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Jones v Kernott – Another helping of the witches' brew?

Rebecca Bailey-Harris and John Wilson QC, both of 1 Hare Court, analyse the implications of the much anticipated Supreme Court judgment in Jones v Kernott.














Rebecca Bailey-Harris
and John Wilson QC, Barristers, 1 Hare Court

Introduction
The long-awaited judgment of the Supreme Court is with us, but does it delight or disappoint?

The appeal was unanimously allowed and the judgment of HHJ Denman restored.  Ms Jones has a 90% beneficial interest in the disputed property, and Mr Kernott 10%. Unfortunately, the unanimity of outcome does not reflect unanimity of reasoning.  Contrary to expectations, the Supreme Court did not deliver a single judgment. There are four judgments: Lord Walker and Lady Hale (the lengthiest), Lord Collins, Lord Kerr and Lord Wilson. Lord Kerr makes a valiant attempt to summarise the areas of agreement and disagreement between the Justices.

It must be said that the judgments raise a number of difficulties, both jurisprudential and practical, some of which this brief article will attempt to highlight, as well as identifying the general propositions of law which emerge.

General propositions
Readers are reminded that Jones v Kernott is a case where there is no express declaration of trust in respect of the property in dispute, whether in Form TR1 or other written document. Where a property is in joint names, disputes about the parties' respective beneficial interests will inevitably become less common over time, because of the operation of Form TR1 from 1 April  1998 (subject to the proviso that the TR1 is not always properly completed: see Stack v Dowden para [52] and Jones v Kernott para [18].

The Supreme Court emphasised that the constructive trust based on common intention is the tool/vehicle which equity has in recent years chosen for development of the law on the ascertainment of beneficial interests in a family home. The constructive trust is now the more appropriate vehicle than the resulting trust for determination of beneficial interests in a family home registered in joint names – save – perhaps – where the couple are also business partners (per Lord Walker and Lady Hale at para [31].

The common intention constructive trust is of central importance to both joint name and single name cases.

The starting point for analysis is, however, different in the two categories of case. The claimant whose name is not on the title has the burden of establishing some sort of implied trust (normally a common intention trust) in order to demonstrate that the beneficial interests are held differently from the legal title. The claimant whose name is jointly on the register starts (in the absence of an express declaration of trust, and subject to the (rare) application of the resulting trust presumption e.g. where domestic partners are also business partners: see para [31]) with the presumption of a beneficial joint tenancy.

Joint names cases
Where a family home is bought in the joint names of a cohabiting couple who are both responsible for any mortgage but without any express declaration of trust, there is a presumption that they are joint tenants both in law and in equity, i.e. that they are entitled to equal shares. The presumption of joint beneficial ownership is supposedly difficult to rebut, and challenges to it should not be mounted lightly or unadvisedly (see paras [19] – [22]). This presumption replaces that of resulting trust in the particular context of a family home (see paras [23] – [25]). No opinion is proffered on whether the resulting trust remains appropriate 'in other contexts' (para [53]). 

It is trite law that a presumption can be rebutted by evidence of a contrary intention, as is stated in para [25]. The presumption of equal beneficial ownership is thus rebuttable by demonstration that the parties had a different common intention as to the quantum of their respective shares in a property, either at the time of acquisition or at a later date. Their intentions as to their respective shares may change over time, i.e. the common intention constructive trust can be ambulatory in nature.

The Supreme Court's reasoning is problematical in respect of the process whereby the presumption of equal beneficial ownership can be rebutted. In order to demonstrate the problem, it is necessary to outline the stages of the process which the judgments set out.

The court's first task as set out in the judgments is jurisprudentially uncontroversial. The court must first endeavour to ascertain the parties' actual intentions as to the quantum of their respective shares, to be deduced/inferred objectively from conduct, i.e. words and/or other conduct. The court is exhorted to make its best efforts at this inference stage and not to shrink from making findings on disputed evidence: see paras [36] and [72]. The Supreme Court adopted a broad-brush approach to the conduct from which intention as to the proportion of the parties' shares can be inferred. Each case will turn on its own facts. Financial contributions are relevant but there are many other factors which may enable the court to decide what shares were intended. Examples (non-exclusive) of the sort of evidence which might be relevant in drawing inferences of intention as to quantum of shares are given at para [69] of Stack v Dowden, to which express reference is made.

If the search of actual intention inferred from conduct is uncontroversial, differences between the Justices nevertheless arose on whether, on the facts of Jones v Kernott, it was possible to draw appropriate inferences as to a change over time in the parties' intentions as to the quantum of their beneficial interests in the property.  Lord Walker and Lady Hale (with whom Lord Collins agreed) were able to draw the inference at paras [48] - [49] of an actual change in intention on the proportions in which the beneficial interests were held. Lord Kerr (para [76]) and Lord Wilson (para [89]) were not.

It is the next stage of the process set out by the Supreme Court which must give rise to serious questions.  It is common to the Justices that where the court is unable to infer the parties' actual common intention as to the proportion of their shares from the evidence,  it then has to proceed to  determine what shares are fair, having regard to the whole course of dealing between them in relation to the property. This is the process of imputing an intention to the parties. Lord Collins, Lord Kerr and Lord Wilson's judgments readily employ the term 'impute'. Lord Walker and Lady Hale do not use the term expressly in the important para [51(4)], but do so elsewhere: see e.g. paras [31] and [33] - [34] The 'whole course of dealing… in relation to the property' should be broadly interpreted, enabling a similar range of factors to be taken into account as may be relevant to ascertaining the parties' actual intentions through the process of inference. Thus the non-exclusive list of considerations found in para [69] of Stack v Dowden should be considered at this stage too.

Lord Kerr emphasised the dichotomy between the process of inferring intention and that of imputing intention. There is a strong demarcation line between attributing an intention to the parties and inferring what their intention was 'in fact' (para [73]), and 'it is necessary that there be a well-marked dividing line between the two' (para [75). Indeed Lord Kerr at para [74] questioned the 'aptness' of imputation, which has an exercise 'wholly unrelated to the ascertainment of the parties' views', but considered that it was not now practicable to discard it. By contrast, Lord Collins considered that in the present context the difference between inference and imputation 'will hardly ever matter…and...what is one person's inference will be another person's imputation' (para [65]). Lord Walker and Lady Hale were slightly less robust at para [34]: 'the difference in practice may not be so great'. That a single judgment to which all the Justices could 'sign up' did not emerge may perhaps be attributed – at least in part – to differences about the conceptual and practical distinction between inference and imputation which could not be resolved.

It is a pity that Lord Kerr did not develop his scepticism further. On reflection, the notion that the presumption of joint beneficial ownership arising from joint registration can be rebutted by anything other than evidence of actual intention is highly questionable. According to the Supreme Court, imputation is a process of last resort where there is no evidence of the parties' actual intention to hold the property otherwise than as equal owners in equity. But in that situation, surely the presumption should simply hold, since it is not rebutted by evidence? How can a presumption (and a fortiori one which is supposed to be strong) be rebutted not by evidence but by the court filling the black hole in the evidence by its own determination of what is fair? This is surely highly unconventional. What is the point of having a presumption at all, if it can be rebutted not only by evidence of the parties' actual contrary intention but also by the court's own determination of what is fair? Perhaps this is not what the Justices meant; but it appears to be what is being said.

There are wider issues here. Is the Supreme Court unwittingly creating one law of property/constructive trust for the jointly owned family home, and another for all other contexts?  Further, it is trite law that the court's jurisdiction in TOLATA proceedings is essentially declaratory in nature, i.e. to declare what the parties' existing proprietary interests are. Does not the imputation process come very close to altering the parties' property rights (from equal ownership) in accordance with what the court considers fair?

The judgments are eloquent in urging the courts to be robust at the inference stage. But what will happen in practice in the ordinary – and overburdened – county courts around the country? Will there not be an understandable temptation for a judge faced with a large quantity of disputed evidence to short-circuit the inference stage and move straight on to that of imputation? This may in the eyes of some beholders introduce fairness in an area where Parliament's inaction is the responsible for social injustice, but it is certainly not orthodox trust law.

What is the ratio decidendi of Jones v Kernott? According to Lord Walker and Lady Hale (with whom Lord Collins agreed), there was evidence from which could be inferred an actual change in the parties' intentions away from equal ownership, and the inference those two Justices drew as to the parties' intention as to proportions was so close to the result produced by the trial judge that it would be wrong for the appellate court to interfere. Lords Kerr and Wilson were unable to draw inferences of intention from conduct but reached the same result by the process of imputation.

What will be the practical repercussions in joint name cases where there is no express declaration of trust? This is not the first occasion on which the highest court has preached the rhetoric of the strength of the presumption of equal beneficial ownership, and warned of the dangers of litigation. But there seems no more prospect of reality matching rhetoric after Jones v Kernott than there was after Stack and Dowden.  With the quantification of 90%/10% restored, and the process of imputing intention legitimised, there is surely considerable incentive for joint registered owners in cases where there is no express declaration of trust to 'have a go' at arguing in court that the interests are other than equal. Good for the work of legal practitioners for years to come, but quite the opposite result to that supposedly intended. Note further that Lord Walker and Lady Hale at para [50] appeared to sound the death-knell to the process of equitable accounting in cases where the shares of beneficial interests themselves change over time.

A further interesting question arises from the ambulatory nature of the common intention constructive trust as recognised by the Supreme Court. Consider the situation where there is a valid and unchallengeable TR1 or a deed declaring the nature and proportions of the couple's beneficial interests in a property. The conventional wisdom is that that an express declaration of trust (assuming there is no vitiating  factor when it is drawn up, giving rise to the remedy of rectification) is conclusive of the parties' beneficial interests: see e.g. Goodman v Gallant [1986] Fam 106, Stack v Dowden at para [49]. Of course, the beneficial interests can thereafter be altered by a fresh deed (or other written documentation). But can they be altered by evidence of agreement not expressed in writing, given effect to by the subsequent operation of an ambulatory constructive trust? This is a difficult question. At first blush it would appear clear that written documentation should be required; see Law of Property Act 1925 s 53(1)(b). But  s 53(2) of the 1925 Act 'saves' the operation of a constructive trust from the requirement of writing. Does it therefore permit the operation of a post-acquisition ambulatory common intention trust?  Such a result may 'feel wrong', but may need to be tested in litigation.   The question, put simply, is: can an express written declaration of trust subsequently be altered through the vehicle of a common intention constructive trust?

Single name cases
The Supreme Court acknowledges that it was not dealing with a case of registration of property in a sole name. Does it however provide any enlightenment  in obiter dicta on how such cases are to be approached? See call for clarification by Gardner and Davidson in (2011) LQR 13 at 15, quoted at para [16].

The answer is – unfortunately – 'not much'.

As noted above, there is a reiteration of the conventional wisdom that the burden is on a claimant who is not a registered owner to prove her case. There is however no employment of the language of presumption in this context, only starting point. Quaere whether there is in reality any difference.

The Supreme Court appears to accept that at the first-stage enquiry of whether the parties' intended to share beneficial ownership, there is no scope for the process of the court imputing to the parties an intention which they never had. This is evident from Lord Collins' judgment at paras [62] – [63] and [66]. It is also evident from para [52] of the judgment of Lord Walker and Lady Hale, to be read in conjunction with para [51] (3) and (4), that the imputation process can only be undertaken by the court in single name cases at the quantification (i.e. the second) stage.

Thus intention to share beneficial ownership of property in a single name case is to be approached only by the process of drawing inferences from conduct (verbal or other). The Supreme Court offered no guidance on the range of conduct from which inferences can be drawn. The law is thus left unclear. We can be no more categorical than Warren J was able to be in Thomson v Humphrey [2009] EWHC 3576 Ch at [94]:

'Although the law may have moved on from Lloyd's Bank plc v Rosset and Another [1991] 1 AC 107 and although it is not possible to lay down a clear line between what is and is not sufficient, I am clear that the matters relied on in the present case cannot give rise, in any sense, to the intention that the claimant should have an interest in [the property]'

Practitioners will be none the wiser in giving advice as to the kind of evidence (apart from express representations and clear financial contributions to property) on which a successful claim can be mounted in respect of sole-registered property.

What of the second stage enquiry in sole name cases – i.e. the quantification  of the parties' respective interests once the court has found that they intended to share beneficial ownership notwithstanding the sole legal title? The judgment of Lord Walker and Lady Hale makes clear at para [52] that the approach to quantification is the same in single name cases as in joint name cases. First the court must endeavour to deduce their common intention as to the proportions of their respective shares objectively from the evidence (the inference process). If that proves impossible from the evidence, the court will then have to proceed to imputation in exactly the same way as at the quantification stage in joint name cases.