Davis v Jackson [2017] EWHC 698 (Ch)

Analysis

The respondents (Rs) are a married couple but at all times after 2001 were estranged and living apart. The wife (R2) purchased a property (the property) in 2003 using monies from another property owned by her and the remainder by interest-only mortgage. The title to the property was in R2’s sole name and she moved in with her children. The husband (R1) never lived in the property.

Shortly after purchase, Rs signed a declaration of trust declaring inter alia that R2 held the property on trust for herself and R1 in equal shares, that she would register R1’s interest and both Rs had full power to sell or charge the property with consent of the other. R1 thereby agreed to pay half of the mortgage payments on the property. However, only R2 paid the mortgage interest payments.

The mortgage sought possession and obtained a possession order in 2005. In response to the threat of R2’s and the children’s eviction, Rs arranged for the property to be re-mortgaged with a new lender in 2007 who required the title to be transferred into Rs joint names. That occurred by TR1 form in March 2007, the form signifying that they held the property on trust for themselves as joint tenants. R2 continued to make all mortgage payments, R1 never paid any and never occupied the property.

In August 2013, R1 was adjudged bankrupt and his trustee (A) asserted the property was held beneficially in equal shares with R2. He sought (i) a declaration of the beneficial interests and (ii) an order for sale.

In December, District Judge Cross declared A had an equal beneficial interest as R2 in the equity in the property and ordered sale. A stay was ordered of the warrant for possession pending an application for permission to appeal the order. On the application for permission, R2 argued that if the judge had known about R1’s failure to comply with his promise in the declaration of trust to make half of the mortgage payments he would not have made the declaration as to A’s 50% beneficial interest. R2 argued in the absence of R2’s payments, the judge should have declared she was entitled to 100% of the interest in the property.

In October 2016, R2 was refused permission to appeal the declaration of beneficial interest on the basis that the TR1 form on the transfer was conclusive as to the parties’ beneficial interests (Stack v Dowden [2007] WTLR 1053, [2007] 2 AC 432 applied). However, the order was varied to provide that the order for sale should be subject to an equitable account between A and R2 regarding the division of anticipated proceeds of sale.

A argued that:

1. (i) on bankruptcy the beneficial joint tenancy was severed and Rs held the property in equal shares
2. (ii) R1’s share vested in A
3. (iii) TOLATA did not excluded the principles of equitable accounting in cases involving trustees in bankruptcy
4. (iv) As tenants in common, R2 had no right to claim exclusive possession against A
5. (v) Although A had not been excluded from the property, the facts that it would be unreasonable for him to exercise his right of occupation meant that he was entitled to claim rent in respect of R2’s occupation of the property
6. (vi) It would therefore be inequitable for R2 to claim credit for mortgage interest payments without paying occupation rent. They should cancel each other out.

R2 argued that:

1. (i) any equitable account should reflect all financial contributions R2 made to the Property including mortgage payments and other expenses.
2. (ii) R2 should not have to pay occupation rent
3. (iii) Relying on McKenzie v Nutter [2007] SLT (Sh Ct) 17, if one co-owner makes all the contributions to the property and the other breaks a promise of equal contributions, the former should be entitled to all of the proceeds of sale so as to ensure the non-payer is not unjustly enriched. Thus, R1 broke his promise and therefore his creditors would be unjustly enriched if A was entitled to any share of the proceeds.

Held:

1. 1) Although R2 paid all outgoings and some items of repair and maintenance in relation to the property whilst in occupation, she did not contend that any of them contributed to any increase in the value of the property. Therefore she does not get any credit for such payments.
2. 2) R2 should be entitled to claim an additional credit of one half of the payments of interest which she has made under the mortgage(s) of the property (Re Byford, Byford v Byford [2004] 1 FLR 56 applied).
3. 3) In cases involving trustees in bankruptcy, it would be a surprising result in practice that neither a bankruptcy nor trustee would ever be able to claim a credit or payment under s13 TOLATA regarding the occupation by a co-owner of jointly owned domestic property for the period after the appointment of the trustee, because neither would be able to establish a statutory right to occupy under s12 and a claim by the trustee would inevitably be defeated by s12(2). It is not accepted therefore that the court is bound to apply the statutory regime under TOLATA to this case and looks therefore to general equitable principles.
4. 4) Earlier authorities made it clear that the default position when one co-owner is in occupation and the other is not, is that occupation rent is not payable. It seems that there ought to be some conduct by the occupying party or some other feature of the case to justify the court of equity concluding that it is appropriate or fair to depart from the default position. The court can have regard to the circumstances in existence before the tenant in common seeking payment of an occupation rent acquired his interest (Jones (AE) v Jones (FW) [1977] 1 WLR 438 and Chhokar v Chhokar [1984] FLR 313 considered). The court has a broad equitable jurisdiction to do justice between co-owners on the facts of each case.
5. 5) The unusual facts of this case make it readily distinguishable from other authorities referred to. The position regarding occupation rent may be materially different where, as in the present case, the property was acquired to provide a home for one co-owner alone. As at no time during the entire history of ownership prior to bankruptcy was there any agreement or expectation that R1 would have the right to occupy the property, it cannot be in accordance with equity and justice for A, who simply has R1’s interest in the property, to be entitled to claim occupation rent from R2.
6. 6) The application of principles of restitution does not assist R2. It cannot be said that, without more, a beneficial co-owner of land who shares in the increased value of that land has been unjustly enriched. The retention of such benefit would not be unjust, because it is what the owner of the interest in property is entitled to. What might bring the principles of unjust enrichment into play would be if the property had been bought on mortgage, and a co-owner was to seek to retain all of the benefits of an increase in value of the property in circumstances in which he had not made a proportionate contribution to the mortgage payments that prevented the property from being repossessed and sold whilst its value increased.
7. 7) The correct apportionment of the proceeds of sale of the property would be first to split the net proceeds equally between A and R2 and then give R2 additional credit for one half of all payments she has made under the mortgage(s) from the date the property was purchased to the date upon which is it sold.

JUDGMENT SNOWDEN J: Introduction [1] This case raises issues in relation to the equitable accounting which should occur between the parties on the sale of a house which was declared in a Land Registry TR1 transfer form to be held on trust for a husband and wife as joint tenants. The facts are unusual, because …

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