Illegal intent alone rebutted presumption
The plaintiff held 499 of the 500 issued shares of a company. In 1986 he wished to retire and transferred 30 shares to his son, one of four children, who was to take over the business. In 1988 he was worried about a bill for dilapidations, and, to safeguard his position and with the intention of defrauding his creditors, he transferred the remaining shares. The judge found that the father and the son had agreed that the shares would be held on trust for the father pending the settlement of the dilapidation claims.
Held: The illegal (but unused) purpose of a gift was admitted as evidence to rebut the presumption of advancement.
Millett LJ ‘But it does not follow that subsequent conduct is necessarily irrelevant. Where the existence of an equitable interest depends upon a rebuttable presumption or inference of the transferor’s intention, evidence may be given of the subsequent conduct in order to rebut the presumption or inference which would otherwise be drawn.’ and
‘In my opinion the following propositions represent the present state of the law. (1) Title of property passes both at law and in equity even if the transfer is made for an illegal purpose. The fact that title has passed to the transferee does not preclude the transferor from bringing an action for restitution. (2) The transferor’s action will fail if it would be illegal for him to retain any interest in the property. (3) Subject to (2) the transferor can recover the property if he can do so without relying on the illegal purpose. This will normally be the case where the property was transferred without consideration in circumstances where the transferor can rely on an express declaration of trust or a resulting trust in his favour. (4) It will almost invariably be so where the illegal purpose has not been carried out. It may be otherwise where the illegal purpose has been carried out and the transferee can rely on the transferor’s conduct as inconsistent with his retention of a beneficial interest. (5) The transferor can lead evidence of the illegal purpose whenever it is necessary for him to do so provided that he has withdrawn from the transaction before the illegal purpose has been wholly or partly carried into effect. It will be necessary for him to do so (i) if he brings an action at law or (ii) if he brings proceedings in equity and needs to rebut the presumption of advancement. (6) The only way in which a man can protect his property from his creditors is by divesting himself of all beneficial interest in it. Evidence that he transferred the property in order to protect it from his creditors, therefore, does nothing by itself to rebut the presumption of advancement; it reinforces it. To rebut the presumption it is necessary to show that he intended to retain a beneficial interest and conceal it from his creditors. (7) The court should not conclude that this was his intention without compelling circumstantial evidence to this effect. The identity of the transferee and the circumstances in which the transfer was made would be highly relevant. It is unlikely that the court would reach such a conclusion where the transfer was made in the absence of an imminent and perceived threat from known creditors.’
Nourse LJ observed that: ‘the presumption of advancement has . . fallen into disfavour’.
Millett LJ, Nourse LJ
Gazette 15-Sep-1995, Times 14-Aug-1995,  Ch 107,  3 WLR 913,  EWCA Civ 20,  4 All ER 236,  2 FLR 966
England and Wales
Cited – Lavelle v Lavelle and others CA 11-Feb-2004
Property had been purchased in the name of of the appellant by her father. She appealed a finding that the presumption of advancement had been rebutted.
Held: The appeal failed. The presumption against advancement had been rebutted on the . .
Cited – Collier v Collier CA 30-Jul-2002
Fraudulent Intent Negated Trust
The daughter claimant sought possession of business premises from her father who held them under leases. He claimed an order that the property was held in trust for him. The judge that at the time the properties were conveyed, the father had been . .
Cited – Ben Hashem v Ali Shayif and Another FD 22-Sep-2008
The court was asked to pierce the veil of incorporation of a company in the course of ancillary relief proceedings in a divorce. H had failed to co-operate with the court.
After a comprehensive review of all the authorities, Munby J said: ‘The . .
Cited – Patel v Mirza SC 20-Jul-2016
The claimant advanced funds to the respondent for him to invest in a bank of which the claimant had insider knowledge. In fact the defendant did not invest the funds, the knowledge was incorrect. The defendant however did not return the sums . .
Lists of cited by and citing cases may be incomplete.
Updated: 02 May 2022; Ref: scu.89990