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Inventing Intention: Problems with Common Intention Constructive Trusts

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About The Author

Connor Griffith (Joint Editor-in-Chief)

Connor is a law graduate from the University of Nottingham with a particular interest in intellectual property and corporate law. He recently completed the LPC and is waiting to begin his training contract with a large national firm. Outside the law, he enjoys stand-up comedy and moaning about Brexit.

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Our intention creates our reality.

Wayne Dyer

Implied trusts in property law allow proprietary rights to be appointed to those that the law considers to be deserving of them, despite a lack of adherence with the formality requirements stipulated by Section 53 of the Law of Property Act 1925 (LPA 1925). In relation to family homes in particular, the courts – in cases such as Lloyds Bank v Rosset [1990] – often use the common intention constructive trust to determine how ownership of the property should be shared between couples who separate. The identification of a common intention constructive trust requires  consideration of how the parties intended to share the property.

This, however, has been repeatedly criticised, as it is often unlikely that couples have given the question of ownership any real thought. As stated by Simon Gardner, many couples ‘deal with each other more by trust and collaboration than by organised thinking about their respective rights’ and rarely consider what will happen to their property if they split up. Therefore, judgments which involve the application of common intention constructive trusts are, in effect, based on what Dickson J in the Canadian Supreme Court case of Pettkus v. Becker [1980] referred to as a ‘phantom intent’. It follows that these decisions, albeit arguably fairer in some cases, often go against the objective of the trust in the first place.

From the perspective of legal certainty, the fact that the judiciary are basing decisions on intentions that do not actually exist is concerning. In light of this, this article seeks to shed further light on this issue and discuss solutions proposed from a variety of sources.

Common Intention Constructive Trusts – An Overview

Section 53(1)(b) of the LPA 1925 requires the court to uphold any express declaration of a trust made in writing that details the intentions of the parties on how the beneficial interest in the home is to be split (subject to the exceptions of fraud, mistake or later changes in intention made in writing).

All too often, however, no such written arrangement has been made by the parties. Therefore, following the breakdown of their relationship, the court will be required to look at the facts of the case in order to determine how ownership in the family home is to be split (if at all).

It was held by the House of Lords in the seminal case of Stack v Dowden [2007] that where the family home is legally co-owned by the couple – or, as in Laskar v Laskar [2008],  a parent and child – there will be a rebuttable presumption of an equitable joint tenancy and the parties will share the property equally. Of course, as the Supreme Court confirmed in Jones v Kernott [2011], this presumption can be rebutted by a common intention implied from the conduct of the parties that demonstrates they intended to share the property in any proportion other than equally. Evidence of such an intention will include the parties keeping their finances separate or declining to view their incomes as pooled. If such evidence is adduced, the equitable joint tenancy will be severed and it will become a tenancy in common.

Where the family home has a sole legal owner (the defendant), any other person whose name is not on the legal title (the claimant) must establish that they have a beneficial interest in the property. This requires them to show that there was a common intention by themselves and the defendant to share beneficial ownership of the property, and that they acted to their detriment, or substantially changed their position, in reliance upon this common intention. If both requirements are demonstrated, the defendant will be considered to hold the property on a constructive trust for themselves and the claimant. In Jones v Kernott [2011], it was confirmed that the court will calculate the respective shares in the property either by a ‘holistic’ examination of the whole course of dealing between the parties or, where no clear intention can be found, imputing what is fair in the context.

The Fallacy of ‘Intention’

It should be apparent that there are many points at which the intention of the parties plays a vital part in the process of finding proprietary interests in the property. As noted above, however, the courts appear to have adopted a practice of finding such an intention even where it is evident that no such intention exists. This is most apparent in the following sets of cases: ‘false-excuse’ cases, and cases where there has been an outright admittance of no common intention.

False-Excuse Cases

One possible method for the claimant to demonstrate the required common intention is by showing that there was an express agreement between the parties that the property is to be shared (termed in Lloyds Bank v Rosset [1990] as an ‘express bargain constructive trust’).

Controversially, the courts have held there will be an express bargain constructive trust where the legal owner gives a false excuse as to why the other party should not also be a joint owner of the property. This can be seen in the cases of Eves v Eves [1975] (the defendant told the claimant she was “too young” to be a joint owner) and Grant v Edwards [1986] (the defendant argued that joint ownership would “jeopardise” the claimant’s ongoing divorce proceedings with her estranged husband). The Court of Appeal in both cases found that there was a clear common intention between the parties for ownership of the property to be shared and consequently awarded the claimant a ¼ share of the property in Eves and a ½ share in Grant.

As Simon Gardner argues, it is clear that there was no intention to share ownership of the property in these cases: an outright rejection of a request to register ownership of the property in the joint names of the parties is a clear demonstration of an intention to individually own the property. Indeed, the defendant’s use of a false excuse as to why the property is not jointly shared in no way illustrates the opposite intention. Gardner uses the analogy of a party invitation to demonstrate this error: if A were to reject an invitation to B’s party by way of a false excuse, the excuse does not mean that A actually wants to go to the party but instead, it means that A does not wish to give the real reason for not wanting to attend.

Roger Smith, on the other hand, considers nothing in the judgments as problematic. Citing Gissing v Gissing [1970], he argues that the law has repeatedly taken the approach that the ‘common intention is to be tested objectively’, with the effect that ‘if one party leads the other to believe that a common intention exists, then private reservations will not refute the common intention’. This, of course, raises questions as to whether the test should even be an objective one in the first place – intention is surely a subjective matter as it focuses on what the parties themselves intended. Therefore, to state that there was an objective intention by both parties effectively removes the requirement for both parties to agree on the matter; the court may simply impute its own opinions of what would be fair, even where it is evident that one of the parties disagrees with this.

Fortunately, the Court of Appeal has recently appeared to move away from this line of reasoning. In Curran v Collins [2015], it rejected the argument that the false excuse given on the basis of the cost of life insurance policies meant there was a common intention to share the property. It should be noted, however, that this case does not represent an overhaul of the law but was instead distinguished from Eves and Grant on its facts: Arden LJ pointed to the fact that the parties were not living together and there had been no substantial contribution by the claimant, while Lewison LJ added that there had been no intention for the home to be used as a joint family home, nor had there been a positive assertion that the property would have been purchased in joint names had it not been for the false excuse.

Therefore, though Curran demonstrates a step in the right direction, it seems that there is still a way to go before the courts are fully acceptant of the fact that there should actually be an intention present.

Outright Admittance of No Common Intention

The second way for the claimant to establish the requisite intention requirement is through the court inferring or implying the common intention from the circumstances and the conduct of the parties (the ‘implied bargain constructive trust’). This normally involves the court considering matters such as direct and indirect financial contributions to the purchase price or mortgage instalments of the property, payment for repairs or improvements to the property or, in exceptional circumstances, non-financial contributions (such as raising children and looking after the household, as was accepted in Burns v Burns [1983]).

Underlying such contributions, however, must be a common unspoken intention for the property to be shared. It is thus concerning that the Court of Appeal in Midland Bank v Cooke [1995] demonstrated leniency as to this requirement, when it found such an intention despite the claimant expressly admitting that she had given no consideration whatsoever to what would happen if she and her partner broke up. Waite LJ explained this reasoning by stating:

[P]ositive evidence that the parties neither discussed nor intended any agreement as to the proportions of their beneficial interest does not preclude the court… from inferring one… there will inevitably be numerous couples… who have no discussion about ownership.

As such, the Court of Appeal reasoned it would be unfair to discriminate against Mrs Cooke simply because she had been ‘honest enough’ to admit her failure to consider the issue.

Though the reasoning behind the judgment may be noble, it unforgivingly flies in the face of the aim of the law itself. The Court of Appeal, in short, inferred an intention from the parties while expressly acknowledging that no such intention did or could exist. Understandably, Craig Rotherham takes great issue with this, observing that this decision contradicts Lord Morris’ statement of principle in the earlier case of Pettitt v Pettitt [1969]:

[T]here is no power in the court to make a contract for the parties which they themselves have not made.

Thus, it seems clear that where there is evidently no intention between the parties to split the property, such an intention should not be found by the court.

The Hidden Test

The question that follows from the case law in this area is, if the courts are going against the law and not solely seeking to identify a common intention, what are they looking for when deciding whether to award proprietary interests?

Simon Gardner suggests that ‘the driving force lies in the relationship [between the parties] itself’. He points to the generosity of the courts in relation to the ‘excuse cases’ and Lord Denning MR’s comment in Cooke v Head [1972] 2 All ER 38 that ‘whenever two parties by their joint efforts acquire property to be used for their joint benefit, the courts may impose or impute a constructive or resulting trust’. Likewise, the disappointment of the court in Burns v Burns [1983] that they were unable to assist the claimant – a wife of 19 years that had done nothing to contribute financially to the property – even though they believed that she ‘deserved better’ supports Gardner's argument.

This analysis certainly has some merit to it – it is apparent that courts are placing heavy emphasis on the nature of the relationship between the parties, all the while appearing to pretend to meet the law’s requirements by making judgments by reference to  the apparent intentions of the parties.

Simon Gardner also argues that the same approach of focusing upon the relationships between the parties has taken root in other Commonwealth jurisdictions. The Supreme Court of Canada in Pettkus v Becker [1980], for example, adopted the apparatus of unjust enrichment of the legal owner; they now identify an interest in the property where the work or contributions of the claimant enables the property to be bought or enhances its value. This approach notably considers the longevity of the relationships, treats unmarried couples like married couples and applies less scrutiny in cases of romantic relationships (as opposed to commercial ones), but does so all under the shroud of unjust enrichment. For these reasons, Gardner argues that the Canadian approach – as well as the Australian unconscionability test adopted in Baumgartner v Baumgartner [1987] and the reasonable expectation approach applied by the New Zealand courts in cases like Lankow v Rose [1995] 1 NZLR 277 – is ‘as problematic as the present English approach’, on the grounds that the courts must still consider cases under the guise of alternate legal mechanisms instead of simply being able to openly focus on the relationship between the parties itself.

Proposals for Resolution

Several possible types of reform have been suggested over the years. Unsurprisingly, one is the introduction of a statutory regime in which Parliament makes it clear how exactly the courts are to interpret the relationship between the parties. This would ensure greater certainty and clarity in the application of the principles, while allowing the courts to express what is actually important in each case instead of having to do so under the sham of intention.

The Law Commission, meanwhile, has attempted to propose a similar scheme that would apply to cohabitants that have children or have cohabited for a period of at least up to 5 years. Where the claimant had made a ‘qualifying contribution’ and there was either ‘retained benefit’ or ‘economic disadvantage’, the court would be able to make an order for the transfer of property and/or money to them upon the break-up of the relationship. Notably, this would introduce a statutory scheme that would extend to cover unmarried cohabiting couples, a development which would allow the law to respond to the 21st century trend of couples living together without necessarily getting married. However, whether this proposal will actually be adopted is uncertain – its implementation has repeatedly been deferred by various Governments.

A second proposal worthy of consideration is that advanced by Simon Gardner. He takes a two-pronged approach dependent on the type of relationship that exists between the parties. Firstly, where the parties are mostly independent but will pool their resources for important matters (such as the purchasing of a home), he proposes that consideration by the court of the concepts of ‘trust and collaboration’ should be implemented into the framework of unjust enrichment, thus providing ‘restitutionary relief’ in a way that replaces the issues of ‘voluntariness and subjective devaluation’. Secondly, where the parties ‘organise their whole lives collaboratively’ and are effectively a cooperative unit, he proposes that each member of the couple should be a fiduciary of the other, thereby holding a half-share in each other’s assets for the benefit of the other.

It is submitted that this proposal could certainly be successful: not only could it rely upon the pre-existing legal scheme – thereby vitiating the need for complex reform – but also it allows the courts greater freedom in assessing the strength and appropriateness of the relationship between the parties. Indeed, as Craig Rotherham observes,  courts would no longer have to ‘lie’ about the reasoning they are applying when making judgments – greater clarity and transparency would in turn result in greater legal certainty that ensuring that courts are adopting an appropriate and consistent approach to an issue as common as the breakdown of a relationship.

Ultimately, the creation of a dichotomy between the various types of relationships is desirable as it embraces the fact that there is no one-size-fits-all approach to the legal consequences of a relationship. Different couples operate in different ways; therefore, allowing the courts the freedom to embrace these differences while still protecting rights in what they deem to be a fair way must be the correct direction for the law to take.

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Tagged: Housing Law, Property Law, Trusts

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