Detrimental Reliance In Constructive Trusts Revisited In Hudson v Hathway (2022)

The law on constructive trusts to establish beneficial interest for unmarried cohabiting couples is well established in the cases of Stack v Dowden (2007) and Jones v Kernott (2011).

In 2022 the Court of Appeal was called upon to make a decision on whether detrimental reliance was is fact required in such cases.

It also had to deal with modern questions about the significant of e-mail correspondence.

The Facts

The facts in the case are not unusual – Ms Hathway and Mr Hudson started a cohabiting relationship, did not marry, had two sons, and bought a property (Picnic House) in joint names without a Declaration of Trust.

In 2009 the relationship broke down when Mr Hudson left and married another woman. There were discussion to sell the Property to realise their respective shares, and then for Ms Hathway to buy out Mr Hudson, but when neither materialised, Mr Hudson took the matter to court.

In October 2019 he issue a Part 8 Claim under the Trusts of Land and Appointment of Trustees Act 1996 seeking a sale with division on a 50:50 basis. Ms Hathway agreed to the sale but argued she should be entitled to 100% of the proceeds under a constructive trust following a common intention and agreement, in reliance on which she had acted to her detriment.

The detrimental reliance she relied on included:

• Paying all interest payments on joint mortgage since January 2015
• Maintaining and decorating the Property from January 2015
• Desisting from claiming against assets in Mr Hudson’s sole name acquired during their relationship
• Not claiming for financial support for the children

The First Instance Decision

The judge found in Ms Hathway’s favour, concluding that whilst most of the individual element on detrimental reliance was not sufficient in substance, but by giving up the potential claim against Mr Hudson’s shares and pension was enough.

The First Appeal Decision

Kerr J heard the first appeal and disagreed with the reasoning of the trial judge that Ms Hathway needed to show detrimental reliance (such an element having been swept away by Stack and Jones). In any event he felt that the trial judge had been entitled to make the decision he did.

The Court of Appeal Decision

Detrimental Reliance

On a second appeal the Court of Appeal were called upon to decide:

Must a party claiming a subsequent increase in her equitable share necessarily have acted to her detriment? Or does a common intention alone suffice to alter the beneficial shares?

The short answer was ‘yes’ and that had always been the answer and had not changed with Stack and Jones, which appears to have been misinterpreted and detrimental reliance was not actual an issue.

The Court went to great lengths to explain why cases pre and post Stack and Jones supported this conclusion. The Court confirmed that “there are no special rules of equity applicable in this field. The ordinary law of trusts applies….This body of authority is consistent with the long-standing approach of equity, often summarised in the statement that equity will not assist a volunteer.”

As the court had decided in Curran v Collins (2015) “…in the absence of signed writing, detrimental reliance remains a key component in establishing a common intention constructive trust.”

Ms Hathway had shown detrimental reliance and the trial judge’s decision should stand.

Section 53(1)(c) of the Law of Property Act 1925

Another issue which had not arisen during the trial or the first appeal but which the Court of Appeal were now being asked to decide was whether the e-mail correspondence between the parties in 2013 were sufficient to satisfy section 53 (1)(c) of the Law of Property Act 1925 which states:

a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will

The relevant e-mails were as follows

30 July 2013:

“So here it is. We were never married. You have no claim over what is mine. What I consider ring-fenced is what I get from my years of personal graft. They are not up for discussion. I’m not agreeing to give you any. …. The liquid cash, you can have. Savings in the bank, other plans, take it all. Physical property, the contents of the house … again I don’t want it; keep it. Which leaves the house, a bad asset which is preventing all of us [from] .. moving on with our lives…. You know what, I want none of the proceeds of that either. Take it. Buy yourself somewhere you can afford to live….

As for a Will, if I were to die before this financial mess is sorted, Heidi [his wife] will have no rights to Picnic House …

What I want is an end to it. So have everything that’s available to have now and when the house is sold.”

9 September 2013

“Yes, that’s right. …

Under this arrangement, I’ve no interest whatsoever in the house, so whilst I will continue to contribute, I won’t do so forever.”

They were both signed off with ‘Lee’.

The Court accepted that these e-mails demonstrated (in writing) a clear intention to release his beneficial interest immediately.

As to necessity for a ‘signature’, the court decided:

“There is, therefore, a substantial body of authority to the effect that deliberately subscribing one’s name to an email amounts to a signature. Given that so much correspondence takes place nowadays by email rather than by letters with a “wet ink” signature, it is, in my judgment, entirely appropriate that the law should recognise that technological developments have extended what an ordinary person would understand by a signature. I would hold, therefore, that Mr Hudson’s emails of 31 July and 9 September 2013 were “signed” for the purposes of section 53 (1) (a) and (c) of the Law of Property Act 1925.”

That alone was therefore enough to rule in Ms Hathway’s favour, but given the importance of the question of detrimental reliance, the Court went on to provide judicial guidance on this to avoid any ambiguity.

Lessons Learned

Detrimental reliance is still very much required to establish a constructive trust argument, although this may not necessarily be financial – just a change of position where they are worst off would be sufficient.

Parties engaged in correspondence following a break up should be careful of what is committed to in writing without proper legal advice.

The fact that the court upheld e-mail signatures even though the same was not contemplated when the law was written in 1925, is in line with their recognition that the law needs to move with the trend of allowing remote witnessing of a deed or will through video. As to whether this can be extended to more informal communications such as a text or WhatsApp message is yet to be seen.

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