Appeal Judgment Trusts
To what extent, do you think, does Stack v Dowden confirm and follow Oxley v Hiscock?
There have been a number of liberal Court of Appeal decisions since Lord Bridge’s conservative judgment regarding the constructive trust in Lloyds Bank v Rosset. Oxley v Hiscock represented the high point of such reasoning, with Chadwick LJ applying what Battersby has described as “broadbrush quantification on a far larger scale than many lawyers had previously thought possible”. Stack v Dowden, although not strictly concerning constructive trusts, gave the House of Lords an opportunity to review the law in this area: whilst the case involved joint legal owners, it was suggested obiter, most clearly by Lord Hope and Baroness Hale, that the same factors were relevant when quantifying the extent of the beneficial interest under a constructive trust. Much approval was given to Oxley v Hiscock, although there were certain subtle differences. It is necessary to examine these in detail to determine where the law stands today.
The decision in Oxley v Hiscock
Ms Oxley and Mr Hiscock were a cohabiting couple, both of whom had made financial contributions to the deposit and mortgage for their home. Mr Hiscock, having made a greater contribution, appealed against the first instance decision, arguing that in order to claim under a constructive trust, a party must not only point to an express or implied common intention that she should have a beneficial interest, but also point to an express common intention fixing the size of that interest. As Ms Oxley was unable to do this, she should, he argued, be forced to resort to a claim under a resulting trust, reflecting the fact and proportion of the contribution which she had made to the purchase of the house (regardless of her contribution to the mortgage payments).
Chadwick LJ held that an implied common intention could be established, founding a constructive trust. In coming to this decision, he examined carefully the law in this area and reached a number of conclusions. It must firstly be noted, however, that there were certain issues that he deliberately avoided, most obviously the type of contribution needed to give rise to an implied common intention constructive trust. It was held by Lord Bridge in Lloyds Bank v Rosset that “direct contributions to the purchase price by a partner who is not the legal owner, whether initially or by payment of mortgage installments, will readily justify the inference necessary to the creation of a constructive trust. But…it is extremely doubtful whether anything less will do.” This has led to much uncertainty regarding the relevance of indirect contributions: for example, if one party pays the bills in order to enable the other to pay the mortgage, should this be sufficient? Would paying for an extension justify the necessary inference? Chadwick LJ carefully avoids affirming Lord Bridge’s dicta, and so this particular question remained unanswered.
However, much discussion was given to the issue of quantifying the beneficial interest (often referred to as the ‘secondary question’), once a constructive trust has been established. Waite LJ recognized in Midland Bank v Cooke that the extent of the beneficial interest can be proved not only by pointing to express discussions, but also by inference from “the whole course of dealing between the parties relevant to their ownership and occupation of the property and their sharing of its burdens and advantages”. Chadwick LJ took this reasoning one step further, holding that “each [party] is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property”: this was held to include “the arrangements which they make from time to time in order to meet the outgoings (for example, mortgage contributions, council tax and utilities, repairs, insurance and housekeeping) which have to be met if they are to live in the property as their home”. This focus upon the court’s view of what is “fair” was radical in the sense that it no longer required the court to concentrate on what the parties intended. Providing that the existence of the constructive trust is proved, it leaves the court with enormous flexibility to reach a palatable decision.
Chadwick LJ also highlighted the similarities between constructive trusts and proprietary estoppel: “it seems to me very difficult to avoid the conclusion that an analysis in terms of proprietary estoppel will, necessarily, lead to the same result; and that it may be more satisfactory to accept that there is no difference, in cases of this nature, between constructive trust and proprietary estoppel”. He quotes Robert Walker LJ’s statement in Yaxley v Gotts that “in the area of a joint enterprise for the acquisition of land (which may be, but is not necessarily, the matrimonial home) the two concepts [estoppel and constructive trust] coincide”.
Stack v Dowden: the issues at stake
Stack v Dowden required the House of Lords to consider a different issue: the extent of the beneficial interests of joint legal tenants. Mr Stack and Miss Dowden had lived together for 27 years, maintaining separate bank accounts and investments and paying different amounts towards the cost of their various homes. Upon separation, there was a disagreement as to how much each party should receive from the proceeds of the sale. The first instance judge split the equity in equal shares, but the Court of Appeal held that the proceeds should be divided with 65 percent awarded to Miss Dowden and 35 percent to Mr Stack. Dismissing Mr Stack’s appeal, the House of Lords reviewed the law in this area and came to a number of conclusions.
Firstly, it was held that there is a presumption that equity follows the law: it is assumed that joint legal tenants will also be joint tenants in equity, although this presumption can be rebutted in exceptional cases: “[t]he onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership” (Baroness Hale). She proceeded to discuss a lengthy but not “exhaustive” list of factors which could be taken into account including the reasons why the home was acquired in their joint names” and “the nature of the parties' relationship”. In this case, it was held that the fact that the parties had maintained separate finances for such a long period of time was sufficient to rebut the presumption of equal beneficial interests.
One might question why this is relevant to the law on constructive trusts? In cases involving implied common intention constructive trusts, the primary issue involves whether a beneficial interest can be held to exist at all where there is sole legal ownership. However, it was recognised by both Lord Hope and Baroness Hale (and by implication also by Lord Hoffman who agreed with the latter), that similar principles ought to apply when determining the extent of the beneficial interest under a constructive trust. As Lord Hope explained, “There must be consistency of approach between these two cases…[C]onsistency is to be found by deciding where the onus lies if a party wishes to show that the beneficial ownership is different from the legal ownership”. Once the primary hurdle of establishing a constructive trust has been overcome, the list of factors to be considered in cases involving joint legal owners is extremely helpful. Significant consideration was therefore given to the judgment in Oxley v Hiscock, and although strictly obiter, the comments in Stack v Dowden provide valuable guidance for the lower courts, as well as an insight into the decision likely to be reached should a case involving constructive trusts reach the contemporary House of
Establishing the constructive trust
It was noted above that Chadwick LJ was reluctant to confirm in Oxley v Hiscock whether it was necessary to contribute directly towards the initial acquisition or mortgage payments in order to establish an implied common intention constructive trust. Lord Bridge’s dictum in Lloyds Bank v Rosset is clearly very restrictive: there will inevitably be cases where one party pays the mortgage and the other pays the bills, and particularly where the party paying the mortgage could not afford to do so without the other’s contribution towards the household expenses, it seems unjust that no beneficial interest arises under the constructive trust. Banks and building societies often refuse to accept two direct debits out of two separate bank accounts and cohabiting couples frequently end up in a situation where one contributes to the mortgage indirectly, usually by paying the household bills instead.
Lord Denning’s ‘New Model’ constructive trust, as put forward in cases such as Hussey v Palmer would have accommodated such situations: “[t]he trust may arise at the outset when the property is acquired, or later on, as the circumstances may require”. This was, however, firmly rejected by the House of Lords in Lloyds Bank v Rosset as being too uncertain. Yet, Baroness Hale recognises in Stack v Dowden that “[t]here is undoubtedly an argument for saying, as did the Law Commission in Sharing Homes (para 4.23) that the observations, which were strictly obiter dicta, of Lord Bridge of Harwich in Lloyds Bank plc v Rosset and Another…have set that hurdle rather too high in certain respects”. It is clear therefore, that Chadwick LJ’s reluctance regarding Lloyds Bank v Rosset was replicated to an extent: should a case regarding constructive trusts reach the House of Lords again it is likely that a more liberal test will be applied.
Quantification: intention or fairness?
It was held by Chadwick LJ in Oxley v Hiscock that each party was entitled to “to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property”. As Gardner recognises, “[a]n invented common intention that the claimant shall have an interest at all will sometimes strain credulity, but one that her interest shall be of a particular size will do so even more readily”; it is perhaps unsurprising that Chadwick LJ attempted to remove much of the artificiality evident in earlier cases. However, this concept of fairness came under considerable criticism. Battersby suggested that such an approach would lead to “palm-tree justice” in a similar way to Denning’s much condemned practices in the Court of Appeal in the 1950s and again in the 1960s and 1970s: “quantification becomes a matter of judicial hunch, not based on any identifiable principles; the result is to create uncertainty and to promote litigation”.
The House of Lords in Stack v Dowden, no doubt very aware of such concerns, rejected quantification merely on the basis of what the court considers to be fair. Baroness Hale recognises that Oxley v Hiscock is hailed by Gray & Gray as “an important breakthrough” and acknowledges the importance of a holistic approach. However, she emphasises that “the search is still for the result which reflects what the parties must, in the light of their conduct, be taken to have intended”; the court cannot “abandon that search in favour of the result which [it] considers fair”. This is similar to the conclusions of the Law Commission, who suggest that a ‘holistic approach’ to quantification should be adopted, “undertaking a survey of the whole course of dealing between the parties and taking account of all conduct which throws light on the question what shares were intended” in order to determine what the parties’ common intention supposedly was.
This is perhaps less of a rejection of the reasoning of Chadwick LJ than it may initially appear. Whilst the rhetoric of fairness is necessarily dismissed, it is implicit within Stack v Dowden that the same factors that were considered to rebut the presumption of joint equitable tenancy can be applied when quantifying the extent of the beneficial interest under a constructive trust, leading to an approach not so distinct from that of Chadwick LJ. Examining some of the factors listed by Baroness Hale, it is evident that there is certainly a sense of pursuing fairness. When considering the nature of the parties’ relationship or the existence of any children for whom they both had a responsibility to provide a home, the intention which the court attributes to the parties is likely, in the absence of evidence to the contrary, to be the fairest conceivable one. Similarly, when examining how the parties arranged their finances, it is unlikely that a court would hold that a party contributing significantly towards the utility bills and other household expenses was doing so purely out of love and affection, particularly once the first hurdle of establishing a constructive trust has already been surmounted. Baroness Hale recognises that an arithmetical calculation of how much was paid by each party is not always important, particularly where it seems that both parties were contributing as much or as little as they could afford, and this again encourages the courts to adopt a broad interpretation of the common intention, essentially substituting their own view on what is fair.
Lord Hope explicitly endorses the holistic approach used in Oxley v Hiscock, stating that “indirect contributions” such as improvements which added significant value to the property, or a complete pooling of resources in both time and money so that it did not matter who paid for what during their relationship, ought to be taken into account in addition to direct financial contributions made towards the initial acquisition of the property. Similarly, Lord Walker suggests that the dicta of Chadwick LJ is “a correct statement of the law”, subject firstly to the qualifications mentioned by Baroness Hale, and secondly to the fact that he would also include contributions made by way of significant manual labour. As a result, it would appear that, in terms of quantification, Stack v Dowden confirms and expands upon many of the principles put forward by Chadwick LJ in Oxley v Hiscock. Whilst the idea of assessing what is fair in the view of the court has been rejected, the approach is applauded, perhaps signifying the reality that when there is no express evidence available regarding the parties’ common intention, the court will inevitably resort to the fairest possibility.
The assimilation of constructive trusts and proprietary estoppel
Another important feature of the decision in Oxley v Hiscock was the suggestion that the same principles applied to proprietary estoppel and implied common intention constructive trusts. This was first suggested by Sir Nicolas Browne-Wilkinson V-C in Grant v Edwards and received support from Lord Walker when sitting in the Court of Appeal in Yaxley v Gotts. However, Lord Walker himself rejects a complete assimilation in Stack v Dowden, suggesting that this would not be helpful. This is sensible considering the different rationales behind the two. Proprietary estoppel tends to involve an assertion of an equitable claim against the conscience of the ‘true’ owner, the claim being a “mere equity”. Constructive trusts, conversely, identify the true beneficial owners and the extent of their beneficial interests. Whilst constructive trusts are recognised retrospectively, a proprietary estoppel arises at the time of the hearing. In addition, the respective remedies vary considerably: constructive trusts are interested only in beneficial ownership but proprietary estoppel allows much greater flexibility, settling claims with the minimum award necessary to do justice. This can involve a beneficial interest in the fee simple, but it may just as easily involve a lease, a financial remedy, or an injunction to prevent eviction. Consequently, whilst there is a considerable overlap in the principles, particularly given the expanded list of factors to be considered following Baroness Hale’s dicta, the suggestion by Chadwick LJ that proprietary estoppel and constructive trusts may be assimilated was firmly rejected.
It is clear, therefore, that the decision in Oxley v Hiscock received substantial examination by the House of Lords in Stack v Dowden. Certain elements of Chadwick LJ’s judgment were criticised or discarded: the ‘fairness approach’ was unsurprisingly considered to be too wide (and perhaps too honest) a method of quantifying the beneficial interest in the case of constructive trust and the assimilation of implied common intention constructive trusts and proprietary estoppel was not held to be useful. However, the broadminded approach adopted by Chadwick LJ was given much commendation and undoubtedly influenced Baroness Hale’s extensive list of factors to be considered in cases of joint legal tenancy. Whilst the comments concerning constructive trusts were strictly obiter, Stack v Dowden provides a valuable insight into the liberal attitude of the current House of Lords; should a case directly involving constructive trusts reach the House, it is almost certain that the approach in Oxley v Hiscock would receive further affirmation.
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Gray & Gray, Elements of Land Law, 4th ed (2005)
Battersby (2005) 17 CFLQ 259
Gardner (2004) 120 LQR 541
Ralton (2007) Fam Law 713
Lloyds Bank v Rosset  1 A.C. 107
Stack v Dowden  2 A.C. 432
Midland Bank v Cooke  4 All ER 562
Oxley v Hiscock  All ER 703
Grant v Edwards  3 WLR 114
Yaxley v Gotts  Ch 162
Hussey v Palmer  3 All ER 744