Re Pavlou (a bankrupt) [1993] 1 WLR 1046
Other reports: [1993] 3 All ER 955; [1993] 2 FLR 751.
High Court, Chancery Division — equitable accounting between co-owners
Facts
A husband and wife bought their home in 1973 with the assistance of a mortgage and held it as beneficial joint tenants. The husband left in January 1983. The wife remained in occupation, paid the mortgage instalments and other outgoings, and paid for repairs and improvements.
She petitioned for divorce in March 1986 and obtained a decree nisi in July. The husband was made bankrupt in March 1987. Bankruptcy severed the beneficial joint tenancy, leaving equal shares held as tenants in common, with the husband’s interest passing to his trustee in bankruptcy.
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The trustee sought a sale. It was accepted that there should be a sale and an equitable account, but the parties disputed the adjustments to be made before distributing the proceeds. In particular, the trustee argued that equitable accounting could not apply to expenditure incurred while the parties were still beneficial joint tenants.
Issues
Could the wife obtain credit for expenditure before the bankruptcy, as well as afterwards? How should repairs, improvements and mortgage payments be treated, and should any credit for mortgage interest be offset by an occupation rent for her sole use of the home?
Decision and reasoning
Millett J held that, for equitable accounting, there was no distinction between beneficial joint tenants and tenants in common. When the property was sold, one co-owner should not obtain the benefit of value added by the other’s expenditure without an appropriate allowance. Accounting was therefore not confined to the period after the husband’s bankruptcy.
Repairs and improvements: the wife was entitled to credit against the trustee’s share for half the lesser of her expenditure and the increase in the property’s value attributable to it. This required an inquiry: spending money on a property did not establish that its value had increased by the same amount, or at all.
Mortgage capital: repayment of the capital increased the equity in the property for both owners’ benefit. The wife was entitled to credit for half that increase resulting from the capital element of her payments.
Mortgage interest and occupation rent: these required consideration together. The court could order an occupation rent where necessary to do equity between the parties, even without forcible exclusion. However, sole occupation did not automatically establish liability. If an owner left voluntarily, would be welcome back and could exercise the right to occupy, charging the remaining owner rent would normally be inequitable.
Millett J lacked sufficient evidence to decide whether rent should be charged for January 1983 to March 1986. He considered that the wife’s divorce petition provided a prima facie basis for charging occupation rent from March 1986, while recognising that the petition might simply acknowledge a breakdown she had reluctantly accepted. This was not a conclusive rule that every divorce petition created liability.
Accounts and inquiries were required to establish the appropriate credits and whether occupation rent should be set off against the mortgage interest payments. The decision concerned adjustments on distributing the sale proceeds; it did not award the wife every pound she had spent or simply replace the equal beneficial shares with a larger ownership percentage.
Judgment passages: Millett J’s reasons at [1993] 1 WLR 1048–1050, reproduced in Davis v Jackson, paragraphs 32 and 58.
