Gallarotti v Sebastianelli [2012] EWCA Civ 865

WTLR Issue: November 2012 #124





Mr Gallarotti (G) and Mr Sebastianelli (S) had been friends since 1988. They moved to London to make their careers and habitually rented flats together, both contributing towards the outgoings. In 1997 they took the step of buying a flat (the flat) together, although it was transferred into S’s sole name. The total cost was £188,287.44. S contributed £86,500 and G contributed £26,896.20. The remainder was met by a mortgage taken out by S and against which G agreed to postpone any interest he might have.

No written agreement existed to establish an express declaration of trust over the property, but the recorder at first instance found an express oral agreement to share the flat’s beneficial ownership equally. The recorder also found a further agreement, made once it was understood that the parties’ initial contributions would not be equal, that G would pay the larger proportion of the mortgage repayments. In fact it was found that S made the larger proportion of repayments, though G did make some, lesser, contributions for the parties’ joint benefit. Initial contributions to the flat were quantified at approximately 75% and 25% between S and G respectively. If mortgage contributions are taken into account S had funded approximately 86% and G 14%.

In autumn 2008, as the parties’ friendship had come to an end, S excluded G from the flat. The property’s value substantially exceeded the initial price and G brought proceedings to obtain a declaration as to his beneficial interest. The trial judge, having found the oral agreement to share equally, declared that G had a 50% share in the flat.

S appealed. The only issue being whether the recorder was right to conclude that the parties held equal shares in the flat and therefore the proper inferences to be drawn from the evidence.

Held (allowing the appeal):

  1. (1) When assessing common intention constructive trusts the court will have regard to the parties’ conduct throughout their relationship in order to find their intention. There is no restriction, as in the case of resulting trusts, to examining the parties’ contribution to the purchase price [5].
  2. (2) The principles applicable to constructive trusts are the same regardless of the parties’ relationship, though inferences might be drawn in the case of commercial affiliations. The case of a platonic friendship bears a closer relationship to domestic rather than commercial agreements [6].
  3. (3) The agreement found by the recorder in this case was to be read as a whole. The agreement was not simply for equal shares, it was crucially subject to a further agreement that G was to make greater contributions to the mortgage’s repayment [11].
  4. (4) The agreement did not apply in the events which unfolded; it only covered a slight imbalance in financial contribution. The parties’ conduct, their informality in bringing payments into account but also the rider agreement that G was to make greater mortgage contributions, meant that by the time they went their ceased their friendship and living arrangement, the only inference that the recorder could have drawn was that the parties intended the beneficial ownership should, in substance, reflect their financial contributions. It was wholly implausible that, as suggested by the recorder’s conclusion, S should have intended to make a substantial gift to G – they were friends living together for companionship and convenience, not as a family unit [24]-[26].
  5. (5) It was not possible to draw from the parties’ conduct a shared intention that the flat’s beneficial ownership was to be adjusted to reflect the full level of S’s mortgage repayment. It could not reasonably be inferred that the payments made by G should be left out while full recognition was given to S’s contributions [29].

(6) Accordingly the recorder’s judgment was set aside and substituted with a declaration that S had a 75% beneficial share and G a 25% beneficial share [30].

JUDGMENT LADY JUSTICE ARDEN: [1] In 1997, Mr Sebastianelli and Mr Gallarotti did what many single people do: they decided to buy a flat with the help of a mortgage and with each of them making a cash contribution. Mr Sebastianelli paid the larger share. The transfer was into Mr Sebastianelli’s sole name, and he …
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