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Cohabitation Law Update Spring 2011

John Wilson QC of One Hare Court’s review of law and procedure in Cohabitation Claims: spring 2011













John Wilson QC1 Hare Court

The big news this quarter is that the appeal in Kernott –v- Jones [2010]EWCA Civ 578 is going to be heard in the Supreme Court on 4th May 2011.   This is likely to have significant repercussions for a wide range of ancillary relief disputes (see Hang on a minute! – is Kernott the new White by Rebecca Bailey-Harris and John Wilson posted on this site 10th February 2011 for a more detailed consideration of this case). 

In Goldstone –v- Goldstone (No 2) [2011] EWCA Civ 39, a matrimonial case, the Court of Appeal endorsed the approach of Nicholas Mostyn QC in the case of TL –v- ML & Others (Ancillary Relief: Claim against assets of extended family) [2005] EWHC  2860 Fam (as approved by Munby J in A –v- A & St George's Trustees [2007] EWHC 99 Fam when an issue arises as to third party interests or potential interests in what would otherwise be matrimonial property.   Mr Mostyn QC stated that, in such circumstances:

"36. ... the following things should ordinarily happen:

(i)  The third party should be joined to the proceedings at the earliest opportunity;
(ii) Directions should be given for the issue to be fully pleaded by points of claim and points of defence;
(iii) Separate witness statements should be directed in relation to the dispute; and
(iv) The dispute should be directed to be heard separately as a preliminary issue, before the financial dispute resolution (FDR).

37. In this way, the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the court and a meaningful FDR can take place.  It also means that the expensive attendance of the third party for the entire duration of the trial can be avoided.  It is a great pity that one of these steps took place in this case.  Had they happened, I believe that a great deal of the costs would have been saved."

This case is considered in more detail in "Determining ownership of property between a spouse and a third party in ancillary relief proceedings – Goldstone –v- Goldstone by David Marusza also posted on this site on 10th February 2011.

In Walsh –v- Singh [2011] EWCA Civ 80, a case that has featured in previous updates, Mr Singh sought to challenge the making by the trial judge of no order as to costs against Ms Walsh, notwithstanding the fact that, on aggregate, she had not beaten his Part 36 Offer.    In dismissing his appeal the Court of Appeal gave consideration to Part 36 of the CPR.  In particular, where a claimant fails to obtain a judgment more advantageous that a defendant's Part 36 offer then (see CPR Rule 36.14(2)):

"subject to paragraph (6) 1 ... the court will, unless it considers it unjust to do so, order that the defendant is entitled to

(a) his costs from the date on which the relevant period {for acceptance of the Part 36 offer} expired; and
(b) interest on those costs."

By 36.14(4) in considering whether it would be unjust to make a costs order the court will take into account all the circumstances of the case including

"(a) the terms of any Part 36 offer;
(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
(c) the information available to the parties at the time when the Part 36 offer was made; and
(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated."

The Court of Appeal concluded that the ambit of the trial judge's discretion on costs was wide and that he was entitled to deprecate the way in which Mr Singh had conducted the litigation and to take into account the issues upon which he had been unsuccessful.   Mr Singh had alleged that Ms Walsh was living in a fantasy world, suggested that she was mentally unstable, had obtained disclosure of her medical records for the purposes of a "pointless examination" and took every opportunity to belittle or discredit Ms Walsh which was likely to be damaging to her given her professional status as a member of the Bar.  Mr Singh had also attempted to rely upon material that he had obtained by the use of spyware on a laptop used by Ms Walsh.   His conduct was "ungentlemanly" to put it at its lowest.    The trial judge had concluded that it would be quite unjust if that was not reflected in some way in his order on costs:

"A well-judged Part 36 offer did not give full licence to conduct a trial thereafter in whatever way without fear of costs reprisals."

In Jayasinghe –v- Don Liyanage [2010] EWHC 265 (Ch) Briggs J gave consideration to the role of the Land Registry Adjudicator when a party has applied for a restriction against the title of land on the basis that she was the beneficial owner of that property, pursuant to a resulting trust, and the legal owner has opposed that claim.   After the entry of the restriction and an objection to that restriction there was a two day trial before the Adjudicator who broadly agreed with the respondent's submissions and concluded that the applicant had made no financial contribution to the acquisition of the property from her own resources.  On appeal it was asserted that the Adjudicator should not have embarked on a trial but should merely have directed that the woman's claim be heard by a competent court.  Briggs J had, therefore, to consider the role and function of the Adjudicator.  There is very little authority on this2.  The Adjudicator is an office created by the Land Registration Act 2002 ("LRA") and practitioners are often bemused  or confused about his role.  This case therefore presents a useful summary of the structure of the relevant parts of the LRA and the relevant rules governing the procedures of the Adjudicator.

By section 42(1)(c) of the LRA the Registrar may enter a restriction in the register if it appears to him that "it is necessary or desirable to do so for the purpose of ... protecting a right or claim in relation to the registered estate in land."

By section 43(1)(c) a person may apply to the registrar for the entry of a restriction under section 42(1) if "... he otherwise has a sufficient interest in the making of an entry."   Section 42(2)(c) states that Rules may provide for classes of persons to be regarded as included in subsection (1)(c).  Rule 93 of the Land Registration Rules 2003 (SI 2003 No 1417) identifies over twenty classes of person to be regarded as having a sufficient interest in the making of the entry including:

"any person who has a sufficient interest in preventing a contravention of section 6(6) or section 6(8) of ToLATA and who is applying for a restriction to prevent such a contravention."

By section 73(1) of the LRA, subject to certain exceptions which were not relevant in the present case, anyone may object to an application to the registrar and by section 73(5)

"Where an objection is made under this section, the registrar:

(a) must give notice of the objection to the applicant, and
(b) may not determine the application until the objection has been disposed of."

By section 73(6) sub-section (5) is disapplied if the objection is one which the registrar is satisfied is groundless.  Then, by section 73(7):

"If it is not possible to dispose by agreement of an objection to which sub-section (5) applies, the registrar must refer the matter to the adjudicator."

Adjudication is dealt with in Part 11 of the Act.  Section 108 sets out the functions of the Adjudicator.  These include, at section 108(1)(a), determining matters referred to him under section 73(7).  By section 108(2) and (4) the Adjudicator is given the same powers as the High Court to make orders for rectification or setting aside certain classes of documents.

Section 110, entitled "Functions in Relation to Disputes":

"(1) In proceedings on a reference under section 73(7), the adjudicator may, instead of deciding a matter himself, direct a party to the proceedings to commence proceedings within a specified time in the court for the purpose of obtaining the court's decision on the matter."

Section 111(1) gives a person aggrieved by a decision of the Adjudicator the right to appeal to the High Court.   The procedural code regulating the discharge by the Adjudicator of functions conferred by the LRA is set out in The Adjudicator to Her Majesty's Land Registry (Practice and Procedure) Rules 2003 (SI 2003 No 2171).  "The Practice and Procedure Rules" expressly incorporate the Overriding Objective in a form which broadly corresponds with that to be found in the CPR.   Briggs J concluded that, viewed as a whole, the Practice and Procedure Rules contained a procedural code which was plainly designed to enable the Adjudicator to resolve, where necessary, disputes about substantive rights, rather than merely to conduct a summary process designed to ascertain whether an arguable claim existed.  Therefore, whilst an Adjudicator could direct that one or other party should commence court proceedings, he could equally decide to conduct a trial into the issues raised himself.   The precise nature of the Adjudicator's function on any particular reference under section 73(7) will depend on an examination of the precise restriction sought, the nature of the claim or right thereby sought to be protected and the basis of the objection which has led to the reference.

Bank of Scotland –v- Hussain & Qutb [2010] EWHC 2812 (Ch) dealt with a number of issues.   Mrs Qutb, who suffered from Alzheimer's Disease, had been defrauded of her interest in her home by Mr Hussain who had created a mortgage over it in favour of the claimant.    She sold the property to him at an undervalue, he raised the money to purchase her interest by way of a mortgage over her home and then, after the money had been placed into her bank account, he removed it and dissipated it.

In proceedings in 2005 Nicholas Warren QC (now Warren J) held that a sale of the property by Mrs Qutb to Mr Hussain should be set aside, subject to the bank's charge, by reason of Mr Hussain's undue influence and because it was an unconscionable bargain.   The bank sought to enforce its rights under the mortgage.  Mrs Qutb relied upon section 70(1)(g) of the Land Registration Act 1925.   It was said on her behalf that she was in "actual occupation" within the meaning of s.70(1)(g) at the time was granted and therefore the bank's rights under the charge were subject to her own rights in the property.

Section 70(1)(g) was in force at the time of the relevant transaction although it has since been repealed and replaced by a combination of section 29 and paragraph 2 of Schedule 3 to the LRA 2002.  Section 29 protects the priority of an interest which falls within any of the paragraphs in Schedule 3.  Paragraph 2 of Schedule 3 preserves the rights of persons in actual occupation.  However, the LRA reduces the ambit of section 70(1)(g) in a number of ways:

(i) it removes protection from those in receipt of "rents and profits";
(ii) it limits protection to that land that the beneficiary is actually in occupation of; and
(iii) it redraws the requirements of "constructive notice" sufficient to put a transferee at risk of being burdened with the rights of a cohabitee.

The new statutory combination retains, however, the element of quasi-constructive notice, whereby a transferee can obtain a measure of protection by investigating whether or not anyone is in occupation of the land and making enquiries as to any rights that person may have (see sub-paragraphs (b) and (c) of paragraph 2).

With those caveats in mind one can turn to Bank of Scotland –v- Hussain & Qutb.   At paragraphs 89 to 90 of his judgment Newey J reviewed the law as to "actual occupation".   In Link Lending Ltd –v- Bustard [2010] EWCA Civ 424 the Court of Appeal endorsed a passage from the judgment of Lewison J in Thomson –v- Foy [2009] EWHC 1076 (Ch); [2010] 1 P & CR 16 which summarised the law in relation to "actual occupation".    The passage at paragraph 127 read as follows:

"(i) the words "actual occupation" are ordinary words of plain English and should be interpreted as such.  The word "actual" emphasises that physical presence is required: Williams & Glyn's Bank –v- Boland [1981] AC 487 per Lord Wilberforce at page 504.

(ii) It does not necessarily involve the personal presence of the person claiming to occupy.  A caretaker or the representative of a company can occupy on behalf of his employer: Abbey National BS –v- Cann [1991] 1 AC 56 per Lord Oliver at 93;

(iii) However, actual occupation by a licensee (who is not a representative occupier) does not count as actual occupation by the licensor: Strand Securities Ltd –v- Caswell [1965] Ch 958 per Lord Denning MR at 981;

(iv) the mere presence of some of the claimant's furniture will not usually count as actual occupation: Strand Securities Ltd –v- Caswell [1965] Ch 958 per Russell LJ at 984;

(v) If the person said to be in actual occupation at any particular time is not physically present on the land at that time, it will usually be necessary to show that the occupation was manifested and accompanied by a continuing intention to occupy: compare Hoggett –v- Hoggett [1980] 39 P & CR 121, per Sir David Cairns at 127

Newey J applied the above principles and decided that Mrs Qutb was indeed in actual occupation at the relevant time.   However, the bank went onto argue that she was in any event bound by the charge pursuant to the principles of consent and estoppel: Mrs Qutb should be taken to have authorised the mortgage so that she was bound by it.

Newey J found as facts that Mrs Qutb knew or ought reasonably to have known that Mr Hussain was going to mortgage the property.  She also attended a meeting with the mortgage broker who was dealing with the obtaining of a mortgage. Mrs Qutb represented to the solicitors representing the bank and Mr Hussain that the property was to be sold with vacant possession and she would not retain any rights in it.  The bank relied on those representations by proceeding with the loan to Mr Hussain and it was reasonable for the bank to do so.  There was nothing to indicate that the Bank had notice of either Mrs Qutb's incapacity, of the undue influence of Mr Hussain or of the fact of an unconscionable bargain.  Almost all of the money advanced by the bank found its way into Mrs Qutb's account and, thus, it accrued to her benefit although Mr Hussain subsequently misappropriated it.

Newey J considered the relevant authorities: Paddington Building Society –v- Mendelsohn (1985) 50 P & CR 244, Abbey National Building Society –v- Cann [1991] 1 AC 56, Skipton Building Society –v- Clayton (1993) 66 P & CR 223 and Thomson –v- Foy [2009] EWHC 1076 (Ch); [2010] 1 P & CR 16.  He cited Slade LJ's formulation of the principles established by these cases, in Skipton Building Society –v- Clayton, as follows:

"In a case where A, the holder of the legal estate in land, has executed a mortgage of the land in favour of B, and C, who claims an interest in the land, has so conducted himself as to give B reasonable grounds for believing that C is consenting to the creation by A of a charge over the land in favour of B which will have priority to C's interest, then C will be estopped from asserting that his interest has priority over B's charge."

Lewison J in Thomson –v- Foy stated the principle as follows:

"(when) the owner is found to have given the vendor or borrower the means of representing himself as the beneficial owner, the case forms one of actual authority apparently equivalent to absolute ownership, and involving the right to deal with the property as owner, and any limitations on this generality must be proved to have been brought to the knowledge of the purchaser or mortgagee."

In other words Lewison J looked to principles of agency whilst acknowledging that the principle was akin to estoppel.  Newey J, at paragraph 101 of his judgment, having considered the various formulations of the principle in the authorities concluded that there was room for argument about the basis of the principle.  The authorities appeared to go beyond established agency principles and, equally, go beyond the principles of estoppel by representation.  He said, at paragraph 102:

"In some cases, the person claiming not to be bound by a mortgage can fairly be taken to have given the legal owner actual authority to enter into it or to have ratified it.  Where that is so, the mortgage may be binding on ordinary agency principles.   In other cases, the principle may perhaps best be explained as a species of, or akin to, proprietary estoppel."

He concluded that, in effect, Mrs Qutb was stopped from denying that the charge had priority over her rights in respect of the property.

He also concluded that she could not rely, either, on her lack of capacity at the time of the sale.    A mortgagee will be unaffected by a want of capacity of which he has no notice.  With estoppel, as in contract law, an objective principle applies.  In a contractual context, the objective principle will be displaced if a person knows that another party lacks capacity.  In contrast, a person with no notice of another contracting party's lack of capacity will be unaffected by it.

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1 i.e. when the Part 36 offer has been withdrawn, replaced by something less favourable that the claimant betters or is made less than 21 days prior to trial unless the court has abridged the relevant period.

2 Although see Croatia –v- Serbia [2009] EWHC 1559 also a decision of Briggs J on highly unusual facts.