The Lesser Known ‘Acquisition Constructive Trust’ after Khan v Khan [2025] EWCA Civ 1436 and Why Financial Remedy Lawyers Need to Know About It

Introduction

Many financial remedy lawyers will be familiar with, or at least aware of, constructive trusts. These arise both in Trusts of Land and Appointment of Trustees Act 1996 (TLATA) cases and also fairly frequently in intervener disputes as to the ownership of property as between spouses and third parties within financial remedy proceedings.

When thinking of constructive trusts, most financial remedy lawyers will have in mind the common intention constructive trust. The modern form of which derives from the seminal House of Lords/Supreme Court decisions in Stack v Dowden [2007] 2 UKHL 17 and Jones v Kernott [2011] UKSC 53.

However, this is not the only type of constructive trust. Many of these other types will rarely trouble financial remedy lawyers.

But, the newly christened ‘acquisition constructive trust’, as named by the Court of Appeal in Khan v Khan [2025] EWCA Civ 1436 (Khan), is one we should all become familiar with.

History

Although the term ‘acquisition constructive trust’ may be new, the concept is not. The starting point is Rochefoucauld v Boustead [1897] 1 Ch 196 (Rochefoucauld) – a decision concerning the ownership of a Ceylon tea plantation. Not an asset that crops up too much nowadays. The original owner, a female divorcee, faced foreclosure on her mortgage. She feared her ex-husband would obtain the property at a discount. Therefore, she agreed orally with a ‘friend’ that he could buy the estate for the price of the debt and that he would hold it for her subject to a charge back for the sum expended on redeeming the mortgage and any other sums he had spent on the estate. The purchase duly took place.

However, when later the original owner wanted the property transferred back upon payment of the agreed sums, her erstwhile ‘friend’ refused. Litigation ensued. The ‘friend’ relied, amongst other things, on s 7 Statute of Frauds (the statutory precursor of s 53(1)(c) Law of Property Act 1925) to say the agreement could not confer any interest by way of trust as it was not in writing. This succeeded at first instance. The Court of Appeal disagreed stating that the Statute of Frauds could not be used as an instrument of fraud. They found that the ‘friend’ had always held the plantation on trust for the original owner by reason and under the terms of the oral agreement, some of which were recorded in subsequent correspondence.

The court, however, did not use the term ‘constructive trust’ and there was subsequently some debate as to whether Rochefoucauld was an unusual example of a permitted oral express declaration of a trust of land.

Rochefoucauld was one of the cases relied upon in Bannister v Bannister [1948] 2 All ER 133 (Bannister). There a woman had agreed to sell her home to her brother-in-law at an undervalue. She did this as he had said that he would allow her to continue living there rent-free for as long as she liked. Later he reneged on the deal and sought to evict his sister-in-law. He asserted she was merely a tenant at will whose tenancy could be terminated on notice. She counterclaimed that she had a life interest by virtue of their agreement. Both at first instance and in the Court of Appeal it was found the original owner had a life interest by way of constructive trust. It was found the denial of the earlier bargain was a species of equitable fraud. This did not depend on the conveyance itself being actually fraudulent, but it was sufficient that the later assertion of the absolute nature of the conveyance was in contradiction of the true basis of the agreement. Neither the Statute of Frauds nor the Law of Property Act 1925 could defeat the beneficial interest which arose in these circumstances.

Bannister was then followed in Neale v Willis [1968] 19 P & CR 836. There Lord Denning repeated the mantra that someone could not rely on the apparent absolute nature of a conveyance to them where the conveyance had only occurred because of a bargain that the beneficial interest would belong in whole or part to another – for in such circumstance a constructive trust arose.

By this stage it was becoming clear that the Rochefoucauld equity was considered a type of constructive trust. In his survey of constructive trusts in Paragon Finance v DB Thakerar & Co [1999] 1 All ER 400 Millett LJ (as he then was) was firmly of the view Rochefoucauld was a discrete type of constructive trust that arose by operation of law.

Consideration in the family courts

Over the years the family courts have certainly been aware of the Rochefoucauld equity. It was referred to by Nicholas Mostyn QC (as he then was) in the seminal intervener case of TL v ML [2005] EWHC 2860, [2006] 1 FLR 1263 as a possible basis for a spouse asserting a beneficial interest in a property held in the name of a third party. However, the reference to Rochefoucauld was somewhat en passant and the circumstances of that case required little examination of the concept.

By this point, however, the categorisation of the Rochefoucauld equity as a constructive trust had led to some confusion, particularly with the modern focus on the common intention constructive trust. There was a tendency to believe the Rochefoucauld equity had been subsumed within this and often attempts were made to shoehorn scenarios more apt to the Rochefoucauld equity within the rubric of the common intention constructive trust.

That one size fits all approach, however, was challenged by the Court of Appeal in the family case of De Bruyne v De Bruyne [2010] EWCA Civ 519 (De Bruyne). There an issue arose as to the beneficial ownership of certain shares held in the name of the husband (H). These shares, or at least the assets from which they had been bought, had originally been owned by a trust in which H and his children were beneficiaries. This had been wound up and the trustee had transferred shares to H. H asserted that though the shares, and the assets from which they had been bought, were in his sole name, he held them for the benefit of both himself and the children. That being the agreement upon which they had originally been transferred to him out of the trust. W claimed the shares were H’s absolutely.

At first instance the court found that H held the shares subject to a common intention constructive trust.

The Court of Appeal upheld the finding in substance but disagreed with the legal analysis. They felt a common intention trust analysis was inapt. It involved finding detrimental reliance by the children which was on the facts somewhat tortuous. Instead, they felt this was a case where a constructive trust based on the Rochefoucauld equity was far more appropriate. Thus, H was found to have ultimately received the shares on the basis he was to hold them beneficially for himself and the children. In such circumstances he could not assert he held them absolutely. There was no need for detrimental reliance by the children.

Patten LJ, giving the lead judgment, stated:

(1) there was no need for actual fraud and that equitable fraud encompassed unconscionable or inequitable conduct in the form of a refusal or denial to carry out an agreement to hold property for the benefit, in whole or part, of a third party;

(2) further, that this agreement or understanding was sufficient to render the legal owner a fiduciary and create a constructive trust;

(3) lastly, he emphasised the width of the concept and drew the parallel between the Rochefoucauld type trust with the constructive trust that arises with secret trusts in wills cases. In both cases a donee or transferee was precluded from denying the qualified nature of their receipt.

Further consideration in the civil courts prior to Khan

Following De Bruyne came Archibald v Alexander [2020] EWHC 1621 (Ch). Here a mother had paid for a house intending it to be for her benefit during her life and then after her death shared amongst all three of her children. However, the legal title was only in the name of the mother and one of the children, a daughter. None of the children had made any financial contribution. After the death of the mother, the daughter on the legal title asserted she was now the sole beneficial owner by survivorship. The other siblings challenged this.

At first instance it was accepted that at the time of the purchase there had been a family meeting where the mother made clear that the property was to be for the benefit of all three children on her death. Thus the judge found for the siblings but, as in De Bruyne, did so on the basis of a common intention constructive trust. The daughter appealed asserting the siblings could not show the necessary detrimental reliance.

On appeal, Fancourt J upheld the first instance decision but on the basis the constructive trust the judge had found was in fact a De Bruyne-type constructive trust.

Fancourt J neatly summarised the distinction between the common intention constructive trust and the Rochefoucauld/De Bruyne constructive trust as follows:

(1) A common intention constructive trust involved an informal agreement where a legal owner promised another person they had, or would have, a beneficial interest. For it to be enforceable in equity there had to be detrimental reliance on the part of the other person claiming an interest.

(2) A Rochefoucauld/De Bruyne constructive trust arose where a property was transferred gratuitously into the name of a party on the express agreement and basis that it was to be held, in whole or part, for some other person. In such a situation equity does not entitle a title holder to unconscionably renege on the terms of that agreement and assert ownership of the whole of the property. As such, equity arises from the terms on which the property was transferred (albeit such terms may have been agreed orally and separate to the legal transfer), it is not necessary to find detrimental reliance on the agreement by the beneficiary.

The decision in Khan

The most recent and authoritative restatement of the law in this area is the Court of Appeal decision in Khan. The case concerned a dispute between the six children of Mr Khan senior as to the beneficial ownership of several freeholds and leaseholds in four properties in South West London. The funding of all of these properties had ultimately come from Mr Khan senior, and some of them had originally been held in his name.

However, by the time of Mr Khan senior’s death most of the titles were in the sole name of his eldest son Muhammed. All of the adult children, save Muhammed, argued that there was a family agreement, or understanding, that notwithstanding the legal titles the properties were to be held, following their father’s death, as to one property for the benefit of the daughters and as to the other three properties for the benefit of all of the sons equally. This arrangement had not been reduced to writing and Mr Khan senior had died intestate with no indication as to what was to happen to family property after his death. Muhammed, who held all but one of the legal titles, denied this arrangement and said it was intended he, as the eldest son, should have the properties in his name.

At first instance it was pleaded that Muhammed held his interest in the properties subject to either a De Bruyne/Rochefoucauld-type constructive trust or a common intention constructive trust – and in one case subject to an express trust created by a signed email acknowledging that Muhammed held a property for the sisters.

The court at first instance struggled with the rather unsatisfactory evidence, but ultimately concluded that the five siblings had made out a De Bruyne/Rochefoucauld constructive trust in respect of all of the properties and that this bound Muhammed. It further found that there was an express declaration of trust by Muhammed compliant with s 53(1)(b) Law of Property Act 1925 in respect one of the properties by reason of the signed email. However, the judge struggled in respect of the alternative formulation of the arrangement as giving rise to common intention constructive trusts because of the lack of detriment by some of the siblings, and in particular the daughters.

The decision was appealed. In the Court of Appeal the decision was unanimously upheld. Miles LJ gave the judgment. He found the first instance judge was entitled to make the findings she did on the facts and dismissed the pleading points taken on appeal. In more general terms, the following points emerge in respect of the De Bruyne/Rochefoucauld equity:

(1) There should be a new term, the ‘acquisition constructive trust’, to describe this type of trust to distinguish it more clearly from a common intention constructive trust.

(2) The approach of Fancourt J in Archibald v Alexander is generally endorsed in that:

(a) an acquisition constructive trust arises where a property is transferred into the name of the owner on the basis they will hold it on trust, in whole or part, for another; and

(b) in those circumstances, as the owner only acquires the property on the terms of this agreement, that equity will not permit the owner to unconscionably refuse to give effect to its terms.

(3) The constructive trust arises because of the terms upon which the property is transferred and not the detrimental reliance of the intended beneficiary on the agreement. This is the crucial distinction with a common intention constructive trust.

(4) It is not necessary to pinpoint with precision the moment when the concluded agreement was reached as to the conditions of the transfer, and the court is entitled to consider the whole course of dealings between the parties and draw appropriate inferences.

(5) There need not be any dishonesty or actual fraud at the time of the transfer by the owner – it is sufficient that it is unconscionable for the owner subsequently to go back on the agreement to constitute an equitable fraud.

(6) The acquisition constructive trust was not limited to gratuitous transfers – as might have been the impression from Fancourt J’s formulation in Archibald v Alexander – for in both Rochefoucauld and Bannister there had been consideration albeit at a considerable undervalue.

(7) Further, an acquisition constructive trust can arise on a purchase from a third party, as in Neale v Willis. This will happen where the donee transfers to the buyer a significant part of the purchase price on the basis the buyer has undertaken to hold the property ultimately purchased in whole or part on trust for another. However, Miles LJ noted the extent and value given by the recipient would impact on whether a trust arises.

Khan also touched upon the breadth of what can be manifested and proved by signed writing, even long after any transfer to the legal owner, under s 53(1)(b) Law of Property Act 1925. It also deliberately left open the interesting question as to whether a common intention constructive trust can arise where some, but not all, of the (non-legal title holding) beneficiaries can show detrimental reliance. These matters are outside the scope of this article.

Takeaways for matrimonial finance practitioners

Whilst Khan was a civil property dispute it is readily apparent on its facts, should any of the siblings have been going through a divorce, that it could just as easily have arisen as an intervener dispute in financial remedy proceedings. Indeed, part of the factual background was that one of the properties had been transferred from a sister to Muhammed to protect that property against possible matrimonial claims by that sister’s husband on divorce.

It is relatively common in financial remedy proceedings to come across cases where properties are held within extended families on the basis of clear family understandings that do not correspond to the recorded legal ownership. Moreover, properties may be passed down from parents to, usually, an eldest adult child on the basis that adult child is holding such properties for the benefit of other siblings. As in Khan, such arrangements are often convoluted and rarely recorded properly, if at all, in writing. The family assumes all is understood and agreed until, of course, it is not. Disputes will often arise after the death of a paterfamilias or materfamilias and/or upon the divorce of one of the family members.

Although pleading points may not be quite so important within the family courts as in the civil courts it has been emphasised, since at least TL v ML, that intervener cases must be clearly put and properly pleaded, applying legal principles which are the same whether applied in the family courts or the civil courts.

Thus, following Khan the following should be borne in mind when pleading constructive trusts:

(1) There is not one type of constructive trust and clear thought needs to be given as to whether what is alleged is a common intention constructive trust or an acquisition constructive trust, though of course they may be pleaded in the alternative.

(2) The former is likely more apt where a property has been bought by parties together, particularly as a home, and where they have both made direct, and provable, contributions.

(3) The latter is likely more apt where the property or purchase price has been transferred or gifted, in whole or part, to the current legal owner, particularly within the extended family, and it is said this was subject to an express agreement or understanding that the beneficial title was be held in whole or part for another person.

(4) One of the fundamental differences is that an acquisition constructive trust does not require detrimental reliance – this is particularly important where one or more of the alleged beneficial owners is essentially a volunteer who would struggle to prove detrimental reliance.

Of course, all cases turn on their own facts. Khan does not mean that intervener cases with extended family members are going to become easier to prove.

Many assertions of constructive trust will fall down on a lack of convincing evidence – particularly where it appears they are only raised to fend off otherwise valid financial remedy claims against the legal owner.

Nonetheless, as set out above, genuine complex and undocumented ownership arrangements do exist within extended families.

Any practitioner considering an extended family intervener case should have Khan, and the acquisition constructive trust, well in mind when setting out to plead their case.