Constructive Trusts 2 Judith Puech Track/Slide 1 Constructive Trusts 2. Track/Slide 2 In the first lecture on constructive trusts, the discussion began with the case of Carl Zeiss Stiftung and the words of Lord Justice Edmund Davis that English law provides no clear and all-embracing definition of a constructive trust and whilst the unconscionable conduct of the owner appears to be the connecting factor in the circumstances where a constructive trust has been imposed, constructive trusts in fact arise over a wide variety of circumstances. An exhaustive categorisation is not possible and, as such, constructive trusts are best considered by looking at the most usual situations in which they have been found to exist. We went on to consider the first two situations and will deal with the remaining examples here, the main focus of which will be on constructive trusts of the family home. Track/Slide 3 Constructive trusts can arise from the creation of mutual wills. Mutual wills will arise where two or more people make wills in agreed terms and agree that neither will revoke without the consent of the other. If the first to die carries out his part of the agreement, equity will regard it as unconscionable for the survivor to deviate from the agreed terms. Therefore, equity will impose a trust on the survivors property. The survivor remains free to revoke his will but because of the existence of the trust, the new dispositions of the property will be ineffective. Track/Slide 4 In the case of re Dale the court held that it was not necessary for the testators to agree to leave property to each other. Equity will intervene to impose a trust on the property of the survivor where the agreement is that each testator shall leave property to a third party, for example, their children. In the case of Goodchild v Goodchild, the Court of Appeal confirmed that in order for wills to be mutual there must be clear evidence of mutual intention not to revoke unilaterally. Track/Slide 5 In the lecture on the creation of express trusts, it was seen that whilst no formalities are required for the creation of an inter vivos trust of personality, certain formalities must be met when creating an express trust of land, and all testamentary trusts must comply with the formality requirements of section 9 of the Wills Act 1837. This provides inter alia that for a will to be valid, it must be in writing, signed by the testator in the presence of two witnesses who each sign in the presence of the testator. If the provisions of section 9 are not met, the will and accordingly any trust it creates are void. Track/Slide 6 Secret trusts, however, are trusts which take effect on the testator’s death and which do not comply with the terms of the Wills Act. Generally, the testator will leave property by will to a person, someone trusted by the testator, a friend or the testator’s solicitor. And from the face of the will, it looks like an outright gift to that person. However, the understanding is that the donee will in fact take it upon certain trusts. This is called a fully secret trust. Track/Slide 7 Alternatively, the testator can leave property in his will to the person, declaring that it is to be held on trust but without specifying the terms of the trust. This is called a half-secret trust, as it is clear that the person is a trustee but the details of the trust are secret. Track/Slide 8 The usual reasons as to why a testator wishes to create a secret trust are to keep the identity of the beneficiary secret, for example, the beneficiary is his illegitimate child or mistress, or the testator may simply have not made up his mind about all the details of his dispositions. Subject to certain conditions, mainly the timing of the communication of the terms of the trust to the trustee, secret trusts are valid and enforceable by the courts. Accordingly, by the use of a secret trust, the testator can effect such dispositions and avoid the statutory formalities of the Wells Act. Track/Slide 9 The existence and enforcement by equity of such trusts, contrary to the provisions of the Wells Act, is justified historically on the basis of the doctrine of fraud. However, the modern view is that secret trusts are enforced because they are not created by the will but arise outside of and operate independently of the will. Closely connected with this is the question of whether secret trusts are considered as express or constructive trusts, a particularly important issue in the case of land, as the formality requirements of section 53 1b of the LPA 1925 apply to express trusts of land but not constructive trusts. The question remains unsettled. Track/Slide 10 As a rule of public policy, a person may not benefit from his crime. Thus, if one person kills another, he cannot take any benefit under the victim’s will or the intestacy rules if the victim dies intestate. If the killer acquires legal title to the victim’s property, he will hold it on constructive trust for the people next entitled to it under the victim’s will or his next of kin. The most famous example of this principle in operation is the case of re Crippen, where Dr. Crippen, having inherited his wife’s estate as a result of murdering her, was not beneficially entitled to. As the property had actually come to him, a constructive trust was imposed for the benefit of those next entitled. Track/Slide 11 Similarly, where a person obtains property by fraud, he will hold it as constructive trustee. This principle can be seen to be operating in cases such as Rochefoucauld v Boustead, Bannister v Bannister and Binnions v Evans. Track/Slide 12 Contracts for the sale of land are specifically enforceable and, as such, as soon as a vendor enters into a contract to sell land, he immediately holds it in constructive trust for the purchaser. The constructive trust arises as a result of the application of the equitable maxim that equity treats as done that which ought to be done. Generally, contracts for the sale of personal property are not specifically enforceable. In instances where specific performance is available, however, as for example in Oughtred v Inland Revenue Commission, which involved a contract for the sale of shares in a private company, a constructive trust will arise. Track/Slide 13 Constructive trusts can be imposed to complete imperfect gifts. The substantive law relating to this area has been dealt with elsewhere. It is of note to remember that in those limited circumstances where equity will treat a failed attempt at making a transfer to trustees or a failed attempt at an outright gift as a declaration of trust, there has in fact been no real declaration of trust. Consequently, if equity wishes to treat the intended settler as having declared himself as trustee for the intended beneficiary, it must impose its own trust. This can be seen in the cases of Re Rose, Mascall v Mascall and more recently and somewhat controversially in Pennington v Waine, which were considered in greater detail in the lectures on the creation of express trusts. Track/Slide 14 The remainder of this lecture will concentrate on constructive trusts of the family home. Track/Slide 15 Trusts often arise in the context of the family home and disputes over its ownership, typically where the property is owned by one of the parties to the relationship but the other claims an interest in the property by virtue of contributions to the purchase price or improvements to the property or the payment of domestic expenses. We saw in resulting trusts that when two people contribute towards the purchase of property, whoever is the legal owner of the property will hold it on resulting trust for both parties in proportion to their contributions. However, if one of the parties does not make any direct financial contribution to the purchase price, the question then arises as to whether the non-legal owner may claim a proprietary interest in the home under the doctrine of constructive trusts. Note that the doctrines of resulting and constructive trusts also apply where the property is in the joint names of the parties but the title documents do not deal with their respective beneficial interests. However, the typical situation and indeed the majority of the cases involve the legal title being in one name only, and the question then of how the claimant can obtain an equitable interest in the home under a resulting or constructive trust or a proprietary estoppel calim, which we shall consider towards the end of the lecture. Track/Slide 16 Consideration should be given to the social context in which constructive trusts have developed. Initially, in response to the situation of married women and the question on divorce of ownership of the matrimonial home typically purchased in the sole name of the husband. The wife may claim in an interest under a resulting trust if a direct contribution was made to the purchase price. However, in the majority of cases the house would be purchased by means of a mortgage repaid from the husband’s income. Such a trust would not recognise anything other than financial contributions and certainly would not reflect the value of other contributions made by the wife. Accordingly, the constructive trust was developed particularly so by the House of Lords in Pettit v Pettit and Gissing v Gissing to provide the non-owning spouse with a share in the matrimonial home. The advent of the Matrimonial Causes Act 1973 has lessened the significance of the role of the constructive trust and indeed the resulting trust as the Act gives the court jurisdiction over the distribution of the spouse’s property. Track/Slide 17 The Act however has no application to unmarried couples and in modern society cohabitation outside marriage is increasingly common. As such, the rights of the unmarried cohabitees in the property will fall to be determined on general law principles under the doctrines of resulting and constructive trusts, the question of ownership arising when the relationship breaks down. The issue of whether a resulting or constructive trust has arisen will also be of importance to married couples, one of whom is claiming an interest in priority to a third party, most commonly the mortgagee of the property. Track/Slide 18 The claiming of an interest under a resulting trust requires that at the outset the claimant has made a direct contribution to the purchase price. The claimant’s interest under such a trust will be in proportion to the contribution to the purchase price so provided. We saw in the lecture on resulting trusts that this contribution can be by of payment to the mortgage in instalments, provided that at the outset the claimant had undertaken to make such payments. Thus the claimant will be entitled to the share which he or she has paid for or has undertaken to pay for. Track/Slide 19 The limitations of the resulting trust can be clearly seen. It is particularly of no use to a claimant who has not provided for any part of the initial purchase price and indeed even if such a payment is established, the proportionate resulting trust analysis may not provide a just result. It may be preferable therefore for a claimant to establish an interest under a constructive trust. As we shall see, the claimant’s conduct is not limited to payments to the purchase price and the court has considerable leeway in determining the size of the share to which the claimant is entitled. Track/Slide 20 There are two matters which must be demonstrated in order to establish a constructive trust. The claimant must show that there was a common intention to share the beneficial interest in the property and that he or she has acted to his or her detriment on the basis of that common intention. Track/Slide 21 The most recent and authoritative statement of the law in this area was set out in the judgement of Lord Bridge in the House of Lords case of LLoyds Bank v Rosset in which his lordship drew a distinction between two very different situations. Those cases in which there has been some agreement, arrangement or understanding reached between the parties that each is to have a beneficial share in the property and those cases in which there has been no such agreement. In such a case the court has to rely on the conduct of the parties from which to infer a common intention to share the property. Track/Slide 22 The constructive trust gives effect to the common intention of the parties and accordingly is often referred to as a common intention constructive trust. Further, as can be seen from Lord Bridge’s speech, this common intention can arise as a result of the parties’ express agreement to share the beneficial interests in the property or such an intention can be inferred from their conduct. It is proposed to deal with each of the categories in turn. Track/Slide 23 An agreement to share the beneficial interest is required. In Rosset, Lord Bridge emphasised the distinction between shared use of assets and shared ownership. Track/Slide 24 The agreement to share must be based on evidence of express discussions, As observed in Springett v Defoe, trust law does not work on telepathy. Track/Slide 25 Lord Bridge considered the case of Eves v Eves and Grant v Edwards to be outstanding examples of cases within the first category. In both cases, the female partner had been clearly led by the male partner to believe that the property would belong to them jointly. In Eves v Eves, the male partner had told the female partner that the only reason why the property was to be acquired in his name alone was because she was under 21 and that, but for her age, he would have had the house put into their joint names. He admitted in evidence that this was simply an excuse. Track/Slide 26 Similarly, in Grant v Edwards, the female partner was told by the male partner that the only reason for not acquiring the property in joint names was because she was involved in divorce proceedings and that, if the property were acquired jointly, this might operate to her prejudice in those proceedings. Lord Justice Norse considered that the facts raised a clear inference that there was an understanding between the claimant and the defendant or a common intention that the claimant was to have some sort of proprietary interest in the house. Otherwise no excuse for not putting her name onto the title would have been needed. Track/Slide 27 The courts are thus able to infer from such statements a common intention to share the property in question. In Hammond v Mitchell, Hammond made the excuse that he would have to put the house in his name because he had tax problems due to the fact that his wife burnt all his accounts and his caravan was burnt down with all the records of his car sales in it. The taxman would be interested and if he could prove his money had gone back into a property, he would be safeguarded. More recently in Hyett v Stanley the deceased’s statement to the claimant that she did not need to have her name on the deeds of the property because, with her name on the mortgage she would have a right to the property, raised a clear inference that there was an understanding between the deceased and the claimant or a common intention that she was to have a beneficial interest. Track/Slide 28 Common intention alone will not give rise to a constructive trust. It in effect amounts to an express declaration of trust which would be ineffective unless the formality requirements of section 53 1b of the Law of Property Act 1925 have been complied with. These requirements do not apply to constructive trusts however by virtue of section 53 ss 2 of the Act. In order to establish a constructive trust and thereby avoid the formality rules, the claimant must have acted to his or her detriment or significantly altered his or her position in reliance on the common intention. The constructive trust arises as then it would be inequitable to allow the legal owner to deny the trust. Track/Slide 29 It is difficult to state with certainty what sort of conduct will suffice to establish detrimental reliance. The level of conduct required is clearly different from that which is required to establish the inference of a common intention. As will be seen, it would appear that nothing short of a direct contribution to the purchase price will give rise to such an inference. There is no such requirement where the constructive trust arises from the parties’ express agreement. As Lord Bridge states, it will only be necessary for the partner asserting a claim to a beneficial interest against the partner entitled to the legal estate to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement in order to give rise to a constructive trust. Track/Slide 30 Rosset does not provide an analysis of such conduct sufficient to give rise to a constructive trust. Reference must therefore be made to Grant v Edwards, which remains the leading authority. As outlined earlier, the Court of Appeal found a common intention to share the ownership of the house on the basis of the statement made by the defendant Edwards. Meanwhile, Grant had made substantial contributions to the general household expenses, which had enabled the defendant to make the mortgage payments. Accordingly, in making those indirect payments towards the purchase of the house, she had acted to her detriment. However, as to the precise type of conduct which amounts to an acting upon the common intention, the matter is one of uncertainty, judicial statements in Grant v Edwards being at variance with each other. Track/Slide 31 Lord Justice Norse requires conduct on which the claimant could not reasonably have been expected to embark unless she was to have an interest in the house. Track/Slide 32 Lord Justice Mustil looks at the conduct as one determining the quid pro quo. Whatever the court decided the quid pro quo to have been, it will suffice if the claimant provides it. Track/Slide 33 Vice Chancellor Brown Wilkinson takes a more liberal view still, propounding that any act done by the claimant to her detriment relating to the joint lies of the parties being sufficient detriment to qualify. Track/Slide 34 Looking at the authorities, conduct considered sufficient has included in the Case of Grant v Edwards already considered, the claimant making substantial indirect contributions to the mortgage, providing housekeeping and bringing up the children. In Eves v Eves, heavy labouring work, Hammond v Mitchell, the claimant acting as an unpaid business assistant as well as looking after the house and children. The payment of £12,000 to the man to pay his ex- wife’s mortgage in Stokes v Anderson and in Chan v Lun, the court found that the claimant in giving up a promising political career and progressing the defendant’s property development projects, had acted to her detriment. Track/Slide 35 Conversely, in Rosset, Mrs. Rosset’s activities of painting and decorating, supervising the builders who were carrying out renovation work on the property and ordering and delivering materials were considered by Lord Bridge as to have been so trifling as to be de minimis. Even if the intention to share the property had been established, he doubted whether Mrs. Rosset’s contribution to the work of renovation was sufficient to support a claim to a constructive trust. Track/Slide 36 In the second of Lord Bridge’s categories, his Lordship outlines the very different situation of where there is no evidence of an agreement to share and, as such, the court must rely on the conduct of the parties, both as the basis from which to infer a common intention to share the property beneficially and as the conduct relied on to give rise to a constructive trust. In this situation it is doubtful whether anything less than direct contributions to the purchase price will justify the inference. Track/Slide 37 Accordingly in Trowbridge v Trowbridge the court found that there were no discussions between the parties that Mr. Trowbridge should have an interest in the house he shared with his wife registered in her sole name. As there were no discussions that he should have an interest, a finding of a common intention would, as in most cases of shared property, be inferred from conduct. Payments towards the purchase price, whether directly or by way of mortgage instalments, would themselves readily justify that inference. Mr. Trowbridge’s joint liability for the mortgage was evidence from which a common intention was to be inferred. Track/Slide 38 This can be compared with the case of Buggs v Buggs, in which the claimant was contributing to a common pool of money and out of that pool the mortgage payments were made. The judge simply said “I do not see that this history gives rise to a trust in Mrs. Buggs’ favour, which requires the drawing of an inference that Mrs. Buggs was to have a beneficial interest in the property”, a somewhat perverse and justifiably criticised outcome. Track/Slide 39 Nor did Mrs. Rosset fair any better. Mr. and Mrs. Rosset purchased a semi- derelict farmhouse for £57,000 using money from Mr. Rosset’s family trust, the trustees of whom insisted that the property be bought in Mr. Rosset’s name alone. Renovation work began, Mrs. Rosset supervising the builders, going to builders’ merchants to obtain materials and undertaking skilful painting and decorating. Meantime her husband, without her knowledge, obtained a £15,000 loan from Lloyd’s Bank, which was secured on the house. Mr. and Mrs. Rosset move into the house then later separate following matrimonial difficulties. Mr. Rosset fails to make the loan payments and Lloyd’s Bank claimed possession of the house. Mrs. Rosset claimed that she had a beneficial interest under a constructive trust and hence an overriding interest under section 70 ss 1g of the Land Registration Act 1925 which prevailed against the bank’s legal charge. Track/Slide 40 At first instance the judge rejected Mrs. Rosset’s claim that it had been expressly agreed between her husband and herself that the property was to be jointly owned because of the stipulations of the trustee. He found however that there had been a common intention between the parties that Mrs. Rosset should have a beneficial interest in the property under a constructive trust, The House of Lords held that Mrs. Rosset’s activities in relation to the renovation of the property on which the judge had essentially based his inference of a common intention that she should have a beneficial interest in it had been insufficient to justify that inference. And accordingly the judge’s finding that Mr. Rosset held the property as constructive trustee for himself and his wife could not be supported. Track/Slide 41 Absence of express agreement need not be fatal to the claim, but only if the court can be persuaded to infer one. Lord Bridge indicated that this will only happen where the conduct leads the court to infer that an agreement must have underpinned what happened. By this is meant that the court cannot imply an agreement simply because one would have been reasonable had the parties thought about it. It is necessary to show that there is no real alternative explanation as to what happened other than the fact that there must have been agreement to take a share of the property. Track/Slide 42 Lord Bridge indicates that direct contributions to the purchase price or to the mortgage will readily lead the court to infer that an agreement was present. Presumably this is on the basis that no rational person would contribute to the purchase of property in the name of another without either showing a gift to that person, which is generally excluded by the facts, or intending to obtain a benefit for him or herself. This is consistent with Burns v Burns and Gissing v Gissing where the court was able to rationalise the decorating and gardening work done on the basis of an intention to make the house a nicer place to live in rather than necessarily representing an intention to obtain a share of the equity. Track/Slide 43 However, in his statement Lord Bridge appears to rule out indirect contributions such as those in Grant v Edwards involving payments to the household expenses which correspondingly enabled the mortgage to be paid. Such contributions specifically accepted in Burns v Burns as giving rise to a constructive trust. Track/Slide 44 It is clear from the judgement of Lord Justice Fox that in the absence of express agreement the necessary common intention is inferred from the conduct of the parties, in particular the expenditure incurred by them. The court looks for expenditure which is referrable to the acquisition of the house. Examples of such expenditure include the making of indirect contributions by the claimant. Track/Slide 45 Lord Justice Norse makes a similar statement in Grant v Edwards. Expenditure referable to the acquisition of the house is necessary, and if found, will have a dual effect of establishing the common intention and the necessary detrimental reliance. Track/Slide 46 It can be questioned whether Lord Bridge rules out such contributions, it being extremely doubtful whether anything less than direct contributions to the purchase price will justify the necessary inference. It can be argued that from this Lord Bridge does not in fact rule out these contributions. However, His Lordship analysed Grant v Edwards, which involved, it will be recalled, Linda Grant making substantial indirect contributions to the mortgage, and the case of Eves v Eves which entailed heavy labouring work by Janet Eves. His Lordship considered that the conduct of the female partner in each of these cases was sufficient to give rise to a constructive trust because the cases involved an express common intention. On its own however, the conduct fell far short of such conduct necessary to support a claim to a constructive trust. It would appear therefore that Rosset has worked an injustice in apparently ruling out these contributions. Track/Slide 47 Contrary to this conclusion however is the case of Le Foe v Le Foe where the High Court concluded that Lord Bridge did not mean to exclude the situation involving the wife’s indirect contribution to the mortgage. Referring to Gissing v Gissing and Burns v Burns, the court was entitled to infer that by virtue of Mrs. Le Foe’s indirect contributions to the mortgage, the parties commonly intended that she should have a beneficial interest in the former matrimonial home. Track/Slide 48 Likewise, another area of uncertainty is that of improvements to the property and whether a contribution in time and labour or money to the improvement of the property is capable of giving rise to the inference necessary to create a constructive trust. Clearly improvements to the house can amount to detrimental reliance, as in Eves v Eves. However, it is certainly far from clear whether such a contribution would fall within Lord Bridge’s second category. There are decisions prior to Rosset which have found an inference of a trust from improvements, such as Cooke v Head where an interest was acquired by Ms. Cooke’s physical labour to the property, and Hussey v Palmer where the claimant paid for an extension to the house, but it would appear that this type of contribution has now been ruled out by the dicta of Lord Bridge. Track/Slide 49 A further criticism of the case is the confusion of the second category with that of the doctrine of resulting trusts. A direct contribution to the purchase price traditionally gives rise to a presumed resulting trust in the payer’s favour. From the dicta of Lord Bridge, a direct contribution is now regarded as justifying the creation of a constructive trust. Track/Slide 50 This confusion is particularly manifested in the context of quantification of the beneficial interest, which can be seen from subsequent cases arguably mitigating the harshness of Rosset but nonetheless providing for more uncertainty in the law. In Midland Bank v Cooke the Court of Appeal held where a direct contribution is found, rather than the court finding a resulting trust in proportion to that contribution, the court would assess the proportions the parties were to be assumed to have intended for their beneficial ownership by undertaking a survey of the whole course of dealing between the parties relevant to their ownership and occupation of the property. Track/Slide 51 Similarly in Drake v Whipp, Drake made a direct contribution to the purchase price and claimed a 40% share in the property under a resulting trust. The Court of Appeal found that the case was one of constructive trust rather than resulting trust as there was evidence of an express common intention to share and in constructive trust cases the court can adopt a broad brush approach in determining the parties’ shares. Looking at the parties’ entire course of conduct together the claimant’s fair share would be a third. Track/Slide 52 In Le Foe v Le Foe, the parties had been married for 40 years. The house, worth £1,500,000, was in Mr. Le Foe’s sole name. Mrs. Le Foe made indirect contributions to the mortgage and in 1995 used her mother’s inheritance to make contributions of £100,000 to paying off a second mortgage and arrears on an earlier mortgage. At the time the property was worth £1,000,000. Counsel for Mr. Le Foe contended that the wife’s beneficial interest should be fixed at no more than 10%. However, the judge, in dealing with the issue of quantification, referred to Midland Bank v Cooke and the Court of Appeal’s choice in deciding between 2 different approaches, namely the straightjacket of the mathematical resulting trust approach and the more holistic approach of looking at the parties’ global dealings over the span of their ownership of the property, the Court of Appeal preferring the latter approach and in doing so deriving authority from Gissing v Gissing and Grant v Edwards. Accordingly, in surveying the whole course of dealings between Mr. and Mrs. Le Foe, their common intention was that she should have a 50% share in the property. Track/Slide 53 Thus a direct contribution can give rise to a resulting trust in the contributor’s favour and accordingly a corresponding proportionate share. Under Rosset however such a contribution can give rise to a constructive trust as where it amounts to detrimental reliance under the first of the situations outlined by Lord Bridge or it can be used to infer the necessary common intention. As such, the court is not bound to apply a resulting trust formula but can give a share which differs from the proportionate resulting trust and takes into account the whole range of the parties’ conduct. Track/Slide 54 Looking at the issue of quantification more closely, it is necessary to deal with each of Lord Bridge’s categories in turn. Where there is express common intention to share, then the claimant’s share will be whatever the parties have agreed that it would be. For example, in Hammond v Mitchell, Vicky Mitchell was awarded a half share because of Hammond’s declaration that the property would be half hers. Quantification is determined by the common intention and not the value of the contributions. Track/Slide 55 Where there is no express agreement as to how the share is to be quantified, then the basic principles stem from Lord Diplock’s speech in Gissing v Gissing. The court will try and determine whether any inference can reasonably be drawn as to the amount of share intended by looking at the conduct of the parties. Track/Slide 56 So for example in Grant v Edwards, in looking at the parties’ conduct the court found that the claimant was entitled to a half-interest in the property. Similarly in Hyett v Stanley where the claimant with the deceased had rendered herself jointly and severally liable to Barclay’s Bank by entering into the legal charge, the judge concluded that the parties could only reasonably have intended that they should each take a half share. Track/Slide 57 It might be inferred that the share is to be quantified later on the basis of what would be fair, having regard to the total contributions, direct or indirect, which each party had made, and as such the court will give effect to that common intention by determining what in all the circumstances is a fair share. Such an outcome was reached by Lord Justice Norse in Stokes v Anderson and more recently by the Court of Appeal in Oxley v Hiscock. Track/Slide 58 In Oxley v Hiscock the claimant and defendant who were unmarried purchased a house in the sole name of the defendant at a price of £120,000. The claimant’s direct contribution to the purchase price was £36,300 and the defendant’s were £60,700. The parties were taken to have jointly contributed to the balance by way of mortgage of £30,000. On the sale of the house 10 years later the proceeds of sale were divided between the claimant and the defendant with the claimant receiving less than 20%. The claimant brought proceedings for a declaration that the sales proceeds were held by the defendant on trust for himself and the claimant in equal shares or in such shares as the court should determine. The judge found that both had intended and had expressed the intention to each other that each should have a beneficial share in the property and that, at the time the property had been purchased, each had believed it was their joint home and that, in keeping with that belief, each had contributed towards the total outgoings with a classic pooling of resources. The judge concluded that their intention had been to share the property jointly and equally and made a declaration that the claimant was entitled to a half- share of the proceeds of sale. The defendant appealed, contending that the property had been held in beneficial shares proportionate to the contribution of each party to the acquisition cost, being approximately 22% for the claimant and 78% for the defendant. The Court of Appeal considered the question of how the proceeds of property in which an unmarried couple had been living as man and wife should be shared between them when the relationship came to an end. Track/Slide 59 The Court of Appeal held that each was entitled to that share which the court considered fair, having regard to the whole course of dealing between them in relation to that property. That included the arrangements which they made from time to time in order to meet the outgoings. For example, mortgage contributions, council tax and utilities, repairs, insurance and housekeeping, which had to be met if they were to live in the property as their home. In the instant case, on the basis of the judge’s findings that there had been a pooling of resources, it was fair to treat them as having made approximately equal contributions to the balance of the purchase price. Taking that into account with their direct contributions to the purchase price, where the defendant’s contribution had been substantially greater than the claimant’s, a fair division of the proceeds of sale was 60% to the defendant and 40% to the claimant. Track/Slide 60 According to Oxley v Hiscock therefore, where there is no evidence of any discussion between the parties as to the amount of the share which each was to have, then 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. The leading judgement is that of Lord Justice Chadwick, with whom their Lordships agreed, and who based his reasoning on that of Lord Diplock in Gissing v Gissing and, as outlined earlier, subsequently adopted by Lord Justice Norse in Stokes v Anderson. The parties are taken to have agreed at the time of the acquisition of the property that their respective shares are not to be quantified then but are left to be determined when their relationship comes to an end or the property is sold on the basis of what is then fair, having regard to the whole course of dealing between them. The court steps in to determine what is fair because when the time came for that determination, the parties were unable to agree. Accordingly, in the absence of evidence that the parties gave any thought to the amount of their respective shares, the necessary inference is that they must have intended that question would be answered later on the basis of what was then seen to be fair. Track/Slide 61 Where the constructive trust has arisen in the second of the two ways identified by Lord Bridge as a result of a direct contribution to the purchase price, then the starting point in quantifying the shares is that of the resulting trust analysis of proportionate entitlement. So for example in Springette v Defoe a council house discount under the right to buy scheme was considered a direct contribution to the purchase price and a resulting trust in proportion was ordered. Similarly in Ashe v Mumford the court said that a council house discount could be treated as a contribution towards the purchase of the discounted property but was not an invariable presumption of direct contribution. In Huntingford v Hobbs the man did not contribute directly to the purchase price but the arrangement as between the parties was that he should make all the payments due under the mortgage. It was held that the woman should be treated as having contributed her cash contribution and that the man should be treated as having contributed the whole of the sum borrowed on the mortgage and that the property should be owned by them in shares proportionate to such contributions. Track/Slide 62 However, where there is a direct contribution, the courts are not bound to deal with the issue of quantification on the basis of the proportionate resulting trust analysis. In Midland Bank v Cooke, the wife was considered to have made a direct contribution of £550, being half of a wedding gift of £1,100 from the husband’s parents. The house was purchased for £8,500. At first instance, the court held that the wife was entitled to a beneficial interest of 6.74% in the property, being the proportion represented by her half-share of the wedding gift from the husband’s parents to the total purchase price of the property. The wife appealed, contending that the judge had adopted the wrong approach to the quantification of her beneficial interest. Track/Slide 63 The Court of Appeal held that it was not bound to deal with the matter on the strict basis of the trust resulting from the cash contribution to the purchase price and was free to attribute to the parties an intention to share the beneficial interest in some different proportions. The court would assess the proportions the parties were to be assumed to have intended for their beneficial ownership by undertaking a survey of the whole course of dealing between the parties relevant to their ownership and occupation of the property and their sharing of its burdens and advantages and would take into consideration all conduct which threw light on the question what shares were intended. Track/Slide 64 A similar decision had been made in the earlier case of McHardy v Warren, and as we have already considered, the judge in Le Foe followed the approach of the Court of Appeal in Midland Band v Cooke and, surveying the whole of the couple’s dealings, found a common intention that the wife should have a 50% share in the property rather than the 10% share which would have been awarded by reference to the mathematical resulting trust approach. Track/Slide 65 The Court of Appeal in Oxley v Hiscock however has criticised the approach suggested by Lord Justice Waite in Midland Bank v Cooke that the court undertakes a survey of the whole course of dealing between the parties in order to determine what proportions the parties must be assumed to have intended for their beneficial ownership. On that basis the court treats what has taken place while the parties have been living together in the property as evidence of what they intended at the time of the acquisition. It seems to Lord Justice Chadwick artificial and an unnecessary fiction to attribute to the parties a common intention that the extent of their respective beneficial interests in the property should be fixed as from the time of the acquisition in circumstances in which all the evidence points to the conclusion that at the time of the acquisition they had given no thought to the matter. Track/Slide 66 In Lloyd’s Bank v Rosset, Lord Bridge appears to have provided a rather clear statement of the law. Difficulties have however been identified with each of the categories and can particularly be seen in the uncertainty surrounding quantification of the beneficial interests, especially where a claimant establishes an interest by way of a direct contribution.
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