McDonnell v Loosemore & Anor

This is an appeal from a judgment of HHJ Steel DL dated 15 January 2007 by Wendy Loosemore, with a cross-appeal by her father-in-law Edward McDonnell. I hope it will not seem disrespectful if I refer to her as “Wendy”, her father-in-law as “Edward”, and her ex-husband, Mark McDonnell, as “Mark”.

Wendy lived at 121 Southbank Road, Southport, which she bought in September 1994 for £56,000. She lived there with her two children. She met Mark in about 2000, and they lived together from May 2000 at that address, with her children and with his son from a previous relationship. In March 2001, the property was transferred into the joint names of herself and Mark. At that time, it was worth £120,000. They were married in September 2001. In March 2003 Mark was made redundant, and at least by the time of the trial in 2006 he had not worked again.

In late November 2003, Wendy and Mark wished to move to a larger property. There was a conflict of evidence as to whose idea it was, but that does not matter. The decision to sell Southbank Road, according to Wendy, was solely made in order to allow Edward to live with them. Her evidence was that Mark suggested that it would make sense for them both to sell 121 Southbank Road and buy one large property to accommodate the two of them, Edward, and her two children and his son. According to Mark it was her idea, but no finding was made on this difference, and it does not matter.

In 2003, Edward was 77 and in poor health. He had been awarded an attendance allowance in May 2003 because he had required 24-hour-a-day care, and he then occupied a town house on three levels.

121 Southbank Road was sold in November 2003 for £160,000. From the sale proceeds, about £13,000 was repaid in respect of a debt to the First National Bank. About £15,000 was applied to the repayment of further joint debts, and £35,000 was applied to the purchase of the new house, 56 Alexandra Road. It was purchased in the joint names of Wendy and Mark, at a cost of £237,500. About £97,000 was paid by way of a mortgage advance, £35,000 or so from the proceeds of sale of 121 Southbank Road, and £110,000 came from Edward, who had sold his own home for £125,000. Edward moved in with Wendy and Mark.

Wendy and Mark separated in December 2004, and their marriage came to an end in early 2005. Edward continued to live in the property. After a spell in hospital and at a care home, he returned to the house in March 2005. He continued to make a contribution to the household bills until January 2006. Indeed, in October 2005 he lent £5,000 to Wendy. Wendy presented a divorce petition on 3 March 2005.

On 18 March 2005, a couple of weeks later, Edward’s solicitors wrote to Wendy’s solicitors to say that Edward had lent the sum of £110,000, and that they were instructed that there had been an agreement whereby Edward, in return for lending the money, would be offered a permanent home with them at 56 Alexandra Road. They said:

“As your clients are now divorcing, our client seeks the return of the money that he lent.”

In fact, Edward lived in the property until January 2006. A decree absolute was granted in the divorce proceedings in February 2006, and in April 2006, Edward was given leave to intervene in the ancillary relief proceedings which had been initiated by Wendy in December 2005. His application as intervenor was for a declaration that he had a beneficial interest in the proceeds of sale of the former matrimonial home, 56 Alexandra Road, and was heard as a preliminary issue as to the extent, if any, of his beneficial interest. In fact, 56 Alexandra Road has been sold, and the net proceeds were about £118,000; and from those proceeds the £5,000 which Wendy borrowed from Edward have been repaid, and the remaining money is held by Wendy’s solicitors.

Edward claims that he is entitled to 46% of the value of the property, which would give him £126,000, on the basis that he has contributed 46% of the purchase price; but he is prepared to limit his claim to the net proceeds of sale.

I will now indicate the contemporaneous documents relating to the payment of the £110,000. The only contemporaneous relevant documents are an attendance note and various letters passing between Messrs Cockshott Peck Lewis, the solicitors for Wendy and Mark, and Messrs Goffeys, the solicitors for Edward.

It seems that when solicitors were first instructed, the solicitors for Wendy and Mark were instructed that Edward was lending the money, and that certainly appears to be the import of an attendance note of 29 October by the solicitor for Wendy and Mark. On 12 November 2003, those same solicitors wrote to Edward’s solicitors, Goffeys, to say:

“We understand that your client is to occupy the property on completion. In these circumstances we enclose the mortgage deed and request that the deed of consent and charge on the reverse is completed please.

Please return this to us as soon as possible.

We also understand that your client has signed a document to confirm that he does not claim any interest in our client’s property. Could you please let us have a copy of this document.”

On 24 November 2003, in reply, Goffeys wrote to enclose the standard mortgage deed with the consent duly completed by Edward, and said:

“We shall let you have a letter from Mr McDonnell [that is, Edward] shortly indicating that he does not wish to have any security in respect of the money that he is giving to his son and daughter-in-law.”

On 27 November they wrote to enclose Edward’s acknowledgment:

“…that he does not want any security for the money which has been given to his son and daughter in law.”

The enclosed document, which was dated 25 November 2003, was a form of letter from Edward to Goffeys, authorising them to forward to the solicitors for his son and daughter-in-law the sum of £110,000 towards their purchase of 56 Alexandra Road, and it said:

“I have been advised that I would have the right to secure the aforementioned monies by way of a Legal Charge but it is not my wish to do so and I further have been advised that I have consented to forego any rights that I may have in 56 Alexandra Road in respect of my residence there in favour of the Abbey National Building Society should my son and daughter-in-law fail to keep up payments on their mortgage.”

The matter came before District Judge Humphreys-Roberts, who gave judgment on 14 August 2006. His decision was that the £110,000 was an unconditional gift, and that Edward did not have a legal interest in 56 Alexandra Road. He decided that the burden was on Wendy to establish or rebut the presumption of a resulting trust arising from the payment of money and otherwise unexplained circumstances for the purposes of the purchase of a property, and she had satisfied him on the balance of probabilities that the money was an outright gift. The judge, in particular, said that Mark had accepted that the provision of the money was unconditional, and the only agreement between the parties was that Edward would live in the house, and that Wendy and Mark would provide him with care.

The judge said that he was satisfied that it was not contemplated between the parties that if there were a divorce, or if Edward could no longer live in the house, he would get any money back or have an interest in the property. The judge said that if there had been any intention on the part of Edward to retain any interest in the property, his solicitors would not have written the November 2003 letters, and would have advised him to protect his interest with some form of written agreement.

The matter came on appeal in the Liverpool County Court before HHJ Elizabeth Steel DL, who gave judgment on 15 January 2007. Her judgment was that there was evidence on which the presumption of resulting trust could be rebutted. She said that Edward was concerned that if he would need institutional care, the property might be compulsorily sold to realise his interest. So there was clear evidence to rebut the presumption. But she decided that the document of 25 November 2003, to which I have already referred, was wholly inconsistent with a gift, but was consistent with a loan, and was also consistent with the letter sent in March 2005 from Edward’s solicitors seeking repayment of the loan.

Her conclusion was that, preferring the evidence (to which I shall refer) of a light-hearted remark about giving Mark his inheritance early to the solid evidence of the documents, the district judge had arrived at a conclusion which was totally wrong. The money was intended to be and was paid on the basis that it was a loan. She also rejected the theory, put forward on behalf of Edward, that it was a conditional gift -- conditional on Mark and Wendy providing a home for the father, because to pay as much as £110,000 plus contributions to the household for the possibility of a mere two or three years’ residence made no commercial or emotional sense.

Permission to appeal was given by Maurice Kay LJ (although this would have been a second appeal, it satisfied the criteria for a second appeal), because in his judgment the circuit judge not only reached a conclusion which no party was contending for, but also made findings which may have disregarded permissible findings by the district judge, who had seen and heard the witnesses.

Wendy’s appeal is simple. It is that HHJ Steel’s finding that the transaction was a loan was wholly illogical, given that Edward had never described it in that way, and had sought to distance himself from that description in his evidence; and it was never argued on his behalf, at either hearing, that the transaction was a loan; and indeed, was wholly inconsistent with the case argued for him at first instance, and on appeal before the circuit judge, that the presumption of a resulting trust had not been rebutted by evidence of contrary intention.

Edward does not support the reasoning of the circuit judge, and accepts that the circuit judge was not entitled to adopt the loan theory, but says that the district judge was not justified in reaching the conclusion that the presumption of a resulting trust was rebutted because of four matters. Firstly, the document addressed to his solicitors on 25 November 2003 said that he had a right to put a charge on the property; secondly, he did not require the formal protection of an express declaration; thirdly, the fact that he contributed 46% of the purchase price gave rise to a presumption that he was intended to have a beneficial interest; and fourthly, there was no evidence that the parties had agreed or communicated any contrary intention.

The conclusions to which I come are these. First, there is no answer to Wendy’s appeal. At first instance before the district judge, the claim was put in three ways. First, that the conduct of the parties at the time of the purchase of the property in 2003 should lead the court to conclude in favour of the existence of a constructive trust on well-known principles. But that claim was abandoned in the course of the trial. Secondly, in the alternative, that a resulting trust should be presumed to exist as a direct consequence of the financial contribution which Edward made to the purchase of the property. Thirdly, that the monies contributed by him were a conditional gift, the condition being that he be provided with a home with Wendy and Mark for life, and that when Wendy breached that condition by requiring Edward to vacate the property, he would have retained an interest in the proceeds of sale.

It was not contended at first instance that there had been a loan, nor did Edward’s notice of appeal to the circuit judge seek to raise it as a new issue; and no doubt if it had been raised, it would have been resisted on the basis that it was far too late to raise as an issue on appeal. Indeed, Edward’s counsel, as I have said, accepts that the judge was plainly wrong to reach a conclusion based on the alternative ground that the money was a loan, and it was plain therefore that Wendy’s appeal must be allowed. Edward seeks to appeal from the finding that the presumption of resulting trust was rebutted. The notice of appeal relates only to that point, and we gave permission to appeal on the cross-appeal, not because any general point of importance was involved, but for the exceptional reason that it would be unfair for Wendy to go to appeal without giving Edward a chance to say that the district judge was wrong.

There was no appeal on the issue of conditional gift, but in her skeleton argument and in her argument today, counsel for Edward sought to revive this point. Consequently, the principal question for this court today is whether the district judge was entitled, on the evidence before him, to conclude that the presumption of a resulting trust was rebutted and that the monies contributed by Edward were an unconditional gift.

I am satisfied that he was so entitled to find for the following reasons. First, there was material in the evidence from all three interested parties for which he was entitled to make that finding. Wendy’s evidence in her witness statement was that Edward had joked with herself and Mark that “you two may as well have your inheritance now.” She said that his solicitor, Mr Mills of Goffeys, had advised Edward that he would have no legal right to reclaim his contribution unless he placed a charge on the house, which he declined to do. She said that there had been a number of conversations between Mark and herself about the equity in Southbank Road, the original house, and it was mutually agreed that any profit on that would be hers to leave to her children. Her evidence at trial was that at the time of the transaction, Edward clearly stated that he did not wish to retain any interest in the property, and that the transaction was accurately described in the letters as a gift, and that Edward had commented at the time that the money provided an early inheritance for Mark.

Mark’s evidence in his witness statement was that he had approached his father and told him that he (that is, Mark) and Wendy could not afford to purchase a bigger property by themselves, and needed additional assistance, and would be happy if Edward were to sell his property and provide sufficient funds to enable a substantial property to be purchased, that he would live with them and that they would provide his meals. Mark’s evidence was that at all times, in the discussions then, the money paid towards the purchase of the property was on the basis that he was providing permanent accommodation. At trial, Mark is recorded on the transcript as having accepted that the £110,000 was a gift, but when it was put to him that all the solicitors understood that it was a gift which carried no interest in the property, he said, “I thought it was a contribution”, by which he meant “paying the cost of the house”.

Edward’s evidence in his witness statement was that his son proposed that Edward sold his property and invested the funds in the purchase price of the new property, in return for which he would be provided with accommodation and meals in his old age. He had worked out that he was providing 46% of the value of the property, and he did not secure the investment, as he relied on the discussions which took place between the three of them.

His evidence in the witness box included the following matters. It was put to him that Wendy had said that she presumed the money was a gift because he had made a jocular remark that Mark would have his inheritance early. He said he did not remember it, but if he did he made it light-heartedly; and then said, “Okay. I’ll accept that I might have said it”. He said that he had never described it as a gift and he had never described it as a loan. But he did not see any of the solicitors’ letters before they went out. He kept his name off the deeds, he said, to protect the property should he become institutionalised. He said the transaction was a gentleman’s agreement. He did not declare any interest in the property as a capital asset when claiming housing benefit, because all they wanted to know was how much he actually had in the bank. When his solicitors claimed in March 2005 in their letter to Wendy that there had been a loan, he said:

“I think that is the interpretation they put on it. I certainly did not describe it as a loan to them.”

Secondly, the judge was entitled to find that the contemporaneous documents pointed in the direction of a gift. The judge was entitled, in my view, to rely on the fact that Edward was advised by solicitors in 2003, and that if there had been any intention to retain any interest in the property, his solicitors would not have written the November 2003 letters and would have advised him to protect his interest with some form of written agreement. I have already quoted the relevant contemporary documents; but I emphasise at this stage that in a letter of 12 November 2003, Cockshott Peck Lewis wrote to Goffeys to say that Edward had signed a document to confirm that he did not claim any interest in the property, and that on 24 November 2003, in reply, Goffeys said that Edward did not wish to have any security in respect of the money that he is “giving” to his son and daughter-in-law; and on 27 November, they wrote to enclose his formal acknowledgment that he does not want any security, and they again refer to the money which has been given to his son and daughter-in-law. It is hardly conceivable that the letters would have been sent in the form in which they had been sent if the solicitors had been instructed that the money was not a gift, and I am satisfied that the district judge was entitled to rely on this material.

Third, the district judge was entitled to place weight on the fact that Edward had an interest in not having any proprietary interest in the property in case he would go into care, because that would mean that he would not have the free care provided by the state, and that that was in the back of his mind when he wished to disassociate himself from the property or having any interest in it. He did give evidence that he was keeping his name off the deeds to protect the property should he become institutionalised. But there was no contemporary material to that effect, and I see no grounds for the judge coming to the conclusion, on the evidence, that it was otherwise than a gift. If there had been credible evidence to support that assertion, we would be into the area of Tinsley v Milligan [1994] 1 AC 340.

I add that the presumption of advancement to a child played no role at first instance, although it was apparently before the circuit judge. The reality of this case is that this was an old man giving property to his son and daughter-in-law in his old age, in the expectation that he would live with them so long as he was able. Whether that was a wise move is not for me to say, nor do we know what advice (if any) was given to him by his solicitors. The district judge rejected the claim that it was a conditional gift, which must mean the transfer of the money on a form of trust to hold it for the donor if certain conditions (such as allowing Edward to live in the house) were not fulfilled. It would have been necessary for the conditions to have been evidenced in some way, and I see no grounds for criticising the district judge’s conclusion that the only conditions were that the money would be used to buy a house for the family and to provide him with care.

Consequently, I am wholly satisfied that the judge was fully entitled to come to the conclusion on the evidence that Edward intended to make an outright transfer. I would add that I very much regret that the no doubt limited resources of the parties have been wasted on this litigation. I would therefore allow the appeal, dismiss the cross-appeal, and restore the order of the district judge.

I agree, and add only a very few words on the issue on whether Edward had a beneficial interest in 56 Alexandra Road, because the district judge was faced with a situation which is perhaps becoming increasingly common. It is not unusual for a person of advancing years and in poor health to decide to pass on his capital assets to his family immediately, trusting that they will behave honourably towards him by not letting him become homeless and destitute. There was evidence on which the district judge was entitled to conclude that this was what happened in the present case. If so, that is sufficient to rebut a presumption of a resulting trust arising from his contribution to the purchase price of the property. Counsel for Edward submitted on his behalf that Edward’s intention was that he should have a beneficial interest in the property, but that this should not appear on paper, so that he would have no capital to disclose if he came to need institutional care. Edward did not say this in so many words, and the judge cannot in my view be properly criticised for not so finding. If he had so found, as Collins LJ has said, the court would then have been in the difficult area of Tinsley v Milligan, but none of the parties sought to explore that area.

I agree with my lords that Wendy’s appeal must be allowed but Edward’s dismissed for the reasons they give. I add only these few words. Like Collins LJ, I deplore the fact that a considerable sum of money has been spent on this litigation before the district judge, the circuit judge, and now in the Court of Appeal. All of that could have been avoided if the solicitors acting in this conveyancing had perhaps been a little more proactive and given advice to their clients which cried out to be given. This was a typical family arrangement, in which, I dare say, none of the three, Edward, Wendy and Mark, had the faintest idea what exactly they were doing as they came to this sensible arrangement for living their lives together. They were crying out for advice; and having received a letter of 12 November from Wendy and Mark’s solicitors seeking confirmation, “that he [Edward] does not claim any interest in our clients’ property”, that was the moment for advice to be given as to what (if any) interest he had by way of resulting trust or otherwise, and if none, whether the advance of the money was by way of gift or by way of loan. Had the matter been made crystal clear in November 2003, this litigation would never have arisen, and we would not have been troubled. More importantly, the parties would not have wasted a lot of money coming here to find out the answer.