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Matthew Weaver, barrister at Radcliffe Chambers, discusses the case of Re Karl Eric Watkin, which concerned an action under the Insolvency Act 1986, and whether there was a presumption of advancement between parent and child for the purchase of three properties or whether they were held on trust.
Re Karl Eric Watkin Wood and another (as the joint trustees in bankruptcy of Karl Eric Watkin) v Watkin  EWHC 1311 (Ch)
This was an application brought by joint trustees of Karl Eric Watkin, a formerly wealthy businessman, for declarations that three properties purchased in the sole name of his daughter, Kate Watkin, in 2003, 2006 and 2007 were held by Kate on resulting trust for Karl. Alternatively, the trustees contended that sums paid by Karl for the purchase of these properties amounted to transactions to defraud creditors pursuant to section 423 of the Insolvency Act 1986 (IA 1986) and a sum of circa £2,000 retained by Kate from the re-mortgage of one of the properties amounted to a transaction at an undervalue pursuant to IA 1986, s 339.
The court was required to determine whether the properties were purchased with monies belonging to Karl so as to grant him a beneficial interest in the properties. This determination required the court to determine the source of the purchase monies and, in doing so, to consider the presumption of advancement between a parent and child.
The court also had to consider whether the purchase monies could be transactions at an undervalue for the purpose of putting Karl’s assets beyond the reach of his creditors (as required under IA 1986, s 423) and to determine whether the £2,000 retained by Kate was money due to Karl and, therefore, a transaction at an undervalue.
Insolvency and Companies Court Judge Barber dismissed the application in its entirety. While her judgment runs to some 232 paragraphs and 44 pages, it can be summarised in relatively short order.
The judge started her judgment by observing that the office-holders had failed to disclose apparently relevant documentation and had, in parts of the evidence, given the judge some reservations as to the accuracy and fairness of the way on which the supporting evidence was put.
Having considered the evidence, the judge rejected the office-holders’ claim to a resulting trust over each of the properties on the evidence before the court. The properties were all purchased in the sole name of Kate, the mortgages were all in the name of Kate (one of the mortgages was in joint names of Kate and Karl), and the deposit monies either came from a joint bank account in the name of Karl and Kate’s mother (that account having retained monies set aside for Kate and her siblings over the years) or from a family friend. The judge found as a fact that the monies advanced from the joint account were funds from parents wanting to help their daughter while she remained, to some extent, financial reliant on them (despite being over 18 years of age). This fell squarely within the presumption of advancement notwithstanding that she was not a minor child in circumstances where the presumption can still apply even if the child is over 18 and not financially dependent on their parents.
Further, while in principle a joint liability under a mortgage used to fund the purchase of a property may in certain circumstances be treated as a contribution to a purchase price capable of giving rise to a resulting trust, it can also be seen as one party merely facilitating the purchase of a property by another party which would not give rise to a resulting trust. That is precisely what the judge concluded had occurred here.
Nothing in the evidence of the office-holders rebutted the presumption of advancement, established Karl as the funder of any of the purchases, nor indicated any clear and obvious basis upon which a resulting trust in Karl’s favour could have arisen. Indeed, the office-holders’ investigations had, in fact, confirmed that Karl (and Karl’s ex-wife) considered the properties to belong to Kate. While the office-holders had relied on Karl allegedly seeing the benefit of rental income from the properties, no contemporaneous documentary evidence to establish this was adduced.
In conclusion, the judge summarised the office-holders’ claim for a resulting trust as ‘confused and poorly evidenced’ (at para ).
As for the alternative claims, these were dismissed in short order. As well as providing no evidence that any of the monies used for the purchases were gifts from Karl to Kate (as would be necessary for a claim under IA 1986, s 423), there was a complete lack of evidence of the required purpose on the part of Karl to put those sums out of the reach of his creditors.
The small transaction at an undervalue claim was also dismissed on the facts.
As regards the law, while the judge’s decision is a useful reminder of some principles, such as the relevance of joint mortgages in the creation of a resulting trust, the application of the presumption of advancement as between parent and child, and the necessary purpose for a transaction to fall foul of IA 1986, s 423, it is not legally significant.
However, it is on a practical level that this case is more useful. Office-holders and those who advise them should read the judgment and take heed.
Inference is unlikely to be sufficient to discharge the onus on an applicant to prove their case. Claims need to be carefully thought out and sufficiently well evidenced to succeed. For findings of a resulting trust, a court will need to see evidence that the purchase monies originated from the individual in question. In addition, office-holders must ensure that all non-privileged documents in their possession which are of obvious relevance are exhibited to their witness evidence. While an office-holder may not undertake the day to day work on a case, if they give evidence they must familiarise themselves sufficiently with the case to be able to provide probative value on the issues arising and of any investigations undertaken.
Interviewed by Emily Meller.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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