No picnic in the park

Just in time for Christmas, judgment in the case of Hudson v Hathway [2022] EWCA Civ 1648 was handed down. This was a second appeal in the case (‘the appeal’), heard in the Court of Appeal. 

Kerr J provided a sharp précis of the case in the first appeal heard by him, noting: “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?”

While the appeal deals with more than constructive trusts, this has been a key focus of the judgment, given the first appeal’s shift away from detrimental reliance being a necessary element.

Background

Lee Hudson and Jayne Hathway began a relationship in 1990, at which point Lee moved in with Jayne and the two became joint owners of that property. They subsequently sold that property before purchasing another in joint names. They then purchased Picnic House, the subject of the dispute, in 2007 with the help of a mortgage in joint names without any declaration of trust.

Over time, Lee’s earnings overtook Jayne’s. In 2009 Lee began a new relationship and moved out of the property. Jayne remained at Picnic House with their two sons and the mortgage was changed to interest-only payments. The mortgage repayments continued to be paid from a joint account although Lee’s payments to the mortgage substantially exceeded Jayne’s.

In 2011, Picnic House was damaged by an oil leak, following which emails were exchanged between Jayne and Lee about Picnic House and the division of assets, including Picnic House, Lee’s shares, and his pension, following the termination of their relationship. 

Jayne contended that Lee’s wealth accumulated during the relationship was a pooled asset and that she should have a claim to it. Lee’s position on this appears to have varied but in the end proposed that Jayne could take cash and their savings, as well as Picnic House and its contents. 

Emails between the two negotiating these arrangements were usually signed off with their first names, or first and last names.

Jayne accepted this proposal and said that she would sell Picnic House once the oil damage was resolved, so the mortgage could be cleared and she could buy a new home. Lee continued to contribute to the mortgage but stated that this would not continue indefinitely.

Lee later proposed that he would buy Picnic House outright from Jayne. However, as the oil damage issues and related insurance claim continued to run on, Lee grew impatient and by 2015 he stopped his mortgage payments. Thereafter Jayne took over the mortgage payments and continued to live there with her now adult sons.

The claim

In 2019, Lee issued a claim seeking an order for sale of Picnic House, with the net proceeds of sale to be divided equally between himself and Jayne under section 14 of the Trusts of Land and Appointment of Trustees Act 1996. While Jayne was happy for the property to be sold, she disputed the equal division of proceeds, arguing that she was entitled to the entire net sale proceeds. 

She submitted that there was a common intention and agreement between her and Lee, on which she had relied to her subsequent detriment. 

That detriment, she submitted, was based on her having to meet the interest payments on the Picnic House mortgage from 2015, essentially waiving any claim to Lee’s assets accrued during the relationship and financial support for their sons under the Children Act 1989, and dealing with the oil damage and redecoration herself. Jayne submitted that this detriment arose directly from her reliance on Lee’s representations that she was the sole beneficial owner of Picnic House.

At first instance, Lee was unsuccessful with his claim. While the High Court agreed that there had been an agreement between the parties regarding their respective beneficial interests, the judge held that the email correspondence did not satisfy the formalities under section 53(1) of the Law of Property Act 1925 (LPA 1925) or section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. 

It did find though that Jayne was the sole beneficial owner by reason of a constructive trust which was provided for under those acts, and HHJ Ralton accepted that forgoing potential claims against Lee’s assets arising during the relationship constituted detrimental reliance.

Lee’s appeal was originally unsuccessful. On the first appeal, Kerr J found that the trial judge’s findings were a decision made on the facts before him, and so would not interfere with the initial decision. 

The case drew practitioner interest given Kerr J’s view that – citing Stack v Dowden [2007] 2 AC 432 and Jones v Kernott [2012] 1 AC 776 – detrimental reliance was not a pre-requisite of a common intention by express agreement in a case of joint ownership. Instead, he held that where an express common intention existed and had been contradicted, this was sufficient to give rise to the necessary unconscionability. While apparently logical, it was a substantial departure from how we practitioners had dealt with such claims historically.

Having failed twice, Lee decided to take a third bite at the cherry and the court allowed the formalities of the agreement in relation to Picnic House to be revisited.

The law

The judgment cites a plethora of cases and legal commentary in analysing the position on constructive trust disputes and the requirement or otherwise to show detrimental reliance. This included the recent Supreme Court proprietary estoppel decision of Guest v Guest [2022] UKSC 27, in which Lord Briggs said that for those claims: “Without reliant detriment there is simply no equity at all.” 

The authorities cited by Lewison LJ will no doubt be a useful template for skeleton arguments and position statements for many a constructive trust claim to come. 

Key to the appeal was the fact that two parties held the property as joint tenants. Because joint tenants do not hold a distinct share of the land it is not ordinarily possible for one joint tenant to assign their beneficial interest to a third party. Section 36(2) of the LPA 1925, though, does allow for a joint tenant’s interest to be released to the other joint tenant. Burton v Camden LBC [2000] 2 AC 399, referred to in the judgment, demonstrates that such a “release” works by extinguishing the interest of the releasing party, rather than having it continue and being assigned. No particular form is required for such a release.

Also crucial was section 53(1)(c) of the LPA 1925 which, as already mentioned, requires dispositions of equitable interests or express trusts subsisting when the disposition takes place to be in writing and signed by the party.

The appeal judgment

The appeal was dismissed unanimously.  The lord justices found the emails provided express evidence of the agreement that Jayne was to take the full beneficial interest in Picnic House and, acknowledging the modern nature of communications, that these emails were “signed” when each of the parties typed their names in each email.  

As such, Jayne could rely on the emails between Lee and herself as evidence of a release of his interest in Picnic House under section 53(1)(c) of the LPA 1925, thereby providing her with sole beneficial ownership from that time.

The Court of Appeal went on to consider whether, if the emails had not complied with the statutory formalities, Jayne would have succeeded on the constructive trust claim. They found that she would. 

The lord justices also took the opportunity to reiterate that detrimental reliance was a core requirement for constructive trust claims. The correspondence in which Lee had indicated to Jayne that he had no further interest in Picnic House, and her reliance on that by not making a claim on other assets in Lee’s name, constituted such reliance. 

Practical points for practitioners

This case allowed the typed name in an email to amount to a signature sufficient to comply with section 53(1)(c) of the LPA 1925.

Practitioners should therefore be alive to the fact that the courts are likely to find typed names at the end of emails meet the necessary formalities to effect a transfer of land or declare a trust in the appropriate circumstances. 

However, names included automatically on email metadata will likely not suffice. As such, any correspondence (whether electronic or otherwise) aimed at reaching terms should be described clearly as not being an offer capable of acceptance, or labelled as being “subject to contract”.

The finding that Jayne’s choice not to pursue a claim against Lee’s further assets was sufficient detriment for the constructive trust claim is also a useful point. This could allow claims where evidence of detriment is otherwise lacking.

Finally, it is a stark warning to retain and gather all key evidence of detrimental reliance in such claims.