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A Question of Fairness?- 02/12/2011
This article was first published in NLJ (www.newlawjournal.co.uk), "A Question of Fairness", NLJ 9 December 2011, p 1660.
In Brief
- Sets out principles to be applied in determining beneficial shares between a cohabiting couple who jointly own a property without any express declaration of trust.
- Where the court cannot ascertain the parties’ intentions either directly or by inference, it may impute the parties’ intentions.
- Extends the concept of fairness to this context.
In its much awaited ruling on Kernott v Jones [2011] UKSC 53 (Kernott), the Supreme Court unanimously reversed the Court of Appeal decision, clarified the decision in Stack v Dowden [2007] UKHL 17 (Dowden) and revisited the concepts of inferred intention and imputed intention.
The facts
In 1985 Mr Kernott and Ms Jones purchased a house in joint names (the “Property”). No declaration was made as to the beneficial interest. In 1993 Mr Kernott left the Property and purchased a property in his sole name. The parties cashed in a joint life insurance policy to assist Mr Kernott in his purchase. He made no further contribution to the costs of the Property, which were met in full by Ms Jones who lived there with the couple’s two children.
In 2006 Mr Kernott claimed a beneficial share in the Property. Ms Jones disputed his entitlement and sought a declaration under the Trusts of Land and Appointment of Trustees Act 1996 that she was entitled to the whole beneficial interest. Needless to say the value of the respective properties had increased enormously during this period.
The authorities
The principle set out in Dowden is this: where a family home is purchased in joint names, the presumption is that the parties intend to own the property jointly in equity also. The presumption of joint and equitable ownership can be rebutted by evidence that the parties did not at the time of purchase intend to own the property jointly in equity, or that the parties’ intention as to beneficial ownership has changed over time (for example, where the parties did not share their financial resources). Where there is no clear evidence as to intention the court may be required to infer or impute the appropriate intention.
Two questions arise: when, and in what circumstances, is such an inference or imputation reasonable; and whether these terms are interchangeable. This was dealt with succinctly by Lord Neuberger at paras 125-126 in Dowden: “An inferred intention is one which is objectively deduced to be the subjective actual intention of the parties, in the light of their actions and statements. An imputed intention is one which is attributed to the parties, even though no such actual intention can be deduced from the actions and statements, and even though they had no such intention. Imputation involves concluding what the parties would have intended, whereas inference involves concluding what they did intend”.
The Courts’ decisions
At trial, Ms Jones accepted that she and Mr Kernott were joint tenants in law and equity when they separated. She argued that the events which followed the separation indicated a change in the parties’ intentions as to their beneficial interests. The District Judge at trial agreed with Ms Jones and, having found the presumption rebutted, considered what was “fair and just” with regard to the course of dealings between the parties, awarding Ms Jones a 90% share in the Property.
On appeal to the High Court Mr Kernott argued that the trial judge was wrong to impute or infer an intention that the parties’ beneficial interests had changed, and was wrong to apportion the interests in a way considered “fair”. The judge (Mr Nicholas Straus ) disagreed and upheld the first instance decision.
The Court of Appeal, by a majority, upheld Mr Kernott’s appeal, finding that the parties owned the beneficial interest as tenants in common in equal shares as there was no evidence that the parties’ intentions had changed after their separation. Rimer LJ’s reasoning was that Dowden did not allow the court to impute an intention where “none was expressly uttered or inferentially formed”.
The Supreme Court unanimously allowed Ms Jones’ appeal and reinstated the shares as determined by the trial judge. It was not necessary to impute that the parties’ intentions as to their beneficial interests had changed, as the trial judge had found that the intention had in fact changed. At para 51 of their lead judgment, Lady Hale and Lord Walker set down the following principles to be applied in determining beneficial shares where a family home is held in the joint names of a cohabiting couple without the benefit of any express declaration of trust:
- The starting point is that equity follows the law and the parties will be joint tenants in law and equity.
- This presumption will be rebutted by evidence that the parties had a different common intention when the home was purchased, or they later formed a common intention that their shares would change.
- The parties’ common intention will be deduced objectively from their conduct, i.e. such intention as can be reasonably understood by one party from the words and conduct of the other, notwithstanding that he did not consciously formulate that intention in his own mind.
- Where it is clear that the parties did not intend a joint tenancy upon purchase, or had changed their original intention as to their beneficial shares, but it is not possible to ascertain by direct evidence or inference what their actual intention was, each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property. This should interpreted broadly, enabling a similar range of factors to be taken into account as are relevant for ascertaining the parties’ actual intention.
- Each case will turn on its own facts. Financial contributions will be relevant but not determinative, and many other factors will also be considered.
In this case, the intention imputed was that Mr Kernott’s interest in the property crystallised upon cashing in the parties’ joint life insurance policy, leaving each party with a sole interest in their respective properties and any subsequent capital gain.
The judgments give rise to two issues of particular interest. The first is the difference (if any) between inferring and imputing an intention. The second is the role which “fairness” plays in the analysis required.
Inference and imputation
Lady Hale and Lord Walker state at para 34 that “while the conceptual difference between inferring and imputing is clear, the difference in practice may not be so great”.
Lord Collins agrees at para 58 that the differences between the two are “largely terminological and conceptual and are likely to make no difference in practice”.
In contrast, Lord Kerr held that although the same result might be achieved whether an intention is inferred or imputed, the process followed to reach the result will differ. In this case Lord Kerr felt that it was not possible to infer the intention but nonetheless agreed with the judge’s division of the beneficial share. Finally, Lord Wilson also recognised that clear distinction between the two, holding that in it was impossible to infer the intention in Kernott, which could only be imputed (and that the proportions were indeed a fair result).
Semantic wranglings aside, the judicial acceptance of imputation as a tool in determining disputes about beneficial shares can only be welcome.
Fairness
The judicial concept of fairness is one of great importance to family lawyers. It is always applied in cases concerning the assets of married couples (and how these are divided upon the dissolution of marriage). By contrast, the application and consideration of fairness in relation to co-habitees is limited in scope to the parties’ course of dealings in relation to the property (i.e. restricted by property law principles).
It would appear, from the 4th and 5th principles set out in Kernott that a wider consideration may now be taken into account. Together with the Supreme Court’s acceptance that an intention can be imputed, the judgments in Kernott do appear to represent a move by the judiciary to bring the position for non-married former cohabitees more in line with their married counterparts.
That said, the main discussion of fairness in Kernott related to determining what the beneficial shares were to be, the judges having accepted (as a matter of fact) that the beneficial interests had changed over time. The presumption that equity follows the law had already been rebutted. It will be interesting to see how a future court applies the principles set down in Kernott to that first step of rebutting the presumption.
Practical implications
Kernott does offer a slight glimmer of hope to separating, unmarried, couples disputing their respective beneficial rights in jointly owned property. The judgment does not however go so far (as some commentators have suggested) as to level the playing field between married and unmarried co-owners.
Furthermore, as with all disputed matters, the court can do no more than decide the issues on the relevant facts of each case: the “primary search must always be for what the parties actually intended, to be deduced objectively from their words and their actions” (para 46). It is not open to the court to impose a solution on the parties which contradicts an intention objectively deduced simply because the court thinks it fair to do so.
Family lawyers may find that Kernott assists in opening up the scope for argument as to beneficial shares in the context of cohabitee disputes. Nonetheless the court will continue to seek to give effect to the actual intention of the parties prior to, or at, a particular point in time rather than impose its own view as to what will be fair in light of what the parties’ future positions are to be.
Finally: this case related to jointly owned property. Similar issues often arise where property is solely owned and here the starting point will differ. There is no presumption of joint beneficial ownership and it must first be decided whether it was intended that the non-owning party had any beneficial interest at all. If such an interest can be asserted objectively from the parties’ conduct, then it remains for the Court to determine what that interest is. In this respect the court will have regard to principles 4 and 5 of para 51 of Kernott (as set out above). Furthermore it is expressly stated (at para 53) that the considerations relating to resulting trusts will not be appropriate for ascertaining beneficial interests in a family home.
Pending the introduction of much needed legislative reform, and given the rise in the number of cohabiting joint owners and the misconceptions which abound as to their proprietary rights, it is more important than ever that conveyancers provide comprehensive advice to intending cohabiting owners. The message has to be, draw up a Declaration of Trust in every case.