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(Court of Appeal; Auld and Jonathan Parker LJJ; 13 December 2006)
The unmarried couple and their children had been living for some years in a property purchased by the man in his sole name. After a few years the man transferred the property into the joint names of the man and woman as beneficial joint tenants. The evidence was that the woman had made only eight repayments under the mortgage, whereas the man had made the mortgage repayments, and repairs and maintenance costs, plus a lump sum payment to reduce the mortgage debt on the property. The relationship between the man and the woman broke down, and eventually the woman left the property, which was let. The woman sought a declaration as to her beneficial interests in the property, an order for sale and division of net proceeds in equal shares together with accounts and enquiries as to the rental income received by the man in respect of the property. At trial the parties agreed that the property would fetch around £85,000 if sold quickly, leaving about £41,000 net for division. The judge held that the Trusts of Land and Appointment of Trustees Act 1996 gave him an unfettered discretion to determine the beneficial interests in property, notwithstanding the express declaration of trust, but in any event considered that the interests were as stated in transfer. He went on to hold that both parties were subject to equitable accounting principles, and found that, on the basis of the agreed valuation, the woman's beneficial interest had been extinguished by the man's expenditure on the property. The woman appealed.
The judge's understandable desire to achieve finality as early as possible had caused the case to go off the rails. The judge ought to have granted a declaration that the parties' beneficial interests in property were as set out in the express declaration of trust. The judge ought not to have proceeded on the basis that the property would be sold for £85,000 but ought instead to have made an order for sale by public auction, giving the conduct of the sale to the woman's solicitors with liberty to the man to bid. The issue as to the precise division of the net proceeds was best addressed once the property had been sold and there was a fund in place for division. It was risky to attempt to formulate general principles to be applied in carrying out an equitable accounting exercise, not least because equitable accounting was fact sensitive, however, questions of equitable accounting were not to be confused with an enquiry as to the extent of the parties' respective beneficial interests in the property; questions of equitable accounting arose only once the extent of the parties' beneficial interests had been determined as the requirement to account, where it existed, was a reflection of and derived from those beneficial interests. In a cohabitation case the period to which such accounting would relate depended upon the intentions of parties, but in the ordinary cohabitation case it was open to the court to infer from the fact of cohabitation that during the period of cohabitation it was the common intention of the parties that neither should have to account to the other in respect of expenditure incurred by the other on the property during that period for their joint benefit.
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