In the recent Court of Appeal case of Hudson v Hathway [2022] EWCA Civ 1648, the court had to determine whether a former cohabitant had to show detriment or a change in position when claiming a Common Intention Constructive Trust.
First it’s worth setting out some background on Common Intention Constructive Trusts. These are a flexible mechanism to determine beneficial ownership, with the Stack v Dowden case establishing a ‘holistic approach’, where all of the circumstances, not just financial contributions, are considered in determining whether the beneficial ownership of a property is different to that of the legal ownership.
The “intention” can be either expressed or inferred – but if there is no express intention the common intention can only be inferred from the financial contribution.
For the purpose of this article, the focus will be on trusts where only one party has the legal title but other parties claim to share the equitable interest. For this type of trust:
Mr Hudson and Ms Hathway, bought a house in 2007, which they registered in their joint names, with no declaration of trust. They had a joint mortgage which was paid out of a bank account into which both of their salaries were paid. Although, Mr Hudson paid substantially more to the mortgage than Ms Hathway, it was presumed that the property was held equally between the couple.
After the relationship broke down in 2009, Mr Hudson moved out of the house, and Ms Hathway and their two sons continued to reside in the property. The mortgage was converted to interest only, but it continued to be paid from the same account.
Mr Hudson and Ms Hathway started to negotiate on the division of their assets via email, and in July and August 2013 it was finally agreed that Mr Hudson would retain his pension and shares, whilst Ms Hathway would get a cash sum, their savings, and the equity from the property as well as its contents. This agreement concerning the property was confirmed by Mr Hudson via email and read “under this agreement, I’ve no interest whatsoever in the house”, Mr Hudson signed the email off with his name, “Lee”. In 2015 Mr Hudson stopped paying the mortgage.
In 2019 Mr Hudson issued a claim under the Trust of Land and Appointment of Trustees 1996 for an order for the sale of the house and an equal division of the equity.
At trial the judge rejected Ms Hathway’s assertion that proving detrimental reliance was not necessary and he held that ‘there must be a change of position or detrimental reliance in a joint name case … otherwise equity would be aiding a “pure volunteer”. However the judge held that Ms Hathway had acted to her detriment by not pursuing Mr Hudson’s pension and shares so he rejected Mr Hudson’s claim. Mr Hudson appealed.
Mr Hudson argued that Ms Hathway had not acted to her detriment in reliance on the agreement, so there was only a ‘gratuitous intention’, which was insufficient to create a constructive trust.
Ms Hathway argued that detriment was not required in joint named cases, in a domestic consumer context with no express declaration of trust. Ms Hathway also argued that Mr Hudson’s email confirming the agreement was enough to show a contrary intention thereafter to have unequal interests. Alternatively, Ms Hathway asserted that if detrimental reliance was required, then her conduct had satisfied this.
On appeal in the High court, regarding detrimental reliance Mr Justice Kerr found in Ms Hathway’s favour that detriment was not necessary in a domestic consumer context that had no declaration of trust. He agreed that neither the House of Lords nor the Supreme Court had clarified this issue in key cases such as Stack v Dowden, and Jones v Kernott [2012] 1 FLR 45.
However, Kerr J did also find that if it was necessary to prove detrimental reliance, then the trial judge’s findings were soundly based, and that Ms Hathway’s actions were sufficient detriment.
The Court of Appeal rejected the finding of the High Court that detrimental reliance was not necessary, But, despite this the Court still dismissed the appeal and upheld the High Court judgement as it found that the requirement of detrimental reliance had in fact been met, as found by the original trial judge.
On top of this, it found that the email agreement between Ms Hathway and Mr Hudson, where Mr Hudson had ‘signed off’ the email with his name “Lee” complied with the necessary statutory formalities needed to transfer an interest in land or a declaration of trust of land. The Court of Appeal stated “that is an entirely conventional way to end an email and I have no doubt that it satisfies the requirement in the authorities that it was added to authenticate the document”.
For more information on any of the issues raised in this article, please contact Rebecca Milton from our Wills & Inheritance Disputes team.
[1] Hayton et al. Underhill and Hayton Law of Trusts and Trustees (9th edn, OUP 2016) 575.
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