To infer or to impute a change of beneficial interest
In Jones v Kernott (like Stack v Dowden) the Supreme Court considered the approach to calculating beneficial interests in property, where the legal title is held in joint names, by an unmarried couple, with no express statement of how it is to be shared.
In the 14½ years following Mr Kernott vacating 39 Badger Hall Avenue (held in joint names with no declaration of trust) could an intention be found between the parties to rebut the joint beneficial ownership presumption? The facts are at paras 37-41 of the judgment.
Lord Walker and Lady Hale give the joint lead judgment and inferred a variation. Lord Collins (55) agreed with Lord Walker and Lady Hale. Lord Kerr (77) and Lord Wilson (89) agreed with the result but reached their decision by imputation as opposed to inference. They awarded Ms Jones 90% of the equity.
The joint beneficial ownership presumption arises because (i) joint name purchases indicate an “emotional and economic commitment to a joint enterprise” and (ii) the practical difficulty of analysing contributions over long periods [19-22]. The joint beneficial ownership presumption is difficult to rebut, and challenges to it should not be mounted lightly (19 – 22).
The presumption may be rebutted by evidence that it was not, or ceased to be, the parties’ common intention to hold the property jointly. This may more readily be shown where
finances were not shared . The intentions as to shares may change over time; thus the ambulatory trust.
Absent clear evidence of intention, questions arise as to when the intention can be inferred or imputed. An inference is drawn where an actual intention is objectively deduced from the dealings of the parties; an imputation is one attributed to the parties by the court, having concluded what the parties would have intended [26-27 endorsing
Lord Neuberger’s definition in Stack].
The search is primarily to ascertain the actual intentions, expressed or inferred. If, clear that the beneficial interests are shared, but impossible to infer a common intention as to the proportions in which they are shared, the court will have to impute an intention to them which they may never have had .
The constructive trust is the route to ascertain beneficial interests in a home (save possibly for a couple who are business partners – 31). The constructive trust is of central importance to both joint and single name cases (consistent with Stack).
The principles “where a family home is bought in the joint names of a cohabiting couple who are both responsible for any mortgage, but without any express declaration of their beneficial interests” are (51):
(i) the starting point is ownership as joint tenants in law and equity;
(ii) that presumption can be displaced by evidence that their common intention was, in fact, different, either when the property was purchased or later;
(iii) common intention is to be objectively deduced (inferred) from the parties conduct and dealings;
(iv) where it is clear that they had a different intention at the outset or had changed their original intention, but it is not possible to infer an actual intention as to their respective shares, then the court is entitled to impute an intention that each is entitled to the share which the court considers fair having regard to the whole course of dealing between them in relation to the property.
(v) financial contributions are relevant but many other factors may enable the court to decide what shares were either intended or fair
Two questions arise when property is held in a sole name (52) i) whether it was intended that the other party should have any beneficial interest in it; and if so, ii) what that interest is. There is no presumption of joint beneficial ownership. But their common intention has to be deduced objectively from their conduct.
The reasoning is problematical in respect of the process of rebutting the presumption of equal beneficial ownership. Courts must endeavor to ascertain the parties' actual intentions as to their share size. That is to be deduced objectively from conduct. The court is exhorted to make its best efforts at this inference stage and not avoid making findings (36 & 72). They adopted a broad-brush approach to the conduct from which intention as to the size of the parties' shares can be inferred.
Differences of opinion arose on the facts, as to whether it was possible to draw appropriate inferences as to a change over time in the parties' intentions as to the size of their interests. Lord Walker and Lady Hale drew the inference (48/49) of a change in intention on the proportions in which the interests were held. Lord Kerr (76) and Lord Wilson (89) did not.
Lord Walker and Lady Hale’s approach whilst attractive failed to recognise that there was limited, if any, evidence of such an intention referred to in the trial judge’s judgment. In the absence of such detail one might question how the inference is drawn. Lord Walker and Lady Hale recognised that the court cannot impose on the parties a solution which is contrary to the evidence of what the parties actually intended.
Where the court is unable to infer the parties' actual common intention as to the size of their shares from the evidence, it must then proceed to determine what size shares are fair, having regard to the whole course of dealing between them in relation to the property (imputing an intention).
Lord Walker and Lady Hale (48) decided that the abortive attempts to sell the jointly owned property, the encashing the life insurance policy to, amongst other things, help fund Mr Kernott’s acquisition of a property and the fact that he would not have been able to afford to do this had he still had to contribute to the home all gave rise to the “logical inference” that the parties intended Mr Kernott’s interest in the property to crystallise then. The facts look more like an “imputed” intention.
Lord’s Collins, Kerr and Wilson readily employ the term 'impute'. However, Lord Walker and Lady Hale do not use the term expressly in the important paragraph of their judgment, namely para 51, but did elsewhere (31-34).
The 'whole course of dealing' should be broadly interpreted, enabling the court to take into account a similar range of factors as may be relevant to ascertaining the parties' actual intentions through the inference process. The non-exclusive list of considerations in Stack (Lady Hale - 69) should be considered at this stage.
Lord Kerr emphasized the dichotomy between inferring and that of imputing intention. There is a strong demarcation line between attributing an intention to the parties and inferring what their intention was 'in fact' (73), and 'it is necessary that there be a well-marked dividing line between the two' (75).
Lord Collins considered that the difference between inference and imputation 'will hardly ever matter…and...what is one person's inference will be another person's imputation' (65). Lord Walker and Lady Hale were less robust (34) stating that 'the difference in practice may not be so great'.
That a single judgment did not emerge may be attributed to differences about the conceptual and practical distinction between inference and imputation, which they were unable to resolve.
Lord Wilson dismantles Lady Hale’s judgment in Stack (61), which he divides into four sentences (85), and demonstrates how her third sentence (doing away with fairness) was incorrect. He enquires at paragraph 87: “Where equity is driven to impute the common intention, how can it do so other than by search for the result which the court itself considers fair?”
The idea that the joint beneficial ownership presumption can be rebutted by anything other than evidence of actual intention is questionable. Imputation is a process of last resort where there is no evidence of the parties' actual intention to hold the property other than as equal owners. Should the presumption not stand since it is not rebutted by evidence? One must question whether a strong presumption can be rebutted not by evidence but by the court filling the void in the evidence by its own determination of what is fair? What is the point in having a presumption at all, if it can be rebutted not only by evidence of the parties' actual contrary intention but also by the court's own determination of what is fair?.
Courts are urged to be robust at the inference stage. What will happen in practice; will there be an temptation for a judge to short-circuit the inference stage and move straight to the imputation stage?
There is no real explanation of what evidence is required before an inference can be drawn, or what evidence will be required before the court may impute the intention.
It provides limited guidance on the approach to single name cases. It appears that in such cases, Oxley v Hiscock remains the starting point, with the Stack qualification. In Stack the presumption is that the sole owner has the sole beneficial interest. This presumption can be discharged by the claimant, upon whom the burden rests, demonstrating a common intention for sharing the property which has been acted on.
Practitioners are left none the wiser in giving advice as to the kind of evidence (apart from express representations and clear financial contributions) on which a successful claim can be mounted in respect of sole-registered property.
Lord Walker and Lady Hale opine (52) that the approach to quantification is the same in single as in joint name cases. Courts must endeavour to deduce the common intention as to the proportions of their shares objectively from the evidence (the inference process). If that proves impossible, the court will then have to proceed to imputation in exactly the same way as at the quantification stage in joint name cases.
The outcome is more a family than trust decision. Will the broad concepts contained within Section 25 Matrimonial Causes Act 1973 creep into consideration when either inferring or imputing a common intention? Whilst a benchmark for fairness it overlooks the crucial fact that the parties never married.
Lord Walker and Lady Hale (50) sound the death-knell to equitable accounting in cases where the shares of beneficial interests themselves change over time and to occupation rents (continuing Stack 93/94). One must question whether equitable principles should be dismissed in such a cursory manner. Whilst the observation appears to be obiter it will no doubt be regarded as extremely powerful and persuasive.
Can an ambulatory trust alter an express declaration? Conventional wisdom is that an express declaration (assuming no vitiating factors exist) are conclusive of the parties' beneficial interests. The interests can be altered by a fresh deed but can they be altered by evidence of agreement not expressed in writing, given effect to by the subsequent operation of an ambulatory constructive trust?
Section 53(2) Law of Property Act 1925 Act preserves the operation of a constructive trust from being recorded in writing. In Stack (49) Lady Hale stated “No-one now doubts that such an express declaration of trust is conclusive unless varied by subsequent agreement or affected by proprietary estoppel: see Goodman v Gallant”. This passage suggests a deed cane be varied, which is in keeping with the developing nature of an ambulatory trust. Jones v Kernott does not give us the answer.
Given circumstances change, it may make practical sense to review the question of the shares and declare new trusts by means of a declaration which complies with the 1925 Act Section 53(1)(b). Whether a party would be prepared to relinquish their share to reflect changing circumstances remains to be seen.