A fairly abstruse discussion after the recent fun and games, but, to someone like me who was intrigued and amused while studying equity, an enjoyable one.
A recent case involved the client’s equitable interest in an ex-council house, formally purchased by the tenants, but the client stood guarantor and paid over half the mortgage, following an oral agreement that all three would ‘share’ the ownership.
The other side had denied any agreement and claimed the client was paying rent, but the evidence was strong enough for an agreement to be inferred by the Court in a Lloyd’s Bank type 2 form, although not for the 50/50 that our client maintained. So, a constructive trust/proprietary estoppel (Oxley v Hiscock [2004] EWCA Civ 546 having effectively conflated the two).
The question then was the apportionment of interest. The facts as found by the Court were that our client had paid something like 70% of the mortgage, and that the other side had attracted a discount of some 45% on the purchase price as a result of their tenancy on the right to buy. There were other payments and expenses for both sides, but no deposit.
Naturally, the other side argued for the 45% as their contribution, so that any share to our client would have to be in the remaining 55% (so say 22.5% max). They relied mainly on a reading of Springette v Defoe [1992] 2 FLR 388 where the RTB discount was treated as a fixed contribution. Unfortunately for them, the issue of the discount was agreed by the parties rather than argued at the Court of Appeal.
We rehearsed the recent history from Lloyds Bank v Rosset [1991] 1 AC 107 through Oxley v Hiscock. In each case, the Court had taken the position that although it was entitled to consider the RTB discount as a contribution, where there was no express agreement between the parties as to share, the contribution was part of a whole course of dealing and it was this that the Court should consider.
Our argument was that each of these cases was a resulting trust case, hinging on initial contribution to purchase. So if the discount was a factor but not a fixed point in these cases, then it should be even less of a weight in a constructive trust case, based on a post purchase course of dealing (on both sides).
The Court seemed to largely accept this, pointing out that the discount would have been valueless without our client enabling the mortgage. In the judgement, the Court firmly declared that it was not bound in the way it should consider the discount, that its governing principle was that of equity and that the discount formed a part of a consideration of all the circumstances or ‘the whole course of dealing’. Following Oxley, of course, but a clear statement of equitable principle in constructive trust
Our client got 40%, which seemed about right to me on the facts. The client had had benefits in terms of living expenses, Council tax and so on that were also weighed.
Some feel there is a danger in not having the discount as a fixed consideration. Certainly, one can imagine situations – say where that has been one partner’s sole contribution because that was all they had – where it would seem unfair for the discount to be, erm, discounted. But, as the Court stressed here, equity is the governing principle, fairness in the circumstances, and that seems to me to be right, as those circumstances can vary from utter shams to the completely deserving.
Nothing earth shaking then, but a clear statement of position. It was also interesting to see this worked out in a non-marital/partnership situation.
There was an intriguing second string argument on subrogation, should constructive trust fail, but I need to brush up on the details before I can render it.