England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
CIVIL DIVISION
On appeal from Order of His Honour Judge Braithwaite,
Boston County Court.

		Royal Courts of Justice,
		3rd July. 1973.

LORD JUSTICE RUSSELL: The Judgment I am about to read is the judgment of the Court.

In this case the Plaintiff, aged over 70, owned in 1967 a bungalow near Boston, Lincolnshire, and lived there alone. Her younger brother and his wife - the two Defendants - returned to England from Australia and were looking for a house to acquire as their home. The Plaintiff persuaded them to join her in her bungalow. The Judge held on the evidence that the Defendants spent a sum of over £700 on improvements to the Plaintiff's bungalow in the expectation, encouraged and induced by the Plaintiff, that the Defendants and the survivor would be able to remain in the bungalow as their home - sharing of course with the Plaintiff while she lived - for as long as they wished to do so, in circumstances that raised an equity in favour of the Defendants on the footing of principles exemplified in a passage from Lord Kingsdown's speech in Ramsden v. Dyson (1866 Law Reports, 1 House of Lords, 129) and in other cases since then. The Judge however held on the evidence that the parties did not intend to create a legal relationship.

Not many months after the Defendants moved into the bungalow, the Plaintiff repented of her invitation for reasons, or alleged reasons, which need not be rehearsed. She started proceedings for possession: the Defendants counterclaimed to assert an equity. The Plaintiff did not appear at the hearing and her claim for possession was non-suited. The question on the counterclaim was whether the proper way in which the equity should be satisfied would be to make some Order which would assure the Defendants in their occupation of the bungalow as their home for as long as they wished, or on the other hand to declare in effect that possession could only be obtained against them by the Plaintiff if they were repaid their outlay on improvements to the bungalow. The Judge decided upon the latter as appropriate. His main ground was this: The Plaintiff was anxious to sell the bungalow and buy a smaller and less expensive one for herself: she could not do this - having no other capital asset - if the Defendants were entitled to stay rent free: she would therefore have to continue sharing her home for the rest of her life with the Defendants, with whom she was, or thought she was, at loggerheads. Against this the Defendants would, on leaving, recover and have available towards another home, the expenditure which they laid out in the expectation, albeit encouraged by the Plaintiff, of ability to stay there as their home. Me think that the Judge in balancing these considerations was entitled, and right, to come to that decision. We do not accept that the Judge was wrong on the ground submitted to us that where the extent of the expectations was defined, though without intention to create legal relationship, between the parties, compensation for outlay could not be an appropriate satisfaction of the equity.

On the appeal, the Plaintiff having died intestate after notice of appeal, leave was given to the Respondents, who are her administrators under a grant of letters of administration, to be joined as parties to the appeal. They do not contend that there was not an equity. They supported the view, in the changed circumstances, of the Judge that it was proper to satisfy the Defendants' equity by protecting their occupation unless and until their expenditure was reimbursed. Now it is clear that the ground upon which the Judge mainly decided upon the appropriate remedy has, by the Plaintiff's death, disappeared. But what is the situation now? Apart from the equity, the situation is this: the estate vested in the legal personal representatives consists only of the bungalow: it is subject to a standing mortgage of some £200 to £300: its value free of any occupation rights in the Defendants might be £5,000. Under the Administration of Estates Act, 1925, the administrators hold the bungalow on trust for sale and to pay out of the proceeds of sale debts, duties if any, and administration expenses (which must include their costs of this appeal) and then to divide among ten stirpes of beneficiaries, the first Defendant in fact being one stirps.

The immediate problem seems to be this: If immediate and direct effect is given to the expectations of the Defendants, to take effect in priority to the Respondents' entitlement and statutory duties, we cannot see but that it will lead, by virtue of the provisions of the Settled Land Act, to a greater and more extensive interest than was ever contemplated by the Plaintiff and the Defendants: the Defendants would necessarily become joint tenants for life: as such they could sell the property, or quit and let it: in the one case they would be entitled to the income of the invested proceeds of sale for life and the life of the survivor: in the other they would be entitled to the nett rents. None of these possibilities could conceivably have been embodied in the expectations giving rise to the equity in question: and we do not think that it can be right to satisfy such an equity by conferring upon the Defendants a greater interest in the property than was envisaged by the parties. This, we should say, is a point which appears to have been overlooked in Inwards v. Baker (1965 2 Queen's Bench, 29).

Is it possible in the present case to give effect to the expectation without falling foul of this impact of the Settled Land Act? It is suggested that in the first place an Order should be made which maintains the existing immediate binding trust for sale by requiring its execution to be subject to the consents of the Defendants while in occupation of the bungalow as their home: this, it was argued, would preserve a trust for sale and thus exclude the operation of the Settled Land Act, and so avoid conferring an excessive interest on the Defendants. But this alone would not preserve the Defendants in rent-free occupation: it would be necessary further to make some Order depriving the administrators of ability, pending sale with such consent, from obtaining possession from the Defendants in order to let the property at a rent. But as soon as that is done, what does it amount to but putting ahead of the statutory trust for sale, etc., the equivalent of an interest which brings in the Settled Land Act with its conferment of an interest greater than the expectation which led to the expenditure by the Defendants on the property which is the root of their equity? We do not think that the cases of Ayer v. Benton (1967 204 Estates Gazette, 359) and Re Herklots' Will Trusts (1964 1 Weekly Law Reports, 583) allow us to escape from this problem. Moreover, in this particular case there are additional problems. It is true that the Defendants are prepared to accept an Order which involves a restriction upon the administrators interfering with the occupation of the Defendants only so long as the Defendants (a) pay the rates and taxes, (b) keep the bungalow in good and tenantable repair, (c) pay suitable fire insurance premiums, (d) pay the interest on the present standing mortgage and any mortgage substituted therefore, (e) pay the interest upon any further standing mortgage required to provide for, for example, administrative expenses, which would include, for example, costs of this appeal: none of which matters appear to have been contemplated by the Plaintiff and the Defendants.

But is this practicable? How is a mortgage to be raised for the administrative expenses, which cannot be inconsiderable? Are the administrators to be expected to guarantee the mortgage? If not, who will lend money on mortgage when (a) this is the only asset, (b) it is not an income-earning asset, (c) the obligation of the Defendants to meet interest payments is an obligation of people who are legally-aided with nil contribution, however much their rights to stay are made dependent upon continued payments of mortgage interest? Moreover, something may happen in the possibly fairly long lifetime of the Defendants, though the brother is now 70, which would not come within any good and tenantable repair obligation.

In short, therefore, we do not see how we can sensibly, and without awarding to the Defendants a greater interest in law than was within their induced expectation, satisfy their equity save by securing their occupation until their expenditure has been reimbursed, which was the effect of the Judge's Order or declaration. It was urged upon us that justice could not be done to the equity by mere reimbursement of expenditure, because of the depreciation in purchasing power of the pound since 1967, more particularly in the field of house purchase which they were in 1967 exploring: moreover, against the fact of living rent and rate free since 1967 is to be set the loss of income from the expenditure over those years. We follow the point: but, in our view, it cannot outweigh the problems on the other side already mentioned.

There remains a contention on quantum: that the Judge under-estimated the appropriate compensation for outlay because he made no allowance for the sum of £265 given in evidence (of course unchallenged) as the value of the personal work of improvement of the property by the first Defendant at the rate of 5/- an hour. The first Defendant is not a qualified artisan or craftsman in these fields: but he did the work. If he had employed and paid someone else to do the work, clearly he would have been entitled to be reimbursed the doubtless greater cost of such employment. We do not see why his labour at a reasonable charge should not be included in this method of satisfying the equity. We therefore add to the figure of £711 in the Judgment below the unchallenged figure of £265 for the first Defendant's time and labour. This seems fair and we are trying to do equity by being fair.

We have mentioned the cases of Ayer v. Benton and Re Herklot, and it is perhaps desirable to comment on them briefly.

In Ayer v. Benton, A was by will given a right to reside rent-free in a house. She left due to ill health, and the trustees for sale sold. The question was whether A was entitled to the income of the proceeds of sale on the ground that the house was settled land and A the tenant for life. It was held that it was not settled land, the effect of A's right to reside being only to require her consent to the exercise of the trust for sale, not depriving it of the character of an immediate binding trust for sale: see the Law of Property Act, 1925, section 205 (1) (XXIX). It seems to have been overlooked that unless A could have prevented the trustees from ousting her from possession in order to let the premises at a rent, the requirement of A's consent to a sale would not have protected her residential rights: and that, if she could prevent that, it could only be by virtue of some interest taking priority over all aspects of the other trusts, which it would seem to us would make the land settled land with A as tenant for life.

Is Re Herklot, under the will A was to be permitted to reside in a house, part of residue held upon trust for sale. A was also tenant for life of residue. Subject to A's life interest, residue was given as to one-third to B and two-thirds to others. A codicil provided that B was to be entitled to the house in specie in due course in satisfaction of his one-third share in remainder, even though it should then exceed one-third in value of the estate. It was proposed to sell the house, A not objecting: the house was already worth more than the one-third, and B objected. The Order protected B's interests by requiring his consent to the exercise of the trust for sale in A's lifetime. It also avoided the situation of the house being settled land with A tenant for life by requiring also the consent of A to such exercise, which would not negative an immediate binding trust for sale. It will be noted that A, being tenant for life of residue, required no further protection: she would be entitled to the nett rents of any letting by the trustees.

For these reasons, but only to the limited extent indicated, we allow the appeal.

Order:- Appeal allowed, varying the Order below by substituting £976.72 for £711.72; Appellants' party and party costs of the appeal to be paid out of the estate of the deceased, with a Legal Aid taxation; Respondents to be entitled to retain out of the estate their costs on a trustee basis.