Oil on Troubled Waters

Published: 05/01/2023 23:12

Hudson v Hathway [2022] EWCA Civ 1648 is another dispute in the seemingly never-ending conveyor-belt of cases about real ownership of a home. The property – Picnic House – (the litigation being anything but a picnic) was upon its acquisition in 2007 legally and beneficially owned by Lee Hudson (LH) and Jayne Hathway (JH) as joint tenants (§46).

There are five particularly interesting points about this unusual case, in that the Court of Appeal (EWCA):

  1. decided it on a point that, ‘for reasons which are difficult to understand’ (§33), had not been argued by either party in the lower courts – i.e. the operation of s 53(1) of the Law of Property Act 1925 (LPA 1925);
  2. provided clarity as to the formalities required to comply with s 53(1) LPA 1925 where the relevant correspondence had been by email and had accordingly not borne wet signatures;
  3. was against the respondent on the (imaginative) submission that ‘detrimental reliance’ was not a requirement of a common intention constructive trust in a ‘joint names’ case (the Court of Appeal thereby expressly disagreeing with Kerr J, below);
  4. summarised, clarified and applied the law with respect to the taking of a new point on an appeal (particularly by a respondent who had chosen not to argue the point in the lower courts, and on a second appeal at that) (a technical argument which is not addressed in this blog);
  5. provided clarity as to the possibility of release of a beneficial interest by one joint tenant to another, pursuant to the operation of s 36(2) LPA 1925.

Facts

The parties had been in a relationship from 1990, LH having moved into JH’s home and become a joint owner. They did not marry, had two children, sold their home and ultimately bought Picnic House in their joint names in 2007, with no declaration of trust. By 2009 the relationship had ended, LH moving out and JH remaining at Picnic House with the children. The mortgage was converted to an interest-only mortgage, paid until January 2015 from a joint account into which each party continued to contribute (LH’s contributions ‘far exceed[ing]’ those of JH (§6)). However, an oil spill at the property in 2011 made it difficult to sell, and the associated complicated insurance claim ‘dragged on for years’.

The agreement

The parties had ‘sporadic email discussions’ about their financial affairs (the house, and LH’s shares, pension and savings) over a period of c. 20 months from late 2011 to September 2013 when an agreement was reached that JH would retain the net equity, the contents, and various investments, and that LH would have his pension and his shares. Time passed, the oil spill lingered, the insurance claim was unresolved and the property was not selling.

The claim

Eventually LH issued a (Part 8) claim for an order for sale and equal division of the sale proceeds.

For whatever reason, JH declined to argue the point which had jumped out to EWCA: i.e. that LH’s emails were compliant with s 53(1) LPA 1925. Instead, JH stated that she was content with a sale, but claimed the entirety of the sale proceeds pursuant to a common intention constructive trust, relying on the agreement reached by email.

Decision at first instance – HHJ Ralton in Bristol

The trial judge found that the parties had ‘clearly reached a deal’ (§23), but that it was ‘necessary for JH to show that she had changed her position or otherwise relied on the agreement to her detriment’.

JH relied upon the following alleged detriments (per Kerr J in Hudson v Hathway [2022] EWHC 631 (QB) in the High Court (‘EWHC’), §12):

  1. paying all interest payments on the joint mortgage from January 2015;
  2. desisting from claiming against assets in LH's sole name acquired during their relationship;
  3. not claiming financial support for the benefit of the children under the Children Act 1989;
  4. accepting sole responsibility for the oil spill and insurance claim, at her own expense,
  5. maintaining and redecorating the property from January 2015;
  6. relying from 2014 on the understanding that she was sole beneficial owner, in conducting her finances and lifestyle; and
  7. living frugally to afford the upkeep and mortgage on the property.

HHJ Ralton rejected each of the alleged detriments above, except the second, concluding that the giving up of (albeit perhaps erroneously perceived, and weak) claims to LH’s shares and pension did indeed constitute detrimental reliance and hence that JH was entitled to the entirety of the interest in Picnic House.

In the High Court before Kerr J – Hudson v Hathway [2022] EWHC 631 (QB)

LH accepted that the parties had indeed reached an agreement, but his sole ground of appeal was that HHJ Ralton had been wrong to decide that JH had established sufficient detrimental reliance / change of position (‘detriment’, for short) arising from the agreement.

In her respondent’s notice JH boldly argued that in the ‘domestic consumer context’ where a property was purchased in joint names without an express declaration of trust it was not necessary to show any detriment at all.

In the alternative, JH argued that she had indeed acted to her detriment in keeping her side of the bargain in the various ways numbered above.

39 authorities were cited to Kerr J, who ultimately concluded (perhaps surprisingly) that detrimental reliance was not a pre-requisite for a common intention constructive trust.

Kerr J disagreed with HHJ Ralton as to the need for JH to show detriment in reliance upon the agreement: any such requirement had been abrogated by the decisions of the House of Lords in Stack v Dowden [2007] UKHL 17 and the Supreme Court in Jones v Kernott [2011] UKSC 53. If he were wrong, then he held that the quality of the asserted detriment was a matter for evaluation by the trial judge, who had been entitled to reach the conclusion he reached (EWCA §31). The appeal failed.

LH brought a second appeal to the Court of Appeal.

Court of Appeal

1) Section 53(1) of the Law of Property Act 1925

EWCA sought submissions on a point not argued below, and prompted the respondent to amend her pleadings so as to state that certain emails of LH sent in 2013 complied with the statutory formalities of s 53(1) LPA 1925. She duly did so and the court adjourned for further written and oral submissions on the point.

EWCA pointed out that it is not possible for one joint tenant to assign their beneficial interest to another, as each is theoretically entitled to the whole. A ‘release’ of that interest is however possible (see s 36(2) LPA 1925 and Burton v Camden LBC [2000] 2 AC 399, cited at §46).

Such a release need not take any particular form of words (§47, and Re Wale [1956] 1 WLR 1346).

Even had the parties previously been married, the court would not have assumed that they did not intend to create legal relations (Merritt v Merritt [1970] 1 WLR 1211), and that was a fortiori the case for an unmarried separated couple (§49)).

LH’s email of July 2013 referred to the Picnic House and said ‘take it’. He followed this with a disavowal of any interest in the same in an email of 9 September 2013, and with other similar emails post-dating that (EWCA §50). Considering the breadth of the meaning of ‘disposition’ in s 53 LPA 1925 as viewed through the lens of Grey v IRC [1960] AC 1, Newlon Housing Trust v Alsuleimen [1999] 1 AC 313 and IRC v Buchanan [1958] Ch 289, LH’s emails amounted in point of form to a ‘disposition’ (EWCA §54).

2) Compliance with the statutory formalities: signatures

Whilst the emails were ‘writing’ within the meaning of Sch 1 to the Interpretation Act 1978, were they ‘signed’?

EWCA stated that an Act of Parliament is regarded as ‘always speaking’. Whilst emails were unknown to Parliament in 1925, ‘the words of the Act should generally be interpreted so as to cover new technological developments which the legislators might not have foreseen’ (§56), EWCA citing in support the judgment of Lord Steyn in R (Quintavalle) v Secretary of State of Health [2003] UKHL 13.

EWCA cantered, at §55–66, through the canon of authorities (perhaps themselves distilled from Chapter 40 of Phipson on Evidence?) culminating in Neocleous v Rees [2019] EWHC 2462 (Ch) as to what amounts to a sufficient ‘signature’ in an email before concluding that there is ‘a substantial body of authority to the effect that deliberately subscribing one's name to an email amounts to a signature. Given that so much correspondence takes place nowadays by email rather than by letters with a ‘wet ink’ signature, it is … entirely appropriate that the law should recognise that technological developments have extended what an ordinary person would understand by a signature’.

For the purposes of s 53(1)(a) and (c) of the LPA 1925, the relevant emails sent by LH were ‘signed’ and thereby ‘released his beneficial interest in Picnic House to JH’ (§67–68, §181).

The case-law referred to has established that the ‘touchstone for determining what is a signature is an intention to authenticate a document’ (§55), and a printed name, name on a telegram or rubber stamp have long been held to amount to signatures. However, in J Pereira Fernandes SA v Mehta [2006] EWHC 813 (Ch) the High Court decided that an email address automatically inserted by the sender's internet service provider was not a valid signature for the purposes of s 4 of the Statute of Frauds 1677 (relating to guarantees). However, this case and the cases that followed led EWCA to conclude that so long as the act of electronic signing - be that full name, last name plus initials, initials, perhaps a nickname, a pseudonym or (even) a combination of letters and numbers - was deliberate, it would suffice for the purposes of s 53(1)(a) or (c).

In other contexts, acceptance of a Part 36 offer by email signed simply as the name of a legal representative – ‘Putsmans’, was considered valid in Orton v Collins [2007] EWHC 803 (Ch). Further, two emails, with each party's name deliberately inserted, and ending up as an email string in one document were found in Re Stealth Construction Ltd [2011] EWHC 1305 (Ch) to comply with s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (‘LP(MP)A 1989’). Still further, and perhaps surprisingly, in Neocleous v Rees [2019] EWHC 2462 (Ch), the court accepted that an automatic footer, inserted by ‘the conscious action at some stage of a person entering the relevant information and settings in Microsoft Outlook ... indicates a clear intention ... to authenticate it or to sign’ the email, particularly where the words ‘Many thanks’ had been manually inserted above the automatic signature, and hence the email was compliant with section 2.

There are other situations in which contracts of guarantee, consumer credit agreements etc. have also been held to be valid if similarly electronically signed.

However, one must be cautious about any general applicability of the guidance above: the consequences of the decision in this case are confined to s 53(1)(a) and (c) (§67), but it may be that the guidance in Appendix 1 to Land Registry Practice Guide 82 requires updating.

3) Detrimental reliance – obiter dicta?

EWCA stated that ‘strictly speaking’ the above conclusion was ‘enough to dispose of the appeal’ (§69, §183). What follows, therefore is perhaps obiter dicta, but in light of the swingeing attack by EWCA on the suggestion that detrimental reliance was not a requirement in this case (and others), the reasoning of EWCA is worth a careful read. The following points stand out:

  • Equity acts where the application of the common law would produce an unconscionable result (§72);
  • ‘proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion, subjective views about which party ‘ought to win’ and ‘the formless void’ of individual moral opinion’ (words from Muschinski v Dodds (1985) 160 CLR 583, quoted with approval by Lord Walker in Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55 (§70);
  • ‘What makes it unconscionable to resile from a promise or agreement unenforceable at common law is detrimental reliance on that agreement or promise’ (§73). This was emphasised by Lord Diplock in Gissing v Gissing [1971] AC 886 at 905;
  • EWCA emphasised the importance of Grant v Edwards [1986] Ch 638 and that ‘even where there has been an express agreement, it is still necessary to find detrimental reliance’ (§76);
  • ‘detrimental reliance is necessary even if there is a bargain’ (§79). This is also a kernel of the decisions in Yaxley v Gotts [2000] Ch 162, Lloyds Bank v Rosset [1991] 1 AC 107, Stokes v Anderson [1991] 1 FLR 391, Oxley v Hiscock [2004] EWCA Civ 546;
  • ‘there is no difference between an intention formed on acquisition and one formed after acquisition’ (§79, 151);
  • ‘Equity will not assist a volunteer’ (§91) – the court citing Milroy v Lord (1862) 4 De G F & J 264, Dillwyn v Llewellyn (1862) 4 De G F & J 517, Maddison v Alderson (1883) 8 App Cas 467, and Actionstrength Ltd v International Glass Engineering In Gl en SpA [2003] UKHL 17 in support (should it be needed …);

Stack v Dowden, Jones v Kernott and the authorities that followed

  • In the High Court, Kerr J had stated that it was ‘striking’ that no mention had been made in Jones v Kernott or in Stack v Dowden (save in the dissenting judgment of Lord Neuberger) of the need for detrimental reliance (EWHC, §58).
  • As for Stack v Dowden, EWCA delivered a withering analysis of the arguments propounded by JH, Lord Walker having ‘singled out’ and Lady Hale having ‘referred to’ both Grant v Edwards and Stokes v Anderson ‘(both of which had stressed the need for detrimental reliance)’ … ‘without any hint of disapproval’ (§95, 99). Lord Walker had stated that Lord Diplock’s speech about constructive trusts in Gissing v Gissing had been ‘hugely influential’, and had ‘dominated this area of the law’. Not only had Lady Hale agreed with Lord Walker, but ‘[n]owhere does she say that mere agreement after the initial purchase of the property is of itself enough to alter the beneficial interests’.
  • As for the later case of Qayyum v Hameed [2009] EWCA Civ 352, where there had been a purely oral agreement, ‘[t]here was no suggestion that detrimental reliance was unnecessary, even in a case of a changed common intention’.
  • In Jones v Kernott [2011] UKSC 53, the court had accepted Ms Jones’s counsel’s arguments that:
    • ‘[t]here was ample evidence from which the trial judge could properly draw the inference that … the claimant acted to her detriment’ (§101); and
    • ‘The claimant acted to her detriment in paying all the endowment and maintenance costs and in agreeing to encash and share the insurance policy equally’ (§102).
  • The summary at §51 of Jones v Kernott clearly demonstrated that consideration of the parties’ ‘conduct’ was ‘essential’ when deducing the parties’ common intention objectively. UKSC had cited Grant v Edwards ‘again without any hint of disapproval’: ‘[Jones v Kernott], then, was a case in which conduct fulfilled all the functions identified by Nourse LJ and Sir Nicolas Browne-Wilkinson V-C in Grant v Edwards’ (§104).
  • ‘I do not, therefore, detect in either Stack v Dowden or Jones v Kernott any intention on the part of the court to abrogate the long-standing principle that what makes an unenforceable agreement or promise enforceable in equity is detrimental reliance’ (§107).
  • Further, as Prof Martin Dixon had aptly stated in ‘Non-problems, future problems and fairy dust’ [2022] Conv 119:
  • ‘detrimental reliance was not in issue in either Stack nor Jones, not least because its existence was blindingly obvious on the facts. It was not pleaded as an issue, and was not argued as an issue. To infer therefore that the silence about detrimental reliance in those cases means that it is not required is imaginative. I may not specifically mention that you may not steal my laptop, but I am not authorising you to take it.’

  • Having approved Grant v Edwards in both cases, and Stokes v Anderson in Stack:
  • ‘it would have been astonishing if Lord Walker and Lady Hale intended to overrule a long-standing principle that detrimental reliance is necessary to crystallise a common intention constructive trust and to depart from two decisions of the House of Lords affirming that proposition without saying so’ (§108).

  • Further ‘Kerr J was wrong to hold that detrimental reliance is no longer required. The overwhelming weight of authority both before and after Stack v Dowden and Jones v Kernott is to the contrary. Moreover, to hold that an oral agreement, disposition or declaration of trust was binding without more would directly contradict two statutory provisions. Equity cannot repeal the statute’ (i.e. s 2 of the LP(MP)A 1989 and s 53 (1) LPA 1925 – §108).
  • EWCA then considered fourteen subsequent judgments (§110–128) in detail, before expressing continued adherence ‘therefore, to the view … expressed in Curran v Collins[2015] EWCA Civ 404, ‘namely that in the absence of signed writing, detrimental reliance remains a key component in establishing a common intention constructive trust’ (§128).

Rejection of arguments re. Practitioner Texts

In the following section, headed ‘the Text Books’, EWCA disagreed further with Kerr J:

‘At [68] Kerr J said that authors of learned texts do not speak with one voice. But in my judgment, they do. They all take the same view as I expressed in Curran v Collins.’

At §129–141 key extracts from the seven leading practitioner texts are cited in support.

Was the detrimental reliance established?

EWCA highlighted passages from various authorities on the breadth of permissible detriment – Gillett v Holt [2001] Ch 210, Kelly v Fraser [2012] UKPC 25 and O'Neill v Holland [2020] EWCA Civ 1583.

Had the agreement been executory (in contrast to the primary finding made by EWCA) then it would have required detrimental reliance to render it enforceable (§160).

Would JH’s desisting from making claims against LH’s pensions and investments qualify? LH argued that she had never had a viable claim to the same. EWCA disagreed: JH would have had a constructive trust claim against ‘assets accumulated during their relationship’ had she acted in detrimental reliance upon the understanding that they were joint (§169). She ‘might well have been able to establish a trust of some sort in relation to the shares’ and had suffered a ‘loss of an opportunity’ to pursue alternative courses available which offered a real prospect of benefit, notwithstanding that the prospect was contingent and uncertain’ (§170). Whether such reliance was sufficiently substantial would be an evaluative matter for the trial judge.

Pausing there, quite what the supposed ‘pensions’ claim could ever have been is not articulated in either of the EWHC or EWCA judgments (see e.g. EWCA at §162), but a perceived claim against the pension was apparently referred to by HHJ Ralton according to Kerr J (§89) and according to EWCA (§30). This is in marked contrast to what JH actually told the court, when she stated that ‘as we were not married I had no claim to his shares or pension or to maintenance’ (EWCA, §27).

As for the suggestion that JH still had a claim to the shares under a constructive trust, the court considered that there was no such claim, JH ‘[having renounced] any claim she might have had’ (§173).

EWCA upheld HHJ Ralton’s decision but for different reasons to EWHC: ‘he asked himself the correct question and I do not consider that we can say that his decision was perverse’ (§176).

Outcome

Coming to the rescue of JH were:

  1. s 53 (1) LPA 1925; and
  2. the fact that EWCA accepted (alternatively) that she had relied to her detriment on what could have been an executory contract;

However the argument that detrimental reliance was unnecessary in common intention constructive trust cases has been robustly and thoroughly kicked into touch.

The case provides very helpful guidance with respect to dispositions of equitable interests made by email, and without wet signature, and also regarding the release of an equitable interest pursuant to s 36(2) LPA 1925 by one joint tenant to others.

Further, EWCA, referring briefly to Rollerteam Ltd v Riley [2016] EWCA Civ 1291, [2017] Ch 109 (presumably §34 and §43 – 45), reminded practitioners that the distinction between s 2 LP(MP)A 1989 and s 53(1) LPA 1925 remained ‘elusive’ but was ‘well settled’: ‘[s]ection 2 applies to executory contracts for the disposition of interests in land, but not to instruments which effect an immediate disposition. Section 53(1), on the other hand, applies to instruments which effect an immediate disposition of an interest’ (§32).

Finally, this appeal reminds us of the truism that ‘most appellants lose’ and that there is an enormous amount of cost and risk in any appellate litigation.

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