Co-habitant must prove detrimental reliance when seeking to establish a constructive trust

On 14 December 2022, Lord Justice Lewison handed down judgment in the Court of Appeal case of Hudson v Hathway [2022] EWCA Civ 1648. This article considers whether a constructive trust can arise simply as a matter of common intention without the need to show any detrimental reliance on that intention.

This was an appeal from the High Court case before Mr Justice Kerr ([2022] EWHC 631 (QB)), being itself an appeal from HHJ Ralton.  Kerr J set out the original issues in his judgment:

This is an appeal in a case about equitable ownership of a family home purchased in joint names, initially with equal ownership rights, where the unmarried parties later separate. Must a party claiming a subsequent increase in her equitable share necessarily have acted to her detriment? Or does a common intention alone suffice to alter the beneficial shares? And if the former, was the judge right to decide that the requirement of detriment was met?

Kerr J found that it was not necessary to show detriment. Lewison LJ disagreed, and, in the words of Nugee LJ at the end of this judgment:

But as the masterly exposition of Lewison LJ demonstrates, the suggestion that in cases of this kind a constructive trust can be relied on without the need to show detrimental reliance is not one that can be accepted.

Background

Ms Hathway and Mr Hudson had bought Picnic House in joint names in 2007. In 2009 Mr Hudson left Ms Hathway and she continued to live at Picnic House with their two sons. Mr Hudson did for a time still contribute towards the mortgage repayments. In 2013, the couple agreed in writing that Mr Hudson would keep his pension and other investments and Ms Hathaway would have the equity in Picnic House and its contents. In October 2019 Mr Hudson issued a claim under CPR Part 8 and the Trusts of Land and Appointment of Trustees Act 1996 seeking an order for the sale of Picnic House, and for half the proceeds.

Ms Hathway agreed that the house should be sold but contended that she was entitled to the whole of the proceeds under a common intention constructive trust which the couple had put into writing, in reliance on which she had acted to her detriment by arranging her financial affairs on the basis that she was the sole owner of Picnic House, discharging the joint liability for the mortgage from 2015 onwards, discharging all outgoings for and maintaining and improving Picnic House and not pursuing any further financial claims against Mr Hudson. Lewison LJ’s conclusion was that a party claiming a subsequent increase in their equitable share as a result of a post-acquisition changed common intention must show detrimental reliance on that changed common intention.

The first question

Logically, the first question was whether the e-mails exchanged between the parties effected a release by Mr Hudson of his interest in the beneficial joint tenancy to Ms Hathway. Lewison LJ found that they had, stating that they evinced Mr Hudson’s clear intention to divest himself of that interest immediately, rather than a promise to do so in the future. His email of 30 July 2013 said in relation to the house, “Take it”, and in his follow up on 9 September he said “I’ve no interest whatsoever in the house”. He added in an email dated 2 July 2014, “means nothing to me if it sells for a pound or a million”.

Having then considered the meaning of ‘signed’ in some detail, Lewison LJ concluded that these emails had met the statutory requirements as they were ‘signed’ for the purposes of section 53 (1) (a) and (c) of the Law of Property Act 1925.

The constructive trust

Having decided this point, Lewison LJ noted that the main reason Asplin LJ had given permission for this second appeal was to decide whether a constructive trust can arise simply as a matter of common intention without the need to show any detrimental reliance on that intention.

Lewison LJ conducted a thorough review of previous case law on this matter and concluded that “the need for detrimental reliance is plain.” He stated:

I do not, therefore, detect in either Stack v Dowden or Jones v Kernott any intention on the part of the court to abrogate the longstanding principle that what makes an unenforceable agreement or promise enforceable in equity is detrimental reliance… I respectfully disagree. In my judgment Kerr J was wrong to hold that detrimental reliance is no longer required. The overwhelming weight of authority both before and after Stack v Dowden and Jones v Kernott is to the contrary.

Lewison LJ then went on to agree with the decision of the trial judge that, on these facts, detrimental reliance was present.

Our view on the decision

The Appeal decision provides welcome clarity for common intention constructive trusts arising between joint owners of property in a domestic context. Whilst an express agreement in writing may be enough to establish a common intention, it is now clear that the Court will not incline towards the increase of a joint owner’s beneficial share without detrimental reliance also being established on the facts. This chimes with another area of law, proprietary estoppel, where the Court has to be satisfied that it would be unconscionable, usually because of detriment suffered by a Claimant, not to grant the remedy the Claimant seeks. If detriment were not required, then one party could unilaterally declare a trust which would render the putative beneficiary a “pure volunteer”.

The decision upholds the principle of binding agreements only being capable of being made where something is given in return. Without something in return (such as detriment or a change of position) all that is left is gratuitous intention which without detriment will be no more than an unenforceable declaration of trust. If detriment were not required, it would also make it easier for the dominant party in the relationship to adjust their beneficial interest to their own advantage.

All this being said, the way to avoid such disputes is for cohabiting couples to draw up express declaration of trusts where property is jointly owned, setting out clearly what their beneficial interests are and keeping this under review when their intentions change.

For more information, please contact Lucinda Brown or John Darnton in our Trusts Disputes team.