The function of a judge in property trust disputes
16 February 2022
In our previous article, “Unwritten agreements behind property transfers“, we discussed the 2020 High Court case of Ali v Dinc. The case concerned the equitable (or beneficial) shares in two properties, one in Southgate and one in London.
The claim was brought by Mr Ali (the previous owner of the properties) against Mr Dinc (the current owner of the properties), following a conveyance of the properties by Mr Ali to Mr Dinc for nil value.
The unwritten agreement between the two men in respect of the properties was disputed, and the background facts were complex; however, the court found that part of their arrangement included an agreement that the properties would be transferred to Mr Dinc exclusively for the purpose of raising funds for Mr Ali’s benefit.
Accordingly, the court found that Mr Dinc held the properties on trust for Mr Ali, and ordered Mr Dinc to re-transfer the properties to him. Any money raised by Mr Dinc using either property as security was also held to belong to Mr Ali under a ‘quistclose trust’.
A quistclose trust is a specific type of trust which arises when a person (the ‘donor’) transfers money or property to another person to be used for a specific purpose only. The recipient must then deal with those assets in accordance with the stipulated purpose. If they fail to do so, they may be liable to compensate the donor in damages.
Mr Dinc appealed the decision of the High Court, and the appeal was heard earlier this year.
The thrust of Mr Dinc’s appeal was that the court at first instance had reached its conclusion based on facts which had not been pleaded by either party as part of their case. In other words, that the court had overstepped its function.
In England and Wales, litigation is conducted under an ‘adversarial’ legal system. Under an adversarial system, the role of the court is relatively passive, with the judge acting as a referee between the two parties, who each present the evidence they wish to rely upon. Another type of legal system (used, for example, in France) is the ‘inquisitorial’ system. In an inquisitorial system, the court is actively involved in investigating the case and preparing the evidence.
In his appeal, Mr Dinc argued that the High Court’s conclusion was impermissible in an adversarial system. The judge had decided the case on the basis of an arrangement that Mr Ali had not pleaded, rather, had in fact expressly disavowed in cross-examination. As such, the judge was wrong to make the findings of fact that it did in respect of the arrangement. The court’s approach, Mr Dinc asserted, was more in line with an inquisitorial system, and so wrong.
Handing down its ruling in January 2022, the Court of Appeal dismissed Mr Dinc’s appeal.
The Court of Appeal confirmed that a judge can make factual findings that do not squarely reflect any party’s pleaded case, provided they do so fairly on the basis of things put before them.
The High Court judge’s conclusion comprised a combination of various factual assertions making up both parties’ cases, albeit that neither party had expressly pleaded that particular combination of facts. Such an approach, the Court of Appeal said, was “commonplace” in civil litigation.
In reaching its conclusion, the Court of Appeal summarised that the most important findings of the High Court had been that:
- the arrangement between the two men was unwritten;
- the arrangement involved the transfer of properties from Mr Ali to Mr Dinc in return for a payment from Mr Dinc;
- the transfer of the properties was not a gift; and that
- there was an intention for Mr Dinc to use the properties as security to raise funds which would be paid to Mr Ali.
These, the Court of Appeal said, were all facts that were either undisputed or formed part of one or other party’s pleaded case (or both).
The High Court judge had rejected distinct parts of each party’s case, as she was entitled to do, and her conclusions were composed entirely of the acceptance or rejection of pleaded factual assertions. Accordingly, the judge did not find facts that were outside the ambit of either party’s pleaded case.
The legal costs of litigating this case all the way to the Court of Appeal must have been colossal. This unfortunate litigation serves as a poignant warning to us all to document oral arrangements and understandings, even those which are reached with our most trusted friends and family. You simply can’t predict the future, and when things go wrong, they can go very wrong indeed!
If this case resonates with you or you require further information or advice regarding your property dispute, please email Laura Tanguay or call on 01473 299188.
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Laura Tanguay
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at February 2022.