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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Clarke v Harlowe [2005] EWHC B20 (Ch) (12 August 2005) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2005/B20.html Cite as: [2005] EWHC B20 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY

		12 August 2005

1. Introduction and Facts

1. This is a preliminary ruling in an application under the Trusts of Land and Appointment of Trustees Act 1996. For the purpose of the ruling the facts are not in dispute.

2. Margot Clarke and Christopher Harlowe met in 1977. They had a relationship which lasted for about 25 years and terminated in early 2003. There were no children of the relationship.

3. Christopher Harlowe is a successful commercial solicitor. He has been and is a partner in a number of large commercial firms including Hammonds and DLA. He has therefore enjoyed substantial earnings. Margot Clarke has had a variety of jobs throughout the relationship – some have been full time and some have been part time. There has never been any question but that Christopher Harlowe was the main breadwinner.

4. In 1988 they jointly acquired 14 New Road, Weybridge, Surrey. It is common ground that it was vested in them as beneficial joint tenants. In 1993 Church House, 3 Church Street Aberford was acquired in the sole name of Christopher Harlowe. Margot Clarke says that she thought it was in joint names and only learned that it was not when she read Christopher Harlowe's witness statement.

5. This case is concerned with Bank House, Tamworth in Arden Solihull ("Bank House"). Bank House was acquired in early 2001. The purchase price was £396,500. There was a mortgage of £124,970 provided by Mercantile Asset Management Ltd. The conveyancing was carried out by Mr Clifton an employee of DLA the firm in which Christopher Harlowe was a partner (at least for part of the time). On 2^nd January 2001 Mr Clifton asked Christopher Harlowe if he wanted to hold the property as joint tenants or tenants in common. On 10^th January 2001 Christopher Harlowe wrote back stating :

   Margot and I have agreed that we will hold the property as joint tenants. If you want Margot's separate confirmation to this effect please let me know.

6. The transfer of Bank House was executed on 19^th January 2001. It was signed by both Margot Clarke and Christopher Harlowe. It was on the standard TR1 form. In clause 11 there was a cross against the entry which read:

   The transferees are to hold the property on trust for themselves as joint tenants.

7. Following the acquisition all of the mortgage instalments were paid by Christopher Harlowe.

8. Bank House was not in a good state of repair when it was acquired by the parties. Indeed I was told that they did not move in till June 2001. It is common ground that substantial works of refurbishment were carried out by the parties. It is common ground that all of the works of refurbishment were paid for by Christopher Harlowe. It is also common ground that the supervision of the works was carried out by Margot Clarke. The precise sum spent on the works is not agreed at this stage. At page 35 of the trial bundle is a list of the works prepared by Christopher Harlowe. He estimates that the total cost was £90,230.44. The most expensive items were a new kitchen at a cost of over £36,000 and a new bathroom. The work included rewiring, a new damp proof course and substantial plumbing.

9. The work was carried out between 2001 and 2002. At the time of the acquisition of Bank House it was envisaged that substantial work would be carried out and would be paid for by Christopher Harlowe. In the course of the hearing before me it was accepted by Mr Lyon on behalf Christopher Harlowe that there was no evidence from which I could infer that the parties had agreed to alter their beneficial interest as a result of carrying out the work.

10. The relationship broke down in early 2003. Initially the parties lived separate lives under the same roof. However in December 2003 Margot Clarke moved out. In April 2004 Bank House was placed on the market. The sale was completed on 18^th August 2004.

11. The completion statement reveals that the sale price was £700,000 and that the outstanding mortgage was £87,809.19. After allowing for solicitors costs and a small sum received for chattels the net proceeds of sale amounted to £611,495.63. As the parties cannot agree on the distribution of this large sum it is held by the solicitors pending the decision of the court.

12. Margot Clarke contends that she is entitled to one half the net proceeds of sale. Christopher Harlowe does not accept this. At one stage he sought to argue that there was some form of resulting or constructive trust and that the distribution should reflect the contributions made by himself and Margot Clarke. He no longer pursues that argument. He accepts that the express declaration of trust in the Transfer governs the share to which he is entitled.

13. However he relies on the principle of equitable accounting. He contends that in making the distribution of the net proceeds of sale the court should take account of the fact that he had spent £90,000 on making improvements to the property and that he should be entitled to a credit of half that sum in making the final distribution.

14. Margot Clarke does not accept the figures or that the effect was to increase the value of the property by the £90,000. She has a more fundamental point. She makes the point that the moneys were spent at a time when the relationship was continuing. In those circumstances she says there is no room for the principles of equitable accounting to come into play. They only come into play in relations to expenditure or improvements carried out after the date of the separation. It is that point of principle on which I have been asked to rule.

    2. Representation

15. Margot Clarke has been represented in these proceedings by Mr Bruce Walker; Christopher Harlowe by Mr Stephen Lyon. Both Counsel produced helpful skeleton arguments. The submissions on the point were concise and extremely helpful. I am most grateful to them

    3. Mr Walker's submissions.

3.1 The effect of an express declaration of trust.

16. Mr Walker first took me to a number of citations – some of which are of the highest authority – as to the effect of an express declaration of trust:^[1] It is not necessary for me to set them all out. It is sufficient if I quote a selection:

    In the first place, the beneficial ownership of the property in question must depend upon the agreement of the parties, determined at the time of its acquisition. If the property in question is land there must be some ... conveyance which shows how it was acquired. If that document declares ... in whom the beneficial title is to vest that necessarily concludes the question of title as between the spouses for all time, and in the absence of fraud or mistake at the time of the transaction the parties cannot go behind it at any time thereafter even on death or the break-up of the marriage.^[2]

    If, however, the relevant conveyance contains an express declaration of trust which comprehensively declares the beneficial interests of the property or its proceeds of sale, there is no room for the application of the doctrine of resulting implied or constructive trusts unless and until the conveyance is set aside or rectified; until that event the declaration contained in the document speaks for itself.^[3]

17. It is to be noted that in Bernard v Josephs^[4] following a discussion after the citation of Lord Upjohn's speech in Pettit to which I have referred Griffiths LJ said this:

    It might in exceptional circumstances be inferred that the parties agreed to alter their beneficial interests after the house was bought; an example would be if the man bought the house in the first place and the woman years later used a legacy to build an extra floor to make more room for the children. In such circumstances the obvious inference would be that the parties agreed that the woman should acquire a share in the greatly increased value of the house produced by her money. But this depends on the court being able to infer an intention to alter the share in which the beneficial interest was previously held; the mere fact that one party has spent time and money on improving the property will not normally be sufficient to draw such an inference: see Pettitt v Pettitt.

    When this passage was drawn to Mr Walker's attention he made the point that the law may have moved on since this speech was delivered. In any event in the light of the concession made by Mr Lyon this was not one of those exceptional cases envisaged by Griffiths LJ.

    3.2 Equitable accounting

18. Mr Walker recognised that equitable accounting might be possible in this sort of case in respect of periods after the separation of the parties. However he submitted that there was no authority to suggest that those principles applied to events that took place before the separation.

    Text Books

19. He drew my attention to the current edition of Snell ^[5] where there is a reference to

    Finally there is the equitable accounting between the parties in relation to the period following the separation.

20. There is a similar passage in Lewin on Trusts^[6] where there is a reference to the payment of mortgage instalments by one party after the other has left the property.

    Case law.

21. Mr Walker submitted that there was a substantial body of case law in respect of equitable accounting. In all of the cases the period for which equitable accounting was allowed was after the separation of the parties.^[7] I shall not set out all the quotations relied on. I will content myself with 3:

    Two further questions have arisen. The first is the question whether there should be deducted from the wife's half share of the proceeds of sale on this house part of the mortgage repayments which the husband has made since she left. That is a course which was taken in Cracknell v. Cracknell ... as well as Wilson v. Wilson^[8]

    On March 9, 1971, the wife left the husband ... The husband had throughout the period from March 9, 1971, paid the instalments payable under the mortgage ... the judge rightly held that the husband in the computation of the amount payable to the wife for her half share should have credit for half the amount of those payments ....

    But in Leake v. Bruzzi ... this court arrived at a similar conclusion by regarding the mortgage interest paid by the husband while in possession as something equivalent to the rent or payment for use and occupation.^[9]

    the court should consider the ultimate position concerning the parties' rights in the property by reference to the time of separation, when one of the parties moves out and the common purpose of the implied trust thereby generally, but no always, comes to an end; and further, that for the purposes of equitable accounting, it is also permissible to have regard to the events concerning the property which have occurred thereafter.^[10]

22. Mr Walker submits that this represents a sound consistent line of authority that there is to be no equitable accounting in respect of the period prior to the separation. He invites me to follow that authority and to rule that there should be no equitable accounting in respect of Christopher Harlowe's payments for the improvements to Bank House.

    4. Mr Lyon's submissions

23. Mr Lyon drew my attention to the passage on equitable accounting in Snell's Equity. He made the point that the discussion was quite general and could apply just as much to disputes between fiduciaries as in the context of jointly owned property.

24. Whilst he accepted that many of the cases had been involved with "post separation" equitable accounting he made the point that there was no express authority to the effect that equitable accounting could not take place in respect of the period prior to the separation.

25. He drew my attention to a passage from the judgment of Millett J (as he then was) in Re Pavlou^[11]

    The trustee in bankruptcy submits that there is no equitable accounting between beneficial joint tenants but only between tenants in common, on the ground that beneficial joint tenants own the entire property per mie et per tout, so that expenditure by one is expenditure on his or her own property, and cannot be described as laid out in part in the improvement of the share of the other co-owner. Accordingly, he submits, the wife is not entitled to be reimbursed for any expenditure by her before the date of the bankruptcy order.

    In my judgment there is no distinction between a beneficial tenancy in common and a beneficial joint tenancy. In neither case could a co-owner obtain contribution from his or her co-owner; any reimbursement had to wait a suit for partition or an order by the court for sale of property. On a partition suit or an order for sale, adjustments could be made between the co-owners, the guiding principle being that neither party could take the benefit of an increase in the value of the property without making an allowance for what had been expended by the other in order to obtain it: see Leigh v Dickeson (1884) 15 QBD 60, [1881–5] All ER Rep 1099. That was a case of tenants in common, but in my judgment the same principle must apply as between joint tenants; the question only arose on a partition or on the division of the proceeds of sale, the very point of time at which severance occurred if there was a joint tenancy. The guiding principle for the court of equity is that the proportions in which the entirety should be divided between former co-owners must have regard to any increase in its value which has been brought about by means of expenditure by one of them.

26. He makes the point that in the second paragraph of the passage cited Millett J – a particular expert in this branch of the law – does not distinguish between improvements made post and pre-separation. He relies on the guiding principle for courts of equity is to have regard for any increase in value which has been brought about by means of expenditure by one of the co-owners. He submits that that principle applies to this situation.

27. He referred me to the passage in the judgment of Kerr LJ in Bernard v Joseph that I have already cited. He drew my attention to the use of the word "also". To understand the point I set out the passage again:

    and further, that for the purposes of equitable accounting, it is also permissible to have regard to the events concerning the property which have occurred thereafter

28. He submitted that the use of the word "also" was deliberate and clearly implied that in Kerr LJ's view it was possible to have equitable accounting for the period prior to the separation.

29. He postulated a case where a joint owner spent £10,000 on the day before the separation and another where he spent £10,000 on the day after the separation. He said it was both unfair and inequitable that only one of these joint owners should be entitled to benefit from equitable accounting.

    5. Discussion

30. I agree with Mr Walker that the starting point for the discussion is the express declaration of trust in the transfer. It is clear from the cases cited by Mr Walker that that declaration is conclusive as to the beneficial interests in Bank House in the absence of fraud or mistake. There is no suggestion of mistake or fraud here. Hence the declaration is conclusive as between Margot Clarke and Christopher Harlowe and they are not permitted to go behind it.

31. It is also clear from the passage from the judgment of Griffiths LJ in Bernard v Joseph cited above that it is possible for the parties to agree to vary their beneficial interest after the acquisition of the house. If that agreement is informal or oral it may be possible to enforce it by a party who has acted on the agreement to his or her detriment. However such cases are described by Griffiths LJ as exceptional. Furthermore the fact that that one party has spent time and money on improving the property will not normally be sufficient to draw the inference that the parties had agreed to vary their interests. In this case it is conceded that this is not an exceptional case and that there is no reason for the court to infer an agreement to vary the beneficial interests in Bank House.

32. There are a wide variety of situations in which a property may be bought in joint names with an express declaration of trust in relation to the beneficial interest. These vary from the common situation where a man and a woman form a relationship and decide to live together to the commercial type situation where for example two people buy a house intending to do it up and resell it at a profit.

33. In the commercial type of situation there may be an express agreement between the parties that each will contribute equally to the outgoings, any mortgage instalments and to the cost of any improvements. It may be that one of the parties is unable to honour this agreement with the result that he or she pays less than his or her fair share of the outgoings or the cost of the improvements. Notwithstanding this failure the property may still be developed and resold during the course of the relationship between the parties. On such a resale the division of the proceeds will of course have to be in accordance with the express declaration of trust. However I do not see why a court of equity should not take account of the failure by one of the parties to honour their agreement as to the contributions to the outgoings and the improvements by means of equitable accounting. I equally do not see that such equitable accounting is prohibited simply because the relationship is not at an end.

34. It is to be noted that in the example I have given the considerations leading to equitable accounting involve a breach or failure by the accounting party to honour the arrangements or agreements between the parties as to the payments for the outgoings or the improvements to the property.

35. It seems to me that this failure or breach is at the heart of the matter. Before there can be a duty to account by one party to the other there must be a breach of or failure to comply with some obligation owed by that party to the other. There may be a debate in individual cases as to the nature of the obligation necessary to give rise to a duty to account but there must still be an obligation.

36. In my view this applies just as much in an ordinary cohabitation case as in any other. Guidance can in my view be obtained from the passage in the judgment of Kerr LJ from Bernard v Joseph referred by both Mr Walker and Mr Lyon:

    the court should consider the ultimate position concerning the parties' rights in the property by reference to the time of separation, when one of the parties moves out and the common purpose of the implied trust thereby generally, but no always, comes to an end.

37. In the ordinary case of cohabitation the common purpose of the implied trust subsists whilst the relationship subsists. During that period whilst the ordinary arrangements for the discharge of the outgoings subsist there is no breach or failure by any one of the parties to honour any obligation owed to the other. Thus in the usual case there is no room or reason for equitable accounting. It is common ground, for example, that Christopher Harlowe paid all the mortgage instalments in respect of Bank House prior to the separation. It is not suggested (and could not be suggested) that Margot Clarke was under any obligation to reimburse him any part of those payments at the time. It thus could not be suggested that there was any basis for equitable accounting in respect of the mortgage instalments prior to the separation.

38. After the relationship ends and the parties separate the common purpose of the implied trust has generally come to an end. At that stage there are no common arrangements between the parties with the result that each ought to discharge his or her proportionate share of the outgoings. There is thus at that time an obligation on each of the parties. If one party fails to honour its obligation an appropriate account can be taken on the sale of the property. As is clear from the authorities the account can include an obligation to pay an occupation rent.

39. These considerations lead me to conclude that in the ordinary case there are sound reasons for holding that equitable accounting commences at the date of the separation. In general payment for outgoings or improvements prior to the date of separation is in accordance with the arrangements between the parties and the common purpose of the implied trust. There is no breach or failure to honour those arrangements and thus no room for equitable accounting. There may however be exceptional cases where it can clearly be shown that one or other of the parties is in breach of the arrangements to pay for specified improvements or outgoings. In such a case I do not see why there should not be equitable accounting even though the parties are not separated.

40. This view is consistent with all of the cases cited by Mr Walker. In none of them was it suggested that there was anything exceptional or any breach of an existing arrangements as to paying for the outgoings. In my view it follows that in all those cases equitable accounting takes effect from the date of the separation.

41. It is necessary to comment briefly on the passage in the decision of Millett J Re Pavlou cited by Mr Lyon. The passage has to be understood in the light of the facts of the case. In summary the parties married in 1954. In 1973 they acquired the property in joint names. There was an express declaration of trust that the property was held as beneficial joint tenants. In 1983 the parties separated. In 1985 the wife carried out improvements. In 1987 the husband was adjudged bankrupt. In 1989 the wife carried out further improvements. The question arose as to whether equitable accounting could take place in relation to the improvements.

42. It is to be noted that all of the improvements took place after the date of the separation. Thus the decision is not inconsistent with the view that the equitable accounting takes effect after the date of the separation. As pointed out by Mr Walker Millett J was not addressing the questions with which I am concerned. In those circumstances it would not in my view be right to treat the decision as being authority for the proposition that equitable accounting takes place in respect of any improvements carried out at the expense of one of the parties irrespective of other considerations such as an obligation to contribute to their cost.

    6. Conclusions

43. All of the improvements to Bank House were carried out between 2001 and 2002. It was clearly understood between Margot Clarke and Christopher Harlowe that they would be paid for by Christopher Harlowe. There is no suggestion in any of the evidence that it was ever agreed that Margot Clarke would make any financial contribution to the cost of the improvements. Accordingly this is not a case where she has failed to honour any existing arrangements as to the payment for the improvements. Thus there was no breach at the time of any obligation by Margot Clarke to contribute to the cost of the improvements. In those circumstances there is no reason why a court of equity should now compel her to contribute to the cost of the improvements and there is no room for any equitable accounting.

44. In all the circumstances I agree with Mr Walker that this is not a case where there should be any equitable accounting in respect of the costs of the improvements to Bank House.

    JOHN BEHRENS

    13 December 2005

Note 1   Pettit v Pettit [1970] AC 777, Gissing v Gissing [1971] AC 905A; Leake v Bruzzi [1974] 1 WLR 1528 at 1532A-D, Bernard v Josephs [1982] 1 Ch 391 403, Goodman v Gallant [1986} F 106, 110H – 111A    [Back]

Note 2   Per Lord Upjohn in Pettit v Pettit    [Back]

Note 3   Goodman v Gallant    [Back]

Note 4   [1982] 3 AER 162    [Back]

Note 5   31st Ed p 458    [Back]

Note 6   17th Ed (2000) at paragraph 9-54    [Back]

Note 7   The cases cited by Mr Walker included Wilson v Wilson [1963] 1 WLR 601, Leake v Bruzzi [1974] 1 WLR 1528 at 1532D-E, Suttill v Graham [1977] 1 WLR 819 at 821B, Bernard v Josephs [1982] 1 Ch 391 at 407G, Re Gorman [1990] 1 WLR 616 at 625    [Back]

Note 8   Per Stephenson LJ in Leake v Bruzzi    [Back]

Note 9   Per Stamp LJ in Suttill v Graham    [Back]

Note 10   Per Kerr LJ in Bernard v Josephs    [Back]

Note 11   [1993] 3 AER 955 at 959    [Back]