Detrimental reliance and the family home: orthodoxy restored?

KEYWORDS:

• Formalities
• constructive trust
• cohabitants
• detrimental reliance

In Hudson v Hathway [2022] EWHC 631 (QB) (noted Sloan 2022), Kerr J excited much controversy by suggesting that detrimental reliance may not need to be shown by a joint legal owner seeking to establish an increased share of the family home under a common intention constructive trust. In a swiftly following judgment ([2022] EWCA Civ 1648), however, the Court of Appeal reaffirmed the requirement of detrimental reliance in both ‘sole’ and ‘joint names’ cases, albeit also concluding that the case did not turn on the point after all.

Lee Hudson and Jayne Hathway, a separating unmarried couple, agreed in a lengthy email correspondence that Mr Hudson would retain full ownership of some shares and a pension, while Ms Hathway would have the equity in Picnic House, their former joint home, its contents, savings and income from endowments. The house was in joint names, without an express declaration of trust. Mr Hudson sought an order for sale of Picnic House under the Trusts of Land and Appointment of Trustees Act 1996, with equal division of the proceeds. Ms Hathway agreed to sale but argued that she was entitled to all of the sale proceeds on the basis of a common intention on which she had detrimentally relied (see Sloan 2022 for more detail).

At first instance, Judge Ralton found a clear agreement, forming the basis of a constructive trust, that Ms Hathway was beneficially entitled to all of the equity in Picnic House. He accepted that she had detrimentally relied on the agreement by giving up her claims to assets in Mr Hudson’s sole name. Mr Hudson appealed on the basis that the judge was wrong to find detrimental reliance. Ms Hathway countered that it was unnecessary to find such reliance in a joint names case, and that in any event the judge was correct to find detrimental reliance. Kerr J seemingly agreed with Ms Hudson that proof of detriment was not required in ‘joint names’ cases, but found it established on the facts.

Mr Hudson appealed again. Originally, the submissions related to detrimental reliance. But at the Court of Appeal’s prompting, and with its permission, Ms Hathway’s counsel successfully advanced the new, alternative, argument that two of Mr Hudson’s emails complied with the statutory formalities for the disposition of an interest in land, so that the detrimental reliance issue did not arise.

As Lewison LJ (giving the lead judgment with which Andrews and Nugee LJJ agreed) recognised, the question of whether the emails complied with statutory formalities was logically prior. It was common ground that the parties were legal and beneficial joint tenants at the time of Picnic House’s acquisition. Section 36(2) of the Law of Property Act 1925 (‘LPA’) expressly preserved one joint tenant’s ability to ‘release’ their interest to the other(s). Following Brandt’s (William) Sons & Co Ltd v Dunlop Rubber Co Ltd [1905] AC 454, no particular form of words was required. There was no difficulty about intention to create legal relations where unmarried parties were negotiating their final separation, consistently with Merritt v Merritt [1970] 1 WLR 1211. In relation to the house, Mr Hudson’s emails said: ‘I want none of the proceeds of that … Take it’, and ‘[u]nder this arrangement, I’ve no interest whatsoever in the house’. On Lewison LJ’s analysis, these ‘evince[d] a clear intention to divest himself of [his interest in Picnic House] immediately’ and constituted a release (para. 50). But given the wide definition of ‘disposition’ in IRC v Grey [1960] AC 1, the release had to comply with section 53(1)(c) of the LPA, which required ‘a disposition of an equitable interest … subsisting at the time of the disposition’, to be ‘in writing signed by’ (for present purposes) ‘the person disposing of the same’.

It was undisputed that the emails were ‘writing’ (Interpretation Act 1978, schedule 1). Lewison LJ noted that there was ‘a substantial body of authority’, most recently Neocleous v Rees [2019] EWHC 2462 (Ch) on section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (‘the 1989 Act’), ‘to the effect that deliberately subscribing one’s name to an email amounts to a signature’ (para. 67). Since ‘so much correspondence takes place nowadays by email rather than by letters with a “wet ink” signature’, it was ‘entirely appropriate that the law should recognise that technological developments have extended what an ordinary person would understand by a signature’ (para. 67). Thus, by his emails, each subscribed ‘Lee’, Mr Hudson had released his beneficial interest to Ms Hathway. This conclusion may catch some parties to personal relationships unaware, but is at most an incremental development of the law (cf Gregson 2022), and purely oral dealings remain outside section 53(1)(c)’s scope.

Lewison LJ noted that his conclusion on section 53 was sufficient to deal with the appeal, but also that the basis of permission for the second appeal was to decide whether a constructive trust can arise on the basis of common intention alone, irrespective of detrimental reliance. His conclusion was in the negative: ‘[a] party claiming a subsequent increase in her equitable share as a result of a post-acquisition changed common intention must show detrimental reliance on that changed common intention’ (para. 3). Lewison LJ nevertheless agreed that detrimental reliance was established through Ms Hathway giving up a potentially viable claim to assets held at law by Mr Hudson.

During a detailed review of the authorities, Lewison LJ emphasised that it was detrimental reliance that made it unconscionable to resile from an agreement unenforceable at law. As for Jones v Kernott [2011] UKSC 53, Lewison LJ noted inter alia that Lord Walker and Lady Hale had cited Grant v Edwards [1986] Ch 638, a key case on the requirement of detrimental reliance, ‘without any hint of disapproval’ (para. 103). Lewison LJ did not detect in either Jones or Stack v Dowden [2007] UKHL 17 ‘any intention on the part of the court to abrogate the long-standing principle that what makes an unenforceable agreement or promise enforceable in equity is detrimental reliance’ (para. 107). It would have been ‘astonishing’ if they had so intended (para. 108).

Disagreeing with Kerr J’s suggestion that the Supreme Court in Jones omitted to mention detrimental reliance because it was unnecessary, Lewison LJ explained that ‘[t]he principle of detrimental reliance was not challenged in either’ Stack and Jones, ‘and that i[s] why it was unnecessary for the court to deal with it’ (para. 107, citing Dixon 2022; see also Gregson 2022). The textbooks Lewison LJ consulted, moreover, spoke consistently with one voice, again contrary to Kerr J’s view. Kerr J was therefore ‘wrong to hold that detrimental reliance is no longer required’ (para. 153). Lewison LJ held that ‘the overwhelming weight of authority both before and after Stack v Dowden and Jones v Kernott is to the contrary’, and ‘to hold that an oral agreement, disposition or declaration of trust was binding without more would directly contradict’ sections 53 of the LPA and 2 of the 1989 Act (para. 153). A possible response to Lewison LJ on the last point is that both sections expressly preserve the operation of constructive trusts, and that it is for the judiciary to determine the scope of such trusts. The principled difficulty of showing sufficient unconscionability to justify the enforcement of an oral agreement alone under such a trust would nevertheless remain.

Lewison LJ was clear that his analysis applied to a change of common intention post-acquisition in a joint names case, despite the starting point that each party is equally beneficially entitled to the property (under a constructive trust per se according to Jones) in a domestic scenario. Even in a joint names case, ‘the same principles applied … to a change of common intention post-acquisition’ as to the establishment of an interest in a sole name case (para. 151). Lewison LJ did accept, however, that ‘at the quantification stage the court may be able to take a broader view of what amounts to detrimental reliance’ (para. 150).

Absent future consideration by the Supreme Court, the Court of Appeal’s decision in Hudson will likely resolve any doubts about the centrality of detrimental reliance to the common intention constructive trust doctrine. Judging by the reaction to Kerr J’s decision, commentators will welcome the ultimate conclusion. A matter remaining open to debate, however (Sloan 2015), is the extent to which, as Lewison LJ put it, ‘the stringency’ of the emphasis on express discussions in Lloyds Bank v Rosset [1991] 1 AC 107 in establishing an interest in a sole name case ‘has been overtaken by subsequent developments in the law’ (para. 87). Hudson may not therefore be the last time that the implications of Stack and Jones will require detailed analysis at the appellate level.

Disclosure statement

No potential conflict of interest was reported by the author(s).