Declaration of Trust Prevails: Key Lessons from a Property Dispute

The case of Nilson and Thomas v Cynberg [2024] EWHC 2164 (Ch) revolves around the legal battle between a bankrupt individual, Stuart Cynberg, and his trustees in bankruptcy on one side, and his ex-wife, Collette Cynberg, on the other. This case highlights the crucial role of express declarations of trust in determining property ownership and how such declarations can be challenged or enforced, especially in bankruptcy situations.

Case Background

Mr. and Mrs. Cynberg purchased a property together in 2001, declaring themselves joint tenants on the Land Registry TR1 form. However, after their separation in 2009, Mr. Cynberg moved out, stating that he did not wish to retain any interest in the property and that Mrs. Cynberg could keep it, provided it was left to their children in the future. Despite this verbal understanding, no formal transfer or agreement was executed.

In 2018, Mr. Cynberg was declared bankrupt, and his trustees (Nilson and Thomas) claimed an interest in the property as part of the bankruptcy estate. Mrs. Cynberg argued that the property was hers, relying on the verbal agreement and her ongoing contributions to the mortgage and household expenses. The key issue at trial was whether this informal agreement could override the initial express declaration of trust and exclude the property from the bankruptcy estate.

Why This Case is of Interest

This case highlights important principles in family and insolvency law, specifically in relation to trusts and the equitable interests of parties in shared property. The court had to balance the conclusive nature of an express declaration of trust with informal arrangements that could give rise to a common intention constructive trust or proprietary estoppel.

The court ultimately found that an express declaration of trust is generally conclusive, as established in Stack v Dowden. However, the case also demonstrated that informal agreements could override this declaration, provided they were followed by conduct that gave rise to a common intention constructive trust. The court held that Mrs. Cynberg had acted to her detriment by taking over all the mortgage payments and not seeking financial remedy during the marriage, which supported her claim to full ownership of the property.

Key Takeaways for Practitioners

Express Declarations of Trust Are Powerful but Not Absolute: An express declaration of trust, such as the one in this case, is typically conclusive. However, subsequent agreements or proprietary estoppel can override this presumption if there is clear evidence of a common intention and detrimental reliance.
The Role of Bankruptcy in Family Law: The case highlights the intersection of bankruptcy and family law, particularly the challenges trustees face in claiming interests in property when one spouse has continued to live in and maintain the property. Understanding the rights of creditors versus those of an ex-spouse is crucial in such situations.
Detrimental Reliance is Key: Mrs. Cynberg's success in this case was largely due to her ongoing financial contributions to the property. Without this evidence of detrimental reliance, the court may not have found in her favour. For those relying on verbal agreements, actions must consistently reflect the assumed ownership arrangement.
Time is of the Essence: The case underscores the importance of formalising property ownership and financial agreements after separation. Mrs. Cynberg’s delay in formalising her interest in the property almost led to a significant financial loss.
Constructive Trusts in Property Disputes: This case reinforces that even in the face of a clear legal declaration of ownership, courts are willing to consider constructive trusts based on the parties’ conduct and mutual understanding. The key is to demonstrate a shared intention that the beneficial interest should shift, coupled with actions that reflect this intention.

Conclusion

The decision in Nilson and Thomas v Cynberg demonstrates that while express declarations of trust are generally decisive, they are not immune to being challenged by subsequent agreements or equitable claims. The court’s willingness to recognise a constructive trust based on verbal assurances and detrimental reliance serves as a critical reminder for both legal professionals and individuals to formalise property agreements and remain vigilant in handling shared assets, especially in situations of financial distress or bankruptcy.