Hudson v Hathway in the Court of Appeal

Introduction

1. In an earlier article, I argued (along with many others) that Kerr J was wrong to find that detrimental reliance was not a prerequisite for a common intention constructive trust where property is in joint names.
2. Ironically, a case which hinged entirely on a constructive trust at trial and at the first appeal did not, says the Court of Appeal, involve a constructive trust at all. At no point did a constructive trust arise and there was never any need to consider the associated principles.
3. Instead, Mr Hudson released his beneficial interest to Ms Hathway via a series of emails. These emails constituted signed writing and therefore complied with sections 53(1)(a) and (c) of the Law of Property Act 1925 (“the 1925 Act”).
4. Therefore, although there was a statutory trust of land when the property was purchased, Mr Hudson released his interest to Ms Hathway and, at that point, there was no trust.

Facts

5. In Hudson v Hathway [2022] EWCA Civ 1648, the parties purchased a property in joint names with no declaration of trusts. They never married. The relationship broke down and discussions began regarding how to divide assets.
6. On 31 July 2013, Mr Hudson sent an email to Ms Hathway in which he set out a proposed division of the assets. In relation to the house, he said “I want none of the proceeds of that either. Take it. Buy yourself somewhere you can afford to live.” The email was subscribed “Lee”.
7. On 12 August 2013, Ms Hathway sought to clarify the proposed division and said that if her understanding was correct – Mr Hudson keeps his shares and pension, Ms Hathway keeps the equity in the house – then she accepts.
8. On 9 September 2013, Mr Hudson replied to confirm that Ms Hathway’s understanding was correct. He said that “under this arrangement, I’ve no interest whatsoever in the house, so whilst I will continue to contribute, I won’t do so forever.” The email was again subscribed “Lee”.
9. The email discussions continued after this for some time. There was talk about Mr Hudson purchasing the property, which came to nothing. In January 2015, Mr Hudson ceased making mortgage payments. In October 2019, he issued a claim seeking an order for sale and an equal division of the proceeds.

Decision

Signed writing

10. Lewison LJ began the Court of Appeal hearing by asking why it had never been argued that the emails sent by Mr Hudson satisfied section 53(1)(c) of the 1925 Act.
11. Ms Hathway’s counsel noted that not all of the emails were signed. Some were subscribed with a first name, some with a full name, some without a name at all. However, a successful application was made to amend the Respondent’s Notice.
12. The email discussions had been viewed as a quasi-contract up until the Court of Appeal. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”) prevented the formation of a contract. This provision requires all terms to be incorporated in one document.
13. The Court of Appeal viewed the salient emails, not as a contract, but as an immediate disposition. It was held that Mr Hudson’s emails of 31 July and 9 September 2013 effected a release of his beneficial interest in the property, something which is specifically preserved by section 36(2) of the 1925 Act.
14. The Court wholeheartedly endorsed a line of authority to the effect that deliberately subscribing one’s name to an email amounts to a signature. This is equally true where the subscription is automatically generated by the email software.

Detrimental reliance

15. That decided the appeal but the Court of Appeal nevertheless went on to consider the necessity for detrimental reliance. Kerr J’s view was forcefully rejected. The Court surveyed an extensive range of cases and textbooks, which all support the requirement for detrimental reliance. To hold otherwise, even in joint names cases, would see equity repeal statute. Furthermore, it was suggested that detrimental reliance is required each time there is a revised common intention.
16. In Hudson, the detrimental reliance identified by the trial judge was that Ms Hathway desisted from making claims against Mr Hudson’s assets. The claim was said to be “some sort of civil claim in the form of a constructive trust or equity” which could have been mounted against Mr Hudson’s shares.
17. This reasoning was attacked by Mr Hudson on appeal. However, the Court of Appeal clarified that the claim available to Ms Hathway would have been that she was beneficially entitled to Mr Hudson’s shares under a common intention constructive trust. There was a common understanding that assets accumulated during the relationship were joint assets and Ms Hathway had detrimentally relied on this common understanding. She further acted to her detriment by renouncing this claim against the shares and, as such, a constructive trust would have arisen had Mr Hudson not previously divested himself of his beneficial interest.
18. Permission to appeal to the Supreme Court has been refused on the basis that the application does not raise a point of law of general public importance which should be decided at this time.

Comment

Signed writing

19. The Court of Appeal has significantly narrowed the ramifications of Hudson. After Kerr J’s judgment, the case had first eschewed detrimental reliance in joint names cases but it now simply serves as a reminder that subscribing an email with one’s name amounts to a signature.
20. In most cases, there will not be an email which contains a declaration of trust or the immediate release of a beneficial interest to a joint tenant, but the Court of Appeal’s reminder is nevertheless an important point to bear in mind for unmarried couples discussing the beneficial interests in the family home.
21. It must always be borne in mind that the deliberate addition of one’s name to the bottom of an email, which is purely a matter of custom, will satisfy the safeguard of signed writing in the 1925 Act. That remains the case even where the name is automatically generated.
22. If the language used in an email objectively evinces an intention to divest a beneficial interest or to declare a trust, that is what may happen as a matter of law, which means that email discussions can be determinative of beneficial interests.
23. Furthermore, section 2 of the 1989 Act applies to executory contracts for the disposition of interests in land, as opposed to immediate dispositions. Section 2 requires that the terms of the contract be incorporated into a single document. A string of emails may constitute a single document (Re Stealth Construction Ltd [2011] EWHC 1305 (Ch)). Although unlikely, given the more rigorous requirements of section 2, it is not inconceivable that a contract could be formed by exchange of emails.

Detrimental reliance

24. Despite reaffirming the requirement for detrimental reliance, the Court of Appeal also seems to suggest that detrimental reliance is needed for each and every change in common intention. It was stated that “at the quantification stage the court may be able to take a broader view of what amounts to detrimental reliance.”
25. It is submitted that this goes too far. The quantification stage should not involve identifying the most recent constructive trust in a series of constructive trusts. Rather, the quantification stage is about determining the common intention, which may be ambulatory and may be imputed by the court.

Conclusion

26. It was thought that Hudson might introduce a major change in legal principle. Quite rightly, the Court of Appeal has stopped that change in its tracks by reinstating orthodoxy. The ratio of the case now sits neatly in the line of authorities interpreting Acts of Parliament so as to cover new technological developments. Subscribing one’s name to an email satisfies the requirement for signed writing introduced in 1925.
27. Nevertheless, the wider legal context of Hudson is impossible to ignore. Unmarried separating couples are forced to rely on the concept of a trust. In such circumstances, the court is declaring property rights. It has no discretion to adjust property rights. The Court of Appeal has rightly underlined that the court cannot depart from established trust principles but the continued ambiguity serves as a further reminder that the trust is a square peg in a round hole. The law is being moulded to produce fair results in practice. Perhaps this is another reminder to revisit the Law Commission’s cohabitation scheme, which was proposed as far back as 2007.

Oliver Foy