Ambulatory’ intentions and beneficial interests: where are we now?

As is well known, in cohabitation cases the court is seeking out the parties’ intentions in relation to their property.  Where a declaration of trust exists, this is conclusively binding.  Where none exists, the court must rely upon what was said and done to establish intentions.   So far, so straightforward.

But what happens when it appears that the parties changed their intentions after their shares were established?  What is the court’s approach?

Where no express declaration of trust exists, it is possible to argue that the parties’ intentions changed over time.  That was the view of the Supreme Court in Jones v. Kernott [2011] UKSC 53, which referred to this as an ‘ambulatory trust’.  On the facts of that case, the parties shared a home (and its costs) for 8 years but the court held that their intentions (and beneficial interests) changed some time after they separated when the claimant encashed a life insurance policy to buy his own property.  Thereafter he had no more to do with the family home for 14 years.  The court held that after separation the parties’ intentions change from a 50/50 split to 90/10 in favour of the defendant.

This judgment follows comments made in Stack v. Dowden [2007] UKHL 17.  Lord Neuberger said at para 138:

“It seems to me that “compelling evidence”, to use Lord Hope’s expression in para 11, is required before one can infer that, subsequent to the acquisition of the home, the parties intended a change in the shares in which the beneficial ownership is held. Such evidence would normally involve discussions, statements or actions, subsequent to the acquisition, from which an agreement or common understanding as to such a change can properly be inferred”.

The position is quite different where there is no declaration of trust.  That is because, absent mistake, fraud or undue influence, an express declaration of trust “exhaustively declares the beneficial interests” (Goodman v. Gallant [1986] Fam 106).  But what is the position where the parties’ intentions appear to change, perhaps years after a declaration was signed? What if, as often happens, one party uses an inheritance to pay for a large extension, thereby significantly increasing the value of the property?

The point has been addressed in a few cases since Jones v. Kernott.  A change of intention was successfully argued in Clarke v Meadus [2010] EWHC 3117 (Ch), but that was a decision of the High Court and arose out of an application to strike out.  It therefore cannot be considered binding authority.

The best guidance on the topic comes from the Court of Appeal in Pankhania v. Chandegra [2012] EWCA Civ 1438.   The court reiterated the rule in Goodman v. Gallant and stated that a declaration of trust is:

“conclusive unless varied by subsequent agreement or affected by proprietary estoppels”.

This was not an ordinary cohabitation case but is useful to consider nonetheless.  A property was purchased in the joint names of the claimant (nephew) and the defendant (his aunt) with a declaration that it be held by them as tenants in common.  The property was financed by the aunt and lived in by her.  The nephew sought an order for sale and equal division of the proceeds.  The first instance judge fell into error by seeking to go behind the declaration of trust and discover what the ‘true’ intentions of the parties were with respect to the property.  The judge’s decision that the nephew had no beneficial interest was rejected on appeal and a declaration made that the parties were equally entitled.  The Court of Appeal stated that the aunt would have to establish a way to set aside the declaration in order to go behind it.

The position, as set out in Pankhania and not successfully challenged since then, appears to be that beneficial interests which are determined by a declaration of trust may be varied only by “subsequent agreement or affected by proprietary estoppels” (unless set aside or rectified: Goodman v. Gallant).

The best course of action is therefore for parties to make a fresh declaration of trust, evidenced in writing (which would satisfy the requirement of Lords Neuberger and Hope for “compelling evidence”), to record their changed intentions.  But this would not assist the party who invested their inheritance with no express evidence of a change of intention.

The Court of Appeal in Pankhania raised the possibility of another argument, based on proprietary estoppel.  An example is helpfully set out by John Wilson QC in “Cohabitation Claims: Law, Practice and Procedure”, Second Edition.  In addressing the issue of subsequent change of intention, he states at para 4.11 that “It may be that, in some cases, there will have been an agreement to vary the interests in reliance upon which one party acted to his detriment (e.g. by expending capital money on an extension) and thereafter the other party refuses to execute the amended declaration of trust.  In those circumstances it may be that the wronged party can rely upon a constructive trust and/or proprietary estoppels.  However, it is submitted that strong evidence would be needed if such a claim was to be mounted.”

A party would therefore have to establish an assurance or promise of varied beneficial interests, detriment (usually a financial contribution) and unconscionability.

In reality issuing a claim for share other than that set out in a declaration of trust, at this juncture, would carry with it significant risk as the legal position is far from settled. On any view, “compelling” or “strong” evidence would be required.  A decision of the Supreme Court on this issue would be very welcome.