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Court of Appeal considers change of intention to hold property in equal shares

Is there, in practice, any difference between ‘imputation’ and ‘inference’?

The Court of Appeal has revisited the calculation of shares in the beneficial interest of a property where there is no express declaration of trust.

In Barnes v Phillips [2015] EWCA Civ 1056, the appeal concerned the purchase of a property in circumstances similar to Stack v Dowden [2007] UKSC 17 and Jones v Kernott [2011] UKSC 53. There was no express declaration in form TR1 as the property had been purchased prior to the requirement for a TR1 to be completed.

The parties' relationship began in about 1983.They had two children, born in November 1993 and July 2000. They purchased the property at 88 Leyland Road, London, SE12 8DW together in January 1996. The purchase price was approximately £135,000. They used about £25,000 from their savings for the deposit and took out a joint repayment mortgage with HSBC for the balance. The property was registered in their names as joint tenants. The respondent ("R") worked full-time as a nurse except when the children were very small when she worked part time. The appellant ("A") was a self-employed business man. He paid the mortgage and some of the bills and R paid the rest. Between 1996 and 2005 they carried out major works to the property. They both contributed to the cost of the works.

In 1988 A had purchased a property at 7 Stoke Newington Road in his sole name and which he rented out. During the relationship he also purchased a further two flats in London E15, also in his sole name and which he rented out.

In late 2004 and early 2005, R began to notice A was having financial problems. He insisted that they had to re-mortgage the property or they would lose their home. They did so in May 2005. The mortgage offer valued the property at £350,000. The London Mortgage Company loaned £145,000 of which £78,930 was paid to redeem the original mortgage. The funds received were therefore £66,069 which the judge found were used to pay off A's debts.
In about June 2005 the relationship broke down. A left and moved into one of his other properties. He continued to pay the mortgage for only 8 months. The judge found that from 1 June 2005 to 18 April 2008 R made mortgage payments totalling £12,552 and A made mortgage payments of £22,077. From January 2008 R paid all the mortgage instalments as well as having financial responsibility for both children (although A made some contributions to child support). R was also responsible for all the work and expenditure required on the property. She produced a schedule of expenditure with receipts for £11,262 and a total estimated expenditure of £22,671.

At first instance the judge found that on purchase of the property they were joint tenants in law and in equity because that was their intention. Both were contributing equally to what was in effect a "marriage without a wedding ceremony". He found that there was no express agreement to vary the shares. However, he failed to consider whether he could infer an agreement to vary the parties' shares. Nevertheless, the judge found that he was entitled to impute an intention as to the size of the shares based on fairness. He found that in May 2005 when the property was remortgaged its value was £350,000. After repayment of the first mortgage the equity was in the region of £275,000. A received £66,000 for his sole benefit. The judge accepted that A received 24-25% of the net equity. He therefore imputed an intention that from that stage the property was to be held in shares of 75/25%. The judge then considered the position from 2005 to April 2008 and found R had paid approximately two-thirds of the mortgage contributions. From April 2008 R alone paid the mortgage and a further adjustment was required. Bearing in mind the repayments made in respect of the mortgage, the payments in respect of repairs and contributions of both parties towards the children and the sums outstanding due from A to the CSA, he concluded that a fair division was 85/15 in R's favour.

In the Court of Appeal Lloyd Jones LJ gave the lead judgment with which Longmore LJ and Hayden J concurred. His Lordship referred to the summary of the approach to this type of case set out in Jones v Kernott at paragraph 51. In essence, the approach consists of 2 stages:

1) a) Was there any express agreement that the parties' intention as to the size of the shares would change? If not, b) can such an intention be inferred, having regard to the sort of evidence set out in paragraph 69 of Stack?

2) If an agreement to vary the size of the shares exists, whether express or inferred, what is the size of those shares?

Where it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, "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" (Chadwick LJ in Oxley v Hiscock [2004] EWCA Civ 546).

The Court of Appeal confirmed that imputation of intention is permissible only at the stage of ascertaining the shares in which the property was held following the demonstration of an actual intention to vary shares in the property.

The judge at first instance had failed to address a "critical step" in the process. He moved straight from finding that there was no express agreement to vary the shares to finding that he could impute an intention to the parties as to the size of the shares. He did not consider whether he could infer a common intention to vary shares in the property in the circumstances of the case.

The Court of Appeal therefore found that it was open to it to consider whether a common intention to vary shares should be inferred. Importantly Lloyd Jones LJ stated:

"It is clear from the judgments of the majority in Jones v Kernott that the scope for inference in this context is very extensive indeed. (See in particular Lord Walker and Baroness Hale at [34]: 'In this area, as in many others, the scope for inference is wide.')"

Lloyd Jones LJ stated that the weight of the evidence supported an inference that the parties intended to alter their shares in the property. This was based on the following:

The Court of Appeal upheld the 85/15 division.

Lloyd Jones LJ also held that in principle it should be open to a court to take account of financial contributions to the maintenance of children as part of the financial history of the parties save in circumstances where it is clear that to do so would result in double liability ie. where the monies remain owing to the CSA.

In her summary of the judgment (from which this news item is derived), Elizabeth Darlington of Zenith Chambers notes that a couple of significant points arise from this case:

1) The Court of Appeal, although stating that it was not permissible to impute an intention to the parties at the first stage of deciding whether to depart from a 50/50 division, took a purposive approach when inferring from the parties' conduct that they must have intended to alter the size of their beneficial interests. The distinction between imputation and inference is, in practice, increasingly one without a difference.

2) The judgment is a further move away from the dictum of Baroness Hale in Stack v Dowden that a different common intention would only be found in a "very unusual case". This was not even referred to by the Court of Appeal and there is nothing in the facts of this case which suggest that it was "very unusual" – quite the opposite.

The judgment and summary are here.