The Law of Trusts and Equitable Obligations - Case Study Example

Introduction In order to successfully appeal to the House of Lords Lynn will need to establish that there is a point of law which their Lordships are required to clarify. We would argue that the High Court and Court of Appeal erred on the first point in their judgement with regard to the status of Lynn's indirect contribution to the acquisition of the property. Further we suggest that the decision in Midland Bank plc v Cooke [1995] does not determine acquisition criteria, but rather quantum of beneficial interest. The Lloyds Bank v Rosset [1994] 1 AC 107 case indicated that failing an express common intention, an intention to share ownership may be inferred from the conduct of the parties. The question then arises what type of conduct will be sufficient to infer a common intention to share ownership Lord Bridge appears to suggest in Lloyds that indirect contributions are insufficient to found a beneficial interest under an implied constructive trust too: "In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary for the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do." It is not clear to which cases Lord Bridges is referring in his final sentence. There are high profile cases where it is argued that indirect contributions should be regarded as evidence that an agreement for a beneficial interest should be inferred: Gissing v Gissing [1971] AC 886 and Burns v Burns [1984] 1 Ch 317. The line of reasoning in these cases suggest that it is not just the making of the indirect contribution; there must also have been the aim of assisting in the purchase of the property and/or that without that contribution the mortgage would not have been paid. Indeed to go further Lord Pearson in Gissing said: "Contributions are not limited to those made directly in part payment of the price of the property or to those made at the time when the property is conveyed into the name of one of the spouses. For instance there can be a contribution if by arrangement between the spouses one of them by payment of the household expenses enables the other to pay the mortgage instalments." Given the importance of precedent in English law it is submitted that Lord Bridge's statement could not have been meant to overrule such authorities. Clearly there is established authority that in appropriate circumstances the court may infer that the parties' common intention was to give the claimant an interest by way of indirect contributions. We are told that 'Mike would not have been able to meet the mortgage payments out of his own salary' had Lynn not worked part-time to discharge the other household expenses. There is clearly a link between the mortgage payments and the expenses undertaken by Lynn. It is therefore submitted that Le Foe v Le Foe [2001] 2 FLR 970 is consistent with Lord Bridge's speech in Lloyds and in fact is a direct application of precedent in this area. As Mr Mostyn QC himself said: "I believe that a fair reading of [May LJ's judgement in Burns v. Burns [1984] FLR 216] is that such a state of affairs should suffice to enable the necessary inference to be drawn. Otherwise these cases would be decided by reference to mere accidents of fortune, being the arbitrary allocation of financial responsibility as between the parties." Le Foe is an illustration of such contributions and their effects, where the court construed the Lloyds' principles and concluded that the claimant will be entitled to a beneficial interest by way of indirect contributions in exceptional circumstances. It is therefore submitted that at first instance and appeal Lord Bridge's remarks have been misinterpreted and that Lynn does indeed have a beneficial interest in the property via an implied constructive trust. Waite LJ's judgement in Midland Bank plc v Cooke [1995] 4 All ER 562 goes to quantification of the beneficial interest - not to the acquisition of it. Indeed it was common ground in the case that there was insufficient evidence that Mrs Cooke's direct contributions had any impact on Mr Cooke's ability to pay the mortgage and the judge ignored her indirect contributions. The ratio of the case seems to be that once the claimant has established a beneficial interest through some direct contribution it is the judge's duty to survey the whole course of the dealings between the parties, and that survey is not confined to the limited range of direct contributions that are needed to found a beneficial interest in the first place: "It will take into consideration all conduct which throws light on the question what shares were intended. Only if that search proves inconclusive does the Court fall back on the maxim that 'equality is equity'." Hence although strictly speaking under a resulting trust assessment Mrs Cooke would only have been entitled to 6.74% of the equity in the property Waite LJ found that there was actually a constructive trust since there was an intention to create joint ownership and granted her 50% on the basis of her contribution with regard to children, her maintenance of the property, payment of bills, and agreeing a second mortgage to secure Mr Cooke's business debts. It would therefore seem that Midland Bank is authority that when determining quantum of beneficial interest contributions to the purchase price are factors which are taken into account, but are not decisive. Assuming then that their Lordships will agree that the lower Courts have misinterpreted Lord Bridge's remarks in Lloyd, it is submitted that the Court will determine share of the equity by looking at the intention of the parties. We are told that the High Court accepted as fact that 'both Lynn and Mike had assumed that the house was jointly owned' Midland Bank is authority for the fact that it is not essential that the parties should have discussed their precise share of equity and that it is open to the Court to determine this. On the facts accepted by the High Court we would submit that there is a rebuttable presumption that Lynn is entitled to half shares of the beneficial interest. In the highly unlikely event that our reasoning is not accepted, then we would turn to the other head suggested by Lord Bridges in Lloyd, that of proprietary estoppel. In terms of representation, detrimental reliance and unconscionability proprietary estoppel is very similar to the requirements of a constructive trust as has been expressly recognized in such cases as Grant v Edwards [1986] Ch 638. . The crucial difference is that promissory estoppel does not require a common intention that the claimant will acquire an interest in land, but rather that the claimant relied on a belief fostered by the defendant that s/he has or will have some interest in the property and that the claimant suffered a detriment due to this reliance. Hence in Re Basham [1986] 1 WLR 1498 it was held that the claimant had suffered a detriment in working unpaid in the deceased's business, caring for the deceased throughout his illness, sorting out a boundary dispute for the deceased, and refraining from moving away when her husband was offered employment with tied accommodation elsewhere. In determining the remedy under proprietary estoppel the Court will seek to satisfy the "minimum equity" of the claimant. The value of the equity depends upon all the circumstances including the expectation and the detriment. The Court will attempt to ensure proportionality between the expectation and the detriment: Jennings v Rice [2002] EWCA Civ 159. In that case it was decided that Mr Jennings could not expect to inherit more of the estate than he had been aware of; namely the house and the furniture. Aldous LJ held: "There is a clear line of authority from at least Crabb to the present day which establishes that once the elements of proprietary estoppel are established an equity arises. The value of that equity will depend upon all the circumstances including the expectation and the detriment. The task of the court is to do justice. The most essential requirement is that there must be proportionality between the expectation and the detriment." There are a number of ways in which the Court may do this. For example in Mollov v Mollov [2000] 1 FLR 227 a 50% share of the beneficial interest was awarded, whilst in Ungurian v Lesnoff [1990] Ch 206 the claimant was granted a right to occupy for life. Proprietary estoppel may be particularly important in Lynn's case as there remains some doubt as to whether Lord Bridges actually over-ruled earlier decisions with regard to the impact of indirect contributions towards the repayment of the mortgage. Whilst it is possible to argue that the majority of Lynn's contributions are no more or less than anyone living in shared accommodation would do, Lynn could not have reasonably been expected to help Mike pay his mortgage by covering all other debts unless she believed that she was to have an interest in the house. Conclusion Whilst the decision in Lloyds introduced some certainty in the law it has left the status of substantial indirect contributions to beneficial interest in some disarray. Lyn's case is an opportunity for their Lordships to enunciate the law in this area. In the event that their Lordships concur with the Court of Appeal on a very narrow interpretation of Lord Bridges' dicta in Lloyds, we would encourage Lyn to seek redress through the equitable remedy of proprietary estoppel. Although this remedy does not grant Lyn any superior rights vis--vis bona fides of third parties of valuable consideration acting with actual or constructive notice of her interest - such as a mortgagor - it does at least recognize her contribution to the acquisition of the property and provide some redress. Bibliography Pearce R and Stevens J. The Law of Trusts and Equitable Obligations. 3rd Ed. (2002). Butterworths. London. Hanbury and Martin. Modern Equity. 16th Ed. Sweet & Maxwell. London. (2001). Cases Burns v Burns [1984] Ch 317 Eves v Eves [1975] 1 WLR 1338 Gissing v Gissing [1971] AC 886 Grant v Edwards [1986] Ch 638 Jennings v Rice [2002] EWCA Civ 159 Le Foe v Le Foe [2001] 2 FLR 970 Lloyds Bank v Rosset [1991] 1 AC 107 Midland Bank plc v Cooke [1995] 4 All ER 562 Mollov v Mollov [2000] FLR 227 Re Basham [1986] 1 WLR 1498 Ungurian v Lesnoff [1990] Ch 206 Read More