Barnes v Phillips Inference, Imputation and Child Maintenance

01/12/2015

This article recently appeared in Property Law Journal

  1. The recent case of Barnes v Phillips, reported at [2015] EWCA Civ 1056, marks the latest in a series of judgments where the Court of Appeal has grappled with the problems presented by co-ownership of property by unmarried adult couples.  The case was concerned with when and in what circumstances it might be permissible to conclude, absent an express agreement, that the beneficial shares of unmarried co-owners of property should be varied.  The purpose of this article is to highlight the key principles which emerge from the judgment, and then to explain something of the reasoning that underpinned those principles. 

    Overview

  2. The Court of Appeal, interpreting the earlier judgment of the Supreme Court in Jones v Kernott [2012] 1 AC 776, held that in considering whether co-owners could be held to have agreed to vary their beneficial shares, there is a two-stage test.  First, whether an agreement to vary could be discerned (question 1), and second, if so, what the quantification of the parties’ shares following such an agreement should be (question 2).
  3. In considering question 1, an express agreement, or an inferential finding of an agreement would suffice, but not an agreement imputed to the parties by the Court.
  4. If and only if the hurdle of question 1 could be surmounted, in considering question 2 the Court then has the additional tool of imputing to the parties a common intention that they may never actually have held as to proportions.

  5. The other novel feature of the case was confirmation that in certain circumstances the Court will be prepared to take into account contributions to the maintenance of children (or the absence of such contributions) in the consideration of the parties’ beneficial shares:

    “...in principle, it should be open to a court to take account of financial contributions to the maintenance of children (or lack of them) as part of the financial history of the parties save in circumstances where it is clear that to do so would result in double liability.” (judgment, [¶41])

    Background

  6. To put the matter in a little context, until 1973 arguments over property ownership between couples, both married and unmarried, required recourse to the arcane law of trusts, which practitioners will no doubt recall fondly from stimulating lectures of their youth.  The trouble and expense that this caused was frequently bemoaned by the Courts:

    "The whole question can only be resolved by Parliament and in my opinion there is urgent need for comprehensive legislation" - Lord Reid in Pettitt v Pettitt [1970] AC 777.
  7. While Lord Reid's plea was answered on behalf of married couples by the Matrimonial Causes Act 1973, for unmarried cohabitants the wait for legislation continues some 4 decades later.  Having recourse to the evolving common law, recent case law (using ‘recent’ in the context of the glacial progression of developments in the common law) suggests a judicial softening in the otherwise harsh results that the stark application of the old resulting trust doctrine could produce.  In the case of cohabitants the modern law is principally concerned with a search for what may be an elusive ‘common intention’ to underpin the creature of equity known as the common intention constructive trust.
  8. This evolution of the modern law has been marked by two significant milestones, first the judgment of the House of Lords in Stack v Dowden [2007] 2 AC 432, and second the judgment of the Supreme Court in Jones.  The main impact of the judgment in the latter case, and as interpreted by the Court of Appeal in Barnes v Phillips is in 'joint names' cases, of specific application where "...a family home is bought in the joint names of a cohabiting couple who are both responsible for any mortgage, but without any express declaration of their beneficial interests." (per Lord Walker and Lady Hale at [¶51 in Jones]). It is however to be anticipated that the principles espoused will prove to be of application in a far wider gamut of cases concerning jointly owned property.

    The Facts

  9. The proceedings in Barnes formed a claim under s.14 of the Trusts of Land and Appointment of Trustees Act 1996 concerning the respective beneficial shares of the parties, who were formerly in a relationship, in their jointly-owned property in Lee, London SE12.
  10. The parties, Ms Phillips and Mr Barnes, were involved in a relationship for approximately 22 years, from around 1983 until May 2005.  They had two daughters, born in 1993 and 2000, who continued to reside with their mother in the property at all material times.
  11. The property was purchased in joint names in January 1996 for a purchase price of £125,000, with the assistance of a mortgage from HSBC.  In the absence of any evidence as to an express declaration of trust, no TR1 or similar document being in evidence, HHJ Madge who tried the matter at first instance found that upon purchase the parties held the property as beneficial joint tenants, applying the Stack v Dowden presumption that in joint names cases, where (as here) there is no express declaration of trust, the starting point is that equity follows the law.
  12. The parties cohabited in the property following purchase.  Mortgage repayments and household expenses were met by the parties jointly in differing amounts at different times, the parties on a broad analysis contributing equally to what was in effect a marriage without a wedding ceremony.
  13. In the course of the relationship Mr Barnes acquired several other properties as investments, each of which was registered in his sole name, which were let to tenants at various times.  By 2004 he found himself in some financial difficulty and ultimately persuaded Ms Phillips to remortgage the jointly held property, raising £145,000.  This sum was used firstly to redeem the pre-existing mortgage in the sum of £78,930.62, leaving a balance of approximately £66,000.  Having heard evidence on the point, the Judge was satisfied that such balance was applied by Mr Barnes for his sole benefit, the sum received by him being equivalent to approximately 25% of the net equity in the property at that point.  While the circumstances of the remortgage were hotly disputed, the Court of Appeal refused to interfere with the Judge’s finding on the issue.
  14. Mr Barnes having had the sole use and benefit of the balance of £66,000 raised by the remortgage, remarkably shortly thereafter the parties’ relationship ended, Mr Barnes leaving the property for good in May or June 2005.
  15. Between May/June 2005 and April 2008 Mr Barnes paid roughly two thirds of the mortgage contributions in respect of the property and Ms Phillips made up the balance.
  16. From early 2008 Mr Barnes paid not a penny towards the mortgage, a period of roughly six years to trial in February 2014, and over seven years to the hearing of his appeal.  In the meantime, Mr Barnes’s contributions for the maintenance of his daughters were sporadic, such contributions as were made being far below the rates that the CSA would and eventually did apply, such proving academic in any event because he then failed to meet the assessed CSA payments.   Ms Phillips was in the meantime plagued by a succession of bailiffs, enforcement officers, interim charging orders and the like, all seeking to enforce various liabilities of Mr Barnes at the property.

    The Judgment

  17. Matters came to a head and Ms Phillips instituted proceedings under s.14 of the Trusts of Land and Appointment of Trustees Act 1996 for a declaration of the parties’ beneficial interests.  Having found that they were joint tenants in equity as well as at law at the time of purchase, the judge went on to consider whether the parties had ever formed a specific intention that their shares should be varied.  He found that they had not:

    “...there is no evidence that, using a lay person’s language, the claimant and defendant later formed an actual common intention that their shares would change. There was no specific agreement as to variation of the shares on the split”. [¶37]
  18. He amplified this at [¶38]:

    “...so this is a case where it is not possible to ascertain by direct evidence or by inference what the parties’ actual intention was as to the shares they would own after the split...”
  19. HHJ Madge imputed an intention to the parties that from the date of the re-mortgage and separation the property was to be held 75/25% in Ms Phillips’ favour, taking account of the significant proportion of equity that Mr Barnes had had sole use of at that time. However, given their financial arrangements thereafter, including sporadic child maintenance and the cessation of mortgage contributions by Mr Barnes in 2008, the Judge held that a further adjustment was required.  The judge concluded that these matters warranted a further 10% adjustment in the beneficial shares of the parties, and consequently declared that it was fair to declare that Ms Phillips held 85% of the beneficial interest and Mr Barnes 15%. 

    The Appeal

  20. Mr Barnes appealed. His principal ground of appeal was that the judge had erred in law in that, having found that there was no agreement between the parties to alter their beneficial interests at any time following purchase of the property, it had not been open to him to impute a common intention that their shares were unequal and to determine what shares were fair. 

    Judgment of the Court of Appeal

  21. Having heard full argument, the Court of Appeal (Longmore and Lloyd Jones LJJ and Hayden J) dismissed the appeal.
  22. The judgment recited that the majority in Jones v Kernott held that imputation of intention is permissible only at the stage of ascertaining the precise quanta of the shares in a property registered in joint names, following proof of an actualcommon intention to vary the shares.  It can therefore only be deployed at the stage of considering question 2, as defined in paragraph 2 of this article.
  23. The Court noted that [¶37] of HHJ Madge’s judgment was very unclear.  In legal taxonomy ‘actual common intention’ is wide enough to include both an express agreement (made verbally or in writing) and inferences from conduct.  The trial judge had moved directly from concluding that there was no express agreement to vary the parties’ shares in the property that could be discerned, to considering what intention had to be imputed to them as to the size of their respective shares (in the absence of evidence of express agreement).
  24. It followed that an essential step in the process had been omitted from the judgment, i.e. whether an actual intention to vary the parties’ shares could be inferred from their conduct.
  25. The Court of Appeal was prepared to find that it was “strongly arguable” that the judge must have concluded that there was an actual inferred common intention to vary the shares, since he had clearly been well aware of the analytical structure set out at [¶51] of Jones v Kernott, having set it out in great detail in his judgment, albeit that he had not expressed that stage of the analysis in his judgment.
  26. Reflecting perhaps the approach taken by the Supreme Court in Jones at [¶48] (“...[the judge] did not go into detail, but the inferences are not difficult to draw...”), the Court of Appeal then considered that it was in any event open to it to consider whether a common intention to vary Ms Phillips’ and Mr Barnes’ shares in the property could be inferred.  It noted that the scope for inference in the context of cohabitation is very wide, a point made in the judgment in Jones.
  27. Accordingly, it was held that a common intention to vary the parties’ shares could properly be inferred in 2005, when roughly 25% of the equity in the property had been generated by the remortgage and received by Mr Barnes for his own use, and the relationship ended almost immediately afterwards.  The Court of Appeal essentially supplied the stage of reasoning that had been omitted by HHJ Madge in coming to this conclusion.
  28. The next question was whether the additional 10% adjustment applied by the trial judge could be sustained.  The Court of Appeal held that it could, finding that the trial judge had not erred in imputing an intention further to vary the parties’ beneficial interests to 85% and 15% in view of events after to 2005.  The further 10% adjustment in Ms Phillips’ favour was entirely justified in the evolving circumstances.
  29. A separate ground of appeal concerned the judge’s consideration of the payment of child maintenance, or its absence, in the exercise of imputing a common intention as to their shares to the parties.  Once an inference as to variation had been found in answer to question 1, it was held that it was open in principle for a court to take account of the maintenance of children (or lack thereof) as part of the financial history of the parties, save where to do so would result in double liability both in terms of the calculation of beneficial interest and in sums due to the Child Support Agency.
  30. This express position marks something of an evolution and clarification of the wide breadth of relevant circumstances alluded to Stack [¶69], Jones [¶51] and indeed in Fowler v Baron [2008] 2 FLR 831 at [¶32], and seems to be the first express finding that child maintenance can be taken into account in the consideration of beneficial shares.

    Comment

  31. As ever, the case is infinitely fact-sensitive.  The most essential principles to be distilled from it seem to be those I have endeavoured to summarise in paragraphs 3-5 above.
  32. In considering question 1, whether joint owners have formed an agreement to vary their beneficial interest in property, nothing less than actual intention will do.  However, actual intention in legal parlance can mean either an express intention formed by the parties (verbal, written, contained in e-mails and so on), or an intention to be inferred from conduct.  The Court cannot impute to the parties an intention that they never actually had in considering whether the presumption of joint beneficial ownership should be rebutted.
  33. If question 1 is answered in the affirmative, the Court can then move on in considering question 2 to imputing to the parties a common intention that they may well never have ‘actually’ had.  Where the Court is unable to ascertain by direct evidence or by inference what the parties' actual intention was as to the shares each would own, 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.
  34. All of this requires considerable mental gymnastics, where the kind of evidence deployed to justify a permissible inference to vary shares in answering question 1 looks remarkably like the evidence used to impute fair shares in answering question 2.  Nevertheless the intellectual difference between the permissible approaches at each stage has been expressly set out and practitioners will ignore it at their peril.
  35. Barnes v Phillips also serves to demonstrate that the dictum of Baroness Hale in Stack v Dowden that a common intention differing from the presumption that equitable interests will mirror the legal interests in property would only be found in a “very unusual case” seems to be more honoured in the breach than the observance.  It is difficult to discern anything particularly unusual about the circumstances of the couple in Stack, and with respect to the parties in Barnes there was nothing particularly peculiar there either.



Mark acted for the successful Respondent in Barnes v Phillips, both at first instance and in the Court of Appeal.

 

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