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Oxley v Hiscock - Valuing the cohabitees’ interests

Luke Barnes of 3, Dr Johnson’s Buildings provides a summary of what Oxley v Hiscock did and, as importantly, did not change in relation to the law affecting cohabitees’ property interests. He picks out some points of interest from the Court of Appeal’s application of Oxley in Stack v Dowden.

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Luke Barnes of 3, Dr Johnson's Buildings

Oxley v Hiscock [2004] EWCA Civ 546 is an important case, but for frequently misunderstood reasons. In this short article I set out the main points to derive from Oxley, and some potentially serious misunderstandings to avoid. I consider how the principles established in Oxley were developed in Stack v Dowden [2005] EWCA Civ 857 and how they were applied to the facts in both cases.

Oxley is a unanimous decision of a three-judge Court of Appeal and is likely (along with Lloyds Bank v Rosset [1991] 1 A.C. 107, HL) to be one of the most important authorities to have to hand for some time yet.

In order to understand and apply Oxley properly, it is vital to maintain the distinction between the establishment of the claimant's beneficial interest and its quantification.

Establishing the beneficial interest – orthodoxy re-stated
The Court of Appeal (being bound in any event) confirm the fundamental principles of law considered by the House of Lords in their unanimous decision in Rosset and distilled (at 132E – 133A) in Lord Bridge of Harwich's very well-known first and second categories of common intention constructive trust. Rosset is still emphatically the leading case on the criteria for establishing a beneficial interest.

Rosset sets very clear limits to matters capable of being relied upon to establish an interest. Consider, for example, this passage from Lord Bridge's judgment at 130C-D:

"I pause to observe that neither a common intention by spouses that a house is to be renovated as a 'joint venture' nor a common intention that the house is to be shared by parents and children as the family home throws any light on their intentions with respect to the beneficial ownership of the property."

Furthermore, Rosset approves of the analysis of Pettitt v Pettitt [1970] A.C. 777, HL and Gissing v Gissing [1971] A.C. 886, HL contained in the judgment of Lord MacDermott L.C.J. in McFarlane v McFarlane [1972] N.I.59. In Oxley, Lord Justice Chadwick states that in the light of that approval, it is unnecessary for him to attempt any further analysis of Pettitt and Gissing. He goes on to cite McFarlane extensively. I set out below the most relevant points to derive from McFarlane:

(a) Pettitt decisively rejected the doctrine of "family assets", by which it would be inferred from the purchase of property by a couple for their joint occupation that it is a family asset in which each is entitled to an equal beneficial interest.

(b) In certain circumstances a party may establish a beneficial interest by contributing to the purchase, not only directly by paying part of the price, but also indirectly and in a manner which has added to the resources out of which the property has been acquired as, for example, by work done or services rendered or by relieving the other party of some of his or her financial obligations.

(c) If the indirect contribution is to earn a beneficial interest in the property, it must be the subject of agreement or arrangement between the parties. This includes any understanding between them which shows a mutual intention that the indirect contributions of one or the other will go to create a beneficial interest.

1. Lord Bridge's two categories, defined in Rosset, still provide the acid test for the establishment of the beneficial interest.

2. These further propositions should be clearly understood:

(a) "Fairness" is not a basis for establishing a beneficial interest.

(b) Neither a common intention to pursue improvements as a joint venture, nor to occupy as a family home will be sufficient in itself to establish a beneficial interest.

(c) There is no inference from the purchase of property by a couple for their joint occupation that it is a family asset in which each is entitled to an equal beneficial interest.

(d) Indirect contributions will only establish a beneficial interest if based on an agreement, arrangement or understanding to that effect.

Quantifying the beneficial interest – Oxley has significantly clarified the law
A key distinction must be borne in mind from the start - between cases where

(I) there is express evidence of shared intention as to proportions and

(II) there is no evidence of any discussion between the parties as to the amount of the shares.

In class (I) the answer [to the question of the extent of the beneficial interests] will be provided by evidence as to what the parties said and did at the time of the acquisition (Oxley para 69).

In class (II), where there is no evidence of any discussion as to the amount of the beneficial interests, Oxley states:

"[69] the answer is that 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 [which] includes the arrangements which they make from time to time in order to meet the outgoings (for example, mortgage contributions, council tax and utilities, repairs, insurance and housekeeping) which have to be met if they are to live in the property as their home."

Practitioners, please note - this is the extent to which the notion of "fairness" applies as a criterion. NOT as a basis for creating a beneficial interest and NOT for quantifying the interest where there is express evidence of a common intention as to quantification.

Applying Oxley
Where the existence of the parties' (as yet) unquantified beneficial interests is agreed or proven, how then does one set about applying Oxley, initially when advising a client on the key question – how much ? The answer lies in understanding the Court of Appeal's treatment of the authorities in Oxley, its reasons for allowing Mr Hiscock's appeal, and seeing how Oxley was applied in Stack.

First and foremost, Oxley removed one potent source of confusion. Previously, there was a major diversion of approach, at Court of Appeal level, between the resulting trust-style quantification (typified by Springette v Defoe [1992] 2 FLR 388, CA ("Springette")) and the "whole course of dealing" approach defined by Lord Justice Waite in Midland Bank v Cooke & Or [1995] 2 FLR 915, CA ("Cooke") at 926 F-H.

The longest and densest section of the judgment in Oxley (paragraphs 24 – 60) is devoted to resolving the question posed at paragraph 24 in these terms:

"[24] The first question on this appeal, therefore, is whether the judge was required, by … Springette v Defoe to find that, in the absence of some 'shared intention [as to the amount of their interests] communicated between them and made manifest at the time of the transaction itself', the property was held upon a resulting trust for Mr Hiscock and Mrs Oxley in beneficial shares proportionate to the respective financial contributions which they had made to the acquisition cost. Or was the judge entitled and required – as she plainly thought – to follow the approach adopted by this court in Midland Bank v Cooke ?"

By way of reminder:

In Springette S and D jointly purchased their council property. The market value was put at £24,500. S (a long-term council tenant) received a 41% discount, so the actual purchase price was £14,706, including fees. £12,000 was raised on a joint mortgage, and S provided the balance of £2,706, less a contribution of £180 from D. It was not in dispute they each held a beneficial interest. The trial judge found that they never had any discussion about their respective beneficial interests, which he assessed as equal, on the basis of S's evidence of her uncommunicated belief, extracted by skilful cross-examination.

S appealed, contending for a 75:25% split, based on the proportions of the parties' financial contributions to the purchase. The Court of Appeal agreed with her, holding that a resulting trust applied, since the common intention had never been communicated.

In Cooke, as in Springette, the evidence was that the parties had not discussed the amount of their respective interests. Mr C was the sole legal owner. Mrs C's interest was assessed at 6.47%, based on a notional one-half of a £1,100 wedding gift, which was applied to the purchase of the matrimonial home for £8,500. In other words, on a Springette resulting trust style analysis.

The Court of Appeal allowed Mrs C's appeal, unanimously fixing her beneficial interest at one-half on the basis that, when determining the proportions of the beneficial interest in the absence of express evidence of intention: "the judge's duty is to undertake a survey of the whole course of dealing between the parties relevant to their ownership and occupation of the property and their sharing of its burdens and advantages" (per Waite L.J. at 926 E-F). The Court expressly took into account that the Cookes were married, that Mrs C had raised three children and worked full and part time as a teacher, paying out her earnings in relief of household bills.

In Oxley, the Court doubted that Springette was correctly decided and rejected the submission that Cooke was wrongly decided. Nevertheless, it allowed the appeal against the judge's decision, although she had directed herself to Cooke and sought to survey the whole course of dealings. Why ?

In Oxley the circuit judge found a "classic pooling of resources" and placed weight on the fact that the property in dispute was the second one in which the parties had cohabited during their relationship. She found that "all the evidence … clearly shows … an intention to share the benefit and burden of this property jointly and equally" and made an order based on equal beneficial interests.

Indeed, the previous recent Appeal Court authorities on this issue had themselves adopted a fairly broad brush. In Drake v Whipp [1996] 1 FLR 826, CA the trial judge had awarded the claimant an interest of 19.4%, raised to one-third on appeal; in Cooke, 6.47% was raised to one-half. In both cases the Court of Appeal rejected a resulting trust-style quantification in favour of the broader brush constructive trust approach.

The judge was held to have been plainly wrong in assessing the beneficial interests as equal. "It is difficult" held Chadwick L.J. (para 72) "to avoid the conclusion that the judge placed undue weight on the fact … that the parties regarded both [the properties they lived in] 'as their [joint] home.' It does not follow from the fact that both parties live together in a house which they both regard as their home that they share the ownership of that house equally."

Chadwick L.J. went on to give the Court of Appeal's own answer to the issue of fair shares: Mr H contributed £60,700 directly to the purchase price (of £127,000), while Mrs O contributed £36,300. On the basis of the finding of "a classic pooling of resources", it would be fair to treat them as having made approximately equal contributions to the mortgage for the balance of the purchase price (£30,000). Those figures equate to a percentage breakdown of 59.6:40.4%, and the Court of Appeal ruled that a fair division of the proceeds of sale would be 60:40%; ruling that equal shares "gave insufficient weight" to Mr H's larger contribution to the purchase price.

So the Court of Appeal came out with an answer similar to that which a resulting trust would have produced, BUT on the basis this would be fair in the light of the whole course of dealing in relation to the property, NOT on the basis of a resulting trust.

Practitioners will have to await further decisions of the higher courts to see what outcomes Oxley produces in different factual scenarios. As regards quantification, key features of Oxley include:

(a) The compulsory application of a resulting trust has been rejected.

(b) A broad brush approach to quantification that did not adequately reflect unequal capital contributions was successfully appealed.

(c) "A classic pooling of resources" resulted in each party receiving credit for one-half of the contributions to mortgage and other running costs, but NOT to a re-allocation of capital contributions.

(d) There were no relevant children. It will be interesting to see how Oxley will be applied to a case where the one of the partners contributed a lot of time to home-making, and correspondingly less money. The Oxley formula makes no express reference to children as a factor, whether to include or exclude. Remember that in Cooke the raising of three children was expressly found to be relevant. It would be notable if discrimination against homemakers survived in these cases, now that it has been decisively rejected in ancillary relief proceedings.

Recent Developments
Stack v Dowden [2005] EWCA Civ 857 is another decision of the Court of Appeal, with the leading judgment again given by Chadwick L.J.. While Stack has raised further interesting issues outside the scope of this article, its main points of interest as regards the quantification of interests are:

(a) In its terms, Oxley only applies (para 68) to cases where the property is in the sole name of one of the parties. Stack [26] decides there is no reason why it will not also apply to jointly owned property.

(b) Stack [24] explicitly confirms it is still permissible to adopt a resulting trust-style quantification, where that would be fair. And in Day v Day Ch D 23/6/2005 a former council tenant acquired a 60% beneficial interest in the property purchased with her 60% discount, the balance being paid by her son (who acquired a 40% interest).

(c ) In Stack, D's earnings were higher than S's. The trial judge found they both put their all into doing the best for themselves and their four children and ruled their beneficial interests were equal. The capital contributions to the £190,000 purchase were approximately: D £157,500 (1/2 joint mortgage + £125,000 capital); S £32,500 (1/2 joint mortgage only) (83:17%). The Court of Appeal held that D was entitled to at least the 65% she pursued on appeal and which it awarded.

The clearest single message coming out of the Court of Appeal is: effect must be given to unequal capital contributions in the eventual outcome.

All emphases added.