How to ensure you have a share in the family home? Equity Hath-a-way…
The Court of Appeal’s decision in Hudson v Hathway [2022] EWCA Civ 1648 illustrates the importance of having clear agreements in place regarding property to deal with the possibility of a future relationship breakdown.
Key takeaways
- If A makes a promise to B in circumstances where B relies on that promise to their detriment, English law can seek to enforce A’s promise (through the mechanism of the constructive trust).
- Emails are a sufficient medium through which a “joint tenant” can release their interest in a property – so beware what you agree to by email, especially where a layperson is emailing without support from an adviser.
- Typing your name at the bottom of an email can constitute a signature in certain circumstances – it is a conscious decision and therefore it goes beyond mere text.
Facts
Picnic House is a name more likely to inspire fairy tales than complex litigation regarding trusts. Here, however, it led to the latter.
Jayne Hathway and Lee Hudson began a relationship in 1990. They bought Picnic House in 2007 in joint names (as “joint tenants”) with a mortgage also in joint names. This meant that both individuals owned the whole asset. This is by contrast to the second main method of owning property jointly in England and Wales, “tenancy in common”, in which each individual owns a specific share of the property.
Jayne and Lee’s relationship broke down in 2009 and Lee moved out of the property. The mortgage became an interest-only mortgage and Lee took sole responsibility for the monthly payments. Between 2011 and 2013, they sought to agree how to share their assets via exchanges of emails, with their names typed at the bottom of the messages. In that correspondence, both parties expressed a wish to end these discussions quickly, acknowledging that this could be achieved if, broadly, Jayne took all liquid assets and the eventual sale proceeds of Picnic House, whilst Lee took the illiquid assets. In particular, Lee expressly stated in one 2013 email: “I want none of the proceeds of that either. Take it [the house]” and in another, "I've no interest whatsoever in the house".
However, an oil spill accident meant that the property was difficult to sell. As delays during the sale process mounted, Lee issued a claim seeking an order for sale of the property and 50% of the sale proceeds.
First decision and first appeal
As a matter of English law, any facts in dispute are determined in the court of first instance. Here, the court found that there had been an agreement that Jayne would own 100% of the equitable interest in Picnic House (as evidenced in part by the email exchange).
However, to enforce that agreement, Jayne had to show that she had relied on the agreement to her detriment (“detrimental reliance”). The court found that Jayne had relied on the agreement in respect of Picnic House because as a result she did not pursue claims against other joint assets. The fact that she did not pursue those claims reduced her ability to potentially recover a share of those other joint assets. This was detrimental reliance.
However, at first appeal, the judge held that no detrimental reliance was in fact needed (although he also noted that if he was wrong on this point, the first instance judge’s decision that there had been detrimental reliance could be upheld). This was a surprising decision which challenged the previously understood legal position and was greeted with caution in legal circles.
Second appeal
At second appeal, the Court of Appeal rejected the suggestion that detrimental reliance was no longer required, confirming instead that detrimental reliance is needed to establish a common intention constructive trust and that Jayne had demonstrated detrimental reliance on the facts, such that she should be entitled to 100% of Picnic House.
It should, however, be noted that these comments on detrimental reliance were not a key part of the decision as such a mechanism was in fact not needed to establish Jayne’s ownership of the house. This was because a new point of law was introduced at second appeal (this in itself being unusual), i.e. that Lee had effectively made a disposition of his equitable interest in the property to Jayne by his 2013 emails. Thus, by this means alone, Picnic House belonged solely to Jayne.
Key legal points
Formalities for the disposition of an equitable interest in land
On acquisition, Picnic House was held by the couple as joint tenants in law and equity. Legislation allows one joint tenant to release their interest to another and there is no need for a particular form of words to be used, although the release must be in writing and signed.
Lee’s emails fulfilled the legal requirements to be a release of his equitable interest in the house, i.e. they showed a clear intention for him to give up his interest immediately, rather than a future promise to do so. Furthermore, the requirement for the release to be documented in writing and signed was satisfied: emails constitute writing and signing his emails “Lee” amounted to the necessary signature.
Equitable basis of the claim: the constructive trust
Common intention constructive trusts operate to achieve an appropriate outcome between two parties by holding an individual to a promise that they have made to another in certain limited circumstances. The mechanism by which they do so is by establishing a beneficial interest in the relevant property for the promisee.
Following the Court of Appeal’s decision, it now seems clear that detrimental reliance is required before a constructive trust can arise. The meaning of detriment is broad. It does not mean the expenditure of money (or any other quantifiable financial measure). Instead, a court will look at the facts generally and determine whether it is “unconscionable in all the circumstances”.
Here, Jayne maintained that her understanding with Lee was always that they would share what was accumulated during the relationship. For this reason, Jayne took time off to look after the children and home, fitted her work around that of Lee and consequently moved to working fewer hours for less pay. The court found that when Jayne agreed not to pursue any claims against the non-liquid assets accrued during the couple’s relationship, Jayne was placing reliance on Lee’s promise that Jayne would have Picnic House. If Picnic House did not then become hers, she would have relied on Lee’s promise to her detriment. As such, detrimental reliance was established and had it been necessary to do so, Jayne could have relied on a constructive trust to enforce her claim.
Conclusion
It is a repeated mantra of modern times that one should treat emails with caution and be wary of hitting send in haste. Hathway shows that dispositions in land are no longer necessarily the province of paper deeds signed in solicitors’ offices, but can be effected by electronic written communications, potentially drafted when emotions are running high.
Otherwise, Hathway is a useful reminder that the constructive trust is still a helpful feature of the law, which can assist in times of need, should other routes fail. The finding that detrimental reliance is still considered a vital ingredient of a common intention constructive trust is no doubt reassuring to legal practitioners navigating advising unmarried couples on the potential future division of their assets.
