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The paragraph of the 2002 Discussion Paper referred to states the authors’ opinion that “the principles set out by Lord Bridge in [Rosset] are, on the whole, unduly restrictive, and that the courts should seek to be more flexible in their approach.”
The Discussion Paper, at [4.26], particularly criticised the requirement that the claimant must have made a direct financial contribution to the acquisition of the shared home, in order for an inferred common intention constructive trust to arise. Indirect contributions* to the mortgage, say by C paying other household bills to allow D to pay mortgage instalments, should suffice to allow the court to infer a common intention to share beneficially.
*The footnote to this passage refers to Le Foe.
However, the Discussion Paper, like Le Foe, pre-dates Oxley’s re-affirmation of McFarlane and Rosset. Furthermore, Lady Hale did not take the chance to consider Le Foe. She did not expressly disapprove of nor depart from Rosset and McFarlane. Rather, she pointed out that the House was not in Stack (HL) concerned with the establishment of a beneficial interest. It seems, therefore, that on the authorities a common intention constructive trust must still be established on orthodox principles – although the point is not entirely free from doubt. For example, Le Foe has not been expressly disapproved.
It may be that, by casting doubt on Lord Bridge’s Rosset formula, their Lordships intended to send a message to Parliament in advance of the publication (31 July 2007) of the Law Commission’s report: Cohabitation: The Financial Consequences of Relationship Breakdown. On the other hand, perhaps the intended message was that their Lordships would welcome the chance to recast the law in relation to indirect contributions, if an appropriate appeal came to them.
The effect of a transfer into joint names
Famously, a transfer into joint names was held, by four of their Lordships, to raise a presumption of beneficial joint tenancy. As a matter of law, the beneficial interests must accordingly be presumed to be identical in nature and extent.
The presumption will be rebuttable only in “very unusual” cases in which the legal owners are to be taken to have intended that their beneficial interests should be different from their legal interests (per Lady Hale, at [69]). The party seeking to rebut the presumption will bear the burden of proof.
It is submitted that there will continue to be the occasional case in which the legal owners’ intention is found to be that one of the co-owners should have no beneficial interest at all. One example would be where one of the legal owners was added to the legal title for no other reason than to obtain mortgage finance (as was the case in Carlton v Goodman [2002] EWCA Civ 545, [2002] 2 FLR 259 and McKenzie v McKenzie [2003] EWHC 601 (Ch)).
And, as Adekunle, considered below, suggests, it looks likely that there will be many cases of legal co-ownership where a contention that the parties did not intend to be beneficial joint tenants may realistically be made – especially (although not necessarily) outside the context of a cohabiting couple. Remember, in Stack (HL) the presumption of beneficial joint tenancy was rebutted on the facts, on the basis of an inference that long term cohabitants with four children intended to share unequally.
(d) Two recent cases and a report
(i) Abbott v Abbott PC (Ant) 26/7/2007
Within three months of Stack (HL), in Abbott v Abbott, a Privy Council including Lord Neuberger of Abbotsbury, Lord Walker and Baroness Hale (who all heard Stack (HL)) considered indirect contributions again. Lady Hale gave the only judgment.
In Abbott, the trial judge found the parties shared an understanding that their beneficial interests in the shared home would be equal. The Court of Appeal of Antigua and Barbuda substituted an 8.31% share for the wife, on the basis she could only acquire an interest by way of direct contributions to the mortgage payments.
Restoring the trial judge’s apportionment, Lady Hale cited Lord Bridge’s speech in Rosset (at 132-3), ending in the famous extreme doubt that anything less than a direct contribution to the purchase price will justify the inference necessary to create a constructive trust. Lady Hale said (at [3]): but in this respect, the law has undoubtedly moved on, as we shall see.
Given the husband’s recognition in his evidence that the wife had a beneficial interest, it is clear that the issue on appeal in Abbott, as in Stack (HL), was quantification, not establishment of the beneficial interest. The Jamaican Court of Appeal had mis-applied Lord Bridge’s requirement for “direct contributions” (as the condition for establishing the interest by an inferred common intention) to the quantification of the interest.
It would follow that the criteria for Lord Bridge’s second category were not departed from as part of the ratio in Abbott. However, the requirement for direct contributions to establish a common intention constructive trust, in the absence of evidence of a shared understanding based on express discussions, is very definitely being undermined. Watch this space.
(ii) Adekunle & Or v Ritchie CC (Leeds) John Behrens QC 17/8/2007
Lady Hale’s presumption rebutted. In Adekunle the deceased mother and the defendant, one of her ten children, were co-owners. They purchased the property, of which the mother had been the council tenant, by means of the tenant’s discount and a joint mortgage. The transfer was to both of them, but contained no declaration of the beneficial interests.
It was held that Lady Hale’s presumption did apply to the instant case, although it may well be easier to rebut it where one is not dealing with the situation of a couple living together. M’s discount was slightly over one half of the purchase price. She was not able to fund the mortgage without the assistance of S, who was living at the property. M had nine other children and there was no reason why she would have wanted the whole of her estate to pass to S, her youngest son. The presumption was rebutted, though this did not deprive S of an interest on the facts. His share was assessed at one third.
(iii) The Law Commission’s final report.
Adding more spice to the witches’ brew of the law regarding rights in shared property, the Law Commission’s final report on cohabitants’ property rights (No. 307 “Cohabitation: the Financial Consequences of Relationship Breakdown” published on 31 July 2007) makes no recommendations (and offers no clarification) as to “the law relating to implied trusts and the law of estoppel”.
It introduces an entirely new scheme, based on concepts such as ‘eligible cohabitants’, ‘qualifying contributions’, ‘retained benefit’ and ‘economic disadvantage’. The ‘general law’ (i.e. trusts and estoppel) and the new scheme would be mutually exclusive. Some households (especially couples with children) will have the potential to come within either scheme. Others will be stuck with the law of implied trusts and estoppel.
(e) Summary
Indirect contributions
Lloyds Bank v Rosset is still the leading case on the establishment of a common intention constructive trust. Lord Bridge’s second category (a trust based on inferred common intention) requires a direct contribution to the purchase price of the property, whether initially or by payment of mortgage instalments. Widely recognised as too restrictive, the writing is on the wall for the requirement of a direct contribution – but it has not yet been unambiguously loosened or departed from by the Court of Appeal or House of Lords. In the recent cases of James v Thomas [2007] EWCA Civ 1212 and Morris v Morris & ors [2008] EWCA Civ 257 the Court of Appeal has taken a restrictive approach to the inference of a common intention constructive trust.
Transfer into joint names
Lady Hale’s presumption that equity follows the law is clearly rebuttable. I suggest that two lines of cases will soon emerge in which the presumption is and is not rebutted on the facts, even as between cohabiting couples. It may even be that a decision emerges where a cohabiting co-owner is found to have no beneficial interest.
Law Commission report
The government has announced no action on the report is imminent, pending a review of reforms in Scotland.
© Luke Barnes 2008
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