IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Thursday, 25th April 2002

Before:

David Donaldson Q.C. sitting as a Deputy High Court Judge

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BETWEEN

JACQUELINE HEALEY

Claimant

-and-

PAUL BROWN

STANLEY SAFFER

Defendants

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JUDGMENT

 

DAVID DONALDSON QC

 

Introduction and essential facts

1. On 20 May 1996 Mr Thomas Brown and his wife Mrs Mary Theresa Brown executed mutual wills in identical form. Each spouse left the entirety of his or her estate to the survivor, and in the event of being the survivor left to Mrs Brown's niece, the Claimant

All my share and interest in my flat known as 3 Phoenix Court Purchese Street London NW1 1EL and the proceeds thereof or any other such dwelling as may be the main residence of myself and my [husband/wife] at the time of my death (sic) together with all my personal chattels ...

and gave the remainder of the estate to Paul Brown, Mr Brown's son by an earlier marriage and the First Defendant in this action.

2. The Phoenix Court flat was the matrimonial home of Mr and Mrs Brown, purchased by them jointly on long leasehold in 1993. It remained their home until Mrs Brown's death in 1997 and thereafter continued to be Mr Brown's home until his death in 1999.

3. Each will contained at the outset a declaration

that this be my last will ("my Will") and that I shall not amend or revoke my will after the death of my husband [or wife] ... if it is then unamended and unrevoked.

4. On 10 January 1997 Mrs Brown died, having made no alteration to her will. Mr Brown as the surviving joint owner became the sole owner of the flat by operation of law.

5. On 18 August 1997 Mr Brown transferred the flat from his sole name into the joint names of himself and the First Defendant "in consideration of natural love and affection".

6. On 31 December 1999 Mr Brown died with no alteration to his will, and sole title to the flat vested in the First Defendant by the doctrine of survivorship.

7. In essence, the case advanced by the Claimant is that in executing their mutual wills Mr and Mrs Brown agreed that the survivor would continue and not revoke the bequest of the flat to the Claimant (and the residuary estate to the First Defendant); that the transfer of the flat by Mr Brown into the joint names of himself and his son after the death of his wife reneged on that agreement and constituted a fraud on Mrs Brown. In these circumstances the Claimant contends that the flat is held by the First Defendant on trust for the Claimant and that she is entitled to have the flat transferred to her. That claim raises fundamental questions of law as to the effect of mutual wills and the impact of section 2 of the Law Reform (Miscellaneous Provisions) Act, 1989 ("the 1989 Act") as regards the bequest of real property under such wills.

 

The law relating to mutual wills

8. Any will, even when stated to be non-revocable, is at law by its nature revocable by a testator, and even where the testator has agreed contractually with another person not to revoke it, a subsequent will in breach of any such agreement will nonetheless be admitted to probate: see e.g. Re Heys [1914] P. 192. Equity can, however, where two parties agree as to the disposal of property by will and execute wills containing provisions to that end, intervene by imposing a constructive trust in favour of the beneficiary under the original will. As Dixon J summarised the position in Birmingham v. Renfrew (1937) 57 CLR 666 at 683:

It has long been established that a contract between persons to make corresponding wills gives rise to equitable obligations when one acts on the faith of such an agreement and dies leaving his will unrevoked so that the other takes property under its dispositions. It operates to impose upon the survivor an obligation regarded as specifically enforceable. It is true that he cannot be compelled to make and leave unrevoked a testamentary document and if he dies leaving a last will containing provisions inconsistent with his agreement it is nevertheless valid as a testamentary act. But the doctrines of equity attach the obligation to the property. The effect is, I think, that the survivor becomes a constructive trustee and the terms of the trust are those of the will which he undertook would be his last will.

That analysis operates on the basis that each testator provides consideration for the other's promise by making his or her will in the agreed terms and maintaining it unaltered to the date of death.

9. Though in the early and celebrated leading case of Dufour v. Pereira (1769) 1 Dick. 419 and 2 Harg. Jurid. Arg 304 there was a single joint will, separate but mutual wills will suffice, provided that it is clear from internal or extraneous evidence that they are not simply coincident but together constitute or evidence an agreement amounting to a contract that the survivor shall not revoke his or her will after the death of the other: see Gray v. Perpetual Trustee Co Ltd [1928] AC 391; Re Dale [1994] Ch 31; Re Goodchild [1997] 1 WLR 1216. In the present case, it is accepted by the First Defendant that the wills of Mr and Mrs Brown executed on 20 May 1996 satisfy this test (subject to the impact of section 2 of the 1989 Act which I discuss below).

10. In the present case, however, the will was not revoked by Mr Brown. The argument of the Claimant is rather that Mr Brown anticipated and circumvented the operation of his unrevoked will by transferring the flat into the joint names of himself and the First Defendant, thereby passing an immediate undivided half-share and causing the remainder to pass on his death to the First Defendant by the doctrine of survivorship. One has therefore to examine whether that act was contrary to the terms of the compact embedded in the mutual wills, and if so whether it gave rise to any proprietary consequences.

11. The first task must be to ascertain what (if any) obligations and restrictions in relation to the relevant property are imposed on a surviving testator who has executed a mutual will and undertaken not to revoke it. The starting point must be the text of the wills and in particular of the bequest clause identifying and disposing of the property to be left to the claimant. In the present case, the matter is complicated by an error in the drafting of the clause in question, the relevant parts of which for convenience I set out again in the form in which it occurs in the will of Mr Brown. It purported, in the event of Mr Brown surviving his wife, to give absolutely to the Claimant

all my share and interest in my flat known as 3 Phoenix Court Purchese Street London NW1 1EL and the proceeds thereof or any other such dwelling as may be the main residence of myself and my wife at the time of my death ...

The highlighted words are plainly illogical, since they are predicated on Mrs Brown having predeceased the testator, in which case the dwelling could not be the main residence of both spouses at Mr Brown's death. What is less clear is what correction should be made in those words to reflect the testator's intentions. Two possibilities were addressed in argument:

(A) To change the word "my" before "death" to "her, so that the clause would apply to "any other such dwelling as may be the main residence of myself and my wife at the time of her death".

(B) To delete the words "and my wife", so that the clause would cover "any other such dwelling as may be the main residence of myself at the time of my death". I prefer the first solution (A). It seems more likely that Mr and Mrs Brown were concerned to determine the fate of the matrimonial home, then the Phoenix Court flat, and included the second half of the clause simply to avoid the need to re-execute their wills if they were to move residence during their joint lives. This approach also involves a smaller verbal alteration in the clause, namely the substitution of the word "her" for "my"; moreover solution (B) assumes that the clause was intended to contain the phrase "the main residence of myself", when normal English usage would more naturally speak of "my main residence". (Counsel for the Defendants submitted that the same result as (A) could be achieved without any alteration of the wording, by treating the words "at my death" as qualifying the opening words "all my share and interest" rather than the immediately preceding words "main residence of myself and my wife"; but I found this route of interpretation highly artificial.)

12. In my view, therefore, the will contemplated that the property subject to the bequest would be definitively identified at the date of the death of the first spouse, namely as the Phoenix Court flat or any other property which had in the meantime replaced it as their main residence - as it turned out, the former. There is thus no conceptual obstacle to imposing a restriction on dealings with the flat by the survivor, and the question is rather whether and in what circumstances there is such a restriction, and the proprietary consequences, if any.

13. This subject was discussed by Dixon J. in Birmingham v. Renfrew (1937) 57 CLR 666 at 689-690 in a passage quoted by Nourse J in Re Cleaver [1981] 1 WLR 939 at 946-7:

The purpose of an arrangement for corresponding wills must often be, as in this case, to enable the survivor during his life to deal as absolute owner with the property passing under the will of the party first dying. That is to say, the object of the transaction is to put the survivor in a position to enjoy for his own benefit the full ownership so that, for instance, he may convert it and expend the proceeds if he choose. But when he dies he is to bequeath what is left in the manner agreed upon. It is only by the special doctrines of equity that such a floating obligation, suspended, so to speak, during the lifetime of the survivor can descend upon the assets at his death and crystallise into a trust. No doubt gifts and settlements, inter vivos, if calculated to defeat the intention of the compact, could not be made by the survivor and his right of disposition, inter vivos, is, therefore, not unqualified. But, substantially, the purpose of the arrangement will often be to allow full enjoyment for the survivor's own benefit and advantage upon condition that at his death the residue shall pass as arranged ...

In re Oldham [1925] Ch. 75 Astbury J. pointed out, dealing with the question whether an agreement should be inferred, that in Dufour v. Pereira 1 Dick. 419 the compact was that the survivor should take a life estate only in the combined property. It was, therefore, easy to fix the corpus with a trust as from the death of the survivor. But I do not see any difficulty in modern equity in attaching to the assets a constructive trust which allowed the survivor to enjoy the property subject to a fiduciary duty which, so to speak, crystallised on his death and disabled him only from voluntary dispositions inter vivos.

Though not developed by Dixon J, and perhaps unimportant on the facts of the present case, it would seem that where the fiduciary duty is breached by such a voluntary disposition inter vivos of the property in question, the "crystallisation" of the floating obligation must occur at the moment of that disposition.

14. I would, in line with the observations of Dixon J, have had little difficulty in concluding that a sale at arm's length or market price by the survivor, Mr Brown, to permit personal enjoyment of the proceeds was not precluded by the agreement of the parties. But "gifts and settlements, inter vivos, if calculated to defeat the intention of the compact" would plainly be in breach of it. Had Mr Brown sold the flat and used the proceeds to fund a place in a nursing home, there would have been no basis for complaint. But to give away the flat to his son - with immediate effect as to a 50% undivided share, and with effect on death as to the remainder by operation of the doctrine of survivorship - could scarcely run more directly and fully counter to the intention of the mutual will compact that the flat should pass to his deceased's wife niece on his own death.

15. Subject therefore to the impact of the 1989 Act I have no doubt that the mutual wills doctrine would apply in the present case so as to impose in favour of the Claimant a constructive trust attaching to the flat. I turn therefore to consider the provisions and effect of section 2 of the 1989 Act.

 

The impact of the 1989 Act

16. Prior to 1989 the formalities required for a contract for the sale or other disposition of land were governed by section 40(1) of the Law of Property Act, 1925, which provided:

(1) No action may be brought upon any contract for the sale or other disposition of land, or any interest in land, unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto by him lawfully authorised. (2) This section applies to contracts whether made before or after the commencement of this Act and does not affect the law relating to part performance, or sales by the court.

Section 40 of the 1925 Act largely repeated provisions in similar terms in the Statute of Frauds 1677, while expressly preserving the equitable doctrine of part performance permitting action on such a contract in certain circumstances notwithstanding non-compliance with the statutory requirement for a signed memorandum.

17. Since 1989 the position has been regulated by Section 2 of the Law of Property (Miscellaneous Provisions) Act, 1989, which provides so far as relevant for present purposes:

(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.

(2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.

(3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.

...

(5) ... nothing in this section affects the creation or operation of resulting, implied or constructive trusts.

(6) In this section-

"disposition" has the same meaning as in the Law of Property Act 1925;

"interest in land" means any estate, interest or charge in or over land or in or over the proceeds of sale of land.

...

(8) Section 40 of the Law of Property Act 1925 (which is superseded by this section) shall cease to have effect.

18. It will be noted that the changes effected by the 1989 Act are not restricted to the requirements of form which a contract for the disposition of an interest in land must satisfy. More fundamentally, section 2(1) deprives any non-compliant agreement of the legal status and hence effect of a binding contract, where section 40 of the 1925 Act (and the predecessor Statute of Frauds) had simply rendered such an agreement unenforceable by legal action without negating the existence of a legal contract.

19. There can be no doubt, as a matter of both principle and authority, that the agreement embodied in mutual non-revocable wills containing a bequest of land is a contract for the disposition of land. An undertaking not to revoke a testamentary disposition is the same in effect as a promise to make that disposition. As was said by Lord Camden in Dufour v. Pereira : "There is no difference between promising to make a will in such a form and making his will with a promise not to revoke it" (1769) 2 Harg. Jurid. Arg. 304 at 309. In Horton v. Jones (1935) 53 CLR 475 the High Court of Australia dismissed a claim by plaintiff against the personal representatives of her ex-employer for breach of an oral agreement by him to make a will leaving her property which would include interests in land on the ground that it fell within the New South Wales equivalent of section 40 of the English 1925 Act. Not long after, in Birmingham v. Renfrew (1937) 57 CLR 666, the same court held that the equivalent statute in Victoria was in principle engaged in a case where husband and wife made mutual wills. The statute was held inapplicable and the claim succeeded only on the basis that the will (and therefore the promise) referred simply to the entirety of the testator's estate on death, and therefore it could not be said at the date of the agreement that it concerned an interest in land, even if in the event at the time of death the estate turned out to include such an interest. No such obstacle to the application of the statute exists in the present case, where the bequest of the survivor is explicitly of land. The further reference in the bequest clause in the present case to the proceeds of a possible sale alters nothing in this regard: cf per Rich and Dixon JJ in Horton v. Jones (1935) 53 CLR 475 at 487.

20. It is equally clear that the requirements of section 2(1) of the 1989 Act are not fulfilled.

(A) If the mutual will compact falls to be regarded as one agreement, it is clear that there is no single document signed by both parties. Counsel for the Claimant argued that this objection could be overcome by resort to section 2(3), on the basis that the wills signed separately by the spouses had been exchanged. But I find it impossible to construe that in handing their respective wills to the same solicitor for safe-keeping Mr and Mrs Brown were effecting an exchange. Moreover, even in the case where contracts are exchanged section 2(1) requires all the terms to be set out or referred to in each document, whereas each will ex hypothesi contained different, albeit mirror-image terms.

(B) The better analysis may be that the mutual will compact consists of two contracts: one by Mr Brown to leave the property to the prescribed beneficiary if his wife died without revoking her will, and the other by Mrs Brown in reverse terms. But even on this basis section 2(1) is not satisfied. Firstly, under section 2(1) the document containing all the terms must have been signed by both parties, and Mr Brown's will clearly was not. Secondly, Mr Brown's will does not contain (or incorporate by reference) any terms as to the consideration for his undertaking (and the precondition for its becoming binding upon him), namely that his wife should have maintained her will unrevoked to her death. It does not therefore incorporate all the terms (or even all essential terms), as section 2(1) requires.

21. It is therefore in my judgment clear that section 2(1) of the 1989 Act applies so as to deprive the mutual will compact of any legal effect as a contract. The significance of this conclusion lies in the fact that the mutual wills doctrine is anchored in contract, and presupposes a legally binding agreement. In Dufour v. Pereira (1769) 1 Dick. 419 and 2 Harg. Jurid. Arg 304 Lord Camden LC considered the case "in two views" (2 Harg. Jurid. Arg at 307):

FIRST, how far the mutual will shall operate as a binding engagement, independent of any confirmation by accepting the legacy under it.

SECONDLY, whether the survivor can depart from his engagement, after he has accepted a benefit under it.

On the first point, his approach was in effect akin to specifically enforcing the contract, taking into account that all wills are at law revocable: "This Court does not set aside the will but makes the devisee heir or executor trustee to perform the contract" (at 309). On the second point, he considered that when the first testator had died and by his death carried the agreement on his part into execution, and the survivor had accepted and enjoyed the bequest, the latter would be guilty of a fraud and become "a trustee of course" if she refused to honour the engagement (at 310 to 311):

Mrs Camilla Rancer having proved the mutual will after her husband's death ; and having possessed all his personal estate, and enjoyed the interest thereof during her life, hath by those acts bound her assets to make good all her bequest in the said mutual will. ((1769) 1 Dick. 419 at 421)

Both lines of reasoning (though perhaps less clearly in the case of the second) appear to presuppose an enforceable contract at law. That has been recently confirmed in Re Goodchild [1997] 1 WLR 1216. As Leggatt LJ put it, (at 1224): "there must be a contract at law", echoed by Morritt LJ (at 1229): "a consistent line of authority requires that for the doctrine of mutual wills to apply there must be a contract between the two testators". In dismissing the argument that some degree of arrangement or understanding short of a binding contract was sufficient for the mutual wills doctrine, the court proceeded on the basis that without a contract property of the second testator not acquired from the first testator could not be bound. For this reason it rejected a suggested analogy with secret trust cases, where only the property of the first testator was subjected to the trust.

22. Until 1989 the statutory provisions were subject to the operation of the doctrine of part performance, under which - in simplified summary - equity would intervene to preclude the defendant from relying on the absence of a memorandum in writing where the claimant could point to acts of part performance indicating the existence of the contract. Such acts created an equity in favour of the claimant which made it appropriate for the contract to be fully implemented: Maddison v. Alderson (1883) 8 App. Cas. 467. That approach was however dependent on the fact that the contract existed and was merely rendered unenforceable by the statute, a defect which it was unconscionable for the defendant to invoke where part performance was established. But when the 1989 Act removed all legal contractual status from agreements not complying with its formal requirements, the doctrine of part performance lost an essential part of its required sub-structure and disappeared without even the need for express statutory abolition.

23. In consequence (1) the Claimant in the present case is prevented by section 2 of the 1989 Act from establishing the contract at law which Re Goodchild makes clear is necessary for the mutual wills doctrine as I have outlined it above to apply (2) the absence of such a contract precludes reliance by the Claimant on the doctrine of part performance.

24. It does not however follow that the conduct of the parties in the present case is necessarily without significance. While in the mutual wills doctrine equity intervenes in support of a legal contract, it does not always (or even normally) require such a contract before intervening. Constructive or other trusts may arise or be imposed as a remedy in many circumstances where a contract is absent. Nor are these precluded merely because the parties may have reached a consensus which would have constituted a contract but for section 2(1) of the 1989 Act. Indeed, Section 2(5) of the 1989 Act expressly provides that section 2 does not affect the creation or implementation of resulting, implied or constructive trusts.

25. These can be invoked even if they operate to provide a remedy in an area covered previously by the doctrine of part performance, and similar in effect, as the Court of Appeal decided in Yaxley v. Gotts [2000] Ch. 162. In that case the plaintiff was promised the ground floor of a house if he converted the house into flats and managed the property, which he did. The Court of Appeal held that those facts gave rise to a constructive trust, which was properly satisfied by the award of a 99 year lease of the ground floor, applying for this purpose the words of Lord Bridge in Lloyds Bank plc. v. Rosset [1991] 1 A.C. 107, 132:

The first and fundamental question which must always be resolved is whether ... there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between [the parties] that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. Once a finding to this effect is made it will only be necessary for the partner asserting the claim to a beneficial interest against the partner entitled to the legal estate to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement in order to give rise to a constructive trust or a proprietary estoppel.

The Court of Appeal further held that it was irrelevant whether the facts giving rise to the constructive trust also constitute a consensus which would have been legally binding as a contract but for the operation of section 2 of the 1989 Act. Robert Walker LJ summarised the position as follows:

To recapitulate briefly: the species of constructive trust based on "common intention" is established by what Lord Bridge in Lloyds Bank plc. v. Rosset [1991] 1 A.C. 107, 132, called an "agreement, arrangement or understanding" actually reached between the parties, and relied on and acted on by the claimant. A constructive trust of that sort is closely akin to, if not indistinguishable from, proprietary estoppel. Equity enforces it because it would be unconscionable for the other party to disregard the claimant's rights. Section 2(5) expressly saves the creation and operation of a constructive trust ... To give it what I take to be its natural meaning, comparable to that of section 53(2) of the Law of Property Act 1925 in relation to section 53(1), would not create a huge and unexpected gap in section 2. It would allow a limited exception, expressly contemplated by Parliament, for those cases in which a supposed bargain has been so fully performed by one side, and the general circumstances of the matter are such, that it would be inequitable to disregard the claimant's expectations, and insufficient to grant him no more than a restitutionary remedy.

26. On the face of it that summary of the relevant law by Robert Walker LJ would appear applicable to the different facts of the present case. On the faith of "an agreement, arrangement or understanding" (and indeed one deprived of legal contractual character only by section 2 of the 1989 Act) that the flat would be left to her niece, Mrs Brown on her death passed to her husband the entirety of her estate, including her undivided share in the flat. In doing so she performed wholly her side of the bargain as the first to die. Not only would a restitutionary remedy be insufficient: none is available. It would in my judgment be entirely inequitable now to frustrate Mrs Brown's expectation and it was unconscionable for Mr Brown to seek to do so by his actions after her death in seeking to pass the flat to the First Defendant.

27. On behalf of the First Defendant it is stressed that the flat was not wholly owned by Mrs Brown and a one-half undivided share was already vested in Mr Brown before his wife's death. At first blush, and on the law as stated in Lloyds Bank v. Rosset and Yaxley v. Gotts, this might appear to pose no obstacle to the imposition of a constructive trust in respect of the entire leasehold interest in the flat which has vested in the First Defendant. Indeed, in both cases the claimant acquired an equitable interest in property which had always been entirely owned by the defendant. However, in Re Goodchild, Morritt LJ (at 1231) stated that the principle propounded by Lord Bridge in Lloyds Bank v. Rosset in the words which I have set out above "has no operation in the case of mutual wills in regard to property already owned both legally and beneficially by the second testator to die". Why mutual wills cases are excluded from a rule stated as one of general application is not wholly clear. It is of course correct that, as Morritt LJ pointed out, the principle stated by Lord Bridge had been developed in cases where the court was considering the equitable interest in property acquired for joint use. That might also be said to have been the case in Yaxley v. Gotts, in that the agreement to give the claimant the ground floor of the property was made before it was purchased, but it is hard to see why the position should have been different if it had been made immediately afterwards. My own tentative rationale would probably be that Lord Bridge's formula must be confined in its application to cases where the act of the claimant is directly involved with the defendant's property. At all events in the absence of a binding legal contract Re Goodchild precludes the imposition of a constructive trust on any property not acquired by the survivor from the deceased. Given the impact of section 2 of the 1989 Act in the present case I therefore accept the First Defendant's submission that no constructive trust can be imposed as to one-half of his interest in the flat, corresponding to Mr Brown's own original undivided share.

28. No such inhibition applies as regards the half-share of the flat which Mrs Brown passed to her husband. A constructive trust in relation to that interest can be justified by reference to the separate case-law on so-called secret trusts, the essential elements of which were summarised by Brightman J in Ottaway v. Norman [1972] Ch. 698, 171 as being

(i) the intention of the testator to subject to a primary donee to an obligation in favour of the secondary donee; (ii) communication of that intention to the primary donee; and (iii) the acceptance of that obligation by the primary donee either expressly or by acquiescence.

While it may be possible to construct a contract out of such elements, a claimant's interest in such a case does not derive from contract, but turns rather on the acceptance of a trust by the recipient and avoidance of a fraud on the beneficiary and testator: see e.g. Blackwell v. Blackwell [1929] AC 318. Section 2 of the 1989 Act has therefore no impact on a claim presented on this ground.

29. Mrs Brown's interest in the flat did not in fact pass under her will. It vested in her husband under the doctrine of survivorship, since she had never served a notice severing the joint tenancy. To that extent, the present case differs from the ordinary case of secret trusts, since the property passed outside the will and by operation of law rather than pursuant to a bequest. But to my mind that is a matter of form without substantive significance. The reality of the arrangement, to which equity should in my judgment have regard, was that Mrs Brown's entire estate including her interest in the flat should, as it did, by one legal mechanism or another operative on her death pass to her husband. Whether Mrs Brown's interest in the flat passed as part of her entire estate by her positive act of bequest or by her maintenance of the joint tenancy unsevered until her death was of no moment, when the intention to give and the terms of that gift were understood and accepted by her husband. He thereby accepted a trust in favour of the Claimant to pass that interest in the flat to her under his will (subject only to the qualification which I discussed in paragraphs 13 and 14 above as to a right to realise the property for his personal benefit during his lifetime). The First Defendant therefore now holds the flat subject to that equitable interest of the Claimant.

 

Conclusion

30. For these reasons I conclude that the property at 3 Phoenix Court is held on trust by the First Defendant for himself and the Claimant in equal shares, and I propose so to order by way of declaration.