The Return of Detrimental Reliance – Case Note: Hudson v Hathway [2022] EWCA Civ 1648
22/12/2022
- The ever-troublesome common intention constructive trust (“CICT”) has been back before the Court of Appeal. Hudson v Hathway is a second appeal, from Kerr J. The first appeal was from HHJ Ralton in the County Court at Bristol.
- The issues before the Court of Appeal were:
(a) Did the email chain which expressed the parties’ common intention comply with the statutory formalities in section 53(1)(c), Law of Property Act 1925 (“the LPA”), and should permission to raise this new point be given?
(c) Was the requirement for detrimental reliance met?
(b) Is detrimental reliance required to be shown by a party claiming a post-acquisition increase in equitable share?
Facts
- As so often happens in these cases, Mr Hudson and Ms Hathway purchased their family house (Picnic House) in joint names. They had a family but never married, and subsequently separated in 2009.
- In a series of emails in 2013, it was agreed that Mr Hudson would get sole ownership of his shares and pension and Ms Hathway would get sole equity in Picnic House, its contents and other savings/income (“the agreement”). Importantly, Mr Hudson ended his emails with “Lee” or “Lee Hudson”.
- In 2015, Mr Hudson ceased to contribute to the mortgage and Ms Hathway took over payments. In October 2019, Mr Hudson issued a claim for an order for sale and equal division of proceeds. Ms Hathway contended she should be solely entitled to the proceeds under a CICT.
The Proceedings Below
- HHJ Ralton found for Ms Hathway. He determined that the agreement was evidence of a common intention. Ms Hathway had relied on that agreement to her detriment on only one of the pleaded grounds: she had given up potential, albeit weak, claims to Mr Hudson’s pension and shares. Therefore, Ms Hathway was entitled to the whole beneficial interest in Picnic House.
- Mr Hudson appealed. Kerr J, in a much-commented-upon decision, determined that where common intention is demonstrated by express agreement in a joint names case, detrimental reliance is not required. His Lordship stated: “the deal was sufficient to establish the common intention and the common intention was sufficient to establish the constructive trust”. On whether the detrimental reliance requirement was met, Kerr J held HHJ Ralton’s findings to be an evaluative decision open to him on the facts and thus refused to interfere, although stated obiter the requirement was met.
- It was generally accepted by the parties that the agreement did not satisfy the statutory requirements for an express declaration of trust.
- Mr Hudson appealed to the Court of Appeal on the two detrimental reliance questions.
Did the agreement comply with section 53(1)(c), LPA?
- This point was first raised when the bench walked into court and immediately questioned why section 53 did not apply. The Court invited Ms Hathway to apply for permission to amend her Respondent’s Notice. Lewison LJ, in the leading judgment of the Court, provided a review of the authorities on appeals on a point not raised below. Having invited the amendment himself, it is unsurprising such permission was granted.
- The numerous objections were dismissed. On the basis that all the necessary extrinsic evidence was before the Court and counsel being permitted time for written submissions following the hearing, Lewison LJ held the “balance of justice comes down in favour of allowing the new point to be taken” at [41].
- This allowed section 53 to be grappled with.
- The first issue was one of words, meaning and intention. In particular, Lewison LJ emphasised that, as both parties were joint tenants in law and equity, there needed to be a release of beneficial interest by Mr Hudson, as there could be no assignment (at [46]).
- Turning to language and intention, following Brandt’s (William) Sons & Co Ltd v Dunlop Rubber Co Ltd [1905] A.C. 454, Lewison LJ held Mr Hudson’s language in his emails “evince a clear intention to divest himself of that interest immediately” at [50]. Mr Hudson’s phrase “Take it” in reference to his interest in Picnic House was singled out.
- The next issue was whether, using the language of section 53(1)(c), the agreement was “in writing signed by the person disposing…”:
(a) It is now well-established that writing in an email is equivalent to writing on paper and satisfies the written requirement (at [56]).
(b) The signing element received greater judicial reasoning: Lewison LJ discussed the authorities at [55]-[67]. His decision is traced back to J Pereira Fernandes SA v Mehta [2006] 1 WLR 1543. His Lordship stated, “There is, therefore, a substantial body of authority to the effect that deliberately subscribing one’s name to an email amounts as a signature” (at [67]).
- With that, the Court had no trouble in finding that Mr Hudson, in subscribing his name to the bottom of his emails, had released his 50% beneficial interest in Picnic House to Ms Hathway.
- It is particularly noteworthy that of the authorities cited, all dealt with this issue in the commercial context. Hudson v Hathway now confirms those principles are applicable to the domestic consumer context. In the age of text, WhatsApp and emails, such dispositions will undoubtedly occur more frequently than it were previously thought possible.
Is detrimental reliance required?
- Any legal professional prior to Kerr J’s decision would answer this with an affirmative “of course”. Indeed, few seemed to change their answer subsequently. Lewison LJ has now put to bed any confusion caused in the nine-month interlude between the High Court and Court of Appeal judgments.
- Despite Hudson v Hathway originally only regarding questions of detrimental reliance, Lewison LJ recognised the appeal can be dismissed on the section 53 point alone. This may cause an issue of precedent on the detrimental reliance points. Lewison LJ presumably sought to address this when he stated detrimental reliance “was fully argued, and I consider it appropriate that we decide it.”
- Another whistlestop tour is embarked upon, this time an examination of the long line of CICT and related-proprietary estoppel authorities. A line of authorities which began with Gissing v Gissing wherein Lord Diplock made clear detrimental reliance was required. The reason: it is detrimental reliance which makes it unconscionable to resile from the common intention.
- Next, is the all-important Grant v Edwards [1986] Ch 638, which Lewison LJ summarised at [79]:
“First, there are no special rules of equity applicable in this field. The ordinary law of trusts applies. Second, detrimental reliance is necessary even if there is a bargain. Third, there is no difference between an intention formed on acquisition and one formed after acquisition.”
- Lewison LJ continued with a cadre of High Court and Court of Appeal authorities which directly reference the need for detrimental reliance before he turned to Stack v Dowden [2007] 2 AC 432 and Jones v Kernott [2012] 1 AC 776. Kerr J stated at [58] of his judgment that the failure to mention detrimental reliance in Stack and Jones was “striking”. It is these Court authorities which Kerr J based his decision upon.
- Lewison LJ formed the contrary view as:
(a) The Courts in Stack and Jones placed significant value on previous authorities which referenced and indeed were decided on the basis that detrimental relance is required.
(b) Lord Walker, who gave leading judgments in both cases, has previously and subsequently judicially recognised the requirement.
(c) It would be “astonishing” if the Courts intended to dispense with this long-standing pillar of equity without so much as a mention (at [108]).
(d) Ultimately, detrimental reliance was not in issue in Stack or Jones.
- Finally, following further exploration of the post-Jones cases which require detrimental reliance and the textbooks which affirm that, Lewison LJ concluded Kerr J was wrong to hold detrimental reliance is no longer required (at [153]).
- Within this – in Nugee LJ’s words – “masterly” exploration of the authorities, there is an obiter observation that could be overlooked, but stated the correct nature of detrimental reliance and potentially explains Kerr J’s misstep. Lewison LJ stated “The need for detrimental reliance is plain. The second stage is the quantification of that interest, in relation to which the court can take a broader view” (at [90]). There has arguably been a reduction in recent years of detrimental reliance to a mere formality, rather than a substantive requirement. Hudson v Hathway has cast away that aspersion.
Was there sufficient detrimental reliance?
- For a point which was extensively argued at the hearing, this question takes up surprisingly little of the judgment. The Court of Appeal concluded that, absent a transcript of the original trial, it would not interfere with HHJ Ralton’s evaluative findings of fact (at [164]).
- There are, however, a number of takeaways.
- The first is that, on this question, there is no significant difference between the detriment required in proprietary estoppel and in CICT cases (at [155]). This brings into play the recent Supreme Court decision in Guest v Guest [2022] 3 WLR 911, and the many propositions regarding detriment there in.
- Secondly, where the pleaded detriment is vague, it was unsatisfactory on appeal to argue that detriment was never property articulated. Lewison LJ highlighted requests for further information under CPR 18 as being just the tool to combat ambiguity (at [165]).
- Furthermore, Lewison LJ deemed the claim to shares and pension to be sufficient detriment. His Lordship held that this was not merely a weak or potential claim. Rather, Ms Hathway had a constructive trust claim on the basis both parties deemed Mr Hudson’s shares, pension and savings to be “joint assets” which he accrued by virtue of Ms Hathway switching to a less demanding, less lucrative career to raise their children (at [168]). This obiter comment is noteworthy, and could well see an expansion of the CICT in chattels and personal assets on the breakdown of cohabitation.
- Finally, a point which was not addressed in the hearing: Lewison LJ suggested HHJ Ralton’s granular, point-by-point analysis of detrimental reliance was not the correct approach. Rather, one should be “standing back and looking at them in the round” (at [175]). This is in-keeping with proprietary estoppel orthodoxy, and suggests that numerous minor elements are by no means fatal. When rounded together, they may form a powerful collective plea of detrimental reliance.
OLLIE MURRELL
The Court of Appeal judgment can be found here: https://www.bailii.org/ew/cases/EWCA/Civ/2022/1648.html
Kerr J’s judgment in the High Court can be found here: https://www.bailii.org/ew/cases/EWHC/QB/2022/631.html
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