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Kernott v Jones and the search for shared intention:- Stack v Dowden clarified?

Luke Barnes of 3 Dr Johnson's Buildings, examines Kernott v Jones.

Luke Barnes
, barrister, 3, Dr Johnson's Buildings

Allowing the appeal from the judgment of Nicholas Strauss QC, sitting as a Deputy High Court judge (Jones v Kernott [2009] EWHC 1713 (Ch), itself an appeal) the Court of Appeal (Kernott v Jones [2010] EWCA Civ 578) grappled with an important issue arising from the majority judgment in Stack v Dowden ([2007] 2 AC 432), which has doubtless caused careful thought to many, if not most practitioners:

What is the correct way to understand the meaning and scope of Baroness Hale's direction in Stack to search for shared intentions?

[60]  The search is to ascertain the parties' shared intentions, actual, inferred, or imputed, with respect to the property in the light of their whole course of conduct in relation to it..

Nicholas Strauss QC delivered a long and careful judgment, dismissing the first appeal. In the Court of Appeal Wall LJ, Jacob LJ and Rimer LJ each delivered a separate judgment in allowing the second appeal by a majority (Jacob LJ dissenting). 

After a brief summary of the facts of the case and the outcome of the trial and appeals, I shall look more closely at the judgments on the first and second appeals, attempting to draw out useful pointers for practice.

(1) Facts
In May 1985 the parties, who had an infant child, purchased the property in joint names for £30,000. The woman, J, contributed £6,000 and the balance of the purchase price was raised by means of an endowment mortgage.

In 1986 a further loan of £2,000 was taken out for an extension, built and paid for largely by the man, K, enhancing the value of the house from about £30,000 to £44,000. The parties' second child was born that year. J and K shared household bills including mortgage payments.

They separated in 1993, J and the children staying in the property. J accepted at trial that  at that time their beneficial interests were equal, since she would not have been able to rebut the presumption of joint, equal ownership at that date. Thereafter, J assumed sole responsibility for the outgoings on the property and the children's maintenance.

In May 1996 K bought another property for £57,000. He raised the deposit, with J's agreement, by cashing in a separate life policy which they owned, whose proceeds they divided equally.

(2) Trial
It was not in dispute that the parties had no discussions as to the variation of their beneficial interests. At first instance the judge did not direct himself to paragraph [60] of Stack. Nor did he use the words "infer" or "impute" in the key passage of his judgment (set out by Wall LJ at paragraph 19 of his judgment in the second appeal).

The trial judge ruled that J's investment towards the purchase of the property, particularly since separation, meant that she was entitled to a greater share. In addition she received very little contribution from K to the maintenance and support of the two children.

He found that at the outset the parties' intentions may well have been to provide a home for them and their children, but they had altered since separation to the extent that K demonstrated that he had no intention until recently of availing himself of the beneficial ownership, having ignored it completely by way of any investment in it or attempt to maintain or repair it whilst he had his own property upon which he concentrated.

The judge turned to assess the altered shares on the basis of what was "fair and just". He fixed the beneficial interests at: J – 90%; K – 10%.

(3) First appeal
Nicholas Strauss QC, sitting as a deputy judge of the high court, dismissed K's appeal. He held that, so far as the intention of the parties cannot be inferred, the court is free to impute a common intention to them. The judge was quite right to infer or impute the parties' intention to change their beneficial interests. "Fair and just" was the appropriate criterion to quantify the varied interests by imputation.

(4) Second appeal
The Court of Appeal allowed K's second appeal, by a 2-1 majority. The judge had identified no evidence from which could properly be inferred a common intention to vary the equal beneficial interests held on separation. The parties' beneficial interests were equal.

(5) The Search for Intention
The decisions on the first and second appeal turned on Nicholas Strauss QC's, Lord Justice Wall's, Lord Justice Jacob's and Lord Justice Rimer's respective interpretations of what was included in the Stack search for intention. I turn to those interpretations as follows.

"The search is to ascertain the parties' shared intentions, actual, inferred, or imputed, with respect to the property in the light of their whole course of conduct in relation to it" Stack v Dowden, ibid., per Baroness Hale at [60]

(i) Nicholas Strauss QC (Jones v Kernott [2009] EWHC 1713 (Ch))

Nicholas Strauss QC directed himself to a key passage of Baroness Hale's opinion in Stack, citing the following two extracts:

[60] ... The search is to ascertain the parties' shared intentions, actual, inferred or imputed, with respect to the property in the light of their whole course of conduct in relation to it.

[61] ... the search is still for the result which the parties must, in the light of their conduct, be taken to have intended ...

He did not cite, although he clearly had in mind, the next sentence of Baroness Hale's opinion:

... the court [may not] abandon that search in favour of the result which the court itself considers fair. For the court to impose its own view of what is fair upon the situation ... would be to return to the days before Pettitt v Pettitt [1970] AC 777 ...

Nicholas Strauss QC reminded himself of Lord Neuberger's definitions of "inferred" and "imputed" in Stack. Baroness Hale did not attempt to define the terms.

[126]  An inferred intention is one which is objectively deduced to be the subjective actual intention of the parties, in the light of their actions and statements. An imputed intention is one which is attributed to the parties, even though no such actual intention can be deduced from their actions and statements, and even though they had no such intention.

Nicholas Strauss QC then considered how the court may approach the Stack search for intention:

[30] ... In my view, what the majority said in Stack held was only that the court should not override the intention of the parties, in so far as that appears from what they have said or from their conduct, in favour of what the court itself considers to be fair. The key words used by Baroness Hale are that the court must not impose its view. [the deputy judge's emphases]

[31]   To the extent that the intention of the parties cannot be inferred, the court is free – as the key passage makes clear – to impute a common intention to the parties. Imputing an intention involves, as Lord Neuberger points out, attributing to the parties an intention which they did not have, or at least did not express to each other. The intention is one which the parties "must be taken to have had". It is difficult to see how this process can work, without the court supplying, to the extent that the intention of the parties cannot be deduced from their words or conduct, what the court considers to be fair. In particular, in the present case, if there is evidence of conduct from which it is right to conclude that the parties intended their respective shares to alter following [K]'s departure, but none to indicate how, the only available criterion by which to assess the extent of the alteration is what is objectively fair, and the only available judge of that is the court. 

Applying this analysis to the appeal before him, Nicholas Strauss QC ruled [47 – 49]:

[47]   So the position after the split in 1993 was that they maintained separate finances to an even more marked degree that the unmarried couple in Stack v Dowden. In my view, the judge was quite right to infer from these facts that they no longer intended equal beneficial ownership, or to impute to them such a change in intention. Thus far there was no need for him to invoke fairness: the change in intention can easily be inferred or imputed from the parties' conduct [emphasis added].

[48]   The next question is, what different intention is to be inferred, or (as I think more realistically) to be imputed to the parties ...

[49]   ... in the absence of any indication by words or conduct as to how [the beneficial interests] should be altered, the appropriate criterion was what he considered fair and just

In summary, then, he found that the alteration of intention was inferred or imputed by the trial judge. Since the court did not have material to infer an intention as to the amount of the altered shares, they were fixed at 90:10 (J:K), as what seemed to the Court fair and just, on the basis of an intention imputed to the parties.

(ii) The Court of Appeal allowed K's appeal by a 2-1 majority. The judge had identified no evidence from which could properly be inferred a common intention to vary the equal beneficial interests held on separation. The factors mentioned were insufficient. 

The Court did not therefore address itself to the amount of the varied shares as part of its decision and any comments made must be obiter dicta. However, each of Wall and Rimer LJJ made interesting comments on that aspect of the tribunal's task. I will consider each judgment in turn, before attempting a synthesis.

Lord Justice Wall:

[6]   The case raises a short but ... difficult issue ... 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 thereafter (a) continues to live in the property and (b) assumes sole responsibility for its continuing acquisition and maintenance – [including] the  mortgage and all outgoings – can the court properly infer an agreement post separation that the parties' beneficial interests in the property alter ...

[7]   A subsidiary issue arises if the question posed [above] is answered in the affirmative,  namely whether the split 90% to 10% is correct on the facts. This is not an issue which I propose to address. If what the judge and deputy judge did on the primary issue was permissible, and provided that there was an arguable basis for the 90% - 10% split then the actual split is an exercise of judicial discretion [emphasis added] with which the court should not interfere:- see G v G [1984] 1 WLR 645.

[26] [
citing part of Chadwick LJ's judgment in Oxley v Hiscock [2005] Fam 211] ... in a case where there is no evidence of any discussion between them as to the amount of the share which each was to have ... 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 ... [Baroness Hale's emphasis]

-  By way of reminder, I add that in Oxley Chadwick LJ was explicit that: 

[66] ... what the court is doing, in cases of this nature, is to supply or impute [emphasis added] a common intention as to the parties' respective shares (in circumstances in which there was, in fact, no common intention) on the basis of that which, in the light of all the material circumstances (including the acts and conduct of the parties after the acquisition), is shown to be fair ...

Wall LJ continues:

[36] [considering Stack] ... The search was to ascertain the parties' shared intentions, actual, inferred or imputed, with respect to the property in the light of their whole course of conduct in relation to it (paragraph 60). Baroness Hale then cites with approval and italicised emphasis paragraph 69 of Chadwick LJ's judgment in Oxley v Hiscock which I have set out (complete with Baroness Hale of Richmond's emphases) at paragraph 26 above.

-   It is submitted that the exercise of judicial discretion described by Wall LJ in [7] is one which may include imputation, particularly in the light of his citation of Oxley. He reminds the reader that Baroness Hale approved Chadwick LJ's formulation. Oxley (a sole name case) concerned the quantification of undefined beneficial interests, in the absence of evidence of express discussions. 

-   Since Stack, Oxley cannot apply to a sole or joint names case unless and until the presumption that equity followed the law has been displaced. But, as I read Wall LJ's judgment (remembering that it is obiter as regards that issue) an Oxley-style imputation  could then apply to quantification, in the absence of relevant discussions.

Wall LJ:

[52]   There is a total lack of evidence about the parties' intentions. They do not appear to have discussed the matter. The severance of the joint tenancy by [K] in March 2008 is ... alas, about the only piece of objective evidence as to the parties' intentions.

-   It seems that 'total lack of evidence' refers to express evidence.

[53]   Furthermore, his decision to wait until the children were older when [J] no longer needed the property as a home for herself and the children is consistent with cases such as Mesher v Mesher [1980] 1 AER 126n ...

[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 [90:10] ...

-   I comment that to be faithful to the precise wording of Baroness Hale's guidance, one might have expected Wall LJ to say: "whether or not I can properly infer from the parties' conduct since separation or impute to them a joint intention [to vary] ...". I submit, tentatively, that the reason he did not is that the imputation exercise described in  Oxley (approved by Wall LJ and, as he saw it, by Baroness Hale) only applies to quantification.

-    I remind the reader that the two categories of common intention defined in Lloyds Bank v Rosset [1990] 1 AC 107 as capable of establishing a beneficial interest under a constructive trust were express and inferred (/implied). Imputation played no role. And in Stack, shortly after the reference to the parties' shared intention, actual, inferred or imputed, Baroness Hale specified, (in a clear reference to the exercise of establishing the interest, as opposed to quantifying it): "[63]  We are not in this case concerned with the first hurdle." It would follow that anything she had to say about establishing the interest was obiter dicta.

-     Wall LJ's conclusion on the facts of Kernott was that no variation from equality of interests could be inferred. He did not consider whether it could be imputed – which would be a surprising omission, if imputation were permissible, since the judgment under appeal found that the intention to vary could properly have been inferred or imputed by the trial judge.

[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. In my judgment, the conveyance into joint names, following Stack v Dowden created joint beneficial interests, and the parties agreed that when they separated they had equal interests. There has to something to displace those interests, and I have come to the conclusion that the passage of time is insufficient to do so, even if, in the meantime, [K] has acquired alternative accommodation, and [J] has paid all the outgoings.

[60] ... In short, in my judgment, there is nothing on the facts of this case to displace the presumption of equality.

-      I suggest that the thrust of Wall LJ's approach is: the intention to vary must be express or inferred; the quantification of the varied interests may be based on an actual, inferred or imputed intention.

Lord Justice Rimer:
-    Rimer LJ turned a piercing eye on various aspects of Stack. I set out some key observations as follows:-

[71]   [Baroness Hale] said again, at [61], that the search is 'for the result which reflects what the parties must, in the light of their conduct, be taken to have intended.' In the same paragraph she said that it is not open to the court to abandon that search 'in favour of the result which the court itself considers fair', so rejecting the approach favoured by Chadwick LJ in Oxley v Hiscock  ... at [69] (a sole name case) [emphasis added].By citing with approval an extract from a Law Commission paper, she made it plain that the parties' intentions for which the court is searching are not just that the shares should be other than joint but also what they should be. [emphasis added] At [62] she recognised that that such intentions may change over time, producing what Lord Hoffmann  described in argument as an 'ambulatory' constructive trust ...

[72] ... In Stack, save that the parties had bought the property in joint names, they had otherwise kept their financial affairs rigidly separate, a context which Baroness Hale said made [it] 'a very unusual case'. She explained that the fact of the unequal contributions in such context supported the inference that the parties intended to share otherwise than equally ... and instead to enjoy a beneficial tenancy in common in the shares [65:35].

[75]   I suspect that Stack may be regarded by trial judges as presenting something of a challenge. I am not sure, with respect, what is to be made of the emphasis by Baroness Hale and Lord Walker that Stack was an exceptional case.

[76]  The key feature of Stack is, however, the task that the majority sets for trial judges, namely that of searching for the parties' shared intentions – 'actual, inferred or imputed' – with respect to the property. Since an 'inferred' intention must also be an 'actual' intention, I presume that Baroness Hale used the word 'actual' as a synonym for 'express' ..............
Taking the facts of Stack itself, it may not perhaps to obvious to everyone how the facts described by Baroness Hale justified the inference of an unspoken intention that the beneficial shares were to be held in the declared proportions.

[77]   As for ... imputed intention, I do not, with the greatest respect, understand what [Baroness Hale] meant. It is possible she was using it as a synonym for inferred ... in which case it adds nothing. If not, it is possible that she was suggesting that the facts ... might enable the court to ascribe to the parties an intention that they neither expressed nor inferentially had: in other words, the court can invent an intention for them. That, however, appears unlikely, since it is inconsistent with [her] repeated reference to the fact that the goal is to find the parties' intentions, which must mean their real intentions. Further, the court could and would presumably only consider so imputing an intention to them if it had drawn a blank in its search for an express or an inferred intention but wanted to impose upon the parties its own assessment of what would be a fair resolution ... But [her] rejection of that as an option at paragraph [61] must logically exclude that explanation ... I accordingly do not myself interpret Stack as having intended to enable courts to find, by way of the imputation route, an intention where none was expressly uttered or inferentially formed.

-   This is striking. Firstly, Baroness Hale's "imputation" is meaningless and/or superfluous and can be ignored. Secondly, Nicholas Strauss QC was wrong to treat imputed intention as distinct from inferred intention and to base any part of his reasoning upon imputation.

-   In contrast to Wall LJ (see [36], as set out above), Rimer LJ felt ([71]) that in Stack Baroness Hale rejected the approach favoured by Chadwick LJ in Oxley. It would seem to follow that the court may not impute an intention as to the amounts of undefined beneficial interests (whether following a variation or not). 

-   I submit Rimer LJ's approach could cause great problems – since the court could only quantify varied (or undefined) beneficial interests on the basis of actual common intention (be that express or inferred). However, there is little doubt that in the overwhelming majority of cases where the beneficial interests are undefined (e.g. (a) joint names cases where the presumption of equality is rebutted and (b) sole name cases where the claimant manages to cross the first hurdle of establishing an interest), this is because the parties did not have a shared intention as to their amount. It would be surprising if the court could not assist the parties by quantifying the varied amounts in those circumstances. 

-  However, the following paragraph of Rimer LJ's judgment suggests exactly that: 

[83]   In my view ... the problem with the judge's decision is that there was no evidence (or none that he identified) from which he could draw an inference of an intention by the parties to agree that their beneficial shares should be other than equal, let alone any intention as to what such shares might be ...a decision for which the evidence, findings and reasoning simply provide no support.... he was also wrong to hold that it was for him to decide what a fair split in the beneficial ownership was, because as Baroness Hale explained in Stack, the parties must themselves have evinced their intentions as to that, either expressly or impliedly, whereas the judgment shows they had not; and she also made it plain at [61] that the imposition of a 'fair' solution upon the parties was not an option open to him.

-   Rimer LJ expressly left open (at [85]) the possibility that J might seek compensation in regard of her expenditure by an equitable accounting exercise. By definition that is distinct from the issue of determining the beneficial interests.

Lord Justice Jacob:
-   I will deal with the dissenting judgment more briefly. Jacob LJ ruled that the judge was not in error in finding that "[the parties'] intentions have altered significantly over the years". As to the judge's use of the criterion "fair and just" to quantify the varied interests, Jacob LJ accepted that might arguably be the wrong test if it were free-standing, as being inconsistent with the search for the parties shared intentions.

But, he said, the passage was not free-standing.

[97]  ... What he is saying in context is that the parties' shared intentions must be taken to be (they can be "inferred" or "imputed") that they should each have a fair and just share. That is what the Deputy Judge also thought.

-   He went on:

[101] ... whether a shared intention can be inferred or imputed is, as Lady Hale makes plain, a multifactorial decision. It will depend not only on a number of primary facts but also on things like whether the judge, who has seen the witnesses, considers there was in effect a tacit agreement between them.

[107-8]   [Were the post 1993 facts] such a fragile basis for inferring or imputing a shared intention that after the split the parties' shares in the house were to be "ambulatory" (Lord Hoffman's phrase) that no Judge could reasonably have so concluded ? 
I think not.

[109]   if one asks oneself how did these matters come to be, it is not impossible to conclude that they did so by a shared intention that the parties' interests in the house were to vary over time, rather than that  his interest as a proportion of the value of the house should remain fixed and immutable. It is possible to infer or impute such a shared intention. And the Judge, having seen and heard the parties was in a better position to decide the matter – and particularly the intentions of the parties – than we are.

(6) Synthesis 
Lord Neuberger's Stack definitions of "inferred" and "imputed" seem to becoming the accepted ones for this area of the law.

It is tolerably clear that the majority in the Court of Appeal rejected the notion that an intention to vary existing beneficial interests may be imputed to the parties. Rather (in the absence of an express intention), the requirement is for cogent evidence sufficient to justify the inference of an intention to vary.

Kernott provides a striking example of the Stack presumption holding up against a history of post-acquisition conduct containing factors which could be prayed in aid of an intention to share unequally (especially when compared with the facts said to justify that inference in Stack).

It seems most unlikely that imputed intention may be allowed to play any role in establishing a beneficial interest under a common intention constructive trust.

The courts will continue to work out the boundaries of inference in this area (and see Thomson v Humphrey [2009] EWHC 3576 (Ch) for a recent, sole name case where the claim to a beneficial interest failed due to the irrelevance/insufficiency of the claimant's evidence. James v Thomas [2008] 1 FLR, CA and Morris v Morris [2008] EWCA Civ 257 were very broadly similar claims, which also failed). 

More guidance would be welcome as to the manner of quantifying varied and undefined beneficial interests. Has Oxley been rejected? In particular, is imputation at all permissible and / or may the court do what seems fair, in the absence of a shared intention?

Kernott provides some assistance in interpreting Stack – but the process is likely to continue for years to come. Will the Supreme Court step in one day?

(7) Practice points
Even if it seems manifestly fair for the interests to be varied, judges will be loath to risk an appeal in the absence of evidence sufficient for them to base a finding of an intention to vary, be that express or inferred. Kernott shows this is a genuine hurdle.

Likewise, in sole name cases the evidence of the unentitled claimant must be clear and compelling in order to establish a beneficial interest by way of inferred common intention, in the absence of an express agreement, arrangement or understanding.

In both cases, be prepared to argue for a particular split (i.e.75:25, 66:33) and justify it by pointing to evidence. It may now be too dangerous to assume the court will take a broad brush to quantification.

Do not forget to plead proprietary estoppel, where arguable on the facts. Potentially relevant to both the establishment and variation of a beneficial interest, it depends on the owner's representations/assurances (by words or conduct) and the claimant's reliance – but not on a shared intention.

Do not forget equitable accounting, either. Although it will usually be less valuable than carving out a beneficial interest, it may be a great deal better than nothing – and may help to avoid an adverse costs order.