Tag Archive for 'Constructive trust'

Mortgage possession defeated by constructive trust

Published
by
Francis Davey
on 25/11/2009
in Housing law - All, Mortgage possession and Trusts and Estoppel
. 6 Comments

An opportunity to indulge in schadenfreude at the expense of a mortgage lender is offered by HSBC v Dyche [2009] EWHC 2954 (Ch) where a claim for possession by a mortgagee was dismissed because the actual occupant of the property was beneficiary under a constructive trust. The decision gives an example of the doctrine of the common intention constructive trust, and touches on the preconditions for overreaching to occur.

I’ll take a slightly different approach to the court and discuss each issue as it arises in the chronology.

the Constructive Trust

In 1976 Mr and Mrs Collelldeval (the C’s) moved into the property, which they held on trust for themselves as joint beneficial tenants. In 1988 Mr C was declared bankrupt (severing the joint beneficial tenancy). Some efforts were made to reclaim the property from the C’s by the trustee in bankruptcy and the Coventry Building Society (who held a charge over the property) but neither succeeded.

At this time (unsurprisingly) the C’s were unable to obtain a mortgage on the property to (for example) discharge the Coventry Building Society mortgage or otherwise deal with their indebtedness. Shortly before his discharge from bankruptcy Mr C appears to have come to the following agreement with those involved.

  • the property would be sold to the C’s’ daughter Amanda-Jane Dyche (the first defendant) and her husband (the D’s) for £25,000 (a price that did not represent the value of the house)
  • the proceeds of sale would be used to discharge the Coventry Building Society’s mortgage, leaving £18,000 to be paid to the trustee (and thus for the benefit of Mr C’s general creditors) and a small surplus for other purposes
  • the D’s would borrow £17,000 from Lloyds’ Bank secured by a mortgage on the property (and borrow a further £8,000 from a friend
  • the C’s would continue to live in the property and pay the D’s instalments to be used to reduce the mortgage indebtedness
  • when the Lloyds’ mortgage was discharged, the property would be re-conveyed to the C’s

The judge believed Mr C’s evidence that this was the deal because he (and his late wife) had continued to beneficially occupy the property. They had made payments to the D’s and some contemporaneous documentation also appeared to support his contention.

His analysis was that the arrangement created a common intention constructive trust with the D’s as trustees and the C’s as beneficiaries. Mr C has (of course) no interest in the property so could not convey it to the D’s but that, thought the judge, was really irrelevant because a constructive trust could be imposed from the moment of conveyance.

What kind of beneficial interest?

Mr C suffered more misfortune because in August 1994 Mrs C died. Mrs D argued that Mr C must have held the property as a beneficial tenant in common, as a result Mrs C’s interest would have fallen into her estate (and one presumes some of it might have come to Mrs D). The judge found no reason to accept that. The C’s had held the property as joint beneficial tenants until 1988 and would have continued to do so but for the bankruptcy.

Overreaching

The D’s divorced some 9 years later. In the divorce it was agreed that Mr D would sell his interest in the property to Mrs D for £5,000. At the same date, Mrs D obtained a mortgage from HSBC. In order to convince them that Mr C had no interest in the property she gave them a copy of an assured shorthold tenancy showing Mr C as a tenant and with a forged version (as the judge found) of his signature.

Mr C got wind of the transfer of the property into Mrs D’s sole name. She told him that she would transfer the property to him once the transfer to her had completed. The judge called this a deception (the transfer had already happened). The HSBC mortgage was used (amongst other things) for Mrs D’s own benefit, although some money was paid to discharge a debt to Lloyds (more on this later).

It was argued by HSBC that Mr C’s interest had been overreached by the sale and mortgage. I cannot see how such an argument can hope to have succeeded since (as any student knows) for a statutory overreaching to be effective the proceeds of sale (or mortgage) must be paid to 2 or more trustees. In this case they were not.

There was some discussion as to whether there were two transactions (transfer to Mrs D, then mortgage) or one (on the principle of Abbey National Building Society v Cann [1991] 1 AC 56, but of course either transaction taken individually or both taken together involved one and one only recipient of the purchase money.

This was not the first basis for the court’s decision. The judge held that in the transfer to Mrs D she was not a good faith purchaser (a requirement of statutory overreaching) since she was acting in breach of trust. As a result that transfer could not overreach Mr C’s interest.

The Result

The end result was that Mr C remained a beneficiary under a trust of the property. Since he was in actual occupation his interest overrode that of HSBC. He won, they lost. As the judge pointed out: they could have made more enquiries but they did not. A textbook example of the operation of overriding interests and one that should not have surprised the bank once the constructive trust point was found in Mr C’s favour.

What about the Lloyds’ mortgage? You remember there was an original loan secured on the property which Mr C was supposed to pay off. There was also another loan, some of which was paid off by the HSBC mortgage. What about subrogation I hear my readers ask? No-one was able to – or had thought to – produce sufficient evidence to make that argument a runner. The court was not able to tell even if the second loan had been secured on the property (in which case the subrogation argument might have been good) or not and it appears that the first loan was paid off before the HSBC mortgage.

An interesting case. I would be interested to know what readers think about the “not a purchaser in good faith” point.

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Imputed fairness?

Published
by
NL
on 28/07/2009
in FLW case note, Housing law - All and Trusts and Estoppel
. 0 Comments

Jones v Kernott [2009] EWHC 1713 (Ch) [not on Bailii yet] was an appeal from the County Court on a Trust of Land and Appointment of Trustees Act 1996 case. At issue is the question of fairness and whether and how far a change in common intention can be inferred or imputed.

Ms Jones and Mr Kernott had bought the property involved in joint names in 1984. Both lived there until 1993 when their relationship ended. They were not married. Mr K moved out and in 1996 bought another property in his sole name. Ms J remained in the first property.

Mr K ceased to pay mortgage and other outgoings when he moved out. It was common ground that before he moved out, the parties held the beneficial interest in the property in equal shares. The question was whether and to what extent those shares had changed when Mr K moved out and subsequently bought another property. In the court below, HHJ Dedman had found that the interests had changed and that Ms J was entitled to 90% on the basis that this ‘was fair and just’. Mr K unsurprisingly appealed.

Mr Strauss QC sitting as a deputy High Court Judge found little authority on whether the Court should infer that the parties’ intentions have changed in such circumstances, or impute such a change to them and if so how to quantify the change. On top of that, the main issue as he saw it was whether and if so how far it was open to the court to consider what was fair.

From an extended examination of Chadwick LJ’s judgment in Oxley v Hiscock [2004] EWCA Civ 546, which expressly raises ‘fairness’ on the basis of relevant conduct as the criterea by which share of interest should be assessed, in the absence of express agreement, and Stack v Dowden [2007] UKHL 17, which appears to limit ‘fairness’ and expressly concerned shares in a property in joint names, where Oxley v Hiscock concerned a sole proprietor, Mr Strauss QC extracted the following propositions as to what the current state of play is:

1. Where there is a sole name there is a rebuttable presumption that there is a sole beneficial interest, displaceable by evidence of common intention that both parties should have a beneficial interest. Contribution to purchase price will probably usually suffice.

2. Where there are joint names but nothing more is said, the presumption is of equal beneficial interests. Only in very unusual cases will this presumption be displaced (E.g. Stack v Dowden style separation of finances and unequal contributions).

3. In the latter, where the presumption is displaced and there is no express agreement, the court will quantify them by reference to ‘the whole course of dealing between the parties and taking account of all conduct which throws light on the question of what shares were intended’. The court must not impose what the court itself would consider to be fair (Stack at para 61).

4. It remains the duty of the court to decide what the common intention was or should be taken to have been. In many if not most cases there will be no evidence at all of actual intention, if any, of either party and the court will be attributing a common intention to them.

5. Whatever the beneficial interests at the time of acquisition, a trust may be ‘ambulatory’ – intentions of the parties may change over time. The ‘holistic approach’ of surveying the whole course of dealing should not obscure the fact that initial intentions may change. Following Lord Neuberger in Stack, a structured approach should be followed, to consider first the initial intention and then whether it has altered and to what extent.

6. In relation to the role of ‘fairness’ in the court’s assessment, Baroness Hale’s formulation at para 61 of Stack — ‘the search is still for the result which the parties must, in the light of their conduct, be taken to have intended’ — would seem to rule out fairness. However, Baroness Hale also recognises the Law Commission formulation that the presumed intention is that each party is entitled to the share that the court considers fair. The majority in Stack should be seen as holding that the Court should not override the intention of the parties, so far as that is apparent, in favour of what it considers fair. But, to the extent that the intention of the parties cannot be inferred and must be imputed, that has to involve the court supplying what it considers fair. In the present case, to the extent that there is evidence of conduct from which it is right to conclude that the parties intended their shares to alter, but no evidence as to what that alteration was intended to be, the only available criterion is what is objectively fair.

In fact, where the parties have not indicated in any way what the shares are to be, their actual or subconscious intention may well be that their respective shares, if they cannot reach agreement, should be whatever the court decides is fair. (My comment is that this is, with respect, quite astonishingly unlikely to be the case, in view of the various trust cases I’ve been involved in, but it is a no doubt comforting image for the court…). In any case, the court can’t assume that fairness in division was not an intention of the parties.

Lord Neuberger’s dissent in Stack, referring to fairness as forbidden territory and rejecting imputed common intention, was in the minority and does not limit this view of the majority in Stack.

On the present case, the judge below was right on the evidence to decide that the parties were to be taken as intending that the shares in the beneficial interest should change. The separate finances after 1993 met the Stack test. The judge was right to impute to the parties that changed intention from how they stood at the time they parted. The attribution of a 90% interest to Ms J was justifiable.

Comment
While to some extent the reasoning here is a logical follow on to Stack v Dowden in applying a concept of ambulatory or changing intentions to be inferred from changing conduct, I am somewhat uneasy about aspects of the case and the approach. Firstly, imputing a common intention to the parties where there is no evidence and probably no conscious intention on the part of the parties is difficult enough where one is examining the whole course of dealing (and there are plenty, like Rowena Meager, who side with Lord Neuberger in his opposition to the very idea of imputing intention), but where it is a subsection of the course of dealing, and there was a previous admitted or express shared intention, as here, then the process is surely fraught with the risk of subjective assessment based on the most recent circumstances and a ‘fair’ view of that. Nor am I wholly convinced that, when imputing intention, ‘fairness’ is what there is in the absence of other evidence. If there is so little evidence, or not enough to infer the parties’ intention, could there be enough to establish that this was an ‘exceptional’ case in Stack v Dowden terms?

As an illustration of my unease, let us take the relative contributions and relevant conduct in this case. The property was purchased in joint names. Ms J paid a £6000 deposit, the rest of the £30,000 purchase was by mortgage. In 1986, a loan for £2000 was taken out for an extension ‘which was built and paid for by Mr K’ and added £14000 (or about 50%) to the value of the property. The mortgage payments were shared until Oct 1993 when Mr K left. Thereafter Ms J paid the mortgage solely. A joint life insurance policy was cashed in in 1996, and the proceeds slit, with the purpose of enabling Mr K to buy another property. At trial the property was valued at £245,000, or £218,000 after mortgage. Ms J’s contribution to mortgage payments was held to be about 81.5%. While Mr K had not contributed to the mortgage after 1993, he had also not had any benefit from the property. Moreover, between 1984 and 1993, there had been an admitted shared intention that the beneficial interest should be shared equally.

Now, on any maths, it is clear that Mr K’s contribution to the value of the property across the whole course of dealing is considerably greater than 10%. He paid at least 18% of the mortgage alone, without factoring in the value of the extension. It is hard to see how an intention can be imputed on these facts and this course of dealing that the split should be 90/10, even if he had made no financial contribution to the property since 1993. Alternatively, one might see an argument that he had effectively transferred his interest in the property to Ms J in 1993 or at some point afterwards when he ceased to make any further contributions. But either way 90/10 doesn’t make sense on the reported facts.

The judge below had expressly found that 90/10 was ‘fair and just’, suggesting that fairness was his prime concern. This doesn’t seem to me to comfortably fit even with the analysis of Stack set out in this case, although Mr Strauss QC found to the contrary. The danger is that it is not just the imputed intention that is ambulatory, but the judicial palm trees as well.

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Constructive trust and misrepresentation

Published
by
NL
on 28/04/2009
in FLW case note, Housing law - All and Trusts and Estoppel
. 0 Comments

Qayyum v Hameed & Anor [2009] EWCA Civ 352 is a case with a complicated background – it originated in the collapse of BCCI, for heaven’s sake – but thankfully, the issues in this appeal were relatively straightforward, if novel.

In 1991 Mr & Mrs Qayyum jointly purchased a house. In July 1991, Mr Q declared in a deed that he held his interest on trust for Mrs Q absolutely and covenanted to execute a transfer if called upon to do so. The deed was not stamped, but apparently on the undertaking of Mrs Q’s solicitors to do so, this was not an issue.

In 2003, in litigation against Mr Quayyum, which was BCCI related, Mr Hameed obtained a freezing Order over Mr Q’s assets, including his interest in the property. In June 2004, Mr & Mrs Q applied to Nationwide BS for a mortgage of £200,000. This was in part to pay Mr Q’s legal fees and in part to cover works and service charges on the property. Mr Q believed, wrongly, that the freezing order prevented him from paying legal costs out of his existing, frozen, assets and this is what he told Mrs Q. They agreed to restore Mr Q as joint beneficial owner of the property, to avoid breaching the freezing order. In September 2004, the charge was executed and both Mr & Mrs Q were covenantors.

In June 2005, after success in his litigation, Mr Hameed obtained an interim charging order against Mr Q’s beneficial interest in the property. In related proceedings, Mr Q relied on the 2004 agreement to include half the property amongst his assets.

IN July 2005, Mr & Mrs Q agreed that between themselves, the mortgage would be treated as being against her share of the property. Also at this time Mrs Q informed her solicitors she no longer relied on the 1991 deed.

When Mr Hameed applied to make the charging order final, Mrs Q’s solicitors wrote saying that Mr Q no longer owned 50% of the interest in the property and that she would contest his interest on the basis of money she had spent on improvements (s.37 MPPA 1970), and on the basis that her agreement to his having a share was due to a mistaken belief based on Mr Q’s representations about the freezing order.

The charging order for $1,115,396 was made final in February 2006 and, following Mr Q’s bankruptcy, Mr Hameed obtained a charging order against Mrs Q’s interest in the property for £20K. Mr Hameed then applied for an order for sale and a declaration of the beneficial interests of Mr and Mrs Q in the property.

At first hearing, the Court found that the 1991 deed was valid, but that when Mr Q acted on the 2004 agreement by entering the mortgage, it gave rise to a constructive trust of equal shares. This was despite the misrepresentation. There was no subsequent agreement to revert to the 1991 deed, but even if there had been it would not have satisfied the requirements of a constructive trust as it had not been acted upon. The expenditure on improvements by Mrs Q was not substantial and so the MPPA s.37 claim failed.

On appeal, with only Mrs Q represented and Mr Hameed in person, Mrs Q’s argument was that:
1. The court would not give effect to the 2004 agreement because it was procured by misrepresentation.
2. There was no evidence that Mr Q had acted to his detriment in reliance on the 2004 agreement.
3 There was no detriment to Mr Q in entering the mortgage agreement, or it was negligible.

At hearing, Mrs Q also sought permission to argue that if a constructive trust arose from the 2004 agreement, there was a subsequent oral agreement in late 2005 transferring the beneficial interest to Mrs Q alone.

The Court of Appeal held:

1. On detriment, there was no obligation on Mr Q to enter the mortgage agreement, which he did on the basis of the 2004 agreement. Although Mrs Q may have agreed to take on the liability for servicing the mortgage, in September 2004, Mr Q was making himself personally liable under the mortgage agreement, so there was clear detriment. It would be unconscionable to leave him with that liability but without the benefit of the property interest.

2. On misrepresentation, there was no authority on whether an agreement induced by innocent misrepresentation could give rise to a common intention constructive trust. But it was clear that, in a contractual setting, this was not a misrepresentation that would have led to rescission, as the Court could not restore the parties to their former positions, in view of the mortgage liability. Mrs Q’s argument that the Court should be more flexible in cases where the court is being asked to recognise a right that, but for the court’s recognition, would not exist fell, as on constructive trust, the trust comes into existence prior to the commencement of proceedings and the court merely declares its existence as a subsisting property right, unlike an order for specific performance. Stack v Dowden applied – the court is searching for the parties’ intention, not for the result the court considers fair.

The principled approach would be to consider the approach of equity if there had been a claim for rescission of an agreement immediately after the date on which the trust was said to have arisen. On that basis it would be an unusual case where the court would refuse rescission for innocent misrepresentation on a binding agreement, but at the same time allow the misrepresentation to prevent the creation of a constructive trust.

3. On the new ground of appeal, the judge below had held that there was no 2005 agreement sufficient to reverse the 2004 agreement. The evidence presented gave no reason to overturn that decision, given the varied and varying assertions of Mrs Q about this period.

Appeal dismissed.

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The good nephew

Published
by
NL
on 02/03/2009
in FLW case note, Housing law - All and Trusts and Estoppel
. 0 Comments

A rather odd case dealing with competing charges on a right to buy property turned up at the High Court. Brighton & Hove City Council v Audus [2009] EWHC 340 (Ch) was an attempt by Brighton to challenge the validity of a second charge on the property held by the titleholder’s nephew, Mr Audus. Brighton were trying to ensure that there was some, or rather considerable, equity in the property against which their charge under Section 22 of the Health and Social Services and Social Security Adjudications Act 1983 (for care home costs) could take effect.

The facts were briefly as follows. Mr & Mrs Bull were joint secure tenants of Brighton. In 1989, they exercised the right to buy for £12,375, at a 70% discount. Mr Bull died in 1991, leaving Mrs Bull as sole proprietor. In 1988, at the time of the purchase, there were two charges record on the register, both in favour of Mr Audus. The first charge was for £12,375 – the purchase price, which had been ‘loaned’ by Mr Audus to the Balls. No interest was to be accrued. The second charge stated that ‘upon the advance of [£12,375] it was agreed between the parties hereto that the borrowers should secure to the lender the benefit of any capital appreciation of the property’. No redemption date was set and provision made for redemption by the Bulls’ estate. There was some confusion in both deeds as to who was the title holder and who the beneficiary, but the Bull’s held the title at the Land Registry. In evidence, Mr Audus and the conveyancing solicitor both gave evidence that the arrangement was that Mr Audus would pay all the legal costs, service charges and works charges, while the Bulls were to live at the property rent free for the rest of their lives, leaving the property to Mr Audus. In 2007, Mrs Bull moved to a residential care home.

In 2008, Brighton registered its charge. Brighton then sought to contest the second charge. Rather surprisingly, and to the Court’s disquiet, Mrs Bull was not a party to the proceedings, although the potential outcome would affect her directly. Nonetheless, no challenge to Brighton’s locus standi was made by Mr Audus.

Brighton’s claim was made on a number of grounds:

The first charge was accepted as a legal charge, being a mortgage or security transaction. The second charge was part of the same transaction. it was therefore void as a clog on Mrs Bull’s equity of redemption under the first charge, being ‘repugnant to Mrs Bull’s contractual and equitable rights’ to redeem the first charge. Further the second charge was collateral to the the first charge and unfair and unconscionable.

Mr Audus’ filed defence said that Mrs Bull would be estopped from denying the validity of the second charge and therefore so would the Council, and further, that the express common intention of Mr & Mrs Bull and Mr Audus was that Mr Audus should receive the whole of the interest, such that Mrs Bull holds the lease on constructive trust for Mr Audus absolutely, or Mr Audus is entitled to the lease absolutely via proprietary estoppel.

Brighton’s response was that Mrs Bull was not estopped in any relevant way, or that any estoppel was not binding on the Council. Further, alternative cases of constructive trust and proprietary estoppel could not be put, because Mr Audus relied on the charges of 1988 giving effect to his arrangement with the Bulls, (meaning, I presume, that the charges were the agreement and there could be no trust or estoppel above them). In addition, the Land Registration Act 2002 meant that the registration of its charge overrode mere equitable interests or claims.

So, just about everything was thrown in on both sides (except Brighton’s locus standi, of which more later).

The Court, Mr Justice Morgan, found that a condition which is a clog on the contractural and equitable right to redeem is void, not just voidable. As void it is open to third party challenge by a subsequent encumbrancer, rather than, if it was just voidable, only open to challenge by the mortgagor -Merhban Khan v Makhna (1930) 57 Ind. App. 168.

However, the arrangement of 1988/9 did not involve a loan or creation of a security interest, as there was no intention by either party that Mr Audus should be repaid by the Bulls. Mr Audus was to be the owner, although his rights were subordinate to the agreement – title in the name of the Bulls, the Bulls to remain in occupation for the remainder of their lives and, if Mr Audus should die, the flat was left to the Bulls. The charges were the conveyancing solicitor’s idea, perhaps to try to avoid the recovery of discount by disposal within 5 years under s.155(2) HA 1985 (as it was at the time), but actually, according to Morgan J, the arrangement would not have been a relevant disposal anyway.

The charge deeds do not contain some relevant matters and contain many irrelevant terms for the agreement made. The passages on redemption may have provided for the ‘loan’ and the remaining sum to be redeemed, should, say, the Bulls have won the lottery, but the Court did not consider that this was ever within the consideration of the Bulls or Mr Audus.

As this was not a mortgage or security charge, the contractual and equitable right to redeem, Kreglinger v New Patagonia Meat and Cold Storage Company Limited [1914] AC 25, did not arise; Welsh Development Agency v Export Finance Co Limited [1992] BCC 270, Lavin v Johnson [2002] EWCA Civ 1138 and Dutton v Davis [2006] EWCA Civ 694 followed. Warnborough Limited v Garmite Limited [2003] EWCA Civ 1544 is authority for the proposition that where there is a composite transaction, which includes a genuine mortgage, it is open to the court to assess the overall character of the transaction and identify that character as being other than a mortgage. That precedent applied here.

Brighton’s argument that in assessing a composite transaction where one provision is attacked as repugnant to the right to redeem, the composite should be considered without that provision, was wrong as it prejudged the nature of the composite agreement.

There was room for argument about the written rather than oral terms of the agreement in this case, but Brighton had accepted the binding nature of Mr Audus’ oral agreement. No point on section 2 Law of Property (Miscellaneous Provisions) Act 1989 was taken.

So the equitable doctrine of no clog on redemption did not apply. There was therefore no reason to disregard Mr Audus’ rights under the second charge, which had priority to the Council’s charge – as the Council did not have the right to charge ‘the land’, just Mrs Bull’s interest.

Further, even if there was an equitable claim, it was Mrs Bull’s alone as this was not a mortgage or security and the statutory charge did not enable the Council to bring its own claim. Brighton had no locus standi unless the second charge was a clog on the equity of redemption of the first charge and the first charge was a mortgage or security.

That settled the case, but on the remaining arguments – and assuming that the charge had been found to be a clog on the equity of redemption – the transaction was not unconscionable, unlike a comparable commercial transaction.

However, there was no estoppel by representation or promise in what Mrs Bull had said or done, and likewise there was no common intention constructive trust, as the agreement contained terms that do not accord with such a trust.

But there was, unnecessarily on the primary finding, a proprietary estoppel. Mr Audus believed he had an entitlement in due course to the full value of the flat, subject to the Bull’s living there for the remainder of their lives. The Bulls knew he had that belief. Mr Audus acted to his detriment in paying the service charges, ground rent etc.. On that basis, should Mrs Bull wish to assert that the ’supplemental deed’ – the second charge – was void, she would be estopped from doing so – this is not incompatible with Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752, which Brighton had relied on. The Court decided not to comment on any potential issues that might have arisen under the Land Registration Act 2002 on Brighton’s charge in this regard.

Well – that was something of a mess, all in all, although the primary finding – that the charge was not that of a mortgage or security – seems right on the very scanty factual evidence. And why did Mr Audus accept Brighton’s locus standi to bring the claim, given that that it rested entirely on the disputed nature of the charge? (Unless I’m missing something here…)

While there were clear practical reasons why Mrs Bull had not been joined – given her health – it is extraordinary that neither party sought to have her joined and represented. And there are so many open ends – the Law of Property (Miscellaneous Provisions) Act 1989 issues just for starters. Morgan J gave a lengthy judgment, but one senses the dancing on the edge of the abyss – even if the result seems broadly right.

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Tis aw a muddle

Published
by
NL
on 13/12/2008
in FLW case note, Housing law - All and Trusts and Estoppel
. 9 Comments

A reminder, if one was needed, of the perils and pitfalls of constructive trust cases can be found in Elithorn v Poulter & Others [2008] EWCA Civ 1364

The problems in this case were not just the confused and confusing evidence (not only that of Dr Elithorn, who acted in person, but also the documentary evidence), but what can at best be called an unclear (extempore) judgment by the Circuit Judge in the County Court.

The facts, as far as one can tell, were that Dr Elithorn and Madeleine Ettinger had become friends following the death of Madeleine’s husband. Dr Elithorn owned a house in London which was on the brink of repossession by the mortgagee, Abbey National. Madeleine lent Dr Elithorn £70,000 to stave this off. Then a property in Oxford was purchased for £250,000. Madeleine paid the whole of the purchase price, although it appears that the original arrangement was that Dr Elithorn would sell the London property and contribute to the purchase price. This didn’t happen. The property was registered in both names, with a no disposition by sole individual restriction, indicating the beneficial interest was held as tenants in common, although apparently no shares were specified at the time (the transfer was subsequently lost).

The friendship didn’t survive, and, despite extensive corespondence and the involvement of numerous solicitors between 1996 and Madeleine’s death in May 2003, no resolution on the ownership of the Oxford property was reached.  Dr Elithron had made no payment at all, despite living in the property, although the £70,000 loan had been repaid, without interest, on the eventual sale of his London property.

At first, letters from Madeleine appeared to indicate that she did not consider that Dr Elithorn had an equitable interest in the property at all. Later letters and instructions by Madeleine appeared to indicate that she considered that Dr Elithorn had an equitable interest but was in debt to her for a proportion of the purchase price. Dr Elithorn, for his part, initially suggested that his share in the property was a gift from Madeleine, but then suggested that he would repay a debt of 50% of the purchase price on his death. This was apparently first suggested some 2 or 3 years after the purchase. Primarily, Dr Elithorn continued to maintain that it was a gift, except when he didn’t.

Madeleine’s estate brought a claim on the basis that Madeleine was the sole beneficial owner. At the County Court, the estate won, but it wasn’t at all clear how. Dr Elithorn appealed.

The majority found that, given that there was no cross-appeal on the judge’s findings of fact, the sole issue was whether the decision was right. The Judge, it was held, had found, in a ’surprising conclusion’, that Madeleine had loaned 50% of the purchase price to Dr Elithorn, but the Judge had gone on to find that either

i) Dr Elithorn held the share of the property on resulting trust for the estate, or, ‘if this was wrong’

ii) Any constructive trust was on condition that when the London property was sold, Dr Elithorn was to repay any monies advanced to him by Madeleine and that this hadn’t happened.

The majority held that this was wrong. If Madeleine had loaned the 50% of the purchase money to Dr Elithorn, he had a 50% beneficial interest in the property, and, of course, a debt for the £125,000. Rimer LJ stated that the conclusion of the judge below was that Dr Elithorn acquired no beneficial interest, but remained indebted to the estate for £125,000. What would Dr Elithorn receive if the estate disposed of the property before he paid the £125,000? (A partial answer not mentioned would surely be that he had had rent free sole occupation for many years.)

In any event, there was no presumption of resulting trust that put the onus on Dr Elithorn to rebut. The judgment was shortly before Stack v Dowden [2007] UKHL 17, which put paid to any such suggestion on appeal.

Rix LJ disagreed. Not, of course on the conclusion that, if there had been a loan of 50% of the purchase price, there was a beneficial interest of 50% for Dr Elithorn, which is, on precedent case law, inconstestable. Rather Rix LJ disagreed that the Judge had found that there was a loan. His reading of the judgment was that the Judge was saying that the arrangement was conditional. Dr Elithorn could obtain an interest in the property, conidtional upon him paying a share – as an investment after the purchase. This hadn’t happened.

In the circumstances, and given the lack of clarity (and some errors) in the Judge’s judgment, a retrial was the proper order.

I have to say, having read the detailed account of the evidence and the judgment below, set out in Rimer LJ’s judgment, I’m with Rix LJ. It is not a question of disputing the lower court’s finding of facts but actually it is not clear what the Judge’s conclusions as to what those facts were and thence his conclusions on the law. While the majority are clearly right in law  in the conclusion drawn from their presumption as to the Judge’s finding on the existence of the loan, there surely has to come a point, as Rix LJ points out, that the Court of Appeal simply has to say tis aw a muddle and order a retrial.

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Agreements and constructive trust

Published
by
NL
on 24/10/2008
in FLW case note, Housing law - All and Trusts and Estoppel
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Parris v Williams [2008] EWCA Civ 1147 was an appeal against an order that Mr Williams had 100% beneficial interest in one of two flats to which legal title was held by Mr Parris. It is of interest because it contains a challenge to the ways in which a constructive trust can be found to arise.

The facts were, briefly, that Mr Parris and Mr Williams were friends. Mr Williams was subject to an IVA. Mr Parris bought two flats (originally knocked into one, but a dividing wall was put up shortly after purchase). Mr Williams contributed nothing to the purchase monies and the mortgages were paid by rent from tenants. Mr Williams could not hold legal title because of the IVA. Mr Williams claimed that there had been an agreement that one of the flats was his.

At trial, Mr Williams argued that there had been the agreement, following which he acted acted to his detriment in decorating both properties, paying service charge on on property, which were accepted by the Recorder, and other payments that weren’t believed. Mr Parris denied there was an agreement and that Mr Williams had paid any sums or done anything more than half a day’s decorating. The Recorder found that there was evidence that pointed towards an agreement and that Mr Williams had acted to his detriment on the basis of that agreement, sufficient to establish a common intention constructive trust and beneficial interest of 100% in one flat.

Mr Parris appealed, initially on the ground that the Recorder was wrong to divide up the flats in this way. At hearing at the Court of Appeal, the further ground of appeal that the Recorder was wrong to find that a constructive trust had arisen was given permission.

Mr Parris argued that in order for a constructive trust based upon an agreement to arise, there must be subsequent acts in accordance with the agreement. He cited Gissing v. Gissing [1971] AC 886 (para 905B)

What the court gives effect to is the trust resulting or implied from the common intention expressed in the oral agreement between the spouses that if each acts in the manner provided for in the agreement the beneficial interests in the matrimonial home shall be held as they have agreed.

In this case the point was that:

the evidence before the Recorder was that it was no part of the agreement or understanding between Mr Williams and Mr Parris that Mr Williams was expected or required to do anything. It followed that the acts that the Recorder found he had performed were not acts he was required to perform under the agreement and so their performance was ineffective to enable him to establish the claimed constructive trust. (para 26)

Midland Bank Plc v. Dobson [1986] 1 FLR 171 was also cited in support of this view. The upshot being that, absent an express agreement as to what it was Mr Williams would have to do to get his beneficial interest, any acts of his that might otherwise be considered as detrimental reliance were by the by.

The Court of Appeal didn’t agree. In a tour of subsequent authorities, Lloyds Bank Plc v. Rosset and Another [1991] 1 AC 107 and Grant v. Edwards [1986] Ch 638, the lack of strict requirement as argued by Mr Parris is identified, with Lord Bridge’s statement at para 132D taken as a clear guidance:

The first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. Once a finding to this effect is made it will only be necessary for the partner asserting a claim to a beneficial interest against the partner entitled to the legal estate to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement in order to give rise to a constructive trust or a proprietary estoppel.
In sharp contrast with this situation is the very different one where there is no evidence to support a finding or an agreement or arrangement to share, however reasonable it might have been for the parties to reach such an arrangement if they had applied their minds to the question, and where the court must rely entirely on the conduct of the parties both as to the basis from which to infer a common intention to share the property beneficially and as the conduct relied on to give rise to a constructive trust. In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do.

This case would fall under the second of these categories, as an agreement had been found to have been made. Mr Parris, via Counsel Mr Glen, was effectively repeating arguments made to the House of Lords in Rosset and which were not accepted then. The Court of Appeal had adopted that approach to agreement cases, in Crossley v. Crossley [2006] 2 FLR 813.

The final line of appeal – that Mr Williams detriment was too insignificant to amount to establishing 100% beneficial interest in the flat, also failed. This was a decision for the Recorder at first instance on the facts, but given that the mortgage was paid by rent on both flats, there was no major discrepancy in value.

Appeal dismissed.

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Estoppel – needs something to estop

Published
by
NL
on 04/08/2008
in Housing law - All and Trusts and Estoppel
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I’m not going to do a report on this one as it is a) epic, b) unprecis-able and thankfully c) pretty much off topic for housing law. But anyone who, like me, is a bit of an equity hobbyist on the side, the House of Lords judgment in Yeoman’s Row Management Limited (Appellants) and another v Cobbe (Respondent) [2008] UKHL 55 is a must read on proprietary estoppel and constructive trust.

The upshot is that

Proprietary estoppel requires, in my opinion, clarity as to what it is that the object of the estoppel is to be estopped from denying, or asserting, and clarity as to the interest in the property in question that that denial, or assertion, would otherwise defeat.  If these requirements are not recognised, proprietary estoppel will lose contact with its roots and risk becoming unprincipled and therefore unpredictable, if it has not already become so. [28]

and 

a claim for the imposition of a constructive trust in order to provide a remedy for a disappointed expectation engendered by a representation made in the context of incomplete contractual negotiations is, in my opinion, misconceived and cannot be sustained by reliance on unconscionable behaviour on the part of the representor.[38]

But there is lots of juicy stuff in there. Well, juicy if you are an equity geek, and I am, on the side.

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Aaargh

Published
by
NL
on 30/07/2008
in Benefits, Housing law - All, Possession and Trusts and Estoppel
. 6 Comments

Started on Doherty, but on closer inspection, the Lords have also given me R (On The Application of M) (Fc) V Slough Borough Council and R (On The Application of Heffernan) (Fc) V The Rent Service to deal with, and possibly also Yeoman’s Row Management Limited and Another V Cobbe. All here.

Damn them, damn, damn, damn. Thankfully, the Court of Appeal held off handing down anything of interest – for here at least.

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Constructive trust and dodgy RTB

Published
by
NL
on 12/07/2008
in FLW case note, Housing law - All, Trusts and Estoppel and right-to-buy
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There is an all too common situation. A tenant with the right to buy is offered a capital sum and the mortgage payments for the (in this case) three years needed to avoid repaying the RTB discount on transfer. In the meantime, they either get to stay or hand over control of the property to the shadow. Recent RTBs have provisions in the lease to make this more difficult, as well as a much reduced discount, but there remain a lot of sharks circling.

McGuane v Welch [2008] EWCA Civ 785 was an appeal of a County Court judgment awarding an equitable interest of 100% in a lease of the property concerned to Mr Welch (W), against the title of Mr McGuane (M), the erstwhile tenant.

I’ve not got time to do a detailed report, but the appeal succeeded, largely on the basis that there was an express trust, not a constructive trust, and that the claimant did not come to equity with clean hands. In particular the Claimant had engaged a not entirely reliable solicitor, May & Co, supposedly to act for the Defendant in the arrangement. They never met their supposed client or advised him directly in person or in writing. One trusts the SRA have taken note.

The Defendant pleaded the whole arrangment being the act of “a poor and ignorant man”, (Creswell v Potter (1968) [1978] 1 WLR 255, Backhouse v Backhouse [1978] 1 WLR 243). But the judgment left the erstwhile tenant liable to repay all the monies that the Claimant had spent on the property in mortgage and refurb, so effectively meaning a plague on both your houses.

There are a number of issues in this judgment that I want to return to – in particular the requirement for ’stamped’ trust deed and transfer for admission as evidence, and the way in which express trust is dealt with. But that will have to wait for a fortnight or so. No time now, I’m afraid.

In the meantime, it is clear that the Court deeply disapproves of the ‘transaction’, but absent evidence or argument on breach of statute, can’t say much more.

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Stack v Dowden revisited

Published
by
NL
on 23/04/2008
in FLW case note, Housing law - All and Trusts and Estoppel
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The Court of Appeal has effectively given guidance on the application of Stack v. Dowden [2007] UKHL 17 where one is faced with a transfer into joint ownership and no express statements as to shares in the property in Fowler v Barron [2008] EWCA Civ 377 (23 April 2008).

At 21:

To recapitulate, the important points decided by the House for the purpose of this appeal were as follows. The legal technique that the court will use to ascertain whether both joint owners who had been co-habitees had a beneficial interest is that of the common intention constructive test, rather than that of resulting trust. This will enable the court to take a holistic view of the whole of the parties’ conduct so far as it illumines their shared intentions about the ownership of the property. The court will not impose any particular allocation of property on the parties. It is not a question of the court deciding what is fair as regards the division of ownership but of determining what the co-owners’ shared intentions were as regards beneficial ownership. This was a deliberate policy choice to make the law respond to current needs: see per Baroness Hale at [60]. Where, as here, a house is transferred into the joint names of two individuals as their home, without any declaration of trust, the transfer will indicate that the parties intended to own the house in equal shares and thus the onus will be on the one (here, Mr Barron) who asserts that property is owned by them other than in equal shares to show that they had a shared intention to own the property in some other shares. The conduct that the court will take into account will include, but is not limited to, the financial contributions that they made towards the acquisition of the property or repayment of any loan raised for such purpose. The onus will not be easy for that person to discharge.

Evidence purporting to rebut the presumption of joint beneficial ownership must be of the parties shared intentions, or of a later shared change of intention.

35. In determining whether the presumption is rebutted, the court must in particular consider whether the facts as found are 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 arising from a transfer into joint names.

36. The emphasis is on the parties’ shared intentions. As Lord Diplock said in Gissing v Gissing [1971] AC 886 at 906B-C, “…the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party.” This would be broadly consistent with the principles applicable to the interpretation of a written document, if that had set out their intention.

When assessing evidence, attention should be given to Lady Hale’s warning at para 68 of Stack:

In family disputes, strong feelings are aroused when couples split up. This often leads the parties, honestly but mistakenly, to reinterpret the past in self-exculpatory or vengeful terms. They also lead people to spend far more on the legal battle and is warranted by the sums actually at stake. A full examination of the facts is likely to involve disproportionate costs. In joint names cases it is also unlikely to lead a different result, unless the facts are very unusual.

In this case, the lower Court’s finding of no interest for Ms Fowler in the property (on the basis of contribution to purchase and mortgage as a resulting trust issue) was overturned, and a 50% interest found. In particular, shared household expenses, although none directly related to property expenses, were found sufficient to infer that it was not important to the parties who paid for what specifically or respective size of contribution. Evidence of mutual wills also played a part.

It was noted that Stack v Dowden involved a quite unusual separation of finances.

From this, it is clear that the presumption of joint beneficial interest is to be taken seriously. Rebuttal evidence will have to be pretty strong.

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