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Kernott v Jones - Asking the Right Questions

Rawdon Crozier, barrister at King's Bench & Godolphin Chambers, considers the questions that he hopes the Supreme Court will address in the forthcoming judgment in the Kernott v Jones appeal.

Rawdon CrozierKing's Bench & Godolphin Chambers, Plymouth & Truro

Kernott v Jones [2010] EWCA Civ 578, concerned a "difficult" problem which Wall LJ (as he then was) summarised in the following way at para 6:

" .... Where; (1) an unmarried couple has acquired residential accommodation in joint names, which by common agreement was held by them beneficially in equal shares as at the date of their separation, and;  (2) one party (here the respondent) thereafter; (a) continues to live in the property; and; (b) assumes sole responsibility for its continuing acquisition and maintenance - i.e. not only supports herself and the parties' children but pays the mortgage and all the outgoings (including repairs and improvements)  - can the court properly infer an agreement  post separation that the parties' beneficial interests in the property alter or (to use the phrase coined by Lord  Hoffman in argument in Stack v Dowden [2007] UKHL 17. [2007] 2 AC 432) become "ambulatory", thereby enabling the court - as here – to declare that, as at the date of the hearing before the court, the beneficial interests in the property are held other than equally?""

In Kernott v Jones, the parties, who never married, met in 1980 and began cohabiting in a caravan the following year, before buying a house, the subject of the dispute, in 1985. In the course of their relationship they produced two children before parting in 1993. The mother and children remained in the property, with the mother meeting the outgoings post-separation, while the father purchased himself another property in 1996, utilising his share of an endowment policy taken out in connection with the original purchase. In 2008, as a first step towards realising his interest in the original property, which had been purchased in joint names, he severed the joint tenancy. The question arose whether he was beneficially entitled to the beneficial half share, the conveyance into joint names suggested had been the parties' original intent. The judge at first instance inferred the existence of an agreement that the declaration of trust, implicit in the purchase in joint names, had been varied to as to leave the mother sole beneficial owner. Nicholas Strauss QC upheld that decision but the Court of Appeal by a majority (Wall and Rimmer LJJ, Jacob LJ dissenting) reversed it. Wall LJ answered the question he had posed in the following way:

"57.  The critical question is whether or not I can properly infer from the parties' conduct since separation a joint intention that, over time, the 50-50 split would be varied so that the property is currently held 90% by the respondent and 10% by the appellant. Presumably, if the beneficial interests are "ambulatory" and the ambulation continues in the same direction, the appellant's interest in the property will at some point be extinguished.

"58.  This is a point which I have considered anxiously, and at the end of the day I simply cannot infer such an intention from the parties' conduct...."

It should be noted that the judge at first instance, the Deputy High Court Judge and all three members of the Court of Appeal adopted the same approach, the difference in their respective conclusions being accounted for only by their differing views as to the legitimacy of inferring an agreement between the parties.

Getting to the right result in law is as often a matter of formulating the right question as answering that which, at first sight, appears to present itself. Without any knowledge of the circumstances underlying the particular case, beyond those stated in the judgments, of Nicholas Strauss QC and those of the Court of Appeal, it would be wrong to express any view about the way in which Wall LJ's question came to be formulated in the way it was but the Court of Appeal and commentators (see for example Family Law Week "Hang on a Minute! (Or is Kernott the new White?)" by Rebecca Bailey-Harris and John Wilson QC) have tended to assume that it will be the only question that will ever fall to be answered in such circumstances. It is respectfully suggested that that is not the case and, since the appeal from the Court of Appeal's decision in Kernott v Jones is due to be heard by the Supreme Court in May, it might be as well to spell out what one would hope to see addressed in the dicta, lest the myth that this is a one-question issue be inadvertently perpetuated.

Pausing only to observe that in many cohabitee cases, establishing the parties' respective interests will be a necessary precursor to the consideration of the effect of subsequent conduct upon those interests, it is, perhaps, helpful to start by analysing the question Wall LJ actually posed, which can be pared down to the following:

Can the court properly infer an agreement post separation that the parties' beneficial interests in the property altered, enabling the court to declare that the beneficial interests in the property are held other than equally?

So constructed, it should be apparent that that there is a missing step in the reasoning process; the question contains another question:

Is there anything in the circumstances of the case that could modify or restrict the claimant's strict legal rights?

which has been implicitly answered in the following way:

An agreement post-separation is the sole mechanism by which the court could declare that the beneficial interests in the property are held other than equally.

If the existence of the wider question had been recognised would it necessarily have been answered in the same way? The focus would certainly have had to have been widened beyond the cases primarily considered Stack v Dowden, Oxley v Hiscock [2004] EWCA Civ 546 and Abbott v Abbott [2007] UKPC 53 and encompassed a consideration of the various mechanisms which can operate to prevent a party from asserting strict legal or equitable rights - estoppels, trusts arising by implication of law, laches, restitutionary remedies, potentially even adverse possession, for which there is Commonwealth authority, see Wills v Wills [2003] UKPC 84, [2004] 1 P. & C.R. 37; although it would be harder to establish under the Land Registration Act 2002 and would be in conflict with Patel v. Shah [2005] EWCA Civ 157, which provides another alternative mechanism by which strict entitlement might be adjusted (see below).

Before turning to Patel v Shah, one has to start with Frawley v Neill (1999) Times, April 5, 1999, a case which would have been decided in remaining cohabitee's favour according to the law as formulated by Wall and Rimmer LJJ. As in Kernott v Jones there was a property purchased in joint names by cohabitees. They too separated but, in contrast to the couple in Kernott v Jones there was an oral agreement made in early April 1975 in which the departing cohabitee agreed to sell her share of the beneficial joint tenancy in a property for £1,400 to the remaining cohabitee who assumed exclusive possession and paid all the mortgage instalments and other outgoings. No formalities were ever completed to put the agreement into effect, however. When the house was sold a dispute arose about the proceeds of sale and the cohabitee who had remained in occupation at first instance successfully sought specific performance of the oral agreement and a declaration that he was entitled to the bulk of the proceeds of sale (net of the agreed £1,400), a result upheld by the Court of Appeal on two grounds one narrow, one wider. The narrow ground was, applying Williams v Greatrex [1957] 1 WLR 31, that the cohabitee who had remained in occupation was already entitled to the bulk of the proceeds of sale as title had passed in equity by virtue of the oral agreement and the assumption of exclusive possession. The wider ground was that the claim to a half share by the cohabitee who had departed was unconscionable in all the circumstances; the agreement between the parties was, at most, one of the circumstances but was not an essential ingredient of the unconscionability.

In Patel v. Shah, the wider basis for the decision in Frawley v Neill was applied by the Court of Appeal in the absence of any agreement between the parties. The case concerned claims for beneficial interests in properties which had been purchased in the names of one or more of the respondents in the course of a joint venture that had required investors in the venture to contribute to any shortfalls in respect of mortgage payments and moneys received. During the property slump in the early Nineties, at which time the mortgaged properties were probably in negative equity, the respondents had continued to make payments towards the properties, while other investors had failed to make any payments towards the shortfalls. When the property market had turned around, the appellants sought to reassert their interests and the judge at first instance found that in all the circumstances, it was unconscionable for them to do so. While there was a good deal of argument concerning the principles of partnership law and the position of trustees as against beneficiaries, in upholding the first instance decision and giving the judgment of the Court, Mummery LJ said, referring to Frawley v Neill at paragraph 32:

" Aldous LJ (with whose judgment Ward and Swinton Thomas LJJ agreed) stated, having discussed instances of the doctrines of laches, acquiescence and estoppel, the following principle:

" In my view, the more modern approach should not require an inquiry as to whether the circumstances can be fitted within the confines of a preconceived formula derived from earlier cases. The inquiry should require a broad approach, directed to ascertaining whether it would in all the circumstances be unconscionable for a party to be permitted to assert his beneficial right. No doubt the circumstances which gave rise to a particular result in decided cases are relevant to the question whether or not it would be conscionable or unconscionable for the relief to be asserted, but each case has to be decided on its facts applying the broad approach."

Before concluding at paragraphs 39 and 40:

"39 ...Everything was left for the defendants to deal with, including financing shortfalls from their own pockets. The claimants and their predecessors had departed from the commercial arrangements. They had ceased to bear any of the risk or the expense. Such conduct on their part falls within the principle stated in Frawley v Neill, as well as the principle applicable to partnerships enunciated by Lord Lindley.

40.  The defendants were released from their equitable obligations to the claimants in the circumstances of this case, both as to capital and to income, and in respect of unmortgaged as well as mortgaged properties."

It may well be that, on the facts of Kernott v Jones, consideration of the question "Is there anything in the circumstances of the case that modifies or restricts the strict legal rights as they have been found to be?" would have lead to no different result. It should be noted that of the factual matrix with which the court was working Wall LJ said the following at paragraph 62:

" If this appellant and this respondent had truly intended that the appellant's beneficial interest in the property should reduce post separation, or if the property was to belong to the respondent when the appellant acquired his own house, they should have so decided and acted accordingly by adjusting their beneficial interests in the property. I cannot spell such an intention out of their actions. If anything I find equal interests on separation and an agreement by the appellant to defer realisation for a number of years prior to the severance of the joint tenancy, an action which, in my judgment, crystallises his 50% interest." (my emphasis)

An agreement that the appellant could defer realisation for a number of years might well be sufficient to negative any unconscionability but, even so, might that be overridden by a sufficient passage of time? Would the intevention of a period of negative equity (a facet of Patel v Shah, although not a determinative one) alter the position?

In the majority of cases in which cohabitees have purchased property and parted, leaving one to bear all the future costs, without ever having turned their minds to the legal consequences of that arrangement, the questions the court should seek to answer ought, however, to be wider than the narrow formulation used in Kernott v Jones. It is to be hoped that when it comes to consider the appeal, the Supreme Court looks beyond the confines of that particular case and gives practitioners some general guidance on the broader principles to be applied.