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The cautionary tale of Jones v Kernott- 25/11/2011
On the 9th November, the Supreme Court handed down their decision on Jones v Kernott. Ms Jones’ appeal from the Court of Appeal decision of March 2010 had been heard before them in May this year. The five Lords, Lord Walker, Lady Hale, Lord Collins, Lord Kerr and Lord Wilson each give their judgment, but the Leading Judgment has been given jointly by Lord Walker and Lady Hale. The Law Lords took the opportunity to revisit the decision of the House of Lords in Stack v Dowden in 2007, which also involved determining the beneficial interests of an unmarried couple who purchased property intending it to be their family home. They sought to clarify the Leading Judgment in that case of Baroness Hale and in particular how to interpret her words “The search is to ascertain the parties’ shared intentions, actual, inferred or imputed, with respect to the property in the light of their whole course of conduct in relation to it” and how in turn to elaborate on the court’s function in that process.
Lord Wilson took issue with part of Lady Hale’s judgment in Stack v Dowden wherein she said that the court cannot abandon the search for what the parties intended in the light of their conduct, to impose a result which the court considers fair. He determined that where equity is driven to impute common intention, it must do so by searching for what the court itself considers fair. Thus, interestingly, although the judgments in Jones v Kernott are unanimous, the Judges reach their decisions by different routes. These differences described as both terminological and conceptual are likely to have a significant impact on how future cases are conducted.
The writer of this article, set out the background to the case in July 2011 Family Law at pages 753 to 755. The reader will recall that Ms Jones had been successful both in the County Court and the High Court where she had been awarded 90% of the equity of the property (Badger Hall Avenue), but that Mr Kernott had succeeded in his Appeal to the Court of Appeal and in his Leading Judgment, Lord Justice Wall had ruled that there had been nothing in the facts of the case, to displace the presumption that the parties shared their beneficial interest in Badger Hall Avenue equally. At that time, Lord Justice Wall had described the case as a cautionary tale, which all unmarried couples who contemplate the purchase of residential property and all solicitors who advise them should study. It still remains so.
The Supreme Court had to decide on Ms Jones’ appeal, two broad questions in respect to the equity of Badger Hall Avenue: Firstly, was there sufficient evidence from which the trial judge could infer that the parties held the beneficial interest other than jointly? Secondly, if so, was the trial judge entitled to infer or impute that the parties held the equity in particular proportions?
In their Leading Judgment; Lord Walker and Lady Hale upheld Ms Jones’ appeal and upheld the decisions of His Honour Judge Peter Dedman in the County Court and Nicholas Strauss QC, Deputy Judge of the Chancery Division. They reinstated the 90/10% split of equity in Ms Jones’ favour. They found that in this case, there was no need for the court to impute an intention to the parties, as the trial Judge had made a finding that the intentions of the parties, had changed after separation. At the outset, the intention of Ms Jones and Mr Kernott had been to provide a home for themselves and their family. After the house had failed to sell in 1995, a new plan was formed and Mr Kernott bought his own house, Stanley Road and Ms Jones stayed in Badger Hall Avenue. From 1993 onwards, Ms Jones had paid the mortgage interest, the endowment policy premia, all the household bills and all the house maintenance on her own. The Judges ruled that the logical inference was that the parties intended Mr Kernott’s interest in the property to crystallise when he bought his own house. Just as Mr Kernott would have the sole benefit of any capital gain in Stanley Road, so should Ms Jones have the sole benefit of any additional capital gain in Badger Hall Avenue. They further ruled that on this approach, there was no scope for equitable accounting, thus Mr Kernott did not have a claim for occupation rent and Ms Jones did not have a claim for a contribution towards the mortgage payments and endowment premia.
Lady Hale and Lord Walker concluded that the principles to be applied in further cases of unmarried cohabitants who own property jointly and with a joint mortgage but no express declaration in respect to the beneficial interest were as follows:
- The starting point is that equity follows the law and the parties are joint tenants in law and equity.
- That presumption can be displaced by showing that the parties had a different common intention when they acquired the home or that they later formed a common intention that their respective shares would change – that is that their intentions as their respective shares would change over time, eg, an ambulatory trust
- The common intention is to be deduced objectively by their conduct: the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words and conduct notwithstanding that they may not have consciously formulated that intention in their own mind or acted with some different intention that they did not communicate to the other party. Thus the trial judge must infer from conduct the parties’ intentions, and even where there is sparse and conflicting evidence, it is the court’s duty to do so from finding the primary facts and drawing the necessary inferences.
- However, in those cases where it is clear either (a) that the parties did not intend joint tenancy at the outset or (b) had changed their original intention but it was not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, the answer is that each is entitled to the share which the court considers fair having regard to the whole course of dealing between them in relation to the property. Thus the court can impute an intention to the parties.
At paragraph 47, Lord Walker and Lady Hale say: in a case such as this, where the parties already share the beneficial interest, and the question is what their interests are and whether their interests have changed, the court will try to deduce what their actual intentions were at the relevant time. It cannot impose a solution upon them which is contrary to what the evidence shows that they actually intended. But if it cannot deduce exactly what shares were intended, it may have no alternative but to ask what their intentions as reasonable and just people would have been had they thought about it at the time. This is a fallback position which some courts may not welcome, but the court has a duty to come to a conclusion on the dispute put before it.
In the view of the Judges, the whole course of dealing in relation to the property should be given a broad meaning, enabling a similar range of factors to be taken into account as may be relevant to ascertaining the parties’ actual intentions. Each case will turn on its own facts and financial contributions are relevant Lord Collins’ judgment refers to the arrangement the parties make from time to time in order to meet the outgoings such as the payment of council tax, utilities, repairs, insurance and housekeeping. In Stack V Dowden, Baroness Hale, had determined that many more factors than financial contributions may be relevant to divining the parties’ true intentions. These would include any advice or discussions at the time of the transfer, the purpose for which the home was acquired, the nature of the parties’ relationship, whether they had children for whom they both had responsibility to provide a home and so on.
In respect to sole name cases, the starting point is different. The first issue is whether it was intended that the other party had any beneficial interest in the property at all. If they did, the second issue is to ascertain what that interest is. There is no presumption of joint beneficial ownership, but the common intention still has to be deduced objectively from conduct. If the evidence showed a common intention to share beneficial ownership but did not show what shares were intended, the court would have the ability to impute to the parties what the court considered fair in the light of the whole course of dealing between them in relation to the property, just as in joint name cases.
One of the interesting issue in this particular judgment is that, on the facts, Lord Walker, Lady Hale and Lord Collins believed that the court could draw an inference from an actual change in intention of the parties as to the proportions in which the beneficial interests were held, but Lord Kerr and Lord Wilson were not able to draw such an inference
Lord Collins stated that in his view, in the present context, the difference between inference and imputation would hardly ever matter, and Lady Hale and Lord Walker felt that while the conceptual difference between inferring and imputing was clear, the difference in practice may not be so great. Lord Kerr disagreed. He highlighted the differences between the judgments of Lords Walker and Wilson and Lady Hale. He thought that there could well be a difference in practice between the outcome of the court inferring intention and imputing intention. He thought that each route would require a markedly different mode of analysis. In paragraph 69 of his Judgment, having set out the common areas of agreement in the judgment, he distinguished the areas of disagreement, namely was there sufficient evidence in this case from which the parties’ intentions could be inferred (he did not think so) and was the difference between inferring and imputing an intention likely to be great as matter of practice (he did think so.)
In paragraph 72 of his judgment, he summarised his findings: “I believe that the court should anxiously examine the circumstances in order, where possible, to ascertain the parties’ intention but it should not be reluctant to recognise, when it is appropriate to do so, that inference of an intention is not possible and that imputation of an intention is the only course to follow." He allowed the appeal on the basis that he found it impossible to infer that the parties intended that their shares be apportioned as the judge considered they should be but that such an intention should be imputed to them.
Lord Wilson applauded what he described as the development of the law of equity, spear headed by Lady Hale and Lord Walker, namely that the common intention which impresses a constructive trust upon the legal ownership of the family home can be imputed to the parties. Unlike Lady Hale and Lord Walker however, he did not agree that it was possible to infer from the facts in this case, that the parties had intended that their beneficial interests should so change, but he did accept that the court could impute to the parties that intention. Lord Wilson castigates in his Judgment, the continued failure of Parliament to confer upon the courts limited distributive powers in relation to the property of each party upon the breakdown of a non marital relationship.
But will the Judgment in this case, clarify the law for cohabiting couples?
The Jones v Kernott case involves property held where there is no express declaration of trust. Since 1998, and the introduction of the Form TR1, then surely such cases will become less and less common. But has this case, opened the door to allow claims to be made after an express declaration has been made in form TR1 or written deed? Can the ambulatory trust override an express declaration made when the property is first acquired? We do not know.
It is clear from the Judgment, that the Court believes that in order to ascertain whether there is a joint interest in equity, the Court can infer a common intention trust from the parties’ whole course of dealings, and are able subsequently in the absence of being able to infer in what proportions the equity is held to impute on the parties an outcome which the court considers fair.
How long will it be however, before the Court feel able to impute what is fair in respect to the preliminary issue, namely whether a common intention trust exists? Lord Wilson noted that this question would merit careful thought.
It is regrettable that Parliament have not progressed legislative reform in this area and until they do so, this area of law will continue to be fraught with difficulty for both clients and their legal advisors.