23 April 2019

Downes v Downes: Trust dispute between brothers


A recent court battle which pitted brother against brother over the ownership of three properties and a classic car demonstrates how a simple declaration of trust can prevent misunderstandings and litigation.

Facts

Tony Downes and Peter Downes are brothers. Tony runs a business renting out narrow boats, whilst Peter is a solicitor.

Both were encouraged by their parents to invest in rental properties and did so from an early age. For many years the brothers got on and helped each other with their property and business affairs. But they recently fell out over the care of their elderly mother who suffers from dementia. This led to a dispute over three rental properties in Lincoln; registered at the Land Registry in the names of Peter and/or his wife Angela for over 20 years.

Tony claimed the properties were actually his and that Peter was merely trustee for him. Peter said the land register was accurate and in any event too long had passed for Tony to bring a claim. In retort, Peter claimed he was the sole owner of a vintage Armstrong Siddeley Hurricane motor car which Tony said they owned jointly.

Law

In the absence of a written ‘declaration of trust’, it is assumed that the legal owner (here Peter and/or Angela) also owns the beneficial interest in the property, unless the other person (here Tony) can show good evidence that he is in fact entitled.

Tony claimed the value in the properties was his by way of ‘common intention constructive trust’ ie the parties had a common understanding that the value belonged to him regardless of the properties’ legal ownership. However, constructive trusts are difficult to prove. The court is often attempting to find intention from past unwritten arrangements made many years before. After a fallout, parties often ‘reinterpret’ their intention, sometimes in vengeful terms. This case is no exception.

Evidence about the properties ranged from 1972 to 2017. The Judge saw invoices for outgoings, accounting notebooks and handwritten envelopes containing rent. He also heard evidence from a cousin, Tony’s friend and Peter’s sister in law. Their mother was not able to give evidence because she lacked capacity.

Decision

The Judge preferred Tony’s account. He described Peter’s evidence as ‘incomprehensible’ and ‘riddled with logical inconsistencies’ and was not convinced by Peter’s description of various ‘deals’ between the brothers about the properties. Similarly, the Judge said he could not rely on what was presented to HMRC or other entities for example, transfers of the properties between the brothers intended to ‘bump up’ the Capital Gains Tax base cost or transfers purely to provide additional security for borrowing.

Despite the passage of time since the properties were acquired, the Judge said that the delay was not sufficient to dismiss Tony’s claim and ordered that the properties be transferred to Tony. However, the Judge did decide that Peter was the sole owner of the vintage car because Peter had both paid the related expenses and been represented as being the owner of the car to third parties.

Lessons

Even in a family context, it is always worth having a declaration of trust that clearly documents the existence and split of beneficial ownership in property. Such a document will be decisive evidence as to the beneficial ownership of a property. As this case illustrates, a lack of documentary evidence can lead to protracted and expensive litigation.

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Category: Article