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Oxley v Hiscock Revisited: Part I - Establishing the Interest

In the first of a two part article, Luke Barnes, of 3 Dr Johnson's Buildings, reviews the principles set out in Oxley v Hiscock in the light of the Lords' judgment in Stack v Dowden and analyses how they should be applied in establishing an interest. Part 2 of the article, concentrating on quantifying the interest, will be published in March 2008.

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Luke Barnes, 3 Dr Johnson's Buildings

This two-part article does not aim to set out an overall view of the House of Lords' recent decision in Stack v Dowden [2007] UKHL 17, [2007] 2 WLR 831 ("Stack (HL)"). Rather, it focuses on the effect of that decision on aspects of two important recent decisions of the Court of Appeal: firstly, Oxley v Hiscock [2004] EWCA Civ 546, [2005] Fam 211("Oxley"); secondly, Stack v Dowden [2005] EWCA Civ 857 ("Stack (CA)").

I shall also refer to two post-Stack (HL) authorities, which give a flavour of how that decision may affect the courts' approach. I am aiming to assist the practitioner who had become comfortable in relying on Oxley when advising and in court and felt s/he had taken Stack (CA) on board.

Oxley is very well known. In his leading judgment Lord Justice Chadwick carefully considered various aspects of the sometimes confusing authorities on co-ownership of a shared home. Oxley (a "sole name case" with no children involved) was applied in Stack (CA) (a "joint names case" where the parties had four minor children). Chadwick LJ once again delivered the leading judgment of the Court of Appeal.

The combined effect of Oxley and Stack (CA) was to clarify the legal principles to apply to the establishment and quantification of property interests arising under 'common intention' constructive trusts. Oxley in particular was welcomed by commentators for the legal quality and progressive nature of the unanimous judgment. But Stack (HL), decided in April 2007, has fundamentally recast this area of the law.

The article is divided into two parts. Part I relates to establishing a beneficial interest in a shared home under a common intention constructive trust. Part II, which will be published in March 2008, relates to quantifying the interests. At the end of part II, I comment briefly on the current state of play regarding the tricky issue of "homemaker versus breadwinner".

Part I - Establishing the interest
I(a) Oxley – indirect contributions.
I(b) Stack (CA) – the effect of a transfer into joint names.
I(c) Stack (HL)
I(d) Two recent cases and a report.
I(e) Summary

Part II - Quantifying the interests
II (a) Fairness, intention and the whole course of dealing.
II (b) Effect of joint legal ownership.
II (c) Interplay between constructive trust and proprietary estoppel.
II (d) Weight to be given to unequal contributions.
II (e) Homemaker versus breadwinner.

Throughout the article, emphases are added.
The author's articles on Stack (HL) (May 2007) and Oxley (July 2006) may be consulted on this website.

Oxley v Hiscock Revisited - Part I - Establishing the Interest
I will deal particularly with the issue of indirect contributions and the effect of a transfer into joint names.

(a) Oxley – orthodoxy re-stated
Lord Bridge of Harwich's very well known two categories still provide the acid test for the establishment of a beneficial interest under a common intention constructive trust (Lloyds Bank v Rosset [1991] 1 A.C. 107, HL, at 132-3). To summarise Lord Bridge:

(a) A 'first category' constructive trust arises where: the court finds an agreement, arrangement or understanding between the parties that the beneficial interests will be shared, based on evidence of express discussions, no matter how imperfectly remembered and however imprecise their terms; and the claimant acted to his / her detriment or significantly altered his / her position in reliance on the agreement.

(b) A 'second category' constructive trust is based entirely on the parties' conduct. Direct contributions to the purchase price by the claimant, whether initially or by the payment of mortgage instalments, will readily justify the inference of a common intention to share beneficially, and thereby the creation of a constructive trust. But it is at least extremely doubtful whether anything less will do.

It is a vexed question whether there may be circumstances where indirect contributions to the purchase of a property may establish a beneficial interest under a constructive trust, in the absence of an agreement, arrangement or understanding to share beneficially. It is submitted that Oxley followed Rosset by answering this question with a clear negative.

Indirect contributions
At Oxley [38-39], Chadwick LJ 'gratefully adopted' Lord MacDermott L.C.J.'s analysis, (in McFarlane v McFarlane [1972] N.I. 59) of the decisions of the House of Lords in Pettitt v Pettitt [1970] AC 977 and Gissing v Gissing [1971] AC 886. That analysis had been approved by Lord Bridge in Rosset (133C).

According to Lord MacDermott (McFarlane at 67), in the absence of proof to the contrary, a substantial monetary contribution to the purchase of the property creates a beneficial interest in favour of the contributor. But, he says:

(69) the indirect contribution, if is to earn a beneficial interest in the property acquired, must be the subject of agreement or arrangement between the [parties] … which would include any understanding between [them] which shows a mutual intention that the indirect contributions of one or the other will go to create a beneficial proprietary interest in the contributor.

In other words, indirect contributions will only assist in establishing a "first category" constructive trust. Direct contributions are required in order to establish a "second category" constructive trust. A good example of the orthodox approach is provided by Ivin v Blake [1995] 1 FLR 70, CA, which was a claim for a beneficial interest based on indirect contributions. Lord Justice Glidewell rejected the claim, expressly:

(83) applying the principles set out in the speech of Lord Bridge in [Rosset] and in the judgments of the court in McFarlane, which in my opinion accurately state the law of England as well as of Northern Ireland.

In the more recent case of Le Foe v Le Foe & Or [2001] 2 FLR 970, a first instance decision of Nicholas Mostyn QC, sitting as a deputy High Court judge, the court inferred from the wife's very substantial, indirect contributions to the mortgage a common intention to share beneficially. Mr Mostyn found a way through Lord Bridge's formulation of his "second category" by creative use of Lord Diplock's speech in Gissing and Lord Justice May's speech in Burns v Burns [1984] Ch 317.

However, the court referred to neither Ivin v Blake nor McFarlane in its judgment and, although there are diverging views on this issue, Le Foe could be said to have been decided per incuriam. Indeed, support for that view may come from Oxley's subsequent confirmation of orthodoxy.

(b) Stack (CA)
The effect of a transfer into joint names
At [17] Chadwick LJ observed that:

In a case where the property has been transferred into joint names, it can usually be taken for granted that each was intended to have some beneficial interest in the property.

Chadwick LJ seems to say that legal co-ownership raises a rebuttable presumption of beneficial interests shared in undefined proportions. At [26], he makes it clear that the amount of co-owners' beneficial interests is prima facie an open question.

(c) Stack (HL)
Stack (HL) treats both the main issues raised above: the latter decisively; the former less so.

Indirect contributions
Le Foe
was cited in argument, but was not referred to in any of their Lordships' judgments. McFarlane was referred to by Lord Walker of Gestingthorpe at [15], but not in relation to this issue.

Lord Walker respectfully doubted (at [26]) the validity of Lord Bridge's extreme doubt whether anything less than direct contributions to the purchase price could found a [second category] inferred common intention constructive trust. Although stating his view that "the law has moved on", he did not suggest alternative criteria, nor did he refer to Le Foe. He did opine that, given the use of mortgages in the great majority of house purchases:

[34] The process of buying a house does very often continue, in a real sense, throughout the period of its ownership. The law should recognise that by taking a wide view of what is capable of counting as a contribution towards the acquisition.

In one paragraph of her speech Baroness Hale of Richmond, with whom three of their Lordships agreed, stated clearly that their Lordships were not ruling in relation to the establishment of a beneficial interest, but went on to criticise the criteria for establishment set out in Rosset:

[63] we are not in this case concerned with the first hurdle. There is undoubtedly an argument for saying, as did the Law Commission in Sharing Homes, A Discussion Paper, para 4.23 that the observations, which were strictly obiter dicta, of Lord Bridge [in Rosset] have set that hurdle rather too high in certain respects. But that does not concern us now.

The paragraph of the 2002 Discussion Paper referred to states the authors' opinion that "the principles set out by Lord Bridge in [Rosset] are, on the whole, unduly restrictive, and that the courts should seek to be more flexible in their approach."

The Discussion Paper, at [4.26], particularly criticised the requirement that the claimant must have made a direct financial contribution to the acquisition of the shared home, in order for an inferred common intention constructive trust to arise. Indirect contributions* to the mortgage, say by C paying other household bills to allow D to pay mortgage instalments, should suffice to allow the court to infer a common intention to share beneficially.

*The footnote to this passage refers to Le Foe.

However, the Discussion Paper, like Le Foe, pre-dates Oxley's re-affirmation of McFarlane and Rosset. Furthermore, Lady Hale did not take the chance to consider Le Foe. She did not expressly disapprove of nor depart from Rosset and McFarlane. Rather, she pointed out that the House was not in Stack (HL) concerned with the establishment of a beneficial interest. It seems, therefore, that on the authorities a common intention constructive trust must still be established on orthodox principles – although the point is not entirely free from doubt. For example, Le Foe has not been expressly disapproved.

It may be that, by casting doubt on Lord Bridge's Rosset formula, their Lordships intended to send a message to Parliament in advance of the publication (31 July 2007) of the Law Commission's report: Cohabitation: The Financial Consequences of Relationship Breakdown. On the other hand, perhaps the intended message was that their Lordships would welcome the chance to recast the law in relation to indirect contributions, if an appropriate appeal came to them.

The effect of a transfer into joint names
Famously, a transfer into joint names was held, by four of their Lordships, to raise a presumption of beneficial joint tenancy. As a matter of law, the beneficial interests must accordingly be presumed to be identical in nature and extent.

The presumption will be rebuttable only in "very unusual" cases in which the legal owners are to be taken to have intended that their beneficial interests should be different from their legal interests (per Lady Hale, at [69]). The party seeking to rebut the presumption will bear the burden of proof.

It is submitted that there will continue to be the occasional case in which the legal owners' intention is found to be that one of the co-owners should have no beneficial interest at all. One example would be where one of the legal owners was added to the legal title for no other reason than to obtain mortgage finance (as was the case in Carlton v Goodman [2002] EWCA Civ 545, [2002] 2 FLR 259 and McKenzie v McKenzie [2003] EWHC 601 (Ch)).

And, as Adekunle, considered below, suggests, it looks likely that there will be many cases of legal co-ownership where a contention that the parties did not intend to be beneficial joint tenants may realistically be made – especially (although not necessarily) outside the context of a cohabiting couple. Remember, in Stack (HL) the presumption of beneficial joint tenancy was rebutted on the facts, on the basis of an inference that long term cohabitees with four children intended to share unequally.

(d) Two recent cases and a report
(i) Abbott v Abbott PC (Ant) 26/7/2007
Within three months of Stack (HL), in Abbott v Abbott, a Privy Council including Lord Neuberger of Abbotsbury, Lord Walker and Baroness Hale (who all heard Stack (HL)) considered indirect contributions again. Lady Hale gave the only judgment.

In Abbott, the trial judge found the parties shared an understanding that their beneficial interests in the shared home would be equal. The Court of Appeal of Antigua and Barbuda substituted an 8.31% share for the wife, on the basis she could only acquire an interest by way of direct contributions to the mortgage payments.

Restoring the trial judge's apportionment, Lady Hale cited Lord Bridge's speech in Rosset (at 132-3), ending in the famous extreme doubt that anything less than a direct contribution to the purchase price will justify the inference necessary to create a constructive trust. Lady Hale said (at [3]): but in this respect, the law has undoubtedly moved on, as we shall see.

Given the husband's recognition in his evidence that the wife had a beneficial interest, it is clear that the issue on appeal in Abbott, as in Stack (HL), was quantification, not establishment of the beneficial interest. The Court of Appeal of Antigua and Barbuda had mis-applied Lord Bridge's requirement for "direct contributions" (as the condition for establishing the interest by an inferred common intention) to the quantification of the interest.

It would follow that the criteria for Lord Bridge's second category were not departed from as part of the ratio in Abbott. However, the requirement for direct contributions to establish a common intention constructive trust, in the absence of evidence of a shared understanding based on express discussions, is very definitely being undermined. Watch this space.

(ii) Adekunle & Or v Ritchie CC (Leeds) John Behrens QC 17/8/2007
Lady Hale's presumption rebutted. In Adekunle the deceased mother and the defendant, one of her ten children, were co-owners. They purchased the property, of which the mother had been the council tenant, by means of the tenant's discount and a joint mortgage. The transfer was to both of them, but contained no declaration of the beneficial interests.

It was held that Lady Hale's presumption did apply to the instant case, although it may well be easier to rebut it where one is not dealing with the situation of a couple living together. M's discount was slightly over one half of the purchase price. She was not able to fund the mortgage without the assistance of S, who was living at the property. M had nine other children and there was no reason why she would have wanted the whole of her estate to pass to S, her youngest son. The presumption was rebutted, though this did not deprive S of an interest on the facts. His share was assessed at one third.

(iii) The Law Commission's final report
Adding more spice to the witches' brew of the law regarding rights in shared property, the Law Commission's final report on cohabitants' property rights (No. 307 "Cohabitation: the Financial Consequences of Relationship Breakdown" published on 31 July 2007) makes no recommendations (and offers no clarification) as to "the law relating to implied trusts and the law of estoppel".

It introduces an entirely new scheme, based on concepts such as 'eligible cohabitants', 'qualifying contributions', 'retained benefit' and 'economic disadvantage'. The 'general law' (i.e. trusts and estoppel) and the new scheme would be mutually exclusive. Some households (especially couples with children) will have the potential to come within either scheme. Others will be stuck with the law of implied trusts and estoppel.

(e) Summary
Indirect contributions
Lloyds Bank v Rosset
is still the leading case on the establishment of a common intention constructive trust. Lord Bridge's second category (a trust based on inferred common intention) requires a direct contribution to the purchase price of the property, whether initially or by payment of mortgage instalments. Widely recognised as too restrictive, the writing is on the wall for the requirement of a direct contribution – but it has not yet been unambiguously loosened or departed from by the Court of Appeal or House of Lords. It is probably risky to rely on Le Foe (although this is open to debate).

Transfer into joint names
Lady Hale's presumption that equity follows the law is clearly rebuttable. I suggest that two lines of cases will soon emerge in which the presumption is and is not rebutted on the facts, even as between cohabiting couples. It may even be that a decision emerges where a cohabiting co-owner is found to have no beneficial interest.

Law Commission report
The government is due to publish its interim response to the report very shortly. Radical changes to this area of law may be on the way.

© Luke Barnes 2008