor interest of the plaintiff in the property subject to which the first defendant held it.
10. The argument to the contrary is that the transfer was only part of the whole agreement entered into by the first and second defendants on the occasion of the divorce and it is not therefore right to limit the consideration for the transfer to the £ 1 expressed to be therefor. The consideration there was a great deal more and included all the obligations undertaken by the second defendant. Such consideration was therefore not nominal but valuable within the section and the second defendant received the protection of the section. I do not see why, when the parties have chosen to express a transfer as being for a nominal consideration, the court should seek to hold that the consideration was in fact otherwise than as agreed and stated. If, however, the proper view is that there was valuable consideration for the transfer here, then it is argued as follows. There is a contrast between sections 20 and 59 of the Act. Section 20 (1) protects any 'transferee' for valuable consideration. By section 18 (5) 'transfer' and 'transferee' in relation to freehold land have very wide meanings but are not specifically defined in section 3. It is to be noted, however, that section 20, though it mentions valuable consideration, does not mention 'good faith' as being necessary on the part of the transferee, nor does it mention notice. It can be argued therefore that the section seems to be saying that a transferee whether he has good faith or not and whether he has notice or not, takes free of all interests (other than overriding interests) provided he has given valuable consideration. This at first sight seems a remarkable proposition and, though undoubtedly the law of property legislation of 1925 was intended to simplify such matters of title as far as possible, I find it difficult to think that section 20 of this Act can have been intended to be as broad in scope as this. Similar doubt is expressed in Brickdale & Stewart-Wallace on the Land Registration Act 1925 4th ed, p 107, note (1). The provisions for rectification in section 82 as against a proprietor in possession who has been a party to a fraud, mistake or an omission in consequence of which rectification of the register is sought also seems to me to show that section 20 must be read with some limitations--see also Ruoff and Roper's Law and Practice of Registered Conveyancing, 3rd ed, p 417. Section 59 (6) on the other hand speaks of a 'purchaser' not being affected by matters which are not protected by a caution or other entry on the register. By definition, however (see section 3 (XXI)), 'purchaser' means a purchaser in good faith for valuable consideration. It seems clear therefore that as a matter of construction a purchaser who is not in fact one 'in good faith' will be concerned with matters not protected by a caution or other entry on the register, at any rate, as I hold, if he has notice thereof. If these sections 20 and 59 are read together in the context of the Act they can be reconciled by holding that if the transferee spoken of in section 20 is in fact a 'purchaser' he will only be protected if he has given valuable consideration and is in good faith. He cannot in my judgment be in good faith if he has in fact notice of something which affects his title as in the present case. Of course if he and, a fortiori, if a purchaser from him has given valuable consideration and in fact has no notice, he is under no obligation to go behind the register and will in such a case be fully protected. This view of the matter seems to me to enable the two sections to be construed consistently together without producing the unreasonable result of permitting a transferee purchaser to take advantage of the Act, and divest himself of knowledge of defects in his own title, and secure to himself a flawless title which he ought not in justice to be allowed to obtain. This view of the Act produces a result which is also produced by applying the principles applicable in the case of a constructive trust which I will now consider.
11. On the evidence in this case I have found that the second defendant knew quite well that the first defendant held the property on trust for himself and the plaintiff in equal shares. The second defendant knew this was so and that the property was trust property when the transfer was made to her, and therefore she took the property on a constructive trust in accordance with general equitable principles--see Snell's Principles of Equity, 27th ed, pp 98-99. This is a new trust imposed by equity and is distinct from the trust which bound the first defendant. Even if, therefore, I am wrong as to the proper construction of sections 20 and 59, when read together, and even if section 20 strikes off the shackles of the express trust which bound the first defendant, this cannot invalidate the new trust imposed on the second defendant.
12. On this assumption it seems to me that the ground is properly laid for granting rectification of the register under section 82. The second defendant, even though in possession, comes within the exceptions of subsection (3) and this would in my judgment be a case where rectification could properly be ordered against her. Mr Reid, for the first defendant, supported the propositions of Mr Poulton and adopted his argument. In addition he referred to Jones v Lipman [1962] 1 WLR 832, and which he submitted could only have been decided on the basis that the company in that case could not escape from or divest itself of its knowledge by reason of sections 20 and 59. It seems that this must be so and Russell J (as he then was) mentions and rejects the argument at p 837. There is one further matter I should mention. At a late stage in his submission on the last day of the adjourned hearing Mr Banks took the point that the plaintiff ought to be refused relief anyway because he had not come to the court with clean hands. This was based on the suggestion that the plaintiff and the first defendant at the start had deceived the Camden Council. They had, it was said, by false pretences deliberately led the council to believe that the first defendant was to be the owner-occupier of the property. This was untrue; the first defendant never had occupied the property and it was never intended that he should. Had this been known to the council, it is said, they would never have granted to the parties the mortgage which they did. The argument went as far as suggesting there was fraud and a false pretence under section 32 of the Larceny Act 1916. The truth of such an allegation could obviously not be determined without considerable investigation and detailed evidence which was not called before me. If the point was to be taken it should have been taken at the start and it would clearly have had to have been pleaded and particularised in detail. As things stood, it was taken too late and appeared to be an afterthought. I should, however, say I was not favourably impressed by the conduct of any of the parties in the action, but appreciate that I may not have had the full story about all the matters which seemed on the face of them to require further explanation. In the circumstances I am certainly not prepared to stigmatise the conduct of the plaintiff as being any more blameworthy than that of the defendants; still less am I prepared to accept that the plaintiff's conduct amounted to the commission of a criminal offence. I therefore reject the submission that the court ought not to assist the plaintiff for this reason.
13. It follows that in my judgment the second defendant holds the property in question in trust for herself and the plaintiff and that the latter is entitled to appropriate relief. I will hear the parties' submission as to the form this relief should take.

There was a declaration that the second defendant held half the property in trust for the plaintiff and that the land register should be rectified to show that fact. There was also an order for the sale of the property by the second defendant. No order was made as to costs.

The electronic text of this judgment was provided by Estates Gazette, whose assistance is gratefully acknowledged.