Summary

In relation to a property which had been bought in the joint names of the first and second defendants, the first defendant had established the existence of a constructive trust under which she owned an 80% beneficial interest in the property.

Facts

The first defendant (D1) sought a determination of the extent of her interest in a property (the property) which she had bought jointly with the second defendant (D2).

The parties had begun living together at D1's home in 1994. In 1998, they bought the property for £225,000. The TR1 recorded that they were to hold it as beneficial joint tenants. The parties became estranged by 2004, although D2 continued to live at the property until 2011. In 2006, he was made bankrupt. In 2007, he borrowed the sum of £138,000 from the claimant with a view to procuring the annulment of his bankruptcy. As security, D1 and D2 purported to charge their legal and beneficial interests in the property by way of a second charge in the claimant's favour. In separate proceedings, it was decided that the loan and charge should be set aside as against D1. In other proceedings, the claimant obtained a declaration that D2's beneficial interest in the property was subject to an equitable charge in respect of the loan monies. The instant action was brought to enforce that equitable charge. At the time, the sum due was around £640,000. In 2015, D1 reached a settlement with the claimant whereby the action would be stayed and she would pay the claimant £325,000. Payment was to be made by 31 December 2015. In the event of non-payment, the settlement sum would increase to £330,000 and the property would be placed on the market for sale. D1 was unable to raise the settlement sum. The court ordered that the stay be lifted and that the property be sold. On a sale, there was likely to be some £900,000 left for distribution after the first charge was redeemed. Determining the parties' beneficial interests was important both for D1 and for the claimant: D1 needed to know how much money she would have to rehouse herself, while the claimant needed to know how much it could recover from D2's share of the proceeds of sale. D1's case was that in November 2001 she and D2 had agreed that, to reflect the contributions they had made, the property was to be regarded as owned as to 80% by D1 and 20% by D2. By that stage, D2 had made no contribution other than by way of the joint borrowings, while D1 had, in addition to the joint borrowings, invested some £100,000 in the property. D2 had not taken part in the action.

Held

(1) If the statement in the TR1 constituted a binding declaration of trust, its effect would be to create an express equitable joint tenancy, such that, when severed by the grant of an equitable charge over D2's share, each of D1 and D2 would have a beneficial half share. However, there was no evidence that the form had been signed by D1 or D2, with the result that there had been no express declaration of trust. However, that did not negate the presumption that, where a domestic property was purchased in joint names, equity would follow the law, such that, unless a different common intention was established, the property would be held by the co-owners as beneficial joint tenants. There was nothing to indicate that, at the point of purchase, D1 and D2's intentions were anything other than the norm. However, D1 had established that there was a common intention from 2001 onwards that the parties would own the property in the shares (80% and 20%) alleged. That was reflected in their conduct. D2 had put a severance payment into a new business rather than into the property and from 2005 had largely ceased to make contributions or meet expenditure in relation to the property. D1, on the other hand, had at all times behaved as one would expect the substantial owner of the property to behave. As she was seeking to establish a constructive trust, she also had to show that she had acted in reliance on the common intention. That requirement was made out: D1 had taken effective control of all matters relating to the property and all payments required to sustain and retain it. Accordingly, a constructive trust had arisen such that D1 was the 80% beneficial owner of the property (see paras 76, 81, 86, 89, 91-96, 99, 101, 104 of judgment).

(2) An issue had also arisen as to whether D1 would have, upon the sale of the property and upon payment out of the proceeds of the settlement sum, any rights over D2's 20% share in the property that she could exercise in priority to the claimant's equitable charge over that share. Those rights were said to arise either from the existence of an equity of exoneration or pursuant to principles of equitable subrogation. No equity of exoneration arose. The equity only arose from the express, implied or presumed intentions of the parties (here, D1 and D2), but D2 had had no involvement in the settlement between D1 and the claimant. D1 was also unable to rely on the principles of equitable subrogation. This was simply a case where, for what were perceived as good reasons, she had promised to pay, in her own right, a sum of money in part satisfaction of D2's indebtedness and where such a payment would be made. That was not a situation where equitable subrogation applied (paras 111-112, 115, 120-124).

Judgment accordingly