The High Court was faced with a dispute concerning the beneficial ownership of a property in a bankruptcy context.
Background:
Around 2000, Mr. and Mrs. Cynberg started a relationship together. They purchased in February 2001 a property in their joint names for £87,000. Most of the amount came from a mortgage in their joint names.
In January 2009, after their second child was born, the couple separated but only formally divorced in March 2018. Mr. Cynberg moved out of the property and Mrs. Cynberg paid for all expenditures relating to said property. Following the death of her mother and inheritance, Mrs. Cynberg carried out various minor works on the property.
In October 2018, Mr. Cynberg was declared bankrupt, resulting in a dispute as to whether his trustees in bankruptcy had an interest in the property. The County Court ruled that Mrs. Cynberg was the sole owner of the property based on common intention constructive trust and proprietary estoppel. The trustees in bankruptcy appealed.
Decision:
The High Court dismissed the appeal and upheld the initial decision that Mrs. Cynberg was the sole beneficial owner of the property.
The trustees appealed the initial ruling, arguing that the express declaration of trust in the property was conclusive and could not be overridden by a subsequent informal agreement. Applying Stack v Dowden [2007], the Court held that an express declaration of trust would be conclusive unless rectified, varied by subsequent agreement, or else affected by proprietary estoppel. An express declaration of trust could not be overridden by a common intention constructive trust which arises prior to, or at the same time as, the express declaration of trust. However, such an express declaration of trust could be overridden by a subsequent agreement. Consequently, the High Court upheld the initial decision, stating that a common intention constructive trust could indeed override the express declaration of trust.
Regarding the meaning of ‘subsequent agreement’, while it could include a formal agreement which complies with the requirements of the Act, it was not so limited and might include a common intention constructive trust.
The second ground of appeal was that the detriment suffered by Mrs. Cynberg was insufficient to give rise to property estoppel. The Court disagreed and noted that the significant financial contributions to home improvements were sufficient to establish unconscionability.
Moreover, the assurances given by Mr. Cynberg were sufficiently clear and unequivocal to give rise to proprietary estoppel, especially since Mrs. Cynberg relied on those assurances to her detriment.
Finally, the High Court agreed with the County Court that the proprietary estoppel arose in 2009 at the time of separation and not after the home improvements, as argued by the trustees.
Implications:
This decision provides clarification as to the relationship arising between express declarations of trust and subsequent informal agreements. Following this ruling, it is clear that any subsequent agreement could override an express declaration of trust.
It also clarified the requirements for establishing proprietary estoppel in the context of bankruptcy while providing legal certainty to couples in a similar situation. It is now clear that if a former partner can demonstrate that they have been paying all the expenditure of a house, they might be protected by proprietary estoppel, even if the property was initially purchased in joint names.