Wodzicki v Wodzicki [2017] EWCA Civ 95– Putting the common in common intention

In Wodzicki v Wodzicki [2017] EWCA Civ 95, the Court of Appeal addressed three key questions, each of which is, in its own way, instructive as to the contemporary operation of the rules relating to implied trusts in the context of (broadly defined) domestic properties. First, how does the “common intention” requirement of the common intention constructive trust operate in cases where a third party is claiming an interest in land co-owned by two people and one of those people is unaware of promises/discussions relating to the relevant property? Second, what is the scope of the ‘prohibition’ on the use of resulting trusts in the domestic context? Finally, what role, if any does proprietary estoppel have to play in establishing an interest under a trust where a common intention constructive trust or a resulting trust are otherwise unavailable to a claimant?

These questions arose following the death of the claimant, J’s, father. The father, G, died intestate. The dispute was between J and G’s wife at the time of his death, M. The property in question was registered in the joint names of G and M, having been acquired in part with the help of a mortgage secured against G and M’s home (in France). The house had been purchased expressly for the purpose of J’s occupation, but J did not contribute directly to the purchase price at the time of purchase. However, she did contribute £5000 improving the property, as well as paying the outgoings on the property. G occasionally visited the property (to see his daughter and her children). M never visited the property.

The dispute arose because J argued that G had promised her that the house would be hers if she paid all the outgoings, ‘when she was ready’ [11]. J argued that this established a common intention constructive trust in her favour, or, if that claim did not succeed, that she was entitled to sole beneficial ownership of the property through proprietary estoppel.

At first instance, the court had held that the evidence in the case did not leave room for a common intention constructive trust that would allow J to acquire an interest in the property beyond her contributions to the value of the property. Rather, the intentions of G and M were, in the eyes of the court, clearly that J not have an interest. Whatever one’s views as to the rules which ought to have been applied – proprietary estoppel, constructive trust, or resulting trust – this conclusion seem beyond doubt. That does not of course mean that J ought not to be entitled to an interest in the property, but prima facie at least, it is at the very least problematic to think that M may be deprived of the value a property which she had jointly funded without her every having either intended or promised that she would not have such an interest.

Nevertheless, the Court assessed in detail whether such an interest could be said to arise. The first instance judge had applied a resulting trust to calculate this. The claimant alleged that a resulting trust was inappropriate in the context given the comments of the Supreme Court in Jones v Kernott [2011] UKSC 53 and also that the first instance judge had wrongly ignored her proprietary estoppel claim. We can break the court’s judgment down into the questions outlined above.

First, how does a common intention constructive trust operate in situations involving a third party? The court recognised on this question that in order to establish a common intention constructive trust, any intention to share had to be one common to the relevant legal owners if a third party is to ‘rebut the presumption’ (or in the words of the court, discharge the onus of showing an interest) that the third party is to have any interest in the land. Thus, per David Richards LJ, who gave the judgment of the court:

There is the further difficulty that there was no evidence that George had told the respondent that it was his wish or intention to transfer ownership to the appellant in due course or that she had agreed to that course. As the judge found, the fact that the property was in the name of the respondent as well as George was evidence that George “intended his wife to be the joint owner and never made known to her expressly or impliedly that his daughter was to be the sole owner.
— Wodzicki v Wodzicki, [20]

Furthermore, counsel for the claimant had argued that the court should impute an intention in this case (arguing that such was permitted by Jones v Kernott), as this would be the ‘fair’ thing to do in the circumstances:

the judge should have gone on to impute to the parties an intention that the appellant should be the sole beneficial owner on the basis that this was in all the circumstances the fair outcome and it can therefore be assumed that it was intended by the parties.
— Wodzicki v Wodzicki, [23]

The Court of Appeal rightly rejects this argument, on the grounds that the first instance court had in fact discerned the actual intentions of the parties, so that there was no scope for imputing any such intention. This is of course quite right, but it would have been helpful had the Court of Appeal responded not only that the facts did not permit the imputation of such an intention, but that imputing an intention at what is referred to as the ‘acquisition stage’ was expressly prohibited by Lord Walker and Lady Hale in Jones v Kernott, clearing up some ambiguity left after the decision in Stack v Dowden [2007] UKHL 17.

Thus, the Court concludes, that common intention constructive trusts depend on intention. Where the intentions of the parties are known, there can be no scope for utilizing presumptions or resorting to ‘fairness’ to determine what those intentions should have been. Second, where a party is unaware of promises made by a joint tenant, they cannot be held to have shared the intention of that co-owner, so that the common intention was absent. This must be right. As the Court reasons:

It is a startling proposition that the beneficial interest of one joint owner of a freehold property could be terminated without his knowledge by the other joint owner.
— Wodzicki v Wodzicki, [27]

Second, the Court then considered whether this case ought to have been treated as a constructive trust case at all. The Court holds that it ought not to have been: 

this is not, in my view, a case that is appropriate for an application of the approach laid down in Kernott v Jones as applicable to cases of co-habiting couples. I accept that the approach may be applied outside the precise confines of a co-habiting couple, notwithstanding the terms of the judgments in that case… However, there was nothing close about the relationship between the appellant and the respondent. There is no evidence that they even saw each other once the appellant had settled at the property. It would stretch credulity too far to think that the respondent would have intended to make a gift to the appellant if she were in fact to repay the loan or any part of it or if the security against her jointly-owned French property were enforced.
— Wodzicki v Wodzicki, [25]

The Court therefore concludes that the resulting trust is the appropriate vehicle in this case, but it is generous in terms of what is included in that trust, going beyond initial purchase price contributions to include mortgage contributions and apparently the outgoings on the property. This is not an uncontroversial way to calculate the relative shares, given that historically resulting trusts have appeared to have been confined to situations involving direct purchase price contributions. However, the tone of Lord Neuberger’s analysis of the resulting trust in Stack, and his attitude in Laskar v Laskar [2008] EWCA Civ 347 suggests that the law may have moved on from such a rigid position.

Finally, on the question of proprietary estoppel, the Court gives this argument very short shrift. Thus: 

To establish this case against the respondent, the appellant must establish that George’s promise was made with the knowledge of the respondent, for the reasons given above in relation to the common intention constructive trust. The judge found that the respondent did not know about the promise and, for reasons already given, the finding is not open to successful challenge.
— Wodzicki v Wodzicki, [31]

This is an entirely sensible judgment (failure to more robustly rule out even the theoretical possibility of imputation aside). The claimant had a poor argument for sole beneficial ownership in this case, given the evidence. Nevertheless, it gives welcome clarity on a number of important issues, and as such, is a useful addition to the “post-Stack” jurisprudence.

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Regency Villas v Diamond Properties [2017] EWCA Civ 238 - Recreational Easements

The Court of Appeal has recently considered whether the right to use a swimming pool, tennis court, golf course and the like can exist as easements despite the guidance in Re Ellenborough Park [1956] Ch 131 that an easement cannot be ‘purely recreational’. This rule has always been somewhat difficult to interpret in light of the decision in Re Elleborough Park itself, where it was concluded that access to a garden could constitute an easement. It is difficult to see how this itself was not a ‘recreational’ easement. Nevertheless, a number of cases since Ellenborough Park have confirmed that use of a garden can constitute a valid easement, e.g. Mulvaney v Jackson [2003] 1 WLR 360. Furthermore, as the Chancellor reasoned in the opening paragraph of his judgment, “[s]ince then [1956], the culture and expectations of the population of England & Wales have radically changed. This case has to be considered in the light of those changes”. [1]

The facts were as follows. In a conveyance completed in 1981, the purchasers of legal title to Elham House were given the right to use certain recreational facilities in and around Broome Park Mansion House, all of which made up the wider “Broome Park Estate”. Elham House was one of a number of properties within the Broome Parke Estate. Elham House itself was divided into flats and there are twenty-four villas built in its grounds. These villas and flats were let as timeshares. On the date of the original conveyance, the recreational facilities which existed at that time were: formal Italianate gardens; an outdoor swimming pool (now replaced with an indoor pool); an 18-hole golf course, three squash courts, two outdoor hard-surfaced tennis courts, a putting green and a croquet lawn, a reception, a billiard room and a TV room on the ground floor of the Mansion House, and a restaurant, bar, gym, sunbed and sauna area. 

In resolving the question as to whether the use of such facilities could amount to an easement, the Court of Appeal began by analyzing the decision in Ellenborough Park which is said to outline the fundamental principles as to what kinds of rights are capable of constituting an easement. The ‘no recreational easements’ rule in Ellenborough Park was derived from the obiter comments of Martin B in Mounsey v Ismay (1865) 3 H&C 486. The Court then turned to the 1981 grant itself before looking at the individual easements in turn.

First, the Court is reasons that, “the categories of easements are not closed” [51]. Rather, in line with Dyce v Hay, “[t]he categories of servitudes and easements must alter and expand with the changes that take place in the circumstances of mankind”, (1852) 1 Macq 305, 312-3. Thus, even though some of the rights considered in Regency Villas have not previously been held to constitute easements, that does not mean that they cannot do so. Furthermore, the ‘prohibition’ on recreational easements in Elleborough Park is not a clear-cut rule. Therefore, the court examined the place of ‘recreational’ easements in modern law:

Easements in the modern world must, of course, retain their essential legal qualities. But the views of society as to what is mere recreation or amusement may change, even if the exclusion of such rights were authoritative, which we rather doubt. Physical exercise is now regarded by… most people in the United Kingdom as either an essential or at least a desirable part of their daily routines. It is not a mere recreation or amusement.
— Regency Villas v Diamond Properties, [54]

On the question of the possibility of recreational easements, therefore, the Court concluded:

In our view, the requirement that an easement must be a ‘right of utility and benefit’ is the crucial requirement. The essence of an easement is to give the dominant tenement a benefit or a utility as such. Thus, an easement properly so-called will improve the general utility of the dominant tenement. It may benefit the trade carried on upon the dominant tenement or the utility of living there… As we have said, an easement should not in the modern world be held to be invalid on the ground that it was ‘mere recreation or amusement’ because the form of physical exercise it envisaged was a game or a sport. To be clear, we do not regard Baron Martin’s dictum as binding on this court, and we would decline to follow it insofar as it suggests that an easement cannot be held to exist in respect of a right to engage in recreational physical activities on servient land.
— Regency Villas v Diamond Properties, [56]

This did not however dispose of the question at hand, for there are further requirements of a valid easement which might continue to pose problems in the instant case. First, “the rights must not be too wide or vague” [58]; second, “an easement cannot impose a positive obligation on the owner of the servient tenement” [59]; third, “an easement is unlikely to be valid if it requires the dominant owner to exercise a right to joint occupation or deprives the servient owner of proprietorship or legal possession” [60]. Finally, “an easement cannot exist over chattels” [61] (this posed a problem for the gym equipment).

The court then examined the different easements:

 

1.       Italianate gardens. The use of these gardens could clearly be an easement (Ellenborough Park).

2.     Outdoor hard-surfaced tennis courts. The fact that the courts would be used to play a game did not in itself mean that there was no easement here.

The utility and benefit to a dominant dwelling… of the ability to use a next-door tennis court is obvious to any modern owner… Moreover, there could be no complaint that using a tennis court would give the claimants shared possession or occupation of the land on which it was constructed. It is also unrealistic to suggest that a lack of upkeep by the dominant owner could invalidate the right to use the tennis courts
— Regency Villas v Diamond Properties, [66]

Thus, there was no reason that this could not be a valid easement.

3.      Squash Courts. The same arguments as applied to the tennis courts applied to the squash courts. It made no difference, in the court’s view, that the squash courts were inside rather than outside: “there is no need for any shared or actual possession or occupation for the claimants to be allowed to use the squash courts for games of squash” [68].

4.      The putting green and croquet lawn. For the same reasons relating to the squash and tennis courts there could be valid easements here. An important factor in relation to these facilities, as with the squash and tennis courts, was that the dominant owners would easily be able to maintain the facilities themselves and provide the additional items – such as croquet hoops and tennis nets.

5.     The Outdoor swimming pool. The Court highlights that, as with tennis courts, the use of a swimming pool is of obvious utility and benefit to the dominant tenement, notwithstanding the obiter comments of Lord Scott in Moncrieff v Jamieson [2007] 1 WLR 2620. Thus, when the servient owners filled in the outdoor swimming pool in 2000, their actions were in breach of easement.

6.       18-hole golf course. The golf course, according to the court, should be treated in a similar way to the pool in that, unlike a tennis court for example, a modern golf course requires a very high degree of maintenance to keep it in a playable condition. However, the maintenance could be carried out by the dominant owner without his taking possession of the servient land. Therefore: “there is no principle that prevents the grant of a right to use a piece of land formed into a working golf course from being valid. We do not think it would be necessary for the claimants to take actual or even shared possession of the land upon which the course was laid out in order to mow it and maintain it in playable condition” [78].

7.     The reception room, billiard room and TV room. A reception room cannot constitute a sporting or recreational facility. Furthermore, the use of such facilities cannot be explained by reference to the modern attitude regarding exercise. Therefore, there could be no easement to use these facilities:

“The tennis court and golf course are both proper uses of the servient land. The grant of the right to use recreational facilities on the ground floor of the Mansion House was really no more than a personal right to use chattels and services provided by the defendants”. [80]

8.      Restaurant, bar, gym etc. The same arguments as applied to the TV room apply here.

9.      The new indoor swimming pool. 

There could be no easement here as no easement was granted in relation to the new pool. The swimming pool easement related to the outdoor pool.

There are three areas of note to emerge from this judgment.

First, relating to the question of ‘recreational easements’, it may fairly be said that the language of ‘recreational or not’ will no longer be helpful going forward (if it ever was) in determining whether a right can be an easement or not. Rather, the test should be whether the right can fairly be seen as providing a ‘utility and benefit’ to the dominant land, it being irrelevant whether this utility or benefit is a recreational one. Looking at cases like Ellenborough Park and Mulvaney, it may fairly be said that this is not really a change in the law, but it is a change in the manner of its expression. In short, it ought now to be recognized that it is possible to have recreational easements, but only where they provide a utility to the dominant land.

Second, with regard to the question of positive obligations resting on servient owners, the judgment lays a great of emphasis on the fact that all of the easements in this case required nothing of the servient owner beyond leaving existing facilities in place. They did not require maintenance because the dominant owners could maintain the relevant facilities without being required to go into possession of the servient land.

Finally, the court here is clearly applying the possession and control test from Moncrieff v Jamieson rather than the, arguably, binding, approach of ‘reasonable user’ from Batchelor v Marlow [2001] EWCA Civ 1051. Indeed, Batchelor is not even mentioned. This is somewhat surprising given the decision in Virdi v Chana [2008] EWHC 2901 (Ch) where the English courts continued to apply the Batchelor test notwithstanding the decision in Moncrieff, but is enormously to be welcomed. The reasonable user test, a bit like the ‘no recreational easements’ test, was unhelpful in practice, not least because despite paying lip-service to the test, the courts were, in reality, applying an altogether different standard.

Taken together, this is a very significant judgment in shaping the law relating to easements in the 21st century. It recognizes the good sense behind the possession and control test, and moves away from the distinction between recreational and other rights in assessing what is of value to land. However, the approach of the court is not without its dangers. Care must still be taken to ensure that rights granted are not too vague to constitute the subject matter of a grant. Furthermore, there is a danger in the court’s approach of overburdening land to reflect ‘fashionable’ additions to properties at any particular point in time. This is not a new phenomenon in relation to easements – consider the famous easement to use a neighbour’s outside toilet in Miller v Emcer [1956] Ch 304– but the court’s acknowledgement that the categories of permitted easements will shift with the needs of modern society carries with it the risk that such easements are granted, but cannot then later easily be discharged. The lack of jurisdiction of the courts to discharge easements is therefor highlighted by this decision (contrast the position regarding restrictive covenants, section 84 LPA 1925). 

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D’Oultremont v Région Wallonne C-290/15

This case was a preliminary reference to the CJEU for a ruling on whether ‘regulatory orders’ constitute plans or programmes for the purposes of the Strategic Environmental Assessment Directive (Directive 2001/42/EC of the European Parliament and of the Council of 27 June 2001 on the assessment of the effects of certain plans and programmes on the environment).

The regulatory order in question was a decision by the Walloon Region authorities as to technical specifications for wind farm developments above a certain threshold size. The order covered issues such as lighting in wind farm sites, ‘shadow flicker’ and noise. The reason why this may have fallen outside the provisions of the SEA is that this order itself did not on its face determine whether or not such turbines would be built, nor where. However, dispute arose because in order to comply with certain elements of the order (in relation to shadow flicker in particular since these provisions required that turbines be installed at a particular angle to the sun) there was a degree to which the order did in fact dictate the location of the turbines. Thus, paraphrasing the referring court: 

the provisions of the order concerning noise and the effects of shadow flicker produced by the functioning of the wind turbines necessarily has the consequence of determining the location of the wind turbines in relation to housing
— [32]

Furthermore, there was a dispute as to whether a ‘plan or programme’ within the meaning of the Directive must cover a defined geographical area (as opposed, in this case, to the entirety of the Walloon Region).

Perhaps unsurprisingly given the CJEU’s general approach to interpretation in relation to the environment and environmental impact assessment, the Court concluded that this order was indeed a plan or programme for the purposes of the Directive such that an environmental impact assessment was required. The steps by which this decision was reached were as follows:

1.        The Court first underlined that, “environmental evaluation is an important tool for integrating environmental considerations into the preparation and adoption of certain plans and programmes”. [38]

2.      Secondly, when interpreting the provisions of the SEA Directive, regard must be had, “to the specific objective laid down in Article 1 of that directive, namely to subject plans and programmes which are likely to have significant effects on the environment to an environmental assessment”. [39]

3.       Finally, in order to ensure that this Directive meets its objective, ‘which is to provide for a high level of protection of the environment, the provisions which delimit the directive's scope, in particular those setting out the definitions of the measures envisaged by the directive, must be interpreted broadly”. [40]

This approach to interpretation has been criticized elsewhere (E Lees, Interpreting Environmental Offences, 2015, Hart Publishing), and this is not the place to repeat that criticism in full. However, two things are worthy of note. Firstly, environmental protection per se is not the only aim of the strategic environmental assessment provisions. When taking a purposive approach to interpretation in this context, therefore, the CJEU takes a very narrow definition of what the purpose of environmental directives may be. This undermines the certainty and predictability of the ensuing approach.

Secondly, the second step of the court’s reasoning here is entirely circular: they attempt to define the meaning of the terms ‘plan’ and ‘programme’ by reference to a goal that plans and programmes are scrutinized for their environmental effects. This, in practice, results in any environmentally significant document becoming a plan or programme for the purposes of the Directive whether or it would naturally be said to meet the linguistic connotations of those words. The effect of this is that even documents which are specifically designed to simply be technical guidance, as this was, are subjected to independent scrutiny even though the real life project of building a wind farm would, in all likelihood, be subject to an EIA itself. This results in duplication of work in an inappropriate context.

Nothing in the document in this case said that wind turbines would be built. If they were to be built, that construction would itself be subject to appropriate assessment. What then is to be gained by separately assessing technical guidance of this sort, other than additional cost and delay? Given that the document was actually attempting to ensure strict environmental standards for the creation of wind turbines, there is a risk that in subjecting each of this kind of document to such scrutiny that we stifle the imposition of high technical standards and innovation.

None of this is to say that either the regulatory order in this case was “good” in environmental terms, or that any wind farm based on this document should be given the go ahead in the absence of a proper environmental review. However, this sort of regulatory order does seem to sit in a very difficult place in the policy to development process: more difficult than, for example, a regional plan which dictates the whereabouts of wind farm development which would be clear in its significance. The counter-argument to this is that in providing technical standards the document affects the environmental performance of a particular development. However, where such a document provides only minimum environmental standards, or perhaps technical guidance rather than being prescriptive, it seems likely that a project-based EIA would suffice without the need for a ‘plan’-based SEA. Or, to put it another way, the document in this case, arguably, was not strategic. 

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Grant & Cork v Baker [2016] EWHC 1782 (Ch) – Exceptional Circumstances and TOLATA

In Grant & Cork v Baker, the High Court addressed the questions of (a) when there are exceptional circumstances such as to justify delaying sale of a property in cases of bankruptcy and (b) what effect these exceptional circumstances should have in relation to such a sale.

Mr and Mrs Baker had purchased a property in Essex to provide a comfortable and secure home for themselves and their children. In particular, they saw this an appropriate property for their daughter Samantha, who had complex mental needs, including suffering from global development delay disorder, which meant that she had the mental age of an 8 or 9 year-old child and was incapable of living on her own, navigating stairs unaided, and felt continually unsteady. Following the “assistance” of an (apparently negligent) accountant, Mr Baker found himself a significant debtor of HMRC who, recognizing that Mr Baker would be unable to pay the sums owed to them, refused to accept a compromise deal and as a result, Mr Baker was declared bankrupt. There were no assets in the bankruptcy apart from the Bakers’ house, in which Mrs Baker had a 50% share. The trustees in bankruptcy therefore applied to the court for an order for sale of the property. The judge at first instance in the County Court had found that Samantha’s special circumstances justified an indefinite delay of sale under section 335A Insolvency Act 1985. The trustees appealed against this decision to the High Court.

The questions for Henderson J were, therefore, firstly whether there were exceptional circumstances here sufficient to justify departure from the general rule in bankruptcy cases that sale should be ordered where an application is brought more than one year after the bankruptcy. Secondly, he had to determine, if such exceptional circumstances did exist, whether an indefinite delay of sale was appropriate. As will be seen, the decision in this case shows how much priority is given to creditors’ interests in cases of bankruptcy, and how even when exceptional circumstances are established, this does not necessarily assist the parties who will be adversely affected by sale to any great degree. In this, both Mr Baker’s original accountant (now deceased) and indeed HMRC’s unflinching pursuance of Mr Baker, might be validly criticized. As far as the judgment is concerned however, it seems to be an accurate reflection of the law as it stands, and, in taking account of the time limit with regards to recovery of a bankrupt’s home and the tone of the statutory rules, probably strikes as good a balance as was possible in the circumstances, albeit one with a very sad outcome.

On the first issue, i.e. the threshold question as to whether there were exceptional circumstances in the case, there a number of noteworthy elements to the discussion. First, it is clear from Henderson J’s remarks that physical adaptation of a property is likely to be more significant in terms of exceptional circumstances than emotional attachment to a property will be. In this case, it was clear that Samantha would find it emotionally and psychologically very difficult to move house, but as Henderson J notes, the house had not in fact been structurally altered in anyway to meet her needs ([17]), and this appears to have weighed against a finding of exceptional circumstances.

Second, Henderson J was clear that notwithstanding the lack of definition of ‘needs’ in section 335A, the term should be given a “broad interpretation”. Similarly, in section 335A(2)(b)(iii) the reference to the “needs of any children” ought not to be restricted to minors, but can include, as here, the adult child (Samantha was 30) of the bankrupt person.

Third, the judge considered at length the availability of alternative accommodation and the means by which the Bakers would be able to finance this. The discussion is detailed and makes a thorough assessment of the financial circumstances in which the couple would find themselves once the property had been sold. In doing-so, however, he highlighted that the family would be able to afford rented accommodation after the sale of their family home. He underplayed the significance of the lack of permanence that residential tenants may have, highlighting that the family are likely to be model tenants such that a landlord would not seek to evict them. This may be true in practice, but it seems somewhat speculative to rely on this when assessing Samantha’s needs.

Nevertheless, he reached the conclusion that the circumstances in the instant case were exceptional, concluding:

the judge was clearly entitled to find that the circumstances of the present case are indeed exceptional, thereby displacing the presumption that the interest of Mr Baker’s creditors are to outweigh all other considerations.
— per Henderson J, [39]

Furthermore, he confirms:

A medical or mental condition of one of the joint owners is a paradigm example of circumstances which the court may properly recognize as exceptional, and I can see no reason in principle why the same should not apply where the medical or mental condition is that of a child for whom the joint owners care in their home.
— per Henderson J, [41]

However, the next step was to ascertain what this meant in terms of delaying an order for sale and here Henderson J looks to the purpose of the bankruptcy provisions as a whole, i.e. to release as much of the assets for distribution amongst creditors. 

The circumstances of the case include the statutory scheme of the bankruptcy legislation, at the heart of which is the vesting of the bankrupt’s property in his trustee, with the object that the trustee should then realise the property and distribute the net proceeds among the unsecured creditors on a pari passu basis. Moreover, the clear effect of section 283A of the 1986 Act is that there is a limited period of three years within which the trustee must either take steps towards realisation of the bankrupt’s interest in his home, or forfeit that interest as part of the bankrupt’s estate. If, as in the present case, the trustee does take action within the requisite period, it seems to me that the court should then exercise its powers under section 335A with the object of enabling the bankrupt’s interest in the property to be realised and made available for distribution among his creditors. Only in that way can the underlying purpose of the bankruptcy legislation be achieved.
— per Henderson, [44]

Similarly, he reasons: 

she [the judge] failed to give appropriate weight to the fundamental point that an indefinite suspension of the order for sale, for a period that could be measured in decades, is incompatible with the underlying purpose of the bankruptcy code.
— per Henderson, [45]

Whilst this analysis must be correct if the purpose of the bankruptcy scheme as a whole is the distribution of assets and that alone, it is at least arguable that the purpose of the scheme is to achieve such distribution except in a very narrow range of exceptional cases where the needs of people other than the bankrupt person are so unusual and severe that to pursue this main purpose would be inappropriate. In the instant case however, although very sad, the situation is perhaps not so unusual and severe as would warrant this conclusion. Henderson J gives four key reasons why although exceptional, the case was not exceptional enough to justify indefinite delay:

1.    The practical reality of rented accommodation is not as unsecure as the County Court judge assumed;

2.     The judge was wrong to dismiss the ability of Mrs Baker to make up for any increase in monthly payment (rent versus mortgage) from her share in the (scant) proceeds of sale;

3.      Samantha had moved house eight years previously quite successfully. It was therefore not wholly unreasonable to inflict this upon her again. “Far more detailed and cogent medical evidence would have been needed… to justify a postponement for the sale of the Property for more than a relatively short period” ([49]); and

4.      There are alternatives to indefinite postponement which are more appropriate in the situation. 

On the basis of these reasons, Henderson J reached a middle ground and ordered a further 12-month delay to allow time for finding alternative accommodation.

As noted from the outset, this is an apparently ungenerous conclusion, but in reality, given that Mr Baker’s only asset was his share in the family home, in the long run there was no alternative. It is to be hoped however that the Bakers have and pursue a valid claim against the estate of the negligent accountant as the outcome here is unfortunate for all involved. In legal terms, this case is a noteworthy and rare example of the successful invocation of the exceptional circumstances test, but perhaps more importantly, it is one of the few exceptional circumstances cases where the needs of the person in question (i.e. someone other than the bankrupt person) are not in one way or another short term or time limited. This case therefore demonstrates how the courts might treat situations where the exceptional circumstances are long-term or permanent.

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Haque v Raja [2016] EWHC 1950 (Ch) – Overreaching and Implied Trusts

In Haque v Raja, Mr Justice Henderson considered the relationship between implied trusts (both constructive and resulting), overreaching, and knowing receipt, and in doing so confirms the emerging orthodoxy in relation to interests in ‘the family home’.

The facts were somewhat complex, made difficult by the lack of documented evidence. In summary however, Mr Sheraz Ali Khan (Mr Khan) was freehold proprietor of a property in Waltham Forest. He had purchased this property from the previous registered proprietor, Ms Raja. At the time of her purchase, Ms Raja was married, under sharia law, to Mr Haque. Mr Haque alleged that the property was held entirely on trust for him on the basis that he had provided the purchase money, and that this was the prevailing understanding between himself and Ms Raja at the time.  Subsequent to the purchase, Mr Haque was detained in prison, and, he argued, gave the keys to Mr F Khan (Ray) to manage the property for him. Ray, without planning permission, converted what had been a commercial building into a residential property and obtained tenants for it. This caused considerable stress and financial hardship for Ms Raja who, by this time, had moved to Newcastle. As a result of this, she contacted her friend who was married to Mr Shahzad Khan (Shahzad), the brother of the defendant Mr Khan. Mr Shahzad Khan agreed to help Ms Raja find a buyer for the property. He mentioned this to his brother, Mr Khan, who then expressed interested in the property and paid £135,000 for freehold title. Mr Haque, on discovering this, alleged that the property had been held on trust for him and that this trust was binding on Mr Khan.

The reasoning employed by Mr Haque was that, firstly, he was entitled to equitable title to the property because either a resulting or a constructive trust had arisen at the time of purchase. Furthermore, he then alleged, that since there was only one trustee (Ms Raja), that his interest was not overreached and that it therefore bound Mr Khan. If this argument did not succeed, he claimed in the alternative that Mr Khan was bound as a constructive trustee on the basis of knowing receipt. By contrast, Mr Khan argued that he had no knowledge of Mr Haque’s interest in the property, if any, and that as a result of section 29(1) any trust interest which Mr Haque did have could not have been overriding on the disposition to Mr Khan.

There was little doubt that Mr Haque faced an uphill struggle in establishing that Mr Khan was affected by any trust interest that he had. The lack of actual occupation was, at first glance, clearly determinative of the outcome. However, the judge’s comments as to the step-by-step process which must be employed in cases such as this is a useful explanation of how to proceed through complex fact scenarios in relation to implied trusts, overreaching, and land registration.

The first issue was whether it was arguable that there was a trust (the hearing was concerned with whether or not to lift an injunction against Mr Khan and so an arguable case would have sufficed for Mr Haque). The judge accepted that it was highly likely that Mr Haque had indeed provided the purchase money for the property. This did not however conclusively establish that a trust had arisen, as it was unclear whether this was a resulting or constructive trust case as the property was bought in part as an investment and in part as a future residential prospect. About this, Henderson J stated:

The present case may fall somewhere in the middle, because although the claimant says he purchased the Property as an investment, he nevertheless accepts… that there was an intention that it would eventually become the family home.
— per Henderson J, [29]

This led to some doubt in the judge’s mind as to whether this ought to mean that the principles of Stack v Dowden [2007] UKHL 17 applied. If they did, however, Henderson J was very clear as to the process of applying these rules:

The fact that the Property was placed in Ms Raja’s sole name would give rise to an initial presumption that she was intended to be the sole beneficial owner. The onus would then be on the claimant to show whether he had any beneficial interest at all, and (if so) how extensive it was.
— per Henderson J, [30]

This two-step approach is an entirely correct in both sole and joint names cases. The first step is to establish whether there is evidence that there was a common intention that the property was held differently from what legal title would imply. The second issue is to consider how to quantify the respective interests. At this latter stage, a wider range of considerations can be taken into account that at the former.

The judge highlights that this more flexible, nuanced approach in relation to family homes may be more appropriate in the instant case: “a resulting trust may arguably betray a rather narrow approach to a complex subject” [31]. Given the need only to establish whether Mr Haque had an arguable case in this regard, however, it was not necessary for the judge to resolve this issue.

The much more significant question was whether even if Mr Haque could establish an interest under a trust (which seems likely), this would mean that Mr Khan was affected by this interest. The judge’s starting point on this question was to agree with Mr Haque that the right had not been overreached. The proceeds of sale had only been paid to one trustee and so the requirements of section 2 and 27 LPA 1925 had not been met. However, this was not determinative, for in addition to demonstrating that his interest had not been overreached on sale, Mr Haque was also required to demonstrate that his right was overriding at the time of the disposition (following Williams & Glyn’s Bank v Boland [1981] AC 487) by virtue of his actual occupation. This, he could not establish. This approach is entirely in keeping with what would have been expected, but it is nevertheless useful to have confirmation that it is not enough simply to state that a right has not been overreached. It is critical to consider what effect sections 29 or 30 might have. Thus: “the rules of priority in sections 29 and 30 of the LRA 2002 will confer priority over the beneficiary’s equitable interest even though it is not overreached” [42]. This is a completely correct statement of the law, and it is pleasing to see it expressed with no doubts or qualifications.

The final issue then was the possibility or otherwise of Mr Khan holding as a constructive trustee on the basis of knowing receipt.  This, as the judge highlighted, “is a liability which affects [the holder’s] conscience directly, and it is not dependent upon the survival of the claimant’s original beneficial interest” [47]. It is, “therefore unaffected by the technicalities of overreaching and land registration” [47]. On the facts of the case, however, the judge concluded that there was no evidence of such knowledge or complicity, and that the case of dishonesty pleaded was “entirely speculative” [52]. The judge therefore held that this claim had no real prospect of success.

This was not a difficult case in terms of the legal principles, however complex and tangled the facts. However, the judge’s approach here is to be praised as admirably clear and demonstrably correct in his analysis of the legal principles. They can be summarized as follows:

1. To establish an interest under an implied trust, a claimant must establish either a resulting or constructive trust. Which of these applies will depend on the distinction between investment/ commercial property and domestic property, a distinction which is not always clear-cut. If the resulting trust principles apply, the claimant will benefit from an equitable share proportionate to his contribution to the cost of the property. If the constructive trust principles apply, firstly, the claimant must show that there is sufficient evidence of a common intention that equitable title should be different from that which legal title would indicate, and then secondly, must show how such an interest would be quantified.

2. Once such a trust interest has been established, the right-holder must demonstrate that this right is binding upon the current registered proprietor. This requires assessment (a) has the right been overreached? And (b), if not, was the right overriding at the time of the disposition by virtue of the right-holder’s actual occupation such that the requirements of schedule 3 paragraph 2 LRA 2002 are met?

This case is a perfect example of how these steps fit together, and it is in this respect, exemplary in its orthodoxy.

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Davies v Davies [2016] EWCA Civ 463 – Satisfying the equity: Appropriate remedies in cases of proprietary estoppel

Davies v Davies, a 2016 decision of the Court of Appeal, forms part of a saga widely reported in the press: the so-called “Cowshed Cinderella” (http://www.telegraph.co.uk/news/uknews/law-and-order/11434842/Cowshed-Cinderella-wins-1.3m-from-her-parents-after-being-made-to-milk-cows-while-her-sisters-partied.html) case.

The appeal concerned the remedy granted to Ms Davies by the High Court in [2015] EWHC 15 (Ch). The facts of the case are complex, and the history of the relationship between the claimant and her parents is a long and convoluted one. It suffices here to say perhaps that Ms Davies, at various times, worked on the family farm for no or less money than she might receive working elsewhere, and for longer hours than other jobs would require. However, in return for this, she did receive some benefits, such as free accommodation. Furthermore, at various times she left the farm without any expectation of returning following disputes with her parents. In the words of the first instance judge, Ms Davies expectation that she would inherit the farm land and business was not “equivalent” [33] to the detriment she had suffered and so it was necessary for the court to determine what an appropriate figure would be.

Ms Davies herself had claimed she was entitled to the entirety of the farm business and land, which were together valued at approximately £4.4mn. Her parents argued she was entitled to some recompense for mortgage expenses and a share of the profits of the partnership together totaling £350,000. The first instance judge decided that the appropriate remedy lay somewhere between Ms Davies’ expectation and a rough calculation of her detriment, and valued it at £1.3 mn. The judge (as is perhaps inevitable in highly fact-sensitive estoppel cases) gave little guidance as to how this figure had been achieved except to state that he had taken the expectation as his starting point.

The Court of Appeal does however give some assistance by outlining the general principles which are relevant in cases such as these. It is useful to cite these in full here, as they represent a helpful summary of recent case law concerning estoppel: 

(i) Deciding whether an equity has been raised and, if so, how to satisfy it is a retrospective exercise looking backwards from the moment when the promise falls due to be performed and asking whether, in the circumstances which have actually happened, it would be unconscionable for a promise not to be kept either wholly or in part: Thorner v Major [2009[ UKHL 18, [2009 1 WLR 776 at [57] and [101].

(ii) The ingredients necessary to raise an equity are (a) an assurance of sufficient clarity and (b) reliance by the claimant on that assurance and (c) detriment of the claimant in consequence of his reasonable reliance: Thorner v Major at [29].

(iii) However, no claim based on proprietary estoppel can be divided into watertight compartments. The quality of the relevant assurance may influence the issue of reliance; reliance and detriment are often intertwined, and whether there is a distinct need for a “mutual understanding” may depend on how the other elements are formulated and understood: Gillett v Holt [2001] Ch 201 at 225; Henry v Henry [2010] UKPC 3; [2010] 1 ALL ER 988 at [37].

(iv) Detriment need not consistent of the expenditure of money or other quantifiable financial detriment, so long as it is something substantial. The requirement must be approached as part of a broad inquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances: Gillett v Holt at 232; Henry v Henry at [38].

(v) There must be a sufficient causal link between the assurance relied on and the detriment asserted. The issue of detriment must be judged at the moment when the person who has given the assurance seeks to go back on it. The question is whether (and if so to what extent) it would be unjust or inequitable to allow the person who has given the assurance to go back on it. The essential test is that of unconscionability: Gillett v Holt at 232.

(vi) Thus the essence of the doctrine of proprietary estoppel is to do what is necessary to avoid an unconscionable result: Jennings v Rice [2002] EWCA Civ 159; [2003] 1 P & CR 8 at [56].

(vii) In deciding how to satisfy any equity the court must weigh the detriment suffered by the claimant in reliance on the defendant’s assurances against any countervailing benefits he enjoyed in consequence of that reliance: Henry v Henry at [51] and [53].

(viii) Proportionality lies at the heart of the doctrine of proprietary estoppel and permeates its every application: Henry v Henry at [65]. In particular there must be a proportionality between the remedy and the detriment which is its purpose to avoid: Jennings v Rice at [28] (citing from earlier cases) and [56]. This does not mean that the court should abandon expectations and seek only to compensate detrimental reliance, but if the expectation is disproportionate to the detriment, the court should satisfy the equity in a more limited way: Jennings v Rice at [50] and [51].

(ix) In deciding how to satisfy the equity the court has to exercise a broad judgmental discretion: Jennings v Rice at [51]. However, the discretion is not unfettered. It must be exercised on a principled basis, and does not entail what HH Judge Weekes QC memorably called a “portable palm tree”: Taylor v Dickens [1998] 1 FLR 806 (a decision criticized for other reasons in Gillett v Holt).
— Lewison LJ, [2016] EWCA Civ 463 at [38]

Having outlined these general principles, the Court of Appeal then highlights that there is a significant controversy as to how to manage the discretion referred to at (ix). In particular, the court is cognisant of the debate in the academic literature and case law as to whether the most appropriate solution is the expectation measure or the reliance interest. However, the Court declines to resolve the controversy, [39], even though it is prepared to acknowledge the logic of a reliance focused approach:

Logically, there is much to be said for the second approach. Since the essence of proprietary estoppel is the combination of expectation and detriment, either is absent the claim must fail. If, therefore, the detriment can be fairly quantified and a claimant receives full compensation for that detriment, that compensation ought, in principle, to remove the foundation of the claim.
— Lewison LJ, [2016] EWCA Civ 463, at [39]

However, the Court then goes on to reason that in cases where the estoppel is akin to a contract in that there is a consensual bargain at its heart, then the expectation may well be the appropriate starting point, [40]. Furthermore, Lewison LJ reasons that: 

the clearer the expectation, the greater the detriment and the longer the passage of time during which the expectation was reasonably held, the greater would be the weight that should be given to the expectation.
— Lewison LJ, [2016] EWCA Civ 463, [41]

On the basis of these principles, and the starting points discussed, the Court of Appeal therefore concluded that the first instance judge had not explained his conclusion sufficiently, using “far too broad a brush” [42], not least because on the facts of the case there were multiple iterations of the promise made, and therefore various different expectations in play at different times. Furthermore, considering the types and scale of detriment suffered, the Court concluded that, as this “was not a case in which [Ms Davies’] whole life was positioned on the representations” [65], and as she had no expectation to inherit the farm at all and the detriments suffered were largely non-pecuniary, it was appropriate to decrease the award granted to Ms Davies to £500,000.

On reading the facts of this case, it is perhaps not surprising that the award was reduced. The detriment suffered by Ms Davies seemed at times slight, and the to-and-fro nature of her relationship with her parents, and the mutual changing of minds when it came to the future of Ms Davies’ involvement in the farm business, reduces not only the scale of the detriment for the purposes of a proportionate remedy, but also the certainty of the expectation. The case is therefore a very good example of how the different elements of estoppel influence each other rather than being standalone requirements.

However, the decision of the Court of Appeal in other respects raises some difficulties. Not least among these is the relationship or interaction between unconscionability and proportionality. Both “factors” are essential elements in the search to provide an appropriate remedy, but how these two tests or factors might interact is unclear. It could well be that proportionality is a test used to assist in discovering unconscionability in the round, or it could be that proportionality is relevant to the remedy awarded: unconscionability to the existence of the estoppel in the first place, but as things stand, their relationship is unclear. Furthermore, invoking the concept of proportionality is a notoriously difficult task. Given the immense difficulty which already exists in defining unconscionability, it might be thought unwise to focus on another concept without explaining relationship between the two.

Estoppel is, by its very nature, always going to be difficult to define precisely. Its boundaries will ebb and flow according to the facts of particular cases. For an appellate court, it will therefore be a difficult task to control the actions of the lower courts whilst retaining the essential flexibility of the doctrine. The Court of Appeal has done a commendable job of that here, but we must wonder whether, at the end of the day, broad brush discretion and a degree of “palm tree-ery” are inevitable. Indeed, and some what ironically, it is very difficult to work out why £500,000 was a more appropriate and proportionate outcome that £1.3mn. Explanation of reasoning does not, in the end, always produce predictability.

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Barnes v Phillips [2015] EWCA Civ 1056 – Imputation and Constructive Trusts of the Family Home: Child Maintenance Payments and Constructive Trusts

In Barnes v Phillips [2015] EWCA Civ 1056, the Court of Appeal confirms the now familiar approach to constructive trusts of the family home by examining when, and how, an intention as to how property is shared can be imputed.

The facts are relatively straightforward. An unmarried couple purchased, in joint names, a property which was to be used as their family home for themselves and their children. The house was purchased with a deposit to which they both contributed and with the aid of a mortgage for which they were jointly responsible. The property was purchased in 1996. There were three further properties which were registered in the name of Mr Barnes only. In 2005, due to Mr Barnes’ financial problems, he persuaded Ms Phillips to execute a remortgage of their family home in order to allow him to discharge debts relating to the properties registered in his sole name. This mortgage was executed and the debts discharged.

In 2005 the relationship broke down and the parties separated. At first Mr Barnes continued to support Ms Phillips by making mortgage payments, but from 2008 onwards Ms Phillips had sole financial responsibility for the property and indeed was having some difficulty in securing the child support owed by Mr Barnes. She had also paid for renovation works to the property. Ms Philips then brought a claim under setion 14 of TOLATA in relation to the property.

The judge at first instance concluded that the initial starting point that the parties held as joint tenants in equity had been rebutted by the existence of a common intention, and, through imputation as to the size of the relevant share, he concluded that Mr Barnes was entitled to 15% and Ms Philips 85%, taking account of the dealings with the property and the difficulties in relation to child maintenance payments.

The grounds of appeal related to (a) whether there was a common intention sufficient to justify the change in the beneficial interests; (b) whether the shares which the judge accorded to the parties were wrong; and (c) whether the judge ought not to have taken account of the child maintenance payments when calculating the shares, [19].

In relation to the first ground, the question for the court was whether the judge, having concluded that there was no express agreement that the beneficial interests not be joint, could impute an intention to that effect. On reviewing the judge’s approach, and the relevant authorities – Jones v Kernott [2011] UKSC 53 in particular – Lloyd Jones LJ giving judgment concluded that the judge had not in fact attempted to impute an intention at the “first” stage in the process. Rather, the judge had firstly inferred a common intention for a change in the shares, and he had then imputed an intention at what is referred to as the “quantification” stage. This, in his lordship’s opinion, was an entirely correct approach.

He confirmed that: 

The majority in Jones v Kernott held that imputation of intention was permissible only at the stage of ascertaining the shares in which property was held following the demonstration of an actual intention to vary shares in the property.
— Barnes v Phillips [2015] EWCA Civ 1056, [26].

However, the Court acknowledged that in reaching this conclusion, the judge at first instance had compressed his reasoning in such a way to have made it unclear, notwithstanding his demonstrated understanding of the approach to be adopted following the decisions in Stack v Dowden [2007] 2 AC 432 and in Kernott. This lack of clarity meant that the Court of Appeal was able to determine for itself whether a common intention to vary the shares could, on the facts, be inferred. Lloyd Jones LJ concluded that this was possible. The dealings with the property post-separation, and the use to which the money derived from the remortgage was put, supported this. In addition, from 2008 onwards Ms Philips paid the mortgage on her own. As the court states, “[Mr Barnes] could only legitimately have taken this stance and acted in this way if there had been a change in the beneficial interests in the property”, [32].

On the second point, the court was required to consider whether the division 15%/ 85% was inappropriate. The Court of Appeal held that this was an appropriate division, taking into account in particular the fact that Mr Barnes had “taken” 25% of the value of the property with the remortgage and when he used that money for his sole benefit. Furthermore, the developments after 2008 and the child benefit payments justified the final shares awarded by the judge, [37].

The third ground of appeal was whether the judge was wrong as a matter of law to take account of the child benefit payments in calculating the shares. The Court of Appeal concluded that he was not, and this is perhaps the most controversial aspect of this judgment. The court is aware that Stack v Dowden gives courts a wide discretion in taking into account a potentially unlimited range of factors when considering the “whole course of dealing in relation to the property” [39]. However, it could be argued, and the Court recognises this at [41], that penalizing Mr Barnes for failing to make these payments, but with the possibility of the Child Support Agency making further claims against him, introduces a form of double liability in relation to these payments. However, the Court concluded that in this particular case, given the precise facts, this was not an issue here. It is noteworthy however that the Court suggests that in some cases it may well be inappropriate to take these sorts of issues into account. As Lloyd Jones LJ reasons:

I consider that, in principle, it should be open to a court to take account of financial contributions to the maintenance of children (or lack of them) as part of the financial history of the parties save in circumstances where it is clear that to do so would result in double liability.
— Barnes v Phillips [2015] EWCA Civ 1056, [41]

For those who are wary of an “anything goes” approach to the calculation of shares in this sort of case, potential reliance on matters unrelated to the property itself could be somewhat alarming. The uncertainty in outcome generated by such an approach, although potentially offset by the “fairness” of the result, cannot be said to be producing the best possible overall outcome. It has been ten years since Stack v Dowden was handed down, and the rules ought to have been relatively settled since Kernott, and yet despite two trips to the House of Lords/ Supreme Court, and multiple outings before the Court of Appeal, the now relatively settled rules are still proving difficult for first instance judges to apply in practice. It seems likely that academic and judicial focus will shift now from “when” can intentions be imputed (answer: at the quantification stage) to “how” do we impute such an intention and how do we calculate the parties’ shares. Some certainty on these matters would certainly be helpful.

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Preedy v Dunne [2015] EWHC 2713 (Ch) – Estoppel and Trustees: Binding beneficiaries to a proprietary estoppel

In Preedy v Dunne [2015] EWHC 2713 (Ch), the High Court was required to answer a somewhat unusual question: if trustees (in this case of an estate under a will) make promises which are relied on to the promisor’s detriment, can that promise affect the beneficiaries of the trust? In other words, the court was required to assess whether trustees can bind the beneficiaries’ interest with an estoppel.

The facts were somewhat complex, but in essence, they involved representations made by trustees of an estate to one of the deceased’s sons. The property in question was a pub, called The Albert Arms, which formed part of Mrs Julie Montgomery’s estate. During her life Mrs Montgomery had been sole beneficial owner of the pub, and, on her death in 1997, her widow, Mr Montgomery, had taken over the day to day running of the pub. The will however stipulated that the property should be held on trust, with income and goodwill from the pub going to Mr Montgomery, with the help of Jonathan, one of their sons. The estate was then to be held in trust for equal shares for Jonathan and the two other children. The dispute arose when the trustees sought possession of the pub. Jonathan claimed that he was entitled to occupy the property for life by reason of detrimental reliance on certain assurances made to him by the trustees. He had expended considerable time, money and effort in running the business, and expected that occupation for life was to be his reward. Indeed, if these assurances had been made in a simple “single freeholder” situation, there seems little doubt that Jonathan would have succeeded in his claim to proprietary estoppel.

However, there were two aspects of this case which meant that some doubts emerged. Firstly, the question was whether the assurances had been given by one of the trustees or both, [34]-[35]. This was a largely factual question, but raised the issue as to whether one of two trustees can bind the other to his assurances by way of estoppel. Secondly, and more interestingly, the court was required to address whether even if the trustees themselves were bound, this could be said to affect the beneficiaries of the trust, [34].

On the first question, as a matter of evidence, the court concluded that only one trustee had made sufficient assurances to found an estoppel. Master Matthews therefore had to decide as a matter of law whether this could bind the other trustee. After having reviewed the general principles governing proprietary estoppel, and the need for unanimity of trustees in other areas (such as waiver of forfeiture for a lease), ([35] – [43]), Master Matthews considered the case where there are two beneficial owners of an estate and the action of one only gives rise to an estoppel, [41]. In such a case, it is only the interest of that person that will be affected by the estoppel. In the instant case, Master Matthews concluded, the same reasoning ought to apply to the trustee situation. There is no reason why an innocent trustee should have their ability to carry out their legal duties affected by the unknown representation of the other. 

If, for the protection of the beneficiaries themselves, the rule is that the trustees must (in the absence of authority to the contrary) be unanimous in exercising a power to bind the beneficiaries, I fail to see how it can be unconscionable for trust beneficiaries, innocent of any conduct putting their beneficial interests at risk, to assert those interests against a person to whom a representation or promise even inside the trustees’ limited powers has been made by one only of those trustees. At best, the equities are equal. And a representation or promise outside trustees’ powers would be a fortiori.
— Preedy v Dunne, [2015] EWHC 2713 (Ch), [42]

Thus, unless, as a matter of evidence, it was possible to show either that the innocent trustee encouraged the promise to be made to the promisee; that the innocent trustees knew of the promise and stood by and said nothing; or one trustee was acting as agent for the other at the time of his representation, then the innocent trustee could not be affected by the estoppel.

The second point was concerned with whether such a representation, even if made by both trustees, would in fact be capable of binding the interest of the beneficiaries. This was a somewhat complex point and the reasoning of the court in this regard is not entirely satisfactory.

The first step in the court’s reasoning was to assess whether the trustees’ powers in section 6 TOLATA 1996 included the power to bind the beneficiaries of the trust to a mere equity arising by estoppel. Master Matthews concluded that it did not on the basis that, “a bargain for an interest in land which fails as a contract because of a lack of formality is not within s 6 and does not bind the beneficiaries as an exercise of trustees’ powers” [48]. He reached this conclusion by considering that the powers conferred by section 6 were administrative, and not dispositive, despite the very wide wording of that section, [47]. In this author’s opinion, to attempt to draw a distinction between “types” of transactions for the purposes of section 6 in this was is somewhat arbitrary. The rights which arise through estoppel may not arise in a “formal” manner, but it does not make them any less valid as property rights (see section 116 LRA 2002).

Nevertheless, after having concluded that section 6 did not allow the trustees to bind the beneficiaries to the estoppel, the next question was whether section 13 (occupation rights and variation by trustees) was relevant, [50]. The section allows trustees to let one or more beneficiary occupy property to the exclusion of others, often in return for some for of occupation rent or similar. The court considered whether by promising to allow one beneficiary to remain in occupation, the trustees were estopped from relying on section 13 to continue to manage occupation on the land in a different fashion. The court concluded it did not, not least because if the trustees did so limit their powers, the remaining beneficiaries could simply apply to the court for an order for sale under section 14. Thus, Master Matthews held, “Section 13 is essentially a power of management of land that does not take away a beneficiaries’ [sic] interest in it. Proprietary estoppel, however, is a doctrine which alters beneficial interests”, [54].

Again, this reasoning is difficult in places. The first thing to note is that there is no reason why estoppel cannot affect the management powers of the trustees. The trustees may be estopped from exercising their management powers in any other than the way promised. This does not mean that the beneficiaries themselves lose an entitlement as such. Secondly, proprietary estoppel does not need to alter beneficial interests. Estoppel is regularly used in the context of “occupation for life” or similar without altering the beneficiaries’ rights to proceeds of sale etc.

The most significant difficulty with Master Matthew’s reasoning however relates to his treatment of licences. He reasons that: 

The modern law holds that a licence granted for consideration and coupled with an agreement not to revoke until a specified time or event is irrevocable until that time or event… It seems to me that, in contrast to a licence under the old common law unprotected by equitable remedies (…), this is very close to an interest in property. The fact that it is non-assignable and cannot be turned into a right to income is irrelevant… The crucial question is whether the licence binds third parties.
— Preedy v Dunne [2015] EWHC 2713 (Ch), [54]

Following this line of reasoning he concludes that, “a contractual licence could be created potentially binding on the trust estate and therefore on the beneficiaries” [55].

This is deeply problematic, not least because a clear line of case law highlights that a contractual licence is not akin to a property right – King v David Allen Billposting ([1916] 2 AC 54, (HOL)), National Provincial Bank v Ainsworth ([1965] AC 1175, (HOL)), Ashburn Anstalt v Arnold ([1989] Ch 1, (COA)) etc. Furthermore, if section 6 gives the trustees power to create a “binding” licence, why does it not allow the creation of a “binding” estoppel? The distinction, if there is one, is, at least, not apparent from the reasoning of the court.

After reviewing the evidence, Master Matthews concluded that no such rights had in fact been generated, and his reasoning is therefore obiter. However, it is worth at least questioning some aspects of this reasoning and the general question as to whether trustee action can generate an estoppel which takes precedence over beneficiary rights ought to be addressed. It is a pity that the reasoning of the court in this case does not provide us with a clearer response to that question. 

R on the application of Forest of Dean (Friends of the Earth) v Forest of Dean District Council [2015] EWCA Civ 683 - Multiple developments and Article 6 Habitats Directive

There has been significant judicial activity in recent years in relation to article 6 of the Habitats Directive, both at a European level and in the domestic UK courts (see earlier blog post on No Adastral New Town Limited v Suffolk Coastal District Council, [2015] EWCA Civ 88). In all these cases the courts have been required to grapple with the issue as to how to appropriately assess potential developments in or near a protected habitat. In R on the application of Forest of Dean (Friends of the Earth) v Forest of Dean District Council [2015] EWCA Civ 683, the Court of Appeal has addressed one aspect of this assessment process: the degree to which a decision-maker must take account of the totality of planned developments in its area when considering a planning permission for a single development.

The case concerned a proposed development in the Forest of Dean. It was alleged by the appellants that the Council had not complied with article 6 Habitats Directive in failing to carry out an appropriate assessment of the particular development. They argued that the Council was wrong to conclude that the development would have no impact on the site since they had not considered its cumulative impacts together, in particular, with the development of a spine road. This development, and the spine road, were all contained in the high-level plan for the local area (a plan which had undergone the required assessments) but, critically, this development was linked to various others by the spine road.

The appellants therefore argued that permission could only be given for this specific development without an appropriate assessment being required under article 6(3) if alone, and in combination with the other developments along the roadway (including the road), it could be said to have no significant effect on the protected habitat. The Court of Appeal dismissed this argument.

The critical point to take from the case is this: where a development forms part of wider development plan in an area, the development itself need only be subjected to an appropriate assessment if it can be said that it will have a significant effect on the protected habitat. This must include an assessment of its cumulative effect with other existing developments, but need not take account of other linked, but not intrinsic developments if the high-level plan has itself been through the required processes. Rather, when considering permission for those later developments, the decision-maker will be required to re-assess the cumulative effect of the later development. In other words, the first development can be considered on its own, and later developments must take account of what has come before, in order to assess whether an appropriate assessment is required.

Thus, per Sales LJ:

However, where a series of development projects is in contemplation, the strict precautionary approach required by the Directive will be complied with in relation to consideration of the first particular proposed development project if that project will not of itself have a detrimental impact on a protected site and there will be an appropriate opportunity to consider measures in relation to a later project which will mean that any possible “in combination” effect from the two projects together will not arise (failing which, permission may have to be refused for the later project, when it is applied for).
— R on the application of Forest of Dean (Friends of the Earth) v Forest of Dean, [13].

The justification given by his Lordship for taking such an approach was that any other would paralyse the planning system. 

As Burnett J said [at first instance] at para. [16] of his judgment, “An approach of the sort suggested by the Advocate General is clearly necessary to avoid sclerosis of the system.” I agree.
— R on the application of Forest of Dean (Friends of the Earth) v Forest of Dean, [18].

In taking this approach, Sales LJ follows that taken by the Court of Appeal in the decision in Smyth v Secretary of State for Communities and Local Government [2015] EWCA Civ 174. This aspect of the case, although perhaps not entirely in accordance with the more precautionary ‘tone’ adopted by the ECJ, ought to be welcomed. The court is right to state that too strict an approach would paralyse the planning system, and it is entirely appropriate to leave the question as to cumulative effects for the later development, especially where they are not intrinsically linked.  

Perhaps more interesting however is the treatment of the opinion of Natural England. The Council had taken account of the fact that Natural England had concluded that there was the development would have no significant effect in isolation and had therefore withdrawn its objection to the development. 

Sales LJ states that:

That was an appropriate position for Natural England to adopt; it was lawful and in compliance with the requirements of Article 6. The Council was entitled to be reassured by and to place weight on the fact that Natural England, the expert government agency with responsibility for protection of the environment, considered that there would be sufficient opportunity to address the issue of “in combination” effects with the spine road at a later stage, if an application were later made for planning permission to develop the spine road: see Smyth para. [85] and the authorities cited there, including R (Morge) v Hampshire County Council [2011] UKSC 2; [2011] 1 WLR 268. [45] per Baroness Hale.
— R on the application of Forest of Dean (Friends of the Earth) v Forest of Dean, [20].

This is a noteworthy statement, not least because it highlights that the Council is entitled to both take account of and place weight on the opinion of Natural England. This is not in itself problematic: it is entirely natural that a Council should rely on the body charged with the protection of the environment. What is interesting about the statement however is that it reveals the complexity of the decision-making process and requirements under the Habitats Directive. The “steps” which a decision-maker must take are now tolerably clear: (1) initial assessment determines whether the plan or project may have significant impacts on the site; (2) if it does have such impacts, an appropriate assessment must be carried out to see if the development is likely to have an adverse effect on the integrity of the site. These questions must be answered in a precautionary way, and require engagement with the conservation goals of the particular site.

What is buried beneath this however is a deeply complex system of definition, value, and evidence. What is meant by ‘likely’, and by ‘adverse’, are as much a matter of political judgment as they can be of legal precision. Similarly, the weight to be given to scientific evidence rather than other, less measurable values, is left to the Council itself, but this too is under the supervision of the courts. The courts themselves will be presented with evidence as to the effects of the development on the site, and will itself be required to weigh this evidence against the arguments presented by the objectors and the Council. Furthermore, this influence is all modulated through the complex relationship between the European and domestic courts.

These complex governance issues cannot be fully aired here, but whenever the case law on habitats’ protection is considered, it must always be kept in mind that the governance and decision-making processes are complex and difficult. 

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Curran v Collins [2015] EWCA Civ 404 - White Lies, Subterfuge and the Common Intention Constructive Trust

In Curran v Collins [2015] EWCA Civ 404, the Court of Appeal provides us with further guidance on the application of the tests in Stack v Dowden [2007] 2 AC 432 and Jones v Kernott [2011] 1 AC 776 for the creation of a common intention constructive trust in sole names cases. It has already been noted on this blog (see blog post on Graham-York v York [2015] EWCA Civ 72) that there are multiple judgments confirming the application of such principles to sole names cases (not least in Agarwala v Agarwala [2013] EWCA Civ 1763, and Geary v Rankine [2012] EWCA Civ 555). That this is the correct approach, and that the law has “moved on” from Lloyds Bank v Rossett [1991] 1 AC 107 is now beyond dispute. There are however still some areas of uncertainty and some of these have been addressed by this decision.

The case involved a couple who had been in a relationship for some time (1978/9-2010), but who had only co-habited since 2002. The property in which they lived, “The Haven”, had been purchased in the sole name of Mr Collins through a mixture of proceeds of sale from previous property purchases, a mortgage, and a loan and gift from Mr Collins’ father. Ms Curran had made no financial contribution to purchase. As such, if she were to obtain a share in the property, should would have needed to have demonstrated a common intention upon which she had detrimentally relied, [2]. This common intention could, in appropriate cases, be inferred from the conduct of the parties in relation to the property, [2]. In this particular case, the Court concluded that no such intention could so be inferred, [3, ii], and that in any case there was no detrimental reliance, [3, iii]. However, some useful guidance was given as to two key issues. Firstly, the Court makes very clear the necessity of detrimental reliance. Secondly, the Court considers the role of subterfuge in the implication of a trust.

In relation to this first issue, the Court could not be more plain, notwithstanding the failure of the Supreme Court in Stack to make apparent the necessity of detrimental reliance on the common intention. Thus, as Lewison LJ reasons: 

Overarching all these points is a lack of detrimental reliance. The need for detrimental reliance on the part of the claimant is an essential feature of this kind of case.
— Collins v Curran, [77].

This question mark from Stack, if it still remained, can be conclusively removed.

More important is the Court’s analysis of the role of subterfuge and white lies in the common intention constructive trust. In this case, Mr Collins had told Ms Curran that he would not put her onto the title of the property because this would necessitate the purchase of two life insurance policies. The Court refers to this as, “the Excuse”, and it inevitably recalls to mind the facts in both Eves v Eves [1975] 1 WLR 1338 and Grant v Edwards [1986] Ch 638 where reasons were given to one party by the other as to why they should not be on the title. The Court of Appeal is very clear in Curran v Collins that it sees this comment by Mr Collins as being one designed only to spare Ms Curran’s feelings, and that, as such, it could not justify a finding that there was a common intention as to a trust, [69].

Lewison LJ provides extensive analysis as to how the white lie affects the common intention constrictive trust by comparing this case with Eves and Grant v Edwards. In relation to the former, he distinguished the excuse in Eves (which was found sufficient to give rise to a trust), on the basis that in that case Mr Eves had told his Mrs Eves that the house was to be  a home for them both at the time of purchase: that was not the case for “the Haven” which was bought in 2007, cohabitation commencing in 2010. Secondly, in Eves, the “excuse”, contained a “positive assertion that it would have been bought in joint names” [71] as opposed to in Curran where, “she was simply told that she could not be on the deeds because it was too expensive” [71].

In distinguishing the approach in Grant v Edrwards, Lewison LJ relies on the fact that again, at the time of purchase, there was cohabitation, and children. 

Again there are two factors present in that case which are absent from ours. First, in that case (but not in ours) the house being acquired was acquired as a family home. Second, in that case (but not in ours) there was a positive representation that Mrs Grant would have been a joint owner but for her matrimonial dispute.
— Curran v Collins, [73].

Thus we can conclude that co-habitation at the time of purchase, and the existence of a positive representation are relevant to the power of the white lie to generate a common intention constructive trust. The mere presence of a white lie/ subterfuge does not, in itself, give rise to any inference of the trust, [74]. This guidance is useful in highlighting why the lies in Eves and Grant v Edwards were sufficient to establish a common intention (where, in fact, they were evidence of the precise reverse).

This decision is useful in clarifying these two issues, and helps in further building up a picture as to how the common intention constructive trust is indeed constructed. One notable oddity of the case, however, is that the court places very scant reliance, at least openly, on the decisions in Stack and Jones. Indeed, Arden LJ does not mention Stack at all, and only makes a passing reference to Jones v Kernott in highlighting the need for objectivity. We saw this approach from her Ladyship in Gallarotti v Sebastianelli [2012] EWCA Civ 865 also. Whilst Lewison LJ is much more clearly relying on these higher authorities, it is surprising that there is so little discussion of the other Court of Appeal decisions highlighting that Stack/ Kernott apply to the sole names case mentioned above. Perhaps we should see this as a sign that the matter is now, beyond doubt, closed. 

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