Common Intention Constructive Trusts – Detrimental Reliance Remains Key

A common intention constructive trust can arise where two parties have legal ownership of a property, however have an agreement in place for one party to have an increased beneficial equitable interest in the asset. The party whose equitable interest has increased must have acted to their detriment as a result of the intention to split the asset as per the parties’ agreement. The recent case of Hudson v Hathway [2022] EWCA Civ 1648 reaffirms the requirement for detrimental reliance.

Background

Mr Hudson and Ms Hathway, an unmarried couple with two children, jointly purchased ‘The Picnic House’ in 2007. They separated in 2009. After separation, they continued to pay the mortgage out of the joint account.  Contributions over the years were greater from Mr Hudson due to his higher salary.

After few years the couple agreed that their assets must be divided. They agreed via emails in 2011 and 2013 that Ms Hathway would  take all the proceeds of sale of the Picnic House. It was also agreed that the contents of the house would go to Mrs Hathaway, and that she was to look after the house and ensure it was ready for sale. The couple’s emails were signed off with their name.

Mr Hudson continued to pay towards the upkeep of the Picnic House in the interim, however  the house was not put on the market, due in part to an unresolved insurance claim. By 2015 the children had become adults and had moved out, leaving Ms Hathway in the 10-bedroom Georgian house that Mr Hudson was maintaining. Mr Hudson became frustrated by the lack of progress on the sale and stopped making mortgage payments in 2015. In 2019, Mr Hudson sought an Order for Sale with a 50 50 split of the proceeds. Mrs Hathaway disputed that Mr Hudson was entitled to any proceeds given the assurances made over email. Mrs Hathaway’s argument was that a constructive trust had been created, under which she was entitled to the entire proceeds. It was argued that her reliance on the assurances and her having acted to her detriment had created a common intention constructive trust.

Decisions

In the first instance, the Judge held that Ms Hathway was entitled to the whole proceeds of sale and that Ms Hathway had indeed shown four separate types of detrimental reliance. This decision was appealed, and the High Court decision was that common intention alone was sufficient to establish a constructive trust, hence detrimental reliance was not necessary.

This was surprising in that it flew in the face of considerable legal precedent and the equitable maxim that “Equity does not protect a volunteer.”

The cases relied on to come to this view where primarily those where resulting trusts were found after family members had invested considerable sums into a property. In those cases, there was no reference to detriment – although it was later successfully argued on further appeal the reliance there was the investment itself.

This decision was again appealed in the Court of Appeal, where the Court itself asked why the case had not been brought on the basis that the emails amounted to a valid transfer to an interest in land. After some prompting Ms Hathway applied and was granted permission to amend her claim to include that proposition.

The court then considered whether the deal between the parties complied with the statutory formalities of disposing of an equitable interest under section 53 of the Land and Property Act 1925.  It was held that the email – with Mr Hudson’s name “Lee” typed at the end amounted to a binding agreement in writing transferring the equitable interest in the property. The court held that release of an interest does not need any particular form of words, and signing off your name on an email is sufficient as a signature under section 53 of the Act. Mr Hudson therefore released his equitable interest to Ms Hathway by way of the email agreement.

This is a ground breaking decision and extension of caselaw principally involving guarantees. For email exchanges to result in transfers of beneficial interests in land has far reaching effects.

The finding that the typeface of a name at the end of an email amounts to intention to create legally binding transactions is problematic. For example, there was no finding as to whether the sign off “Lee” was typed off perhaps a computer-generated sign off. Would one be binding and the other not? How would the recipient know which was the case?

The Court also found a Constructive Trust was in place in any event. Whilst the Court reversed the earlier decision that no reliance was required, it did find that one of the four pleaded forms of reliance did apply.

The requirement of detrimental reliance to uphold a common intention constructive trust was re-established by the Court, confirming previous precedent set in Gissing v Gissing [1971] AC 886, Grant v Edwards [1986] Ch 638 and Oxley v Hiscock [2004] EWCA Civ 546.

The detriment cited was that Ms Hathway had foregone her right to make a claim against Mr Hudson’s other assets, including his pension. Whilst the court indicated that the claim need not be a strong one, this again is surprising, as it is not clear that she had any such right. It was generally not thought that unmarried partners had claim against their partner’s pension on separation. Perhaps the court has inadvertently created a new form of claim for unmarried partners, similar to that found in jurisdictions such as New Zealand?

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