Stack v Dowden - the principles in practice

By Luke Barnes, Barrister

The House of Lords’ keenly awaited decision in Stack v Dowden [2007] UKHL 17 is now with us. While the decision has the potential to apply to all cases of legal and / or equitable co-ownership, in the absence of a declaration of the parties’ beneficial interests, its most striking effect is likely to be on cohabiting couples, who are joint legal owners. In this article I flag up (in bold type) and consider some key principles to derive from the case, aiming to provide the practitioner with practice points drawn from the principles.

Lord Hoffman (at [1]) and Lord Walker of Gestingthorpe (at [39]) explicitly adopt Baroness Hale of Richmond’s reasoning. Lord Hope of Craighead endorses (at [4]) her central proposition. Her Ladyship’s opinion is the first one to get on top of, when assessing the decision’s effect on ongoing and incoming cases.

The demands of space have compelled me to omit all but the briefest reference to the decided cases, which I regret, but which is inevitable if the article is to be kept to a manageable length. For a similar reason, I have not dealt with Lord Neuberger of Abbotsbury’s opinion, where it is clearly dissenting. All the issues arising from the decision are likely to receive detailed consideration and development in the academic world and in forthcoming cases.

Key principles

1.   Where the beneficial interests are not declared, the presumption is that equity follows the law and the beneficial interests reflect the legal interests in the property.

This re-assertion of principle is striking, for the thrust of decisions over recent decades has been away from it, as neatly summarised by Gray & Gray, Elements of Land Law, 4th Ed 2005 at 11.57:

"Equity’s starting assumption is … that joint tenants of the legal estate likewise hold the equitable estate as joint tenants. But this assumption … is readily displaced by any of a number of contra-indications that … equitable ownership was intended to take the form of a tenancy in common. Indeed, these contra-indications have become so prevalent that it is relatively rare that the nature of equitable co-ownership falls to be ascertained by a despairing resort to the residual proposition that ‘equity follows the law."

2.   The starting point where there is sole legal ownership (“a sole name case”) is sole beneficial ownership. The starting point where there is joint legal ownership (“a joint names case”) is joint beneficial ownership. The onus is upon the person who seeks to show that the beneficial ownership differs from the legal ownership.

Prior to this decision, the effect of case law was that, in a sole name case, the claimant would have to prove he had an interest. In a joint names case, it would generally be assumed that each party had an interest. In both sole and joint names cases, the amount of the interest(s) would be decided on the evidence. 

The crux of the decision is that, since the starting point in joint names cases is joint beneficial ownership, the presumption is that the equitable interests of the legal co-owners are identical. On severance of the beneficial joint tenancy, the parties hold equal shares in the property.

The party seeking to rebut this presumption must satisfy the court that the parties’ common intention was, or is to be inferred to have been, to the contrary.

3.   The onus of rebutting the presumption will be heavier in joint names cases than in sole name cases (considered separately below). Lady Hale:

"[69] At the end of the day … cases in which the joint legal owners are to be taken to have intended that their beneficial interests should be different from their legal interests will be very unusual."

Lord Walker referred, in the joint names context, to [14] “ a considerable burden”.
 
I suggest, however, that on application of the factors set out by Lady Hale (and considered below in section 8), there will be a very significant number of joint names cases where the evidence will establish that the parties’ true intention was to hold other than as beneficial joint tenants.

4.   If the presumption is rebutted, the court will search for what the parties must be taken to have intended, in the light of their conduct. The court is not entitled to abandon that search in favour of what it considers fair.

Lady Hale considered Lord Justice Chadwick’s formulation, at paragraph 69 of Oxley v Hiscock [2004] EWCA Civ 546, of the court’s approach to quantification in the absence of evidence of discussions:

Chadwick LJ:

"[69] where there is no evidence of any discussion between them of the share which each was to have … 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. "

She explicitly preferred the Law Commission’s approach, as set out in its 2002 Discussion paper (at 4.27), by which the court would:

"Undertak[e] a survey of the whole course of dealing between the parties and tak[e] account of all conduct which throws light on the question of what shares were intended."

She ruled:

"[61] That may be the preferable way of expressing what is essentially the same thought, for two reasons. First, it emphasises that 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."

This is potentially confusing. On the one hand, Chadwick LJ’s judicial fairness and the Law Commission’s focus on the parties’ intention are ‘essentially the same thought’. On the other, the court must pursue not the former, but the latter.

The overlap between the criteria of fairness and intention is clearly demonstrated by inter alia 1990s Court of Appeal authorities such as Stokes v Anderson [1991] 1 FLR 391, Midland Bank v Cooke  [1995] 2 FLR 915, and Drake v Whipp [1996] 1 FLR 826. Indeed, Chadwick LJ in Oxley understood himself to be in line with those same authorities in explicitly adopting the criterion of fairness.

Where the presumption is rebutted, it remains to be seen whether and to what extent the courts’ approach to quantification will alter by reason of Lady Hale’s prohibition of the criterion of fairness.

In his speech, Lord Walker rejected (at [37]) the assimilation in recent years of constructive trusts and proprietary estoppel, which would provide a flexible power to fashion a remedy in both cases (see paragraph [66] of Oxley, for example). In the former case, he said, the court is identifying the true beneficial owners and the size of their interests. In the latter, it is satisfying the equity in the claimant’s favour by the minimum award necessary to do justice.

It seems then, that the court is to apply the criterion of intention in a constructive trust case, and fairness in a proprietary estoppel case. This may make it important for practitioners to plead both constructive trust and proprietary estoppel (where applicable) in cohabitants’ cases, in order to retain the scope to argue for the court to fashion the remedy fairly to the facts.

Joint names cases
5. Where a property, intended to become their home, is conveyed into the joint names of a cohabiting couple, without an express declaration of their beneficial interests, there will be a presumption of a beneficial joint tenancy, unless and until the contrary is proved.

I have worded the above by careful reference to, firstly, Lady Hale’s formulation of the issue before the House, and secondly her ruling on the issue.

The formulation

"[40] The issue before us is the effect of a conveyance into the joint names of a cohabiting couple, but without an explicit declaration of their respective beneficial interests, of a dwelling house which was to become their home."

The ruling

"[58]  The issue as it has been framed before us is whether a conveyance into joint names indicates only that each party is intended to have some beneficial interest but says nothing about the nature and extent of that beneficial interest, or whether a conveyance into joint names establishes a prima facie case of joint and equal beneficial interests until the contrary is shown. For the reasons already stated, at least in the domestic consumer context, a conveyance into joint names indicates both legal and beneficial joint tenancy, unless and until the contrary is proved. "

The scope of the presumption
(a)  Does the presumption apply to a home already occupied by the couple or by one of them?
I suggest that the better view is that the presumption does apply to a home already occupied by the couple or one of them, but the factor of previous, sole ownership or occupation may well be a factor which tells against the presumption (see section 8 below for Lady Hale’s non-exhaustive list of relevant factors).

(b)  Does it apply to a transfer to two or more co-owners who are not a cohabiting couple?
The broader expression ‘in the domestic consumer context’ (at [58]) might seem to be capable of extending the presumption of beneficial joint tenancy to wider / different domestic set-ups than the cohabiting couple.

However, that interpretation is contra-indicated by the precise way in which the issue was framed by Lady Hale at paragraph 40. Indeed, Lord Walker’s clear understanding (see [14]) was that Lady Hale’s reasoning and conclusions applied to a married or cohabiting couple.

If, however, the presumption does apply (on the basis that equity follows the law) prima facie to all transfers to legal co-owners, I suggest it applies with diminished force outside the context of a cohabiting couple, as demonstrated by the example of a (potential) beneficial joint tenancy of a commercial lease considered by Lady Hale at [57]. 

6. A presumed right of survivorship

The right of survivorship is a fundamental feature of a beneficial joint tenancy. There is no way of interpreting the terms of Lady Hale’s ruling so that the presumption would be that co-owners shared equally but the right of survivorship did not apply.  

It must follow that where the evidence is that the parties did not intend the right of survivorship to apply, the presumption of beneficial joint tenancy is rebutted. As Lady Hale recognised:

"[57] ‘the parties may not intend survivorship even if they do intend that their shares shall be equal. In many commercial contexts, and no doubt some domestic ones, it will be highly unlikely that the parties intend survivorship with its tontine “winner takes all” effect."

7.   Baroness Hale [66]: The questions in a joint names case are not simply “what is the extent of the parties’ beneficial interests?” but
(a) “did the parties intend their beneficial interest to be different from their legal interests ?” and (b)  “if they did, in what way and to what extent” ?

It is now clear that Chadwick LJ’s assimilation (Stack, CA, [26]) as between sole and joint name cases, in the context of the quantification of undiscussed interests, is incorrect.

Lady Hale neatly described the task facing Ms Dowden, who sought to argue for unequal shares:

"[86]  The starting point is that it is for Ms Dowden to show that the common intention, when taking a conveyance of the house into their joint names or thereafter, was that they should hold the property otherwise than as beneficial joint tenants."

The court must ask two questions, as set out above. It seems that evidence cogent enough to rebut the presumption of beneficial joint tenancy may without more suffice to provide the answer to the second question, as it did in Lady Hale’s judgment. 

It might be arguable (in a case where the parties did not intend the right of survivorship to apply) one could somehow peel away that right from the beneficial joint tenancy, leaving a tenancy in common in equal shares.

Alternatively, if the lack of survivorship negated the joint tenancy and its presumed equality of interest ab initio, the result would be a tenancy in common in undefined shares. This is an interesting point – particularly since a common intention against survivorship did not feature on Lady Hale’s list of factors relevant to the parties’ true intentions. Watch this space.

8.    Each case will turn on its own facts. The relevant factors may demonstrate that the true intention of the parties was not to own as beneficial joint tenants, although this must be proved to a sufficient standard by the party denying the joint tenancy.

As set out above, Lady Hale expressed the view that joint names cases where the presumption is rebutted would be very unusual. She stated:

"[69] Each case will turn on its own facts. Many more factors than financial considerations may be relevant to divining the parties’ true intentions. These include:

(1) any advice or discussions at the time of the transfer which cast light upon their intentions then;
(2)  the reasons why the house was acquired in their joint names;
(3) the reasons why (if it be the case) the survivor was authorised to give a receipt for capital moneys;
(4)  the purpose for which the home was acquired;
(5)  the nature of the parties’ relationship;
(6)  whether they had children for whom they both had responsibility to provide a home;
(7)  how the purchase was financed, both initially and subsequently;
(8)  how the parties arranged their finances, whether separately or together or a bit of both;
(9)  how they discharged the outgoings on the property and their other household expenses;
(10) when a couple are joint owners of the home and jointly liable for the mortgage, the inferences to be drawn from who pays for what may be very different from the inferences to be drawn when only one is the owner of the home. The arithmetical calculation of how much was paid by each is also likely to be less important. It will be easier to draw the inference that they intended that each should contribute as much to the household as they reasonably could and that they would share the eventual benefit or burden equally;
(11)  the parties’ individual characters and personalities may also be a factor in deciding where their true intentions lay." (Lettering added)

Lady Hale found, on her consideration of the factors, that the parties’ common intention was not to share equally [87 – 92]. The factors she identified as relevant were that:

· the parties contributed unequally to the purchase price;

· they did not pool their resources, keeping separate savings and investments;

· they undertook separate responsibility for household outgoings – S for mortgage interest and endowment premiums, D for all other regular commitments.

Having made her finding, she went on immediately to rule that

"[92] Before the Court of Appeal Ms Dowden contended for a 65% share and in my view she has made good her case for that."

It seems that, while any of Lady Hale’s factors may be relevant to quantification, it was in all likelihood the parties’ relative capital contributions to the purchase which weighed most heavily (as indeed they had done in the Court of Appeal).

As for the 27 year duration of the parties’ relationship, and their raising of four children, and in spite of factors (5) and (6) above, Lady Hale ruled that the judge had erred in that:

"[86]  He looked at their relationship rather than the matters which were particularly relevant to their intentions about the property. He founded his conclusion on the length and nature of their relationship, which he repeatedly referred to as a partnership, despite the fact that they had managed separate finances throughout their time together."

It is not easy to see that Stack is a very unusual case on the facts. Her Ladyship might be said to imply that financial contributions and factors are of more weight that relationship-based ones, both in rebutting the presumption and in quantifying the interests, after the rebuttal.

Practice point: take very detailed attendance notes of initial meetings with the client. The presumption of beneficial joint tenancy may well be rebuttable on the facts of the case.

9. In cases where the transfer declared that the survivor could give a valid receipt for capital monies arising on a disposition of the land, and it is established that the parties understood that this declaration was consistent only with an intention that the right of survivorship would apply, the inference that they intended a beneficial joint tenancy will be irresistible.

This means what it says. It is a point which will arise in very many cases where the transfer took place before 01 July 1998 (when the TR1 came into use). The outcome of such cases may then turn on what explanation is found to have been given by the conveyancing solicitor – in cases where very often the file will no longer exist. 
 

Sole name cases
10.  The onus is upon the non-owner to show he has any interest at all.

In sole name cases, this is to assert no more than the normal civil burden of proof: he who asserts must prove. Lady Hale’s list of factors may well come to be relied on as relevant to rebutting the presumption of sole beneficial ownership. 

11. Once the claimant has established some beneficial interest, the court will survey the whole course of dealing between the parties, taking account of all conduct which throws light on the question what shares were intended.

With the proviso that the court is to look for the parties’ intention, it could be said that Chadwick LJ’s checklist in Oxley may still be of assistance.

"[69] 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 arrangement which they make from time to time in order to meet the outgoings (for example, mortgage contributions, council tax and utilities, insurance and housekeeping). "

I suggest, however, that factors such as those set out by Lady Hale are also relevant in sole name cases. In particular, since there is respected authority (Midland Bank v Cooke ibid.) by which the court may, in a sole name case, take into account the homemaker’s domestic contribution. Mrs Cooke had raised three children and worked full and part time in support of the household. Her 6.47% interest (assessed on a resulting trust basis) was raised to 50% on appeal. 

Variation of the beneficial interests
12.   It seems that a wider range of factors than before may be relied on in order to claim that the parties varied their beneficial interests. At paragraph 70, Her Ladyship stated:

"There may also be reason to conclude that, whatever the parties’ intentions at the outset, these have now changed. An example might be where one party has financed (or constructed himself) an extension or substantial improvement to the property, so that what they have now is significantly different from what they had then."

Orthodoxy (and, possibly, Lord Neuberger) suggest that Baroness Hale has introduced, into the issue of the parties’ beneficial interests, a factor which generally belongs in the sphere of equitable accounting. It has been a feature throughout this line of cases that improvements alone will not affect the equitable title.

Lord Neuberger’s comment is that [146]

"I am unpersuaded that that (save perhaps in a most unusual case) anything other than subsequent discussions, statements or actions, which can be fairly be said to imply a positive intention to depart from [the original] apportionment, will do to justify a change in the way in which the beneficial interest is owned."

Although not spelt out explicitly by their Lordships, one would expect that, if the parties seek to alter their beneficial interests, the Law of Property Act 1925 would require that:

per s.53(1)(c) the variation would have to be in writing, signed by the disponor; or
per s.53(2) by way of resulting, implied or constructive trust.

Occupation rent
13.   The jurisdiction to order the payment of occupation rent to an excluded beneficiary under a trust of land derives from sections 12 to 15 of the Trusts of Land and Appointment of Trustees Act 1996. It is an error to order an occupation rent without applying those statutory principles.

Lady Hale ruled (at [94]) that those statutory powers replaced the old doctrine of equitable accounting in respect of occupation rent. She stated:

"[93] Section 12(1) gives  a beneficiary who is beneficially entitled to an interest in land the right to occupy the land if the purpose of the trust is to make the land available for his occupation. … Section 13(1) gives the trustees the power to exclude or restrict that entitlement, but under section 13(2) this power must be exercised reasonably. The trustees also have power under section 13(3) to impose conditions upon the occupier. These include, under section 13(5), paying any outgoings or expenses … and under section 13(6) paying compensation to a person whose right to occupy has been excluded or restricted. Under section 14(2)(a), both trustees and beneficiaries can apply to the court for an order relating to the exercise of these functions. "

I add that the criteria applicable when rent is ordered under section 13 are set out at s.13(4). When rent is ordered under section 14, the criteria are set out at s.15(1). In both cases, they include the intentions of the person(s) who created the trust and the purpose for which the land is held.

© Luke Barnes, 2007
3, Dr Johnson’s Buildings

The views expressed in the above do not constitute legal advice to be applied to the facts of any individual case and the author does not accept such responsibility.

This article first appeared on www.familylawweek.co.uk