KERNOTT V JONES: WHAT ARE THE ISSUES AND WHAT CAN WE EXPECT
FROM THE SUPREME COURT?
SOME INTERESTING QUOTATIONS ...
“This is, therefore, a very unusual case.”
Baroness Hale in Stack –v- Dowden [2007] 1 FLR 1858
“I agree with Baroness Hale of Richmond that this is, on its facts, an exceptional
case.”
Lord Walker of Gestingthorpe in Stack –v- Dowden [2007] 1 FLR 1858
“I am not sure, with respect, what is to be made of the emphasis by Baroness Hale
and Lord Walker that Stack was an exceptional case.”
Rimer LJ in Jones –v- Kernott [2010] 2 FLR 1631
“When everyone is somebody, then no-one's anybody"
The Grand Inquisitor in Act II of the Gondoliers by Gilbert & Sullivan. December
1889
‘[i]t is widely accepted that the present law is unduly complex, arbitrary and
uncertain in its application. It is ill-suited to determining the property rights of those
who, because of the informal nature of their relationship, may not have considered
their respective entitlements
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Law Commission’s 8th Programme of Law Reform, Law Com No 274 of 2001
‘[i]t is quite simply not possible to devise a statutory scheme for the ascertainment
and quantification of beneficial interests in the shared home which can operate fairly
and evenly across the diversity of domestic circumstances which are now to be
encountered’
Paragraph 1.31 of the Law Commission Discussion Paper, Sharing Homes (Law Com
No 278) published in 2002
“I wish to make the following Statement to the House announcing the Government's
response to the Law Commission's report Cohabitation: The Financial Consequences
of Relationship Breakdown.
The Law Commission published its report on 31 July 2007, but no action was taken
by the previous Administration, who wished to first seek research findings on the
Family Law (Scotland) Act 2006. This Government have now carefully considered the
recommendations of this thorough report, together with the outcomes of research on
the 2006 Act.
The findings of the research into the Scottish legislation do not provide us with a
sufficient basis for a change in the law. Furthermore, the family justice system is in a
transitional period, with major reforms already on the horizon. We do not therefore
intend to take forward the Law Commission's recommendations for reform of
cohabitation law in this parliamentary term.”
Mr Jonathan Djanogly, Parliamentary Under-Secretary of State, Ministry of Justice
in a Written Ministerial Statement dated 6th September 2011 published in Hansard.
“We hope that implementation will not be delayed beyond the early days of the next
parliament, in view of the hardship and injustice caused by the current law,”
Professor Elizabeth Cooke, Law Commissioner in charge of the Cohabitation Project,
a few days later ...
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“Even if my views are accepted they only go a short way towards solving
the many problems which are coming before the Court in increasing numbers.
We were informed that last year there were 900 applications in the High
Court besides an unknown number in the County Courts. The whole question can
only be resolved by Parliament and in my opinion there is urgent need for
comprehensive legislation.”
Lord Reid in Pettitt –v- Pettitt [1970] AC 777
“The road to hell is paved with good intentions.”
William Blake: Songs of innocence and experience 1789
KERNOTT –v- JONES
1. The Supreme Court heard the arguments in Kernott v Jones on 4th May 2011. My
clerk, Dan Barnett, had ascertained that it was hoped that a decision would be handed
down within 8 to 12 weeks of the arguments. This did not seem unreasonable: the
argument lasted less than a full day and it was a five person tribunal. The decision in
Radmacher –v- Granatino, with a nine judge panel had only taken six months to be
handed down.
2. The truncated afternoon session of the hearing had been largely concerned with an
endowment policy (not as I understand it) before the Court of Appeal which, it was
common ground, was owned as to about 80% to Ms Jones and as to 20% to Mr
Kernott. Ms Jones had used her 80% ish share to pay down the mortgage. Issues of
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equitable accounting had not been, as yet, addressed by any of the courts that had
heard this case as it moved up the ladder.
3. In March of this year, Becky Bailey-Harris and I wrote an article for Family Law
Week. In it we urged practitioners to beware of taking cohabitation claims to a final
hearing prior to the judgment of the Supreme Court in case they fell foul of the fate
that caught some practitioners post White –v- White1. We wrote that article in part
because we were against one another in a substantial large TLATA claim that was
pending and it was the view of Mostyn J that there was no point in having a quasiFDR prior to the law being clarified by the Supreme Court. We built a timetable
around a hearing on 11th November as, surely, there would be a decision by then.
That hearing (insofar as it was intended to deal with the merits) has now been
adjourned off until the New Year.
4. I learnt yesterday that, in fact, the judgment will be handed down on 9th November
2011.
5. There have been very few developments in the law of cohabitation since it was
announced that Kernott v Jones was going to the Supreme Court. Practitioners have
been perhaps conscious of Dharamshi –v Dharamshi [2001] 1 FLR 736 and S –v- S
(Ancillary Relief: Consent Order) [2002] 1 FLR 992 amongst others.
6. Why has it taken so long? This was a case where the assets in dispute amounted to
half of £218,000. The case took less than a day to argue and most of the issues were
1
See S v S (Consent Order: Ancillary Relief) [2002] 1 FLR 992
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considered at some length by the House of Lords in Stack v Dowden as recently as
2007! What is their problem?
7. Well, I think that the problems facing the Supreme Court are substantial. They are,
furthermore, compounded by developments that are completely outside their remit. In
September 2011 the Government stated that it was not going to take on board the
proposals of the Law Commission upon the reformation of the law as it relates to
cohabiting couples. The Supreme Court must therefore consider plugging the gap left
by Parliamentary inactivity. I believe that the Supreme Court will do so it’s best to
do so.
8. The Government has chosen to leave the law in its current arbitrary mess. The
reasons for doing so are not satisfactory. However, it is the case that there is little by
way of consensus as to how cohabiting couples should be treated when it comes to
property rights on separation. There is no broad church that easily permits
compromise. When the FLBA met with the Law Commission as part of its
consultation process it was not possible to address it with a single voice on behalf of
the association. Just as within Parliament there is within the FLBA a very broad
range of views upon this issue.
9. I suspect that the Government’s decision to sit on its hands has added a greater
urgency (and difficulty) to the task facing the Supreme Court. The decision of the
Court of Appeal in Jones –v- Kernott [2010] 2 FLR 1631 was greeted with relief by
the purists (including me). The decision of the lower courts, whilst just, appeared to
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be arbitrary. In the wider, tabloid, world, however, it was received with dismay and
astonishment. It was seen to be unfair.
The facts of Jones v Kernott
10. An unmarried couple purchased a property in joint names for £30,000, for use as
their family home. The woman supplied a deposit of £6,000; the balance was
funded by an interest only mortgage. A year later the man built an extension to the
property, with the help of a £2,000 loan, paid for largely by the man; the extension
enhanced the property’s value by about £14,000. During the relationship the
household bills, including the main mortgage payments, were shared. The couple
had two children together. After over 8 years in the property the relationship broke
down and the man moved out; thereafter all payments were met by the woman,
who maintained the property and supported the children with little or no
contribution from the man. The parties agreed to cash in a life insurance policy,
dividing the proceeds, in part to enable the man to buy a property in his sole name.
Subsequently, when both properties had increased in value, the man served a notice
of severance in respect of the property in joint names. The equity in the property in
joint names was about £218,000; the equity in the man’s sole property was about
£167,000. The woman responded by bringing a claim under the Trusts of Land and
Appointment of Trustees Act 1996 in respect of both properties. At first instance
the judge held that the woman was entitled to 90% of the value of the property in
joint names, on the basis that this was fair and just. The man appealed contending
that the court’s view of what was fair was not the correct criterion and relying
heavily on Holman v Howes [2007] EWCA Civ 877 in which a woman left in sole
occupation of a property had been denied more than 50% of the property.
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11. The man’s appeal was heard by Nicholas Strauss QC sitting as a Deputy High Court
Judge. He refused the man’s appeal ([2010] 1 FLR 38) and confirmed that the
beneficial interests in the property were held as to 90% to the woman and 10% to the
man. The head note reads as follows:
Held – dismissing the man’s appeal –
(1) Applying Oxley v Hiscock [2004] EWCA Civ 546, para [69] and the House of
Lords decision in Stack v Dowden [2007] UKHL 17, para [61] per Baroness
Hale of Richmond, while the court should not override the intention of the
parties in favour of what the court itself considered to be fair to the extent
that the intention of the parties could not be inferred, the court was free to
impute a common intention to the parties, which attributed an intention that
they either had not had or had not communicated to each other. It was
difficult to see how that process would work without the court supplying, to
the extent that the intention of the parties could not be deduced from their
words or conduct, what the court considered to be fair. The court was not
entitled to disregard evidence of what the parties had probably intended, and
substitute what it thought was fair, but the court could, while respecting the
parties’ intentions so far as they were apparent, consider what was fair so as
to supply any missing elements. In cases in which the parties had not
indicated in any way what their respective shares were to be, or how they
were to be altered to take account of changing circumstances, their actual or
subconscious intention might well be that if they could not reach agreement
in changed circumstances, their respective shares, should be whatever the
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court decided was fair in all the circumstances. The court could not assume
that two parties, who had not fully clarified their intentions as to their
respective beneficial interests either initially or on the breakdown of the
relationship, had not intended considerations of fairness to be relevant in
determining their respective beneficial interests. Further, if considerations
of fairness were to be wholly set aside in such cases, there would be a
practical difficulty in searching for a result that the parties must in the light
of their conduct be taken to have intended, in preference to what the court
itself considered to be fair, when there was no evidence as to what they did
intend as regarded their respective shares; in many cases there would be no
way of resolving the issue if fairness were disregarded. The view expressed
by Lord Neuberger of Abbotsbury in Stack v Dowden that fairness was
‘forbidden territory’ was part of his dissent from the majority view. Holman
v Howes depended on its own facts, in particular the fact that the
breakdown of the relationship had been contemplated by the parties, and
they had discussed what would then happen: the court hearing that case had
not laid down any general rule, or even made any general observations, on
the effect of one of the parties remaining in occupation of the property
following a breakdown in the relationship with the other (see paras [28]–
[36], [40]).
(2) Despite the absence of any communication by either party to the other of any
actual intention, there was evidence of conduct from which it was right to
conclude that the parties intended their respective shares to alter following the
man’s departure. The first instance judge had been right to decide that the
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parties had intended, or were to be taken as having intended, that their
respective beneficial interests should be altered to take account of changing
circumstances, and in reaching that decision he had not needed to invoke
fairness: the change in intention could easily be inferred or imputed from
the parties’ conduct. After the split the couple’s original intention to pool
their resources had ceased, and they had maintained separate finances (see
paras [31], [47], [49]).
(3) However, in the absence of any indication by words or conduct as to how the
parties’ interests should be altered, the appropriate criterion was what the
judge considered to be fair and just; the only available criterion was what
was objectively fair and the only available judge of that was the court. Since
the parties had no discernible intentions as to the amount of the adjustment,
they must be taken to have intended that it should be whatever was fair and
reasonable; this conclusion did not override any different intention that,
from their words or conduct, could reasonably have been attributed to them.
The judge’s approach could either be justified as being in accordance with the
common intention of the parties, or, if this were regarded as a fiction, as the
only option available to the court on quantification, once it had rightly been
decided that the parties had intended their respective beneficial interests to
change (see paras [31], [49]).
(4) The first instance judge’s attribution of 90% to the woman was
justifiable, without taking into account the possibly controversial factor of the
man’s failure to contribute to the maintenance of the children. The man’s
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departure and acquisition of another property did not justify saying that he
was to be taken as having entirely abandoned whatever stake he had in the
previously shared property, but his decision no longer to contribute to the
jointly-owned property had allowed him to purchase another property, on
which he had made a substantial capital gain. It would not be reasonable for
the man to have, and the parties could not be taken to have intended that he
should have, a significant part of the increased value of both properties,
therefore, it would not be reasonable for him to retain more than a small
interest in the jointly-owned property (see paras [48], [50], [51]).
Per curiam: although it was taken into account as a major factor in this case,
a parent’s failure to contribute to the maintenance of the children was a factor
that could legitimately be taken into account (see para [52]).
12. Mr Kernott appealed to the Court of Appeal. The Court of Appeal allowed his appeal
by a majority (Wall and Rimer LJJ with Jacobs LJ dissenting) declaring that he had a
fifty percent interest in the equity in the property. The head note reads as follows:
(1) The appeal was to be resolved under the law relating to trusts, in particular
by applying Stack v Dowden [2007] UKHL 17 to the facts, not by analogy with
cases involving married couples (see paras [6], [24], [55], [65]).
(2) The starting presumption was that the beneficial interest followed the legal
interest. The critical question was whether, given the total lack of direct evidence
about the couple’s intentions on separation, the court could infer from the parties’
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conduct since separation a joint intention that, over time, the beneficial interests
would be varied so that they were no longer equal. Stack v Dowden did not enable
the courts to find, by way of the imputation route, an intention where none was
expressly uttered nor inferentially formed; the court’s goal was to find the parties’
intentions, which meant their real intentions (see paras [56], [57], [69], [70],
[77]).
(3) The court could not infer a joint intention to vary the shares in which the
property was held from the parties’ conduct in this case. The conveyance into joint
names had created joint beneficial interests, and the parties had agreed that when
they separated they had equal interests; the mere passage of time was insufficient
to displace those equal interests, even though during that time one party had
acquired alternative accommodation and the other had paid all the outgoings. If
the parties had truly intended that the man’s beneficial interest in the property
should reduce post-separation, or on acquisition of his own property, they should
have adjusted their beneficial interests in the property accordingly. The parties
held the severed joint tenancy as tenants in common in equal shares (see paras
[58], [62]–[64], [69], [82], [83]).
Per Wall LJ: the man’s failure to maintain the children might be relevant were the
man to seek to charge the woman for her occupation of the property, and were the
process of equitable accounting to be applied between them (see para [51]).
Per Wall LJ: it was of the utmost importance that those who purchased residential
accommodation, and those who advised them, took the greatest care over such
transactions and, if the purchasers were unmarried, addressed their minds to the
size and fate of the respective beneficial interests on acquisition, separation and
thereafter. Cohabiting partners must contemplate and address the possibility that
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the relationship would break down and that there would be disagreements over
what they did and did not own (see para [61]).
Per Jacob LJ dissenting: the judge had been entitled to infer or impute a shared
intention that after the split the parties’ shares in the property were to be
‘ambulatory’: of particular significance was the cashing in of the insurance policy
to enable the man to purchase a home for himself, and the fact that because he
made no payments concerning the main property, he was able to make the
payments required for his own house (see paras [107]–[109]).
13. Thus, by the time the Court of Appeal had delivered their judgment the case had been
considered by five judges, only two of whom found in favour of the man. All of the
judges had relied upon the House of Lords decision in Stack –v- Dowden as support
for their conclusions. It is ironic that one of the intentions of the House in Stack was
to bring some certainty to the law and to discourage litigation over beneficial interests
in property.
The main difference between the various judges was upon whether the
court was entitled to impute an intention to the parties or simply to infer one. A
further difference lay in the extent to which concepts of fairness could be introduced
into the reckoning.
14. Why is Kernott so important and what is the significance of the distinction between
imputation and inference? To answer this question it is necessary to look back at the
way in which the law in this troubled area has developed.
RECENT HISTORY IN RELATION TO COHABITATION CLAIMS
STARTING WITH ROSSET
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Lloyds Bank –v- Rosset [1991] AC 107
15. In Rosset the House of Lords set down a two stage enquiry:
(i)
Was there a common intention for the ownership of the property to be shared?
(ii)
If so, what was the parties’ common intention as to the quantum of shares?
There was also a need for the claimant to establish detrimental reliance. It was important
to keep the above two stages separate. At the first stage of the enquiry, whilst it was
relatively easy to infer an intention to share ownership where the legal title was shared,
where the property was in the sole name of one party Lord Bridge held that the common
intention to share ownership might be established either:
(a) By express discussions evidencing an agreement or understanding (Rosset I); or
(b) By drawing inferences from conduct (Rosset II).
16. The necessary conduct, in Lord Bridge’s view consisted of direct contributions to the
purchase price of the property, whether initially or by assuming liability under a
mortgage and / or by payment of mortgage instalments. It was, he said, “extremely
doubtful whether anything less will do”. This was a strict test. On the basis of this
analysis, therefore, indirect contributions to the acquisition of the property and to the
upkeep of the home and the household generally remained problematical at the first
stage of the enquiry (“was there a common intention to share ownership?”) although
indirect contributions might well be relevant at the second stage of the enquiry (“if
there was a common intention that ownership be shared, what were the nature and
proportions of the parties’ respective shares of the beneficial ownership?”).
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17. It is important to bear in mind that in Stack the property was in joint names so that the
first stage of Lord Bridge’s enquiry did not arise for consideration.
The second stage per Rosset (as seen through Stack)
18. The second stage of the enquiry is usually reached relatively easily when a property is
in joint names. In a “sole name” case the claimant will have to have established the
existence of a common intention to share ownership. In a joint names case Stack
established that there would be a presumption of equally shared ownership, certainly
between cohabiting couples. However, if there is an express declaration of trust
(perhaps unlikely in a sole names case) that will usually determine the outcome of the
second stage of the enquiry. There is a tendency for litigants and sometimes their
legal advisers (sometimes even judges) to overlook the fact that the TR1 contains a
declaration of trust. It is important to remember also that Stack was not only a joint
names case but also a case where the property in question had been conveyed before
the advent of the TR1 and where there was no other express declaration of trust.
Kernott was also such a case.
19. Thus, the second stage of the enquiry is most likely to be engaged in circumstances
where the subject property is in one party’s sole name and there is no express
declaration of trust. In such circumstances, the two most likely vehicles for
establishing the quantum of a party’s share are the resulting trust and the constructive
trust. The majority of the House of Lords in Stack favoured the constructive trust
approach. Lord Neuberger, who also disagreed with the majority’s use of the word
“impute” leaned more towards a resulting trust analysis.
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Constructive Trusts
20. The doctrine operates as follows: If there is evidence that, at the time of acquisition of
the property, or at a later date, the parties had a common intention that a property is to
be jointly owned, in reliance upon which there was detrimental reliance / change of
position by the claimant, a constructive trust will arise and the parties will both be
beneficially entitled notwithstanding the legal title and the absence of written express
declarations of trust of the beneficial interests.
The court’s task at the second stage of the enquiry
21. Just as at the first stage of the enquiry the court must search for the parties’ common
intention. Traditionally, it was not permissible for the court to impose on the parties
(in the absence of a common intention) a solution which the court itself considered
fair. It was understood that the court was looking for the parties’ actual intention,
either expressed or to be inferred from conduct.
22. In conducting the second stage of the enquiry the court is entitled to look at the
parties’ express intentions as well as their contributions to the acquisition of the
property. However, certainly prior to Stack and Abbott –v- Abbott [2008] 1 FLR 145
(which combine to suggest that Lord Bridge’s requirements under Rosset II have been
relaxed) at the second stage of the enquiry, the court is entitled to look at a wider
range of direct and indirect contributions to the acquisition of the property as
throwing light on the parties’ actual intentions. Indeed, the evidence that the court
may rely upon at the second stage of the enquiry may be the same, or substantially the
same, as the material used as the first stage of the enquiry.
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23. Generally speaking, however, and subject to the potential relaxation of Rosset II, it is
important for the court to keep stage one separate from stage two of the enquiry or
risk falling into error. Stage one must be established before one can move onto stage
two.
24. In the absence of an express agreement as to the size of the beneficial shares, those
shares were to be determined in the light of the whole course of dealings between the
parties in relation to the property, taking account of conduct which throws light on
the question of what shares of the property were intended. The precise formulation of
the court’s task is not easy. In the leading pre-Stack case of Oxley –v- Hiscock
[2004] 2 FLR 669 the very distinguished Chancery Judge Chadwick LJ said:
“But in a case where there is no evidence of any discussion between them as to the
amount of the share each was to have – and even in a case where the evidence was
that there was no discussion on that point – the question still requires an answer. It
now must be accepted (at least in this court and below) the answer is that each is
entitled to that share which the court considers fair having regard to the whole course
of dealing between them in relation to the property. And, in that context, “the whole
course of dealing between them in relation to the property” includes the
arrangements which they make from time to time in order to meet the outgoings (for
example, mortgage contributions, council tax and utilities, repairs, insurance and
housekeeping) which have to be met if they are to live in the property as their home.”
25. This formulation opened up divisions in the House of Lords in Stack. Lord Hope
endorsed it, Baroness Hale, Lord Hoffman and Lord Walker adopted it with
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modification (see below) but Lord Neuberger again disagreed. His criticisms were
forceful, namely:
(i)
Fairness was not the appropriate yardstick;
(ii)
The formulation appears to contemplate an imputed intention;
(iii)
The “whole course of dealing ... in relation to the property” is too imprecise and
gives insufficient guidance as to what is primarily relevant, namely dealings
which cast light on the beneficial ownership of the property, and too limited, as all
aspects of the relationship could be relevant in providing the context, by reference
to which any alleged discussion, statement and actions must be assessed;
(iv)
He disagreed with the implicit suggestion that “the arrangements which [the
parties] make with regard to the outgoings” (other than mortgage repayments) are
likely to be of primary relevance to the issue of the ownership of the beneficial
interest in the home.
26. Lord Neuberger, however, favoured Chadwick LJ’s analysis insofar as it led to a
resulting trust analysis and on that basis agreed with the majority in rejecting the
appeal.
A summary of the majority decision in Stack v Dowden
27. The majority came to the following conclusions:
(1) Just as the starting point where there was sole legal ownership was sole beneficial
ownership, the starting point, in the domestic context, where there was joint legal
ownership, was joint beneficial ownership.
The onus was on the party contending
that the beneficial interests were divided otherwise than as the title showed to
demonstrate this on the facts. A conveyance of a domestic property into joint names
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indicated both legal and beneficial joint tenancy, unless and until the contrary was
proven.
(2) In identifying the extent of the parties’ beneficial interest in a property, the court was
seeking to ascertain the parties’ shared intentions, actual, inferred or imputed, with
respect to the property, in the light of their whole course of conduct in relation to it
(note that this is stage two of the Rosset enquiry as stage one is not usually engaged
where the property is in joint names).
(3) In the context of homes conveyed into the name of one party only, a more flexible
approach to quantification of an established beneficial interest had emerged;
curiously, in the context of homes conveyed into joint names, but without an express
declaration of trust, the courts had sometimes reverted to the strict application of the
principle of resulting trust. The approach to quantification in cases in which the
home was conveyed into joint names should certainly be no stricter than the approach
to quantification in cases in which it had been conveyed into the name of one only and
to the extent that cases such as Walker –v- Hall [1984] 1 FLR 126, Springette –vDefoe [1992] 2 FLR 388 and Huntingford –v- Hobbs [1993] 1 FLR 736 held
otherwise they should not be followed. When quantifying an established beneficial
interest, the court should take a wide view of what contributions were to be taken into
account (note again this is stage two of the “Rosset enquiry”), while remaining
sceptical of the value of alleged improvements that were really insignificant, or
elaborate arguments, suggestive of creative accounting, as to how the family finances
were arranged.
(4) In a joint names case, the questions were not simply “what is the extent of the parties’
beneficial interests?” but “did the parties intend their beneficial interests to be
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different from their legal interests?” and “if they did, in what way and to what
extent?” There were differences between sole and joint names cases when trying to
divine the common intentions or understanding between the parties, including the fact
that the decision to put the property into joint names would almost always have been a
conscious decision.
(5) The burden would be on the person seeking to show that the parties had intended their
beneficial interests to be different from their legal interests, and in the ordinary
domestic case it would be difficult to establish to the court’s satisfaction that an
intention to keep a sort of balance sheet of contributions existed or should be inferred
or imputed to joint owners. The domestic context was very different from the
commercial world. Many factors other than financial contributions were likely to be
relevant. Ultimately, cases in which joint legal owners would be taken to have
intended that their beneficial interests should be different from their legal interests
would be very unusual.
(6) Stack –v- Dowden was a very unusual case in that, although the couple had cohabited
for a long time and had four children together, they had kept their financial affairs
rigidly separate. This was strongly indicative that they did not intend their share, even
in the property in joint names, to be held equally. Ms Dowden had made good her
claim for 65% of the property, having contributed far more to the acquisition of the
house than Mr Stack
The minority view in Stack v Dowden
28. It is important to stress that Lord Neuberger’s view is not the law insofar as it is in
conflict with the view of the majority2. Lord Neuberger argued for a stricter more
2
As the Court of Appeal was careful to remind itself in Kernott –v- Jones [2010] 2 FLR 1631
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“Chancery based” approach which would lead to greater certainty and clarity in the
law. The approach should be the same in the commercial context as it was in the
domestic context albeit that the different factual circumstances could lead to different
results. Where cohabitants had made different contributions to the purchase price of a
property, the beneficial ownership, in the absence of relevant evidence to the contrary,
would be held in the same proportions as the contributions to the purchase price under
a resulting trust, because, given that the presumption of advancement did not apply,
this was the practical and most consistent approach. If there was other relevant
evidence enabling the court to deduce the intention of the parties, the resulting trust
could be rebutted and replaced by a constructive trust. Such an intention could be
express or inferred, but not imputed. Where the resulting trust presumption applied
at the date of acquisition, only subsequent discussions, statements or actions which
could fairly be said to imply a positive intention to depart from the apportionment
would justify a change in the way in which the beneficial interest was held.
Inference and Imputation
29. The linguistic argument around the words “impute” and “infer” may have
considerable significance. Lord Neuberger identified the difference thus at paragraph
126:
“An inferred intention is one which is objectively deduced to be the subjective actual
intention of the parties, in the light of their actions and statements. An imputed
intention is one which is attributed to the parties, even though no such actual
intention can be deduced from their actions and statements and even though they had
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no such intention. Imputation involves concluding what the parties would have
intended whereas inference involves concluding what they did intend.”
30. It is not entirely clear that Baroness Hale, who gave the main speech for the majority
differed substantially from Lord Neuberger on this point. In paragraphs 60 and 61 she
(along with the majority) adopted Chadwick LJ’s formulation but modified it by
reference to the Law Commission’s Discussion Paper on Sharing Homes (which
suggested a holistic approach to quantifying a beneficial share with the court
undertaking a survey of the whole course of dealing between the parties and taking
into account all conduct which throws light on the question of what shares were
intended):
“That may be the preferable way of expressing what is essentially the same thought
for two reasons. First, it emphasises the search is still for the result which reflects
what the parties must, in the light of their conduct, be taken to have intended. Second,
therefore, it does not enable to the court to abandon that search in favour of the result
which the court itself considers fair. For the court to impose its own view of what is
fair upon the situation in which the parties find themselves would be to return to the
days before Pettitt –v- Pettitt [1970] AC 777 without even the fig leaf of section 17 of
the Married Women’s Property Act 1882.”
31. Such a formulation would suggest that it would be wrong to “impute” a common
intention. However, the fact remains that the mantra “actual, inferred or imputed”
was adopted by the majority and repeated in Abbott and some subsequent cases.
What does “imputed” add? This was the point that was to trouble Rimer LJ
significantly in Kernott –v- Jones. Thus, he was moved to say at paragraph 77 – with
somewhat forced politeness – after analysing Baroness Hale’s opinion on this point:
21
“As for Baroness Hale’s statement in [60] that the court must or can also look for the
parties’ imputed intention, I do not, with the greatest respect, understand what she
meant.”
32. The House of Lords was plainly intending to discourage cohabitation disputes where
the title was in joint names. However, there was a strong argument for saying that
Stack –v- Dowden itself was not an exceptional case. Furthermore, Baroness Hale, at
paragraph 69 of her judgment set out a non-exhaustive list of the factors which might
persuade a court to conclude that the beneficial interests should not follow the legal
title. Potentially, therefore, there was plenty of ammunition for litigation going
forward.
33. Stack was concerned with stage two of the Rosset enquiry and so anything said on
stage one was strictly obiter. However, they did indicate that Lord Bridge’s test,
summarised above, was too narrow and potentially productive of injustice. The law,
they said, had moved on.
34. Fortunately, the Privy Council was able to consider stage one only a few months later
in Abbott –v- Abbott [2008] 1 FLR 1451. Abbott was an appeal from the Eastern
Caribbean Court of Appeal where there is no statutory ancillary relief regime
operating on divorce and property disputes are resolved under the general law of
property and trusts. The case concerned the beneficial ownership of a former
matrimonial home in the husband’s sole name. The Eastern Caribbean Court of
Appeal relied heavily on Lord Bridge’s dicta as a reason for strictly limiting the
22
wife’s claims. The Privy Council followed up on their disapproval (as Law Lords) of
the narrow Rosset test and concluded that the court had to ascertain the parties’ shared
intentions “actual, inferred or imputed with respect to the property in the light of their
whole course of conduct in relation to it.” In other words Rosset II has been
significantly widened. There was, however, also a concern that the way in which the
Board dealt with the point in Abbot tended to blur the distinction between stage one
and stage two of the Rosset enquiry3.
Cases decided subsequent to Stack
35. This lecture is concerned primarily with Kernott –v- Jones and I do not want to clog
up my analysis more than is necessary with a recitation of the many cases that have
been decided since 2007 in which the courts have grappled with the implications of
Stack. However, I have included them in an Appendix to these notes.
36. In the main it would be fair to say that the lower courts have paid a certain amount of
lip-service to imputation and rejected approaches that are based on the a subjective
view of what constitutes fairness. They have also adopted a fairly rigorous approach
to properties that are in joint names4. In addition, they have emphasised that where a
property is in one party’s sole name the other party may have an uphill task in
displacing the presumption that the sole legal owner is also the sole beneficial owner.
Finally, they have, in sole owner cases, found that the non-legal owner (usually a
3
Note that Rebecca Bailey-Harris, in lectures we gave last year for Lime Legal, has cast doubt on whether this
was in fact a “first stage” case in that the property in question was built on land gifted to the man and the
wife, the wife paid instalments towards the mortgage and the man admitted in cross-examination that the
wife had an interest in the property so that, if she is right, a lot of commentators (me included) have given too
much weight to it.
4
See for example Fowler –v- Barron [2008] 2 FLR 831
23
woman) might have all sorts of motives for her contribution / change of position /
detriment that are not referable to a common intention to share ownership5.
37. In Holman –v- Howes [2008] 1 FLR 1217 Lloyd LJ stated that stated at paragraph
[30] that the Court’s inquiry should be directed to what was intended between the
parties or, if that cannot be identified directly, what they must be taken from their
conduct to have intended. “It is not for that which the court considers fair.”
38. In James –v- Thomas [2008] 1 FLR 1212 The CA rejected the judge’s contention that
a constructive trust could only arise at the time of acquisition of the property. The
common intention necessary to found a constructive trust could be formed at any time
before during or after the acquisition of a property. A constructive trust could
therefore arise some years after the property had been acquired by and registered in
the sole name of one party. However, in the absence of an express post-acquisition
agreement, the court would be slow to infer from conduct alone that the parties
intended to vary existing beneficial interests established at the time of acquisition6.
This is an important case as the law currently stands at it bears closer study (see the
Appendix).
39. In Morris –v- Morris [2008] EWCA Civ 257 Sir Peter Gibson said at paragraph 23:
“The authorities make it clear that a common intention constructive trust based only
on conduct will only be found in exceptional circumstances. The evidence in the
5
6
See, for example, James v Thomas, Morris –v- Morris, Thomas v Humphrey, Walsh v Singh
Sir John Chadwick at paragraphs [23] to [25]
24
present case seems to me, with respect to the judge, to be wholly inadequate to
establish any such common intention.”
As to “fairness” see paragraph 30:
“For these reasons it seems to me that, with all respect to the judge, he was beguiled
by the submissions made to him into believing that he could produce what he
regarded as a reasonable or fair result in favour of the claimant. I am afraid that he
did not have that luxury. The law would be in a hopelessly unsatisfactory state if that
were the basis on which decisions in this area were made. The court’s approach must
always be principled. The court must be satisfied that the requisite tests have been
satisfied with sufficient certainty and any inferences must be founded on findings of
fact which can be sustained.”
40. In Thomas –v- Humphrey [2010] 2 FLR 107 Warren J adopted a rigorous analysis
based on Rosset as modified by the majority in Stack.
Stack –v- Dowden and Kernott –v- Jones
41. Returning to Kernott this is the most important post Stack decision. Whilst accepting
that there was considerable force in Lord Neuberger’s minority view, the CA
reminded itself that this was not the law. Wall LJ, as he was at the time of the
hearing of the appeal, identified the critical question (see paragraph [57]) as being
whether he “infer” from the parties’ conduct since separation a joint intention that,
over time, the 50 – 50 split would be varied so that the property is currently held 90%
by the woman: “Presumably, if the beneficial interests are “ambulatory” and the
25
ambulation continues in the same direction, the appellant’s interest in the property
will at some point be extinguished.” At paragraph [58]:
“This is a point which I have considered anxiously, and at the end of the day I simply
cannot infer such an intention from the parties’ conduct. In my judgment, the
conveyance into joint names, following Stack –v- Dowden created joint beneficial
interests, and the parties agreed that when they separated they had equal interests.
There has to be something to displace those interests, and I have come to the
conclusion that the passage of time is insufficient to do so, even if, in the meantime,
the appellant has acquired alternative accommodation, and the respondent has paid
all the outgoings. In my judgment, the appellant has a 50% interest in the property,
and both the judge and the deputy judge were wrong to conclude otherwise.”
42. Rimer LJ, having revisited what Baroness Hale said at paragraphs [60] and [61] of her
speech, he said at paragraph [72]:
“All that Baroness Hale said might, therefore, suggest that a bid by a joint purchaser
to establish a greater beneficial interest than a joint interest will involve the steepest
of climbs, usually resulting in a failure to attain the summit.”
43. And at paragraph [74]:
“I suspect that Stack may be regarded by trial judges as presenting something of a
challenge. I am not sure, with respect, what is to be made of the emphasis by
Baroness Hale and Lord Walker that Stack was an exceptional case. The unequal
contributions to the purchase in that case would not, I would think, be unusual and it
26
was that fact that appears to have influenced Lord Hope. The `context’ to which
Baroness Hale referred may be unusual. I do not know, but the fact in every case will
be different and each case has to be decided on its own facts.”
44. Rimer LJ’s scepticism about whether Stack was an exceptional case echoed the
academic views about that conclusion.
In paragraphs [76] and [77] he submitted the
words “actual, inferred or imputed” to a rigorous analysis. Since an inferred intention
is also, by definition, an actual intention, “actual” must be a synonym for “express”.
He had far greater difficulty in attempting to work out what “imputed” was supposed
to mean. He said, at paragraph [77]:
“As for Baroness Hale’s statement in [60] that the court must or can also look for the
parties’ imputed intention, I do not, with the greatest respect, understand what she
meant. It is possible that she was using it as a synonym for inferred (cf such use by
Lord Pearson in Gissing –v- Gissing [1971] AC 886 at 902G – H), in which case it
adds nothing. If not, it is possible that she was suggesting that the facts in any case
might enable the court to ascribe to the parties an intention that they neither
expressed nor inferentially had: in other words, that the court can invent an intention
for them. That, however, appears unlikely, since it is inconsistent with Baroness
Hale’s repeated reference to the fact that the goal is to find the parties’ intentions,
which must mean their real intentions. Further, the court could and would
presumably only consider so imputing an intention to them if it had drawn a blank in
its search for an express or an inferred intention but wanted to impose upon the
parties its own assessment of what would be a fair resolution of their differences. But
Baroness Hale’s rejection of that as an option at paragraph [61] must logically
27
exclude that explanation. In his dissenting speech, Lord Neuberger at [125] to [127]
advanced an apparently comprehensive demolition of the “imputation” theory. I
recognise that those paragraphs cannot be invoked as support for the view that
Baroness Hale’s unexplained use of the word “imputed” was not intended to mean
what it might be read as meaning. But if she was using the word in its ordinary
meaning, it is in my view also difficult to see how the imputing to the parties of a nonexistent intention can stand with her emphasis that the burden of rebutting the
presumed joint beneficial interest is heavy and that, only in very unusual cases, will it
be discharged. That is because, if the “imputing” of an intention is open to trial
judges, they could in principle do it in every case in which an assessment of the
relevant history reflects an unequal contribution to the purchase. I accordingly do
not myself interpret Stack as having intended to enable the courts to find, by way of
the imputation route, an intention where none was expressly uttered nor inferentially
inferred.”
45. Rimer LJ agreed with Wall LJ that there was no evidence to displace the 50 – 50
beneficial interests. At paragraph [84] he noted that Ms Jones might perhaps
question the fairness of an outcome which leaves her with the same 50% she had in
1993. However, he said, fairness can only be assessed by reference to the principles
which govern these disputes.
46. The decision in Kernott –v- Jones has exposed the fault-lines in Stack. In particular:
(i)
Is there any future for imputation?
(ii)
To what extent is a court entitled to look to its own view of “fairness”?
28
(iii)
Alternatively, can “imputation” be resurrected using Commonwealth
developments in the law of unconscionable bargains?
(iv)
What is the nature and extent of the court’s obligation to investigate stage two
of Lord Bridge’s enquiry – does Chadwick LJ’s test, as modified by the
majority of the House of Lords survive or should the investigation that the
court has to carry out be rendered more precise and more limited?
(v)
Was Stack an exceptional case and, if it was not, what is required to establish
an exceptional case?
(vi)
Should the burden of reversing the presumption be heavier in joint name cases
(where there must usually have been a conscious decision to put the property
in joint names) than in sole name cases?
(vii)
Should the operation of the principles enunciated in Stack (as inevitably
modified by the Supreme Court in Kernott) be restricted to cases involving
cohabiting couples and the family home or should they apply in more
commercial cases and/ or in cases where a couple, whether or not they were in
a relationship, purchase an investment property7?
(viii)
To what extent, if at all, will the Supreme Court revisit the issue of equitable
accounting in the light of Re Barcham and Amin –v- Amin (it has to be borne
in mind that in Kernott –v- Jones the question of an equitable account had not
been reached)?
What is the Supreme Court likely to do?
47. This must be speculation up to a point. However, some smoke signals can be
discerned. Lord Wilson, in an interview given to Philip Cayford QC in the last
7
See Laskar –v- Laskar and Adekunle –v- Ritchie
29
edition of Family Affairs, was asked about Kernott –v- Jones. He was understandably
reticent pending the finalisation of the judgment but he did indicate that the Supreme
Court’s room for manoeuvre was limited by virtue of the trust principles that must be
applied. Furthermore, Baroness Hale in a recent lecture indicated that the decision
will be given during this legal term but not in October and possibly not in November
(it is now understood that 9th November 2011 is D-Day).
It is understood that she
and Lord Walker are working together to produce a single judgment. This is to be
welcomed. It was notoriously difficult to ascertain a single precedent in the famous
“twin peaks”8 of Pettitt and Gissing and practitioners were not helped by the
divergence of views in Stack.
48. The Supreme Court Justices are Lords Walker, Collins9, Wilson and Kerr and
Baroness Hale.
There are therefore two judges with a background in family law.
Lords Walker and Collins sat in the Chancery Division before their elevation to the
Court of Appeal and then the House of the Lords. Lord Kerr was Lord Chief Justice
of Northern Ireland and was, prior to his appointment, Junior Crown Counsel
(Common Law) and Senior Crown Counsel in Northern Ireland.
49. So there is a broad balance within the Supreme Court. If there is to be one judgment
it suggests that a compromise is being sought between the strict Chancery approach
and the “quasi-matrimonial” approach that is likely to be favoured by Lord Wilson
and Baroness Hale.
The fact that, almost six months on, no judgment has yet
emerged suggests that the negotiations on the terms of the judgment are less than
straightforward.
8
9
See Grant –v- Edwards [1987] 1 FLR 87
Now retired.
30
50. Will the Supreme Court uphold the Court of Appeal or allow the appeal against that
decision? Objectively speaking the Court of Appeal’s decision, whilst correct on the
law, is unfair to Ms Jones. The easier option would be to uphold the Court of Appeal
on traditional trust principles and to say that House of Lords was wrong (by a
majority) to include the word “impute”. However, this is a five person tribunal and,
if the Supreme Court was intending to decide (or contemplating deciding) that Stack
was wrongly decided one would expect a larger tribunal10.
51. I believe that the Supreme Court is likely to overturn the Court of Appeal and either
restore the declaration that is 90% in Ms Jones favour or allow her a slightly smaller
percentage. The long gestation period is more explicable if that were to be the case.
As we have seen with Stack it is possible for there to be unanimity in the result but
disharmony about how that result should be reached. If it is right that the Supreme
Court intends to overrule the Court of Appeal and to do so within one judgment then
it is also likely that there will be tensions between the approach that would appeal to
family practitioners and that which would appeal to Chancery / property lawyers.
Perhaps it is this tension that is holding up the handing down of the judgment? On
top of this is the fact, announced in September, that the Government is spurning the
opportunity of assisting cohabitees by changing the law.
That decision was a
hospital pass to the Supreme Court.
52. During the argument before the Supreme Court I understand that it became apparent
that there was another endowment policy. It was common ground that this was held
as to approximately 80% by Ms Jones. When that policy matured Ms Jones used her
share to pay down the mortgage. It must be remembered that in Kernott issues as to
10
See, for example, Radmacher –v- Granatino [2010] 2 FLR 1900.
31
equitable accounting had not been decided.
It would therefore be open to the
Supreme Court to conclude on the particular facts of this case, that there were
exceptional circumstances warranting the conclusion that what had been agreed to be
an ownership in equal shares had changed, with Mr Kernott’s share waning like the
moon. I do not think that the Supreme Court will take the easy way out.
One of the
problems created by Stack was that it was treated by the House of Lords as an
exceptional case when, arguably, it was not.
53. A further factor that may influence the Court is that there is a difference between the
“family” dynamic and the situation that applies in a more commercial context. It has
been said many times that the law is the same in the Family Division as it is in the
other Divisions of the High Court11.
However, the context can be radically different.
Personal relationships are rarely commercial.
54. The fact that the context is so different ought, perhaps, to affect the conclusions that a
court should be entitled to draw. The point was well illustrated by the two recent
House of Lords decisions on proprietary estoppel: Yeoman’s Row –v- Cobbe [2008] 1
WLR 1752 and Thorner –v- Majors [2009] 2 FLR 405. The former was a case set in
a commercial context and the latter in a familial context.
“The point that hopes by themselves are not enough is made most clearly in cases with a
commercial context, of which Attorney General of Hong Kong is the most striking example. It
does not appear so often in cases with more of a domestic or family flavour, from Inwards v
Baker [1965] 2 QB 29 and Pascoe v Turner [1979] 1 WLR 431 to Windeler v Whitehall [1990]
2 FLR 505, Gillett v Holt [2001] Ch 210, Grundy v Ottey [2003] WTLR 1253, Jennings v Rice
[2003] 1 P & CR 8 and Lissimore v Downing [2003] 2 FLR 308. The son who built the
11
See the many judgments of Munby J and, in particular, see Whig –v- Whig [2008] 1 FLR 453
32
bungalow in Inwards v Baker, the young farm manager in Gillett v Holt, the elderly country
neighbour in Jennings v Rice and the female companions in the other three cases almost
certainly did not take any legal advice until after the events relied on as creating the
estoppel. They may not have had a clear idea of the quantum of what they expected to get
(in Grundy v Ottey, unusually, the expected quantum was precisely defined). But in those
cases in which an estoppel was established, the claimant believed that the assurance on
which he or she relied was binding and irrevocable.”
55. In Thorner’s case this was said of Cobbe:
[96] Secondly, the analysis of the law in Cobbe was against the background of
very different facts. The relationship between the parties in that case was entirely
arm’s length and commercial, and the person raising the estoppel was a highly
experienced businessman. The circumstances were such that the parties could well
have been expected to enter into a contract. However, although they discussed
contractual terms, they had consciously chosen not to do so. They had intentionally
left their legal relationship to be negotiated, and each of them knew that neither of
them was legally bound. What Mr Cobbe then relied on was ‘an unformulated
estoppel … asserted in order to protect [his] interest under an oral agreement for
the purchase of land that lacked both the requisite statutory formalities … and was,
in a contractual sense, incomplete’ – para [18].
[97] In this case, by contrast, the relationship between Peter and David was
familial and personal, and neither of them, least of all David, had much
commercial experience. Further, at no time had either of them even started to
contemplate entering into a formal contract as to the ownership of the farm after
Peter’s death. Nor could such a contract have been reasonably expected even to be
discussed between them. On the deputy judge’s findings, it was a relatively
straightforward case: Peter made what were, in the circumstances, clear and
unambiguous assurances that he would leave his farm to David, and David
33
reasonably relied on, and reasonably acted to his detriment on the basis of, those
assurances, over a long period.
56. Kernott was, like Stack a case where the property was held in joint names. As
indicated above the most difficult cases are those where the property is in one party’s
name where the court must grapple with both the questions set out in Rosset: was
there a common intention to share ownership and, if so, what was the common
intention as to the quantum of those shares. It would be open to the Supreme Court to
limit itself to answering the second question. Although this approach has its
attractions it is submitted it would be a dereliction of duty. Any observations from the
Supreme Court, even if obiter, would carry great weight. The legal profession needs
guidance on what evidence is required to establish a common intention to share
ownership. The House of Lords has indicated obiter that Lord Bridge’s approach in
Rosset is now too narrow. In simplistic terms should the fact that a woman has
foregone a career and devoted herself to looking after the children of the family and /
or used her, let us say, more limited income to take the financial pressure of the man
have no impact on the shared ownership of a house, a family home, bought in the sole
name of the man, even if he has provided the deposit and paid the mortgage
instalments? Justice suggests that that the answer to this question should be ”No!”
Egg on my face
57. With the above considerations in mind and with the knowledge that I am bound to be
wrong to a greater or lesser extent, I think that the outcome of Kernott will be as
follows:
34
(i)
The Supreme Court will overrule the Court of Appeal and restore a 90 / 10
division of the equity;
(ii)
There will be one unanimous judgment;
(iii)
Kernott will not be regarded as an exceptional case.
(iv)
A distinction will be drawn between “family” cases and “commercial cases” if
not in terms of the applicable law then in the context and factual matrix that
should be considered when applying the applicable law;
(v)
The concept of imputation will be left with its toe in the door, if only in the
way in which it was expressed in Oxley namely that the Court is entitled to
assume that the parties, if they have not discussed things between themselves
would be content for a court to assist them in reaching an objectively fair
outcome;
(vi)
A greater emphasis will be placed on fairness;
(vii)
The Supreme Court will make obiter comments about the first stage of the
Rosset enquiry as to what is required in terms of conduct / contributions to
satisfy a court that there was a common intention to share ownership. More
weight will be given to non financial contributions (such as bringing up the
children and being a home maker) and to financial contributions not directly
attributable to the acquisition of the property (such as buying food and paying
the nursery fees).
58. Of course, I could be wrong. But if I am right, unfortunately, there will be a lot of
work for the lawyers.
John Wilson QC
1, Hare Court,
35
Temple, EC4Y 7BE
3rd November 2011
36
APPENDIX
The application of Stack in subsequent cases
1. In Holman –v- Howes [2008] 1 FLR 1217 was one of the earliest applications of
Stack by the Court of Appeal. Citing the speech of Baroness Hale Lloyd LJ stated at
paragraph [30] that the Court’s inquiry should be directed to what was intended
between the parties or, if that cannot be identified directly, what they must be taken
from their conduct to have intended. “It is not for that which the court considers fair.”
This was a case where attempts were made to rely on “post-acquisition” matters as
part of the whole course of dealings in relation to a property as indicating the
necessary common intention to share ownership. The legal owner of the property, a
man, had left the property in 1980 and the woman had then been solely responsible
for its upkeep and did not pursue claims for maintenance in respect of the parties’
daughter. The Court of Appeal declined to take these matters into account (at
paragraph [32]):
“With the benefit of Stack v Dowden to assist, it seems to me that the matters sought
to be relied on can be seen as plainly irrelevant to this particular inquiry. To take
them into account would be to go back to the impermissible question of what the court
considers fair.”
In other words, inference but not imputation was necessary.
2. In James –v- Thomas [2008] 1 FLR 1212 the property was in the man’s sole name
when the woman moved in with him. She gave him £5,000 to enable him to pay a tax
bill and worked with the man in carrying out some remedial work to the property as
well as assisting him in his business. Over the years they carried out extensive
renovation to the property funded by the man’s business. Planning applications were
in joint names and both were involved in the hands-on aspects of the work.
The man
had observed that such works would benefit both of them and that the woman would
be well provided for on his death. Some years later the relationship broke down, the
woman moved out and their business partnership was dissolved. She relied on the
doctrines of constructive trust and proprietary estoppel to establish a beneficial
37
interest in the property. In cross-examination the man conceded that in fairness the
woman was entitled to some interest in the property. The judge dismissed the
woman’s claim and the Court of Appeal upheld that judgment.
3. The CA rejected the judge’s contention that a constructive trust could only arise at the
time of acquisition of the property. The common intention necessary to found a
constructive trust could be formed at any time before during or after the acquisition of
a property. A constructive trust could therefore arise some years after the property
had been acquired by and registered in the sole name of one party. However, in the
absence of an express post-acquisition agreement, the court would be slow to infer
from conduct alone that the parties intended to vary existing beneficial interests
established at the time of acquisition. These observations by Sir John Chadwick at
paragraphs [23] - [25] are of increasing significance as parties attempt to get round
the strictures of Stack by relying on post-acquisition activities (e.g. renovations or
extensions) to alter the beneficial interests favourably for them. Frequently, there is
an absence of the necessary post-acquisition agreement / common intention necessary
to vary the existing beneficial interests.
4. The CA also confirmed that a common intention as to beneficial shares in a property
could be inferred from evidence of the parties’ conduct during the whole course of
dealings in relation to the property. Perhaps surprisingly the court concluded that this
woman’s contributions / conduct did not give rise to the inference of a common
intention to share ownership12.
5. The CA also accepted that the assurance that the woman relied upon – “this will
benefit us both” – meant no more than the improvements to the property would
improve the quality of the couple’s life together. The representation that she would be
well provided for out of his estate on his death dealt with the position after his death
and not with current beneficial interests. She had not acted to her detriment: the true
position was that she had worked with the man in the business and helped with the
improvements because she and he were making their lives together. Furthermore, the
man’s concession as to “fairness” could not govern the result and neither could the
12
For similar more recent decisions see Walsh –v- Singh, Morris –v- Morris and Thomson –v- Humphreys all
discussed below
38
court’s sense of what would be fair. The CA relied upon paragraph [61] of Baroness
Hale’s speech: (see paragraph [38])
“it is not for the court to abandon the search for the result which reflects what the
parties must, in the light of their conduct, be taken to have intended in favour of the
result which the court itself considers fair.”
6. In Fowler –v- Barron [2008] 2 FLR 831 the man and woman had a relationship over
23 years which began when the man was 47 and the woman 17. They had two
children and five years into their relationship they purchased a property in joint names
as a family home. There was no declaration of trust but the survivor could give valid
receipt for capital money. The man paid the deposit and other capital towards the
purchase of the property from the proceeds of his previous home and, although the
mortgage was in joint names, he always paid it out of his pension. The woman used
her income for herself and the children and the man paid everything else. The trial
judge (the case took place before Stack in the Lords) rejected the woman’s claim for a
beneficial interest in the property and declared the man as the sole beneficial owner.
The CA allowed her appeal. Following Stack it held that the relevant technique in
such cases was the common intention constructive trust, rather than the resulting trust.
In concentrating on the parties’ financial contributions, rather than their shared
intentions, the judge had erred in principle and the CA had to intervene and reach its
own conclusions.
7. As a matter of law, a presumption of joint beneficial ownership arose from the fact
that the parties were joint legal owners. Without any declaration of trust the onus to
rebut the presumption was on the individual asserting that the property was owned
other than in equal shares. In determining whether the presumption arising from the
transfer into joint names had been rebutted, the court must in particular consider
whether the facts were inconsistent with the inference of a common intention to share
the property in equal shares, to an extent sufficient to discharge the civil standard of
proof on the person seeking to displace the presumption. The emphasis was on the
parties’ shared intentions.
39
8. For the purpose of determining the parties’ shared intentions about beneficial
ownership of the property the court must consider the whole of the parties’
relationship so far as it illumined their shared intentions about the ownership of the
property, drawing any appropriate inferences. The conduct that the court would take
into account included, but was not limited to, financial contributions made towards
the acquisition of the property. If the parties had made unequal contributions to the
cost of acquiring their home, it was obvious that there was a thin dividing line
between the case in which the parties’ shared intention was properly inferred to be
ownership of the home in equal shares, and the case in which the parties’ shared
intention was properly inferred to be unequal shares. Importantly, the man could not
rely on his secret intention that the woman should only benefit in the event of his
death. It was not evidence of the parties’ shared intention. Similarly, the fact that
man did not understand the legal effect of putting the property into joint names was
not relevant.
9. Fowler –v Barron is an important case in that it applies Stack fairly strictly and
emphasises the need for something exceptional to rebut the presumption created by
putting the property into joint names. It can be seen as attempting to close the door
(or at least narrow the opening) left by the lengthy list of potential factors set out by
Baroness Hale at paragraph 69 of her speech. Indeed, there have been academic
doubts (now echoed by the CA in Kernott –v- Jones) as to whether Stack itself was an
exceptional case warranting the rebuttal of the presumption. It is also important to
bear in mind, when considering Fowler –v- Barron that the court was concerned with
the second stage of the Rosset enquiry so that the range of factors that could be taken
into account was wider than would have been the case at stage one, notwithstanding
the widening of the categories at that stage by Abbott –v- Abbott (which was not,
apparently, cited to the CA).
10. In Morris –v- Morris [2008] EWCA Civ 257 the CA allowed a man’s appeal against
an order granting the woman a beneficial interest in a farm. In doing so, it echoed and
approved the conclusions reached in James –v- Thomas. For there to be a common
intention constructive trust and for a beneficial interest to arise thereunder the court
has to be satisfied that the parties each had the intention communicated to each other
that, notwithstanding the paper title (this case was concerned with a farm in the man’s
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late mother’s name) and notwithstanding the absence of writing there should be a
disposal of a beneficial interest in land to the claimant woman. Whilst, see James –vThomas, the court can find that a beneficial interest is subsequently acquired by
reason of conduct alone, the court should be slow to infer from conduct alone that the
parties intended to vary existing beneficial interests established at the time of
acquisition. Such a constructive trust would be “a rare bird” – see paragraph 20 of the
judgment. The CA reminded itself of what Baroness Hale said at paragraph [61],
albeit reminding themselves that Baroness Hale was concerned with the second
question that Rosset poses (“what is the extent of the beneficial interest?”). Sir Peter
Gibson said at paragraph 23:
“The authorities make it clear that a common intention constructive trust based only
on conduct will only be found in exceptional circumstances. The evidence in the
present case seems to me, with respect to the judge, to be wholly inadequate to
establish any such common intention.”
11. The CA also held that the conduct relied upon by the woman in Morris did not have to
lead to the conclusion that she was acquiring an interest in land. Again, echoing
James –v- Thomas the CA held that the court should be cautious before finding that
the activities of a wife or cohabitant can only be explained on the footing that she
believes that she was acquiring an interest in land. As to “fairness” see paragraph 30:
“For these reasons it seems to me that, with all respect to the judge, he was beguiled
by the submissions made to him into believing that he could produce what he
regarded as a reasonable or fair result in favour of the claimant. I am afraid that he
did not have that luxury. The law would be in a hopelessly unsatisfactory state if that
were the basis on which decisions in this area were made. The court’s approach must
always be principled. The court must be satisfied that the requisite tests have been
satisfied with sufficient certainty and any inferences must be founded on findings of
fact which can be sustained.”
12. Morris is an important appellate case. For some reason it does not appear to have
been reported whilst many first instance cases find their way into the law reports. It
deals with an issue that is likely to arise with increasing frequency as a party whose
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name is not on the title deeds (and may not have been around when the property was
purchased) seeks to establish a post-acquisition change in the beneficial interests or,
conversely, where a party who shares legal title seeks to show an expansion in his /
her share of the beneficial interest attributable to post-acquisition contributions. This
decision reinforces the CA’s stance in James –v- Thomas and makes it clear that the
task will be an uphill one.
13. In Q –v- Q [2009] 1 FLR 935 the brother and father of a husband claimed in ancillary
relief proceedings that the matrimonial home, which was in the name of the brother,
remained the property of the brother and father and did not belong to the husband and
wife. The spouses had reached an agreement whereby the father moved out of the
property and they would sell their assets including their former matrimonial home in
order to raise money for the renovation of the property which would become their
home and they would become the beneficial owners. Although draft transfers were
prepared, so that the brother could transfer the property to the husband, they were
never executed. The property had originally been in the father’s name and he had
transferred it out of his name to avoid inheritance tax. Black J found that whether
one considered the matter on a constructive trust analysis or on the basis of
proprietary estoppel, the beneficial ownership in the property belonged to the husband
and wife. There had been an agreement entered into by all the parties and the
husband and wife had acted upon it to their detriment. The shared intentions were
clear from the terms of the agreement. Whether the husband and wife had established
a proprietary estoppel or a constructive trust the minimum award necessary to do
justice in the case was for the property to belong either to the husband or to the
husband and wife. Furthermore, the father’s claim that he had retained the beneficial
ownership in the property even after transferring legal title to the brother could not be
pursued because, in effect, the father was pleading an illegal purpose and under the
presumption of advancement the transfer by the father to his son was presumed to be
a gift. In reaching her conclusions Black J relied upon Baroness Hale’s comments at
paragraph [60].
14. Webster –v- Webster [2009] 1 FLR 1240 was another 1975 Act claim. The man and
woman had lived together for 27 years and had two children. The family home had
been registered in the man’s sole name. They kept separate bank accounts and the
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man paid the mortgage throughout. The woman paid at least some of the bills for
furnishings, services and the children’s clothes and food. Both worked but the man’s
income was considerably larger than the woman’s. The man died suddenly, intestate,
at the age of 54. The woman claimed a beneficial interest in their home and a
beneficial interest in company shares vested in the man’s sole name. She accepted
that there had been no express discussions as to the beneficial interests each were to
have but claimed that the property had been regarded as by both of them as joint
property. At the time of the hearing the property was worth about £160,000 with a
mortgage of just under £12,000.
15. HHJ Behrens took the view that a considerable degree of caution was needed when
considering uncorroborated evidence of evidence of events that took place over 20
years ago (see also the words of caution in James –v- Thomas) given that the other
party to the transaction was dead. The fact that there had been no express discussions
as to beneficial interests, that the woman’s financial contributions to the family
budget had been considerably less than the man’s, that there had been no formal
commitment to the relationship by the man, and the degree of caution needed, it was
impossible to impute (sic) to the man and woman a common intention that the
property was to be held as beneficial joint tenants, or any common intention that the
woman should have any interest in the shares. However, the indirect contributions
made by the woman would lead to an inference that she had some interest in the
family home, assessed at between 33% and 40%.
16. The court was influenced in coming to its decision by Oxley –v- Hiscock [2004] 2
FLR 669 and James –v- Thomas [2008] 1 FLR 1598
17. In Mirza –v- Mirza [2009] 2 FLR 115 the facts are, again, complicated. The husband
and wife lived in a property owned by the husband’s middle brother pursuant to an
assured shorthold tenancy. The middle brother was the only financially astute and
successful member of the family. In divorce proceedings the wife alleged that the
tenancy agreement was a sham and that the husband was the real beneficial owner of
the property but that he had concealed this ownership in order to be able to claim
housing benefit.
A declaration was made in favour of the middle brother. It was not
credible that the husband could have saved the amounts of money required to acquire
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an interest in the property. As a matter of fact the court did not accept that the boasts
he had made about his financial situation were sustainable. The evidence supported
the contention that the middle brother, who was wealthy in his own right, had made
the capital investments and was the sole beneficial owner of the property. In coming
to that conclusion Stephen Smith QC (sitting as a Deputy High Court Judge) relied
upon Stack v Dowden and James –v- Thomas.
18. In Qayyum –v- Hameed & Another [2009] 2 FLR 962 the factual background is
relatively complex. The property was transferred from the wife’s name into joint
names on the husband’s innocent misrepresentation that a freezing order obtained
against him would prevent him from using monies to pay legal costs. The wife
argued, when faced with a charging order, that she was the sole beneficial owner of
the property and that she had been induced into transferring the property into joint
names on the basis of the husband’s misrepresentation, albeit innocent. That
argument was not accepted in bankruptcy proceedings. Her appeal was dismissed.
19. The judge had been entitled to conclude that there had been an agreement between the
husband and wife that involved transferring the property back into joint names. There
was sufficient detriment to the husband in the agreement to satisfy the requirements of
a constructive trust (the husband had taken responsibility for a mortgage as part of the
arrangements). Therefore, subject to the issues of mistake and misrepresentation, it
would have been unconscionable to have left the husband saddled with the liabilities
under the mortgage without the promised property interest. The fact of the innocent
misrepresentation by the husband did not prevent the creation of a common intention
constructive trust. In those circumstances, notwithstanding the innocent
misrepresentation by the husband a common intention constructive trust arose.
20. As time has passed the decisions of the courts can be seen to be moving towards an
orthodoxy based upon the decision in Stack that acknowledges the reasoning of the
House of Lords whilst taking a fairly strict line on exceptions to the presumption that
equitable title follows the legal title. Thus, in Thomson –v- Humphrey [2010] 2 FLR
107.
Warren J adopted a classical, and it is submitted, correct approach to the law
as it now stands.
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21. In Thomson –v- Humphrey when the man and woman began their relationship the
man lived in his own property and the woman lived in rented accommodation. After a
time the man purchased a property (“the original property”) for the woman and her
children to live in. The woman gave up her part-time job on the basis of the
assurances from the man that he would look after her. Subsequently, the couple
decided that the woman and her children should join the man in his home. Before this
happened the man tried to get the woman to sign a “living together” agreement,
acknowledging that she would have no interest in either the property she was about to
move into or any future property. She refused but moved in anyway. Some time later
the man sold the original property and purchased a new property as a “family home”
for himself, the woman and her children. The woman acted as housekeeper, did a
little work for businesses belonging to the man, and helped to manage various
development projects at the new property. When the relationship eventually broke
down, the woman asserted a beneficial interest in the new property on the basis that
there had been a common intention that she should have a share, or that the value of
the original property which had been purchased for her use, was to be taken as her
contribution to the new property.
22. Warren J dismissed her application. In doing so he applied Stack strictly. It was not a
matter of fairness. A claimant who sought to establish a beneficial interest as against
the holder of the legal title must show that it was intended that she should have a
share, and must then establish the extent of that share. The task of the court was to
ascertain the parties’ shared intentions, actual, inferred or imputed, with respect to the
property in the light of their whole course of conduct in relation to the property.
Wherever reliance was placed on an actual agreement as to beneficial ownership, it
was only if the claimant had acted to her detriment that she would be able to establish
a right.
23. The man’s instructions to his solicitor to draft the “living together” agreement, and his
attempt to get the woman to sign it, made it clear that at that stage the man did not
intend the woman to have any beneficial interest in his home, or in any future
“family” home and a heavy onus was on the woman to show that this clear intention
had changed by the time of the actual acquisition of the new property. It was not
possible to infer from the fact that the agreement was not signed that the man
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recognised that the woman already had an interest in the original property, or was
intended to have an interest in a future property. In any event the woman was unable
to establish sufficient detriment. At paragraph [95]:
“But even if it is wrong to say that there is no agreement giving rise to a common
intention that the claimant was to own the Long Stratton property, I do not consider
that the matters relied on here amount to sufficient detriment to allow her to assert
that claim. The detriment was essentially giving up her job and leaving her home,
effectively losing employment prospects. I am afraid that I cannot attach much weight
to that in the context of her circumstances at the time. She had a poorly paid parttime job with no prospects. The giving up of a job is referable, in my judgment, not to
an expectation that she would own or have a share in the property, but to the
assurance that she would be looked after. Now, that may or may not be an assurance
that she now regards as having been breached, but even if she does, I am not satisfied
that her move can be seen as having been in any way in reliance on the prospect of
ownership of the property.”
24. Thomson –v- Humphrey represents a return to the traditional orthodoxies as
expressed in Rosset and modified by Stack. Warren J’s lucid judgment is one that
practitioners should consider carefully before advising in any case where there is
likely to be loose reliance on generalised representations and, perhaps, insubstantial
detriment. It needs to be considered alongside Kernott –v- Jones (see below).
25. In Walsh –v- Singh [2010] 1 FLR 1658 the female claimant (a barrister) again failed
to establish a beneficial interest in property owned by her former partner. Again, the
claimant carried out works in making a property habitable and, indeed, was
instrumental in finding the property eventually purchased by the man, in his sole
name and from his resources.
At paragraph 19, after outlining some of the works
carried out by the woman, HHJ Purle QC, sitting as a Deputy High Court Judge, said:
“Overall, though, these works were explicable by her wish to live at Vale Cottages,
and said nothing about ownership.”
26. Her claim in respect of a field and paddock also failed as these were not owned by Mr
Singh but were owned by his SIPP. The claimant had paid £7,500 to Mr Singh in
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connection with the fields and £25,000 to him in respect of the paddock. Mr Singh
said that these were loans which in the case of the £7,500 he had repaid and in respect
of the £25,000 he acknowledged were repayable with the interest. The judge accepted
that they must have been loans as otherwise the SIPP arrangements would have been
ineffective.
27. An important element of her case was that she had given up the Bar at Mr Singh’s
request to concentrate on an equestrian business. The judge accepted that she had
given up the Bar and that she had been motivated by her wish to devote herself to the
development of the Vale Cottages property, especially once the additional fields had
been acquired. She said that she would not have given up her career if she had not
been told that “half of everything we were doing was mine.” The judge did not
accept her evidence.
At paragraph 35:
“Nevertheless, I do accept that she gave up the Bar so as to devote more time to the
horse side of the business. She was willing to do this because she was engaged and
planning to get married to Mr Singh, and saw her future life with him. ... [36]... I
have no doubt that it was a joint decision (to give up the Bar), which suited both of
them. It suited Mr Singh to have Miss Walsh on the premises running an equestrian
business, and it suited Miss Walsh because she preferred to be working with horses
than be at the Bar. She was successful at the Bar, but the life was pressured and she
preferred to be around horses.”
28. The learned judge rejected her claims for a beneficial interest in the property (see
paragraphs [38] to [60].
Investment properties
29. The first major inroad into the principles set out in Stack came in Laskar –v- Laskar
[2008] 2 FLR 589. The Court of Appeal, with Lord Neuberger presiding, held that
the presumptions as to ownership of jointly owned property enunciated in Stack
applied to a family property occupied by cohabitants but not to commercial property
or property purchased as an investment. Note that Laskar was not itself a case
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concerning cohabitants so that we do not know what would transpire if cohabiting
couples purchased an investment property in joint names with unequal contributions
to the purchase price.
30. The Court of Appeal held that it was not right to apply the Stack reasoning to a case
where the primary purpose in purchasing a property was for investment or capital
appreciation. Even though the parties’ relationship was familial (in this case mother
and daughter). Even if the Stack presumption had applied it would have been
rebutted because the parties had kept their finances separate and the property had not
been purchased primarily as a home for either party. Thus, in the absence of any
relevant discussion between the parties, their respective beneficial shares should
reflect the size of their contributions. In other words a resulting trust analysis applied
in the absence of anything that could give rise to a constructive trust in different
shares. On the facts of this case, in any event, a division of two thirds to the mother
(recognising her contribution by way of right to buy discount) and one third to the
daughter was a fair one.
31. In fact, the problem had already arisen in August 2007 in the County Court case of
Adekunle –v- Ritchie [2007] EW Misc 5 (EWCC). In that case a mother and son
had purchased a property in joint names but with no express declaration of trust as to
ownership. HHJ Behrens concluded that this case was also an unusual one within the
parameters set out in Stack. The mother had contributed 50% of the acquisition price
by way of right to buy discount and thereafter mother and son had contributed equally
to the mortgage etc until her death in 2003 with the son contributed solely thereafter.
HHJ Behrens concluded that the starting point for the son’s share was 25% but that
taking a holistic approach that share should be quantified, albeit with all the
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qualifications as to the subjectivity of the quantification, at 33%. Lord Neuberger
approved the decision in Adekunle in Laskar. In Amin –v- Amin [2009] EWHC 3356
(Ch) there was discussion of Laskar and Adekunle at paragraph 273 concluding that,
in the circumstances of that case, the Stack approach should prevail.
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