New law to tackle property ownership concealed for criminal purposes

17 March 2010

What happens if a parent puts property in a child's name to evade care home charges, then wants it back against the child's wishes? And who owns a house when it is registered in one person's name so a co-owner can illegally claim social security benefits, and then the partnership breaks down?

New powers to deal with people who use trust law to conceal their ownership of property for ciminal purposes are recommended in a new report, The Illegality Defence, published today by the Law Commission.

The illegality defence can be used by a defendant in a civil case to argue that a claimant should not be entitled to their normal rights because they have behaved illegally in a way that is connected to their claim. It can apply even if both people knew about the illegal behaviour.

The reforms recommended by the Law Commission would apply where a trust has been created to conceal a beneficiary's interest for criminal purposes. In serious cases, the property may be confiscated. In other cases, the courts must decide whether to ignore the illegality and enforce the trust.

The Commission is recommending that the courts should have a discretion. In exceptional circumstances the courts could prevent a beneficiary from enforcing a trust if they have behaved illegally, even though this may grant a windfall to the holder of the property, who may be equally guilty. To clarify the law, the Law Commission has also provided guidelines on what makes an ‘exceptional circumstance'.

This change would be likely to impact most on people who share homes but are not jointly registered owners. Unlike married couples, they must rely on complex trust law to divide their property if a relationship breaks down. If there has been any illegality, the results can be arbitrary.

In other areas of the law, the Law Commission recommends that the best way forward is not new legislation, but the development of case law, which should be left to the courts.

David Hertzell, the Law Commissioner leading the project for England and Wales, said:

"The intricacies of trust law can lead to arbitrary outcomes. Our recommended reforms would make the law clear and proportionate, and ensure that the consequences of a case would be related to its merits."

The report and a draft Bill, setting out the proposed changes in trust law, are available on the Law Commission website: www.lawcom.gov.uk

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