The facts of the case
Mr Hudson and Ms Hathway were in an unmarried relationship. During the course of their relationship they purchased Picnic House, where they went on to live as a family with their two children. At the point of purchase, they did not enter into an express declaration of trust. As such, the legal presumption that ‘equity follows the law’ applied, meaning that they were presumed to hold the property in equal shares. This was not disputed.
The relationship subsequently broke down and Mr Hudson moved out, leaving Ms Hathway in occupation of the property with the children.
Shortly thereafter, the parties discussed their financial arrangements and reached a deal on their assets with a view to achieving a clean break. A key part of the deal was that Ms Hathway would get to keep Picnic House in exchange for waiving any claim that she might have against Mr Hudson’s pension and shares. It was accepted by both parties at the hearing that a deal had indeed been struck on these terms.
Nevertheless, Mr Hudson later sought to go back on the agreement, issuing a claim under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) for an order that the property be sold and a declaration that the proceeds of sale be shared equally between them. The thrust of his argument was as follows:
- The deal was not legally binding as it did not satisfy the formal requirements for transferring property or creating a declaration of trust (namely, that the agreement must be contained in writing and signed by both parties).
- Although a change in beneficial ownership could arise under a constructive trust (which is exempt from the above formalities), an essential ingredient of a constructive trust (namely, detrimental reliance) was missing, such that no such trust could have arisen.
Ms Hathway’s position was that:
- The change in beneficial ownership arose under a constructive trust.
- It was not necessary to show detrimental reliance in these particular circumstances.
- Even if the court disagreed with her on this, she had suffered detrimental reliance in any case; for example, she did not pursue a claim against Mr Hudson’s pension and shares.
What is detrimental reliance?
“Detriment” (sometimes referred to as a ‘change of position’) in this context is a description of an objective state of affairs which leaves the claimant in a substantially worse position than they would have been in. For example, if the claimant transfers a jointly held property into the sole name of the defendant for nil consideration, on the face of it this leaves the claimant in a substantially worse position than if they had not transferred the property.
The principle of detrimental reliance is one of the necessary pillars in equitable claims including some constructive trust cases and, most notably, estoppel cases. See, for example, our earlier article, ‘Were you promised a share in a property which is now being reneged upon?’, which concerned the principle of proprietary estoppel and the change of position of a daughter who acted to her detriment following a promise that she would inherit the family farm.
In the present case, the Court was asked to consider whether Ms Hathway changed her position as a result of the deal reached with Mr Hudson, and, even if the answer to that question was ‘no’, did that necessarily matter?
Was detrimental reliance a necessary ingredient for a constructive trust?
The legal system in England and Wales is based on common law. This means that judges look at past cases to see what legal principles have been derived and apply those principles to the case in hand. As a result, in Hudson, much consideration was given to what the courts had decided previously, particularly in the seminal cases of Stack v Dowden and Jones v Kernott.
Both Stack v Dowden and Jones v Kernott sought to clarify and settle the law in this area, so it was striking that no mention was made of detriment in either case. Ms Hathway argued that it was implicit from the absence of any mention of detriment in these cases that there is no requirement to show detrimental reliance in cases such as these. In particular, cases in the ‘domestic consumer context’ where a property has been purchased in joint names with no express declaration of trust. In that particular context, the parties can agree to alter their respective beneficial shares at some point after the date of purchase, without having to prove that one party relied on that agreement to their detriment. In other words, the beneficial shares may be ‘ambulatory’ i.e. can vary from time to time if the parties’ intentions change over time.
This position was contrasted with: (1) cases outside of the domestic consumer context; or where there is an express declaration of trust; or where the property is held in the sole legal name of one of the parties. In those instances, it was accepted that detrimental reliance would be necessary, because a fresh trust is needed to displace the legal title or express declaration of trust. The same is no longer true of domestic joint names cases with no declaration of trusts, such as Stack v Dowden, Jones v Kernott and the present case, so Ms Hathway argued.
When considering Stack v Dowden and Jones v Kernott, the High Court said that, by not dealing with the issue of detriment, the Supreme Court either omitted mentioning for completeness that it did not need to be proved, or omitted to mention a crucial element of the relevant principles to be applied. In the High Court’s judgment, the latter was less likely than the former. As a result, and based on the persuasive arguments made on behalf of Ms Hathway, the High Court found in favour of Ms Hathway and ruled that detrimental reliance was not necessary in this instance. The deal itself provided all the necessary requirements to establish the constructive trust pleaded by Ms Hathway.
Did the acts relied upon by Ms Hathway constitute detrimental reliance anyway?
This issue became a moot point once the High Court had ruled that it was not necessary to prove detrimental reliance. Nevertheless, the court went on to give some helpful guidance on this issue.
The Judge noted that matrimonial remedies of the kind seen between divorcing spouses were not available here, because the parties were unmarried. As such, Ms Hathway did not have a valid claim against Mr Hudson’s pensions and shares. Mr Hudson argued that Ms Hathway’s agreement to ‘give up’ such claims did not, therefore, constitute detrimental reliance or a sufficient change of position. She never had a claim against his pension and shares anyway, so what did it matter if she agreed not to pursue that claim?
The court recognised that the parties were together for some 20 years and, at the time of reaching the deal, both (wrongly) believed that wealth generated while the family was together would be shared between them when they separated.
Furthermore, it was noted that there might have been some sort of civil claim, like a constructive trust claim, which might have given risen to a claim against Mr Hudson’s assets, so although the claim may have been a weak claim, it was not necessarily a non-starter.
As such, it was right to say that Ms Hathway was giving up claims which she perceived she had and which Mr Hudson also perceived may be live against his assets. The court therefore found that this was sufficient to establish detrimental reliance / a change of position.
As such, Ms Hathway was successful on both counts in the appeal.
Does this mean the end of detrimental reliance in cohabitee disputes? Not quite.
Here are our main takeaway points:
- Hudson will only be a relevant authority for cases which fall within the ‘domestic consumer context’, so there would likely have been a different outcome had the parties not been in a cohabiting relationship. The case was therefore distinguished from the likes of Taylor v Taylor , for instance, where the context was not purely domestic and there was a business involved.
- Similarly, Hudson will only apply where the property was bought in the joint names of both parties. If the property is bought in one party’s sole name, different considerations apply.
- In Hudson, the parties did not enter into an express declaration of trust when they purchased the property. Had they done so, the outcome would have been different because an express declaration of trust is conclusive in the absence of a vitiating factor such as mistake, undue influence, fraud or duress. It may be possible to establish that an express declaration of trust has been superseded by a subsequent agreement, but such cases are usually brought on the basis of proprietary estoppel, where detrimental reliance is needed. It is becoming more common for purchasers to declare on the transfer form itself how they intend to hold the property, and in ticking this box this creates an express declaration of trust. As such, cases involving properties where no express declaration of trust has been entered into will become increasingly less frequent.
- Nevertheless, Hudson provides welcome clarification on a relatively niche but important point, and serves to remind us that these cases are technical in their nature and, to avoid being caught out, are best handled by lawyers who specialise in property trust disputes.
At Birketts LLP, our Property Litigation Team is ranked in the top tier by legal commentators and we can help you to bring or defend claims involving constructive trusts, as in Hudson.
For further assistance or advice regarding constructive trusts or property disputes more generally, please contact Laura Tanguay on [email protected] or 01473 299188.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2022.