Less than ambulatory intentions

Kernott v Jones [2010] EWCA Civ 578

This was the Court of Appeal hearing, on a second appeal, of a case on equitable interests in a property. We reported the first appeal to the High Court and were uneasy about the outcome of that appeal, which seemed to turn more on an idea of fairness than on any of the scant facts in imputing intention as to the distribution of equitable shares. The Court of Appeal judgment, while perhaps harsher on one of the parties, goes some way towards re-establishing certainty for those who, foolishly but inevitably, purchase property jointly while remaining unmarried.

The facts are set out in the earlier post. Ms J and Mr K bought the property together and lived there for 9 years. In 1993, Mr K moved out and in 1996 bought another property in his sole name. Ms J remained in the property. She paid the mortgage and outgoings wholly after 1993. It was common ground that up to the point Mr K moved out, the property was held in equal shares (although it appears on the facts that Mr K had made a greater overall contribution to the value of the property during that time). The first instance Judge had found that the interests in the property had changed and awarded 90% to Ms J and 10% to Mr K. This was upheld in the High Court on the basis that the separate finances after 1993 passed the Stack v Dowden [2007] UKHL 17 burden of displacing the presumption of equal shares and that, where there was scant or no evidence as to intention, the parties could be taken to intend that the shares would be whatever the court decided was fair.

The issue for the Court of Appeal, as Wall LJ put it, was:

Where; (1) an unmarried couple has acquired residential accommodation in joint names, which by common agreement was held by them beneficially in equal shares as at the date of their separation, and; (2) one party (here the respondent) thereafter; (a) continues to live in the property; and; (b) assumes sole responsibility for its continuing acquisition and maintenance – i.e. not only supports herself and the parties’ children but pays the mortgage and all the outgoings (including repairs and improvements) – can the court properly infer an agreement post separation that the parties’ beneficial interests in the property alter or (to use the phrase coined by Lord Hoffman in argument in Stack v Dowden [2007] UKHL 17. [2007] 2 AC 432) become “ambulatory”, thereby enabling the court – as here – to declare that, as at the date of the hearing before the court, the beneficial interests in the property are held other than equally?

By a majority, the Court of Appeal found that the answer was no.

Wall LJ considers Lord Chadwick’s formulation in Oxley v Hiscock [2004] EWCA Civ 546, :

In those circumstances, the second question to be answered in cases of this nature is “what is the extent of the parties’ respective beneficial interests in the property?” Again, in many such cases, the answer will be provided by evidence of what they said and did at the time of the acquisition. But, in a case where there is no evidence of any discussion between them as to the amount of the share which each was to have – and even in a case where the evidence is that there was no discussion on that point – the question still requires an answer. It must now be accepted that (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.

Without anything further, this would have been a basis to dismiss the present appeal as the Judge found the 90:10 split on the basis of fairness and on taking into account the whole course of dealing between the parties. However, Stack v Dowden is not only more recent, but a House of Lords decision. It also deals specifically with joint interests, where Oxley didn’t. He notes Baroness Hale’s formulation that holding in joint title must be taken as giving an intention of equal shares, and that an assertion to the contrary must be proved. Further, he notes Baroness Hale’s view that:

61. […] 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 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 1882 Act.
62. Furthermore, although the parties’ intentions may change over the course of time, producing what my noble and learned friend, Lord Hoffmann, referred to in the course of argument as an “ambulatory” constructive trust, at any one time their interests must be the same for all purposes. They cannot at one and the same time intend, for example, a joint tenancy with survivorship should one of them die while they are still together, a tenancy in common in equal shares should they separate on amicable terms after the children have grown up, and a tenancy in common in unequal shares should they separate on acrimonious terms while the children are still with them.

Wall LJ then spends rather more time on and expresses sympathy for Lord Neuberger’s dissenting view in Stack v Dowden that the starting point must be resulting trust from contributions to purchase and, alternatively, in a constructive trust approach that there should be no ‘imputed’ intentions, where they could not be inferred. Again, ‘fairness’ is not the appropriate yardstick for reaching a conclusion as to the parties’ inferred or imputed intentions.

On the facts of this case, both an Oxley v Hiscock and a Stack v Dowden approach should reach the same end point. Oxley would find an intention to share but no definition of the interests. Thus an express joint intention to share should result in 50:50 interest. Stack would start from the presumption of joint names meaning joint (equal) interest and without anything further to show changed intentions, the passage of time is not enough:

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.

Rimer LJ concurs with Wall LJ, emphasising Baroness Hale’s view in Stack v Dowden that while the whole course of conduct between the parties should be considered, “the search is ‘for the result which reflects what the parties must, in the light of their conduct, be taken to have intended.’ In the same paragraph she said that it is not open to the court to abandon that search ‘in favour of the result which the court itself considers fair'”. Rimer LJ confesses himself unsure what Baroness Hale meant by ‘imputed intentions’ when saying that the Court must seek the parties’ intentions, whether ‘actual, inferred or imputed’. If it is not a synonym for ‘inferred’ then it is inconsistent with her insistence that the goal is to find the parties’ intentions, which must be what they actually meant. Accordingly, Rimer LJ does not see Stack as authority for imputing an intention where none was expressed or can be inferred, even without Lord Neuberger’s ‘demolition’ of the idea in his dissenting judgment.

The facts of this case

cannot, however, in my view without more – and there was nothing more of relevance – have justified the inference of a joint intention that Ms Jones should have some, presumably, steadily increasing beneficial share in the house as the years rolled by (I put it that way because it is improbable that the judge would have arrived at the same beneficial division if he had been deciding the case in, say, 1998: his assessment of a ‘fair and just’ solution would surely then have required him to give Ms Jones a smaller share than he gave her in 2008).

Jacob LJ dissents. On his view the appeal should only be considered by the Court of Appeal if the Court below applied the wrong legal test, as otherwise, the issue is solely one of drawing inference from the primary facts and there was no sign that the findings below were perverse.

The Judge at first instance had applied the correct legal test, starting from the presumption of joint interest, considering the ‘whole course of conduct’. There was no reason for either the High Court or the Court of Appeal to interfere with this.

Appeal allowed and the interest in the property given as 50:50 as tenants in common.

Wall LJ, noting that there was no evidence that the parties had been advised on the meaning of joint tenancy when first purchasing, adds some words of warning:

I described this case as a cautionary tale. So, in my judgment, it is. The purchase of residential accommodation is perhaps the single most important financial transaction which any individual transacts in a lifetime. It is therefore of the utmost importance, as it seems to me, that those who engage in these transactions, and those who advise them, should take the greatest care over such transactions, and must – particularly if they are unmarried or if their clients are unmarried – address their minds to the size and fate of the respective beneficial interests on acquisition, separation and thereafter. It is simply impossible for a court to analyse personal transactions over years between cohabitants, and the costs of so doing are likely to be disproportionate in any event. Cohabiting partners must, it seems to me, contemplate and address the unthinkable, namely that their relationship will break down and that they will fall out over what they do and do not own.

Comment
While this is undoubtedly a somewhat harsh outcome for Ms J, as the Court notes, it does re-establish some certainty for those involved in or advising on these situations. What is particularly interesting is that the approach of both Wall LJ and Rimer LJ is to limit or deny any suggestion that Stack v Dowden allows for intentions to be imputed, that is ascribed to the parties by the court, rather than inferred. Inferred intention requires some evidence from the course of conduct that the parties did intend a certain division (or change in share). Where, as here, there is simply not enough evidence to suggest that the parties’ intentions changed, it is not for the court to consider that the course of conduct, in fairness, allows it to impute that intention to them. The presumption in Stack v Dowden cannot be overcome that way.

Also worthy of note is that separation of finances, although a key element in Stack, is not enough per se to overcome the presumption – although difference here was that Ms J was seeking to argue a change from an admitted intention of equal shares, where Stack was an argument that the intention from the start was unequal shares.

Now, are the conveyancers advising properly on joint tenancy?

Rowena Meager also has a comment on this case.

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Housing law - All, Trusts and Estoppel and tagged , , , , .

12 Comments

  1. Does Mrs J nevertheless have a claim in equity since she has been paying the mortgage? Surely she can get half of that back, even though she only gets half the capital gain?

    • On what basis? Mortgage was joint and several, so she was liable for it all. She had the sole enjoyment of the property since 1993 and made no payments to Mr K for that sole enjoyment.

      Further, on the evidence, there appears to have been an agreement in 1993 that she would take over the mortgage payments with Mr K. Even if there wasn’t, there was a complete absence of evidence that she had asked him or pursued him to pay his share and that he had failed to do so. Where does the equity arise?

    • @ John
      Yes, and I’m not saying it is not technically possible. but I’m not convinced on the available evidence. Look at the agreement to split the proceeds of the other insurance policy in 1996. No demand for the 3 years worth of mortgage ‘share’ was raised by Ms J.

  2. @NL, granted it won’t be half the repayments because she had sole use of the property, which I had not thought to factor in.

    If no significant capital repayments have been made then inferring an agreement to pay the mortgage in return for sole use is reasonable.

    Consider though, if by dint of sacrifice and hard work she had paid off a significant chunk of the mortgage by the time the controversy arose. Absent any obvious intention surely Mr K would be unjustly enriched?

    • @Ben
      Yes, I was commenting in haste, so not clear. I agree on the principle, but on the available evidence doubt the viability of the claim. I suppose, if it wasn’t for the agreed 50/50 split in 1993, Mr K could also have counterclaimed for his contributions to the value of the property over the mortgage payments – e.g. the extension that apparently led to a 50% rise in value. But on reflection, this was before 1993 and the agreed split then, so there may be an estoppel.

  3. Pingback: Beneficial Interests in Jointly Owned Property: Kernott v Jones (Round 3) « Rowena Meager's Property Law Blog

  4. On revenue payments, its well worth (you both) reading Collete Murphy v Gooch [2007] EWCA Civ 603 which sets out the modern situation.

    The old rule was that you did equitable accounting and (usually) the occupation rent owed by the remaining occupier would offset their payments against the mortgage. Equitable accounting is no longer applicable, since its all dealt with under TOLATA, but the practical effect is roughly the same. So in the usual situation of X stays and pays, Y has to go and pays nothing, the parties are treated as at parity in terms of the revenue account.

    Things are different of course if both parties could have occupied (eg where the house remains empty) or there are other factors that need to be brought into account.

    As to capital payments – in the old “resulting trust” days they were simply brought into the account in the obvious way. I really don’t know what they are supposed to do know.

  5. Thanks as ever, Francis. I had a sense of that being the case, hence raising the sole enjoyment point, but was frankly too lazy/busy to go away and look.

    On capital payments, it appears that those get folded into the ‘whole course of conduct’ (and then – in first instance decision in this case largely ignored for post separation ambulation, now overturned).

  6. Anyone know when the judgment is being handed down in this case – I need to know for a deadline!

    • Only that it won’t be before 9th November, as next week’s judgments are Rainy Sky v Kookmin and Human Genome Sciences v Eli Lilly. Unfortunately I have no further insight than that. Anyone involved know? My understanding is that the parties don’t get told until they get the draft judgments shortly before hand down.

Leave a Reply (We can't offer advice on individual issues)