Wilcox v Tait

LORD JUSTICE JONATHAN PARKER: This is an appeal by Miss Fleur Wilcox, the claimant in the action, against an order made by HHJ Geddes in the Kidderminster County Court on 20 March 2006.

In the action Miss Wilcox claimed against Mr Michael Tait a declaration as to her beneficial interest in a freehold property at 36 Orchard Road, Hele, Torquay in Devon; an order for the sale of the property; and the division of the net proceeds of sale in equal shares. She seeks that relief pursuant to section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (I will refer to it as “the 1996 Act”) relying on a Transfer dated 10 November 1994 whereby Mr Tait transferred 36 Orchard Road into their joint names, “upon trust for themselves as beneficial joint tenants”. I will refer to that Transfer as “the 1994 Transfer”.

She also seeks accounts and enquiries as to the rental income from the property received by Mr Tait.

By his Defence Mr Tait does not admit the 1994 Transfer although in the event there was no issue before the judge as to the existence or the validity of that Transfer. In particular, there was no suggestion on the part of Mr Tait that it should be rescinded or rectified in any way. By his Defence, Mr Tait admitted that the property had been let, but before the judge it was pointed out, on the basis of his witness statement (as I understand it), that the whole of the rental income had in fact been applied in making repayments under the mortgage.

Mr Tait and Miss Wilcox began their relationship in about 1987. On 29 November 1988 the first of their two children, Gemma, was born. In January 1990, Mr Tait purchased 36 Orchard Road as a home for the family. The price was £47,000. Mr Tait paid £1,000 in cash, the balance of £46,000 being financed by a loan from Abbey National, secured by an endowment mortgage on the property. By a transfer dated 26 January 1990 the property was transferred into the sole name of Mr Tait and he was duly registered as sole proprietor of the property at Her Majesty’s Land Registry.

Thereafter, Mr Tait and Miss Wilcox and their daughter Gemma lived together as a family at 36 Orchard Grove. On 21 June 1991, the second of their two children, Jennifer, was born.

In about November 1994, Mr Tait took a job in Germany and worked there for some four and a half years.

By the 1994 Transfer Mr Tait transferred 36 Orchard Road into the joint names of himself and Miss Wilcox as beneficial joint tenants (I have already quoted the terms of the expressed declaration of trust). On 8 December 1994, the 1994 transfer was registered at the Land Registry and Mr Tait and Miss Wilcox became joint registered proprietors of 36 Orchard Road.

In 1996, Mr Tait and Miss Wilcox separated, Miss Wilcox moving to Kidderminster with the children. However, after about 12 months they were reconciled and Miss Wilcox returned to 36 Orchard Road with the children.

The relationship did not last, however. In 1999 Miss Wilcox returned to Kidderminster with the children and Mr Tait subsequently let 36 Orchard Road. It appears that the letting took place in October 1999. In about 2000, the relationship between Miss Wilcox and Mr Tait finally came to an end.

On 30 March 2005, Miss Wilcox commenced the present action claiming the relief I have described.

The trial of the action began before HHJ Geddes on Tuesday 14 March 2006. Miss Wilcox was represented by Miss Joanna Chadwick; Mr Tait by Mr John Stenhouse. Both counsel also appeared before us on this appeal.

Before the judge, it was agreed that if 36 Orchard Road were sold on the open market within the next four months or so (that is to say on a quick sale) it would fetch around £85,000. It was also agreed that the capital sum currently outstanding under the mortgage was some £44,000, leaving an equity, on the basis of a sale at £85,000, of some £41,000. After allowing for the costs of sale and other incidental costs that would produce a net sum of around £40,000 for division between the parties.

Both parties had submitted written skeleton arguments prior to the hearing before the judge.

In her written skeleton argument Miss Chadwick submitted, relying on the decision of this court in Goodman v Gallant [1986] 1 FLR 513, that the express declaration in the 1994 Transfer was determinative on the issue as to the extent of Miss Wilcox’s beneficial interest in 36 Orchard Road, and that an order for sale should follow as a matter of course. As to the rental income, which she understood to be £90 per week, amounting in total to some £28,000 since the property was let in October 1999, she submitted that it was the joint property of herself and Mr Tait and that he should account to Miss Wilcox for half of it. She stressed that Miss Wilcox was willing to give full credit for the mortgage payments made with the rental monies during that period, that is to say since 6 October 1999, and for some £1,940 spent by Mr Tait on repairs during that period.

As to a sum of £4000 or thereabouts, representing the proceeds of the endowment policy on Mr Tait’s life, which he had cancelled, the proceeds being applied in reduction of the mortgage debt, Miss Chadwick submitted that the policy was also joint property and that she should not have to account to Mr Tait in respect of it.

Mr Stenhouse in his skeleton argument contended that section 14 of the 1996 Act, gave the court an unfettered discretion as to respective beneficial interests of the parties in 36 Orchard Road and that the extent of their beneficial interests should be determined by reference to the their common intention - as to which Miss Wilcox had, he submitted, led no evidence.

In any event, he contended, even if Miss Wilcox were held to be entitled to a beneficial half share in the property, which was not accepted, she must account for all the expenditure on the property which had enabled her to acquire that share. He pointed out that the only evidence of a financial contribution by her was that she had made eight repayments under the mortgage. By contrast, the evidence was that the entirety of the remainder of such expenditure - for example, mortgage repayments and repairs and maintenance costs - had been born by Mr Tait. Mr Stenhouse submitted, therefore, that Miss Wilcox should be held accountable for half of the expenditure borne by Mr Tait, being expenditure which had enabled Miss Wilcox to realise her share in the net proceeds of sale. Mr Stenhouse attached to his skeleton argument a schedule of such expenditure on the basis of which Miss Wilcox would, on his argument, have to account to Mr Tait for some £28,500. Hence the value of her beneficial interest, if any, was nil. Her beneficial interest was effectively extinguished.

Included in Mr Stenhouse's schedule of expenditure was the sum of £4,000 representing the proceeds of the endowment policy.

As to the rental income, Mr Stenhouse pointed out that, as I indicated earlier, Mr Tait’s evidence was that the entirety of the rental income had been applied towards the mortgage repayments.

At an early stage in Miss Chadwick’s opening, the judge expressed the provisional view that section 14 of the 1996 Act gave the court an unfettered discretion to determine the parties’ beneficial interests, notwithstanding any expressed declaration of trust in the relevant Transfer. Miss Chadwick submitted, in accordance with her skeleton argument, that the express declaration of trust in the 1994 Transfer was determinative of that issue. Mr Stenhouse, in accordance with his, submitted that the issue depended on the parties intentions and that there was a dispute between the parties as to the intention behind the express declaration of trust.

Following further discussion between the judge and counsel, the judge adjourned the case until the following morning, asking counsel to submit further skeletons in the meantime dealing with the issue as to the extent of the parties’ beneficial interests and the issue of equitable accounting.

At the outset of the resumed hearing, the judge indicated that he proposed to deal with the issue as to the extent of the parties’ beneficial interests as a preliminary issue, in the hope that once that issue had been decided the parties would be able to settle their dispute. Miss Chadwick repeated her submission that the express declaration of trust in the 1994 Transfer was determinative of that issue. She submitted that it would be wrong for the court, in exercising its jurisdiction under section 14 of the 1996 Act, to deviate from that express declaration.

She went on to invite the judge:

“…to declare the joint beneficial interest as per the conveyance [i.e. a reference to the 1994 transfer], because there are no grounds to do otherwise, to order a sale, and then, as per as Re Pavlou [an authority to which I shall return later], to adjourn the question of quantification and the discretion in relation to equitable accounting, which may or may not be pleaded by the defendant at that stage, and the rental accounting, to be heard by a district judge.”

In response to the judge’s question: “Why cannot that be done now?”, Miss Chadwick submitted that equitable accounting was more properly investigated once the property had been sold.

However, the judge took the view that the question of equitable accounting could and should be dealt with there and then. He went on, I am reading from page 5 of the transcript of the proceedings for that day, Wednesday 15 March:

“I think it can be dealt with today. There is no reason why it should not be and I think that that should be done. So really what you are saying is this, and it comes to the same thing, because I am sure the defendant would not care a jot whether I varied the trusts to accommodate his additional payments or kept the trusts as they are and demanded equitable accounting. It seems to me that it is a matter of total indifference to him.”

Miss Chadwick sought to press her point. She submitted that it would be difficult for the court on the evidence presently before it, fairly to quantify any adjustments to be made by way of equitable accounting, even on what she described as a broad brush approach. The judge responded as follows:

“Stop there because I do not have the evidence before me. At least, if I have, I have not looked at it. What I am attempting to do, as you know, is to get the principle agreed and thereafter I am hoping that the parties will be able to settle down and agree what the figures are because obviously they know them far better than I do, and that seems to me not a matter really which the judge needs to be involved in. It is merely a question of looking at what has been paid by him, what has been paid by Social Security and what has been paid by her and come to a decision as to what in fact she should contribute towards his payments, namely half.”

The discussion then turned to equitable accounting. Miss Chadwick submitted that it would not be fair to Miss Wilcox to make her accountable to Mr Tait in respect of his expenditure on the property before the separation. But she accepted that Miss Wilcox was accountable to him in respect of mortgage payments and costs of repairs and maintenance born by him since the separation (which she put at October 1999 when the property was let). The judge suggested that it might be fair that she also be accountable in respect of the period before the separation. Miss Chadwick submitted that that would be unusual in a cohabitation case where there were two children and an express declaration of trust. She went on to say that it would difficult for Miss Wilcox to quantify the sums involved at that hearing or to agree a sum given that in relation to period before the separation her case was that there should be no equitable accounting, whereas Mr Tait was contending for the sum of £47,000. She continued:

“So we are so far apart as to make the exercise of settlement, even if your Honour establishes the principle, very, very difficult to quantify.”

The judge did not accept that. He could not understand why it was difficult to quantify the relevant expenditure; he indicated that he would give a short judgment on the question of principle and that the parties should then go away and work out the figures.

At that point Mr Stenhouse raised the question of the £4,000, (i.e. the proceeds of the endowment policy to which I referred earlier). Mr Stenhouse contended that Miss Wilcox was accountable for half of that sum. The judge asked Miss Chadwick whether she accepted that Mr Tait had paid £4,000 towards the reduction of the mortgage debt. She answered, “Yes”.

After some further discussion with counsel about the figures, the judge said (on page 14 of the same transcript at A):

“I am going to set out principles, not figures.”

The judge then proceeded to deliver a short judgment (I will call it “the first judgment”). On the issue as to whether section 14 conferred on the court a discretion to depart from the express declaration of trust in the 1994 Transfer, he held that it did, but he then went on to declare that the parties’ beneficial interests were as set out expressly in the 1994 Transfer. That is, to say, in effect, equal shares.

Since the judge’s decision that the parties beneficial interests were in accordance with the express declaration of trust in the 1994 Transfer is not under appeal, I need say no more about it save that in the light of Lord Upjohn’s much-cited dictum in Pettit and Pettit [1970] AC 777, (83) cited by Slade LJ in Goodman v Gallant at page 521H to 522B and of the decision in Goodman v Gallant itself, I find it hard to see how he could have come to any other conclusion.

At all events, the judge went on to conclude that both parties must be subject to equitable accounting, saying this in the concluding paragraphs of the first judgment (paragraphs 12 to 14):

“It seems to me, therefore, that the most convenient way of dealing with this application is to declare that the parties’ interests under the trust are as set out in the conveyance, namely, that they have equal shares, but that both parties must now be subject to equitable accounting, which means, in the case that I am concerned with, that the claimant must give credit for half the mortgage payments paid by the defendant, whatever they may be, from the time of the inception of the mortgage until the present day. She does not, of course, for clarification purposes, have to give credit for any mortgage payments paid by Social Security, only those paid for b the defendant.

“She must also give credit for half the costs which the defendant may establish he has paid in keeping the property in repair and on occasion even improving it. As I say, it is for him to establish that on credible evidence and for Miss Wilcox to be satisfied that indeed that that money has been paid. If that cannot be agreed then I suppose I will have to try it, but I sincerely hope that is not going to be necessary.

“So far as the £4,000 is concerned, which was paid by the defendant to a reduction of the capital of the mortgage by way of an endowment policy, the claimant again must give credit for half of that, he having paid all the monthly payments in relation to that and having, once it had matured, allotted the capital sum thereby gained, to the reduction of the mortgage. I think that deals with all of the points.”

Having delivered the first judgment, the judge expressed the hope that with the benefit of the guidance contained in it, the parties would be able to go away and reach agreement.

In fact what happened was that, later that day, Miss Chadwick produced to the court an authority on equitable accounting, namely the decision of HHJ Behrens, sitting as a High Court Judge, in Clarke v Harlowe (unreported judgment delivered 12 August 2005), to the effect that in the ordinary case where the parties’ relationship had come to an end equitable accounting only took place as from that date. I shall return to that authority later in this judgment.

The judge, having in the first judgment held that equitable accounting should take place “as from the time of the inception of the mortgage” (that is, 26 January 1990) had to consider, in the light of the new authority which had been placed before him, whether to reopen that issue. He concluded that he could and should reopen it on that basis that the primary issue before him was the issue whether he had discretion under section 14 to depart from the terms of the express declaration of trust. Accordingly, albeit with some criticism of counsel for not having placed all the relevant authorities before him at the start of the hearing, he adjourned the equitable accounting issue until Friday 17 March 2006.

In the meantime, counsel provided further skeleton arguments.

At the resumed hearing, the judge began by explaining why he had decided to reopen the equitable accounting issue; submissions were then made by Miss Chadwick and Mr Stenhouse about Clarke v Harlowe. Miss Chadwick invited the judge to follow it; Mr Stenhouse submitted that it was decided per incuriam.

In the course of the discussions with counsel about Clarke v Harlowe, the judge commented that even if he were persuaded not to follow Clarke v Harlowe he would then have to decide what should be done in the instant case. He went on:

“Is that not fact sensitive? And I really have not heard the facts in this case yet.”

Mr Stenhouse agreed, pointing out that it might be necessary ultimately to have a trial. The judge then suggested that the first step for him might be to decide whether or not to follow Clark v Harlowe and for the parties then to come back to court for further argument as to what effect that decision has on the facts of the case, observing once again that he had not yet heard the facts. At that point Miss Chadwick expressed concern at the way the costs were escalating and suggested that the way forward was for a party who was dissatisfied with the judge’s decision on the issue as to whether equitable accounting should take place in respect of period before separation (what I may call the Clarke v Harlowe issue) to appeal that decision. The judge responded as follows (I quote from page 8 of the transcript for Friday 17^th March):

“The next hearing will have to be final, I make it quite clear. I think what I should do now is to give a decision on this particular issue and in the light of that issue to hear, if necessary, further argument and, if necessary, further evidence from the parties as to how this equitable accounting should apply in this particular case.”

Mr Stenhouse indicated at that point that he wished to hand in further authorities and the judge gave him until 4.00pm that day to do so. The judge then adjourned the hearing to Monday 20 March 2006.

Further skeleton arguments were duly provided by counsel and the hearing resumed on Monday 20 March 2006.

At the start of the resumed hearing, Miss Chadwick sought to put before the judge a written analysis of the authorities cited by Mr Stenhouse. The judge read that analysis, albeit he indicated that he had already written his judgment.

The judge then asked Mr Stenhouse some questions about an authority on which Mr Stenhouse was relying, Marsh v von Sternberg [1986] FLR 526. The judge put it to Mr Stenhouse that it was his case that the intention of the parties was that the liability for the mortgage should be shared equally between them. Mr Stenhouse duly assented. However, Miss Chadwick submitted that there was no evidence of such a common intention.

At that point the judge said this I read, from page 5 of the transcript for Monday 20 March, just below letter c):

“It may be that I will have to hear evidence of what the parties’ intentions were, but so far as I am concerned I prefer the arguments of Mr Stenhouse, subject as I say, only to the question about what the intention of the parties was. But otherwise I am perfectly satisfied on the authorities that I have read, that equitable accounting should take place from the date of purchase of the property, namely 1990, and that includes both capital and interest payments and costs towards improving the property as well. I have a judgment here which you can now have and read and I hope that as a result of that you will be able to reach agreement on quantum.”

Miss Chadwick promptly asked for permission to appeal. The judge gave her seven days in which to formulate her grounds. Mr Stenhouse then asked the judge what he expected of the parties, that is to say whether, having delivered his judgment he expected the parties to go away and try to settle their differences, coming back to court for directions if they were unable to do so; or whether he expected the parties, to, as he put it, “launch into a trial today”. The judge indicated that he thought the equitable accounting issue was no more than a mathematical exercise, but that if the parties could not reach agreement they would have to come back to court “and I will decide any further issue that needs to be decided.”

Discussion then followed between the judge and Miss Chadwick about a possible appeal. Miss Chadwick describing the judge’s decision on equitable accounting as a fundamental point which in effect decided the case against Miss Wilcox by wiping out her beneficial interests in the property. Mr Stenhouse responded that a final order was needed otherwise the case would end up in what he described as a: “litigation limbo” while Miss Wilcox pursued an appeal.

The judge was persuaded by Mr Stenhouse saying that he must reach a final conclusion which Miss Wilcox could appeal if so advised. He then proceeded to deliver his further judgment (which I will call the “second judgment”).

The second judgment focuses on the decision of Judge Behrens in Clarke v Harlowe. After analysing that decision in considerable detail the judge declined to follow it, saying this (in paragraphs 8 to 10 of the second judgment):

“8.… it is clear from Marsh v von Sternberg that whether contributions made by one party to the mortgage should in fact be credited to that party when equitable accounting takes place, will depend on the intention of the parties as to who should be responsible for those payments … I am told that in this case (I have not heard evidence on this topic) the parties intended from the outset that both parties should be responsible equally for the mortgage.

“9.

In my judgment Mr Stenhouse’s argument is correct. It seems to me that it is clearly supported by Leigh v Dickeson and Re Pavlou as applied in Marsh v von Sternberg and Walker v Hall. It follows therefore that I decline to follow Clarke v Harlowe.

“10.

In my judgment therefore equitable accounting is applicable in this case, both in respect of mortgage payments and expenditure on repairs during the period prior to separation and for the period post separation. Whether in fact those payments should be taken into account will depend on the intentions of the parties at the time they were made.”

Whatever the judge may have precisely meant in paragraph 10 of his judgment by saying that equitable accounting was “applicable during the period prior to separation”, whilst at the same time leaving open the question “whether in fact those payments should be taken into account”, he proceeded to make an order, paragraphs 1, 2 and 3 of which are in the following terms:

“1.

The Claimant is liable to account to the Defendant for half of all mortgage payments made since the house was purchased in January 1990 in the sum of £47,660 together with repairs and improvements made by the Defendant in the sum of £4,390 plus half of the capital repayment in the sum of £2,000 to a total of £27,369.97 and her claim for net rental payments.

“2.

The value of the Claimants express beneficial interest having been extinguished by the debt in paragraph 1 of this order, the property at 36 Orchard Road, Hele, Torquay, be transferred into the Defendants sole beneficial and legal estate and title.

“3.

The claimants’ application for a declaration and order for sale under section 14… [1996 Act] be dismissed.”

In effect, paragraphs 1 to 3 of the judge’s order reflect a final decision on the issue of equitable accounting, notwithstanding (a) that the judge had not heard evidence as to the parties’ intentions and (b) notwithstanding that the property was as yet unsold. The effect of that final decision on equitable accounting was to wipe out Miss Wilcox’s beneficial interest in the property altogether.

Paragraph 4 of the order dealt with costs, Miss Wilcox being ordered to pay Mr Tait’s costs, but with the usual proviso to reflect the fact that she was publicly funded.

Paragraph 5 of the order, the judge refused Miss Wilcox permission to appeal.

By paragraph 6, he stayed paragraphs 1 to 3 of the order, pending an application by Mr Chadwick to this court for permission to appeal.

On 27 June 2006, Neuberger LJ granted limited permission to appeal on the papers. The issues on which permission was granted are as follows:

“1)

How mortgage interest payments should be accounted for;

“2)

How the proceeds of the endowment policy, (some of £4,000) should be accounted for; and

“3)

Whether there should be equitable accounting in relation to the period before the parties separated.” [the Clarke v Harlowe issue, as I have described it].

As to issues 1 and 3, Miss Chadwick submits that it would be wholly inequitable to require Miss Wilcox to give credit for half of all the interest payments under the mortgage made by Mr Tait, given that the property was the family home. She seeks once again to persuade the court to follow Clarke v Harlowe, conceding that, post-separation, different considerations apply. She submits that absent any evidence of contrary intention before the judge, the mere fact of co-habitation during the period in question should have led the judge to conclude that equitable accounting should not take place in relation to that period. As to issue 2 (the proceeds of the endowment policy) she submits that in applying those monies in reduction of the mortgage debt (that is to say a reduction of the outstanding capital of the mortgage debt) Mr Tait was acting voluntarily in relation to what was in effect a joint asset. She points out that it was not necessary for Mr Tait to apply the policy proceeds in reduction of the mortgage debt in order to be able to achieve a market rental for the property.

In his written skeleton argument, which also incorporates the skeleton arguments which he placed before the judge, Mr Stenhouse cites a large number of authorities in support of his proposition that Clarke v Harlowe was decided per incuriam, and that it is fair and just that Miss Wilcox should be accountable for half of all Mr Tait’s expenditure in relation to the property from 1994 onwards (he does not seek to go as far back as 1990, which is the date in the judge’s order) on the basis that by such expenditure Mr Tait was buying something not just for himself but also for Miss Wilcox, that is to say her beneficial interest in the property. He submits that on Miss Chadwick’s approach equitable accounting is, as he put it in his skeleton argument, “some sort of surrogate for a quasi-matrimonial discretion”, whereas in truth equitable accounting proceeds on the basis of proprietary rights and liabilities. In that context, he goes so far as to submit that relationship breakdown is irrelevant.

As to the evidence before the judge, he submits that there was sufficient evidence before the judge to justify a conclusion that equitable accounting should take place during a period of co-habitation, that is to say as well before separation as afterwards, but he accepts (as he must) that the judge made no findings on the evidence before him and indeed did not refer to such evidence in the course of his judgment.

Mr Stenhouse also submits that Miss Wilcox has delayed unnecessarily in bringing her claim and that that delay has prejudiced Mr Tait with, as he submits, consequences in the context of equitable accounting. As to the proceeds of the endowment policy he submits that it is not open to Miss Wilcox to appeal the judge’s decision on that point since, as mentioned earlier in this judgment, in answer to a question from the judge Miss Chadwick accepted that Mr Tait had repaid £4,000 of the mortgage debt.

Mr Stenhouse also points out that the figures which appear in the final order made by the judge were inserted in the draft form of order approved by both counsel and that indeed the form of order was suggested by both counsel to the judge. In that sense, which he accepts is not the true sense of a consent order, he submits that the judge’s order was made by consent. Hence he submits that it is not open to Miss Chadwick now to seek to complain about the terms of the order or to reopen any issue as to the figures contained in it.

In my judgment the judge’s understandable desire, in the interests of the parties, to achieve finality at as early as stage in the proceedings as possible has caused this case to go off the rails.

The primary relief sought by Miss Wilcox is a declaration as to her beneficial interest coupled with an order for sale. Given the judge’s conclusion - an inevitable conclusion in my judgment - that the parties’ beneficial interest were in accordance with the express declaration of trust in the 1994 Transfer, the judge ought, in my judgment, to have granted a declaration in those terms. Then, rather than proceeding as if the property had already been sold for £85,000, he ought to have made an order of sale by public auction giving the conduct of the sale to Miss Wilcox’s solicitors and granting liberty to Mr Tait to bid. After all, the valuation which was agreed between the parties was dated 5 September 2005 and gave the value of the property as £85,000 on the footing that the property was offered for sale and sold within four months of marketing. More than a year has now passed since the valuation was made, during which period the value of the property may, for all we know, have appreciated considerably.

Similarly, the issue as to the precise division of the net proceeds of sale to reflect the parties respective beneficial interests (in the instant case, one half each), is in my judgement, more appropriately addressed once the property has been sold and there is a fund in place available for division. To attempt an equitable accounting exercise in advance of any sale is, as it seems to me, in general an inherently risky and uncertain process. Certainly I can see no good reason for the judge to attempt to undertake that task in the instant case.

In any event, as I indicated earlier, I find difficulty in understanding what the judge meant in paragraph 10 of the second judgment. In the first sentence of that paragraph he concludes that equitable accounting is “applicable” during the period prior to separation, whereas in the second sentence he expressly leaves open the question whether expenditure incurred on the property during that period should be taken into account, on the basis that that will depend on the intentions of parties (a matter about which, as he acknowledged in the course of the hearing, he had as yet heard no evidence).

Moreover, it is in any event risky in my judgment to attempt to formulate general principles to be applied in carrying out an equitable accounting exercise in any given case, if for no other reason than that, as the judge put it in the instant case, equitable accounting, is “fact sensitive”. What can at least be said is that an exercise of equitable accounting is not to be confused with an enquiry as to the extent of the parties’ respective beneficial interests in the property in question. Questions of equitable accounting only arise once the extent of the parties’ beneficial interests has been determined, since the requirement to account (where it exists) is a reflection of and derives from those beneficial interests.

As to the period to which equitable accounting should relate, in a case such as the instant case where the property has been used as a home for both parties but the relationship between the parties has come to an end (what was described in argument as a cohabitation case), the judge was in my judgment right to conclude that that depends upon the intentions of the parties as to how the relevant expenditure should be borne as between them.

That said, I agree with Judge Behrens in Clarke v Harlowe that in the ordinary cohabitation case it is open to the court to infer from the fact of cohabitation that during the period of cohabitation it was the common intention of the parties that neither should thereafter have to account to the other in respect of expenditure incurred by the other on the property during that period for their joint benefit. Whether the court draws that inference in the given case will of course depend on the facts of that case.

I turn then to Clarke v Harlowe itself. The facts were straightforward. The claimant, Miss Clarke, met the defendant, Mr Harlowe, in 1977 and they had a 25-year relationship which came to an end in 2003. In 2001 they purchased a house, Bank House, Tamworth in Arden, in joint names. The Transfer expressly declared that they held the house on trust for themselves as joint tenants. After their relationship came to an end the house was sold and Miss Clarke claimed a half share of the net proceeds of sale. Mr Harlowe accepted that she was beneficially entitled to half the net proceeds of sale, but he relied on the principle of equitable accounting. He contended that in distributing the net proceeds of sale the court should take into account the fact that during the course of the relationship he had spent some £90,000 on making improvements to the property, and that Miss Clarke should be debited with half that sum. Miss Clarke contended that since the expenditure was incurred whilst the relationship was continuing there was no room for the principles of equitable accounting to come into play.

In paragraph 32 of his judgment Judge Behrens observed that there is a wide variety of situations in which a property may be bought in joint names with an express declaration of trust in favour of the joint owners, ranging from a cohabitation case to a commercial joint venture.

In paragraphs 33 to 35 of his judgment he considered the case of a commercial joint venture, saying that he saw no reason why the court, whilst accepting the express declaration of trust as determinative of the parties’ beneficial interests, should not take account of the failure by one party to honour an agreement between the parties as to their respective contributions to the venture (whether in terms of outgoings on the property or of improvements to it) by means of equitable accounting on the division of the net proceeds of sale. He concluded that a breach of, or failure to comply with, such an agreement is at the heart of equitable accounting. He concluded paragraph 5 by saying:

“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.”

Judge Behrens then turned to cohabitation cases saying (in paragraph 36) of his judgment that the need for an obligation of some kind applied just as much in an ordinary cohabitation case as in any other. He went on to cite a passage from the judgment of Kerr LJ in Bernard v Josephs [1982] 3 AER 162 (a cohabitation case), where Kerr LJ said this:

“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 not always, comes to an end.”

Judge Behrens went on to say (in paragraph 37 of his judgment) that in an ordinary cohabitation case there is usually no room or reason for equitable accounting whilst the parties’ relationship subsists, since “there is no breach or failure by any one of the parties to honour any obligation to the other”; whereas, by contrast, once the relationship has come to an end there are no longer any common arrangements in place between the parties, with the result that each ought to discharge his or her proportionate share of the outgoings. Judge Behrens continue (in paragraph 38):

“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.”

In paragraph 39 of his judgment, Judge Behrens said this:

“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 the 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.”

Judge Behrens goes on to comment on Re Pavlou [1993] 1 WLR 1046, a decision of Millett J, as he then was, in which he said this:

“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.”

Judge Behrens points out that in Re Pavlou there was no need for Millett J to distinguish between the period that whilst the parties’ relationship was continuing and the period thereafter, since the improvements in issue in that case were made after the parties’ relationship had come to an end.

I would reject Mr Stenhouse’s submissions that in Clarke v Harlowe Judge Behrens was suggesting that in cohabitation cases a breach of some contractual obligation is required before equitable accounting could come into play; or, for that matter, that Clarke v Harlowe was decided per incuriam. As I read his judgment, Judge Behrens makes it abundantly clear that in the context of cohabitation cases he is not talking necessarily about a breach of a contractual obligation -- on his analysis any departure by one co-owner from an arrangement or common understanding between them as to how expenditure on outgoings or improvements is to be borne as between them may suffice to bring equitable accounting into play. In that context, he points to the contrast between the situation which obtains whilst the relationship between the co-owners is continuing and the situation which obtains once that relationship had come to an end. In the former situation, there will usually be a common understanding or intention as to how expenditure on the property is to be borne between them, whereas in the latter situation that will not usually be the case. Hence in an ordinary cohabitation case equitable accounting is only likely to come into play in respect of the period following the termination of the relationship between the co-owners. However, there can be no absolute rule as to that.

I do not, for my part, understand Judge Behrens in Clarke v Harlowe to be going any further than that. It is, after all, in the nature of the concept of equitable accounting that there can be no hard and fast rule or “principle” that in a habitation case equitable accountability commences at any particular date. What is the appropriate date for the commencement of equitable accounting, assuming it is appropriate at all, must depend upon the facts of each case.

In these circumstances I can deal briefly with the (principal) authorities relied on by Mr Stenhouse in his written skeleton arguments on the topic of equitable accounting. I take them in chronological order.

Leigh v Dickeson [1885] 15QBD 60. This was not a cohabitation case. In this case the plaintiffs, as trustees of the estate of a Mrs Eyles, claimed against the defendant Mr Dickeson, an occupation rent in respect of Mrs Eyles’ interest as a tenant in common of premises of which Mr Dickeson had been tenant and of which he continued in possession. Mr Dickeson was also a tenant in common of the premises. The Court of Appeal held that a tenant in common who continues in occupation of premises after the expiration of his lease will be liable for his continued occupation at the suit of a co-tenant in common who was the lessor. I can see no relevant similarity between that case and this.

Davis v Vale [1971] 1 WLR 1072. This is another case in which credit was given for mortgage repayments made by the husband after the separation (see the headnote). As Lord Denning MR said (at p.1027E):

“The only remaining question is as to the position after the wife left. The husband remained in the house, paying all the mortgage instalments, but receiving rent from the subtenant. It seems to me that, on the realisation of the house or any taking of accounts between them, credit should be given for the fact that he has paid the whole of the instalments on the house, of which half is hers.” (emphasis added)

I do not derive any assistance from that authority.

Cracknell v Cracknell [1971] 3 WLR 490. In this case a matrimonial home was bought by the husband and wife in joint names. Both husband and wife continued to work and pooled their savings. In 1966 the wife left the house and subsequently applied under section 17 of the Married Woman’s Property Act 1882 for a declaration that she and her husband were equal beneficial owners, and for orders of sale and distribution of the net proceeds of sale equally between them. The judge at first instance held that the wife should account to the husband for half the mortgage repayments made by him after the separation. The wife appealed, but this court dismissed her appeal. At issue on the appeal was the question as to whether the court could take into account the parties conduct following the separation at page 494 F-G Lord Denning MR said this:

“It seems to me, therefore, that when a wife, who owns half the house, voluntarily chooses to leave of her own accord- leaving the husband to pay the whole of the mortgage instalments- then, when the house is sold, in taking accounts, she gets half the proceeds of sale, but it is subject to deduction of half the mortgage instalments, and these are added to his half. If the wife does not leave voluntarily, but is virtually forced out by his conduct, then it is to be taken that the husband pays the whole of the mortgage instalments for his own benefit, as he has had the use of the whole house. When the house is sold, she is entitled to one half of the proceeds, without deduction.”

No question of subsequent conduct arises in the instant case. In any event, it is to be noted that in Cracknell the issue was limited to accountability in respect of mortgage payments made after the separation.

Leake v Bruzzi [1974] 1 WLR 1528. This was a husband and wife case in which the matrimonial home had been taken in the sole name of the husband, but the Transfer was accompanied by an express declaration of a beneficial joint tenancy. The wife subsequently left the husband, and thereafter he alone repaid the mortgage instalments and had sole occupation of the former matrimonial home. This court held that after the separation the husband was entitled to credit for half the capital repayments he had made under the mortgage, but that the payments of mortgage interest which he had made could be regarded as the equivalent of payment for his use and occupation of the property. Thus, at p.1533H Ormrod LJ said this:

“On the other hand, when one comes to take the account, it seems to me reasonable that the husband in this case, who has paid some of the mortgage repayments [after the separation] should have credit for half of the capital repayments that he has made …”

I do not derive any assistance from that case in deciding this appeal.

Walker v Hall [1984] FLR 126. In this case Mrs Walker and Mr Hall cohabited first in a house owned solely, both legally and beneficially, by Mr Hall. However, Mrs Walker paid a number of mortgage instalments in respect of that property. Later they moved to another property which was purchased in their joint names. The purchase price of the second property was funded by the proceeds of sale of the first property, together with further financial contributions by each of them. The judge at first instance held that the extent of their beneficial interests in the second property was to be determined by reference to their respective contributions, and in assessing these proportions Mrs Walker was entitled to credit for the mortgage instalments she had paid in respect of the first property. The court upheld this decision on the footing that had Mrs Walker not paid the mortgage instalments on the first property the contribution to the purchase to the second property represented by the proceeds of the sale of the first property would have been less. I can see nothing in that authority which assists in the instant case.

Marsh v von Sternberg [1986] 1 FLR 526. This was a cohabitation case, where the Conveyance was in joint names but with no declaration as to the parties’ respective beneficial interests. Bush J concluded that their beneficial interests were in proportion to their contributions to the purchase of the property. The next question was what contributions qualified to be credited to each of the parties in arriving at the appropriate proportions. There was a mortgage of £13,350 and a question arose as to whether the applicant was entitled to credit only in respect of the actual payments she had made (which would give her a beneficial interest of only 4 per cent or thereabouts) or whether she was entitled to credit for half the mortgage loan. In the result the judge found that the parties had agreed between themselves that they would be equally responsible for the mortgage, and hence that they would service it 50/50 between them with the consequence that the applicant was to be taken to have contributed to half the mortgage loan. The judge went on (at p.534H) to say this:

“As a matter of equitable accounting, the applicant is entitled to recoup from the respondent one half of his [the applicant’s] actual payments of the mortgage.”

This last conclusion as to equitable accounting followed from the judge’s conclusion that the parties had agreed between themselves to be equally responsible for discharging the mortgage. It does not purport to apply any principle of law in that regard, it simply demonstrates that equitable accounting depends on the facts of a particular case.

Re Gorman [1990] 1WLR 616. In this case the transfer of the matrimonial home into the joint names of the husband and the wife did not specify the proportions in which they were to hold the beneficial interest. By the time of their divorce, some ten years later, considerable arrears had built up under the mortgage. The husband undertook to discharge the mortgage repayments but failed to do so, hence the wife had to pay them. Subsequently the husband became bankrupt, his beneficial interest in the former matrimonial home being effectively his only asset. His trustee in bankruptcy applied for an order for sale. The judge at first instance held that the property belonged beneficially solely to the wife. The Divisional Court in Bankruptcy allowed the trustee’s appeal, on the basis that the common intention of the husband and wife was that there should be a beneficial joint tenancy. The court went on to hold that the fact that the wife had paid the husband’s share of the mortgage repayments could not entitle her to more than a half share in the property, but that she could bring that into account in the equitable accounting which would take place after sale. Once again, this case does not purport to lay down any general principle, and I derive no assistance from it on this appeal.

Re Pavlou [1993] 1WLR 1046, (referred to earlier). In his judgment in this case, Millett J traced the history of equitable accounting from its origins in a partition suit. In so doing he referred in the passage quoted earlier to the “guiding principle of equity” that in determining the proportions in which the net proceeds of sale of the property should be divided regard must be had to any increase in its value attributable to the expenditure of one of the former owners. However, as Judge Behrens pointed out in Clarke v Harlowe, the improvements of issue in Re Pavlou were carried out after the parties had separated.

Turning then to other aspects of Mr Stenhouse’s submissions, in particular his submissions on paper, I reject his submission that it is not open to Miss Wilcox to maintain that she is not accountable for half of the £4,000 reduction in the mortgage debt resulting from the application of the proceeds of the endowment policy. In agreeing that Mr Tait had applied that sum in reduction of the mortgage debt, Miss Chadwick was, as I read the transcript, making no admission about accountability. Nor does the fact that counsel were able to agree the figures to be included in the judge’s order, and that that judge’s order was based upon a draft presented to him by both counsel, amount to any admission of liability on behalf of Miss Wilcox.

I also reject Mr Stenhouse's submission that Miss Wilcox has delayed in bringing her claim, and that the proceeds of equitable accounting should reflect that. In support of that submission Mr Stenhouse relies on Coley v Coley [1975] Fam Law 195. However, in that case the wife had delayed so long in bringing her claim under section 17 of the 1882 Act that (as Buckley LJ put it):

“… the husband was entitled to assume, from the absence of any such claim, with increasing confidence as time passed, that no such claim would be made.”

Buckley LJ continued:

“In these circumstances the wife should be regarded as having by her silence encouraged the husband to regard as his own the surplus of the rents received from letting rooms over and above the amounts required from time to time to keep down the mortgage.”

There is no equivalent situation in the instant case.

Accordingly I would allow this appeal, and set aside the judge’s order. In its place, I would make a declaration to the effect that the parties are beneficially entitled to the property in equal shares, coupled with an order for sale in the terms indicated earlier. I would further direct that once the property has been sold the case be remitted to a district judge to decide how the net proceeds of sale should be distributed if the parties remain unable to agree.

It is very much to be hoped, however, that in the light of this judgment the parties may be able to settle their differences. It is certainly in their own best interests that they should attempt to do so.

LORD JUSTICE AULD: I agree. The stance taken on behalf of Miss Wilcox before the judge was to seek an immediate declaration of her entitlement to a half share in the beneficial interest in the property subject to an adjustment, if any, by way of equitable accounting to be undertaken and determined subsequently on evidence.

The judge, for the best of intentions or motives, pressed for an immediate disposal of the matter and, encouraged by the stance taken on behalf of Mr Tait, considered that he could effectively resolve the equitable accounting issue there and then as a matter of law or of discretion without full evidence as to the parties’ intentions, and did just that.

In doing so, he elided what was essentially a matter of fact, as my Lord has said, for his determination on evidence, with a supposed principle of law. I say supposed principle of law because, as my Lord has indicated, he wrongly concluded from the authorities, mostly put before him on behalf of Mr Tait, that there was a hard and fast principle of law governing the matter and that the outcome of the facts an equitable accounting exercise. Accordingly, for the reasons given by my Lord, I too would allow the appeal and would make the declaration, order and direction that he has proposed.