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Hudson v Hathway [2022] EWHC 631 (QB), [2022] 2 FLR 1323 involved a cohabiting couple who jointly owned their family home in equal shares. After separation, they changed their beneficial interest by agreement. The question on appeal was, ‘Must a party claiming a subsequent increase in [their] equitable share necessarily have acted to [their] detriment? Or does common intention alone suffice to alter the beneficial shares?’ (para [1]).

While the facts in this case are relatively niche, the judgments contained within are suggestive of a more permeating issue: that is, if the current legal test for requiring detrimental reliance is no longer equitable, then how effective is the current law for cohabitation claims?

Background

Mr Hudson and Ms Hathway began their relationship in 1990. They had two children, both now adult, but never married. In 2007, the couple bought Picnic House in joint names with a joint mortgage, which was paid from a joint account into which both their salaries were paid. There was no declaration of trust. The presumption was that the property was held in equal shares.

Their relationship ended in 2009. Mr Hudson left Picnic House, while Ms Hathway remained with their two children. The mortgage was converted to interest only and continued to be paid from the same joint account. Mr Hudson’s mortgage contributions far outweighed those of Ms Hathway.

Following their separation, the parties negotiated the division of their assets by email. In July and August 2013, they came to an express agreement. Mr Hudson would retain his pension and shares and Ms Hathway would get the equity from the house, as well as the liquid cash, savings, physical property, and the house contents. In 2015, Mr Hudson ceased paying the mortgage.

Years passed. In October 2019, Mr Hudson issued a Trusts of Land and Appointment of Trustees 1996 claim under Part 8 of the Civil Procedure Rules 1998. He sought the sale of Picnic House, with the equity divided equally between the parties. Ms Hathway agreed the sale but sought to solely retain its equity on the basis of a common intention constructive trust, on which she said she had relied to her detriment.

First instance

HHJ Ralton found the parties had clearly reached an express agreement through email correspondence, albeit one that did not comply with the statutory formalities required for the transfer of legal title or declaration of trust. The parties had agreed the house would be sold and there was a clear common intention that Ms Hathway were to have the entire equity. HHJ Ralton found Ms Hathway had acted to her detriment when she gave up her perceived claim to Mr Hudson’s shares and pension. The judge rejected the submission that no detrimental reliance be needed at all, finding that ‘there must be a change of position or detrimental reliance in a joint name case…Otherwise equity would be aiding a “pure volunteer”’ (para [19]) The degree of detrimental reliance required was case specific. Although this may have been a ‘weak claim’, HHJ Ralton could not be convinced it was a ‘non-claim’ (para [17]).

The judge dismissed Mr Hudson’s claim and declared Ms Hathway the sole equitable owner of Picnic House. Mr Hudson appealed.

Appeal

On appeal, Mr Hudson asserted that detrimental conduct is necessary to alter beneficial shares and to make an agreement enforceable in equity. If detriment were not required, the House of Lords in Stack v Dowden [2007] UKHL 17, [2007] 1 FLR 1858 and Supreme Court in Jones v Kernott [2011] UKSC 53, [2012] 1 FLR 45 would have said so.

He further submitted that HHJ Ralton was wrong to find that Ms Hathway had acted to her detriment by forgoing any claims to his pension and shares because she was never entitled to them. The couple had not married and therefore matrimonial remedies were not available. She had not changed her position in reliance on the agreement. Without such detriment or irrevocable change of position, all that remained was a gratuitous intention, which is insufficient to create a constructive trust and therefore unenforceable.

Ms Hathway’s position was that detriment was not required at all in a joint names case in the domestic consumer context with no express declaration of trust - an argument she ran at first instance but without success. The presumption of beneficial joint tenancy applies, she submitted, but could be rebutted by proof of a contrary intention to vary the beneficial shares, without any detrimental reliance or change of position (para [47]). She contended that if it were required, then the House of Lords and Supreme Court would have said so. Thus, the shares could be ambulatory, changing with the intentions of the parties over time. 

She asserted in the alternative that if detrimental reliance was required, she had sufficiently demonstrated such conduct. 

Decision

Mr Justice Kerr found that it is not necessary to show detrimental reliance or a change of position in a domestic consumer context, where a property has been purchased in joint names with no declaration of trust. In such cases, it is sufficient for parties to agree to alter their beneficial shares. The agreement between Mr Hudson and Ms Hathway was sufficient to establish a common intention, and the common intention was sufficient to establish the constructive trust (para [80]).

On the secondary issue, Kerr J found that if it were necessary to decide whether Ms Hathway’s conduct constituted detrimental reliance, HHJ Ralton’s findings were soundly based and evaluative. He would not be justified in interfering with them.

Reasoning

Turning to Stack v Dowden and Jones v Kernott, Kerr J found it ‘striking’ there was no mention of detriment, other than in Lord Neuberger’s dissenting judgment at para [124] in Stack. This, he said, was even more striking in Jones, where the Supreme Court justices were seeking to clarify the law. He found it was more likely that the Supreme Court omitted mentioning the necessity for it to be proved, rather than forgetting to mention a crucial element of the relevant principle (para [61]). He rejected the explicit findings that detriment is required in Insol Funding Co Ltd v Cowlam [2017] EWHC 951 (Ch), as he disagreed with the reasoning that there was nothing in Stack or Jones ’to abrogate the requirement of reliance’ (para [77]).

Kerr J then went on to say that the question is ‘always ultimately one of unconscionability, in the broadest sense’, concluding in the domestic consumer context it is the breaking of an express agreement that provides an unconscionability element (para [67]). Adding a detriment requirement seems ‘otiose’; the caveat being that the express agreement must not be a unilateral oral declaration of trust, as this would render the putative beneficiary a ’pure volunteer’ (para [19]).

Mr Hudson appealed again.

Comment

Based on Kerr J’s analysis of Stack and Jones, the absence of detriment is conclusive – it is not required in joint names cases.  An express agreement is sufficient. The findings in Insol were rejected but without detailed analysis. This is particularly jarring as the facts sit squarely within those of Hudson v Hathway – a property held in joint names, in the domestic consumer context, with a subsequent alteration of shares – and through which detrimental reliance was reasoned to be unequivocally required where parties subsequently agree to vary their shares.

The waters are further muddied by Kerr J when strict trust analysis and contractual trust analysis are merged, with the introduction of unconscionability – a concept not required in common intention constructive trusts, nor mentioned in either Stack or Jones. Resiling from the express agreement, Kerr J says, is unconscionable. He then goes on to add that in the domestic consumer context, the express agreement ‘can itself supply the necessary detriment’ (para [79]).

It could be said that this approach and the rebranding of detriment is more equitable when dealing with the realities of the domestic consumer context. Couples can – and do - make verbal agreements and then change their minds. This approach endorses that freedom, holding parties to their most recent promise by asking equity to step in. However, it also endorses binding agreements being made without something being given in return. What is it, if not the giving of something in return, that makes resiling from an agreement unconscionable? Without something in return, which is synonymous with detriment or a change of position, all that is left is a gratuitous intention. This outcome conflicts with Kerr J’s earlier statement, that a ‘gratuitous intention to create beneficial interest does not create a constructive trust…without any detriment, there is no more than an unenforceable declaration of trust.’

Another potential issue is that without having to evidence a detrimental reliance or change of position, the gates are opened to an abuse of power. Not needing to give anything in return makes it easier for dominant parties to get away with advantageously adjusting their beneficial interest. If an agreement alone is sufficient to bind the parties, then careful investigation as to the basis and formulation of that agreement will be required to protect the less dominant parties’ interests. Creating an express declaration of trust at the time of purchase will become even more important as a method of protection.

Conclusion

The facts in this case are niche, and as such, the prevalence of the emerging principles is limited to such cases where there is a jointly owned property, in a domestic consumer context, where there is no express declaration of trust but where there is a subsequent, express agreement to vary the beneficial ownership. In sole name cases or cases involving an express declaration of trust, different evidential principles will apply.

The impact this decision will have on future cohabitation claims is interesting in three respects. Firstly, it makes the legal test regarding establishing common intention less arduous for cohabitants to satisfy. Secondly, it provides an avenue through which cohabitants can litigate, which previously was not open to them. These two factors combined could open the floodgates, resulting in an increase in non-married couples litigating, which poses the question of whether going forward, the reality of it being available and easier for cohabitants to do so is an appealing one. Thirdly, and perhaps most interestingly, in essentially removing the element of detrimental reliance from the legal test, the court is effectively saying that there is something inequitable about it being required to be proven by cohabitants. It follows then, that if the court feels it necessary to water down the legal test so that it works more equitably for non-married couples, then the relevant law requires revision.

However, with permission to appeal granted on all four grounds and the matter by the Court of Appeal on 22 and 23 November 2022, with judgment awaited, the relevance of detriment in cases such as these is still to be settled. 

is a barrister at .