Oral Agreement Failed To Stop Trustees In Bankruptcy From Obtaining 50% Share Of Bankrupt’s Property

An oral agreement failed to stop Trustees in Bankruptcy obtaining 50% of a Bankrupt’s property. This is our report on the case of Nilsson & Anor v Iqbal & Anor [2024] EWHC 49. 

This was a case in which Mrs Iqbal, was sued by the Trustees in Bankruptcy. She appeared from the judgment to have faced an uphill struggle to hold onto her claim to 100% interest in the matrimonial home. Although perhaps one can never be too confident of winning their case in a Court of UK law, perhaps it is reasonable to speculate the Trustees here might have felt their claim was quite a good one. Notably, their opposition to the late witness statement presented the day before Trial was said to be mild.

Mr and Mrs Iqbal were married in 1996, separated in 2016 and subject to an Islamic divorce in 2017. Part of the divorce settlement was Mrs Iqbal was to have 100% of the matrimonial home, known as Southview, Pollards Hill East in London (“property”). Crucially this was not put in writing.

The Judge concluded by saying the absence of a document under Law of Property (Miscellaneous Provisions) Act 1989 and or the establishment of proprietary estoppel meant the Trustees in Bankruptcy succeeded, enabling them for the bankruptcy estate’s benefit to hoover up 50% of the beneficial interest in the property. However, before the bankrupt’s creditors can anticipate any dividend, not only does the standard statutory order of payment in insolvency proceedings need to be applied but suitable account needs to be taken of the result in other proceedings detailed below.

Property History

Mr Iqbal on 14 November 2019 had a bankruptcy petition from HMRC. He was then made bankrupt on 17 March 2020. 

The main relevant activity with respect to the property interests recorded at the land registry historically was on 6 March 2003. The TR1 was signed on the basis of the property being held 50/50 as tenants in common.

The Trustees sued Mrs Iqbal, who said that in July 2000 (when a mortgage was being taken), that solicitors were instructed to afford her 90% of the beneficial interest in the property:

Mrs Iqbal’s written evidence states that around July 2000 – notably before executing the TR1 – she and Mr Iqbal visited a firm of solicitors, Carpenter & Co where they consulted Gavin Carpenter and arranged to take out a mortgage with Platform (which I understand to be part of the Co-operative Bank group). She states that Mr Carpenter was instructed to transfer the Property so that she would hold 90% of the beneficial interest with the remaining 10% being held by Mr Iqbal. She left it to her former husband to conclude the arrangements but has now learnt that Mr Carpenter failed to carry out their instructions.

This does not appear to match subsequent arrangements. On 6 March 2003, the executed TR1 put Mrs Iqbal’s interest at 40% less. This was not the only suggestion of inconsistencies the judge fleshed out in the judgment.

In a development outside of these proceedings, a Mr Ashank Patel has an order for the first £950,000 of the property, along with 50% of the balance realised, up to an eye-watering £7.3 million.

The Trustees’ Application

The Trustees’ proceedings were the standard bankruptcy possession proceedings under Section 14(2) of the Trusts of Land and Appointment Of Trustees Act 1996 and Section 335A of the Insolvency Act 1986. 

There appeared to be no exceptional circumstances in this case to enable the interests of the bankrupt to outweigh those of creditors.

Notable Highlights

At Trial, the bankrupt did not turn up for cross-examination so his witness statement’s utility was defunct:

Mr Iqbal filed a witness statement in these proceedings but failed to attend the hearing. His attendance has not been excused in writing. Mr Iqbal did not seek by correspondence, application or evidence to explain his absence or to seek the Court’s permission for his statement to be read. I see no basis to derogate from the terms of the order dated 17 July 2023. Mr Iqbal’s evidence has not therefore been considered or taken into account for the purposes of this judgment.

Mrs Iqbal did not explain in her witness statement why there was not a written agreement about the state of the beneficial interest in the property. 

Also, it appears that the judge was surprised Mrs Iqbal had not set out a position about the charging orders obtained by third parties against the bankrupt’s share of the property after the Islamic divorce. 

When Did The Claim To 90% Arise?

The 90% interest question was picked up by the judge who referred to a curious consequence of cross-examination. Mrs Iqbal said in 2003 after the TR1 for equal shares in the property was sorted out, that a solicitor was instructed to amend the interest so that she held 90%. However, this was not concluded because she left it to Mr Iqbal as she was busy raising three children under the age of two.

However, the judge noted that Mrs Iqbal’s first witness statement referred to her eldest child was 20 and twins 18:

The twins would not therefore have been born in 2003.

Who Paid The Mortgage After The Islamic Divorce?

In a second witness statement submitted late (the day before the final hearing) and “mildly objected” to by the Trustees in Bankruptcy, Mrs Iqbal said she paid the mortgage and all other outgoings. However, on cross-examination she said the bankrupt was paying the mortgage until freezing orders were made against him which was at least two years after the Islamic divorce. The judge said:

Despite seeing the evidence in which Mr Iqbal appeared to have retained at least 50% of the beneficial interest in the Property (most notably the TR1), and Mr Iqbal informing the Court under oath at his public examination that he resided between two properties, one of which was the Property, Mrs Iqbal obdurately refused to concede that it might be reasonable for third parties to think that he continued to hold an interest in it.

The absence of detail provided in Mrs Iqbal’s written evidence, the initial absence of any information regarding Mr Iqbal continuing to pay the mortgage after their Islamic divorce, the conflicting dates and information set out in her written and oral evidence, the factual likelihood that Mrs Iqbal would have received at least one of the letters sent to her at the Property from at least one of the Trustees, their solicitors and/or those seeking to obtain a charging order against the Property and her apparent failure, after Mr Iqbal had been made the subject of freezing orders and bankruptcy to check that he had put their apparent agreement, pursuant to which she would hold 100% of the beneficial interest in the Property into effect, all lead me to approach Mrs Iqbal’s evidence with considerable caution.

Conclusion

Mrs Iqbal advanced a proprietary estoppel claim but the judge said:

I find on the balance of probabilities, that at the time when Mrs Iqbal states they effected an Islamic divorce, Mr and Mrs Iqbal reached no more than an inchoate agreement in respect of the interest which she would eventually gain in the Property, the terms of which would not be finalised until some time later, most likely once the mortgage was paid off. No final agreement was reached, no concluded assurance was given. Consequently, in my judgment, there was no assurance upon which to found a proprietary estoppel.

…

In the absence of a document satisfying the requirements of the Law of Property (Miscellaneous Provisions) Act 1989 altering the beneficial interests stated in the TR1 to be held by Mr and Mrs Iqbal, and in the absence of grounds to establish proprietary estoppel, I find that the Trustees are entitled to a declaration that they and Mrs Iqbal are beneficially entitled to the Property in equal shares.

When the Trustees in Bankruptcy here strolled to Court on 24 November 2003 it is not unrealistic (although it is plainly speculation nevertheless) to envisage they had a bit of spring in their step, perhaps in anticipation they appeared to have a strong case. From a review of the judge’s comments, the problem for Mrs Iqbal appeared to be:

1.  Inconsistencies in her evidence.
2.  Conceivable gaps in her evidence attempted to be remedied the day before the Trial.
3.  Absence of a material witness.
4.  No written agreement.

Inconsistencies

It can be inferred from the judge’s comments that the evidence of Mrs Iqbal appeared to be occasioned by certain inconsistencies. Some of them were said to be serious. 

In the case of Stewart & Ors v Watkin [2019] EWHC 1311 (Ch) where a submission put forward by the late great Gabriel Moss QC said:

‘you cannot prove a case on inconsistencies’. The burden of proof was on the Applicants to establish, on a balance of probabilities …

In this case, the suggested inconsistencies were said to be those of Mrs Iqbal who was responding to the application. Although she was not the applicant with the burden of proof nevertheless the evidence that she did put forward would not appear from the judgment, to have been assisted by the apparent inconsistencies.

Gaps In The Evidence

Serving a witness statement on the eve of a Trial is potentially risky. It is potentially unfair if an opponent suddenly has a new set of relevant facts to address and little or no time to deal with them. In many instances, the Court will refuse permission for late admission of such evidence or in some cases adjourn the Trial but hit the party providing late evidence with adverse costs.

Both the mild objection by the Trustees and the judge permitting its admission suggest its impact may have been limited. However, there were further inconsistencies that seemed to sprout from this when Mrs Iqbal was cross-examined in respect of who was paying the mortgage after the Islamic divorce.

Absence Of A Material Witness

Perhaps one of the most striking features of this case was the absence of the bankrupt as a witness to enable his witness statement to be permitted to be deployed.

The case of Mrs Iqbal was rooted in the fact that she said there was an oral agreement between her and the bankrupt whereby she had 100% of the property in 2017.

Oral agreements generally when disputed are difficult to enforce due to the lack of certainty of their terms. This was demonstrated in the somewhat unusual case of Blue v Ashley (Rev 1) [2017] EWHC 1928 (Comm). However, when there is no dispute about the oral agreement it still behoves the party looking to rely upon it to prove its existence by enabling all parties to it to attend Court to be questioned on their witness evidence.

In this case, it seems notable that Mr Iqbal did not attend to put forward his position on the oral agreement. This cannot have assisted Mrs Iqbal attempts to have its existence and terms fully accepted by the Court:

I find on the balance of probabilities, that at the time when Mrs Iqbal states they effected an Islamic divorce, Mr and Mrs Iqbal reached no more than an inchoate agreement in respect of the interest which she would eventually gain in the Property …

4. No Written Agreement

It is perhaps more than commonplace for changes in interests in property to be formally recorded in writing.

Absent some implied, resulting or constructive trust it appears legislation anticipates this position in light of Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.

Furthermore, in Stack v Dowden [2007] 2AC 432, Baroness Hale of Richmond noted:

In the olden days, before registration of title on certain events, including a conveyance on sale, became compulsory all over England and Wales, conveyances of unregistered land into joint names would in practice declare the purchasers’ beneficial as well as their legal interests. No one now doubts that such an express declaration of trust is conclusive unless varied by subsequent agreement or affected by proprietary estoppel.