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Good Intentions are Not Enough: Thompson v Hurst

Sheila Hamilton Macdonald, barrister, examines the implications of the Court of Appeal judgment in Thompson v Hurst; a cohabitee property dispute in which the property had been registered in the name of only one of the cohabitees














Sheila Hamilton Macdonald
,  barrister

The TLATA/cohabitee case of Thompson v Hurst [2012] EWCA Civ 1752  came in under the radar for many practitioners. It was first noted up in March of last year when the judgment was given extempore, but the full note of the judgment did not become available for a further nine months and appeared, as chance would have it, in the middle of the Christmas break, when it seems to have been categorised by most services as old newsi . However, it is worth looking at in detail, because it sets out a clear, caselaw-led approach to a very familiar scenario: where the property has been conveyed into the sole name of one of the cohabitees principally or solely because the mortgage lender will not lend to the other.

In this situation, the parties' intentions about beneficial ownership are in conflict with the recommended approach to "sole name" cases. They intended to own jointly, but the case law directs us to assume first and foremost that the equity belongs entirely to the registered owner.  Is this a "sole name" or a "joint names" case? Thompson v Hurst is an important demonstration of how that conflict is resolved in practice.


The Facts
"Context is everything" [per Hale LJ @ Stack v Dowden [69]]. Facts on their own are less than half the story. One of the most helpful practical features of Thompson v Hurst is how the facts were viewed in their context, so it is worth considering them in detail.

The property was a former council house in Middlesbrough. Ms Hurst began occupying it as a secure tenant in 1983. In 1985 Mr Thompson moved in and they lived there together, with Ms Hurst still the only tenant on the rent book, until 2001. They had two children. Over this period Ms Hurst held down two jobs in order to meet the regular household expenses, including the rent. Mr Thompson's work was mostly labouring and there were some periods when he was out of work. The tenancy agreement and the electricity, gas and council tax bills were all in Ms Hurst's name, though Mr Thompson had contributed to the household expenses when he was in work.  His contributions were described by the trial judge as "perfectly reasonable amounts". The judge seems to have broadly accepted that Mr Thompson regularly put in as much as he could afford to the household pot. On the other hand, she described Ms Hurst as "running the home show" and commented that, "the reality [was] that the basics and the ability to keep their house and live in their house, was provided by [Ms Hurst's] jobs and her financial discipline and order".

In 2001 the couple agreed to purchase the house, taking advantage of Ms Hurst's entitlement to do so at a reduced price by virtue of the tenant's right to buy discount, which was substantial. The property was worth £28,000 but Ms Hurst was able to buy it for £15,000. The whole of the purchase price was to be borrowed on mortgage. The couple expressly agreed that the purpose of buying it (together) was to provide something for the children. The trial judge found as a fact that by reason of this agreement, they had an express common intention to buy the property jointly before they encountered their mortgage adviser. She also found as a fact that the couple did not, either before the transfer or later, have any common intention about the shares in which they would own the equity. This last turned out to be the crucial finding of fact.

The intention in 2001 was therefore to convey the property into the couple's joint names. Ms Hurst had two jobs at this point, but Mr Thompson was out of work and had had no regular income for the previous six months. When they consulted a mortgage advisor, s/he not surprisingly advised that in those circumstances Mr Thompson's work record would not help them obtain finance. As a result, Ms Hurst applied for the mortgage in her sole name. The judgment does not mention it expressly, but the practical consequence of this sole-name mortgage application was almost certainly that the mortgagee would only accept that registration of the legal title should be in the sole name of the borrower, in this case Ms Hurst.

Whatever the circumstances, the house was in fact transferred into Ms Hurst's sole name. The parties then lived there together as a couple with their children until 2005, when the relationship broke down, though Mr Thompson did not in fact leave until 2009. As far as the family purse is concerned, the pattern established prior to the purchase was continued. Mr Thompson seems to have gone on contributing "perfectly reasonable amounts", although we do not know what proportion of the household expenses he actually paid.

At first instance, the District Judge had found that Mr Thompson had a beneficial interest in the property, but that it was limited to 10% of the equity. Mr Thompson was unhappy with this outcome, and in particular with the fact that it did not take account of the original intention to transfer the house to the parties jointly or of the fact that he had paid in as much as he could afford to the household pot.


The Issues
Mr Thompson's case was that there was an express common intention not only (1) that he should have a beneficial interest in the property but (2) that the agreement was that he and Ms Hurst were to be equitable joint tenants.  In a striking phrase, William Josling QC for Mr Thompson, described the involvement of the mortgage advisor as a "random intervening event". The intention was that the parties were to be equitable joint tenants and the registration of the property in Ms Hurst's sole name was an "external factor" which the Court should disregard.

The District Judge had, of course, found at first instance that Mr Thompson had a beneficial interest, so the nub of Mr Thompson's appeal was against the judge's decision that his interest was limited to 10%. Mr Thompson's primary case was that the express agreement had (effectively, subject to severance) been 50% and he was entitled to 50%; or, to put it another way, that he could overleap the obstacle of the sole name transfer. The thrust of his appeal was that the household finances had been a joint venture. There was no evidence, he argued, that the common intention had changed in any way after the purchase had been completed. As a result, the predominant factor should be the 2001 express intention and not the sole name transfer.

The Court of Appeal did not disturb the finding that Mr Thompson had an interest in the property, because there was no cross-appeal on that point, but as we will see, Etherton LJ had his doubts about whether that was the right call. The key question though was whether the express intention to have the property transferred into joint names should be given precedence over the fact of the sole-name transfer. The answer to that question was a resounding "no".  The fact of the registration of title in the sole name of Ms Hurst was an obstacle that the agreement to own jointly could not get over.

Mr Thompson argued that the court should analyse his entitlement to a beneficial interest in the property as if the transfer had actually been jointly to Ms Hurst and himself. Remember that in this case the parties had made no agreement about the proportionate shares, which meant that the starting point was that equity followed the law.  If the case was seen as a "joint names" case, the starting point would be that equity should follow the law into equal sharesii.  By contrast, if the sole name transfer was the deciding factor, then the Court should adopt the Oxley v Hiscock [2004] EWCA Civ 546  approach and look at the whole course of dealing between the parties to apportion the equitable shares.

The court gave Mr Thompson's argument short shrift. The transfer was not in fact into the joint names of the parties and there was therefore no scope for a presumption that the parties had intended a joint tenancy in law and equity. Etherton LJ, who gave the leading judgment, summarised it as "a submission that there should be a legal presumption of joint beneficial ownership, not merely where the parties are indeed the joint legal owners, but where there is evidence that they would have liked to be joint legal owners but for one reason or another that was not practical or desirable" [20]. As a proposition, it was consistent neither with principle nor "sound policy" (an interesting phrase in its context), and not in line with Stack or Kernott.

This interesting refinement of the common intention principle shows that it has practical limits which may be entirely outside the control of the parties (such as, for example, a mortgagee's refusal to agree to cohabitee B's name being registered on the title). A beneficial joint tenancy cannot be established by saying simply "we wanted to be joint owners but the mortgagee wouldn't let us".  The facts were that Mr Thompson had no capital and either would not, or could not, (probably the latter, but it is not entirely clear) take on any liability for the mortgage payments. The actual transfer reflected that reality, and reality was important not only in ascertaining whether there had been agreement about the beneficial shares, but was also crucial when it came to looking at the "whole course of dealing"; we will come back to this aspect in due course.

In this context, the trial judge's finding that the parties gave no serious thought to putting Mr Thompson's name on the deeds after the transfer assumes a particular significance. The transfer might not have been the end of the matter if the parties had taken legal advice, because Ms Hurst could have executed a trust deed setting out the interest Mr Thompson was intended to have. In fact, they did not think to take any legal advice, and it was [per Etherton LJ) "unrealistic" to assume that if they had, they would have agreed to share and share alike.

We are therefore given a clear steer that no matter what the parties may have agreed between themselves prior to purchase, the starting point is the transfer itself. In "sole name" cases, the approach set out in Oxley v Hiscock is to work through the three key questions on the basis of the facts. First of all, was there an express common intention that Mr Thompson should have some share in the equity (answer: yes); then, was there was any specific common intention as to proportions (answer: no); and if not, what was a fair share having regard to the whole course of dealing (answer: 10%).

The first question seemed relatively uncontroversial, given that the trial judge had affirmed that in 2001 the express common intention of the parties was that Mr Thompson was to have an interest in the equity. Interestingly, Etherton LJ was not so sure: "I have some difficulty in understanding why the District Judge reached that conclusion in the light of all her other findings, including that neither the appellant nor the respondent gave any thought as to how the beneficial interest should fall if it did not go to the children" [23]. One practice point from this case is therefore that an agreement about acquiring the property jointly may not always amount to a "yes" to question 1 above. However, at the moment Thompson v Hurst is authority (albeit a first instance authority only) for the proposition that an express agreement to that effect can give a cohabitee a beneficial interest, even if that cohabitee does not put in any capital (and Mr Thompson did not), and even if the property is then transferred into the sole name of the other cohabitee.

As to question 2 (above), it was agreed on all sides, as we have seen, that the parties did not come to any specific agreement about beneficial shares. Mr Thompson did however appeal against the trial judge's finding on question 3 that his share was limited to 10%, on the basis that this was plainly wrong on the evidence. The crucial evidence was, of course, the "whole course of dealing".

Understandably, given the upheaval in cohabitee cases over the past six years, there is still considerable uncertainty in practice about what "counts" and what does not when looking at the whole course of dealing – or, to put it another way, when looking at the facts in the context; and context, as we know, is everything.

Mr Thompson's line of argument on the whole course of dealing in his case was that it showed a partnership of equals, each contributing as much as they were able to the family pot, and that as a result the shares should be equal. What the District Judge saw was something rather different: we have already seen that in her view Ms Hurst was "running the show". She found, in words quoted by Lewison LJ, that there was "an absolute straight line of responsibility [italics added] in provision by Miss Hurst from beginning to end, with a very small blip in 2001".

What is emerging from decided cases since Stack is that how much you put into the family pot may not be as important as whether or not you have made a regular commitment (to a third party) to put it in. The assumption of legal responsibility and of liability for family outgoings is becoming one of the more important factors in analysis of the context. Hale LJ noted in Stack that what counts is not so much actual contributions to the family purse, but the willingness [or perhaps ability] to make and keep financial commitments:

"The only regular expenditure to which it is clear that Mr Stack committed himself was the interest and premiums on Chatsworth Road. All other regular commitments in both houses were undertaken by Ms Dowden. Had it been clear that he had undertaken to pay for consumables and child minding, it might have been possible to deduce some sort of commitment that each would do what they could. But Mr Stack's evidence did not even go as far as that..." [91]

The "pay as you go" or "pay what you can afford" approach of one of the parties is being seen as an important indicator that the parties kept their finances separate, and that as we know is a significant contextual factor.

Mr Thompson had not formally entered into any liabilities in respect of the household. It is worth noting that he had not even had his name put on the secure tenancy agreement, although he had lived at the property with Ms Hurst and the children for 16 years before the property was purchased. The practical result of that was that the secure tenant's discount was Ms Hurst's alone, and that was bound to be a very powerful factor. Lewison LJ commented in Thompson that the description of the parties' finances in Stack [could] "apart from the number of children ... be applied to [Thompson v Hurst] word for word" [27]. On appeal, it was the District Judge's analysis of the facts in context that prevailed.


Discussion

Thompson v Hurst establishes that even where a cohabitee has not put in any capital to the purchase, she may well be able to demonstrate that there was an intention that she should have some sort of beneficial interest. This is an important forward step, though it is worth bearing in mind that Etherton LJ had his doubts about it.

The couple's initial intentions in this case had however bumped up at a (very) early stage against the hard facts that only Ms Hurst was able to contribute or borrow any money, and as a result only Ms Hurst could in reality get her name onto the title. Etherton LJ commented, as we have seen, that joint legal ownership here was not "practical or desirable".  It was certainly impractical. The question of how "desirable" it was depends to some extent on whether the parties got as far as specifying that they would hold in equal shares. Where they have not come to any such agreement (and we know in Thompson v Hurst that they had not), an assumption of joint legal ownership would probably be unfair to the person who had paid more.

But what if a couple in similar circumstances had expressly agreed that they would in fact share the equity equally in spite of the transfer into the sole name of one, and therefore in spite of the fact that the legal owner had put in most or all of the purchase price? Would this override the sole name transfer? My view is that it would not, but that this would not in itself be fatal to an outcome of equal shares. Thompson clearly directs us to look at the what-is and not the what might-have-been. But if we do so, we are still directed to follow the Oxley path and consider the whole course of dealing between the parties when apportioning equitable shares. If there is clear evidence that the parties expressly agreed that they would share the equity equally in spite of the transfer, particularly where they had acted according to that agreement, that would probably be a point of magnetic importance for the court. No doubt we shall see in due course!

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i  I am grateful to BAILII for tracking down the reporting history of this case.
ii  In practice, a transfer into joint names would have involved an express declaration of trust via paragraph 11 of the TR1.