Beneficial ownership: opening the door

Insight

18.03.2021

Once a common intention is established, the court is adopting a fairly expansive view as to how a claimant may act to their detriment.

Establishing a common intention constructive trust when property ownership is in one occupant’s name and not the other can be tricky. Melody Munro gives an update.

Although claimants, defendants and common intention constructive trusts come in many shapes and sizes, there is one fact pattern that has stood the test of time: a couple move into a property, for some reason (often dubious) the property is held in only one of their names but the other half of the couple contributes, financially or otherwise, to their joint home, only to find when the relationship ends they are left with nothing.

O’Neill v Holland [2020] offers a twist on the old classic. The appellant, Natalie O’Neill, had a few related claims but the appeal focused on her claim for a 50 per cent interest in 53 Worsley Road, Farnworth, Bolton, a property held in the sole name of her former partner, Shaun Holland.

Natalie’s claim had succeeded at first instance, only to be overturned on appeal. However, in the present case she sought, successfully, to have her 50 per cent beneficial interest in 53 Worsley Road confirmed.

What is a common intention constructive trust?

The starting point for determining the beneficial ownership is the maxim "equity follows the law". If legal title to a property is in the name of only one person, there is a presumption that they also hold the entire beneficial title.

That presumption can however be disturbed by the imposition of a common intention constructive trust – the creation of which, unlike express trusts, does not have to be in writing by virtue of s53(2) of the Law of Property Act 1925.

The requirements for establishing a common intention constructive trust are summarised in the judgment of Sir Nicholas Browne-Wilkinson V-C in Grant v Edwards [1986]:

If the legal estate in the joint home is vested in only one of the parties ("the legal owner") the other party ("the claimant"), in order to establish a beneficial interest, has to establish a constructive trust by showing that it would be inequitable for the legal owner to claim sole beneficial ownership. This requires two matters to be demonstrated: (a) that there was a common intention that both should have a beneficial interest; (b) that the claimant has acted to his or her detriment on the basis of that common intention.

O'Neill poses some interesting questions in relation to this second element:

Is detriment still a part of the test for a common intention constructive trust?
Does a claimant need to actually plead detriment?
Can the actions of another be relied on by a claimant?
What "actions" are sufficient for a claimant to rely on in showing detriment?

The case of 53 Worsley Road

53 Worsley Road was purchased at auction in March 1999 by Mr John O’Neill, Natalie’s father, and held in his sole name. The circumstances in which 53 Worsley Road was purchased were an issue in the proceedings, as sadly John had died by the time the case came to court and so the court did not have the benefit of his evidence.

Shaun’s case was that he had funded the purchase by giving John the money with which he purchased 53 Worsley Road and that it was held for him as a result. The District Court was not convinced by this argument, finding that it was purchased by John "using money from identified and unidentified sources to be a family home for his daughter and her family".

53 Worsley Road did indeed become the home of Natalie and Shaun from late 2000. They lived there together with their three children until July 2012 when their relationship ended and Natalie moved out, leaving Shaun living there without her from 2012 onwards.

In 2008, while Natalie and Shaun were still a couple living in 53 Worsley Road with their family, 53 Worsley Road was transferred by John into the sole name of Shaun for nil consideration.

Shaun and Natalie put forward two quite different versions of events when it came to the transfer of 53 Worsley Road into Shaun’s sole name. Shaun argued that, consistent with his case on its initial purchase, John transferred the house into his sole name as it was always his home. Natalie argued that her father had meant to transfer it into her sole name but instead it was put into Shaun’s sole name in order to raise a mortgage. Shaun said that he had never intended Natalie to have an interest in 53 Worsley Road, or for it to be transferred into their joint names, but accepted he did want to raise money on it.

In reaching her conclusions, it is worth noting that the district judge was unimpressed with the witness evidence of both parties – going so far as to describe Shaun as a "stranger to the truth". In the presence of such unconvincing witnesses, and sadly without John being able to give any evidence, weight was placed on the contemporaneous documents which the parties were able to produce – in particular, correspondence between Shaun and John and their respective solicitors in 2008.

For practitioners, it is always helpful to be reminded of the importance of contemporaneous documentary evidence, particularly from third parties. Documents can make all the difference in a dispute as they, unlike a party, are not viewed as putting forward any "agenda".

The district judge’s findings, as summarised by the Court of Appeal, were therefore the following:

The initial plan of Shaun, Natalie and John was that 53 Worsley Road was to be transferred into both Natalie’s and Shaun’s joint names and a mortgage was to be obtained in order to raise funds for a property business Shaun ran.
Shaun obtained a mortgage offer in his sole name but was advised that this was not compatible with a transfer into joint names.
Rather than get an amended mortgage offer, Shaun procured Natalie’s agreement to 53 Worsley Road being transferred into his name only, telling her that she could not get a mortgage and that it made more sense for 53 Worsley Road to be put in his sole name.

Finding a common intention

The first question for any court is whether the claimant has shown that there was a common intention that the beneficial ownership was to differ from the legal ownership.

This can be established by finding an express common opinion, for example an intention recorded in documents or discussed expressly, or inferred from conduct, for example contributing towards mortgage payments or the purchase price.

The court will also find a common intention when the claimant is told by the defendant that "but for" some reason (which then turns out to be spurious or false), the property would be held in joint names.

The rationale for this is, presumably, that, had the parties known that the reason for the property not being in joint names was wrong, they would have held it jointly. A warning that honesty really is the best policy when it comes to property ownership: better to simply tell your partner that you do not want them to have an interest in the new home and deal with the fallout than try and trick them and watch the lie unravel in court years later.

In the case of 53 Worsley Road, given the conclusion that it was going to be put into joint names but for the fact that Natalie could not get a mortgage (which was wrong), it was concluded that there was a common intention that Shaun was to hold 53 Worsley Road for himself and Natalie in equal shares (given it was designed to be their family home).

In the Court of Appeal, Henderson LJ also considered whether there was a common intention that could give rise to a constructive trust when 53 Worsley Road was first purchased by John in 1999 to be a home for his daughter and her family.

He concluded that, in the circumstances, there was not, as there was no evidence that there was any intention for Natalie to have an immediate beneficial interest in the property in 1999. Instead, the evidence suggested that the plan was merely for Natalie to live there rent free and that, perhaps, it might be transferred to her in the future. He concluded that:

... a generalised future intention of that nature cannot begin to ground an immediate beneficial entitlement under a constructive trust.

This does, however, leave open the possibility for a claimant to look further back in time for a common intention than just the purchase of the property in dispute itself. Had Natalie been able to show her father had intended in 1999 for 53 Worsley Road to pass entirely to her, but had some good reason for not putting it in her name when he purchased it, she may well have been able to rely on his intention at the time of the initial purchase to increase her share of 53 Worsley Road.

Detriment

Although the district judge concluded that Natalie had a beneficial share of 53 Worsley Road, her judgment came in for some criticism for not apparently expressly turning her mind to the question of detriment. Indeed, Shaun’s appeal was on the basis that there had been no finding of detriment by the district judge.

His appeal was initially successful on the basis that Natalie’s reliance to her detriment on the common intention had been neither pleaded by her nor established by the district judge’s findings. However, this was overturned by the Court of Appeal.

When considering Shaun’s appeal, the suggestion was made that detriment was not something a claimant had to show to establish a common intention constructive trust. This was routinely rejected by both courts with reference to the recent case of Curran v Collins [2016] in which Sir Nicholas Browne-Wilkinson V-C’s summary of the law in Grant (above) was approved, including that detriment was a part of the test. In addition, the view of the court in Curran had been that the fact that Ms Curran did not in any way act to her detriment was "fatal" to her case.

To the extent any doubt about the role of detriment lingered after Curran, this should be seen as a clear statement that detriment has a role to play.

Pleading detriment

On Natalie’s appeal, Henderson LJ dealt with the pleading point in relatively short order, concluding Natalie’s pleadings were sufficient. Although the district judge had not accepted Natalie’s case exactly as put in the pleadings, it could have been accepted and, if it had been, there would have been clear detriment to Natalie at the time of the transfer.

In so doing, Henderson LJ provided his assessment of the meaning of detriment:

"Detriment" in this context is a description, or characterisation, of an objective state of affairs which leaves the claimant in a substantially worse position than she would have been in but for the transfer into the sole name of the defendant. Although the facts which constitute the detriment need to be pleaded, their characterisation is ultimately a matter for the court, in the light of all the evidence adduced at trial.

On the one hand, Henderson LJ seems to set the bar quite low concluding Natalie’s pleading was not "inherently defective" such that it would have been struck out due to the way detriment was put and therefore there appears to be no need for a claimant to plead detriment as such, only a collection of facts. However, that should not be seen as an excuse for poor pleadings; no claimant wants to run the risk of a loss merely due to a poorly particularised case. It may also have been the case that had Natalie’s pleadings been clearer in drawing the court’s attention to the detriment element of her claim, the district judge would not have fallen into error in failing to clearly consider it and the parties could have had a resolution to the dispute without, perhaps, as many appeals.

How to act to your detriment

Precisely what counts as a claimant acting to their detriment has changed over the years and, once a common intention is established, the court is adopting a fairly expansive view as to how a claimant may act to their detriment.

In Natalie’s case, her action to her detriment was at the time of the transfer in 2008.

In 2008, when 53 Worsley Road was transferred into Shaun’s sole name, Natalie was left in a situation in which she had no legal interest in 53 Worsley Road, whereas had the original plan gone ahead, she would have had a presumptive half share.

Because of this, Henderson LJ’s conclusion was that, viewed objectively, there was a position of clear detriment incurred by Natalie, stating in terms:

... the detrimental reliance lay in her agreement to 53 Worsley Road being transferred into the sole name of Mr Holland, when the previous intention had been for a transfer into joint names, and the primary factor which caused Natalie to give her consent was Mr Holland’s false representation that (in effect) he would otherwise be unable to obtain a mortgage.

There can be no doubt that having 53 Worsley Road transferred into Shaun’s sole name was worse for Natalie than having it put into joint names. However, it is difficult to see quite how Natalie has ‘acted’ at all in these circumstances: the transfer would have been between her father and Shaun; her agreement or not to it seems irrelevant.

This may open the door to those claimants who have fallen foul of an ‘excuse’ to succeed just on the facts which establish the common intention itself without some other set of facts being needed to show them acting to their detriment. In these cases, before the purchase the claimant is one half of couple looking to buy a home with the chance or expectation that it will be put in joint names. Then, on the basis of a spurious excuse, the property is actually purchased in the sole name of their partner. This means that after the purchase, the claimant is one half of a couple now without the expectation that a property is shortly to be purchased and put into their name. Their position is worse after the purchase than before. In these cases, presumably the claimant has ‘agreed’ to the property being put in into the defendant’s sole name as the ‘excuse’ has been offered to procure that agreement.

Of course, O’Neill need not be interpretated quite so widely as there are ways of inferring Natalie’s agreement was actually a requirement for the transfer (in the way it likely would not be in other purchases/circumstances). For example:

The district judge concluded that John would not have proceeded with the transfer to Shaun without a clear understanding (shared by himself, Natalie and Shaun) that she was to have a share in 53 Worsley Road. From that, it is possible to infer that without Natalie’s consent to the transfer, John would not have proceeded.
Alternatively, as an occupier of 53 Worsley Road Natalie may have been required to sign the transfer document and her ‘agreement’ therefore became a formal, legal requirement (although she is not mentioned as being a party to the transfer in the Court of Appeal’s judgment).

However, neither of these "requirements" were explicit in the district judge’s findings or the Court of Appeal’s judgment, leaving open whether the passivity of allowing a transfer to take place could, and should, be sufficient for a claimant to show they have acted to their detriment.

Third parties

Henderson LJ also explored whether Natalie’s case could have succeeded on the basis of John’s actions in 2008. In making the transfer to Shaun, it was found John shared the common intention that Natalie was to have a share of 53 Worsley Road. John can also have been described as having acted to his detriment in making the transfer as he was in a worse position after the transfer than before because he no longer owned 53 Worsley Road and so could not dispose of it as he chose. Henderson LJ’s ‘provisional’ view was that this argument would be successful – but as no one was putting it forward he did not provide a final view on the subject.

His thoughts do, however, lend support for the view that the actions of someone other than the claimant could give rise to a constructive trust and open up possibilities that a claimant could explore.

Conclusions for practitioners

O’Neill has some practical and legal take-away points for practitioners.

Practically, this case is a reminder that contemporaneous documentary evidence is key and can often have higher credibility than the evidence of witnesses.

Legally, although the case reinforces the need for detriment to be shown it does, on one view, soften the requirement. First, by making it clear detriment does not need to be explicitly pleaded but that the court will be willing to find it among the facts in a claimant’s pleadings. A claimant should not sit back and submit lacklustre pleadings as a result but may want to take advantage of pleading as many relevant facts as possible which could, as the case develops, be characterised by the court as showing them acting to their detriment. Second, by opening a door to more passive actions being sufficient for the detriment requirement – to the extent that a claimant may have a chance of success by pleading simply that they are in a worse position now than they would otherwise have been or, provisionally, through relying on the actions of someone else to support their claim.

Cases referenced:

Curran v Collins [2016] WTLR 235 CA
Grant v Edwards [1986] Ch 638 (CA)
O’Neill v Holland [2020] WTLR 1397 CA

If you require further information about anything covered in this briefing, please contact Melody Munro, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

This content was originally published in the April 2021 edition of Trust and Estates Law & Tax Journal, view here.