The developing scope of constructive 'common intention' trusts

The Supreme Court's decision in Jones v Kernott received approval from many who hoped it would enable fairness and justice to be done in domestic property situations. It created a perception that the court's discretion in property disputes had been widened by the introduction of a concept of fairness borrowed from the family court's approach towards financial remedies on divorce.

The justices in Jones set out a number of principles for determining beneficial interests in a situation where a property is co-owned by cohabitees without an express declaration of trust. The starting point is that when the couple are joint tenants in law the beneficial interest should be split equally, unless this assumption can be displaced ?(see box).

Less than two weeks later the Court of Appeal gave judgment in the case of Crossco & Ors v Jolan & Ors. Crossco sought to apply the Jones principles in a commercial property context. Etherton LJ dismissed these arguments and drew a clear distinction between a scenario involving commercial/investment property and one that involved a domestic property. 'The jurisprudence in that distinctive [domestic] area is driven by policy considerations and the special facts that normally apply in the dealings between those living in an intimate relationship,' he said.

This judgment provides a very clear warning about the risks of trying to import Jones principles into non-domestic property disputes.

Importing the Jones principles

The Court of Appeal had another opportunity to distinguish between domestic and non-domestic property scenarios in Geary v Rankine. Mrs Geary sought to persuade the court that she had acquired a beneficial interest in a bed and breakfast property in the sole legal ownership of Mr Rankine by virtue of living with Mr Rankine, working with him in the bed and breakfast business and representations said to have been made by him. Lewison LJ, dismissing Mrs Geary's claim, referred to the evidential burden on a party claiming a beneficial interest in a property solely legally owned by another. 'The burden is all the more difficult to discharge where, as here, the property was bought as an investment rather than as a home,' the judge said.

The Geary case, therefore, emphasises the difficulties in trying to make Jones work outside the standard cohabiting family-home scenario.

The Jones principles have also been used to try to defeat third-party claims brought to realise the value of property assets. In Serious Organised Crime Agency v Coghlan & Burgoyne the defendants tried to resist proceeds of crime confiscation proceedings brought against part of Mr Coghlan's assets by claiming Ms Burgoyne owned 50 per cent of the beneficial interest in the property of which she was the joint legal owner. The court decided that Ms Burgoyne could not satisfy the requirements of the Proceeds of Crime Act 2002 and so SOCA could claim the whole of the beneficial interest in the property. Though the common intention constructive trust argument failed in the context of POCA, it must be anticipated that Jones will be relied on in other cases where an attempt has been made to put assets beyond the reach of creditors and divorcing spouses.

The Aspden v Elvy case provides an example of such a property transfer being made and the problems that then arose in trying to untangle the position once the threat of creditors taking action had passed. HHJ Behrens found that Mr Aspden had spent between £65,000 and £70,000 on conversion works to a barn that he had transferred into Ms Elvy's sole name and that this contribution was evidence of a common intention that Mr Aspden had a share of the beneficial interest. But he concluded: 'In the end I have decided that the appropriate fair assessment of the interest is 25 per cent. To my mind that represents a fair return for the investment of £65,000 to £70,000 and the work carried out by Mr Aspden in a property now worth £400,000. The figure is somewhat arbitrary but it is the best I can do with the available material.'

Out of creditors' reach

At first blush this decision is difficult to square with the indication given by Lord Walker and Lady Hale in Jones in a single legal owner scenario, namely that 'their common intention has'¦to be deduced objectively from their conduct' having regard to 'their whole course of dealing'. As the judge accepted that Mr Aspden had a beneficial interest in the property and as Ms Elvy appears not to have paid anything for the property and to have contributed no more than £25,000 to the cost of the conversion compared with Mr Aspden's greater contribution one might have expected Mr Aspden to have received an interest of at least 50 per cent. Instead the judge appears to have taken the view that the parties' common intention should be ascertained by only taking into account the amount of Mr Aspden's £65,000 to £70,000 investment and awarding a share in the property that reflected such sum rounded up to £100,000.

Perhaps HHJ Behrens's analysis was influenced by a desire not to encourage property transfers entered into with a view to frustrate creditors. He may also have wanted to discourage the unwinding of arrangements intended, at least in part, to provide a home for children of the sole legal owner. Whatever the underlying rationale for the decision, it serves as a warning that a reference to the principles in Jones may not ensure the reversal of arrangements originally intended to put property assets beyond the reach of creditors.

A recent application of the Jones principles occurred in Gallarotti v Sebastianelli involving Italian platonic friends living in London who decided to buy a property as joint owners. Though the parties had originally expected that the split would be 50/50, Mr Gallarotti signally failed to make the expected contributions to the mortgage which were mainly paid by Mr Sebastianelli which prompted the Court of Appeal to decide in these circumstances that the split of 75/25 in favour of Mr Sebastianelli properly reflected the parties' common intention.

A hint of what the future might bring in England and Wales has also been provided by the Supreme Court in the recent Scottish case of Gow v Grant. Inter alia, Mrs Gow claimed £38,000 for the difference in value of her flat between the date she sold it and moved to Mr Grant's house (in 2003) and the date she moved out after the relationship had ended (in 2009). The court decided that this loss of equity appreciation was an economic disadvantage suffered by Mrs Gow in the interests of Mr Grant and ordered that Mr Grant should pay this £38,000 to Mrs Gow. In both Gow and in Jones, there was an implied acceptance by the court that it should be prepared to intervene if one cohabitee would otherwise be left with a greater appreciation in property equity than the other following the end of the relationship.

Although property values saw unprecedent increases in the past 20 years, real estate prices can also drop, as we are now experiencing in today's depressed markets. Practitioners may, therefore, wish to question whether an implicit judicial presumption of certain and unending equity appreciation ?is something that can be relied upon in ?future litigation.