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Equity & Trusts Law Directions

Equity & Trusts Law Directions (7th edn)

Gary Watt
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date: 20 May 2022

p. 39417. Informal trusts of landfree

p. 39417. Informal trusts of landfree

  • Gary Watt

Abstract

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. The trust law that applies to family land might not be applicable to other types of land. Resulting trusts present a particular challenge in this regard. Although the doctrines of resulting trust have long been settled in the law of trusts, they have recently been questioned in the context of the family home. This chapter focuses on informal trusts of land and the social reasons why they are recognised, first looking at the problem of informality before turning to the different kinds of informal trusts of land. It also examines whether facts give rise to a resulting trust or a constructive trust, the practical significance of the distinction between constructive and resulting trusts of land, the relationship between proprietary estoppel and constructive trust, express agreement plus detrimental reliance, and the decision of the House of Lords in Stack v Dowden. The chapter concludes by considering some of the problems addressed by, and caused by, the operation of informal trusts in the context of cohabitation.

Learning objectives

By the end of this chapter you should be able to:

understand the social reasons why informal trusts of land are recognised;

distinguish the varieties of informal trusts of land;

advise as to whether facts give rise to a resulting trust or a constructive trust;

explain the practical significance of the distinction between constructive and resulting trusts of land;

appreciate the relationship between proprietary estoppel and constructive trust;

set out some of the problems addressed by, and caused by, the operation of informal trusts in the context of cohabitation.

p. 395Introduction

This chapter should be of universal interest, and not just to students of equity and trusts. One day it is likely that many of us will share the ownership of land with another person. Even if we do not, it is likely that many of us have parents who share ownership of land. Some statistics suggest that more and more of us are living alone, but against this there is a trend of people home-sharing because it is the only way to afford to purchase a house at today’s prices. Even if we live alone for normal residential purposes, it is possible that we own land in a business partnership. Sharing land is what we do, especially on this small island, and in the part that is England and Wales co-ownership of land always exists under a trust in which legal title is held by the trustees as beneficial joint tenants.

beneficial joint tenants

Where legal title to land is in the joint names of two or more persons who are also joint owners in equity, the co-owners are said to be beneficial joint tenants. Husband and wife will often be beneficial joint tenants.

Suppose you live alone and one day meet your dream lover. You were solely entitled to your land, but you now have the option of transferring the land into joint names and declaring a trust to make you joint owners. Even if you don’t do this, you might find that the court can ‘construct’ a trust from your informal behaviour together—although the court will never presume shared ownership just because people share a home.

The trusts issues raised by the preceding scenario lie at the intersection of the law of real property and the law governing the family, so it may be that you are familiar with some of the material from studying land law or family law earlier in your course. That can help you, so long as you keep in mind that we are studying informal trusts of land in the wider context of trusts law. You should especially bear in mind that the trust law which applies to family land might not apply to other types of land. Resulting trusts are a particular cause for concern. The doctrines of resulting trust have long been settled in the law of trusts, but this chapter will reveal that they have lately been seriously unsettled in the context of the family home.

17.1 The problem of informality

A declaration of an express trust of land, or of any interest therein, must be formally ‘manifested and proved by some writing signed by some person who is able to declare such trust or by his will’ (Law of Property Act 1925, s 53(1)(b)). This is the usual formality rule, but it does not apply to ‘the creation or operation of resulting, implied or constructive trusts’ (s 53(2)). It is these ‘informal trusts’ that we will focus on in this chapter.

Cross reference

For more detail on statutory formalities governing trusts, see Chapter 3.

The exemption from the formality rule which applies to ‘resulting, implied or constructive trusts’ has proved especially useful in the context of home-sharing or ‘cohabitation’. This is because p. 396cohabitation, if it is not within the bounds of a marriage or a civil partnership, is always essentially informal in the eyes of the law. Cohabitation is not a category defined in law; it is a spectrum of ways in which a home may be shared in fact. If property law had no means to recognise informal trusts within this range, all cohabitation outside of a marriage or a civil partnership would be left to survive without the law of property.

civil partnership

A registered relationship between two people ‘of the same sex’ (Civil Partnership Act 2004).

17.1.1 Preventing problems—the use of an express trust

The more informal the cohabitation, the harder it is for the law to determine the proper allocation of property between the parties if and when the relationship breaks down, but potential disputes as to proprietary entitlement could be avoided by the simple expedient of placing title to the shared home into the cohabitants’ joint names subject to a formal express declaration of trust. The trust would specify that they hold the land as joint tenants in equity, or that they hold certain shares as equitable tenants in common. Since 1 April 1998, the standard Land Registry Form for the transfer of land (form TR1) asks joint transferees to express whether the beneficial (equitable) interest in the land will be held by them jointly under a beneficial joint tenancy or in shares under a tenancy in common. If the latter, the form asks them to express the shares in the equitable interest to be held. If the form is completed and signed it will constitute an express trust. Unfortunately it isn’t compulsory to complete the form in most cases, and even when it is completed, evidence suggests that cohabitants frequently fail to appreciate its significance and effect.

17.1.2 Curing problems—why informal cohabitants have it especially tough

Unfortunately, not every cohabiting couple takes the simple precautionary step of drawing up an express trust, and if cohabitees do not take that simple step to prevent property disputes, they will find to their cost that the law does not provide a simple cure. Where a property dispute arises between married parties in the context of proceedings for divorce or judicial separation, the court has wide powers to apportion proprietary entitlement according to what is fair in all the circumstances (see the Matrimonial Causes Act 1973, s 24), and similar assistance is extended to registered civil partners, but other shades of cohabitee have no such help.

In Hammond v Mitchell [1991] 1 WLR 1127 at 1129 Waite J summarised the particular property law difficulties facing informal cohabitees when their relationship breaks down. Commenting on the couple in that case (‘a married man of 40 separated from his wife’ and ‘a Bunny Girl employed at a high salary by the Playboy Club in Mayfair’) his Lordship observed:

Had they been married, the issue of ownership would scarcely have been relevant, because the law these days when dealing with the financial consequences of divorce adopts a forward-looking perspective in which questions of ownership yield to the higher demands of … the needs of each, the first consideration given to the welfare of children. Since the couple did not marry, none of that flexibility is available to them, except a limited power to direct capital provision for their children. In general, their financial rights have to be worked out according to their strict entitlements in equity, a process which is anything but forward-looking and involves, on the contrary, a painfully detailed retrospect.

His Lordship paints a bleak scene, and after his promotion to the Court of Appeal, he added one or two more clouds to the picture when he noted that ‘the rights of married occupiers can be equally problematic … when the claims of third parties such as creditors or mortgagees become involved’ (Midland Bank plc v Cooke [1995] 4 All ER 562).p. 397

Case close-up

Midland Bank plc v Cooke [1995] 4 All ER 562, Court of Appeal

Waite LJ: ‘equity has traditionally been a system which matches established principle to the demands of social change. The mass diffusion of home ownership has been one of the most striking social changes of our own time. The present case is typical of hundreds, perhaps even thousands, of others. When people, especially young people, agree to share their lives in joint homes they do so on a basis of mutual trust and in the expectation that their relationship will endure. Despite the efforts that have been made by many responsible bodies to counsel prospective cohabitants as to the risks of taking shared interests in property without legal advice, it is unrealistic to expect that advice to be followed on a universal scale. For a couple embarking on a serious relationship, discussion of the terms to apply at parting is almost a contradiction of the shared hopes that have brought them together. There will inevitably be numerous couples, married or unmarried, who have no discussion about ownership and who, perhaps advisedly, make no agreement about it. It would be anomalous, against that background, to create a range of home-buyers who were beyond the pale of equity’s assistance in formulating a fair presumed basis for the sharing of beneficial title, simply because they had been honest enough to admit that they never gave ownership a thought or reached any agreement about it.’

17.2 Varieties of informal trust

The Law of Property Act 1925, s 53(2) exempts ‘resulting, implied or constructive trusts’ from the usual formality associated with the creation of an enforceable express trust of land, but the courts have very rarely talked of ‘implied’ trusts, and they have sometimes treated resulting and constructive trusts as if they were the same thing. We have noted the observation made by Waite LJ that the financial rights of cohabitants have to be worked out ‘according to their strict entitlements in equity’ (Midland Bank v Cooke), but that is true only to the extent that equity is ‘strict’. In fact, equity’s treatment of non-married cohabitation has tended to waiver historically between times where doctrine has been quite strictly adhered to and times when the strictures of doctrine have been almost utterly thrown off (see Lord Denning at 17.4.4). Judges have sometimes been especially ill-disciplined in keeping resulting trusts distinct from constructive trusts and constructive trusts distinct from proprietary estoppel. In Drake v Whipp [1996] 1 FLR 826 Peter Gibson LJ called for clearer use of terminology in cases where one cohabitee asserts a beneficial ownership claim against property vested in the name of another cohabitee. He pointed out that resulting trusts operate according to the presumed intention of the contributing party, in the absence of rebutting evidence of actual intention, whereas constructive trusts operate to give effect to the actual or inferred common intention of both parties. In the following section we will see that his Lordship’s call for a clear distinction between resulting trusts and constructive trusts in cohabitation contexts has been resoundingly answered by the House of Lords.

17.2.1 The decision of the House of Lords in Stack v Dowden

Now we must turn to the highly significant decision of the House of Lords in Stack v Dowden [2007] UKHL 17, [2007] 2 AC 432. Mr Stack and Ms Dowden began cohabiting in the early 1980s in a house which was in Ms Dowden’s sole name. Mr Stack may have contributed to the deposit on that house, but the deposit was paid out of Ms Dowden’s account and she provided p. 398the balance by means of a mortgage loan which she repaid. They had four children and in 1993 moved into a new home. Title to that house was registered in their joint names. There was a new mortgage on that house under which both Stack and Dowden were liable and under which they both made repayments. Ms Dowden paid all the domestic bills. They separated in 2002 and Mr Stack brought proceedings to establish a beneficial share in the house. He was awarded a half-share at first instance, but the Court of Appeal reduced that to a third (35 per cent in fact) and that was upheld by the House of Lords. It is interesting to observe that in the end the value of the family home was divided between them in almost exactly the same proportions in which, at the end of their relationship, Mr Stack and Ms Dowden had been bringing income into the ‘family finances’ (Ms Dowden, ‘the most highly qualified woman electrical engineer in the London area’, earned a £42,000 salary representing 63 per cent of the whole of their income; Mr Stack earned £24,000, representing 37 per cent). Baroness Hale of Richmond (who is, of course, the most highly qualified woman judge in the London area) delivered the leading speech for the majority, with the concurrence of Lords Hoffmann, Walker and Hope. Lord Neuberger agreed on the result, but on a more traditional resulting trust basis.

The case presented the House of Lords with its first opportunity to consider a property dispute arising from the breakdown of the relationship between a non-married couple. It also provided the first opportunity for the House of Lords to scrutinise a purchase in the joint names of cohabiting parties where they had failed to declare the size of their respective beneficial interests. It is important to note that their Lordships did not consider the situation, still very common in practice, where legal title is in the sole name of one of the cohabitants. It follows that nothing said in Stack v Dowden is binding in that situation. The Supreme Court has confirmed ‘that the starting point for analysis is different’ in sole-owner and in joint-owner situations (Jones v Kernott [2011] UKSC 53; [2011] 3 WLR 1121 at para. [16]), although elements of their Lordships’ reasoning in Stack will inevitably be highly persuasive even in the context of sole ownership. Where property is purchased or held in the name of a sole legal owner that person will prima facie be the sole beneficial owner as well. In Stack v Dowden their Lordships held that there is a similar strong presumption where a shared home is purchased or held in joint names that the parties will be joint owners in equity. ‘The presumption will be that equity follows the law’ (per Lord Walker at para. [33]). Furthermore, ‘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’ (per Baroness Hale at para. [69]). (The strong presumption in favour of joint beneficial ownership, where land is held in joint names, was applied in Fowler v Barron [2008] EWCA Civ 377; [2008] 2 FLR 831.)

Despite this, their Lordships held on the facts of Stack v Dowden that the strong presumption in favour of equality had been rebutted, with the result that a larger share went to the party who had made the biggest financial contribution. But apart from the different monetary contributions, it is hard to identify any factor which would justify the discrepancy in the shares awarded to the parties—and can different financial contributions really make a case ‘very unusual’?

Leaving those concerns aside, the case confirms that the best way to establish a trust of any land is to use an express trust setting out all the rights and entitlements of the parties having an interest in the land. As Baroness Hale said, ‘[n]o-one now doubts that such an express declaration of trust is conclusive unless varied by subsequent agreement or affected by proprietary estoppel’ (at para. [49], approving Goodman v Gallant [1986] Fam 106). Ideally, an express trust will deal with such matters as whether the equitable interest in the land is owned jointly or in shares (remember that the legal title to co-owned land is always, as with all forms of property held on trust, held by the trustees jointly). If the express trust declares that the co-owners own p. 399distinct equitable shares in the land, the trust should also express the size of the parties’ distinct shares. The problem is that not everyone takes the sensible precaution of drawing up an express trust. In this respect, the parties in Stack v Dowden are typical. All they did was to sign a conveyance which provided that the survivor could ‘give a valid receipt for capital money arising on a disposition of the land’. It was held that this mere form of words did not constitute an express declaration of trust.

Before Stack v Dowden a party claiming an interest under an informal trust of the family home was allowed two bites at the cherry. She could argue that she had an interest under a resulting trust, or, in the alternative, an interest under a constructive trust. Following the decision of the House of Lords in Stack v Dowden it would appear that the resulting trust alternative is now no longer available to the claimant where the land is in joint names. That alternative died when the House of Lords held that where land is in joint names it is presumed that beneficial ownership is also joint and that the presumption of joint ownership is not rebutted by the mere fact of unequal contributions to the purchase price. (Before Stack v Dowden, unequal contributions to the purchase gave rise, as we have seen, to the presumption of a resulting trust in proportion to contributions, even where land was transferred into joint names.)

To reduce the influence of resulting trusts in land acquisition is at first sight a welcome innovation, as there never was a case of disputed ownership of the family home disposed of on the basis of resulting trust which could not have been as fairly disposed of by constructive trust. The decision is also consistent with a general trend, traceable back to the Law of Property Act 1925, s 60(3), to reduce the presumption of resulting trusts in land law contexts. (Section 60(3) provides that the presumption of a resulting trust should no longer apply on a voluntary conveyance of land: see later.)

However, even if a constructive trust can do the job of a resulting trust, it can’t do it anywhere nearly as efficiently. The presumption of a resulting trust is based on the single factor of financial contributions to the initial purchase price, whereas Stack v Dowden (as we will shortly see) requires the court to consider a wide range of factors. Another criticism of the decision in Stack v Dowden is that it proceeds on the assumption that there is a fundamental and clear distinction between the family home and other sorts of property, including other sorts of land. In an age when the family home is often used as a place of work and frequently serves as mortgage security for business loans, it is not clear that the assumed distinctiveness of the family home is altogether an appropriate one. When a family home is re-mortgaged it may be done to raise cash for purposes wholly unrelated to enhancing the house as a shared home, in which event the home is being used as a commercial resource. Yet according to Stack v Dowden, and despite concerns raised by Lord Neuberger, the presumption of joint tenancy will apply just as much to re-mortgage situations as to home acquisition. This is despite the fact that a transfer into joint names on re-mortgage is in no way intended to express the parties’ understanding as to their relative entitlement, but is an artificial step inserted merely to placate the lender.

A more general difficulty with the decision in Stack v Dowden is that in one fell swoop it has made the application of the settled property doctrine of resulting trust turn upon such relatively ill-defined concepts as ‘family’ and ‘shared home’. And yet, after the majority of their Lordships pushed resulting trust doctrine to one side, their Lordships decided that on the particular facts of Stack v Dowden the strong presumption in favour of equality had been overcome and that the parties should have interests in the property proportionate to their financial contributions to acquisition—precisely the same outcome that would have been reached on a resulting trust approach!

For a summary of the general position after Stack v Dowden, see Figure 17.1.

Figure 17.1 Trusts of the shared home after Stack v Dowden

17.3p. 400 Resulting trusts

Under a resulting trust, a contribution towards the acquisition of land gives the contributor a beneficial share in the land proportionate to their contribution; hence it is sometimes referred to as a ‘purchase money resulting trust’ (see, for example, Curley v Parkes [2004] EWCA Civ 1515 (CA)). You should recall that ‘re-sult’ is Latin for ‘jump back’.

Cross reference

To remind yourself of the basics of resulting trusts, see Chapter 16, Introduction.

Since Stack v Dowden, the presumption of resulting trust no longer applies to land acquired by ‘romantic’ cohabitants in their joint names, but the resulting trust will still be of relevance to other land, including shared homes having a sole legal owner. In Laskar v Laskar [2008] EWCA Civ 347; [2008] 1 WLR 2695, Stack was distinguished on the basis that the normal presumption of resulting trust applies where land is acquired for a commercial venture, even as between family members. In Prest v Petrodel [2013] UKSC 34, Lord Sumption advised (at para. [52]) that where cohabitees reside in a home held in the name of a company controlled by one of them, judges should suspect that the cohabitee who controls the company intends to retain beneficial ownership of the land. There is, however, Privy Council authority for the view that investment property acquired in the joint names of a couple in a romantic relationship might be subject to the Stack v Dowden presumption of joint equitable ownership as opposed to the resulting trust solution of equitable ownership proportionate to contributions (Marr v Collie [2017] UKPC 17; [2018] AC 631). The Privy Council did not state that their decision should be taken to represent the law of England and Wales (which their Lordships might have done in accordance with Willers v Joyce [2016] UKSC 44; [2018] AC 851) and so Laskar v Laskar should still be followed for the time being.

p. 401In Stack v Dowden Lord Neuberger of Abbotsbury, dissenting from the majority analysis, preferred the orthodoxy under which unequal contributions to purchase in joint names were presumed to give the owners beneficial shares under a resulting trust in direct proportion to their contributions. This orthodox approach was confirmed in the House of Lords as recently as 1996 (see the italicised portion of the following quote, which was cited with approval by Lord Neuberger of Abbotsbury in Stack v Dowden) and after Stack it remains the orthodox position unless the purchased land happens to be purchased for cohabitation by a couple who are neither married nor in a civil partnership.

Case close-up

Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 WLR 802, House of Lords

Lord Browne-Wilkinson: ‘where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions.

17.4 Constructive trusts

The facts of the leading House of Lords case Lloyds Bank plc v Rosset [1991] 1 AC 107 are fairly typical. Mr Rosset had received a loan to buy a derelict house on the understanding that the house should be in his name alone. Mrs Rosset did a limited amount of work towards the renovation of the house; in particular, she helped with the interior decorations. However, the vast bulk of the work was carried out by contractors employed and paid for by the husband. Following matrimonial problems, the husband left home, leaving his wife and children in the premises. The loan which the husband had taken out was not, in the event, repaid. Consequently, the bank brought proceedings for possession. The husband raised no defence to that action, but the wife did resist. She claimed to have a beneficial interest in the house under a trust. The House of Lords held that, to succeed, Mrs Rosset would have to show that there had been some ‘agreement’ (evidenced by express discussions between herself and her husband) that they were to share the property beneficially in equity. In the absence of evidence of such an agreement, a trust would not arise in her favour unless she had made direct contributions to the purchase price or mortgage repayments.

Note that direct contributions to the purchase price are preferable to contributions by way of mortgage instalments, because the payment of mortgage instalments can be ambiguous in the absence of an agreement expressly relating to that type of payment. Payment of mortgage instalments could, for instance, be construed to be merely a payment made instead of rent: see Barrett v Barrett [2008] EWHC 1061 (Ch) and Carlton v Goodman [2002] EWCA Civ 545; 2 FLR 259. The court is more likely to infer a common intention to share the beneficial interest in the land if the legal owner would have had difficulty meeting the mortgage payments without the claimant’s contribution (Le Foe v Le Foe [2001] 2 FLR 970 per Nicholas Mostyn QC at 982 at para. [50]); as confirmed in the Privy Council in Abbott v Abbott [2007] UKPC 53 and obiter in Stack v Dowden.

The key part of Lord Bridge’s speech in Rosset is the distinction he draws between two very different bases on which A might successfully claim a beneficial interest against the legal owner, B. Lord Bridge had very little to say about purchase money resulting trusts (i.e. those within Lord p. 402Browne-Wilkinson’s category (A)). Instead, Lord Bridge seemed content to use constructive trusts (and maybe proprietary estoppel) to satisfy the beneficial ownership claims of non-owning cohabitees.

Case close-up

Lloyds Bank plc v Rosset [1991] 1 AC 107, House of Lords

Lord Bridge of Harwich: ‘the first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. Once a finding to this effect is made 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 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 or a proprietary estoppel.

In sharp contrast with this situation is the very different one where there is no evidence to support a finding of an agreement or arrangement to share, however reasonable it might have been for the parties to reach such an arrangement if they had applied their minds to the question, and where the court must rely entirely 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 direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do.

The leading cases in your Lordships’ House are Pettitt v Pettitt [1970] AC 777 and Gissing v Gissing [1971] AC 866. Both demonstrate situations in the second category to which I have referred and their Lordships discuss at great length the difficulties to which these situations give rise.’

In Stack v Dowden [2007] 2 AC 432 Lord Neuberger cautioned against inferring a constructive trust of the shared home based only on the way the cohabitants manage their finances and share their other property ([113] and [132]). A majority of their Lordships in Stack v Dowden agreed upon the following list of factors which will be amongst those a court might consider when seeking to determine the parties’ intentions regarding ownership of the shared home (taken mostly from the speech of Baroness Hale of Richmond at paras [69]–[70]):

the parties’ financial contributions to the acquisition of the property. (In Burton v Liden [2016] EWCA Civ 275; [2017] 1 FLR 310) a cohabitee who made monthly payments ‘towards the house’ successfully established an equitable interest because these were understood to be payments ‘towards ownership of the house’.);

any advice or discussions at the time of the transfer which cast light upon their intentions then;

the reasons why the home was acquired in their joint names;

p. 403 the reasons why (if it be the case) the survivor was authorised to give a receipt for the capital monies;

the purpose for which the home was acquired;

the nature of the parties’ relationship;

whether they had children for whom they both had responsibility to provide a home;

how the purchase was financed, both initially and subsequently;

how the parties arranged their finances, whether separately or together or a bit of both;

how they discharged the outgoings on the property and their other household expenses;

the parties’ individual characters and personalities;

the fact that 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 initially [note: this factor is of course very significant given that few people can now afford to move to bigger houses, and therefore prefer to extend their existing house];

any other factors which indicate that the parties’ intentions have changed over time.

Baroness Hale emphasised that this list is not exhaustive, and she made the general observation that ‘[i]n the cohabitation context, mercenary considerations may be more to the fore than they would be in marriage, but it should not be assumed that they always take pride of place over natural love and affection’. Her Ladyship also confirmed that the court must not seek ‘the result which the court itself considers fair’, but rather, the result which the parties ‘must, in the light of their conduct, be taken to have intended’.

The cohabitants in Jones v Kernott [2011] UKSC 53 expressly agreed, when their relationship broke down and Mr Kernott left the family home in 1993, that they were at that time beneficial joint owners in equity. Thereafter Ms Jones remained in occupation and met all future expenses and outgoings of maintaining the premises and paying off the mortgage. Some years later, Mr Kernott purported to sever and recover his half-share of the land, but the County Court judge awarded Ms Jones 90 per cent of the value of the land on the basis that this was ‘fair and just’. That decision was upheld in the High Court. The Court of Appeal allowed Mr Kernott’s appeal by a majority of two to one ([2010] EWCA Civ 578; [2010] 3 All ER 423). Their Lordships emphasised that (following Stack v Dowden) the judges in the lower courts ought to have respected the parties’ agreement to share equally in the event of sale and, in the absence of compelling evidence that the parties’ intentions had changed, that initial agreement should stand. However, when the matter came before the UK Supreme Court in 2011, their Lordships held that the parties’ intentions had changed during the period of Mr Kernott’s absence from the shared home and, allowing the appeal, upheld the decision of the County Court judge. Their Lordships favoured fair maintenance of the current occupants (the woman and the children of her cohabitation with Kernott) over a strict allocation on the basis of initial financial contribution to purchase, or to put it in the legal terms they adopted, their Lordships held that purchase money resulting trusts do not determine the outcome of cohabitation cases and that the court should look instead to fulfil the parties’ actual intentions by means of a constructive trust. In other words, they confirmed what had been said by the House of Lords in Stack v Dowden. This approach might work justice in some cases, but it is equally liable to work injustice, for the parties’ ‘intentions’ can only ever be that which the court finds them to be ‘on the balance of probabilities’. The outcome of any given ‘cohabitation case’ is as unpredictable as ever as a result of Jones v Kernott, and it is fair to say that judicial discretion in this area is now so wide that courts are not far off the broad approach to allocation that is required by statute when married cohabitants divorce, but which Parliament has so far not seen fit to grant to unmarried cohabitants.p. 404

Case close-up

Jones v Kernott [2011] UKSC 53, UK Supreme Court

Lord Walker and Lady Hale (at para. [51]):

‘In summary, therefore, the following are the principles applicable in a case such as this, 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.

(1)

The starting point is that equity follows the law and they are joint tenants both in law and in equity [note: despite making the maxim ‘equity follows the law’ the first point in their conclusion, in para. [19] of their judgment their Lordships call it a ‘mantra’ and, rather unconvincingly, attempt to downplay its importance].

(2)

That presumption can be displaced by showing (a) that the parties had a different common intention at the time when they acquired the home, or (b) that they later formed the common intention that their respective shares would change.

(3)

Their common intention is to be deduced objectively from their conduct: “the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words and conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party” (Lord Diplock in Gissing v Gissing [1971] AC 886, 906). Examples of the sort of evidence which might be relevant to drawing such inferences are given in Stack v Dowden, at para. 69.

(4)

In those cases where it is clear either (a) that the parties did not intend joint tenancy at the outset, or (b) had changed their original intention, but it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, “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”: Chadwick LJ in Oxley v Hiscock [2005] Fam 211, para. 69. In our judgment, ‘the whole course of dealing … in relation to the property’ should be given a broad meaning, enabling a similar range of factors to be taken into account as may be relevant to ascertaining the parties’ actual intentions.

(5)

Each case will turn on its own facts. Financial contributions are relevant but there are many other factors which may enable the court to decide what shares were either intended (as in case (3)) or fair (as in case (4)).’

Thinking point

Their Lordships in Stack (and to some extent in Jones v Kernott also, but see the preceding extract from that case) placed emphasis on the maxim ‘equity follows the law’. This maxim raises a presumption that a sole legal owner is the sole beneficial owner and this would make it harder to claim a beneficial interest against a sole legal owner under Stack than under Rosset. Is that an outcome that their Lordships would expect and want the maxim to produce?

17.4.1p. 405 Express agreement plus detrimental reliance

In Chapter 4 we noted that the courts are, in theory, reluctant to hold that an express trust has been created on the basis of ‘loose conversations’ (see Jones v Lock at 4.2.2). Cases where the courts have recognised express trusts on the basis of such conversations are exceptional (see, for example, Paul v Constance at 4.2.2). It might come as something of a surprise to discover that Lord Bridge is prepared to recognise a constructive trust on the basis of ‘any agreement, arrangement or understanding … that the property is to be shared beneficially … based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been’.

Thinking point

Do you think Lord Bridge is being overgenerous?

The criteria laid down by Lord Bridge for the recognition of trusts of this sort are not particularly stringent and the danger is that they will encourage the fanciful recollection of discussions that never in fact existed. However, the potential for injustice to a bank, such as Lloyds, may not be statistically significant. Even where there has been an agreement between the cohabitees, it will only bind the bank where the agreement was concluded before the bank took the mortgage. And before taking the mortgage the bank, like any purchaser, should have carried out a prudent search for evidence of any such pre-existing agreement by making an inquiry into the rights of all occupiers of the land.

In short, Lord Bridge’s first basis for a constructive trust appears to have the twin merits of conceptual clarity and practical utility. However, before we ascribe the status and force of statute to this ‘new orthodoxy’, we should look at the defining ingredients more closely.

17.4.1.1 ‘Express’

The problem is that an agreement is only relevant if it is expressed. Too many couples don’t give their own account of the relationship until it is too late.

In Springette v Defoe [1992] 2 FCR 561 (CA) Dillon LJ confirmed that ‘[i]t is not enough to establish a common intention which is sufficient to found an implied or constructive trust of land that each of them happened at the same time to have been thinking on the same lines in his or her uncommunicated thoughts’.

In Grant v Edwards [1986] Ch 638 the defendant explained that if he were to place the claimant’s name on the legal title, it would prejudice matrimonial proceedings pending between her and her estranged husband. (Compare Williamson v Sheikh [2008] EWCA Civ 990 (CA), where a constructive trust was found despite the parties’ deliberate choice not to make it express; the man was held to the terms of the formal trust on the ground that the only reason he had not executed it had been an expression of informal trust between the parties.)

In Eves v Eves [1975] 1 WLR 1338 the defendant told the claimant 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. Lord Bridge (in Rosset) held that Grant v Edwards and Eves v Eves were cases decided on the basis of an express agreement plus detrimental reliance thereon.

p. 406The case of Grant v Edwards is particularly intriguing because in that case the only expressed intention was the defendant’s intention not to give the claimant any interest in the property! To get from these words to an understanding that the claimant should have an interest in the property could only have been achieved by inferring that those words had an actual meaning contrary to their apparent meaning. As Nourse LJ put it in Grant v Edwards: ‘these facts raise a clear inference that there was an understanding … otherwise no excuse for not putting her name onto the title would have been needed.’

Simon Gardner has criticised this type of reasoning. He says: ‘[i]f I give an excuse for rejecting an invitation to what I expect to be [a] dull party, it does not mean that I thereby agree to come: on the contrary, it means that I do not agree to come, but for one reason or another I find it hard to say outright’ (‘Rethinking Family Property’ (1993) 109 LQR 263 at 265). Such ‘excuses’ will sometimes protect the legal owner. In Curran v Collins ([2015] EWCA Civ 404), which was a classic case of relationship breakdown between long-term unmarried cohabitees, the man expressly told the woman that he would remain sole owner of all the properties owned in his sole name. Arden LJ confirmed that this ‘was sufficient to negate any reasonable belief in any common intention’ (para. [3]). However, a question arose in relation to one property because the man, the woman claimed, had given an ‘excuse’ for not adding the woman’s name to the title. The excuse was that it would mean an increase in life insurance premiums. The judge at first instance found as a fact that the man ‘had made the statement to avoid any embarrassment’ over his refusal to add the woman to the title. On this basis the judge rejected the woman’s claim that there was a common intention that she should have an interest in the man’s property. On appeal, Arden LJ declined, in the absence of evidence that the judge had made a mistake, to interfere with the judge’s finding of fact as to the man’s intent in offering the ‘excuse’. In further support of the judge’s finding was the fact that the parties did not commence cohabitation until many years after the alleged ‘excuse’ was spoken.

Rowe v Prance [1999] 2 FLR 787 illustrates how different can be the law’s response to trusts of personal property. On facts otherwise reminiscent of Grant v Edwards, the cohabitees bought a boat to live on. The man paid for it but frequently stated that the boat belonged to them both. His explanation (‘excuse’) for not registering the woman as joint owner was that she did not possess ‘a relevant certificate’. The court held that he had constituted himself an express trustee of the boat for himself and the woman in equal shares. Surely Grant v Edwards would likewise have been disposed of as a case of express trust had it not been for the fact that the parties’ failure to comply with statutory formality requirements would have rendered an express trust of land unenforceable.

17.4.1.2 ‘Agreement’

Lord Bridge described it as an ‘agreement, arrangement or understanding reached between them that the property is to be shared beneficially’. Lord Diplock in Gissing v Gissing [1971] AC 866 called it a ‘transaction between the trustee and the cestui que trust’. For the agreement, arrangement or understanding to found a constructive trust it must be an agreement, arrangement or understanding that the non-legal owner should get a beneficial interest in the land. In one case a husband and wife contributed their common fund of money to the purchase of a house for the husband’s mother. When the husband’s mother died, the wife (then divorced) sought to claim a share in the house. She failed because, although the husband and wife would together have been entitled to a beneficial interest in the house, it was perfectly consistent with the nature of their joint venture for the husband to get the entire beneficial ownership of his mother’s house and for the wife merely to get the use of the house (Buggs v Buggs [2003] EWHC 1538, Ch). However, it is not necessary that the agreement should contain a consensus p. 407as to the size of the parties’ respective shares under the trust (per Peter Gibson LJ in Drake v Whipp [1996] 1 FLR 826). Nor is it necessary for there to have been an actual subjective agreement, as cases such as Grant v Edwards and Eves v Eves show.

The date of the agreement will usually be prior to or concurrent with the financial outlay of the claimant, but Fox LJ in Burns v Burns held that even where ‘initially, there was no intention that the claimant should have any interest in the property, circumstances may subsequently arise from which the intention to confer an equitable interest upon the claimant may arise (e.g. the discharge of a mortgage or the effecting of capital improvements to the house at his or her expense)’. Lord Bridge in Rosset also accepted that the agreement between the parties need not be established prior to acquisition, but may occur ‘exceptionally at some later date’.

The discovery of an agreement between the parties can appear to be somewhat convenient. It may also be value-laden. Simon Gardner (op. cit.) has described the law regarding the discovery of a common understanding as being ‘very far from neutral’. He continues:

Its basic proclivity is towards finding an understanding and so a trust, because its approach is not very literal: the necessary understanding can be inferred on the basis of quite remotely extrinsic material. But this proclivity extends only to cases where the woman’s input has been essentially financial; otherwise, she is left unaided.

It only takes one more small step for the cynic to ask why agreement should create trusts at all! It is, after all, rather unorthodox to make consensus prerequisite to the creation of a trust. Trusts are generally created in accordance with the unilateral intentions of one party and constructive trusts are typically imposed by courts against the intentions of the legal owner.

Thinking point

Why have the courts deemed it necessary to prove a common understanding to establish a constructive trust?

The answer is, of course, that proof of agreement is proof that B’s conscience is affected, and it is because B’s conscience is affected by A’s claim that B is made a constructive trustee for the benefit of A.

17.4.1.3 ‘Detrimental reliance’

In Grant v Edwards [1986] Ch 638 Browne-Wilkinson V-C approved the decision in Midland v Dobson [1986] 1 FLR 171 that ‘mere common intention is not by itself enough: the claimant has also to prove that she has acted to her detriment in the reasonable belief by so acting she was acquiring a beneficial interest’.

Thinking point

Imagine that you are a woman who has lived for 15 years with the legal owner of your quasi-matrimonial home. You have borne him two children and given up a promising career to bring them up, on the express understanding that you would have a half beneficial share in the house. Can you see any difficulties you might face in showing that you have relied to your detriment upon your common understanding?

p. 408There are two main obstacles. The first is showing that you have suffered any detriment at all as a consequence of the arrangement. On one (deliberately overstated) view you have been liberated from the need to work, you have benefited from the joys of children and you have lived rent-free for 15 years in someone else’s house. The second obstacle you will face, assuming you can show that you have suffered a detriment, is to prove that the detriment was suffered as a result of (i.e. was causally connected to) the arrangement.

In Grant v Edwards the Vice-Chancellor was alert to these obstacles when he held that ‘setting up house together, having a baby and making payments to general housekeeping expenses … may all be referable to the mutual love and affection of the parties and not specifically referable to the claimant’s belief that she has an interest in the house’. However, in granting the claimant a half interest in the house in that case their Lordships decided that Mrs Grant had acted to her detriment. In so holding, Nourse LJ described detrimental reliance as ‘conduct on which the woman could not reasonably be expected to embark unless she was to have an interest in the home’.

Thinking point

In Smith v Bottomley [2013] EWCA Civ 953, the Court of Appeal declined to decide whether accepting an offer of marriage might amount to a detriment. (Perhaps it was reluctant to undermine the public interest in promoting stable long-term relationships.) What would you have decided on this point?

17.4.2 Direct financial contributions

This is Lord Bridge’s second basis for acknowledging a cohabitation constructive trust. It exists in stark contrast to the first basis (i.e. express agreement plus detrimental reliance) because it proceeds on the assumption that there is no evidence of any express agreement whatsoever. In other words, in establishing a constructive trust on the second basis the court must infer a common intention on the basis of the conduct of the parties and nothing more.

Thinking point

Imagine that you are a woman who has lived for 15 years with the legal owner of your quasi-matrimonial home. You have borne him two children and you gave up work to bring them up. There was no express agreement of any sort in relation to your ownership of the house. Do you think that an agreement should be inferred from your conduct?

No doubt you think that it should, and yet the courts have been happy to explain such behaviour on other grounds (‘mutual love and affection’ etc). In Rosset Lord Bridge held that:

direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do.

p. 409Lord Bridge cited Grant v Edwards as a case in which the woman’s conduct would not have been sufficient to create a constructive trust in her favour. (Mrs Grant contributed to general household expenses, provided housekeeping and brought up the children.)

17.4.2.1 Direct financial contributions to purchase price

It is uncontroversial that direct financial contributions to the purchase price of the land, whether made initially (by way of deposit at the contract stage or money provided on completion of the purchase) or subsequently by payment of mortgage instalments, will ‘readily justify the inference necessary to the creation of a constructive trust’ (Lord Bridge in Rosset).

Paying mortgage instalments is presumed to give rise to an interest, but only if the mortgage was an acquisition mortgage (in McKenzie v McKenzie [2003] EWHC 601 (Ch), Mr McKenzie re-mortgaged his land but his son, who helped pay off the instalments, failed to acquire a beneficial share in it). In James v Thomas [2007] All ER (D) 373 it was held that courts should be especially slow to impose a trust on land which had been acquired before the relationship between the cohabitants began. Undertaking joint and several liability for mortgage repayments in reliance upon an understanding that one will acquire a share of the secured land will generally render the reliance ‘detrimental’ and give rise to an interest under a constructive trust. In fact, it suggests a beneficial joint tenancy of the land (Crossley v Crossley [2005] EWCA Civ 1581, CA (Civil Division)).

17.4.2.2 Subsequent expenditure on improving the land

In the case of married couples, s 37 of the Matrimonial Proceedings and Property Act 1970 applies. That section provides that where a spouse makes a substantial contribution in money or money’s worth to the improvement of property in which either or both have a beneficial interest, the spouse will get a share or enlarged share in the property unless there is any express or implied agreement to the contrary. The share will be that which has been agreed or, in the absence of agreement, whatever would be fair. (This provision applies to engaged couples by virtue of s 2(1), Law Reform (Miscellaneous Provisions) Act 1970.) Lord Denning MR was also of the view that s 37 was declaratory of the previous law, and should therefore extend to cover engaged couples (Davis v Vale [1971] 2 All ER 1021). It is arguable that Stack v Dowden has now extended this approach to all non-married couples (see 17.4).

Where there is evidence of a special agreement that calculation of the parties’ respective beneficial shares should be left until such time as the property ceased to be theirs, substantial improvements carried out by the parties will be relevant to the quantification of their interests (Passee v Passee [1988] 1 FLR 263 (CA)). As to quantification generally, see 17.5.

17.4.3 Indirect financial contributions

Lord Bridge, in Rosset, thought it extremely doubtful that such contributions would suffice to raise the inference of a common understanding to grant a beneficial interest. In Stack v Dowden this issue did not fall to be determined, but it was suggested obiter that making improvements that added significant value to the property should be sufficient to generate an interest. Lord Walker opined that ‘the law has moved on [since Rosset], and your Lordships should move it a little more in the same direction’, at para. [27] (since approved by Baroness Hale in the Privy Council in Abbott v Abbott [2007] UKPC 53).

There were similarly generous dicta in cases preceding Rosset:p. 410

Case close-up

Gissing v Gissing [1971] AC 866, House of Lords

Lord Diplock: ‘it may be no more than a matter of convenience which spouse pays particular household accounts, particularly when both are earning, and if the wife goes out to work and devotes part of her earnings or uses her private income to meet joint expenses of the household which would otherwise be met by the husband, so as to enable him to pay the mortgage instalments out of his monies, this would be consistent with and might be corroborative of an original common intention that she should share in the beneficial interest in the matrimonial home and that her payments of other household expenses were intended by both spouses to be treated as including a contribution by the wife to the purchase price of the matrimonial home …

Where in any of the circumstances described above contributions, direct or indirect, have been made to the mortgage instalments by the spouse into whose name the matrimonial home has not been conveyed, and the court can infer from their conduct a common intention that the contributing spouse should be entitled to some beneficial interest in the matrimonial home, what effect is to be given to that intention if there is no evidence that they in fact reached any express agreement as to what the respective share of each spouse should be?

… In such a case the court must first do its best to discover from the conduct of the spouses whether any inference can reasonably be drawn as to the probable common understanding about the amount of the share of the contributing spouse on which each must have acted in doing what each did, even though that understanding was never expressly stated by one spouse to the other or even consciously formulated in words by either of them independently. It is only if no such inference can be drawn that the court is driven to apply as a rule of law, and not as an inference of fact, the maxim equality is equity, and to hold that the beneficial interest belongs to the spouses in equal shares.’

(Note, however, that the influence of Gissing v Gissing is somewhat weakened by the fact that it was a case involving the divorce of a married couple before the Matrimonial Causes Act 1973. The case might have been decided differently after the Act.)

Whatever the status of indirect financial contributions to the acquisition of the land may be, it is clear that any financial and labour contributions to domestic life which are unrelated to acquisition of the land are no ground for inferring a common intention to share beneficial ownership of the land.

17.4.4 Non-financial contributions

Should it be possible to establish an interest in land on the basis of non-financial contributions such as labour? Is the legal owner of a house unjustly enriched if he accepts the benefit of labour and services provided by the person with whom he shares his home, so that it would be unconscionable for him to deny a share in the home? The following passage challenges any such notion.p. 411

J.W. Harris ‘Doctrine, Justice, and Home-Sharing’ (1999) 19(3) Oxford Journal of Legal Studies 421

We are here in the realm of metaphor. It seems that a person with money in her pocket is to be taken as carrying around with her both so much cash and a fixed quantity of labour-power. She ‘owns’ both. She may transfer some portion of the one or of the other, so that there will be ‘subtraction’ or ‘deprivation’ from the total sum (of money or labour-power). Restitution theory, in this respect, comes in august company. Karl Marx founded his critique of capitalist production and its appropriation of surplus values on the assumption that every service contract represents a conveyance, for the contract’s duration, of the worker’s entire labour-power to the employer … The metaphor may be readily unravelled. When I work I may be said to ‘expend’ physical or mental energy and I may, perhaps, feel in some way depleted. But it is not the case, as with spending money, that I cease to own some resource which formerly I did own. I have maintained that arguments for property-distribution based on labour-ownership, or the connected notion of self-ownership, are spurious. Quantum meruit claims were, in law, once founded on the fiction of promise. Are we better off if we erect claims arising from labour on the metaphor of depletion and transfer?

Thinking point

The preceding passage concluded with a question—how would you answer it? Consider the answer provided by the Court of Appeal in Burns v Burns, next.

Case close-up

Burns v Burns [1984] Ch 317, Court of Appeal, per May LJ at 344

Where … the house is bought with the aid of a mortgage, then the court has to assess each party’s respective contributions in a broad sense; nevertheless, the court is only entitled to look at the financial contributions, or their real and substantial equivalent, to the acquisition of the house; that the husband may spend his weekends redecorating or laying a patio is neither here nor there, nor is the fact that the woman has spent so much of her time looking after the house, doing the cooking and bringing up the family.

In the light of doubt that has been cast upon indirect financial contributions by Rosset, one would have thought it virtually impossible to infer the requisite common intention from non-financial contributions. Not so! Stack v Dowden presumes that where land is in joint names, it is jointly owned in equity—the lack of direct financial contributions might rebut the presumption, but only exceptionally. Of course Stack v Dowden does not touch the case of land in the sole name of one owner, so the hurdle of making financial contributions will remain as high as ever in that context. If their Lordships had gone so far as to presume equality of beneficial ownership in such a case they would, in effect, have introduced community of property into English law. English law has always rejected any presumption that property shared in fact p. 412must be deemed to be shared in equity, and only Parliament can relax that rule. This is not to say that some judges haven’t tried, and no modern judge tried harder than Lord Denning MR.

In Hussey v Palmer [1972] 3 All ER 744 Lord Denning held that the cohabitation constructive trust ‘is a trust imposed by the law whenever justice and good conscience require it. It is a liberal process, founded on large principles of equity, to be applied in cases where the defendant cannot conscientiously keep the property for himself alone but ought to allow another to have the property or a share in it.’

In Cooke v Head [1972] 2 All ER 38 the house was in the name of the man, and he paid the deposit, but the woman contributed to mortgage repayments and helped physically to demolish old buildings (the court held that she ‘did quite an unusual amount of work for a woman’). She was held to have a one-third interest in the property, her work having been taken into account. Had only her direct financial contribution been taken into account, she would have been entitled to only one-twelfth of the value of the property under the constructive trust.

It is clear from these decisions, and the facts of Cooke v Head in particular, that Lord Denning’s so-called ‘new model’ constructive trust represented a radical innovation in the law. For a few years at least, English law inferred the common intention necessary to establish a constructive trust on the basis of indirect non-financial contributions. The only higher ‘authority’ for this approach is the following dictum taken from the speech of Lord Diplock in Gissing:

A resulting, implied or constructive trust—and it is unnecessary for present purposes to distinguish between these three classes of trusts—is created whenever the trustee has so conducted himself that it would be inequitable to deny the cestui que trust a beneficial interest in the land acquired. And he will be held so to have conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the belief that by so acting he was acquiring a beneficial interest in the land.

Lord Denning MR relied upon this dictum when formulating his ‘new model’ constructive trust in Eves v Eves [1975] 3 All ER 768. The woman in that case had moved in with a married man and took his name but never married him. The reason he gave for leaving her name off the title deeds was the fact that she was under the age of 21. She did not make a financial contribution but she did housework and gardening and looked after him and their children. Lord Denning held that ‘a few years ago … equity would not have helped her. But things have altered now. Equity is not past the age of child bearing. One of her latest progeny is a constructive trust of a new model. Lord Diplock brought it into the world and we have nourished it.’

Thinking point

Remind yourself of the content of Lord Diplock’s speech in Gissing v Gissing. Is it entirely consistent with Lord Denning’s new formulation?

It would appear not. As we have already noted, Lord Diplock made it fairly clear that direct or indirect contributions must be financial. He refers repeatedly to contributions ‘to the mortgage instalments’. Certainly he provides no example of a situation in which non-financial contributions might suffice.

The reasoning underlying Lord Denning’s new model was not followed by the differently constituted Court of Appeal in Burns v Burns [1984] 1 All ER 244. Their Lordships’ judgments in p. 413Burns v Burns displayed a return to Gissing v Gissing orthodoxy. While Fox LJ accepted that the ‘basis of such a claim … is that it would be inequitable for the holder of the legal estate to deny the claimant’s right to a beneficial interest’, his Lordship went on to say that, in the absence of either an express declaration of trust, an express agreement to share or a direct financial contribution, it is necessary to infer that the parties had the requisite common intention:

In determining whether such common intention exists it is, normally, the intention of the parties when the property was purchased that is important … it seems to me that at the time of the acquisition of the house nothing occurred between the parties to raise an equity which would prevent the defendant denying the plaintiff’s claim. She provided no money for the purchase; she assumed no liability in respect of the mortgage; there was no understanding or arrangement that the plaintiff would go out to work to assist with the family finances; the defendant did nothing to lead her to change her position in the belief that she would have an interest in the house. It is true that she contemplated living with the defendant in the house and, no doubt, that she would do housekeeping and look after the children. But those facts do not carry with them any implication of a common intention that the plaintiff should have any interest in the house.

The Court of Appeal in Burns v Burns [1984] Ch 317 confirmed that indirect financial contributions will suffice if ‘referable to the acquisition of property’. Burns v Burns was strongly endorsed by the House of Lords in Winkworth v Edward Baron Development [1987] 1 All ER 114.

The move away from Lord Denning’s liberal approach is now pretty much complete. In Springette v Defoe in 1992, Dillon LJ stated that ‘the court does not, as yet, sit under a palm tree to exercise a general discretion to do what the man in the street, on a general overview of the case, might regard as fair’. Having said that, Lord Denning did much to develop another broad equitable concept, that of proprietary estoppel. His judgments in relation to that concept continue to exert great influence (see 17.6.1).

Thinking point

As a man or woman in the street, do you think that the orthodox rules on ‘qualifying contributions’ are fair, or apt to create injustice?

Simon Gardner, in An Introduction to the Law of Trusts (Oxford: Clarendon Press, 1990), suggests, at p. 238, that ‘the position of the law regarding the discovery of a common understanding—and so of the constructive trust itself—is very far from neutral’. He argues that there are two major concerns to counter the social imbalance against women in respect to ownership of family assets. The first is based on the idea of the family as a communal entity: ‘The argument is that it is adventitious that the man undertakes the income-generating work which enables him to acquire assets, while she undertakes domestic functions; both roles are equally essential to the success of the family as a whole.’ The second is based on an unjust enrichment which should be addressed: in that where the woman is earning money herself, ‘her earnings are … more likely to be spent on fungibles (food, clothes etc.), which are wasting assets at best, while the man’s go, in particular, to buying the house, with its capital appreciation’. Gardner submits that the law’s orthodox ‘referability rules’ redress the second kind of imbalance, but not the first. This, he submits, means that help is withheld where it is most needed. (See, further, Simon Gardner, ‘Rethinking Family Property’ (1993) 109 LQR 263.)

17.5p. 414 Quantification of the interest under the trust

17.5.1 Express declaration of trust

The quantification of interests under constructive trusts is first to be determined according to any express agreement made between the parties as to their respective shares. (Or it may be that the parties are not to have shares at all, but have expressly agreed to hold the land as joint tenants in equity (see Goodman v Gallant [1986] 2 WLR 236).) Only where there is no such express agreement as to shares will the court quantify the parties’ entitlements according to whatever shares the parties can be assumed to have intended. You should recall from the start of the chapter that the standard Land Registry Form for the transfer of land (form TR1) asks joint transferees to express whether the beneficial (equitable) interest in the land will be held by them jointly under a beneficial joint tenancy or in shares under a tenancy in common. If the latter, the form asks them to express the shares in the equitable interest to be held. If the form is completed and signed it will constitute an express trust.

17.5.2 Resulting trust

It is in relation to the quantification of A’s entitlement that the need to distinguish between resulting and constructive trusts is most important, but note that, after the decision in Stack v Dowden, the resulting trust is not relevant to quantifying interests where cohabitants hold land held in their joint names (see earlier).

In Drake v Whipp [1996] 1 FLR 826 the Court of Appeal stressed the importance of distinguishing between resulting and constructive trusts. In this case A and B purchased property which was conveyed into B’s name alone. A had contributed 40 per cent of the original cost and a small proportion of the extensive conversion work subsequently undertaken on the property. The Court of Appeal held that she was entitled to a one-third share under a constructive trust. Under a resulting trust A would have been entitled only to one-fifth of the value of the converted house.

The correct date at which to quantify A’s interest in the property of which B is legal owner is the date when A’s interest is realised, in other words, the date when the joint residence is sold, or when B buys out A’s interest.

As the judgment in Drake v Whipp illustrates, the quantification of the parties’ respective beneficial entitlements under a resulting trust is determined by the extent of their respective financial contributions. It is a fairly mechanical calculus. Whatever each party puts in will ‘jump back’ to them under the resulting trust.

Springette v Defoe [1992] 2 FCR 561 was described by Dillon LJ, who sat in the case, as ‘yet another … in which it falls to the court to decide the proportions of the beneficial interests of a man and a woman, who are not married to each other, in the proceeds of sale of a house which they have acquired in their joint names for the purpose of living together in it’. The reason the issue fell for determination by the court was because there had been no express declaration of the trusts upon which the property was to be held. It was also found as a matter of fact that the parties had not entered into any discussions relating to their respective shares in the property.

p. 415Having referred to Rosset, Dillon LJ stated that ‘[s]ince … it is clear in the present case that there never was any discussion between the parties about what their respective beneficial interests were to be, they cannot, in my judgment, have had in any relevant sense any common intention to the beneficial ownership … The presumption of a resulting trust is not displaced.’

Steyn LJ made the same point very succinctly: ‘[g]iven that no actual common intention to share the property in equal beneficial shares was established, one is driven back to the equitable principle that the shares are presumed to be in proportion to the contributions.’ On that basis, the court calculated Miss Springette’s share to be 75 per cent and Mr Defoe’s share to be 25 per cent. In arriving at such neat proportions it is clear that the court was prepared to approximate the figures somewhat in order to produce an outcome that could be applied in practice without involving unnecessary accounting complexity.

17.5.3 Constructive trust

17.5.3.1 Where a shared home is in joint names

Stack v Dowden has established that where cohabitants are joint owners at law there is a strong presumption that they are joint owners in equity leading to equal shares of sale proceeds, and that it will be hard for a cohabitant in such a case to rebut that presumption in favour of unequal shares. However, the presumption of equality can be rebutted if that appears appropriate to the court, having taken into account the wide range of factors we considered at 17.4. Despite the wide range of factors, the exercise should not be allowed to disguise judicial creativity—Baroness Hale emphasised that the court is involved in a search for evidence of the parties’ true intentions regarding the quantification of their respective shares. In that case it was deemed especially significant that Ms Dowden had made by far the greater financial contribution to the purchase of the home and did not pool her income with Stack’s. They also had an arrangement by which it was understood precisely who should meet particular domestic expenses.

The Stack v Dowden approach to quantification agrees with that of Waite LJ that the court should ‘undertake 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’ which ‘will take into consideration all conduct which throws light on the question what shares were intended’ (Midland Bank plc v Cooke [1995] 4 All ER 562). However, where Waite LJ proposed that ‘[o]nly if that search proves inconclusive does the court fall back on the maxim that equality is equity’, the majority of their Lordships in Stack v Dowden start from a presumption of equality where land is in joint names, and the survey into the parties’ dealings is used to see if an intention to rebut the presumption should be inferred.

Thinking point

Does the approach of the majority in Stack v Dowden allow a claimant to have their cake and eat it? Suppose a cohabitant had made minor financial contributions to the purchase of land in joint names, but had contributed a great deal to domestic work and child care. How much would he or she get? Presumably half. If a cohabitant contributed more to the purchase price than the other cohabitant, how much would he or she get? Presumably, on the evidence of the actual decision in Stack v Dowden, more than half. It seems that the claimant wins both ways, and that the other cohabitant loses both ways.

17.5.3.2p. 416 Where legal title to a shared home is in the sole name of one of the cohabitants

Where legal title to land is in the sole name of one of the cohabitants, exact equality is presumably the last thing the parties intended, and Waite LJ’s approach—of inferring equality as a last resort—is surely the correct one.

Thinking point

Imagine that you are a woman who has lived for 15 years with the legal owner of your quasi-matrimonial home. There was no express agreement of any sort in relation to your ownership of the house. You contributed half the initial deposit, but since then you have not been working and have not contributed a penny to the mortgage instalments. However, you have given birth to, and raised, two children and carried out the vast majority of all housework, cooking, shopping and gardening. What should be the extent of your equitable interest in the house?

From your direct financial contribution it can be inferred that at the date of purchase you were to have some beneficial interest in the house. All that remains is to quantify the extent of your interest—in relation to which, there is surely every reason to infer a common understanding that you were to have a half-share in the house.

Case close-up

Oxley v Hiscock [2004] EWCA Civ 546

Facts: an unmarried couple disputed the extent of their respective entitlements in their shared home, legal title to which was registered in the man’s sole name. It was agreed that there had been no express agreement as to their respective shares and the man therefore contended that resulting trust principles should apply, which would give the woman about a one-fifth share based on her contribution to the initial acquisition of the home.

Held: at first instance Her Honour Judge Hallon held that in the absence of express agreement the presumption ‘equality is equity’ should apply, and awarded each party a half-share in the house. The Court of Appeal allowed the appeal. It was held (applying Midland Bank v Cooke) that a fair division of the proceeds of sale ‘having regard to the whole course of dealing between them in relation to the property’ was 60 per cent to H and 40 per cent to O. This approximated an assessment of the parties’ total contribution to the current value of the home (being a £60,700 contribution by the man and a £36,300 contribution by the woman).

In the ‘sole-owner’ case Graham-York v York ([2015] EWCA Civ 72) the claimant received a reduced share despite her lengthy cohabitation with her former partner because mercenary considerations, rather than natural love and affection, had been at the forefront of the cohabitants’ relationship.

17.6p. 417 Proprietary estoppel

A proprietary estoppel is a cause of action that arises in equity to prevent (‘estop’) the legal owner of certain property (A) from denying that another person (B) has, or might have, a proprietary interest in that property. The ‘dealings’ essential to establishing an estoppel are now taken to be: a representation made, or assurance given, by the owner of land (A) to another person B to the effect that B would acquire some interest in A’s land, upon which assurance B has reasonably relied by act or omission in such a way that it would be detrimental to B (and unconscionable of A) if A were subsequently to resile from (go back on) his representation or assurance and assert his ownership of the land unencumbered by any rights claimed by B. Opinion is divided between those who consider that proprietary estoppel aims primarily to fulfil the claimant’s expectation (e.g. S. Gardner, ‘The Remedial Discretion in Proprietary Estoppel—Again’ [2006] LQR 492; Arden LJ in Suggitt v Suggitt [2012] EWCA Civ 1140; HHJ Matthews in James v James [2018] EWHC 43 (Ch)) and those who consider that it aims primarily to compensate the claimant’s detrimental reliance (e.g. B. McFarlane and P. Sales, ‘Promises, Liability, and Detriment: Lessons from Proprietary Estoppel’ [2015] 131 LQR 610). The arguments on both sides were summarised in Davies v Davies [2016] EWCA Civ 463 where Lewison LJ opined, obiter, that the second approach might be preferable.

When a proprietary estoppel arises, it will be satisfied (or ‘fed’) by an equitable award that is fair and proportionate between the parties (‘the essence of the doctrine of proprietary estoppel is to do what is necessary to avoid an unconscionable result’ (Jennings v Rice [2003] 1 P&CR 8, Court of Appeal, at para. [56])). See, also, the decisions of the Court of Appeal in Joyce v Epsom [2012] EWCA Civ 1398, Suggitt v Suggitt [2012] EWCA Civ 1140 and Davies v Davies [2016] EWCA Civ 463. Often the appropriate remedy is a share of land under a constructive trust; sometimes an award of cash will suffice (see, for example, Lloyd v Sutcliffe [2008] EWHC 1329 (Ch)). If a representation is made on certain conditions, it is not enough to prove reliance on the representation. One must also show that reliance was detrimental, and that the detriment flowed from reasonable reliance on the representation (Hunt v Soady [2007] EWCA Civ 366, CA (Civil Division)). Powell v Benney [2007] EWCA Civ 1283 illustrates the point. The owner of a number of properties promised Mr and Mrs Powell that he would leave the properties to them in his will. They proceeded to improve the properties on their own initiative. When the representor died he left no will and his property passed to Benney on intestacy. The Court of Appeal called this a ‘non-bargain’ estoppel and upheld the first instance award of £20,000 as reasonable to meet the Powells’ expectations.

Yeoman (next) is another case in which the claimant was merely awarded cash. The House of Lords could have decided that the case involved a proprietary estoppel which ought to be remedied by an award of cash, but their Lordships instead held that there was no estoppel. They took the opportunity to drastically rein in the scope of proprietary estoppel in commercial contexts, by holding that estoppel should not be allowed to disturb normal commercial dealings. Yeoman is a so-called bargain case, albeit one in which the bargain was still under negotiation as regards certain terms.

Case close-up

Yeoman’s Row Management Ltd v Cobbe [2008] UKHL 55; [2008] 1 WLR 1752

Facts: A property developer entered into an oral agreement with the owner of a block of flats under which the developer undertook to obtain planning permission to demolish the block and replace it with new town houses. A formula was agreed on price and division of p. 418profits from the development. The developer spent 18 months acquiring planning permission to demolish the block to build new town houses. It was after planning permission had been obtained that the owner of the block purported to withdraw from the agreement. In the Court of Appeal, a proprietary estoppel was recognised in favour of the developer, which was remedied by awarding the developer a share in the increased value of the property attributable to the planning permission, but this was overturned by the House of Lords.

Held: There was no proprietary estoppel on these facts, so the developer was awarded a mere quantum meruit (sum deserved) sufficient to ensure that the land owner had not been unjustly enriched by the time and labour expended by the developer in pursuing the planning permission in accordance with the informal agreement. It was held that the developer had assumed the risk that the owner of the block would withdraw. The fact that withdrawal was unconscionable in the abstract did not suffice; it had to be shown that the owner had behaved in a manner traditionally considered to be unconscionable in this context. The evidence was the other way—namely, that the traditional practice was to allow parties to withdraw from an informal contract in such a case. The claimant’s argument that both parties considered themselves to be bound ‘in honour’ to perform the contract was rejected.

In the same way that the radical decision in Stack v Dowden ought to be read so as to restrict it to its facts (i.e. domestic or ‘romantic’ joint legal ownership cases), so the Yeoman case ought to be construed restrictively to apply only to commercial cases (and perhaps only to joint venture cases). It is clear that proprietary estoppel will continue to thrive in non-commercial cases, as the decision in Thorner v Major (a.k.a Thorner v Curtis) [2009] UKHL 18; [2009] 1 WLR 776 makes clear. In this case the legal owner had left his farm to the claimant by will, but subsequently destroyed the will and died intestate. The claimant had worked for the deceased for nearly 30 years in the reasonable expectation (based on various hints, but no express representation) that he would inherit the farm. Proprietary estoppel was found in favour of the claimant and he was awarded the farm.

Judges frequently use the term ‘proprietary estoppel’ as if it were interchangeable with the term ‘constructive trust’. A clear example of the practice can be found in the speech of Lord Bridge in Lloyds Bank plc v Rosset, and another appeared a year later, in Hammond v Mitchell [1991] 1 WLR 1127 at 1137B, where Waite J used the terms ‘proprietary estoppel’ and ‘constructive trust’ interchangeably without any apparent unease. In this section we shall attempt to determine the meaning of the former term, and its proper relationship to the latter. We will discover that they are not synonymous.

At the start of this chapter, we observed that the formality requirements for the creation of trusts do not affect the creation or operation of resulting, implied or constructive trusts (s 53(2), Law of Property Act 1925). It is now worth noting that the requirement of writing in relation to contracts for the sale of land (Law of Property (Miscellaneous Provisions) Act 1989, s 2) is similar, in that it has no effect upon ‘the creation or operation of resulting, implied or constructive trusts’ (s 2(5)), which means to say that a failure of contractual formality does not preclude a finding of an informal trust. In fact, a merely oral agreement to sell land can be binding if the parties believed it to be so and if it is relied upon to a party’s detriment, even if the sale was otherwise governed by a formal contract (Matchmove Ltd v Dowding [2016] EWCA Civ 1233; [2017] 1 WLR 749, Court of Appeal. Noted Boncey and Ng (2017) 2 Conv 146–57).

p. 419In Yaxley v Gotts [1999] Ch 162 the Court of Appeal confirmed that the social policy of simplifying conveyancing by means of formal contracts for the sale of land did not necessitate that unconscionable conduct be allowed to prevail. Their Lordships held that the ‘constructive trust’ exception to the requirement of contractual formality (s 2(5), Law of Property (Miscellaneous Provisions) Act 1989) could be taken to embrace any cases of proprietary estoppel which might equally well have been categorised as a case of constructive trust.

The most obvious role for proprietary estoppel is to remedy those cases, not covered by purchase money resulting and constructive trusts, where after the purchase A expends money or labour improving B’s property in a way that cannot be shown to be referable to the mortgage instalments or otherwise referable to the purchase price.

17.6.1 The ‘ingredients’ of proprietary estoppel

As early as Wilmot v Barber (1880) 15 ChD 96, an attempt was made to lay down the defining ingredients, or ‘probanda’, of proprietary estoppel. These probanda were reiterated in Matharu v Matharu (1994) 68 P & CR 93 at 102 by Roch LJ as being that:

[A] has made a mistake as to his or her legal rights;

[A] has expended some money or done some act on the faith of that mistaken belief;

[B] must know of the existence of his legal rights which is inconsistent with the equity, if it exists;

[B] must know of the other person’s mistaken belief as to his or her rights;

[B] must have encouraged [A] in his or her expenditure of money or in doing the other acts on which [A] relies, either directly or by abstaining from asserting his legal rights.

Oliver J in Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] 1 QB 133 at 154 preferred a ‘broad test of whether in the circumstances the conduct complained of is unconscionable without the necessity of forcing those incumbrances into a Procrustean bed constructed from some unalterable criteria’. This more relaxed approach would no doubt have commended itself to Lord Denning MR. In Crabb v Arun District Council [1976] Ch 179 Lord Denning MR said:

The basis of this proprietary estoppel … is the interposition of equity. Equity comes in, true to form, to mitigate the rigours of the strict law. The early cases did not speak of it as ‘estoppel’ they spoke of it as ‘raising an equity’. If I may expand what Lord Cairns LC said in Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 at 448: ‘it is the first principle upon which all courts of equity proceed’, that it will prevent a person from insisting on his strict legal rights—whether arising under a contract, or on his title deeds, or by statute—when it would be inequitable for him to do so having regard to the dealings which have taken place between the parties.

The ‘dealings’ relevant to establishing an estoppel are now taken to be:

a representation made, or assurance given, by the owner of land (A) to another person (B);

to the effect that B would acquire some interest in A’s land;

upon which assurance B has quite reasonably relied by act or omission;

in such a way that it would be detrimental to B (and therefore unconscionable of A) if A were subsequently to resile from his representation or assurance and assert his ownership of the land unencumbered by any rights claimed by B.

p. 420These elements of estoppel are not to be regarded as entirely distinct from one another. They are frequently compounded or amalgamated on particular sets of facts; the nature of the assurance will often be bound up in the reasonableness of the reliance and the nature of the reliance will often be inseparable from the detriment. This point was forcefully made by Robert Walker LJ in Gillett v Holt [2001] Ch 210 where his Lordship emphasised that ‘detriment’ is ‘not a narrow or technical concept’:

The detriment need not consist of the expenditure of money or other quantifiable financial detriment, so long as it is something substantial. The requirement must be approached as part of a broad enquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances. (at 232)

The facts of Gillett v Holt remind us somewhat of the basis on which the dastardly Mr Wickham tried to establish his claim in Jane Austen’s novel Pride and Prejudice.

Outside the box

Jane Austen, Pride and Prejudice

We were born in the same parish, within the same park; the greatest part of our youth was passed together; inmates of the same house, sharing the same amusements, objects of the same parental care. My father began life in the profession which your uncle, Mr Phillips, appears to do so much credit to—but he gave up everything to be of use to the late Mr Darcy and devoted all his time to the care of the Pemberley property. He was most highly esteemed by Mr Darcy, a most intimate, confidential friend. Mr Darcy often acknowledged himself to be under the greatest obligations to my father’s active superintendence, and when, immediately before my father’s death, Mr Darcy gave him a voluntary promise of providing for me, I am convinced that he felt it to be as much a debt of gratitude to him, as of his affection to myself.

Or perhaps it is more accurate to say that Gillett v Holt reads like a Dickensian novel. (The facts of Murphy v Burrows [2004] EWHC 1900, (Ch), a case similar to Gillett v Holt, were actually described as ‘Dickensian’ by the judge.) The point is that there is often a striking human story behind the facts of legal cases in this area. Mr Gillett was 12 years old when Mr Holt (then a 38-year-old gentleman farmer) took him under his wing. Mr Gillett left school at the age of 16 at Mr Holt’s suggestion and began a long career working on Mr Holt’s farm. Mr Gillett’s wife and children became in due course a surrogate family to Mr Holt (who had no immediate family of his own), a fact confirmed by Mr Holt’s frequent assurances (often in public) that Mr Gillett would one day inherit the farm. However, the relationship between the men eventually cooled and ultimately broke down entirely. Mr Holt wrote Mr Gillett out of his will and Mr Gillett commenced action seeking to establish an interest in the farm under proprietary estoppel, on the basis of Mr Holt’s assurances and Mr Gillett’s detrimental reliance upon them. The judge at first instance held that Mr Holt’s representation could not be considered irrevocable and that in any event Mr Gillett had suffered no detriment in reliance upon them. The Court of Appeal rejected any need to show that the assurance was irrevocable and held that, despite the obvious material benefits of Mr Holt’s patronage, it would be detrimental to deny him an interest in the farm because he had forgone the opportunity to educate himself and make alternative provision for his retirement and old age. A most interesting feature is the detriment Mr Gillett was held to have suffered when Mr Holt paid the private school fees of Mr Gillett’s eldest son. How is that p. 421detrimental, one might ask? The answer is that Mr Gillett had another son whom he then felt obliged to educate privately at his own expense!

Since Gillett v Holt, other ‘farm’ cases have arisen. The farmer’s daughter in Davies v Davies was called the ‘Cowshed Cinderella’ by the tabloid press because she stayed at home milking the cows while her sisters went out partying. In Habberfield v Habberfield [2019] EWCA Civ 890, the Court of Appeal awarded another farming daughter £1.17 million out of an estate worth around £2.5 million, even though the financial detriment suffered by her in working at a low wage and foregoing other opportunities was calculated at only £220,000. However, a farmer’s son was unsuccessful in Horsford v Horsford [2020] EWHC 584 (Ch) when he raised a proprietary estoppel in a counterclaim against his mother. He was in partnership with his mother and it was held that his work was not detrimental, but contributed to the joint family endeavour. Indeed, far from suffering a detriment he was held to have benefited from his parents’ generosity and regard for their farm.

Inwards v Baker [1965] 1 All ER 446 is a classic illustration of the facts giving rise to the proprietary estoppel. Baker junior was keen to build himself a bungalow, but he could not afford the price of a vacant site. His father had some spare land. Baker senior said to his son, ‘Why don’t you build the bungalow on my land and make it a bit bigger?’ Baker junior did exactly that, and made the bungalow his permanent home. Baker senior retained legal ownership of the fee simple to the land, and so the house also became Baker senior’s property as a matter of law. All was well while both senior and junior were alive, but when senior died his will (made long before the bungalow was built) left the land in question not to Baker junior, but to Inwards. Inwards brought proceedings to recover possession of the bungalow.

The Court of Appeal held that Baker junior [A] had acquired, in equity, a right to occupy the land for life, and that this right was in principle binding against third parties who had notice of the equitable right. Lord Denning MR held that:

if the owner of land [B] requests another [A], or indeed allows another, to expend money on the land under an expectation created or encouraged by [B] that he will be able to remain there, that raises an equity in [A] such as to entitle him to stay … and [quoting Plimmer’s Case (1884) 9 App Cas 699, PC] … the equity arising from the expenditure on land need not fail ‘merely on the ground that the interest to be secured has not been expressly indicated’ … the court must look at the circumstances in each case to decide in what way the equity can be satisfied.

Danckwerts LJ, concurring with the conclusion of the Master of the Rolls, went on to state that:

[i]t is not necessary, I think, to imply a promise. It seems to me that this is one of the cases of an equity created by estoppel, or equitable estoppel, as it is sometimes called, by which the person who has made the expenditure is induced by the expectation of obtaining protection, and equity protects him so that an injustice may not be perpetrated.

It is notable that neither Lord Denning MR nor Danckwerts LJ actually defined or named A’s equitable interest. In the years following Inwards v Baker many judges and commentators assumed, quite understandably, that Baker junior’s right was a particular equitable right called a proprietary estoppel. On first reading Danckwerts LJ appears to suggest as much. Upon closer examination, however, it seems that his Lordship was not describing Baker junior’s equitable interest as an ‘equitable estoppel’, but merely stating that his equitable interest had been created by ‘equitable estoppel’. The problem with Inwards v Baker is that there was never any need to specify the nature of the son’s equity, because the son never asserted a right but merely defended Inwards’ claim. He used his estoppel as a shield, not a sword, so the Court of Appeal p. 422was able to satisfy the estoppel by the award of a nebulous, innominate equity. If Inwards had been a purchaser rather than the beneficiary of a will the court might have felt constrained to be more specific about the nature of the son’s equitable right.

Thinking point

Do you think that the equitable interest created by the equitable estoppel in Inwards v Baker could have been an interest under a resulting or constructive trust of the sorts considered earlier in this chapter?

An award of a resulting trust is not consistent with the facts of Inwards v Baker, for Baker junior did not get back an interest in the land equivalent only to that which he had put in by way of bricks, mortar and labour. On the contrary, he ‘sowed’ in bricks and mortar and ‘reaped’ a right to occupy his father’s land for as long as he wished.

Perhaps, then, it was a constructive trust? That is a more plausible alternative. It will be recalled that Lord Bridge in Rosset held that to establish a constructive trust in land there must be either express agreement coupled with detrimental reliance thereon, or an agreement inferred from direct financial contributions to the purchase of the land. In Inwards v Baker the son would probably have qualified for an interest under a constructive trust on the former basis.

If a constructive trust is the remedy deemed to be appropriate to satisfy the proprietary estoppel, the claimant will end up with a trust which will be identical in its operation (if not its creation) to a constructive trust construed directly from the facts (i.e. constructive trusts of the Rosset type). It is hardly surprising, therefore, that the use of the terms ‘proprietary estoppel’ and ‘constructive trust’ have frequently been confused in the courts. HHJ Paul Matthews is unsurprisingly an exception given his status as a professor of trusts law. Speaking obiter in Culliford v Thorpe [2018] EWHC 426 (Ch), in which he sat as a judge of the High Court, he conjectured that one of the distinctions emerging between proprietary estoppel and common intention constructive trust may be that in the former the court has to weigh up the advantages and disadvantages of the promisee’s position post-reliance, whereas in the latter ‘[i]t appears to be enough to show that the promisee has relied to his or her detriment on the agreement between the parties, such that it is unconscionable for the legal owner to renege on the agreement’ (para. [76]).

Many years ago, Sir Christopher Slade, who sat as a judge of the Chancery Division between 1975 and 1982, urged the following simple three-fold distinction: ‘(1) [I]mplied and resulting trusts arising by virtue of contributions to the cost of acquisition of land; (2) constructive trusts arising by virtue of the doctrine of proprietary estoppel; [and] (3) other cases of constructive trusts’ (The Informal Creation of Interests in Land, The Child & Co Oxford Lecture, 2 March 1984). Perhaps the law would have developed in an altogether more orderly way had Sir Christopher’s three-fold division been enunciated in the superior courts.

17.6.2 The impact of proprietary estoppel on third parties

The remedial flexibility attaching to proprietary estoppel has the potential to deter third parties from purchasing the land from the legal owner. Where the constructive trust is institutional, the theory is that a purchaser can discover from making a simple inquiry whether or not the legal title is encumbered by any beneficial interest under a trust, and this interest can be overreached p. 423by payment of the purchase monies to two trustees (perhaps the legal owner and a friend of the legal owner who has been appointed as a second trustee). Where the legal owner is subject to a proprietary estoppel it will not be clear until a later court hearing whether or not the equitable claimant has a proprietary right or not. It might be that an award of compensatory or restitutionary damages will suffice to satisfy the equity; it may be that nothing short of a conveyance of the legal fee simple will suffice (see Pascoe v Turner [1979] 2 All ER 945). Whether or not the ultimate award is proprietary in nature is of fundamental concern to the purchaser because only proprietary interests will be binding upon him (see National Provincial Bank v Ainsworth [1965] AC 1175).

M.P. Thompson has argued that proprietary estoppels have the effect of introducing uncertainty into conveyancing ((1981) 125 Sol Jo 539). He submits (at 540):

that the operation of proprietary estoppel should be limited to factual situations where money has been expended on the property, as a result of representations made: Inwards v Baker [1965] 2 QB 29; Pascoe v Turner [1979] 1 WLR 431. At least in this situation, when the fact of expenditure is disclosed to him, the purchaser can be certain that equities have arisen in favour of the person claiming the interest.

He refers approvingly to the judgment of Browne-Wilkinson J in Re Sharpe (a bankrupt) [1980] 1 All ER 198 at 204: ‘Doing justice to the litigant who actually appears in court by the invention of new principles of law ought not to involve injustice to other persons who are not litigants … but whose rights are fundamentally affected by the new principles.’

Practically speaking, the prudent purchaser should probably work on the assumption that the estoppel will be remedied by the award of a constructive trust interest, and should therefore overreach that interest (i.e. remove it from the land) by paying purchase monies to all the trustees (being at least two in number or a trust corporation: s 2 of the Law of Property Act 1925).

Summary

We have seen that there are three basic situations in which A may successfully claim a beneficial interest under an informal trust of land to which B is legally entitled:

(Lord Browne-Wilkinson’s category (A) resulting trust—from the Westdeutsche case) a resulting trust is presumed to arise where A has contributed in whole or in part to the purchase of land which is vested in the name of B (albeit that it may be vested in the joint names of A and B). A resulting trust merely entitles A to an interest in the land equivalent to the proportion A’s contribution bore to the whole purchase price. Because of this rigidity, a resulting trust solution will probably not be appropriate where A and B have agreed, expressly or by inference, that A will gain some larger interest in the land in return for A’s contributions. It has been confirmed by the highest court in the land in Stack v Dowden (2007) and Jones v Kernott (2011) that the presumption of resulting trust based on initial financial contributions to purchase will not apply where land is held in the joint names of ‘romantic’ cohabitants who are unmarried (and not in a civil partnership).

(Lord Bridge’s first basis for establishing a constructive trust—from the Rosset case) a constructive trust arises where A and B by express words ‘agree’ that A is to have a beneficial interest in the land, and A has acted to her detriment in reliance upon that ‘agreement’. In such circumstances B’s conscience would be bound by A’s claim, making p. 424B a constructive trustee for A. This constructive trust may be institutional if one takes the view that at the date of the court hearing the court is merely vindicating A’s existing proprietary right. An alternative view is that the express ‘agreement’ (it is often just an express representation) raises an estoppel, for where A has relied upon it to A’s detriment, it would be unconscionable for B to assert his 100 per cent legal entitlement against A, and B would be estopped from so doing. This proprietary estoppel must be ‘fed’ (satisfied) by an equitable award that is fair and proportionate between the parties. Such an award frequently takes the form of a constructive trust. If the estoppel analysis is the correct one, it is clear that in most of the reported cases the courts, when awarding the remedial constructive trust, do not explicitly refer to the estoppel stage (see, for example, Aspden v Elvy [2012] EWHC 1387 (Ch); [2012] 2 FLR 807). The better approach may be to limit proprietary estoppel to cases where A has effected improvements to the property after, or independently of, acquisition.

(Lord Bridge’s second basis for a constructive trust—from the Rosset case) where there is no express ‘agreement’, a common intention can be inferred from direct financial contributions to the purchase price (either by way of deposit, other purchase capital or mortgage instalments). It might also be inferred from later direct financial contributions (e.g. building an extension) as confirmed in Stack v Dowden and Jones v Kernott. It might even be possible to infer agreement from indirect financial contributions. The latter approach would be unorthodox, but the more flexible approach introduced by Stack v Dowden and confirmed by Jones v Kernott might open the way for such a development. As things stand it is only where the court cannot discern the parties’ current intentions with regard to shares, 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’.

The advantage of the constructive trust approach to financial contributions, over the resulting trust approach to financial contributions, is that an interest established by the constructive trust method will be quantified not merely at the level of the financial contribution, but at a level necessary to give effect to the underlying common intention of the parties. Hence a £10,000 contribution to the purchase of a £200,000 house might give rise to a half-share in the house if an agreement to that effect can be inferred from all the facts.

Test yourself on the content of this chapter with the multiple-choice questions on the online resources.

Summative assessment exercise

Mr and Mrs Brown bought a house for their daughter Jenny to live in during her time as a student at university. The house cost £200,000 and for tax reasons was conveyed into Jenny’s sole name. Mr and Mrs Brown paid £100,000 in cash and Jenny took out a mortgage to cover the balance of £100,000. It was understood that Mr and Mrs Brown would make payments into her account each month to cover the mortgage instalments as they fell due. Jenny’s only financial outlay was £3,000 to cover stamp duty, the expenses of the purchase, removals and home insurance, but it was understood she would not have to pay a penny thereafter apart from the usual bills for gas, electricity and so forth. After one year of her university course p. 425Jenny invited Pete to live with her in the house. Pete was Jenny’s long-term boyfriend and he had a steady job. From the moment he moved in, he started to pay the mortgage instalments instead of Mr and Mrs Brown. However, the house remained in Jenny’s sole name. Jenny explained that her parents had paid a lot of money towards the house and wouldn’t let her put the house in the joint names of her and Pete.

A year later Jenny and Pete split up. Advise the parties as to their likely interests in the house.

For full specimen answers to these questions please visit the online resources.

The bigger picture

Despite the problems described in Midland Bank plc v Cooke (see 17.1.2), the Law Commission has rejected calls for cohabitants to be given the same rights as married couples and civil partners in the event of separation (Law Commission, ‘Cohabitation: The Financial Consequences of Relationship Breakdown’ (Law Com No 307) Cm 7182, July 2007). This is not surprising—just try and define ‘cohabitant’ and you will discover how hard it would be to draft laws to govern property distribution when cohabitants go their separate ways.

Further reading

  • Dixon M.J. ‘Proprietary estoppel: A return to principle?’ (2009) 3 Conv 260
  • an article supporting the 2009 House of Lords’ decision in Thorner v Major (a.k.a. Thorner v Curtis)

  • Etherton, Sir Terence ‘Constructive Trusts and Proprietary Estoppel: The Search for Clarity and Principle’ (2009) 73 Conv 104
  • overview of the law on constructive trusts and proprietary estoppel, focusing on the House of Lords’ decisions in Stack v Dowden and Cobbe v Yeoman’s Row Management Ltd

  • Ferguson, P. ‘Constructive Trusts—A Note of Caution’ (1993) 109 LQR 114
  • contends that a constructive trust must be different from a proprietary estoppel because the former arises independent of the courts’ intervention

  • McFarlane, B. The Law of Proprietary Estoppel (2014) Oxford: Oxford University Press
  • a comprehensive, practical and theoretical overview of the doctrine of proprietary estoppel

  • Sloan, B. ‘Keeping Up with the Jones case: Establishing Constructive Trusts in “Sole Legal Owner” Scenarios’ (2015) 35(2) Legal Studies 226–51
  • argues that judges have been too conservative in failing to take opportunities (however few) to move beyond the restrictive approach of Lloyds Bank plc v Rosset and allow novel outcomes in the light of Jones v Kernott

  • Hayton, D. ‘Constructive Trusts of Homes—A Bold Approach’ (1993) 109 LQR 485
  • regards the common intention constructive trust as in practice indistinguishable from equitable proprietary estoppel, responding to Ferguson (above)

    © Gary Watt 2021