Jones v Kernott [2009] EWHC 1713 (Ch)

[2009] EWHC 1713 (Ch)Claim no. 7SS02399
In the High Court of Justice
Chancery Division
Date 10 July 2009
On appeal from the Southend County Court
Appeal Court reference: CC/2008/PTA/0637
Before
Mr. Nicholas Strauss Q.C.(sitting as a deputy judge)
Between
Patricia Anne JonesClaimant/RespondentLeonard Trevor KernottDefendant/Appellant
B e t w e e n :
Mr. Andrew Bailey, instructed by Francis Thatcher & Co appeared for appellant.Mr. Richard Power, instructed by A.I. Sampson & Co appeared for respondent.Hearing Hearing date: 12 th May 2009
Judgment
[1]This is an appeal from the decision of H.H. Judge Dedman in the Southend on Sea County Court on 21st April 2008 concerning a claim made by the respondent (“Ms. Jones”) under the Trusts of Land and Appointment of Trustees Act 1996 in respect of two properties, 39 Badger Hall Avenue, Thundersley, Essex and 114 Stanley Road, Benfleet, Essex. The first of these properties was a house bought by Ms. Jones and the appellant (“Mr. Kernott”) in joint names. It was occupied by them from about May 1984 until October 1993, when their relationship ended. The second is a property bought by Mr. Kernott in his sole name in May 1996, some 2 years and 8 months after he had moved out of the Badger Hall Avenue house.[2]It was common ground between the parties before H.H. Judge Dedman that the parties held the beneficial interest in the Badger Hall Avenue house in equal shares until October 1993, and it is now common ground that Ms. Jones did not acquire a beneficial interest in the Stanley Road house later bought by Mr. Kernott. The issues are whether, and if so to what extent, their respective beneficial interests in Badger Hall Avenue were changed when Mr. Kernott left, ceased to contribute to the mortgage and other outgoings and bought his own separate property at Stanley Road. H.H. Judge Dedman held that they did change, and that Ms. Jones was entitled to 90% of the value of the property on the basis that this was “fair and just”.[3]Quite surprisingly, since the factual situation in the present case must be a common one, there is little authority on whether in such a case the court should infer that the parties’ intentions as regards their respective beneficial interests have changed, or impute such a change to them, or if so, how the amount of such a change should be ascertained.[4]In cases of this kind, as was said by Baroness Hale in the Privy Council case of Abbott v. Abbott [2007] UKPC 53:
“The search is to ascertain the parties’ shared intentions, actual, inferred or imputed, with respect to the property in the light of their whole course of conduct in relation to it.”
Or, as she had put it in Stack v. Dowden [2007] 2 A.C. 432 at para. 61:- “…the search is still for the result which the parties must, in the light of their conduct, be taken to have intended” However, there is a doubt which arises from her speech in that case as to whether, and if so how far, it is open to the court to consider what is “fair”, and therefore as to whether H.H. Judge Dedman’s approach in this case was correct. The principal issue in this appeal is whether for the courts to consider what is fair, in assessing the amount of a party’s interest in this kind of case, is to venture on to “forbidden territory”[5]Before dealing with the facts of the present case more fully, it is convenient to refer in some detail to the leading authorities, namely the decisions of the Court of Appeal in Oxley v. Hiscock [2005] Fam. 211 and of the House of Lords in Stack v. Dowden, to which I have already referred.[6]In Oxley, an unmarried couple bought a house in the name of the defendant, the male partner. Both made substantial contributions to the purchase price, the defendant’s contribution being the greater, and both contributed to the maintenance and improvement of the property and to the repayment of the mortgage from their pooled resources. The defendant’s appeal against the judge’s decision that the property was beneficially held in equal shares was allowed. The Court of Appeal decided that it was to be inferred from the fact that both parties had made financial contributions that there was a common intention that each should have a beneficial share and that (in the absence of any discussion as to the amount of their respective shares) each was entitled to the share which the court considered fair having regard to the whole course of dealing between them including arrangements made to meet the outgoings on the property.[7]Chadwick L.J. (with whom Mance and Scott Baker L.JJ. agreed) reviewed the previous authorities at considerable length. He held (para. 52) that two issues arose in cases of this kind. First, was there a common intention that each should have a beneficial interest in the property and if so, secondly, what was the common intention of the parties as to the extent of their respective beneficial interests? He rejected the submission that the court was bound, by Springette v. Defoe [1992] 2 F.L.R. 388, in a case in which the first question was answered affirmatively, to answer the second by reference to the financial contributions made by the parties i.e. in accordance with a resulting trust approach. He held that, on the contrary, the effect of the decision of the Court of Appeal in Midland Bank plc v. Cooke [1995] 4 All E.R. 562 was that, once the court had concluded that the parties intended the beneficial interest in the property to be shared, as would readily be inferred where both had made some contribution to the purchase price, the amount of their respective shares would be what the court considered to be fair on the basis of all the relevant conduct, not limited to the amount of their respective contributions: see paras. 53-60.[8]At para. 59 Chadwick L.J. cited the dictum of Waite L.J. in Midland Bank at 575:- “… For a couple embarking on a serious relationship, discussion of the terms to apply at parting is almost a contradiction of the shared hopes that have brought them together. There will inevitably be numerous couples, married or unmarried, who have no discussion about ownership and who, perhaps advisedly, make no agreement about it. It would be anomalous, against that background, to create a range of home-buyers who were beyond the pale of equity’s assistance in formulating a fair presumed basis for the sharing of beneficial title, simply because they had been honest enough to admit they never gave ownership a thought or reached any agreement about it.”[9]It is also clear from this part of Chadwick L.J.’s judgment that he regarded the analysis of Lord Diplock in Gissing v. Gissing [1971] A.C. 886 at 908-9, which he had set out at para. 34, as retaining considerable importance:- “There is nothing inherently improbable in their (i.e. the husband and wife) acting on the understanding that the wife should be entitled to a share which was not to be quantified immediately upon the acquisition of the home but should be left to be determined when the mortgage was repaid or the property disposed of, on the basis of what would be fair having regard to the total contributions, direct or indirect, which each spouse had made by that date. Where this was the most likely inference from their conduct, it would be for the court to give effect to that common intention of the parties by determining what in all the circumstances was a fair share.”[10]Chadwick L.J. said at para. 60 that the law had moved on since Midland Bank v. Cooke, and he then analysed the decision of the Court of Appeal in Drake v. Whipp [1996] 1 F.L.R. 826, another case in which both partners had contributed to the purchase price and to subsequent expenditure, the property having been conveyed in the sole name of the male partner. Commenting on the decision of the Court of Appeal that in all the circumstances Mrs. Drake’s “fair share” should be one-third, Chadwick L.J. said at para. 65:- “It is very difficult, if not impossible, to find anything in the facts in Drake v. Shipp [1996] I FLR 826 to suggest that either of the parties ever gave thought to an arrangement under which the property should be shared in the proportions two-thirds and one-third; let alone that that was ever their common intention. Nor do I think that Peter Gibson LJ approached the matter on that basis. As he said, at p.830, “in constructive trust cases, the court can adopt a broad brush approach to determining the parties’ respective shares”. And that is what he did, as he acknowledged in the passage, at p.831, which I have just set out:
“I would approach the matter more broadly, looking at the parties’ entire course of conduct together.”
That approach, as it seems to me, had received the approval of the House of Lords some 35 years earlier, in Gissing v. Gissing [1971] AC 886, 909E, per Lord Diplock; had been endorsed, at least by Sir Nicholas Browne-Wilkinson V-C, in Grant v. Edwards [1986] CH. 638, 657H; and had been acknowledged and accepted by Bourse LJ in Stokes v. Anderson [1991] I FLR 391, 399F. If these problems are to be solved by an analysis based on constructive trust, which requires the imputation of some common intention at the time of acquisition, then, as Nourse LJ observed Stokes v. Anderson, at p.400C, “the court must supply the common intention by reference to that which all the material circumstances have shown to be fair”. That is, I think, what Waite LJ had in mind when he referred, in Midland Bank plc v. Cooke [1995] 4 All ER 562, 575, to “equity’s assistance in formulating a fair presumed basis for the sharing of the beneficial title” in a case where the parties “had been honest enough to admit they never gave ownership a thought….”[11]He then went on at para. 66 to say that what the court was doing in cases of this nature was to supply or impute a common intention, when there was in fact none. On the second question, the extent of the parties’ respective interests, he said at para. 69:- “In those circumstances, the second question to be answered in cases of this nature is:
“what is the extent of the parties’ respective beneficial interests in the property?”
Again, in many such cases, the answer will be provided by evidence of what they said and did at the time of the acquisition. But, in a case where there is no evidence of any discussion between them as to the amount of the share which each was to have – and even in a case where the evidence is that there was no discussion on that point – the question still requires an answer. It must now be accepted that (at least in this court and below) the answer is that each 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. And, in that context, “the whole course of dealing between them in relation to the property” includes 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.”[12]He then held at paras. 73-4 that the right question was “what would be a fair share for each party having regard to the whole course of dealing between them in relation to the property?” He concluded that it would be 60% to the defendant and 40% to the claimant. As I explain later, although the House of Lords in Stack v. Dowden unanimously held that Oxley was rightly decided, doubt is cast on the correctness of Chadwick L.J’s approach, and in particular on his adoption of the criterion of fairness.[13]Stack v. Dowden, in contrast to Oxley, was a case in which the property was conveyed into joint names. The House of Lords held by a majority of 4-1 (Lord Neuberger dissenting) that, where a domestic property was conveyed into the joint names of cohabiting parties without any declaration of trust, prima facie both the legal and beneficial interests were joint and equal; in the absence of evidence of a common intention that their beneficial interests should differ from their legal interests, because it was presumed that they intended that they should not. In considering whether there was evidence of such a common intention, the court should look at the whole of the parties’ conduct, but a different common intention would be found only in a very unusual case (of which however Stack was one: the House unanimously held that the female partner had a 65% interest by reason of her much greater contribution and the fact that their financial interests were kept separate.[14]Lord Neuberger, dissenting on the principle but not in the result, favoured the resulting trust analysis. He considered that the parties’ financial contributions should generally be decisive, or should be at least the starting point, in the absence of other evidence as to their intention.[15]The leading speech was that of Baroness Hale. Her starting point was the legal ownership:- “56. Just as the starting point where there is sole legal ownership is sole beneficial ownership, the starting point where there is joint legal ownership is joint beneficial ownership. The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership. So in sole ownership cases it is upon the non-owner to show that he has any interest at all. In joint ownership cases, it is upon the joint owner who claims to have other than a joint beneficial interest.”[16]Referring to Oxley, she said at para. 61 (the key passage is emphasised by underlining):- “Oxley v. Hiscosk was, of course, a different case from this. The property had been conveyed into the sole name of one of the cohabitants. The claimant had first to surmount the hurdle of showing that she had any beneficial interest at all, before showing exactly what that interest was. The first could readily be inferred from the fact that each party had made some kind of financial contribution towards the purchase. As to the second, Chadwick LJ said this, at para. 69 (the passage set out para. 11 above is then quoted).... Oxley v. Hiscock has been hailed by Gray and Gray as “an important breakthrough” (op cit, p.931, para. 10.138). The passage quoted is very similar to the view of the Law Commission in Sharing Homes (2002, op cit, para. 4.27) on the quantification of beneficial entitlement:
“If the question really is one of the parties’ ‘common intention’, we believe that there is a much to be said for adopting what has been called a ‘holistic approach’ to quantification, 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.”
That may be the preferable way of expressing what is essentially the same thought, for two reasons. First, it 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. Second, therefore, it does not enable the court to abandon that search in favour of the result which the court itself considers fair. For the court to impose its own view of what is fair upon the situation in which the parties find themselves would be to return to the days before Pettitt v. Pettitt [1970] AC 777 without even the fig leaf of section 17 of the 1882 Act.” “If the question really is one of the parties’ ‘common intention’, we believe that there is a much to be said for adopting what has been called a ‘holistic approach’ to quantification, 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.”[17]She then added at para. 62, and it is a relevant point in the present case:- “ Furthermore, although the parties’ intentions may change over the course of time, producing what my noble and learned friend, Lord Hoffmann, referred to in the course of argument as an “ambulatory” constructive trust, at any one time their interests must be the same for all purposes. They cannot at one and the same time intend, for example, a joint tenancy with survivorship should one of them die while they are still together, a tenancy in common in equal shares should they separate on amicable terms after the children have grown up, and a tenancy in common in unequal shares should they separate on acrimonious terms while the children are still with them.”[18]She then drew attention at para. 66 to the difference between cases in which the property is put into the name of one partner and joint names cases:- “But the questions in a joint names case are not simply “what is the extent of the parties’ beneficial interests?” but “did the parties intend their beneficial interests to be different from their legal interests?” and “if they did, in what way and to what extent?” there are differences between sole and joint names cases when trying to divine the common intentions or understanding between the parties. I know of no case in which a sole legal owner (there being no declaration of trust) has been held to hold the property on a beneficial joint tenancy. But a court may well hold that joint legal owners (there being no declaration of trust) are also beneficial joint tenants. Another difference is that it will almost always have been a conscious decision to put the house into joint names. Even if the parties have not executed the transfer, they will usually, if not invariably, have executed the contract which precedes it. Committing oneself to spend large sums of money on a place to live is not normally done by accident or without giving it a moment’s thought.”[19]At para. 69, as she emphasised that each case turned on its own facts and set out a long list of factors which might be relevant to “where their true intentions lay”, including some, such as “the parties individual characters and personalities”, which have little direct connection with the property. She said that cases in which joint legal owners were to be taken as having intended that their beneficial interests should differ from their legal interests “will be very unusual”. This appears to be at odds with Oxley, in which Chadwick L.J. said that the presumption would readily displaced where one partner had contributed financially to a property in the sole name of the other: see para. 68.[20]Lord Hoffman, Lord Hope and Lord Walker agreed with Baroness Hale. Lord Hope said at para. 4:- “The cases can be broken down into those where there is a single legal ownership and those where there is joint legal ownership. There must be consistency of approach between these two cases a point to which my noble and learned friend Lord Neuberger of Abbotsbury has drawn our attention. I think that consistency 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. I agree with Baroness Hale that this is achieved by taking sole beneficial ownership as the starting point in the first case and by taking joint beneficial ownership as the starting point in the other. In this context joint beneficial ownership means that the shares are presumed to be divided between the beneficial owners equally. So in a case of sole legal ownership the onus is on the party who wishes to show that he has any beneficial interest at all, and if so what that interest is. In a case of joint legal ownership it is on the party who wishes to show that the beneficial interests are divided other than equally.”[21]Lord Walker considered that the law had moved on since Lord Bridge had suggested in Lloyd’s Bank v. Rosset [1991] 1 A.C. 107 at 132-3 that nothing less than direct contributions to the purchase price would give rise to a constructive trust. At paras. 35-6, he approved what Chadwick L.J. had said in Oxley at para. 69, (see para. 11 above), subject to what he referred to as the qualifications set out in para. 61 of Baroness Hale’s opinion (see para. 16 above), and considered that this was a correct statement of the law where there was a single legal owner.[22]As stated earlier, Lord Neuberger favoured the resulting trust analysis, according to financial contributions, as the prima facie solution, in the absence of evidence from which a different intention could be inferred. He also disagreed with the majority view that it was open to a court to impute an intention to the parties:- “125. While an intention may be inferred as well as express, it may not, at least in my opinion, be imputed. That appears to me to be consistent both with normal principles and with the majority view of this House in Pettitt, as accepted by all but Lord Reid in Gissing (see at 897H, 898B-D, 900E-G, 901B-D, and 904E-F), and reiterated by the Court of Appeal in Grant v. Edwards [1986] Ch. 638 at 651F-653A. The distinction between inference and imputation may appear a fine one (and in Gissing at 902G-H, Lord Pearson, who, on a fair reading I think rejected imputation, seems to have equated it with inference), but it is important.126. An inferred intention is one which is objectively deduced to be the subjective actual intention of the parties, in the light of their actions and statements. An imputed intention is one which is attributed to the parties, even though no such actual intention can be deduced from their actions and statements, and even though they had no such intention. Imputation involves concluding what the parties would have intended, whereas inference involves concluding what they did intend.127. To impute an intention would not only be wrong in principle and a departure from two decisions of your Lordships’ House in this very area, but it also would involve a judge in an exercise which was difficult, subjective and uncertain…”[23]Lord Neuberger also dealt in more detail than the other members of the House with the possibility of altered intentions arising from events subsequent to the acquisition of the property:- “138. The fact that the ownership of the beneficial interest in a home is determined at the date of acquisition does not mean that it cannot alter thereafter. My noble and learned friend Lord Hoffmann suggested during argument that the trust which arises at the date of acquisition, whether resulting or constructive, is of an ambulatory nature. That elegant characterisation does not justify a departure from the application of established legal principles any more than such a departure is justified at the time of acquisition. It seems to me that “compelling evidence”, to use Lord Hope’s expression in paragraph 11, is required before one can infer that, subsequent to the acquisition of the home, the parties intended a change in the shares in which the beneficial ownership is held. Such evidence would normally involve discussions, statements or actions, subsequent to the acquisition, from which an agreement or common understanding as to such a change can properly be inferred. I have already discussed some of the issues arising in this connection, partly because Ms. Dowden and Mr. Stack had lived together in Purves Road before they acquired the house at Chatsworth Road.139. There are, however, one or two aspects I should like to mention. I agree with Lord Walker that, subject of course to other relevant facts justifying a different conclusion, the fact that one party carries out significant improvements to the home will justify an adjustment of the apportionment of the beneficial interest in his favour. In such a case, the cost could be seen as capital expenditure which differs from regular outgoings relating to the use of the home, and is not dissimilar in financial effect, from the cost of acquiring the home in the first place. To qualify, any work must be substantial: decoration or repairs (at least unless they were very significant) would not do.140. There is also the question of repayments of the mortgage, and payments of other outgoings. I have already discussed the effect of the parties taking a mortgage in joint names, and suggested that, in some cases, repayments of capital could have the effect of adjusting the shares in the beneficial interest. (It is conceivable that that could apply to payments of interest as well). In many cases, the repayments of capital, even if effected wholly by one party, should not be interpreted as indicating an intention to alter the way in which the beneficial interest is apportioned. Thus, the fact that one part is the home-maker (and, often, child-carer) and the other is the wage-earner would probably not justify the former having his share decreased simply because the other party repays the mortgage by instalments, but it may be different where both parties earn and share the home-making, but one of them repays the mortgage by a single capital sum.”[24]As to fairness, Lord Neuberger said the following (my emphasis):- “142. In many cases, these points may result in an outcome which would seem unfair at least to some people. However (unless and until the legislature decides otherwise) fairness is not the guiding principle as Baroness Hale says, and, at least without legislative directions, it would be a very subjective and uncertain guide. Further, it is always important to bear in mind the need for clarity and certainty.143. It is worth repeating that one is concerned with the ownership of what will normally be the most important and valuable assets of the parties, and the way they conduct their day-to-day living and finances is, in my view, at least of itself, not a reliable guide to their intentions in relation to that ownership. Even payments on decoration, repairs, utilities and Council tax, although related to the home, are concerned with its use and enjoyment, as opposed to its ownership as a capital asset. It is also worth repeating that these factors are not irrelevant to the issue of whether there has been a change in the shares in which the beneficial interest in the home is held. They provide part of the vital background against which any alleged discussion, statement or action said to give rise to a change in the beneficial ownership is to be assessed, in relation to both whether it occurred and what its effect was.144. I am unhappy with the formulation of Chadwick LJ in Oxley at paragraph 69, quoted by Baroness Hale at paragraph 61 of her opinion, namely that the beneficial ownership should be apportioned by reference to what is “fair having regard to the whole course of dealing between [the parties] in relation to the property”. First, fairness is not the appropriate yardstick. Secondly, the formulation appears to contemplate an imputed intention. Thirdly, “the whole course of dealing … in relation to the property” is too imprecise, as it gives insufficient guidance as to what is primarily relevant, namely dealings which cast light on the beneficial ownership of the property, and too limited, as all aspects of the relationship could be relevant in providing the context by reference to which any alleged discussion, statement and actions must be assessed. As already explained, I also disagree with Chadwick LJ’s implicit suggestion in the same paragraph that “the arrangements which [the parties] make with regard to the outgoings” (other than mortgage repayments) are likely to be of primary relevance to the issue of the ownership of the beneficial interest in the home.145. I am rather more comfortable with the formulation of Gray and Gray, also quoted in paragraph 61 of Baroness Hale’s opinion, that the court should “undertak[e] a survey of the whole course of dealing between the parties … taking account of all conduct which throws light on the question what shares were intended”. It is perhaps inevitable that this formulation begs the difficult questions of what conduct throws light, and what light it throws, as those questions are so fact-sensitive. “Undertaking a survey of the whole course of dealings between the parties” should not, I think, at least normally, require much detailed or controversial evidence. That is not merely for reasons of practicality and certainty. As already indicated, I would expect almost all of “the whole course of dealing” to be relevant only as background: it is with actions discussions and statements which relate to the parties’ agreement and understanding as to the ownership of the beneficial interest in the home with which the court should, at least normally, primarily be concerned. Otherwise, the enquiry is likely to be trespassing into what I regard as the forbidden territories of imputed intention and fairness.”[25]In the event, all the members of the House concurred in holding that the decisions of the Court of Appeal were right both in Oxley and in Stack. Nevertheless, there are at least 3 important matters on which Lord Neuberger differed from the majority, namely:-(a) The propriety of imputing an intention to the parties, that is to attribute to them an intention which they do not have, but which they are to be taken as having;(b) the ability to infer or impute an intention from “the whole course of dealing” as opposed to treating this as background only; and(c) the considerably greater emphasis placed by Lord Neuberger on the rejection of fairness as a criterion or yardstick.[26]The result of these landmark cases appears to me to be as follows:- (1). In cases in which the property is conveyed into the sole name of one of the partners, there is a presumption that he or she is intended to be the sole beneficial owner. However, this can be displaced by evidence of a common intention that both should have beneficial interests; probably (notwithstanding what Baroness Hale said at para. 69 of Stack) financial contribution to the purchase price by the other party will usually suffice. See Oxley at para. 68 and para. 19 above. (2). Where however the property is put into joint names, but nothing more is said, it is presumed that the parties intend that each should have not only a legal but also a beneficial interest, and that these interests should be equal. Only in very unusual cases will this presumption be displaced; in Stack it was displaced by unequal contributions and the fact that the parties kept their finances rigidly separate, the former being common enough but the latter unusual: see Stack at paras. 90-2. (3). Where the presumption is displaced, assuming that there is no express agreement as to the respective amounts of the partners’ interests, the court will quantify them by reference to the “whole course of dealing between the parties and taking account of all conduct which throws light on the question what shares were intended”: the court must assess what in the light of their conduct the parties must be taken to have intended, and not impose what the court itself would consider to be fair: Stack at §61. (4). It is clear that it remains the duty of the court to decide what the common intention of the parties was, or should be taken to have been, and on that basis to reallocate their property interests where appropriate, on evidence which would fall short of establishing a common intention in a contract case. In many, if not most, cases there will be no evidence at all of the actual intention, if any, of either party, and the court will be attributing a common intention to them. (5). Whatever the beneficial interests may be at the time of acquisition, a trust may be “ambulatory” i.e. the intentions of the parties as regards their interests in the property may change, or be taken as having changed, over time: Stack at paras. 62 and 138. But, save as above there is little guidance in Stack, or in any earlier authority, as to the circumstances in which the presumption of equality will be displaced or how, if it is, the altered amounts are to be assessed.[27]Two points in Stack require some consideration. First, it is necessary to take care to ensure that the ‘holistic approach’, surveying the whole course of dealing between the parties, does not obscure the point (recognised at para. 62) that the initial intentions may change over time to take account of all the circumstances. It is probably easier, as Lord Neuberger suggests at para. 108, to approach this “in a structured way”, that is to consider first what the initial common intention was, and then whether it has altered and if to what extent.[28]Secondly, and more fundamentally, Baroness Hale’s formulation in the key passage at para. 61 of Stack above leaves it open to doubt how far para. 69 of Chadwick L.J.’s judgment in Oxley remains intact, and what if any role fairness has in the determination of these issues, particularly issues as to the quantification of the parties’ interests. On the one hand, she recognises that the Law Commission’s formulation may be an expression of “essentially the same thought” as that expressed by Chadwick L.J., which is (following Gissing) that the presumed intention is that each party is entitled to the share which the court considers fair. On the other hand, she goes on to say that the court must not abandon the search for the intention of the parties and “impose its own view of what is fair” which, if read one way, could be said to be inconsistent with Chadwick L.J.’s formulation. See also Mr. Nick Piska’s article in the 71 Modern Law Review p.120 at 126-8, which raises similar concerns as to the ambiguity of this passage in Stack.[29]Although Lloyd L.J. in the later case of Holman v. Howes [2007] EWCA Civ. 877 referred, obiter, at para. 32 to “the impermissible question of what the court considers fair”, this is a reference to para. 145 of Lord Neuberger’s dissenting opinion, and I do not think that it is what Baroness Hale meant. If it had been, she could not have said that the Law Commission and Chadwick L.J. were expressing “essentially the same thought”. Chadwick L.J. would have been expressing a thought which was diametrically opposed to that of the Law Commission. Lord Neuberger also said, in the same sentence, that imputing an intention was in forbidden territory, on this plainly disagreeing with Baroness Hale.[30]I think that, as Lord Walker indicated at paras. 35-6, what Baroness Hale said was intended to qualify para. 69 of Chadwick L.J.’s judgment, not to contradict it. In my view, what the majority in Stack held was only that the court should not override the intention of the parties, in so far as that appears from what they have said or from their conduct, in favour of what the court itself considers to be fair. The key words used by Baroness Hale are that the court must not impose its view.[31]To the extent that the intention of the parties cannot be inferred, the court is free – as the key passage quoted at para. 4 above makes clear – to impute a common intention to the parties. Imputing an intention involves, as Lord Neuberger points out, attributing to the parties an intention which they did not have, or at least did express to each other. The intention is one which the parties “must be taken” to have had. It is difficult to see how this process can work, without the court supplying, to the extent that the intention of the parties cannot be deduced from their words or conduct, what the court considers to be fair. In particular, in the present case, if there is evidence of conduct from which it is right to conclude that the parties intended their respective shares to alter following Mr. Kernott’s departure, but none to indicate how, the only available criterion by which to assess the extent of the alteration is what is objectively fair, and the only available judge of that is the court.[32]There are in my view other reasons for concluding that this is what Baroness Hale meant at para. 61 of Stack. First, it makes sense in the context of that case. The conduct of the parties in maintaining their financial affairs separately indicated that they did not intend to pool their resources, as is common when cohabiting couples buy a house together, but rather that their respective shares should approximate to their financial contributions. The court was not entitled to disregard that evidence of what the parties probably intended and substitute what it might consider, without taking account of it, to be fair. But that does not mean that, while respecting the parties’ intentions so far as they were apparent, the court could not consider what was fair so as to supply any missing elements.[33]Second, in many cases, as is shown for example by Lord Diplock and Waite L.J (see paras. 8-9 above), the parties have not indicated in any way what their respective shares are to be, or how they are to be altered to take account of changing circumstances. In such cases, their actual or subconscious intention may well be that their respective shares, if they cannot reach agreement when circumstances change, should be whatever the court decides is fair in all the circumstances. If one were to introduce the mythical creature who lurks in contract law, the officious bystander, to ask the relevant question in the present case “you are agreed that while together you own the house 50/50, but what is to happen if you split up and one of you remains in it, and takes over complete responsibility for it, and the other leaves”, many if not most couples would be unable to give a clear answer, because of the wide variety of considerations which might then arise. They might well say that they would try to reach agreement, but if this proved impossible would leave it to the court to decide what was fair: that is what courts are for.[34]Third, to say that consideration of what is fair is impermissible suggests that fairness cannot be any part of what the parties intend or are to be taken to have intended. But the court can hardly assume that two parties, who have not fully clarified their intentions as to their respective beneficial interests, either initially or on a breakdown in the relationship, do not intend considerations of fairness to be relevant in determining their eventual interests.[35]Fourth, if considerations of fairness are to be wholly set aside in such cases, there will be a practical difficulty in searching for a result which the parties must in the light of their conduct be taken to have intended, in preference to what the court itself considers to be fair, when there is no evidence as to what they did intend as regards their respective shares. It is difficult to see what intention could then be imputed to the parties other than that each should have his or her fair share in the light of all the circumstances. If that were to be disregarded, there would be no way in many cases of resolving the issue.[36]Fifth, as already noted, it was Lord Neuberger who referred to fairness as a “forbidden territory”, in part of his dissenting judgment. He also disagreed with the majority view that, where necessary, the common intention could be imputed to the parties on the basis of a wide variety of circumstances: that would often be impossible without considering how they were fairly to be taken into account.[37]I should also refer in more detail to Holman v. Howes, which bears some resemblance to the present case, in that it involved lengthy occupation by one partner alone prior to the proceedings. It was an unusual case, in which the parties had previously been married and divorced and bought the property in 1979 with a view to joint occupation and reconciliation. However, they parted again after a year, and the claimant, the female partner, remained in the property for some 20 years before the proceedings were brought. Although the sole legal owner of the house was the male partner, it was common ground that she had a beneficial interest from the start, which the judge held was one half: she claimed a greater share. It is important to note that the judge found that the male partner had told her that she would be secure in the property for as long as she wished, that is he would not seek to evict her if the relationship broke down again.[38]On appeal, the claimant relied on a number of circumstances to justify her claim, including her lengthy sole occupation of the property after the split, and complying with the obligations of ownership including the upkeep of the private road on which it stood and dealing with a number of trees (but without making any capital contributions to the purchase price). Lloyd L.J., with whom Dyson and Jacob L.JJ. agreed, said that these matters (and others relied upon by the claimant) were “not capable of throwing light on the question of what shares were intended in 1979…(or) indicative of any agreement between the parties, past or later” (my emphasis).[39]Mr. Bailey, for the appellant, places strong reliance on this decision, contending that all the key features which were rejected in that case as a basis for inferring an agreement to allow the beneficial interests are the same in the present case; therefore, he submits, the judge was wrong. Additionally, Mr. Bailey submits that the judge was wrong to stray into the “forbidden territory” of fairness, as he undoubtedly and explicitly did.[40]These are forceful points, but I am not persuaded by them. As I have already said, in my view the majority in Stack held only that fairness could not override the intention of the parties, to the extent that this had been manifested; Lord Neuberger’s view that it was forbidden territory was part of his dissent. More importantly, whilst this case has features in common with Holman, the context of the case was quite different. The background was that the parties were in a relationship which they knew might not endure, and had discussed what would then happen. In circumstances in which the claimant’s continued sole occupation was attributable to the understanding from the outset that she would not be evicted if the relationship did not endure, it is hardly surprising that it was not treated as an indication of changed intentions; indeed the parties hardly spoke to each other after they had again parted. Holman depends on its own facts: the court did not lay down any general rule, or even make any general observations, on the effect of one of the parties remaining in occupation of the property following a breakdown in the relationship with the other.[41]Turning to the facts of the present case, I must take these almost entirely from the judgment. There was some dispute as to the facts between the parties, and both were cross-examined, but there is no appeal against the judge’s findings of fact and I cannot go behind them, although one or two further matters not mentioned in the judgment were referred to during the hearing of the appeal, and are not in dispute.[42]Ms. Jones and Mr. Kernott met in 1980 and formed a relationship. In early 1981, Ms. Jones bought a caravan. Mr. Kernott lived with her there from 1984, when the couple’s first child was born. In May 1985 she sold it and the couple bought 39, Badger Hall Avenue in joint names for £30,000, funded as to £6,000 by Ms. Jones and as to the balance by an interest only mortgage supported by an endowment policy. A further loan of £2,000 was taken out in the following year for an extension, which was built and paid for largely by Mr. Kernott and enhanced the value of the house from about £30,000 to £44,000. In the same year, the couple’s second child was born. Ms. Jones and Mr. Kernott shared household bills including the mortgage payments.[43]In October 1993, the relationship came to an end and Mr. Kernott left. Thereafter, Ms. Jones made all the payments due under the mortgage and the endowment policy and everything else that was needed to maintain the property. She also supported the children with little or no contribution from Mr. Kurnott: she did not seek child support payments.[44]During their relationship, Ms. Jones and Mr. Kernott had a life insurance policy, which they cashed some time after the relationship ended, dividing the proceeds. One of the reasons for doing this was to enable Mr. Kernott to purchase a property and he bought 114 Stanley Road in May 1996 in his sole name. He made all payments under the mortgage taken out for this purpose, and whatever else was required to maintain the property.[45]Mr. Kernott served a notice of severance relating to 39 Badger Hall Avenue on 19 May 2008. At trial, its value was agreed at £245,000. £26,669 was outstanding on the mortgage, leaving an equity sum of £218,000. The value of the endowment policy was £25,209. The agreed value of 114 Stanley Road was £205,000, with a mortgage of £38,000 outstanding, leaving an equity of £167,000.[46]H.H. Judge Dedman considered the two leading cases referred to above and said that “whilst the intentions of the parties may well have been at the outset to provide them as a couple with a home…those intentions have altered significantly over the years” as a result of Mr. Kernott having completely ignored the property both as regards investment and as regards maintenance or repair, while concentrating on his own property. Therefore he had to consider what was “fair and just” between the parties taking into account the whole course of dealing between them. The factors he then referred to, to support his conclusion that the division should be 90:10 in favour of Ms. Jones, were Mr. Kernott’s ability to afford his own accommodation by not contributing to the former property, the payment by Ms. Jones of the 20% deposit, the preponderant contribution to the interest due under mortgage by Ms. Jones (in all some 81.5% of the total payments), and the lack of significant assistance from Mr. Kernott with the children while they were growing up. He did not, at least in this passage, explicitly take into account the extension of the property for which Mr. Kernott was entitled to credit.[47]The first question I have to consider is whether, on these facts, the judge was right to decide that the parties intended, or were to be taken as having intended, that their respective beneficial interests should be altered to take account of changing circumstances. I bear in mind Baroness Hale’s reference to intentions, “actual, inferred or imputed”, (my emphasis). As I have already said, this indicates that it is open to the court, contrary to the opinion of Lord Neuberger, to attribute to the parties a common intention which they did not have, or at least did not express to each other. I have no doubt that the judge was right to do so in this case. In Stack v. Dowden the “very unusual” circumstances which led the majority to conclude that the parties did not intend to pool their resources 50:50 was in essence the combination of different capital contributions and the fact that they otherwise kept their finances entirely separate. There was no real domestic partnership at least in the financial sense. It was therefore to be inferred that they did not intend to share the property equally irrespective of their financial contributions. Similarly, in this case, having initially intended to pool their resources in the usual way, what happened in 1993 was that this intention ceased. The proceeds of the life insurance were split up precisely (at least in part) so that Mr. Kernott could buy another property. He ceased to contribute to the mortgage or to any other outgoings related to the property, but instead used his resources to finance the purchase of his own separate property, to which Ms. Jones in turn did not contribute. So the position after the split in 1993 was that they maintained separate finances to an even more marked degree than the unmarried couple in Stack v. Dowden. In my view, the judge was quite right to infer from these facts that they no longer intended equal beneficial ownership, or to impute to them such a change in intention. Thus far there was no need for him to invoke fairness: the change in intention can easily be inferred or imputed from the parties’ conduct.[48]The next question is, what different intention is to be inferred, or (as I think more realistically) to be imputed to the parties. It was submitted on behalf of Ms. Jones in the County Court that the correct inference to draw from the circumstances was that the parties did not intend Mr. Kernott to have any interest in the property, once he had acquired his own separate property. This was not pursued on appeal, and I do not think that it was correct. By the time of the split, Mr. Kernott had made substantial contributions, both financially and by physical improvements to the property which added 50% to its value and therefore represented one-third of the value, presumably not only at the time of construction but also now. Putting the two together, even now his capital contribution to the value of the property, taking the extension into account, must represent not far short of 50% of its value. I do not think that his departure, and acquisition of another property, justifies saying that he is to be taken as having entirely abandoned whatever stake he had in the previously shared property.[49]In my view, despite the absence of any communication by either party to the other of any actual intention, the judge was right to impute to the parties an intention that their beneficial interests should be altered to take account of changes in the circumstances from how they stood at the time that they parted, and that, in the absence of any indication by words or conduct as to how they should be altered, the appropriate criterion was what was he considered to be fair and just. The parties’ interests were “ambulatory”: their respective interests could be quantified at any given time, but until this was done they changed over time to take account of the increasing contribution of Ms. Jones and the ever more distant relationship between Mr. Kernott and the property. Since the parties had no discernible intentions as to the amount of the adjustment, they must be taken to have intended that it should be whatever was fair and reasonable, as the judge held. In so holding, he did not override any different intention which, from their words or conduct, could reasonably have been attributed to them. Therefore, in my opinion, his approach can be justified as being in accordance with the common intention of the parties. Alternatively, if this is to be regarded as a fiction, it can be justified as the only option available to the court on quantification, once he had rightly decided that the parties intended their respective beneficial interests to change.[50]The only remaining question is whether the result arrived at by H.H. Judge Dedman has been shown to be unfair or unjust. Mr. Power referred me to, and I bear in mind, what was said by Lord Fraser in G. v. G. [1985] 1 W.L.R. 647 at 652E:- “All these various expressions were used in order to emphasise the point that the appellate court should only interfere when they consider that the judge of the first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible.” Whilst I am not sure that I would have arrived at exactly the same result, in my view the attribution of 90% to Ms. Jones is justifiable, without taking into account the possibly controversial factor that Mr. Kernott contributed little or nothing to the maintenance of the children.[51]The most significant direct contributions to the value of the property are the initial payment by Ms. Jones, which represented about 20% of the purchase price, the substantial improvements carried out by Mr. Kernott, which represent about 30% of the value, and the payments of interest and on the endowment policy, the latter representing repayment of the capital on the mortgage, which are a little over 4:1 in Ms. Jones’ favour. By themselves, these would not justify a 90:10 split, but there is then to be taken into account the fact that there is a very substantial capital gain on both properties. By not contributing to the outgoings at Badger Hall Avenue after 1993, Mr. Kernott was able to buy another property on which there is almost as great a capital gain. I do not know exactly how much of the gain on Badger Hall Avenue arose after 1993, but it must have been the larger part of it. In my judgment, it would not be reasonable for Mr. Kernott to have, and the parties cannot be taken to have intended that he should have, a significant part of the increased value of Badger Hall Avenue, in addition to the whole of the capital gain from Stanley Road. Therefore it would not be reasonable for him to retain more than a small interest in Badger Hall Avenue, and I consider that the 10% assessed by H.H. Judge Dedman was well within the range of what is fair.[52]In the circumstances, it is not necessary for me to decide whether the fact that Mr. Kernott did not contribute to the maintenance of the children was a factor which could legitimately be taken into account. I do not think that it was a major factor in the H.H. Judge Dedman’s decision, nor is it in mine. However, in my view, such a matter can legitimately be taken into account. Paras. 69 and 91 of Baroness Hale’s speech indicate that, in the context of the facts of a particular case, all relevant financial circumstances may – but not necessarily will – be relevant, including the incidence of financial responsibility for the children. In this case, the non-payment of maintenance for the children is one feature, although not a particularly central one, of the financial separation between the parties which is of central importance here, as it was in Stack v. Dowden.[53]Accordingly, I dismiss this appeal. The parties have agreed that the appellant should pay the costs of the appeal on the standard basis, to be the subject of a detailed assessment if not agreed, and I so order. Any application for permission for a second appeal would have to be made to the Court of Appeal: See CPR 52.4 PD 4.8, 4.9. N. Strauss Q.C. Deputy judge Ch. D.

Cited in 2 later judgments