Possession of the cottage

The bank is now seeking possession of the cottage (“the house”) with the view of selling it upon Joey's default on the mortgage payment. Charmaine and Nancy, on the contrary, would not want the house to be sold and wish to stay in the house.

First of all, the house was registered in the sole name of Joey. Following the equitable maxim that ‘equity follows the law', which affirmed by the House of Lords in Stack v Dowden, the presumption is that Joey has the legal title and equitable interests of the house. However, according to Baroness Hale in Stack, such presumption is rebuttable and the onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership, and in sole ownership cases it is upon the non-owner to show that he has any interest at all. Hence, Charmaine and Nancy have the burden to prove that they have the beneficial interests in the house.

There are primarily three ways in which Charmaine and Nancy can acquire an equitable interest in the house, they are by means of an express trust, resulting trust or constructive trust.

An express trust arises at the express intention of the parties towards the land and for the express trust to be valid, it must be in writing pursuant to s.53(1)(b) of the Law of Property Act (“LPA”) 1925. The beneficial interests thereby under the express trust are conclusive according to the terms of the written declaration. Since there is no written document which states Charmaine and Nancy's interests in the house, it is unlikely they are able to claim their interests under the express trust.

However, they might be able to prove that they have the beneficial interest in the house under the resulting or constructive trusts as under s.53(2) of the 1925 Act, it does not require the formalities of writing. Moreover, Lord Neuberger in Stack, stated that domestic or family matters should be dealt with resulting and constructive trusts as they are flexible enough to deal with such problems. His approach was affirmed by the Privy Council in Abbott v Abbott.

Under the resulting trust, Charmaine and Nancy have to establish that they have the equitable interests in the house in direct proportion to their contribution to the purchase-price. Such classic theory can be found in Dyer v Dyer, where the court held that a resulting trust can arise only to the man who advances the purchase-money. The Court of Appeal in Curley v Parkes, held that post-acquisition mortgage payments are could not plead for resulting trust. In Burns v Burns, it was held that the expenditures on household expenses and household items could not amount to an interest under the resulting trust. However, in Laskar v Laskar, it was held that for property which purchased for commercial purpose, the contributions to the mortgage repayments could be treated as a contribution to the purchase-price. Based on the facts given, the house was purchased for residential purposes and since they did not contribute any money towards the purchase-price, they are not be able to establish the beneficial interest under the resulting trust.

In order for Charmaine and Nancy to establish interests under constructive trust, they have to show first that there is a common intention that the beneficial ownership would be shared. In Lloyds Bank v Rosset, Lord Bridge stated that the common intention can be arise when there has at any time prior to the acquisition or later, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. Such finding of agreement or arrangement must be expressly made. A promise or excuse, or relevant assurance, can be enough to trigger a constructive trust even if it is not meant. The facts do not seems to suggest that there was any express common intention that Charmaine and Nancy will have an interest in the house. By just Charmaine merely selling off her house and staying together with Joey as well as starting a family do not trigger a common intention that the house will be shared beneficially together between the parties. Similarly to Nancy, by just Joey asking her to stay together does not implied that she will have any share in the house.

In the absence of the express common intention, the court, may however, infer a common intention from the conduct of the parties that they shall have an interest in the house. In Rossest, Lord Bridge stated that only direct contribution to the purchase-price or by payment of mortgage installments will readily justify to the creation of a constructive trust. It was held that the cost of renovations, housekeeping expenses, maintaining the family and rearing the children will not give the right for the claimant to claim the beneficial interest. However, Lord Diplock in Gissing v Gissing, stated that besides the contribution towards the deposit, the mortgage installments or general housekeeping expenses are capable of constituting evidence of such common intention. In Midland Bank v Cooke, there was no express agreement but the court was willing to look at the conduct of the parties and subsequent actions, taking the view that judges were not confined to conduct at the time of the acquisition or the alleged creation of the interest. More recently, in Oxley v Hiscock, Chadwick LJ stated that the court will look at the whole course of dealing between the parties in relation to the property includes the arrangements which they make from time-to-time in order to meet the outgoings which have to be met if they are to live in the property as their home. The majority (Lord Neuberger dissenting) in Stack, also held that other than financial contribution towards the purchase price or the mortgage payment, the court may also take into account other circumstances (including an extension or substantial improvement to the property). The decision in Stack was followed by the Privy Council in Abbott, the Court of Appeal in Fowler v Barron, and the Chancery Division in Jones v Kernott.

Applying the recent decisions in Stack and Oxley, Nancy is able to establish a common intention by reason of using her money to extend the house. Besides the mortgage repayment that Charmaine has made, the court will also regconise the costs that she incurred in the household expenditures, as well as, her efforts in maintaining the family and bring up their child, Greg amount to common intention.

Besides establishing common intention, Charmaine and Nancy must then establish that they relied to their detriment on the existence of such intentions. In Century UK v Clibbery, the court held that the acts of alleged detriment must be fairly significant rather than de minimis or trifling. Lord Denning in Greasley v Cooke, suggest that there will be a presumption of reliance if there is evidence of ‘detriment'. If there is any contribution towards the purchase-price or mortgage repayment, or at least has financed an extension or substantial improvement to the property, the requirement of detriment will automatically be satisfied. A detrimental reliance can also be proved by such the claimant did extraordinary work about house, or just giving up other opportunities because the legal owner has assured the claimant that her future is secured, or by other motive.

Applying the law into the facts, the court will be readily recognised that there will be detrimental reliance for Charmaine as she had contributed the mortgage repayment. Since she had sold off her flat and started staying with Joey as well as starting a family with him, the court will likely recognise such actions amount to detrimental reliance too. Nancy's action is also amount to detrimental reliance because she has used hers money to extend the house. According to Baroness Hale, such spending large sums of money on a place is not normally done by accident or without giving it a moment's thought, and the house has now significantly different from what it had then.

Since the common intention and detrimental reliance have been made out above for Charmaine and Nancy respectively, it is likely that the court will held that they have the interest in the house under the constructive trust.

An alternative way for them to acquire an interest in the house is through the doctrine of proprietary estoppel. The modern approach of doctrine of proprietary estoppel (which modernised the old strict doctrine of proprietary estoppel in Willmott v Barber) can be found in Taylor Fashions v Liverpool Victoria Trustees Ltd, where Oliver J held that a claimant will be able to establish an estoppel if they can prove an assurance, reliance and detriment in circumstances where it would be unconscionable to deny a remedy to the claimant. In Gillett v Holt, and Jennings v Rice, the courts held that the four features of doctrine of proprietary estoppel, must not be seen as isolated features.

Under the doctrine of proprietary estoppel, the assurance made must be as to some property right over that land otherwise, it is merely a personal assurance, and such property assured must be identified by the legal owner. In Orgee v Orgee, Hirst LJ stated that the assurance might be ‘unilateral' in that it was offered freely by the landowner or by mutual understanding between the parties about the use of the land. Such understanding or promise could be expressly or implied by conduct and it did not have to amount to active encouragement so long as it amounted to knowing acquiescence. Acquiescence means accept or consent to something without protest. It can be said that there is an assurance by Joey to Charmaine and Nancy by implied mutual understanding that they will have interests in the house as Joey certainly knows about the contributions and works done to the house as well as to the family by both of them, and he did not object or protest when such contributions or works have done by them.

Besides proving the assurance or promise made by Joey, they must show that they have relied on the assurance and suffered some detriment in reliance on it. There is a presumed reliance if an assurance and detriment has been proven, and it is then for the legal owner to rebut that presumption and to disprove it. In Thorner v Major, the House of Lords reversed the Court of Appeal's decision on its facts, but as a matter of law, the House upheld that where the assurance is not express, there must be clear and substantial evidence of reliance. It need not be the sole assurance or promise that the claimant to rely on. In Kinane v Mackie-Conteh, the Court of Appeal held that the contribution in monetary form on the land in reliance of the landowner's assurance amount to detrimental reliance. Similarly, if the claimant has physically improved the property, or has devoted time and care to the needs of the landowner, or at least has forsaken some other opportunity, such actions or contributions amount to detrimental reliance. Evidentially, Charmaine has detrimentally relied on the assurance as she has changed her job and sold off her flat where she used to live in as well as the contributions and works done to the house and family as mentioned above. The contribution towards the cost of the improvement of the house by Nancy is sufficient for a detrimental reliance.

More crucially, Charmaine and Nancy must prove that it is unconscionable for Joey to go back on the assurance under the proprietary estoppel. In Walton v Walton, Hoffman LJ in Court of Appeal stated that under the equitable estoppel, the court will look backwards from the moment when the promise falls due to be performed and asks whether, in the circumstances which have actually happened, it would be unconscionable for the promise not to be kept. It is highly likely that it would amount to unconscionability if the court does not regard the contributions and works done by them towards the house as well as the family. Thus, Charmaine and Nancy, as an alternative, can also establish their interest in the house under the doctrine of proprietary estoppel.

Since Charmaine and Nancy have the equitable interest in the house, Joey is holding the legal title on trust for the beneficial interest of Charmaine, Nancy and himself.

Such equitable interest that Charmaine and Nancy have, can amount to interest which override (“overriding interest”). Overriding interest is defined as certain rights and interests in land that need not be protected by land registration, but which will bind the proprietor and subsequent purchaser unless overreached. Moreover, s.116 of the Land Registration Act (“LRA”) 2002 clearly states that an interest arises from equity or equity by estoppel is capable of binding a successor in title. They are also able to establish the overriding interest by way of actual occupation under the Schedule 3, Paragraph 2 of the LRA 2002. An actual occupation is defined by Lord Wilberforce in Williams and Glyn's Bank Ltd v Boland, where the equitable owner must be ‘physical presence' in the property.

The facts given did not suggest that there is any reasonable inspection by the Bank. Even if the Bank did a reasonable inspection in the house (which is unlikely), Charmaine and Nancy's temporary out of occupation when they were in the hospital will not undermine theirs actual occupation. This was held In Hoggett v Hoggett, where the Court of Appeal held that ‘going to hospital for a few days could not be regarded as going out of occupation'. Similarly in Chhokar v. Chhokar, Mr. Chhokar had sold off the property without Mrs. Chhokar's knowledge when she was in the hospital. Mrs. Chhokar claimed that she has got the overriding interest that was binding on the purchaser. The court held that, although she was not presence in the house when the sale was completed, some of her furniture was still there, and hence she was still in actual occupation.

Section 2(2) of the LPA 1925 clearly states that the purchase money must pay to at least two trustees, for an effective overreaching as affirmed by the House of Lords in City of London Building Society v Flegg. Since the bank has only paid to Joey alone, overreaching mechanism will not operate. The bank will, therefore, take the house subject to the rights of Charmaine and Nancy.

Under s.12 of the Trust of Land and Appointment of Trustees Act (“TOLATA”) 1996, Charmaine and Nancy have the rights to stay inside the house. The bank, which has the legal interest under s.1(2)(c) of the LPA 1925, will need to apply a court order for sale under s.14 of the 1996 Act.

Section 15 of the TOLATA 1996 requires the court to consider the intentions of the parties who created the trust, the purpose of the trust created, welfare of the minor in the house, and the interest of the secured creditor. Each case must depend on its facts and it is for the court to make a value judgment. In Abbey National plc v Moss, it was held that the interests of the secured creditor would prevail unless there were exceptional circumstances. This was affirmed in First National Bank v Achampong, where after taking into account the welfare of the minor, and as a matter of economy policies reasons, the court awarded order for sale to the bank. In Mortgage Corporation v Shaire, the court held that if the equitable owner has the ability to purchase the secured creditor's shares, the court will order the shares to be sold to the equitable owner.

It is unclear whether Charmaine and Nancy have the financial ability to purchase the bank's shares. If they have, it is likely that the court will order the bank's shares to be sold to them. If, on the other hand, they do not have such ability, after taking into account Greg's age, it is likely that the postponement of sale will be unreasonable, and an order for sale will be likely to be granted to the bank as Charmaine and Nancy are still able to use the money from the proceed of sale to buy a smaller house and to continue their living.

If the court grants the order for sale, the proceeds of sale will be divided to Charmaine and Nancy according to the type of interest established above. Under the constructive trust, in the absence of express agreement towards the distribution of shares, the court has to identify the beneficial owner and the size of their beneficial interest. In determining the size of the beneficial interest, the court has to apply the ‘holistic' approach laid down in Stack, which followed by the Privy Council in Abbott. Besides the contribution of mortgage repayment and cost of expenditure of the house by Charmaine and Nancy respectively, the court has to take into account other contributions and works done by them. Under the proprietary estoppel, the remedies are at the court's discretion. The shares are to be divided to the minimum to archive justice by the court.

If the house was an unregistered land, Charmaine and Nancy are still having the equitable interest by way of constructive trust or proprietary estoppel. Such equitable interest is amount to overriding interest. In Kingsnorth Trust Ltd v Tizard, the court held that the purchaser must make a reasonably careful inspection of the land, and the temporary absence of the equitable owner will not undermine hers actual occupation. As mentioned above, the bank did not inspect the land before granting the mortgage to Joey. The temporary absence of Charmaine and Nancy will not “kill-off” theirs actual occupation. Since the money is paid to Joey alone, overreaching will not applied. Hence, the bank will also take the house subject to Charmaine and Nancy's interests. Similarly, if the court grants the proceeds of sale of the house to the bank, the shares will be divided to Charmaine and Nancy according to the type of the equitable interests as discussed above.

Diagram 1

The cottage (“the house”)

Legal Title : Joey

Equitable Interest : Joey

Diagram 2

The cottage (“the house”)

Legal Title : Joey

Equitable Interest : Joey, Charmaine and Nancy