Co-ownership, resulting and constructive trusts: where to draw the line?

 In Trusts

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Co ownership, resulting and constructive trustsDetermining the respective beneficial interests in co-owned property of two unmarried parties whose relationship comes to an end is an activity which continues to keep the courts very busy. Following Stack v Dowden [2007] UKHL 17, Laskar v Laskar [2008] EWCA Civ 347 and Jones v Kernott [2011] UKSC 53, a line seemed to have been drawn between properties bought as a family home on the one hand and investment properties on the other. It appeared that whilst a ‘holistic’ common intention constructive trust approach applied in relation to family homes, in relation to investment properties a resulting trust analysis focussed on financial contributions applied even where the co-owners happened to be members of the same family. However, the Privy Council’s recent decision in Marr v Collie [2017] UKPC 17 indicates that that line may not be quite as clear as it seemed.

The facts

Mr Marr and Mr Collie lived in the Bahamas and were in a relationship for 17 years between 1991 and 2008. During this time they purchased several different investment properties (11 in total) in addition to a family home, various works of art, a boat and a truck. Mr Marr was a banker and was the higher earner. Mr Collie was a building contractor.

When their relationship came to an end, a dispute arose as to how the investment properties, the works of art, the boat and the truck were owned. All of the assets had been registered in the joint names of both Mr Marr and Mr Collie. The evidence suggested that Mr Marr had contributed most of the money required to purchase them.

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Mr Marr argued that all of the assets were held on resulting trust for him because he had made virtually all payments associated with their purchase and Mr Collie could not rebut the presumption of resulting trust which arose as a result. He also contended that although Mr Collie had agreed to make equal financial contributions, these had never materialised. Mr Collie argued that although Mr Marr was the breadwinner in the relationship, they had both agreed that Mr Collie would be responsible for renovating and maintaining many of the properties and to share the assets equally.

At trial in the Supreme Court of the Bahamas, the trial judge referred to Lady Hale’s speech in Stack v Dowden in which she had held that equity is presumed to follow the law and that a property conveyed into joint names is presumed to be owned jointly both legally and beneficially unless the contrary is proved. However, he also referred to Laskar v Laskar, which he held was authority for the proposition that the Stack v Dowden presumption applied “only in the domestic consumer context” and did not apply “where the primary purpose of the property purchase had been as an investment, even if there was a personal relationship between the parties.” He concluded that since Mr Marr had funded the purchase of the properties, the works of art, the boat and the truck, a presumption arose that those assets were held on resulting trust for him, which Mr Collie had “fallen far short of rebutting”.

Mr Collie appealed to the Court of Appeal of the Bahamas. That court held that the trial judge had failed to examine the question whether Mr Marr had intended to benefit Mr Collie at the time the various properties were bought and had been wrong to conclude that the burden had been on Mr Collie to rebut a presumption of resulting trust. The court referred to an email Mr Marr had sent the mortgage lender at the time of the purchase of one of the properties in which he had written that he and Mr Collie were considering a joint purchase “meaning that we would have a 50% interest”. The court held this email, and the fact that all of the properties had been systematically purchased in joint names over the course of the relationship, showed Mr Marr had intended that Mr Collie should have an equal share in the investment properties. It held that the presumption of resulting trust in favour of Mr Marr had therefore been rebutted.

Mr Marr appealed to the Privy Council. He argued that the Court of Appeal had been wrong to rely so heavily on an email which had not been admitted in evidence at trial, and on which Mr Marr had not been cross-examined and on which his counsel had not had the opportunity to make submissions. He also argued that the Court of Appeal had applied the wrong test and had erroneously held that Mr Marr was fixed with the burden of proving that the beneficial ownership of the investment properties differed from their legal ownership. He contended that the Court of Appeal had been wrong to treat this as a case in which a common intention constructive trust applied, as Laskar v Laskar established that a classic resulting trust analysis applied even where the investment property was bought by members of the same family.

The decision

The Privy Council allowed Mr Marr’s appeal.

After analysing Stack v Dowden in some detail, it held that “to consign the reasoning in Stack to the purely domestic setting would be wrong”. In particular, the “fundamental principle” enunciated in Stack that the starting point where there is joint legal ownership is joint beneficial ownership “should not be confined exclusively to the domestic setting” and there was “no reason to doubt its possible applicability to property purchased by a couple in an enterprise reflecting their joint commercial, as well as their personal, commitment”. Where parties who were only in a personal relationship had conveyed a property into their joint names it might be easier to infer an intention that they should share the beneficial ownership; however, “that does not mean that where there is a commercial dimension to the acquisition of the property, the decision to have the legal ownership declared to be jointly shared is bereft of significance. The intention of the parties will still be a crucial factor.”

The Board also referred to Laskar v Laskar and pointed out that although the relationship in that case (which was between mother and daughter) was familial, “the financial venture on which the parties had embarked on was not associated with a mutual commitment to each other for the future. The investment could therefore be characterised as a purely financial one, designed to pay dividends to each of the participants but shorn of any aspiration for a future equal sharing of proceeds.” The Board concluded that Laskar was therefore not authority for the proposition that the principle in Stack “that a conveyance into joint names indicates legal and beneficial joint tenancy unless the contrary is proved” applies only in the “domestic consumer context”. Where a cohabiting couple had bought a property in joint names as an investment, it did not necessarily follow that their respective beneficial interests had to be determined by a resulting trust analysis as it was “entirely conceivable” that a cohabiting couple might buy an investment property in their joint names with the intention that it be shared equally even though they contributed in different shares to the purchase.

In relation to the tension between the Stack presumption (that equity follows the law) and the resulting trust presumption (that a property is held in accordance with the parties’ respective contributions to its purchase), the Privy Council commented:

The Board considers that, save perhaps where there is no evidence from which the parties’ intentions can be identified, the answer is not to be provided by the triumph of one presumption over another. In this, as in so many areas of law, context counts for, if not everything, a lot. Context here is set by the parties’ common intention – or by the lack of it. If it is the unambiguous mutual wish of the parties, contributing in unequal shares to the purchase of property, that the joint beneficial ownership should reflect their joint legal ownership, then effect should be given to that wish. If, on the other hand, that is not their wish, or if they have not formed any intention as to beneficial ownership but had, for instance, accepted advice that the property be acquired in joint names, without considering or being aware of the possible consequences of that, the resulting trust solution may provide the answer.

The Board added that “the initial intention (or lack of it) at the time of the purchase may change”, which is why an examination of the parties’ course of conduct in relation to the property over the years is relevant.

Despite both parties urging it not to, the Board ultimately held that there was no alternative but to remit the case to the Supreme Court of the Bahamas so that the issues outlined in its opinion, “particularly the intention of the parties at the time of the purchase of what have been described as the investment properties and in the course of dealing with those properties”, be determined.

Implications

  • In Laskar Lord Neuberger (sitting in the Court of Appeal as Master of the Rolls) had held that:

It was argued that this case was midway between the cohabitation cases of co-ownership where property is bought for living in, such as Stack, and arm’s length commercial cases of co-ownership, where property is bought for development or letting. In the latter sort of case, the reasoning in Stack v Dowden would not be appropriate and the resulting trust presumption still appears to apply. In this case, the primary purpose of the purchase of the property was as an investment, not as a home. In other words this was a purchase which, at least primarily, was not in “the domestic consumer context” but in a commercial context. To my mind it would not be right to apply the reasoning in Stack v Dowden to such a case as this, where the parties primarily purchased the property as an investment for rental income and capital appreciation, even where their relationship is a familial one.

Similarly, Lady Hale and Lord Walker in Jones v Kernott indicated that a resulting trust analysis might apply in a domestic context “where domestic partners were also business partners”.

In light of this, one might have sympathy with the trial judge distinguishing between the family home on the one hand, in relation to which a Stack common intention constructive trust analysis should apply, and investment properties on the other, in relation to which a resulting trust analysis should apply. However, the Privy Council has now indicated that that is not the right place to draw the line.

  • In particular, it appears that where one is dealing with an investment property purchased by a cohabiting couple, the central question is the parties’ intention (or lack of it), both at the time of the purchase and subsequently throughout their course of dealing in relation to the property. Whether a common intention constructive trust analysis or a resulting trust analysis should be adopted is likely to depend on the evidence as to the parties’ intentions.
  • Although this approach is likely to produce more just results than what the Privy Council described as “the triumph of one presumption over another”, it is suggested that in practice the approach may also have the side-effect of encouraging litigation in relation to investment properties and other assets bought by cohabiting couples during their relationship. This is particularly the case given that, as Lady Hale observed in Stack, “In family disputes, strong feelings are aroused when couples split up. These often lead the parties, honestly but mistakenly, to reinterpret the past in self-exculpatory or vengeful terms.” It is easy to see that this might lead the parties to give conflicting evidence as to their intentions in relation to the property in questions.

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