21st June 2023
- In Hudson v Hathway  EWHC 631 (QB), Kerr J concluded that in the context of family homes held in joint names, detrimental reliance is not a prerequisite for a common intention constructive trust.
- In other words, where the home is held in joint names, there is no need for a claimant to show that they have acted to their detriment in reliance on a common intention that the beneficial interests should differ from the position at law.
- This article will examine Kerr J’s analysis. It will be argued that his conclusion is both undesirable and wrong. Detrimental reliance should always be, and has always been, necessary to justify the common intention constructive trust.
Decision at first instance in Hudson
- The salient facts of Hudson can be shortly stated. In 2007, the parties purchased a property in joint names with no declaration of trusts. In 2009, the parties separated and Mr Hudson vacated. In 2013, the parties agreed that Ms Hathway could keep the property and Mr Hudson could keep his pension and shareholding. In 2019, Mr Hudson sought an order for sale and an equal division of the proceeds.
- The trial judge found that the agreement in 2013 represented a common intention that Ms Hathway would have the entire equity in the property. The judge said that there must be detrimental reliance, otherwise equity would be aiding a volunteer.
- The detrimental conduct was desisting from making claims against assets in the sole name of Mr Hudson. The claim was therefore dismissed and the judge declared that Ms Hathway was the sole equitable owner of the property.
Kerr J’s analysis
- On appeal, Kerr J upheld the trial judge’s decision on the additional ground that he was wrong to decide that detriment was required to establish Ms Hathway’s equitable share. His reasoning can be summarised as follows:
- In Jones v Kernott  UKSC 53, when summarising the principles which apply to joint names cases, the Supreme Court did not say that detrimental reliance is required;
- there is no need for equivalence between sole name and joint names cases, it is consistent with principle to permit a constructive trust by whatever evidence is necessary to show that it would be unconscionable for the party denying the equitable interest to do so; and
- it is difficult to explain by reference to a detriment requirement the recognition by the Supreme Court of “ambulating” beneficial interests.
Detrimental reliance as a conceptual justification for a trust
- The clearest and earliest statement of the requirement for detrimental reliance can be found in Lloyds Bank v Rosset  1 AC 107, where Lord Bridge stated that the partner asserting a claim to a beneficial interest must show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement.
- Detrimental reliance, paired with common intention, provides the justification for a trust arising by operation of law. Justification is needed. There is no express trust and the significant consequences of a trust will follow. In this context, for example, the beneficiary will be protected at the expense of the co-owner’s creditors in the event of the co-owner’s bankruptcy.
- Common intention on its own does not justify a trust. Something more is needed to obviate section 53(1)(b) of the Law of Property Act 1925 and bestow the beneficiary with a beneficial interest. Detrimental reliance supplies the unconscionability which is the hallmark of a constructive trust. The remedial constructive trust does not yet exist in English law.
- Whilst it is conspicuous that there is no mention of detriment in Jones v Kernott, it is a step too far to say that the Supreme Court thereby intended to renounce a requirement which is well-established in sole name cases.
- Jones v Kernott clarifies Stack v Dowden  2 AC 432. Both authorities cite with approval previous decisions which make clear that detriment is a precondition for the imposition of a trust. Oxley v Hiscock  EWCA Civ 546 is a good example which features prominently in both judgments. This aspect of the authorities was neither addressed nor interfered with in Jones v Kernott.
- It is right that the previous cases are sole name cases. However, given that they form the essence of Jones v Kernott, the failure to explicitly eschew the need for detrimental reliance undermines Kerr J’s pure textual analysis. Many authorities since Jones v Kernott, as well as leading practitioner texts, have taken the view that detrimental reliance is still required.
- Indeed, in Jones v Kernott, it was said that the Supreme Court was going some way to meet the hope that a single regime governs joint names and sole name cases. The difference identified was the starting point for analysis, arising from the presumed beneficial joint tenancy in joint names cases. No distinction was made in respect of detrimental reliance.
- Kerr J’s view is that if detrimental reliance was a prerequisite, the Supreme Court would have said so. However, the Supreme Court was ruling on different issues and the failure to mention detriment does not amount to a disapproval, particularly as detrimental reliance was so obviously made out in both Jones v Kernott and Stack v Dowden. It is more logical to say that if detrimental reliance was not a prerequisite, the Supreme Court would have said so.
No need for equivalence
- It is difficult to see why there should be a different test for joint names and sole name cases. In sole name cases, something more than common intention is needed for the creation of a beneficial interest which can be evidenced in the absence of statutory formalities. Similarly, in joint names cases, something more is needed to displace or sever the beneficial joint tenancy.
- Kerr J links the imposition of the trust to the notion of unconscionability. He reminded himself that “the issue is always ultimately one of unconscionability, in the broadest sense.” The requirement of unconscionability was met in Jones v Kernott and the instant case was “of the same kind”.
- The problem with this analysis is threefold. Firstly, “unconscionability” is a broad term which cannot be the sole criterion. This merely begs the question of what is unconscionable.
- Secondly, it may not be unconscionable to refuse to recognise a beneficial interest based solely on common intention. Where is the unconscionability, for example, where a common intention arises from a gratuitous promise which is not acted upon? It would be unconscionable to impose a trust in such circumstances.
- Kerr J suggests that in the domestic consumer context, an express agreement as to beneficial shares satisfies the requirement of unconscionability. That is a bold claim to make and is inflexible to the myriad of factual scenarios which come before the courts. Furthermore, the domestic context should not change the test. There is one trust and one law of trusts.
- Thirdly, there was quite obviously detrimental reliance in Jones v Kernott. The Supreme Court did not refer to detriment but they were not considering a case in which the requirement for detrimental reliance would not have been satisfied.
- Detrimental reliance is reconcilable with Lord Hoffmann’s ambulatory constructive trust. It is ambulatory because the extent of the beneficial shares may ambulate over time.
- The test which emerges from Jones v Kernott has two stages. Firstly, is there a common intention that the claimant’s rights should differ from those at law? Secondly, if so, what is the extent of the claimant’s beneficial interest? This second question may be answered by reference to an imputed common intention if the court is unable to infer a common intention.
- The first question, it is submitted, requires detrimental reliance to justify the imposition of a constructive trust. The second question, however, does not. There is a distinction between the creation of a trust and the terms of a trust. Although it is suggested in Jones v Kernott that the presumed beneficial joint tenancy is a constructive trust, it is better viewed as an implied statutory trust.
- Once the constructive trust has arisen, the respective shares under the trust may ambulate in accordance with common intention. That is the nature and purpose of the common intention constructive trust. A “new” trust is not needed for each ambulation. This is underlined by the judicial fiction of imputed intention. Beneficial shares are potentially subject to the court’s assessment of fairness, which means that they are ambulatory without the need for detrimental reliance.
- The constructive trust has been chosen to regulate beneficial interests in the family home. The circumstances in which the trust arises must be conceptually coherent and justifiable. Hudson v Hathway is an unwelcome development. We must not lose detrimental reliance, even in joint names cases. That would be a marked divergence which removes an important justification for a trust arising by operation of law.
This article was first published in the Property Law Journal on 2 December 2022