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In this appeal (from [2010] EWCA Civ 578) – their Lordships were charged with revisiting the decision in Stack v Dowden [2007] UKHL 17 with a view to clarifying its reasoning.  By way of summary, in Stack, it was held that, in the case of the purchase of a house or flat in joint names for joint occupation by a married or unmarried couple where there is no express declaration of trust and where both parties are responsible for any mortgage, there is no presumption of a resulting trust arising from the parties having contributed to the deposit – or the rest of the purchase – in unequal shares. The presumption is that the parties intended a joint tenancy both in law and in equity. But that presumption can be rebutted by evidence of a contrary intention.

In summary, the question for the court was how, in the absence of an express declaration of trust,  it should determine the beneficial interests in a house acquired in joint names by an unmarried couple who intended it to be their family home.

The Court of Appeal in this case had grappled with the reasoning in Stack and had granted permission to appeal to the Supreme Court owing to difficulties it had faced in doing so.

Facts

In 1980, the parties met.  They had similar incomes.  In 1985, Ms Jones and Mr Kernott bought 39 Badger Hall Avenue.  The purchase price was £30,000, with Ms Jones putting up £6,000 and the balance, raised by way of an endowment mortgage in their joint names.  The parties had generally shared the household expenses until October 1993 when Mr Kernott moved out of the property leaving Ms Jones and the children there.  Ms Jones paid all the household expenses from that point on and Mr Kernott made no further contribution towards the acquisition of the property.

On an unknown date, the parties cashed in a joint life insurance policy.  Mr Kernott used his share of the proceeds as a deposit for a home of his own.  In May 1996, he bought 114 Stanley Road.  The judge at first instance had found that he was only able to afford this new home because he no longer contributed toward the cost of the Badger Hall property.  This arrangement continued for a number of years until 2006 when Mr Kernott indicated to Ms Jones that he wanted his share of the Badger Hall property.  In October 2007, Ms Jones applied for a declaration that she owned the entire beneficial interest in the Badger Hall property.  At this time, the Badger Hall property was valued at £245,000.  She contended that the history of events since 1993 showed that their intentions with respect to the Badger Hall property had altered from the original intention to hold the beneficial interest jointly.

Applying Stack and Oxley v Hiscock [2004] EWCA Civ 546, the judge at first instance accepted this contention, stating that he had to consider what was just and fair between the parties having regard to the whole course of dealing between them.  He decided that Ms Jones was entitled to a 90% share in the property.

Mr Kernott appealed to the High Court where his appeal was dismissed ([2009] EWHC 1713 (Ch)). An appeal to the Court of Appeal was allowed by a majority (Jacob LJ dissenting).  The majority (Rix LJ and Wall LJ) held that there was nothing to indicate the parties’ intentions had changed after their separation.  Rix LJ held that Stack was authority for the proposition that the courts could not impute an intention “where none was expressly uttered or inferentially formed” (at [77]).  Neither Rix nor Wall LJJ considered there was sufficient evidence to infer a change in the parties’ intentions in this case.

Issues

The Court of Appeal had faced serious difficulties in deciphering the decision in Stack.  Lord Collins observed that this was due to three factors:

a)      previous authorities concerned properties registered in the sole name of one party;

b)     their Lordships had not spoken with one voice in Stack particularly on the distinction, if there were one, between inferred and imputed intention; and

c)      Baroness Hale’s speech in Stack had been treated as though it were a statute and its ambiguities had been exploited and exaggerated.

The issue for the court in this case was to clarify the approach that courts should take when assessing whether the presumption in favour of the parties holding the beneficial interest jointly has been rebutted on the evidence.

Judgment

Their Lordships unanimously held that the following approach should be adopted in the case of jointly owned family homes, namely:

(1) The starting point for joint names cases is that equity follows the law and the parties are joint tenants both in law and in equity (Stack applied).

(2) The presumption of equality can be displaced by showing (a) that the parties had a different common intention at the time when they acquired the home, or (b) that they later formed the common intention that their respective shares would change.

(3) Their common intention can be deduced objectively from their conduct, in the absence of any formal agreement: “the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words and conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party” (Lord Diplock in Gissing v Gissing [1971] AC 886, 906). Examples of the sort of evidence which might be relevant to drawing such inferences were given in Stack v Dowden, (at [69]).

(4) In those cases where it was clear either (a) that the parties did not intend that the legal and beneficial interests be held in equal shares at the outset, or (b) had changed their original intention, but it was 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 [was] that each is entitled to that share which the court consider[ed] fair having regard to the whole course of dealing between them in relation to the property”: Chadwick LJ in Oxley (at [69]). Their Lordships held that the whole course of dealing in relation to the property should be given a broad meaning, enabling a similar range of factors to be taken into account as may be relevant to ascertaining the parties’ actual intentions.

(5) Each case would turn on its own facts. Financial contributions were relevant but there were many other factors which may enable the court to decide what shares were either intended or fair.

Comment

It will only be in cases where the presumption of the parties sharing the beneficial interest equally has been rebutted that the question of fairness will arise.  Subject to what appears below (regarding the observations of Lord Wilson) there is no scope to impute an intention at this first stage (although practically, the dividing line between inference and imputation has been somewhat blurred throughout).

It is clear from the media response to this judgment that the perception is one of lawyers licking their lips at the prospect of the work that will be generated (both day to day and in the appellate courts on issues such as, “at what stages of the five-stage test set out above am I able to impute an intention where there is an dearth of evidence?”.  Lord Wilson seemed to think it might be of relevance at the second of those stages (at [84]) (but this would surely fly in the face of the presumption).

If the intention in this case (imputed or otherwise) was to bring clarity to the legal principles that apply in joint names cases, then it has achieved its purpose.  However, it appears to this author that it has done nothing to help (and has possibly made it more difficult for) practitioners and those they advise to anticipate with any level of certainty the outcome of litigation.  As such, the ability to enter into meaningful negotiations at an early stage (and thus save expense) is almost entirely lost.  This is problematic enough in family proceedings where evidence is available but now practitioners will have to second-guess how a court will exercise its discretion in what it may consider an absence of sufficient evidence to infer a proportionate share of the beneficial interest in the property.

This is an area which is crying out for legislative intervention (see further the Law Commission’s report: “Law Com No 307, Cohabitation: The Financial Consequences of Relationship Breakdown, 2007) but, until that happens, the courts, regrettably, will have to do the best they can with the evidence they do (or don’t) have.