It’s time to move away from trusts principles and towards proprietary estoppel in acquisition cases

Co-habiting couples are on the up, and they need property rights too

The law of co-ownership is, frankly, a mess.

There are a lot of reasons for this, but is largely due to the confusion that exists in the case law as to whether the discussion of the quantification of an equitable interest in land is relevant in determining whether an equitable interest has been acquired.

The law in this area changed fundamentally throughout the latter 20th century. The historic position prioritised the written division of property rights over financial contribution. If title was in a husband’s name but his wife lived with him, upon the breakdown of their relationship the wife would get nothing. Subsequently, the law has moved towards a situation in which the wife’s non-financial contributions are recognised.

The problem is that the case law is far from clear. There is a lack of clarity in the circumstances in which one spouse might claim an interest when the title exists solely in the other spouse’s name. While an elucidation of those circumstances has arisen in quantification cases, the same has not happened in acquisition cases (the result of the fact that in much of the modern authority in this area, the assertion that an interest had arisen was not in dispute).

Of course the advent of the Matrimonial Causes Act 1973 has resulted in somewhat of an irrelevance of property law in determining the division of matrimonial assets, but the same is not true of couples that choose to cohabit, or indeed other, non-romantic types of household.

Often in acquisition cases, one person will hold legal title and the claimant will be a former partner. The rules will, however, apply equally where title is held by more than two people, the only difference being that where there exists more than one trustee, the equitable interests will be capable of being overreached.

The traditional approach to these cases was one of either an express trust (where the interest is declared expressly in writing) or a resulting trust (where the division of the asset is fixed in the same proportion as the financial contributions to the purchase (and in some cases mortgage)). An express trust is conclusive and is not open to challenge by way of a constructive or resulting trust (although it is theoretically open to challenge by way of proprietary estoppel).

The role of resulting trusts was examined by the House of Lords in Stack v Dowden (a quantification case), in which the majority held that resulting trusts ought not to be used for determining whether an equitable interest had arisen, preferring instead a constructive trust. This was due, in part, to the fact that a resulting trust focuses narrowly on the financial aspect of the parties’ life together, their Lordships determining that a constructive trust could better take into account the complexity of family life.

This reasoning was further elucidated by the then Munby J in Ben Hashem v Al Sharif, when he said:

[T]he claim to a constructive trust is founded on a wider range of circumstances than the mere fact that the husband initially funded the acquisition of the properties – in other words, it is founded on an overall assessment of the conduct of the parties from which, it is submitted, one can properly infer a common intention justifying the imposition of such a trust.

The position in Stack was affirmed in Abbott v Abbott (Privy Council; an acquisition case) and Jones v Kernott (although obiter). However, uncertainty has arisen in subsequent cases — like Chaudhary v Chaudhary and Ullah v Ullah — in which there existed a reluctance to reject the resulting trust altogether.

Following Stack, there has been much academic criticism of the use of constructive trusts in cases of the shared family home, with many arguing that this approach does not make theoretical sense. Martin Dixon has gone as far as to say that there is “little that can be worse” than the law this line of cases has yielded. Lady Hale’s reasoning has been criticised for promoting uncertainty for third parties dealing with property, such as mortgagees and purchasers. Lord Neuberger, dissenting, argued that it is not appropriate for the courts to change well-established principles in order to achieve its own view of social justice. He also felt that resulting trusts provide a degree of certainty not provided by the constructive trust (see Laksar v Laksar), but it is perhaps this that requires the imposition of a constructive trust in a case that would otherwise return an unjust outcome. Indeed, this was the point of Edmund-Davies LJ in Carl Zeiss Stiftung v Herbert Smith No 2 when he said:

English law provides no clear and all-embracing definition of constructive trust. Its boundaries have been left perhaps deliberately vague so as not to restrict the court by technicalities in deciding what the justice of a particular case might demand.

In any event, whilst it may be argued that the current law lacks a coherent conceptual basis, it can be justified on grounds of public policy. Parliament has chosen not to punish cohabitation but has also not endorsed the principles of ‘common-law marriage’. As such, the resulting trust method of quantification is inherently discriminatory to parties whose contributions are not financial (see Burns v Burns, where one partner did not work and stayed at home to care for her children, thus facilitating her partner’s work. When the relationship broke down, she was left with nothing because she had not contributed to the purchase price).

Of course there are alternatives to judicial intervention — such as effective conveyancing and the creation of express trusts — but they require competent legal advice, which is becoming increasingly difficult to obtain with the exponential rise in the commoditisation of legal services. The simple fact is that very few who purchase property together envisage an irretrievable breakdown of their relationship.

The Law Commission in 2007 made extensive proposals for a statutory scheme designed to recognise the complex, but common, phenomenon of non-marital co-ownership and provide certainty to those seeking to purchase property.

The essence of their proposals was not the creation of a new legal status for cohabitants, but rather the creation of an imposed set of property rights for those satisfying certain eligibility criteria (principally, but not exclusively, the existence of children of the relationship) in order to address the particular economic consequences of the varying contributions made by parties to a relationship upon its breakdown.

The response from academics was largely negative, with it generally being felt the proposals interfered too much with the autonomy of individuals, in addition to being excessively complicated and restrictive. Ultimately, in 2011, the government rejected the proposals, stating that:

[T]he family justice system [was] in a transitional period, with major reforms already on the horizon.

It remains to be seen just what these “major reforms” are.

Other common law jurisdictions approach the issue of the acquisition of property rights in a very different way to the English framework of resulting and constructive trusts.

Canada, for example, uses the law of restitution (i.e. has the claimant been unjustly enriched because the actions of the other party?); this grapples with the same policy dilemma, but approaches it in a wholly different manner. Similarly, the Court of Appeal in Singapore has recently expressed discontentment with the English approach, preferring instead a more doctrinal methodology which, it has argued, is better suited to Singapore’s economic and social climate (the court also considered the approach in Stack to present “a large degree of subjectivity and uncertainty”).

The law is sensitive to where it works, and this goes some way to justifying a rejection of the modernist expansionist outlook that is promulgated by Stack.

There has been a recent trend in the courts not to use trust principles at all in determining the acquisition of property rights, but instead to use proprietary estoppel. This has perhaps emanated from the judgment of Chadwick LJ in Oxley v Hiscock in which he states:

[T]he time has come to accept that there is no difference in outcome, in cases of this nature, whether the true analysis lies in constructive trusts or in proprietary estoppel.

Further, in Clarke v Meadus, Warren J stated that proprietary estoppel and remedial constructive trusts are simply different routes to the same outcome. It is generally considered that estoppel is available in a wider range of circumstances, as claims for constructive trusts tend to arise in the context of disputes surrounding intimate relationships. Estoppel can also be used in cases where there is no common intention, but a unilateral assurance (see Cook v Thomas), and to that end works well in romantic or quasi-romantic relationships.

The acceptance of proprietary estoppel as a tool for dividing the familial land assets of cohabiting couples could be seen as a judicial attempt to level the playing field for couples who choose not to marry. It allows the court to intervene in circumstances that would otherwise give rise to unconscionable outcomes. It recognises the contribution of non-working parties to a romantic relationship and gives value to stay-at-home parents. Further, it recognises the fact that the ability of one party in a relationship to contribute to a mortgage may change during the course of that relationship (following injury or redundancy, for example) and provides an avenue for the court to consider the needs of children following the dissolution of a relationship.

Conversely, the use of proprietary estoppel narrows the societal distinction between marriage and cohabitation and ignores the fact that many value the financial separation that cohabitation allows. It also creates uncertainty for those facilitating the purchase of land (such as mortgagees), and those who have sought to rely on an express trust to provide certainty in the event their relationship dissolves. It might also be said that the judicial employment of proprietary estoppel is a step too far, in the sense that Parliament has expressly rejected the creation of a unique framework for the division of assets amongst cohabiting couples on the basis that it removes an element of choice from those who choose not to marry.

Ultimately, it is difficult to see how a reasonable commentator would struggle to accept what are compelling policy arguments in favour of a move towards constructive trusts and proprietary estoppel in acquisition cases.

The declining incidence of marriage over the last fifty years has given rise to a wider variety of familial constructs, many of which involve children who need financial provision. Indeed the societal appreciation of the abject unjustness in cases such as Burns has resulted in a changing approach to the division of assets commensurate with a changing society. An exposition of a coherent conceptual basis is more difficult. It might be said, however, that there was never any real conceptual basis in acquisition cases to begin with. Lady Hale’s backward reasoning in Stack might be judicial law making, but it certainly reflects the current societal appreciation of justice.

What is certain is that the law exists to provide just outcomes – not to justify itself, and certainty at the cost of justice is not to be commended. Indeed, it is particularly because these cases are so fact-specific that a flexible system is required.

Matt Collins is a City Law School GDL student.

Sources

Dixon, M. ‘Case Note on Stack v Dowden’, The Conveyancer, ed. Martin Dixon. [2007] 71 Conv. 456

Dixon, M. Modern Land Law, Ninth ed.. Abingdon: Routledge, 2014.