In November of last year the Supreme Court delivered the long awaited judgment in Jones v Kernott [2011] 3 WLR 1121 (a copy of my article analysing that decision can be found on our website). Since then there have been a handful of developments. In particular, three decisions by a similarly constituted Court of Appeal at the end of March merit consideration.

1 Geary v Rankine

Geary v Rankine [2012] EWCA Civ 555 concerned an unmarried couple who had been in a relationship from 1990 until 2009. In 1996 Mr Rankine had purchased a guesthouse for £61,000. That property was purchased in his sole name using his savings and was intended as a commercial investment. It had initially been intended that Mr Rankine and Ms Geary would not live at the property but circumstances changed and eventually they both moved in and worked there together. Ms Geary helped with the cleaning and the paperwork as well as cooking three meals a day.

On these facts, it was accepted by Ms Geary that a claim based upon a “common intention” constructive trust at the time of acquisition was unsustainable. Her argument was that there had been a subsequent change in the common intention post-acquisition such as to give her an interest under a constructive trust.

Applying Jones v Kernott Etherton LJ expressed the view that the court could not impute intentions to the parties unless satisfi ed that the parties’ actual common intention, express or inferred, was that the benefi cial interest was to be shared (para. 19). In a single name case, the fi rst issue is whether it was intended that the Claimant should have any interest at all (para. 20). The Court of Appeal stressed that “the object of the search is a common intention; that is, an intention common to both parties” (para. 21). Accordingly, the nonlegal owner had to establish that, despite the fact that the legal title to the property remained in the other party’s sole name, he actually intended that she should have an interest in it. That actual intention may have been expressly manifested or may be inferred from conduct “but actual intention it remains”. On the facts, there was no adequate evidence that the legal owner had changed his intention about ownership and no evidence that Ms Geary’s alleged detriment was in reliance upon any assertion by Mr Rankine. Her claim accordingly failed.

Geary v Rankine is a helpful reminder of the limits of Jones v Kernott. The court is not at liberty to simply re-draw the benefi cial ownership of a property to do what may be considered “fair”. There are clear restrictions on when and what may be imputed to the parties. Moreover, although not referred to in the judgment, the Court of Appeal in James v Thomas [2007] 1 FLR 1598 and Morris v Morris [2008] Fam. Law 521 had in any event already made it clear that, even after Stack v Dowden [2007] 2 AC 432, the court would be “slow to infer from conduct alone that parties intended to vary existing beneficial interests established at the time of acquisition”.

2 Chapman v Jaume

On the same day, the same Court of Appeal delivered judgment in Chapman v Jaume [2012] EWCA Civ 476. In that case Mrs Jaume was the sole legal owner of a property she had acquired in an earlier divorce. Her new partner, Mr Chapman, had thereafter spent more than £130,000 extending and refurbishing the property. The issue before the judge involved determining the legal consequences of that expenditure.

Prior to the commencement of proceedings, Mr Chapman had twice made applications to HM Land Registry asserting that he had a benefi cial interest in the subject property. When he came to issue proceedings, however, his case was put on the altogether different footing that the money he had spent was a loan. At fi rst instance, the judge found that there had probably been some sort of fairly incomplete or inconsistent agreement but that no express conditions about reimbursement had ever been discussed. The judge also found that the pleaded case that there was a loan was a way of rationalising the situation after Mr Chapman ran into diffi culty with his Land Registry applications; he then rejected Mr Chapman’s claim in its entirety.

The judgment of the Court of Appeal is signifi cant for the following reasons. First, it makes the obvious point that analytically there was no way for Mr Chapman to advance a case based upon a resulting or constructive trust. If a party’s primary case is that the money was supplied in the character of a loan he cannot also fall back on an inconsistent case based upon trusts (para. 19). Further, the judge had fallen into error because he had not had the decision in Seldon v Davidson [1968] 1 WLR 1083 drawn to his attention. The ratio of that case was that “Payment of money having been admitted, prima facie that payment imported an obligation to repay in the absence of any circumstances tending to show anything in the nature of a presumption of advancement”. Counsel for Mrs Jaume attempted to argue that a presumption of advancement did apply to a cohabiting couple. Unsurprisingly, the Court of Appeal used this as an opportunity to reaffi rm in the starkest terms that “There is no presumption of advancement between cohabitants” (para. 24). Hence Mr Chapman received his Money back.

3 Thomson v Hurst

Judgment in the last of this triumvirate of cases followed the next day. In Thomson v Hurst the Court was concerned with a cohabitating couple who had intended to purchase their home in joint names. A mortgage advisor advised that as Mr Thomson had a poor credit rating the mortgage should be in Miss Hurst’s sole name and they therefore decided that Miss Hurst should also be the sole legal owner of the material property. Inevitably, the trial judge found that there was a common intention that Mr Thomson would have a benefi cial interest in the property but he declared that, on the facts, that was limited to only 10% of the equity. Mr Thomson appealed and argued that the principles set out in Stack v Dowden and Jones v Kernott should apply. It will be recalled that those decisions establish that equity follows the law (at least in the “domestic consumer context”) so that in joint names cases there is a presumption that a couple are also benefi cial joint tenants who accordingly have half share interests when that joint tenancy is severed. Mr Thomson’s argument ran that, since the parties had intended to purchase in joint names (and he had been omitted merely because of his credit rating) he should be presumed to be entitled to a half share benefi cial interest.

In an extempore judgment the Court of Appeal rejected that analysis. As yet the case has not been properly reported (indeed the Court of Appeal have still not approved the offi cial transcript). Nonetheless, a short summary is available from which it would seem that the Court of Appeal were at pains not to extend the application of the presumptions in Stack v Dowden and Jones v Kernott (as they were in the earlier case of Laskar v Laskar [2008] 1 WLR 2695). Whatever the parties had intended and whatever the reasons for transferring into a sole name, the short point was that the transfer had not been into joint names. Accordingly, there was no scope for the legal presumption that they had intended to be benefi cial joint tenants. It could not be assumed that, had the parties purchased in their joint names, they would have agreed to be joint benefi cial owners based on the circumstances of the case.

As ever, such cases turn on their own facts. When quantifying benefi cial entitlement (In the absence of express agreement) the court must undertake a survey of the whole course of dealing between the parties taking account of all conduct which throws light on the question what shares were intended. Presumably the fact that the parties had intended to buy as joint legal owners will be relevant to that survey and on appropriate facts may even tip the balance. The apparent importance of Thomson v Hurst is that it is no more than one factor among many.

4 Gallarotti v Sebastianelli

The fi nal decision of note in recent months is Gallarotti v Sebastianelli ([2012] EWCA 865). Mr Gallarotti and Mr Sebastianelli were Italian friends in a platonic relationship who decided to live together. In 1997 they purchased a fl at which was transferred into Mr Sebastianelli’s sole name. The purchase price was £188,287.44. Mr Sebastianelli contributed £86,500 and Mr Gallarotti contributed £26,896; the balance was made up by way of a mortgage in Mr Sebastianell’s sole name. The friendship ultimately broke down in 2008.

Initially the parties reached an express agreement that they would each have a 50% interest in the fl at despite their unequal contributions. However, when that inequality had become apparent they reached a further agreement that Mr Gallarotti would pay a larger proportion of the mortgage repayments.

That agreement or contemplated state of affairs was not subsequently borne out by events. The issue in the case (one which is frequently encountered in practice) was how the parties’ express agreement and the subsequent departure from that agreement should be refl ected in their respective benefi cial entitlements. This was not, of course, a case in which the parties had executed any declaration of trust.

The Court of Appeal determined that the appropriate fi nding was that Mr Sebastianelli had a 75% share and Mr Gallarotti a 25% share. A number of points may be made about the route by which that conclusion was reached:

  1. First, the Court of Appeal expressly approved the adoption of a “common intention constructive trust” analysis in preference to a resulting trust analysis. This was held to be more appropriate “where the parties have incurred expenditure on the strength of their personal relationship and without expectation of having to account [for every item of expenditure]”. That was clearly appropriate on the facts and in any event even a resulting trust analysis may be displaced by the parties’ express agreement. It will be recalled, however, that Laskar v Laskar did hold that in the absence of express agreement a resulting trust analysis was applicable to essentially commercial purchases even if they involved family members. It was for this reason that the analysis in Stack v Dowden was not been applied in that case.
  2. Secondly, it was held that the recorder had been correct to proceed on the basis that, if there was an agreement which applied to the circumstances which had arisen, the court should conclude that the benefi cial interests were established by that agreement alone. That breaks no new ground but is a welcome restatement of the position that was so succinctly summarised in Mortgage Corporation v Shaire [2001] Ch. 743.
  3. The Court of Appeal held, however, that despite the parties’ express agreement to share ownership equally, the reality of their arrangement (in view of the contemplated disparity in mortgage instalment contributions) was that they did intend that their fi nancial contributions should be taken into account. When Mr Gallarotti failed to make the contemplated mortgage contributions “The logical result of the agreement...was that the agreement for 50/50 sharing was at an end”.
  4. The outcome of the case is self-evidently supportable on the basis that the parties’ express agreement had not been complied with or followed through but it does raise a recurring and diffi cult question. If the parties expressly agreed to share ownership equally, but also reached an agreement regulating the basis upon which the mortgage should be paid, why was this not merely treated as a case of equal ownership subject to Mr Sebastianelli’s right to an equitable account in relation to the unpaid mortgage contributions? The short answer on the facts is that that would probably have been somewhat unjust on Mr Sebastianelli given the parties’ disparate contributions. It may also be justifi able (following Wilcox v Tait [2006] EWCA civ 1867) on the basis that those contemplated mortgage contributions related to the period before the breakdown in the parties’ friendship when equitable accounting may be regarded as generally inappropriate. Nevertheless, Jones v Kernott has set the courts on an arguably unwelcome course where the determination of the parties’ respective benefi cial interests is often not being separated from the analytically separate question of whether there should be an equitable account.