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Land purchased by family members for business purposes not subject to Stack v Dowden presumption

<!-- wp:paragraph --> <p><strong><u>Case comment on Williams v Williams [2024] EWCA Civ 42</u></strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In the recent case of <em>Williams v Williams </em>the Court of Appeal looked at the question of whether the presumption laid down in <em>Stack v Dowden</em> [2007] UKHL 17 (namely that property purchased in joint names is also held as joint tenants in equity) applies more broadly than simply where that property is purchased by cohabitants or persons in the “domestic consumer context”.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Nugee LJ giving the judgment on behalf of the court, held that whilst it may apply more broadly it is absolutely clear it does not apply to properties bought for business purposes, even where the co owners are family members. This is because there is a clear and historic presumption that where property is bought for business purposes (whether by a partnership or not) the parties do not intend survivorship to operate, and therefore necessarily they must intend to hold as tenants in common.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Notably, the court commented there might be “strong arguments” in favour of the <em>Stack </em>presumption applying where property is purchased for business purposes by a couple in an intimate relationship, given the inevitable interplay of “mutual affection and sharing of both financial and other resources rather than commercial considerations” (para 54). Arguably, this simply reflects the likelihood that the nature of the relationship itself will amount to an effective rebuttal of the presumption against survivorship in those circumstances.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>It is of assistance that the court reiterated that the <em>Stack </em>presumption of joint beneficial tenancy in the absence of an express declaration of trust to the contrary, is not simply a result of the operation of the mantra of ‘equity follows the law’ but based on two much more fundamental justifications arising from context, as was made clear in <em>Jones v Kernott</em>:</p> <!-- /wp:paragraph --> <!-- wp:list {"ordered":true} --> <ol><!-- wp:list-item --> <li>“The first is implicit in the nature of the enterprise. If a couple in an intimate relationship (whether married or unmarried) decide to buy a house or flat in which to live together, almost always with the help of a mortgage for which they are jointly and severally liable, that is on the face of things a strong indication of emotional and economic commitment to a joint enterprise." (<em>Jones </em>at para 19)</li> <!-- /wp:list-item --> <!-- wp:list-item --> <li>Secondly, that not only do parties in “a trusting personal relationship” generally not hold each other to account financially, but in many cases it is of great practical difficulty to attempt to do so. (<em>Jones </em>&nbsp;para 22)</li> <!-- /wp:list-item --></ol> <!-- /wp:list --> <!-- wp:paragraph --> <p><strong>The facts in <em>Williams v Williams</em></strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In <em>Williams</em>, the business property in question comprised a two-part family farm, Crythan Farm and Cefn Coed Farm. Both purchased in the joint names of Mr and Mrs Williams and their son Dorian who ran the farm as a partnership of equal shares formed by deed. This was an unusual case in that the parties agreed that the intention was for all three to own equally (they all having contributed equally including by virtue of a mortgage in joint names). The issue was as to mechanism and whether Mrs Williams’ beneficial share had, following her death, accrued to the others by virtue of survivorship, or whether it passed according to the terms of her will.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The Court noted the long standing presumption that those acquiring property for business purposes do not intend survivorship to operate and concluded that where property is owned by a couple and a third party, particularly where there is evidence of accounting between the parties (such as by way of partnership management accounts or the taking of rents) the appropriate starting point is that the property is owned as tenants in common.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Fundamentally, in <em>Williams</em>, the context was “very different” to that in <em>Stack </em>in that whilst it in part provided a home for Mr and Mrs Williams it was “primarily a business which provided their livelihood” (para 54).</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Key takeaways</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>This is a particularly important decision for the many disputes involving family businesses which extend beyond simply cohabitants or husband and wife and incorporate co-ownership of land with other family members. These are very often property holdings which have the added complexity of encompassing dual-use land such as farmland incorporating a family home (such as in <em>Williams</em>) or where the family home is located above business premises below.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>It is now beyond doubt that outside of the pure cohabitation context (unless an express declaration of beneficial interest is made) the court will very likely assume that co-owners of business or mixed business/domestic property intended to hold as beneficial tenants in common rather than joint tenants.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>It also raises the knotty question of whether in a different case (one in which parties did dispute the quantum of beneficial shares), whether the starting-point of common intention constructive trust reasoning would also give way in favour of the more commercially focused resulting trust analysis.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><em>In short, in cases where property is co-owned by more than just the couple themselves, will the law now also presume their intention was to own in shares proportionate to their financial contributions – even as between the couple themselves?</em></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>This also poses potentially very significant difficulties in terms of inheritance planning for families who may well be operating on the assumption that their partner and later children will acquire by way of survivorship on their death, thus avoiding otherwise potentially onerous inheritance tax implications.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Consideration should particularly be given as to whether this issue applies where purchases predate the introduction of the TR1, which now prompts parties to declare at purchase their intentions as to beneficial ownership, as it did in <em>Williams</em>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Harriet is a specialist family finance practitioner regularly undertaking instructions in TLATA 1996 claims. Harriet also has a breadth of experience in financial remedies cases involving family businesses and issues arising where property is owned jointly by one or both of the couple at the heart of the matter and third parties.</strong></p> <!-- /wp:paragraph -->

<em>Hudson v Hathway</em> [2022] EWHC 631 (QB) &#8211; The end of detrimental reliance in common intention constructive trusts?

<!-- wp:paragraph --> <p><strong>Written by <a href="https://www.parklaneplowden.co.uk/our-barristers/harriet-stacey-pupil/" target="_blank" rel="noreferrer noopener">Harriet Stacey</a></strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The seminal judgment in <em>Jones v Kernott</em> [2012] 1 AC 776 left open the deeply unsatisfactory question of the relevance and import of detriment, a question which the recent judgment of Kerr J in <em>Hudson v Hathway</em> [2022] EWHC 631 (QB) has sought to answer. Did the Court in <em>Jones </em>simply omit to refer to the requirement of detriment in establishing a common intention constructive trust as a form of judicial simplification, or was it omitted because it is not a necessary precondition in these kinds of common intention constructive trust cases? The latter interpretation of course itself begging the question – was this by virtue of it never in fact having been a requirement in these types of cases, or was <em>Jones </em>implicitly revoking its necessity?</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In the words of Kerr J, “must a party claiming a subsequent increase in her equitable share necessarily have acted to her detriment? Or does a common intention alone suffice to alter the beneficial shares?”</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><em>Hudson</em> posed and answered this question in confined factual circumstances, not dissimilar to those present in <em>Jones</em> – parties in a cohabiting relationship who own a shared home in joint legal names with a joint mortgage for which both are responsible, without an express declaration of trust, where there is an alleged common intention that the parties in fact agreed one party owned a greater than the presumed 50% beneficial ownership which would flow from the reasoning in <em>Stack v Dowden </em>[2007] UKHL 17.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Background</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Mr Hudson and Ms Hathway were in a relationship from 1990 to 2009, during which time they had two children. They purchased the property known as “Picnic House” in 2007 in joint names with a joint mortgage, paid from a joint account into which both parties’ salaries were paid. Following separation, the parties discussed separation of their assets by email with Mr Hudson writing that Ms Hathway could keep the parties “liquid cash, physical property, contents of the house… and the house” if he could retain his pension and shares. Ms Hathway agreed. Mr Hudson ceased to contribute to the mortgage from January 2015.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>At first instance and on appeal there was, unusually, no dispute that the parties had reached a deal in this respect. Mr Hudson, however, disputed that it amounted to an effective transfer of legal title or declaration of trust, and asserted that no constructive trust could have arisen as Ms Hathway had suffered no detriment. Ms Hathway contended that in fact she had suffered detriment through paying the mortgage alone from January 2015, desisting from claiming against assets acquired by Mr Hudson during the relationship, not claiming for financial support for the children and maintaining the property since January 2015.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>First Instance</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>At first instance, HHJ Ralton determined that there was a clear common intention for Ms Hathway to own the entire equity and that she had acted to her detriment but only insofar as she desisted in claiming against the assets acquired by Mr Hudson during the relationship. Whilst the judge accepted that a civil claim brought in relation to this might have been “weak” he was not convinced it was a “non-claim”, attaching significance to the particular belief the parties held that the wealth they generated during the relationship ought to be shared were they to separate in future.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Decision on Appeal</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Kerr J took the view that it was “striking” to find no mention of detriment in either <em>Stack </em>or <em>Jones </em>other than in Lord Neuberger’s dissent in the former at [124], particularly in view of the fact the Court in <em>Jones </em>in particular were setting out to ‘clarify and settle’ the law. He therefore concluded that it was more likely the Court made this omission because it did not need to be proved rather than that it had simply been forgotten.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Kerr J was clear that the approach in <em>Jones </em>was set out in relation to cases of a specific type, namely those in which there was "a family home…bought in the joint names of a cohabiting couple who are both responsible for any mortgage, but without any express declaration of their beneficial interests". The Court in <em>Jones</em> should be taken to have been stating the entirety of the law applicable to these types of cases, of which <em>Hudson v Hathway </em>was of a piece.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Equally, Kerr J noted that in his view had the Supreme Court intended to conflate the evidential approaches to the creation of a constructive trust in sole and joint name cases (as <em>Amin </em>had suggested they did) that they would have done so expressly [66].</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Kerr J concluded that what is required for a constructive trust to arise is evidence that demonstrates it would be unconscionable for the party denying the other’s equitable interest to do so. Unconscionability here is to be taken in “the broadest sense” [67].</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Kerr J took the view that in the domestic consumer context the contract-based notions of detriment arising from consideration including by way of ‘counter-promise’ are “inapposite” [70-71]. Instead, in cases of this type an express agreement as to beneficial shares <em>“can itself supply the necessary detriment or… the requirement of unconscionability, without the need to establish separately that the beneficiary has acted in detrimental reliance on or changed her position in reliance on that promise”,</em> provided that there is in fact an<em> express agreement</em> and not merely a unilateral oral declaration of trust [79].</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Kerr J was satisfied this followed from the principles in <em>Jones </em>wherein (to paraphrase) the agreement was sufficient to establish common intention and the common intention sufficient to establish the constructive trust [80].</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Where does this leave us?</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Whilst on the face of it this decision may appear radical, Kerr J does not go so far as to <em>remove</em> the requirement of detriment. Rather he considered that the notion of what will suffice as detriment in fact includes evidence of an express agreement. At least, in the very limited factual circumstances where there is a property owned in joint names, in a domestic context and where there exists an express agreement to alter the beneficial ownership.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In truth, in cases where a claim is made that an agreement to alter shares may be inferred from conduct, the evidence relied upon to establish the agreement would inevitably overlap considerably if not entirely with that relied on to prove detriment. Why then in principle, when there is an express agreement (particularly one which both parties agree existed as in this case)should there be an additional evidential requirement before equity will give effect to that shared intention?</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>However, it is perhaps in precisely these types of intimate relationships that the risk exists most acutely that a more dominant party might seek to abuse the trust of the other to obtain more than their presumptive 50%. If there is no requirement for detriment it may be that the Court will need to adopt a greater willingness to find that parties in fact did not reach a true accord, rather than confining the party denying an agreement to rely upon the more restrictive “undue influence” approach in order to avoid loss. &nbsp;</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Author</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Harriet Stacey is a Family Finance Pupil</p> <!-- /wp:paragraph -->