In Haque v Raja, Mr Justice Henderson considered the relationship between implied trusts (both constructive and resulting), overreaching, and knowing receipt, and in doing so confirms the emerging orthodoxy in relation to interests in ‘the family home’.
The facts were somewhat complex, made difficult by the lack of documented evidence. In summary however, Mr Sheraz Ali Khan (Mr Khan) was freehold proprietor of a property in Waltham Forest. He had purchased this property from the previous registered proprietor, Ms Raja. At the time of her purchase, Ms Raja was married, under sharia law, to Mr Haque. Mr Haque alleged that the property was held entirely on trust for him on the basis that he had provided the purchase money, and that this was the prevailing understanding between himself and Ms Raja at the time. Subsequent to the purchase, Mr Haque was detained in prison, and, he argued, gave the keys to Mr F Khan (Ray) to manage the property for him. Ray, without planning permission, converted what had been a commercial building into a residential property and obtained tenants for it. This caused considerable stress and financial hardship for Ms Raja who, by this time, had moved to Newcastle. As a result of this, she contacted her friend who was married to Mr Shahzad Khan (Shahzad), the brother of the defendant Mr Khan. Mr Shahzad Khan agreed to help Ms Raja find a buyer for the property. He mentioned this to his brother, Mr Khan, who then expressed interested in the property and paid £135,000 for freehold title. Mr Haque, on discovering this, alleged that the property had been held on trust for him and that this trust was binding on Mr Khan.
The reasoning employed by Mr Haque was that, firstly, he was entitled to equitable title to the property because either a resulting or a constructive trust had arisen at the time of purchase. Furthermore, he then alleged, that since there was only one trustee (Ms Raja), that his interest was not overreached and that it therefore bound Mr Khan. If this argument did not succeed, he claimed in the alternative that Mr Khan was bound as a constructive trustee on the basis of knowing receipt. By contrast, Mr Khan argued that he had no knowledge of Mr Haque’s interest in the property, if any, and that as a result of section 29(1) any trust interest which Mr Haque did have could not have been overriding on the disposition to Mr Khan.
There was little doubt that Mr Haque faced an uphill struggle in establishing that Mr Khan was affected by any trust interest that he had. The lack of actual occupation was, at first glance, clearly determinative of the outcome. However, the judge’s comments as to the step-by-step process which must be employed in cases such as this is a useful explanation of how to proceed through complex fact scenarios in relation to implied trusts, overreaching, and land registration.
The first issue was whether it was arguable that there was a trust (the hearing was concerned with whether or not to lift an injunction against Mr Khan and so an arguable case would have sufficed for Mr Haque). The judge accepted that it was highly likely that Mr Haque had indeed provided the purchase money for the property. This did not however conclusively establish that a trust had arisen, as it was unclear whether this was a resulting or constructive trust case as the property was bought in part as an investment and in part as a future residential prospect. About this, Henderson J stated:
This led to some doubt in the judge’s mind as to whether this ought to mean that the principles of Stack v Dowden  UKHL 17 applied. If they did, however, Henderson J was very clear as to the process of applying these rules:
This two-step approach is an entirely correct in both sole and joint names cases. The first step is to establish whether there is evidence that there was a common intention that the property was held differently from what legal title would imply. The second issue is to consider how to quantify the respective interests. At this latter stage, a wider range of considerations can be taken into account that at the former.
The judge highlights that this more flexible, nuanced approach in relation to family homes may be more appropriate in the instant case: “a resulting trust may arguably betray a rather narrow approach to a complex subject” . Given the need only to establish whether Mr Haque had an arguable case in this regard, however, it was not necessary for the judge to resolve this issue.
The much more significant question was whether even if Mr Haque could establish an interest under a trust (which seems likely), this would mean that Mr Khan was affected by this interest. The judge’s starting point on this question was to agree with Mr Haque that the right had not been overreached. The proceeds of sale had only been paid to one trustee and so the requirements of section 2 and 27 LPA 1925 had not been met. However, this was not determinative, for in addition to demonstrating that his interest had not been overreached on sale, Mr Haque was also required to demonstrate that his right was overriding at the time of the disposition (following Williams & Glyn’s Bank v Boland  AC 487) by virtue of his actual occupation. This, he could not establish. This approach is entirely in keeping with what would have been expected, but it is nevertheless useful to have confirmation that it is not enough simply to state that a right has not been overreached. It is critical to consider what effect sections 29 or 30 might have. Thus: “the rules of priority in sections 29 and 30 of the LRA 2002 will confer priority over the beneficiary’s equitable interest even though it is not overreached” . This is a completely correct statement of the law, and it is pleasing to see it expressed with no doubts or qualifications.
The final issue then was the possibility or otherwise of Mr Khan holding as a constructive trustee on the basis of knowing receipt. This, as the judge highlighted, “is a liability which affects [the holder’s] conscience directly, and it is not dependent upon the survival of the claimant’s original beneficial interest” . It is, “therefore unaffected by the technicalities of overreaching and land registration” . On the facts of the case, however, the judge concluded that there was no evidence of such knowledge or complicity, and that the case of dishonesty pleaded was “entirely speculative” . The judge therefore held that this claim had no real prospect of success.
This was not a difficult case in terms of the legal principles, however complex and tangled the facts. However, the judge’s approach here is to be praised as admirably clear and demonstrably correct in his analysis of the legal principles. They can be summarized as follows:
1. To establish an interest under an implied trust, a claimant must establish either a resulting or constructive trust. Which of these applies will depend on the distinction between investment/ commercial property and domestic property, a distinction which is not always clear-cut. If the resulting trust principles apply, the claimant will benefit from an equitable share proportionate to his contribution to the cost of the property. If the constructive trust principles apply, firstly, the claimant must show that there is sufficient evidence of a common intention that equitable title should be different from that which legal title would indicate, and then secondly, must show how such an interest would be quantified.
2. Once such a trust interest has been established, the right-holder must demonstrate that this right is binding upon the current registered proprietor. This requires assessment (a) has the right been overreached? And (b), if not, was the right overriding at the time of the disposition by virtue of the right-holder’s actual occupation such that the requirements of schedule 3 paragraph 2 LRA 2002 are met?
This case is a perfect example of how these steps fit together, and it is in this respect, exemplary in its orthodoxy.