In May 2022, we wrote an article on the High Court decision of Hudson v Hathway [2022] and the implications on joint property owners in dispute over their equitable shares. That case has since been appealed again, this time to the Court of Appeal, with judgment being handed down in December 2022.
This article summarises the outcome of that appeal and what it all means, in practical terms, for those involved in disputes of this nature. In particular, this article will be of relevance to anyone seeking to assert or deny an enlarged beneficial interest in property under the Trusts of Land and Appointment of Trustees Act 1996 ("TOLATA").
The facts of the case
The facts of the case are set out in detail in our previous article, "The end of detrimental reliance in cohabitee disputes?". As such, we do not repeat them here, save to say that this was a case about the beneficial shares in a family home purchased in joint names (and equal shares) by a couple, during the course of their unmarried relationship.
Following the breakdown of their relationship, the parties agreed, over a series of email exchanges, that Mr Hudson would have no further interest in the property, on the basis that Ms Hathway would lay no claim to Mr Hudson's shares and pension.
In particular, Mr Hudson sent Ms Hathway the following emails:
"...the house [is] a bad asset which is preventing all of us [from] moving on with our lives.... You know what, I want none of the proceeds of that either. Take it. Buy yourself somewhere you can afford to live...."
"Under this arrangement, I've no interest whatsoever in the house, so whilst I will continue to contribute, I won't do so forever."
At the end of both emails, Mr Hudson typed his name "Lee" at the foot of the text.
Two key questions answered
Two important questions have now been answered by the Court of Appeal:
- Does a person claiming a subsequent increase in their equitable share need to have acted to their detriment?
- Did Mr Hudson's emails comply with the statutory formalities for disposing of a beneficial interest?
Detrimental reliance
Prior to this case, the law was somewhat unclear on the necessary ingredients for a common intention constructive trust. A common intention constructive trust is a type of trust which arises automatically in certain situations, to create or alter beneficial shares in property. Such trusts arise informally without the need for a written trust deed or declaration of trust.
In particular, it was unclear whether the person asserting the benefit of a common intention constructive trust had to show detrimental reliance. In other words, that they had relied on promises, assurances or representations made to them about the property to their detriment.
At the first appeal, the High Court found that Ms Hathway did not have to prove detrimental reliance in order to succeed in her claim under TOLATA that she had acquired an enlarged beneficial share in the property (from 50% to 100%), under a common intention constructive trust. Please see our earlier article for further details.
However, Mr Hudson later appealed this decision to the Court of Appeal.
The Court of Appeal looked at the decisions reached in no less than 17 previous cases and passages from seven leading practitioners' texts. Their conclusion was that detrimental reliance was indeed required for the court to uphold a common intention constructive trust. There was therefore a fundamental shift in the court's view on the issue, which might have cost Ms Hathway the case.
As it transpired, the Court of Appeal agreed with the earlier decisions that Ms Hathway had relied on Mr Hudson's representations to her detriment in any event, in that she had not pursued claims against him in relation to other assets, effectively releasing those claims at the time of the email exchanges.
As a result, although the decision of the Court of Appeal is hugely important for legal practitioners and provides much needed clarification, it did not ultimately affect the outcome of the case for Mr Hudson and Ms Hathway: Ms Hathway was successful and found to have 100% of the beneficial interest in the property.
Statutory formalities for disposing of an equitable interest
A second and very important point, which arises from the Court of Appeal's judgment, concerns the statutory formalities for disposing of an equitable interest.
This was a fresh point, which had not previously been considered in the case.
This issue centred around the wording of section 53(1)(c) of the Law Of Property Act 1925, which states as follows:
"a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will."
The Court of Appeal considered whether the emails from Mr Hudson amounted to a release of his beneficial interest, in particular considering whether:
- The emails amounted to a "disposition".
- Whether they were "in writing".
- Whether they were "signed".
On these questions, the Court of Appeal found that:
- The effect of Mr Hudson's emails was to release his beneficial interest in the property to Ms Hathway under section 36(2) of the Law of Property Act 1925, and a release is a form of disposition. Therefore, the emails amounted to a disposition.
- The emails were in writing pursuant to Schedule 1 of the Interpretation Act 1978.
- The emails were signed because Mr Hudson had consciously elected to type his name into the emails.
On the basis of the above, the Court of Appeal found that Mr Hudson had released his beneficial interest to Ms Hathway. The case could therefore have been decided in Ms Hathway's favour on this point alone (without having to consider the requirements of a common intention constructive trust), but this point was unfortunately not pursued until the Court of Appeal stage.
Analysis
- Detrimental reliance remains a key requirement for those advancing common intention constructive trust claims. This is the case whether the property is bought in the sole name of one of the parties or in their joint names.
- Detrimental reliance is likely an essential ingredient of any equitable remedy (in accordance with the equitable maxim that 'equity will not assist a volunteer').
- The application of section 53 of the Law of Property Act 1925, particularly in the context of email correspondence, is a significant trap, which could bring about unintended consequences.
- This is an interesting development, given the significant modern use of electronic communications. The same logic is likely to apply to other forms of written communications, such as text messages and WhatsApp messages.
- There is no distinction between typing one's name and an automatically generated email sign-off (this was clarified in the case of Neocleous v Rees [2019], which was followed by the Court of Appeal in Hudson). Both are sufficient to satisfy the requirement for a signature in section 53.
- There are clear implications in respect of the circumstances in which an express declaration of trust can be said to arise, as the formalities for an express declaration of trust are identical. This widens the scope for possible express declarations of trust to be identified outside the terms of the TR1 or any freestanding trust deed.
- These cases are technical in their nature and, to avoid being caught out, are best led by property litigators specialising in trust disputes under TOLATA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
