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Family Law

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13 JAN 2015

O’Kelly v Davies [2014] EWCA Civ 1606

O’Kelly v Davies [2014] EWCA Civ 1606
(Court of Appeal,Pitchford, Beatson, Gloster LJJ, 11 December 2014)

[The judicially approved judgment and accompanying headnote has now published in Family Law Reports [2015] 2 FLR 1311]

Property – Beneficialinterest – Constructive trust – Transfer into woman’s sole name which enabledher to fraudulently claim benefits – Whether the unlawful purpose prevented thecourt from imposing a constructive trust

The full judgment is available below

The woman’s appealfrom a decision finding that the parties held equal beneficial interests in aproperty held in the woman’s sole name was dismissed.

The man and womanpurchased a property, No 42, in their joint names and lived there as a family.Four years later it was transferred into the woman’s sole name. Fifteen yearslater she sold No 42 to the man for £155,000. At the same time the womanpurchased No 74 for £130,000. No 42 was rented out. The parties lived in rentedaccommodation while renovations took place on No 74. Thereafter they lived atNo 74 until they separated in 2011 and the man issued a Part 8 claim in respectof No 74.

At first instance itwas held that the common purpose for the transfer of No 42 into the woman’ssole name had been to enable her to make fraudulent claims for benefits as asingle woman. Immediately prior to the purchase of No 74 their common intentionhad been for the man to have some interest in No 42. His income had funded themortgage payments on No 42 and it would, therefore, be extraordinary toconclude that he held no interest.

In respect of No 74the judge found that the parties’ common intention that the man should have aninterest in No 42 continued to be relevant as No 74 replaced No 42 as thefamily home and his income paid the bulk of mortgage payments and livingexpenses. The common intention was that the man should have a beneficialinterest in No 74. It was placed into the woman’s sole name so that she couldcontinue to claim benefits as a single mother living alone. The parties’actions in doing so had been unlawful and a fair conclusion was that theirrespective shares in the property should be equal. A declaration was made thatthe woman held No 74 on trust for herself and the man in equal shares. Thewoman appealed.

The appeal wasdismissed. The facts found by the judge were consistent with a common intentionto share the beneficial interest in No 74 equally. After examining the dealingsbetween the parties he found that for compelling reasons the common intentionsubsisted as at the date when the dispute had arisen.

On the facts of this case it was not necessary for theman to advance his unlawful agreement in order to make good his claim of aconstructive trust. The dealings between the parties during the relevant periodhad given rise to the inference of their common intention without the need torefer or rely on the illegal purpose. The reason for the purchase in thewoman’s sole name had been unlawful but the acquisition of a beneficialinterest had not arisen from the illegal purpose but from the parties’ commonintention inferred from their continuing course of dealing, that the man shouldhave an interest. The unlawful purpose might have explained their conduct butit was the conduct itself that had given rise to the constructive trust. Theintervention of public policy was avoided.



Neutral Citation Number: [2014] EWCA Civ 1606

Case No: B2/2013/0975/CCRTF

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Swansea Civil Justice Centre
His Honour Judge Vosper QC
2SA0014

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 11/12/2014

Before :

LORD JUSTICE PITCHFORD
LORD JUSTICE BEATSON
and
LADY JUSTICE GLOSTER
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Between :

Jeanette O'Kelly
Appellant

- and -

Kenneth Dylan Davies
Respondent

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- - - - - - - - - - - - - - - - - - - -

Graham Walters (instructed by Patten & Carpenter) for the Appellant
The Respondent appeared in person

Hearing dates : 11th November 2014

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Judgment

Lord Justice Pitchford:


The appeal

[1]  This is an appeal from the decision of His Honour Judge Vosper QC, sitting at Swansea County Court on 14 March 2013, when he made a declaration that the defendant (“the appellant”) holds the freehold property at 74 Lon Olchfa, Sketty, Swansea on trust for herself and the claimant (“the respondent”) in equal shares. The defendant now appeals on the grounds (1) that the judge was wrong to infer a common intention to share the beneficial interest in the property and (2) that in order to make good his claim to a beneficial interest in the property, whose legal title was at all times held by the defendant alone, the claimant was required by the judge’s findings of fact to assert an unlawful agreement; thus, public policy did not permit the respondent to enforce any equitable interest he may have had in the property. We have been assisted by the submissions of Mr Walters (counsel below) on behalf of the appellant. Mr Davies appeared in person. He did not seek to address the court save to make a plea for fairness. At the conclusion of argument, and retirement for consideration, the court informed the parties that the appeal would be dismissed for reasons to be given in writing. These are my reasons for dismissing the appeal.

[2]   The property is a mid-terrace house at Sketty Park in Swansea. Its acquisition by the appellant occurred in the following circumstances as found by the judge: The appellant and the respondent met in 1984 or 1985 when they were in their mid-twenties and lived together in a rented flat. The respondent was employed in the construction industry and spent much of his working life away from Swansea. In December 1987 they purchased in joint names 42 William Street, Sandfields, Swansea; it was their family home. On 1 May 1991 42 William Street was transferred by the parties into the sole name of the appellant. On 26 October 2006 the appellant sold 42 William Street to the respondent for the price of £155,000. Simultaneously, the appellant purchased 74 Lon Olchfa from a third party for the price of £130,000. The respondent let 42 William Street to tenants and the rent was used in part payment of the mortgage on that property; it was subsequently re-possessed. The parties lived together in rented accommodation until renovations to 74 Lon Olchfa were complete. They then lived together at 74 Lon Olchfa, when the respondent was not working abroad, until they separated at the end of 2011 following the appellant’s discovery of the respondent’s affair with a woman in Saudi Arabia.

[3]  The respondent issued his Part 8 claim on 5 January 2012. His case was that he was the financial provider for the family and the source of funds for the purchase of 42 William Street. When in 2006 the relationship between the parties was strained, they agreed that the respondent should purchase 42 William Street to provide a buy-to-let investment for their daughter. The appellant would purchase 74 Lon Olchfa as the family home. Shortly afterwards the relationship resumed. They lived together in rented accommodation while renovation work funded by the respondent was completed. It was the parties’ common intention that they enjoyed equal beneficial interests in 74 Lon Olchfa. The relationship ended in 2011 and the appellant moved out.

[4]  In her Defence, filed on 13 March 2012, the appellant asserted that, although in May 1985 the parties were engaged to be married, the relationship between them broke down in 1990 and they separated. A brief resumption of the relationship in 1995 resulted in the birth of their daughter, Evangeline, on 1 October 1996. Although 42 William Street was purchased in December 1987 in joint names and the mortgage was jointly held, no part of the purchase price was provided by the respondent. When they separated in about 1990 the house was transferred into the appellant’s sole name to relieve the respondent of any responsibility for the mortgage. It was denied that the respondent had made any financial contribution to the purchase or renovation of 74 Lon Olchfa. There was no common intention that the beneficial interest in the property should be held jointly.

[5]  Neither the appellant nor the respondent raised the issue of illegality in their pleadings and, in their evidence, both denied any unlawful purpose for the transfer of the legal estate of both properties into the name of the respondent. The appellant now relies on the judge’s findings of fact to found her appeal on ground (2) above.

The judge’s findings of fact

[6]  The judge was required to resolve the factual disputes as to the parties’ living arrangements between 1985 and 2011 and their respective contributions to the purchase of the two properties. His purpose was, following the guidance of the Supreme Court in Jones v Kernott [2011] UKSC 53; [2012] 1 AC 776, to ascertain the “common intention” of the parties as to the beneficial interest in the properties. In the course of the evidence it emerged that the appellant had been claiming Social Security benefits as a single woman, and later as a single mother, living alone. It was this discovery that led the judge to the conclusion that the commonly held purpose for the transfer of 42 William Street into the sole name of the appellant was the better to enable the appellant to make fraudulent claims for benefit. The judge’s findings were in summary as follows:

(1) While the respondent worked abroad for long periods, the relationship between the appellant and the respondent endured between 1985 and 2011. There was no hiatus in 1990. In this regard the appellant’s evidence was disbelieved. The respondent returned home from Germany to attend Evangeline’s birth. When the respondent was not working away from Swansea he lived with the family at 42 William Street and later at 74 Lon Olchfa. He was throughout the main breadwinner and met the mortgage repayments on both properties. The judge expressed cogent reasons for these findings, which it is unnecessary, for immediate purposes, to repeat.
(2) In 1997 or 1998 an anonymous complaint was made to the Department of Social Security (“DSS”) that the appellant was making a false claim for benefits. The respondent was interviewed by the DSS on 19 January 1998. He claimed that he was not living at 42 William Street. On 6 February 1998 the DSS adjudicator found that the couple were cohabiting. The appellant appealed against that finding. Written submissions made on her behalf to the adjudicator included the assertions that the parties were living separate lives; that there had been a brief resumption of their relationship in 1995, as a result of which their daughter was born; that they parted amicably in 1996 and had not since lived together; that the respondent suspected that the baby was his but the appellant had never told him so. These assertions were, the judge found, false. Among other things, they were inconsistent with the appellant’s own witness statement in family proceedings in which she said that during her pregnancy the respondent had requested that he should not be named in the child’s birth certificate because he did not wish to be responsible for her financial support. Nonetheless, the appeal against the adjudication was successful.
(3) The respondent gave misleading or false information to the HMRC and the Jobcentre as to the address at which he was living. His purpose was to support the appellant’s false claim for benefits. The deception included a claim by the appellant for child support. In her witness statement in the current proceedings it was the appellant who raised the dispute with the DSS. She relied on her claim for child support to make good her assertion that she was a single mother living alone. However, in the course of her evidence she was compelled to concede that it was the Child Support Agency that had required the claim to be made and, as soon as she could, she had abandoned it.

[7]  The judge said, at paragraph 46 of his judgment:

“46….Neither counsel has addressed me on the consequences of this unlawful purpose. That is not surprising, because neither the claimant nor the defendant admits it, but the unlawful purpose is plain and obvious on the evidence. It explains why neither party can give a clear and consistent explanation for the transfer of number 42 into the sole name of the defendant in 1991. It explains why there is so much contradictory evidence relating to the birth of their daughter. It explains why the claimant said what he did to the DSS in 1998. It explains why he has given inconsistent details of his address to HMRC and to the Jobcentre. It explains why the defendant seeks to deny that there has been any relationship since 1991.”

[8]  The judge made findings as to the course of dealing between the parties as follows:

(1) Number 42 William Street was purchased in joint names for £16,500 on 18 December 1987. The mortgage of £15,000 was held with the Abbey National Building Society. The judge was unable to resolve the dispute as to the source of the deposit and legal costs and what contributions were made to the mortgage repayments in the early days.
(2) The legal estate in 42 William Street was transferred by the joint tenants into the sole name of the appellant in 1991 to enable her to claim benefits as though she was a single woman living alone. At the time of the transfer the mortgage outstanding stood at £26,461, which suggested that there had been a further loan, perhaps in 1989. The mortgage was converted to an endowment secured by a policy on the joint lives of the parties. The appellant had not worked beyond the early 1990s. Eventually, the joint endowment policy was cashed in and the proceeds were used in part repayment of the mortgage. The judge accepted the respondent’s evidence that, despite the transfer of title to the appellant, he had continued to meet the mortgage repayments from his income.
(3) On 26 October 2006 the respondent purchased 42 William Street from the appellant for the price of £155,000 with the aid of a mortgage of £139,200 and a loan for the balance. Simultaneously, the appellant banked £20,000 and purchased 74 Lon Olchfa from an independent third party for £130,000 with the assistance of a mortgage of £13,237. Number 42 William Street was let by the respondent to provide a rental income that he used in part-repayment of the mortgage on number 42.
(4) In 2009 the respondent opened an account with the Royal Bank of Scotland to receive his salary while he was working in Saudi Arabia. On 27 January 2010 he added the appellant as joint holder of the account. Between February 2010 and December 2011 the appellant withdrew £53,883 in cash from the account. By 31 December 2010 the mortgage of £13,237 had been reduced to £6,321. DSS receipts of about £3,000 accounted for some of the reduction but, in addition, cash repayments of £8,700 were made whose source was the joint bank account with RBS.
(5) The respondent carried out works of renovation to 74 Lon Olchfa. It was not possible to quantify the value and costs of that work. Mortgage repayments were made from the respondent’s income.

The common intention

[9]  The judge turned to consider the common intention of the parties as to the beneficial interest in the properties. There was no evidence that at the date of the transfer of 42 William Street to the appellant alone there was any agreement that the respondent should have a beneficial interest in the property; nor, the judge concluded, did the circumstances, objectively viewed, lead to the conclusion that this was their common intention. However, the parties’ relationship had, contrary to the appellant’s evidence, continued after the transfer. They lived together when the respondent was not working away from home. The appellant had ceased work. She cashed in the endowment policy and the proceeds went in reduction of the mortgage. This represented a joint contribution to repayment of the mortgage. While the benefits obtained fraudulently represented part of the family income, the respondent’s earned income met the mortgage repayments (judgment para. 54). There was no evidence of any express agreement to change their position but after 15 years of cohabitation [1991 – 2006], the birth of their child, the financial support of the family and the provision of the family home by the respondent, “objectively viewed the intention of the parties had changed” (judgment para. 55). The judge continued:

“55…It would be a remarkable conclusion, given those circumstances, that the intention of the parties should be that the defendant was solely entitled, legally and beneficially, to number 42 and that the claimant, despite his contributions to the family, and directly to the acquisition of the house, had no interest in it whatsoever.
56. In coming to this conclusion, I do not ignore the possibility that subjectively the defendant throughout held a secret intention to deny any interest if the claimant ever sought to claim it; but that is not the issue.
57. I therefore conclude that immediately before the acquisition of 74 Lon Olchfa, the common intention of the parties was that the claimant should have some interest in number 42 William Street.”

[10]  The judge then turned to the transactions of 26 October 2006. He found that the reason for the sale of 42 William Street was the appellant’s wish to move into the catchment area for Evangeline’s preferred secondary school. The respondent wanted to retain 42 William Street and let it to tenants. The appellant had no interest in letting the property. The solution was for the respondent to act as though he was an arm’s length purchaser of 42 William Street from the appellant. The respondent obtained a mortgage of £139,200 from Abbey National and borrowed the balance of the purchase price. The rent of £750 received from the tenants went in part payment of monthly mortgage repayments of £900. After about two years 42 William Street was repossessed with outstanding arrears (judgment paras. 58 and 59). As to 74 Lon Olchfa the transfer was into the sole name of the appellant because the parties intended that the appellant should continue to claim benefits as though she was a single mother living alone. Had 42 William Street been sold to an independent purchaser and the proceeds used to purchase 74 Lon Olchfa, the property would have been conveyed into the appellant’s sole name for exactly the same reason. The judge accepted the respondent’s evidence that the family continued to live together in rented accommodation while renovations were carried out at the new property at the respondent’s expense. Just as before, the respondent continued to make mortgage repayments from his income (judgment para. 60).

[11]  The judge could not conclude on the evidence that there was an express agreement that the beneficial interest in 74 Lon Olchfa should be shared (judgment paras. 61 – 67), but he continued:

“67… However, the facts that cause[d] me to conclude that their common intention was that he should have an interest in number 42 continue to be relevant.
68. Number 74 Lon Olchfa replaced number 42 William Street as the family home. It was where the defendant and their daughter lived. It was where the claimant lived when he was not working away. As I have said, his income paid the bulk of the mortgage payments and the living expenses. Again, viewed objectively, the common intention of the parties was that the claimant should have a beneficial interest in 74 Lon Olchfa.”

[12]  As to the extent of the respondent’s interest the judge could neither find an express agreement, nor infer that any particular share was intended (judgment para. 69). He referred to the respondent’s “understanding” that although he had paid the lion’s share for the purchase of 74 Lon Olchfa the “fair” conclusion was that the parties’ interest should be equal. Further, he would not attempt to force a sale while the property remained his daughter’s home (judgment para. 70). The judge concluded:

“71. As Lady Hale has pointed out, a calculation of who has paid what does not provide the answer to this question, and by his evidence the claimant plainly accepts that. He has paid more in money terms but he does not seek more than an equal division of the beneficial interest. Further he does not seek an immediate order for sale because 74 must remain a home for his daughter.
72. This approach is in my judgment a fair one, having regard to the whole course of dealing. I am therefore persuaded that the claimant succeeds in his application and that he is entitled to a declaration that the defendant holds 74 Lon Olchfa on trust for herself and for him in equal shares. The precise terms of the order which need to be made, however, will have to be the subject of discussion.”

Illegality

[13]  Notwithstanding that the judge held that the purpose of placing the properties in the name of the appellant alone was unlawful, he found that the case was materially on all fours with Tinsley v Milligan [1994] 1 AC 340. On the facts of the present case, public policy, applied through the maxim ex turpi causa, did not prohibit the respondent from asserting his equitable interest in the property because he did not need to rely upon the illegality of the transactions to make good his claim. Referring to paragraphs 16 and 17 of the joint judgment of Lord Walker and Lady Hale in Jones v Kernott [2011] UKSC 53; [2012] 1 AC 776 the judge said at paragraph 51 of his judgment:

“51. During the course of those paragraphs they refer to the case of Lowson v Coombes. Lowson v Coombes was a case in which the Court of Appeal had to consider the consequences of the illegal purpose underlying the transactions. The court applied the decision of the House of Lords in Tinsley v Milligan [1994] 1 AC 340, the facts of which were similar to those of this case in that the conveyance of the property had been into a single name to enable a DSS fraud to be perpetrated. The majority of the House of Lords concluded that the defendant, whose name was not on the title, was not thereby prevented from asserting her property rights provided that she could do so without reliance on the illegal purpose. I must now apply those principles to the facts of this case as I have found them to be.”

Having concluded that the facts of the present case were materially indistinguishable from those in Tinsley v Milligan the judge did not revisit the issue of illegality. This is not surprising since neither party had sought to address him on the issue. The judge proceeded to identify the principles for assessment of the parties’ common intention from paragraphs 51 – 53 of the judgments in Jones v Kernott and paragraph 69 of the speech of Baroness Hale in Stack v Dowden [2007] UKHL 17; [2007] 2 AC 432, and reached the conclusions which I have extracted from his judgment at paragraphs 11 and 12 above. Although not expressly stated, it is clear the judge concluded that his analysis of the evidence did not require him to give effect to the underlying unlawful purpose. Their common intention was to be inferred from the respondent’s consistent financial contributions to the purchase of the properties, and the parties’ conduct in remaining a co-habiting family when work commitments permitted, and not from the unlawful agreement.

The appellant’s argument

[14]  The appellant contends that the judge erred in concluding (1) that there was a common intention that the parties should share the beneficial interest in 74 Lon Olchfa equally or at all and (2) that the respondent’s case did not depend upon an assertion of the unlawful purpose.

[15]  Mr Walters submitted that the judge’s finding that the parties had a common intention to share the equitable interest in 74 Lon Olchfa was against the weight of the evidence: on 26 October 2006 the parties performed two transactions each of which conveyed property into the sole name of one of them. Contrary to the judge’s conclusion, their conduct demonstrated an intention to hold the legal estate and the beneficial interest in the properties separately rather jointly.

[16]  Secondly, Mr Walters submits that Tinsley v Milligan has no application to the facts of the present case. In Tinsley v Milligan, as here, the presumption of advancement did not apply. However, the majority in the House of Lords held that the presumption of a resulting trust arising from joint contributions to the purchase price relieved the defendant of the need to rely upon the unlawful purpose of deceiving the DSS, while in the present case the judge did not find, or attempt to find, a resulting trust in the respondent’s favour. In the absence of such a finding, it is submitted, there was a presumption in favour of the appellant, since she is the undisputed holder of the legal title to the property. In order to overcome the presumption that the equitable interest in the property followed the legal estate the respondent was compelled by the judge’s findings to rely on the illegal purpose of the transactions.

[17]  In her written submissions the appellant relied on the following statement made by the editor of Snell’s Equity, 32nd edition at 22-066:

“The rule [that a party cannot rely on his own unlawful act] would also apply where a constructive trust arises to give effect to the parties’ informal agreement to create a trust for an unlawful purpose. The claimant might not be able to prove an agreement that the legal owner of the property was to hold on trust for him unless he first established the unlawful purpose that the trust was intended to achieve. He would in effect be barred from enforcing his rights under the trust.”

This was the result in Barrett v Barrett [2008] EWHC 1061 (Ch); [2008] 2 P. & C.R. 17 on which the appellant relies (see paragraph 33 below). However, in the course of oral argument, Mr Walters acknowledged that the underlying principle is that equity would not assist the claimant to enforce an illegal agreement. If the respondent did not need to rely on his unlawful purpose in order to establish his equitable interest in the property then his claim is not barred by public policy (Tinsley v Milligan [1994] 1 AC 340 at page 366, per Lord Jauncey, see para. 20 below). Mr Walters made the further concession that provided the judge made the necessary findings of fact this court could make, although the judge did not, a finding that the legal estate in 74 Lon Olchfa was held on a resulting trust.

Discussion

[18]  It is necessary to trace, in summary, evolution towards the current approach to evidential presumptions when ascertaining beneficial interests in domestic property. In Pettitt v Pettitt [1970] AC 777 and later in Gissing v Gissing [1971] AC 886 Lord Diplock laid the foundations for a more sympathetic approach in an evolving social environment to the assessment of beneficial property rights of cohabiting partners. In Gissing v Gissing at pages 904 and 905 Lord Diplock explained the legal justification for the identification of undeclared beneficial interests in property as follows:

“Any claim to a beneficial interest in land by a person, whether spouse or stranger, in whom the legal estate in the land is not vested must be based upon the proposition that the person in whom the legal estate is vested holds it as trustee upon trust to give effect to the beneficial interest of the claimant as cestui que trust. The legal principles applicable to the claim are those of the English law of trusts and in particular, in the kind of dispute between spouses that comes before the courts, the law relating to the creation and operation of 'resulting, implied or constructive trusts.' Where the trust is expressly declared in the instrument by which the legal estate is transferred to the trustee or by a written declaration of trust by the trustee, the court must give effect to it. But to constitute a valid declaration of trust by way of gift of a beneficial interest in land to a cestui que trust the declaration is required by section 53 (1) of the Law of Property Act, 1925 to be in writing. If it is not in writing it can only take effect as a resulting, implied or constructive trust to which that section has no application.
A resulting, implied or constructive trust - and it is unnecessary for present purposes to distinguish between these three classes of trust - is created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to 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 reasonable belief that by so acting he was acquiring a beneficial interest in the land.”

[19]  Building on these foundations the House of Lords and the Supreme Court, in Stack v Dowden [2007] 2 AC 432 and Jones v Kernott [2012] 1 AC 776 respectively, moved to a recognition that, in the absence of express agreement, beneficial interests in property should be ascertained by an objective decision as to the parties’ “common intention” and by an assessment of the value of those shares, if necessary, by a test of fairness having regard to their whole course of dealing. As Lord Diplock said in Gissing v Gissing it is immaterial for this purpose what label is attached to the trust identified. However, in Tinsley v Milligan [1994] 1 AC 340 the House of Lords, in doing justice to the merits, applied the concept of a resulting trust in aid of a defendant beneficiary who otherwise might have had to rely on the fraudulent purpose of the conveyance of the legal estate in the property to the plaintiff trustee (i.e. false claim to the DSS for benefits). Because the beneficiary could rely on the resulting trust (a judicially created evidential presumption as to the parties’ intention) to establish her equitable interest, she was not required to rely on the illegal purpose of the trust. If the appellant’s argument in the present case is correct, on merits that are materially indistinguishable, the respondent will obtain no relief because, as Jones v Kernott requires (see [2012] 1 AC 776 at para. 24, paragraph 26 below), the judge searched not for a resulting trust but for a common intention constructive trust.

[20]  In order to test the appellant’s argument it is, in my view, necessary to consider whether there is a distinction either in principle or in the context of the facts of the present case between a resulting and a constructive trust sufficient to render the one enforceable in the face of an illegal purpose and the other not. Equity will not come to the aid of a party who must rely on his unlawful purpose but if his right to an equitable interest in property can be identified without the need to rely on his unlawful purpose it can be enforced. In Tinsley v Milligan, at page 366, Lord Jauncey posed the question to be considered in that appeal as follows:

“The ultimate question in this appeal is, in my view, whether the respondent in claiming the existence of a resulting trust in her favour is seeking to enforce unperformed provisions of an unlawful transaction or whether she is simply relying on an equitable proprietary interest that she has already acquired under such a transaction.”

In the present appeal the question is whether the respondent’s claim to a constructive trust founded upon the parties’ inferred common intention amounts to an attempt to enforce unperformed provisions of an unlawful transaction. Put another way: can the respondent prove the trust without recourse to the unlawful agreement?

[21]  The effect of the presumption of advancement (which would not apply in the present case and did not apply in Tinsley v Milligan) is the reverse: the claimant to an equitable interest had to disprove the evidential presumption of a gift. If, to rebut the presumption the transferor of property was bound to rely on his unlawful purpose in making the transfer he would not be permitted to enforce his interest: see, for example, Gascoigne v Gascoigne [1918] 1 KB 223, Tinker v Tinker [1970] P 136, Chettiar v Chettiar [1962] AC 294, Emery’s Investment Trusts, Re [1959] Ch 410.

[22]  A resulting trust was defined by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at page 708 as follows:

“Under existing law a resulting trust arises in two sets of circumstances: (A) 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. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter-presumption of advancement or by direct evidence of A's intention to make an outright transfer: see Underhill and Hayton, Law of Trusts and Trustees, pp. 317 et seq.; Vandervell v. Inland Revenue Commissioners [1967] 2 A.C. 291, 312 et seq.; In Re Vandervell's Trusts (No. 2) [1974] Ch. 269, 288 et seq. (B) Where A transfers property to B on express trusts , but the trusts declared do not exhaust the whole beneficial interest: ibid. and Quistclose Investments Ltd. v. Rolls Razor Ltd (In Liquidation) [1970] A.C. 567. Both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intention of the parties. A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to his presumed intention. Megarry J. in In Re Vandervell's Trusts (No. 2) suggests that a resulting trust of type (B) does not depend on intention but operates automatically. I am not convinced that this is right. If the settlor has expressly, or by necessary implication, abandoned any beneficial interest in the trust property, there is in my view no resulting trust: the undisposed-of equitable interest vests in the Crown as bona vacantia: see In Re West Sussex Constabulary's Widows, Children and Benevolent (1930) Fund Trusts [1971] Ch. 1.”

[23]  The next stage of the analysis is, it seems to me, an examination of the principles upon which the House of Lords acted in Stack v Dowden. It was recognised that in many domestic circumstances it was no longer appropriate to adopt the resulting trust analysis. As Peter Gibson LJ had observed in Drake v Whipp [1996] 1 FLR 826 at page 827 the presumption of a resulting trust made a presumption as to the intention of the transferor in the absence of evidence in rebuttal, while a constructive trust arose from a finding as to the “actual or imputed” intention of the parties (Lord Walker at [2007] 2 AC 432, page 446). Lady Hale (page 455) drew attention to the developments in the law relating to shared property described by Gray and Gray in Elements of Land Law, 4th edition (2005) at page 864:

“In recent decades a new pragmatism has become apparent in the law of trusts. English courts have eventually conceded that the classical theory of resulting trusts, with its fixation on intentions presumed to have been formulated contemporaneously with the acquisition of title, has substantially broken down … Simultaneously the balance of emphasis in the law of trusts has transferred from crude factors of money contribution (which are pre-eminent in the resulting trust) towards more subtle factors of intentional bargain (which are the foundational premise of the constructive trust) … But the undoubted consequence is that the doctrine of resulting trust has conceded much of its field of application to the constructive trust, which is nowadays fast becoming the primary phenomenon in the area of implied trusts.”

[24]  In Oxley v Hiscock [2005] Fam 211 at paragraph 69 Chadwick LJ expressed the view that the court was engaged in a search for the intention of the parties but where there was no evidence of discussion as to the shares in which beneficial interests were to be held the court would need to have regard to their whole course of dealing to ascertain what was fair in the circumstances. Lady Hale, at page 456, paragraph 61, of Stack v Dowden, approved of a formulation that emphasised the court’s endeavour to discover the common intention of the parties. For that purpose, and for the purpose of reaching a conclusion as to the shares in which the beneficial interest was held, the whole of the course of dealing between the parties was to be considered. At paragraph 124 of Stack v Dowden Lord Neuberger acknowledged that, while on acquisition the proportion in which the parties contributed to the purchase price of the property may fix the terms of a resulting trust, other evidence may exist that was sufficient to displace the presumption of a resulting trust and replace it with a constructive trust producing a different result:

“124 In many cases, there will, in addition to the contributions, be other relevant evidence as at the time of acquisition. Such evidence would often enable the court to deduce an agreement or understanding amounting to an intention as to the basis on which the beneficial interests would be held. Such an intention may be express (although not complying with the requisite formalities) or inferred, and must normally be supported by some detriment, to justify intervention by equity. It would be in this way that the resulting trust would become rebutted and replaced, or (conceivably) supplemented, by a constructive trust.”

In Lord Neuberger’s minority view there was no occasion to abandon the traditional presumptions on which courts had acted for many years. On acquisition of the property the unmarried parties had contributed to the purchase price as to 65% from the defendant and as to 35% from the claimant. Notwithstanding that the property was held in joint names there was a resulting trust in those proportions unaffected by any later dealings between them. The majority held that the starting point was the jointly held legal estate; equity would follow, subject to the common intention of the parties. On the facts, the majority found that the common intention of the parties was that they would hold the beneficial interest in the unequal shares by which they had contributed.

[25]  In Jones v Kernott the view of the majority in Stack v Dowden prevailed. The parties were an unmarried co-habiting couple with children. Their family home was held in joint names but their contributions to the purchase were unequal. After several years together, the defendant moved out, leaving the claimant and their children in the house. The parties were agreed that they then held the beneficial interest in the property in equal shares. The house was placed on the market but did not sell. Later still, their joint endowment policy was cashed in and the defendant used his share as a down payment for a house of his own. The claimant sought a declaration that she was the sole beneficial owner of the property formerly shared. A majority of the Supreme Court held that the common intention of the parties had changed as a result of events that occurred following their separation. The defendant’s share had crystallised at the date when the proceeds of the endowment policy were divided equally. The logical inference was that the parties intended that the claimant should be the sole beneficiary of the substantial increase in the market value of the property thereafter. She was entitled to a 90% share of the beneficial interest.

[26]  At paragraph 17 of their joint judgment Lord Walker and Lady Hale pointed out that the starting point was different where the property was conveyed into the joint names of the parties rather than into the sole name of one of them. Where one of the parties was not named in the proprietorship register, he bore the burden of establishing a common intention constructive trust. At paragraph 24 they said:

“24 In the context of the acquisition of a family home, the presumption of a resulting trust made a great deal more sense when social and economic conditions were different and when it was tempered by the presumption of advancement. The breadwinner husband who provided the money to buy a house in his wife's name, or in their joint names, was presumed to be making her a gift of it, or of a joint interest in it. That simple assumption—which was itself an exercise in imputing an intention which the parties may never have had—was thought unrealistic in the modern world by three of their Lordships in Pettitt v Pettitt [1970] AC 777. It was also discriminatory as between men and women and married and unmarried couples. That problem might have been solved had equity been able to extend the presumption of advancement to unmarried couples and remove the sex discrimination. Instead, the tool which equity has chosen to develop law is the “common intention” constructive trust. Abandoning the presumption of advancement while retaining the presumption of resulting trust would place an even greater emphasis upon who paid for what, an emphasis which most commentators now agree to have been too narrow: hence the general welcome given to the “more promising vehicle” of the constructive trust: see Gardner & Davidson, “The Future of Stack v Dowden” 127 LQR 13, 16. The presumption of advancement is to receive its quietus when section 199 of the Equality Act 2010 is brought into force.
25 The time has come to make it clear, in line with Stack v Dowden [2007] 2 AC 432 (see also Abbott v Abbott [2008] 1 FLR 1451) that in the case of the purchase of a house or flat in joint names for joint occupation by a married or unmarried couple, where both are responsible for any mortgage, there is no presumption of a resulting trust arising from their having contributed to the deposit (or indeed the rest of the purchase) in unequal shares. The presumption is that the parties intended a joint tenancy both in law and in equity. But that presumption can of course be rebutted by evidence of a contrary intention, which may more readily be shown where the parties did not share their financial resources.”

[27]  At the conclusion of their judgment with which the majority agreed Lord Walker and Lady Hale summarised the present state of the law as follows:

“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. (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 [2007] 2 AC 432, 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)).
52 This case is not concerned with a family home which is put into the name of one party only. The starting point is different. The first issue is whether it was intended that the other party have any beneficial interest in the property at all. If he does, the second issue is what that interest is. There is no presumption of joint beneficial ownership. But their common intention has once again to be deduced objectively from their conduct. If the evidence shows a common intention to share beneficial ownership but does not show what shares were intended, the court will have to proceed as at para 51(4) and (5) above.”

[28]  In his dissenting judgment in Stack v Dowden, at paragraph 102, Lord Neuberger gave as one of his reasons for resisting judicial interference with the law of trusts in the field of property shared between married and unmarried partners that it might lead to consequences that were not foreseen and may result in unfairness. If one of the consequences of making a distinction between resulting and constructive trusts is that an equitable interest is no longer enforceable on the grounds of illegality, this may be one respect in which Lord Neuberger’s concerns were prescient. However, it does not seem to me that, in this case, this must be the consequence of the decision in Jones v Kernott.

[29]  The judge’s objective was to ascertain the common intention of the parties as to the beneficial interest in 74 Lon Olchfa at the date when the dispute arose. That required an examination of their whole course of dealing with property. When it was acquired 42 William Street was conveyed into the joint names of the parties. The judge found that he was unable to reach any decision upon the parties’ intention as to the shares in which the beneficial interest was held. Formerly, in the absence of evidence to displace it, the presumption would have been that the beneficial interest in the property was held equally between the parties. On transfer into the sole name of the appellant there was no presumption of advancement. Since this was a transfer of the legal estate held by the respondent and the appellant jointly to the appellant absolutely, the legal estate would, under the former (but probably weak) presumption of a resulting trust, have been held by the appellant on trust for the parties equally. However, following the guidance of the Supreme Court in Jones v Kernott, the judge again approached the problem by seeking evidence of their common intention. He found that there was no evidence of an express agreement that the respondent should hold any interest in the property; nor was there any evidence from which such an agreement could be inferred. On the contrary, on the face of it a transfer of his interest by one of two joint tenants to the other was inconsistent with an intention that any interest in the property should be retained by the respondent. At paragraph 54 of his judgment he continued:

“54. However, I find that thereafter the claimant lived at number 42 when not working away from home; that a relationship continued between the parties; that by 1996 they had a child together; that the claimant worked consistently and that the defendant did not work; that the claimant provided the family income other than the benefits which were being obtained fraudulently, and that the claimant’s income paid the mortgage payments. This continued for 15 years. Although the defendant disputes much of this, I note that it was conceded on her behalf that when she cashed in the endowment policy to which I have referred and paid the money in reduction of the mortgage, that must have involved a direct contribution to the mortgage by the claimant and the defendant equally.”

The starting point required by paragraph 52 of Jones v Kernott was that, subject to evidence of common intention, the beneficial interest was held solely by the appellant. That was the starting point adopted by the judge. The judge made a finding that there was no express agreement between the parties as to their beneficial interests in 42 William Street. He then examined the parties’ course of dealing in relation to the property, including their respective contributions to the purchase by means of mortgage repayments, and, in consequence, identified their common intention that the appellant should hold the beneficial interest in trust for herself and the respondent. No recourse was required to the unlawful purpose for which the legal estate was held by the appellant alone because their common intention as to the shares in which the equitable interest was held was to be inferred from their conduct.

[30]  The arrangements made on 26 October 2006, the judge found, were explained by the need to purchase a family home within the catchment area of a preferred school. The previous pattern was repeated. Although the parties chose to conduct one sale and two purchases, the legal estate in 74 Lon Olchfa would have been conveyed into the name of the appellant had they chosen to sell 42 William Street and use the proceeds to purchase 74 Lon Olchfa. There can be no doubt, in my judgment, that the purchase of 74 Lon Olchfa was financed by the proceeds of sale of 42 William Street. The price of 42 William Street was £155,000 purchased with the aid of a mortgage and loan by the respondent alone. As the judge found, the respondent stood in the position of an arm’s length purchaser for value of the property. The outstanding mortgage on 42 William Street was £15,000. The net proceeds of sale were, therefore, £140,000. The purchase price of 74 Lon Olchfa was £130,000. The appellant banked £20,000 and took a mortgage of £13,000. The respondent continued to be responsible for the major part of the family’s expenditure including repayments of the mortgage secured on 74 Lon Olchfa. While the reason for purchase in the appellant’s sole name was unlawful, the acquisition of a beneficial interest in the property arose not from the illegal purpose but from the parties’ common intention, inferred from their continuing course of dealing, that the respondent should have such an interest. The unlawful purpose may have explained their conduct but it was the conduct itself that gave rise to the constructive trust.

[31]  Although the judge may not have analysed the consequences to enforceability of a finding of a constructive rather than a resulting trust, it seems to me that on the facts of the present case he was correct to find that the respondent was not required to rely upon his illegal purpose in order to establish his beneficial interest in either property. The judge’s finding that the appellant held the equitable interest in 42 William Street on trust for herself and the respondent was plainly open to him on the evidence he had heard. Although the judge made no express finding as to the shares in which the beneficial interest was held, it seems to me a compelling further inference (if only from the judge’s ultimate finding in relation to 74 Lon Olchfa) that the shares were equal. It follows that, subject to a satisfactory explanation for the purchase of 42 William Street by the respondent alone, the former presumption of a resulting trust would have applied to the purchase of 74 Lon Olchfa. There was no dispute between the parties as to the reason for the purchase of 42 William Street and the judge accepted that the respondent wished to take sole responsibility for buying-to-let the property. The joint resources of the parties from the sale of 42 William Street were re-invested in 74 Lon Olchfa. I do not accept (ground 1) that the facts found by the judge were inconsistent with a common intention to share the beneficial interest equally. The judge examined the dealings between the parties post-October 2006 and, for compelling reasons, found that the common intention subsisted as at the date when the dispute arose.

[32]  In my opinion, the judge’s conclusion derives support from a passage in the speech of Lord Browne-Wilkinson in Tinsley v Milligan (at [1994] 1 AC 340 at page 376 – 378):

“In my judgment these two cases [Singh v. Ali [1960] A.C. 167 and Palaniappa Chettiar v. Arunasalam Chettiar [1962] A.C. 294] show that the Privy Council was applying exactly the same principle in both cases although in one case the plaintiff's claim rested on a legal title and in the other on an equitable title. The claim based on the equitable title did not fail simply because the plaintiff was a party to the illegal transaction; it only failed because the plaintiff was bound to disclose and rely upon his own illegal purpose in order to rebut the presumption of advancement. The Privy Council was plainly treating the principle applicable both at law and in equity as being that a man can recover property provided that he is not forced to rely on his own illegality.
I therefore reach the conclusion that, although there is no case overruling the wide principle stated by Lord Eldon, as the law has developed the equitable principle has become elided into the common law rule. In my judgment the time has come to decide clearly that the rule is the same whether a plaintiff founds himself on a legal or equitable title: he is entitled to recover if he is not forced to plead or rely on the illegality, even if it emerges that the title on which he relied was acquired in the course of carrying through an illegal transaction.
As applied in the present case, that principle would operate as follows. Miss Milligan established a resulting trust by showing that she had contributed to the purchase price of the house and that there was common understanding between her and Miss Tinsley that they owned the house equally. She had no need to allege or prove why the house was conveyed into the name of Miss Tinsley alone, since that fact was irrelevant to her claim: it was enough to show that the house was in fact vested in Miss Tinsley alone. The illegality only emerged at all because Miss Tinsley sought to raise it. Having proved these facts, Miss Milligan had raised a presumption of resulting trust. There was no evidence to rebut that presumption. Therefore Miss Milligan should succeed. This is exactly the process of reasoning adopted by the Ontario Court of Appeal in Gorog v. Kiss (1977) 78 D.L.R. (3d) 690 which in my judgment was rightly decided.”

Putting on one side the resulting trust approach in family home cases (because it is no longer the appropriate route to the discovery of the parties’ common intention), it was not in the present case necessary for the respondent to prove the reason why the legal estate of both properties was conveyed into the appellant’s sole name; it was enough that the starting point was that the legal estate was vested in the appellant alone. Subject to proof of a contrary intention, the equitable interests in the property followed the legal estate. From that starting point the judge concluded that although there was no express agreement as to disposition of the beneficial interest in 74 Lon Olchfa, the common intention of the parties, inferred from their conduct throughout, was that the beneficial interest should be shared equally between them. It was not necessary for the respondent to advance his unlawful agreement in order to make good his claim to a constructive trust. As in Tinsley v Millington the merits as between the parties are all one way. The issue is whether public policy should intervene to prevent the respondent from enforcing his interest. The conduct identified by the judge was not the making of the unlawful agreement (which was about purpose and not about shared equitable interest) but the course of dealing between the parties relating to their financial contributions to the purchases. While it is no longer appropriate to think in terms of an evidential presumption as to intention, the very conduct that, formerly, would have created that presumption supported the inference drawn by the judge and, in my judgment, for that reason the intervention of public policy is avoided (ground 2).

[33]  A different conclusion on dissimilar facts was reached by David Richards J in Barrett v Barrett [2008] EWHC 1061 (Ch); [2008] 2 P. & C.R. 17, in which the claimant had sold his house to his brother, the defendant, in order to place his home (rather than the proceeds of sale) beyond the reach of his trustee in bankruptcy. The brother purchased the house with the aid of a mortgage secured on the property. The claimant could not demonstrate that he had made any contribution to the purchase price that would have enabled him to establish a resulting trust. He relied on his agreement with his brother that he would make periodical repayments of the mortgage. The defendant denied the agreement, saying that they were simply payments of rent. David Richards J found that in order to support the claim to a beneficial interest in the property based upon a common intention between vendor and purchaser the payments had to be unequivocally referable to the agreement that the claimant should retain the beneficial interest in the property. These payments could only be explained as referable to the retention of a beneficial interest if the claimant relied, as he had pleaded, on the illegal agreement. In my judgment, Barrett v Barrett is distinguishable on the ground that the conduct on which the claimant was relying could not be said, without more, to support an inference of common intention. It could only have that effect if the claimant relied on the express unlawful agreement.

[34]  On the findings of the judge in the present case the dealings between the parties during the period 1990 – 2011 could and did give rise to the inference of their common intention without the need to refer to or to rely on the illegal purpose. In my view, this case demonstrates the accuracy of the proposition advanced at 22-066 of Snell’s Equity (paragraph 16 above) that a finding of a constructive trust “might” be precluded by the need to advance the unlawful agreement in proof of the common intention to share the beneficial interest in property. Whether the claimant is precluded depends on the nature of the case, the evidence advanced and the judge’s conclusions of fact.

Conclusion

[35]  For the reasons I have given at paragraphs 29 – 34 I would dismiss the appeal.

Lord Justice Beatson

[36]  I agree.

Lady Justice Gloster

[37]  I also agree that this appeal should be dismissed. Whether the analysis depends on constructive or resulting trust, or merely the ascertainment of the parties’ common intention, there was no need for the respondent to rely on the illegality relating to the reason for the legal title to 74 Lon Olchfa being in the appellant’s name in order to establish his beneficial interest in the property. The decision in Tinsley v Milligan was clearly applicable

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