It has been a year since the Supreme Court decision in Jones v Kernott clarified the law of co-ownership. This article examines co-ownership cases in 2012 and looks back at the issues that were litigated. By way of a quick recap, the result of Jones was that in determining whether the interests of the parties have changed the court will try to deduce what their intentions were at the relevant time. The court cannot impose a solution upon them which is contrary to their express intentions. However, if it cannot deduce exactly what shares were intended, the court may ask what their intentions as reasonable and just people would have been had they thought about it at the time. Essentially the court in those circumstances will decide what is "fair".
In the spring time the High Court heard an appeal in the case of Fisher Meredith LLP v J H ( EWHC 408 (Fam)). A firm of solicitors succeeded in overturning a wasted costs order made following their failure to join a relevant party in divorce case, which resulted in an adjournment. The case raised the interesting issue as to the general application of the burden of proof established in Stack v Dowden. The joining of the third party was only necessary if the burden of proof was on the wife. The wife had applied to reverse a transfer of shares made by the husband to a relative because she said the shares should form part of the matrimonial pot. The husband said he did not beneficially own the shares. The appeal was allowed. Mostyn J held that the wife’s solicitors would only be negligent if the burden of proof to prove the beneficial interest fell on the wife. Counsel for the husband asserted that the burden fell on the claimant in every case. This suggestion was roundly rejected by Mostyn J. He applied the dicta of Baroness Hale in Stack v Dowden  UKHL 17 that:
“The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership. So in sole ownership cases it is upon the non-owner to show that he has any interest at all. In joint ownership cases, it is upon the joint owner who claims to have other than a joint beneficial interest”.
Mostyn J held that this statement was of general application in relation to the burden of proof. Therefore he concluded that it had been the joint and equal responsibility of the husband and the beneficial owner to discharge the burden of proof; the burden was not on the wife. The solicitors were therefore acquitted of any negligence and the costs order was reversed.
Click here to view the picture.
The case of Chapman v Jaume ( EWCA Civ 476) considered whether money spent on a house belonging to another during the course of their relationship was a loan. The parties were unmarried and each owned a property of their own. Mrs Jaume was divorced with a child from her marriage. The parties formed a relationship and Mr Chapman moved into Mrs Jaume’s house. He funded substantial works to her property. The couple later separated. The issue was: what were the legal consequences of that expenditure? The judge at first instance came to a bizarre conclusion that because there was no evidence of what the terms of the loan were then the money did not have to be repaid. An appeal was allowed on the basis that the judge had held that the precise conditions of the agreement had not been proved but there had been some sort of agreement, the obvious inference was that the monies were a loan repayable within a reasonable time after demand. Counsel for Mr Chapman relied on Seldon v Davidson  1 WLR 1083 for the proposition that payment of money between strangers, in the absence of any presumption of advancement, imports a prima facie an obligation to repay the monies advanced.
Counsel for Mrs Jaume argued that on the facts of the case there was a presumption of advancement. However, in so far as Mrs Jaume sought to rely on Stack v Dowden  UKHL 17, that case did not support the argument. In fact it expressly stated that the presumption of advancement had never existed between unmarried partners. Lewison LJ (giving judgment of the court) concluded that a reasonable time for repayment would at the latest be when the house was sold and therefore the money should be repaid because Mrs Jaume had by that time sold the house. These arguments will not be available in future because the presumption of advancement was abolished by the Equality Act 2010).
In Geary v Rankine ( EWCA Civ 555) the court considered the case of a couple who were in a long-term relationship and who ran a guest-house and found that they had not been in a business partnership. Further there had not been a common intention that the appellant would have a beneficial interest in the guest-house property. The Defendant bought a guesthouse from his savings which the parties ran together. The Claimant received no wages. When the relationship broke down she claimed that there was a partnership by conduct, that the property was a partnership asset and that she was entitled to a beneficial share in the property. The Defendant was the sole legal owner. She accepted that there was no joint intention of co-ownership at the time of purchase but said that there was a subsequent change of intention such as to give her a share of the property.
The case is an interesting example of the application of the principles of partnership law, and the application of the principles applicable to constructive trusts following Jones v Kernott. The Claimant lost at first instance and appealed. Lewison LJ dismissed the appeal on the partnership issue on the ground that there was ample evidence on which the judge was entitled to conclude that there was no business partnership. Even if there were such a partnership, he said it would not follow that the property would have been a partnership asset. As he said:
“The mere fact that there is a partnership in profits produced by a particular asset does not indicate that the asset itself is partnership property.”
All the documentary evidence showed the Defendant trading as a sole trader and the Claimant had not taken any share of the profits. He said it was common for one partner to own the property in which a partnership business is carried on. If the asset is acquired with profits generated by the partnership, that is a different proposition, but in this case the asset was acquired with M’s own money before any question of partnership in the guest house business could have arisen.
Lewison LJ also dismissed the appeal on the constructive trust claim, applying Jones v Kernott. This was a single name ownership case so the Claimant had to establish first whether it was intended that she should have any beneficial interest in the property at all. It was only if she succeeded in this that she could move on to establishing what that beneficial interest was. There was no presumption of joint beneficial ownership. The common intention had to be deduced objectively from their conduct. The Claimant’s case was not that there was a common intention at the time of purchase, but that the common interest subsequently changed.
Lewison LJ said that it was important to stress that the object of the search is for an intention common to both parties. He concluded that the evidence did not support the Claimant’s contention and there had been no reliance by her on any representations made by the Defendant. He said it was an impermissible leap to go from a common intention that the parties would run a business together to a conclusion that it was their common intention that the property in which the business was run, and which was bought entirely with money provided by one of them, would belong to both of them.
This case highlights the often factually complex situations that can arise when a couple occupies a property both as a home and for the purposes of a business. It is also a useful reminder that the principles of partnership law are, of course, very different from the principles of law applicable to implied trusts. Here, even if the court had held that there had been a business partnership, this would not have assisted the Claimant in any event because the property would still not have been a partnership asset.
November saw the decision of the Court of Appeal in Pankhania v Chandegra  EWCA Civ 1438. The Court of Appeal allowed the appeal of the Claimant who sought an order for sale of co-owned property. The judge at first instance had been wrong to embark on consideration of the existence of the inferred intentions of the parties as to beneficial ownership when there had been no argument advanced as to why the express trust contained in the transfer should be set aside.
The Claimant was the nephew of the Defendant. The Parties purchased the house in 1987. The Claimant assisted the Defendant with the purchase because he was able to obtain a mortgage. The Defendant was unable to obtain a large enough mortgage. Despite the Claimant not having contributed to the purchase price, the parties executed a transfer of the property that included a declaration that they would hold the property as tenants in common in equal shares.
Click here to view the picture.
At trial on the issue of the beneficial interests at first instance, neither counsel addressed the fact that there was an express trust declared in the transfer. Counsel for the Defendant merely referred to the declaration in the transfer as a sham because it was never intended that the Claimant should live at the property or contribute to the property. The Judge at first instance proceeded on the footing that he had a free hand to decide what the beneficial interests were, however he was not free to do this unless the Defendant established a case for setting aside the declaration of trust.
In order to set aside an express declaration of trust there must be an application for rectification based on mistake or an allegation that the transfer was fraudulent. In this case there had been no application to rectify. There was no evidence about the issue of mistake. The only issue that could have come into play was the allegation that the transaction was a sham. However there was no evidence that it was done for anything other than convenience. The authorities on the point of sham trusts were considered. It was necessary to prove not only that the parties did not in fact intend to create a trust, but they must also intend to mislead a third party or the court. In this case there was no indication that the mortgage company was concerned with the beneficial interests in the property. Therefore there was no evidence on which an application to set aside could be founded. The Court of Appeal therefore overturned the decision of the judge at first instance and made an order for sale.
The difficulties in this case appeared to stem from the fact that Counsel did not consider the significance of the express declaration of trust. Had they done so then it would have been clear that arguments under Jones v Kernott about inferred beneficial interest would not be relevant until or unless the express declaration of trust was set aside. Absent mistake, fraud or undue influence is not possible to go behind an express declaration of trust.
The absence of reported cases on the issues of law decided in Jones v Kernott suggests that the Supreme Court has achieved its aim of clarifying the law on co-ownership. However the cases that did make it to trial and appeal this year highlight the importance for lawyers of focusing not just on the principles of co-ownership but also on evidential burdens of proof, on the common law principles of loans and gifts and partnership. The final case shows parties too eager to delve into examination of the issue of common intention and in seeking to follow Jones they overlooked the fact that there was an express declaration of beneficial interest. On the facts of the case the test for setting aside the express declaration as a fraud or sham was not met. The moral of the story is that each case has to be considered on its individual facts. Cases involving common intention trusts may also involve other complex and interrelating issues that must not be missed in the rush to apply Jones v Kernott.
Click here to view the pictures.