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Property purchases from third party funds and the creation of a resulting trust

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03/07/2015

A recent High Court judgment [1] concerned the beneficial ownership of a 999-year lease of commercial premises. The lease was granted to the respondent to the proceedings, a Mr Tai, but the deposit of £15,000, £5,000 rent for occupation pending completion and the balance of the purchase price were all derived from the bank account of Al Fayhaa Mass Media Limited, which had subsequently gone into liquidation (the Company). The respondent had been at all material times the sole director and shareholder of the Company.

The liquidator contended that Mr Tai held the property on trust for the Company pursuant to a resulting trust arising by operation of law from the fact that the Company’s money was used to purchase it. Mr Tai maintained that the money was paid in part settlement of sums due to him on his director’s loan account, a point disputed by the liquidator, who did accept, however, that at all material times the Company owed Mr Tai sums in excess of the amounts paid for the purchase of the property.

A note to the Company’s annual accounts for the year the property was purchased read: “The company bought office for £305,000 but the Dead [sic] registered in Directors [sic] name”. On the other hand, the property was not included as an asset in the Company’s balance sheet and the accounts treated a sum equivalent to the purchase monies as a repayment of part of the director’s loan note. The same note – which formed the centrepiece of this part of the proceedings – was not repeated in subsequent accounts. Relevant conveyancing documents were all in Mr Tai’s name with no mention of the Company.

The Court began by reminding itself that if the Company’s money was used to purchase the property, there was a rebuttable presumption that the Company did not intend Mr Tai to take the property beneficially and a resulting trust would arise. However, the presumption did not arise in this case as the Court’s view was that, on the evidence, the money used to purchase the property was actually Mr Tai’s. The Court’s conclusion, following an assessment of Mr Tai as a witness and on the balance of the documentary evidence, was that the note to the accounts did not represent the correct position and that Mr Tai was indeed the legal and beneficial owner of the property.

The judgment turned on an assessment of the evidence but the case highlights the problems that can arise for office holders confronted with contradictory documentary evidence and the difficulties of second-guessing the approach the courts will take to considering that evidence. It highlights the difficulties that can arise where property is funded from a source other than the named purchaser, where a creation of a resulting trust may be presumed to arise.

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[1] Green (liquidator of Al Fayhaa Mass Media Limited) v Tai (Unreported)