Collier v Collier [2002] EWCA Civ 1095

Respondent unable to rely on his illegality to recover property

Facts

Due to financial difficulties the respondent granted leases, with options to purchase, over two properties to the appellant (his daughter). Subsequently, the respondent raised mortgages over both properties without informing the lender of these options. The appellant exercised the options. The parties fell out and the appellant raised an action for possession of one of the properties. The respondent counterclaimed and argued that the properties were held on trust for him by the appellant.

Issue

At first instance, the court castigated the transfers to the appellant as carried out for illegal purposes including the defrauding of the lenders. However, the appellant’s claim that the transfer was a gift was rejected and the defendant was the beneficiary under an express trust between the parties. The appellant appealed on the basis that there was no express trust and, secondly, the respondent was precluding from relying on a trust due to its illegal purpose. The respondent argued that the illegality had not been carried into effect and so was irrelevant.

Held

The appeal was allowed. The purpose of the trust was to deceive and the respondent was prevented from relying on his own illegality. According to Mance L.J. the illegality had been carried into effect because the deceit of the mortgage lenders had been successful. Aldous L.J. added that the respondent had had the benefit of the illegality for a number of years, namely the defrauding of the Inland Revenue for inheritance tax purposes. He could therefore not dispute the effect of the transfers without relying on the illegality and the property must lie where it rested i.e. with the appellant.