England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CANTERBURY COUNTY COURT
(His Honour Judge Poulton)

		Royal Courts of Justice Strand London WC2 Friday, 10th May 2002

1. LORD JUSTICE WARD: I will ask Sir Martin Nourse to give the first judgment.
2. SIR MARTIN NOURSE: This is an appeal from a decision of His Honour Judge Poulton given on 3rd February 2000 in the Canterbury County Court in a dispute between an unmarried couple as to the beneficial ownership of a house in which they formerly lived together.
3. The house is 45, St David's Road, Allhallows, Rochester, Kent, which before the events with which this action is concerned was jointly owned, both at law and in equity, by the respondent to this appeal, Anne Woodman, and her husband, Robert David Woodman, who occupied it as their matrimonial home. In 1993 their marriage broke down and in 1994 they were divorced.
4. In November 1996 Mrs Woodman met the appellant, David George Tracey, who is a professional entertainer, and soon afterwards they formed a relationship and subsequently became engaged, their intention being to get married in October 1998. However, a marriage never took place.
5. At the time that Mrs Woodman and Mr Tracey got engaged Mrs Woodman was not in occupation of the house and, although it appears that he may not have been there full time, Mr Woodman was in occupation of it, at least latterly. The house was in poor condition. Mr Woodman wanted to sell it, being eager to be relieved of his liability under the mortgage. At the same time Mrs Woodman and Mr Tracey wished to acquire it for their joint occupation. Mrs Woodman said in evidence that the original intention of the three of them was that Mr Tracey would effectively take Mr Woodman's place in the property and on the mortgage.
6. To that end, on 26th September 1997 Mr Woodman and Mr Tracey entered into a written agreement signed by both of them and headed "mortgage agreement". It read as follows:

"Property: 45 St David's Road, All Hallows, Rochester, between Mr R D Woodman and Mr D G Tracey. I, David George Tracey, hereby on this September 26, 1997, will take over all assets belonging to Mr R D Woodman on the above-mentioned property. I, David George Tracey, hereby on this day September 26, 1997, will be responsible for mortgage payments, insurance payments and the upkeep interior and exterior of the above-mentioned property."

7. It is clear that that agreement, if accepted by the then mortgagee and implemented accordingly, would have preserved Mrs Woodman's joint legal and beneficial interests in the house. However, it appears that it was not acceptable to the mortgagee, and instead it was agreed that the house should be sold by Mr and Mrs Woodman to Mr Tracey, who would become the sole legal owner and mortgagor.
8. It was decided that the existing mortgage should be paid off and a fresh mortgage taken from the Abbey National. For that purpose the house was valued at £45,000, but it is material to note that by that time works of improvement - Mr Tracey says that they were considerable works - had been done by him or on his behalf by his father, who was by occupation a carpenter and joiner and had had training in building and allied trades.
9. I take up the story in the words of the judge:

"The money advanced on the mortgage was £38,000. The Abbey National were only prepared to advance that on the basis that the sale price was £45,000. In actual fact what was contemplated was not the payment to the Woodmans or either of them by the Defendant of £45,000, that is to say, having raised the mortgage, the payment of £7,000. He did not contemplate paying anything either to Mrs Woodman or indeed to Mr Woodman. As far as he was concerned and as far as Mrs Woodman was concerned, the transfer was to be simply a question of relieving them from their obligation under the mortgage."

10. Mr Tracey said in his witness statement that the amount which he paid to the Woodmans was £34,411.95, which presumably included the costs of the transaction, leaving a balance available to him of about £3,600. The understanding of the solicitor acting in the transaction was that Mr Tracey had already paid £7,000 to Mr and Mrs Woodman as the balance of the purchase price. Indeed, Mrs Woodman wrote to him, falsely confirming that she had received that sum from Mr Tracey, and on that assurance the Abbey National released the mortgage monies and the transfer to Mr Tracey and the mortgage by him to the Abbey National were completed on 8th April 1998.
11. I return to the judge's judgment:

"It is perfectly plain, and indeed was not disputed in this case, that the whole arrangement about the £7,000 was a fraud on the Abbey National. Mr Tracey, the Defendant, did not pay £7,000, or indeed anything, either to Mrs Woodman, the Claimant, or to Mr Woodman or to anyone on their behalf. It was a complete fiction. The Defendant said that he had been advised by a money broker to do it this way. He said he knew it was wrong but it was the only way it could be done.

The result of that is that there was a transfer which was achieved only by means of perpetrating a fraud upon the Abbey National. The consequences of that are something which I will have to turn to consider."

12. After the agreement of 26th September 1997 Mr Woodman had finally moved out of the house and Mrs Woodman and Mr Tracey had moved in. By the beginning of 1999, and perhaps before that, the relationship between them had deteriorated. In March of that year it finally broke down and Mrs Woodman left the house. Mr Tracey remained in occupation with his son, now aged 15, and both are still there.
13. On 27th May 1999 Mrs Woodman issued an originating application in the Medway County Court claiming relief in standard form in this type of case, that is to say a declaration that the house was held by Mr Tracey on trust for himself and Mrs Woodman; an order that it be sold; and such other relief as might be necessary, including a determination of the parties' entitlement to the proceeds of sale.
14. The action came on for trial before Judge Poulton on 16th December 1999 in the Medway County Court at Chatham. The trial lasted for one day and it appears that both Mrs Woodman and Mr Tracey were cross-examined at some length. The judge reserved judgment until 3rd February 2000. Having delivered an oral judgment on that day, he gave judgment for Mrs Woodman in the sum of £8,770 and ordered that unless Mr Tracey should pay that sum to Mrs Woodman by 3rd June 2000 - in other words, within four months - the house was to be sold. He ordered Mr Tracey to pay Mrs Woodman's costs and gave Mr Tracey permission to appeal, saying in his written reasons that the questions of constructive trust and illegality were not entirely straightforward and deserved consideration by this court.
15. Before returning to substantive matters, I must deal with a procedural point about which there appears to have been some misunderstanding. On 20th April 2000 Mr Tracey signed an application for permission to appeal. That was stamped "received" by the office on 26th April. I think that it was accompanied by an appeal notice bearing the same date. However, since permission to appeal had been granted by the judge, no further application for permission was necessary, though it was still necessary for Mr Tracey to set his appeal down. Evidently, he did not do that in time and so he had to apply for an extension of time for that purpose. Whether his application for permission to appeal was treated as such an application, or whether he made a fresh application, is not clear.
16. What is clear is that on 6th September 2000 the matter came before Master Venne, Mr Tracey being neither present nor represented. The master's order contained this recital:

"On this case coming to this court for the Defendant to say why his application for an extension of time in which to set down an appeal from the decision of His Honour Judge Poulton dated 3rd February 2000 should not be dismissed for failure to follow the directions of the court."

17. It was then ordered that, unless by 4.30pm on 20th September 2000 the necessary bundles were filed in the Civil Appeals Office, Mr Tracey's application for an extension of time would stand dismissed with costs without further order. That order not having been complied with, on 29th September 2000 the master made a further order, which, after reciting Mr Tracey's non-compliance and the consequential dismissal of his application, ordered that Mrs Woodman's costs be summarily assessed at £243.23 and paid by Mr Tracey.
18. The inevitable result of Mr Tracey's non-compliance with the order of 6th September was that his appeal was struck out. On 6th December 2000 he applied to have it reinstated. That application came before Lord Justice Judge on 22nd June 2001, when it was granted. The execution of Judge Poulton's order, which had already been carried forward by an as yet unimplemented order for sale made by District Judge Caddick on 21st December 2000, was ordered to be stayed pending the determination of the appeal.
19. It seems that Lord Justice Judge thought it possible that, notwithstanding his reinstatement of the appeal, the application for an extension of time for setting it down was still live. For myself, I cannot believe that that could be so. In my view the reinstatement necessarily operated as a grant of an extension of time for setting it down, as it subsequently was. I therefore proceed on the footing that we have an effective appeal now before us.
20. Both at the trial and when judgment was given Mrs Woodman and Mr Tracey were each represented by counsel and solicitors. Mrs Woodman was legally aided, but Mr Tracey was not. Both before Lord Justice Judge and before us Mr Tracey has appeared in person and Mrs Woodman has neither appeared in person nor been represented. However, the court has received a letter dated 8th February 2002 from the solicitors who represented Mrs Woodman below, which includes the following:

"Mrs Woodman has advised us that due to what she sees as Mr Tracey's volatile nature, she cannot bring herself to attend Court on 10th May 2002. She does however strongly oppose Mr Tracey's application that he should be granted leave to appeal and in the event that that application is successful Mrs Woodman still wishes to oppose the appeal itself.

Mrs Woodman advises us that the Judgment was obtained against Mr Tracey after lengthy evidence was heard in Court. Both parties were represented by Counsel and Mr Tracey had every opportunity to present his case in full at the time. As far as she is concerned there is no justification for appeal and she asks that this letter be taken into account when a decision is made on 10th May."

21. I return to the judge's judgment. He identified two questions of law for his decision, the first being whether Mr Tracey, as the legal owner, held the house subject to a constructive trust in favour of himself and Mrs Woodman as beneficial joint tenants. Mrs Woodman's primary case was that there was an express agreement between the parties to that effect; alternatively, she relied on the principle established by the House of Lords in Gissing v Gissing [1971] AC 886.
22. The judge summarised Mr Tracey's answer to Mrs Woodman's case on this question as follows:

"The Defendant says that this was not the agreement once it was clear that the Defendant would not be liable on the mortgage."

23. I interpose to say that it is quite clear that the judge meant to say "once it was clear that the Claimant would not be liable on the mortgage". The judge continued:

"As I understood his evidence, his position was that so long as the original agreement was alive and if that had been put into effect with the result that the Claimant would also have been liable on the mortgage and the Defendant would have stood in the shoes of Mr Woodman, then he would acknowledge that they would own the property jointly. However, as this was not put into effect, he says that is not the case, because he certainly would not become solely liable on the mortgage (which is what happened) and hold the property in part on trust for the Claimant."

24. Having then read a passage from the speech of Lord Bridge of Harwich in Lloyds Bank Plc v Rosset [1991] 1 AC 107, at p.132, and having said that the evidence did not establish an express agreement, the judge continued:

"Can I infer it from the conduct of the parties? The first thing to recognise is that they were engaged and they are now in effect former partners. Secondly, the Claimant was certainly making a contribution in the sense that she was arranging that the house be transferred from the name of herself and her ex-husband to the name of the Defendant. What is said about that is that that was not actually any contribution in money terms. Indeed, what was put to her, and what was argued on behalf of the Defendant, was that she was being relieved of the difficult obligation of having to pay the existing mortgage and far from her making a financial contribution, she was gaining."

25. At that point the judge said that the situation had to be looked at at the time of the transfer. On the basis of a then value of £48,000, which was put forward by Mr Peter Spink, and a mortgage debt of £33,500, he calculated that the equity in the house was worth some £14,500. He continued:

"That seems to me to be the time at which one has to look at it. Up until the transfer, there was no binding contract. It would have been open to Mrs Woodman, the Claimant, to say that she did not want to transfer this property. She and her ex-husband could have remained its owners. She was the owner and in carrying out the transfer, she was not only in effect transferring to the Defendant her share of some £7,000, but she was ensuring that her ex-husband's share was also transferred to him, so that the whole of the equity was her contribution. If the Claimant had backed out at the last minute, it would seem to me probable that the Defendant would have had a claim for the work he had done on the house, but that does not alter the fact that there was an equity which was transferred and that was valuable.

In those circumstances I consider that the claim for a constructive trust is made out and in principle it should be a half share but there must be some adjustment in respect of the amount of money which ought to be paid for the work done."

26. In this court Mr Tracey has put in a skeleton argument in which the main points he wishes to make are helpfully set out. He has also addressed us clearly and forcefully this morning. I wish to add that the court is most grateful to the Citizens Advice Bureau for having prepared the necessary bundles with admirable regard both to the documents which are necessary and those which are not, that having been done on a pro bono basis.
27. In regard to the first question, Mr Tracey has made the following points. He has said that Mrs Woodman made no contribution either to the purchase of the property or to the improvements made to it. Strictly speaking, that may be correct. But, as the judge pointed out in the passage I have read, she did make a contribution to the transaction by effectively transferring her own share of some £7,000 and also her husband's share. Mr Tracey has strenuously argued this morning that there was no equity in the property at the time of the completion of the transaction on 8th April 1998. He has shown us a letter, which may not have been before the learned judge, from a Mr S Lamb to his, Mr Tracey's, solicitor, in which Mr Lamb confirms that in about June 1997 he offered £33,000 for the house. That was less than the asking price because, as Mr Lamb says, the house had not been well maintained and it would have cost quite a sum of money to put it back into a good state of repair. However, as we have endeavoured to point out to Mr Tracey, the value of the house at that time was at least £45,000; and, although a substantial proportion of the increase over the previous asking price (which I think had been £36,000) was due to the works of improvement which had been done meanwhile, the position nevertheless was that there was an equity of some £7,000. Mr Tracey has also said that Mrs Woodman made little, if any, contribution to the household expenses, but that is not a point which can usually be taken into account in a case of this nature. He makes the point that Mrs Woodman's 21 year old son also lived at the house, or at any rate in a shed in the garden, but made no contribution to the household expenses. Similar considerations apply to that point.
28. It seems to me that, on the facts, the judge was entitled to come to the conclusion to which he came on this first question. Moreover, no ground has been advanced for saying that he erred in law in his treatment of the matter. In the circumstances there is no basis for the interference of this court with the judge's decision that Mrs Woodman's claim for a constructive trust was made out and I would affirm it accordingly.
29. The second question of law identified by the judge was whether Mrs Woodman's claim was defeated by the fraud perpetrated by herself and Mr Tracey on the Abbey National. That point was raised by the judge himself; he, as he said, being bound to take it. However, having read a passage from the speech of Lord Browne-Wilkinson in Tinsley v Milligan [1994] 1 AC 340, at p.376, he concluded that Mrs Woodman did not have to rely on the fraud in order to succeed and that her claim could and did succeed accordingly. As I read the judge's judgment, his decision to take time for consideration was, at least in part, influenced by a wish to reflect carefully on this matter. He having done that, and Mr Tracey not having questioned his decision on that point, I can see no ground on which this court could sensibly do so.
30. The final matter dealt with by the judge was the calculation of the allowance that should be made in favour of Mr Tracey in respect, first, of the mortgage payments made by him while Mrs Woodman was in joint occupation of the house and, secondly, the works of improvement done by Mr Tracey or by his father on his behalf. He calculated the first of those at a round sum of £3,230 and I do not understand that any complaint has been made about that particular figure. In regard to the value of the works of improvement, the judge said that he was not at all satisfied with the figures that had been put forward by or on behalf of Mr Tracey in respect of that work. He said that there was no doubt that Mr Tracey did do work and that he would have thought there was no doubt that it was work which contributed to the value of the house and was worthwhile work. He said that, apart from the items which were bought and installed, there was Mr Tracey's labour and also his father's. In regard to the amount which should be allowed, the judge said:

"The work I consider to be worth some £4,000 but I take into account that money was raised for this purpose and all of that money was paid over to the Defendant. He used it all. Whether he used it all on the improvements or not does not really matter. He certainly had it all and in my judgment he is fully compensated for the work he has done. It follows that what has to be deducted is £3,230."

31. Mr Tracey complained that the figure of £4,000 was inadequate, but he has not demonstrated any basis on which this court could take a different view from the judge on what was purely a question of fact and the judge's figure must therefore stand.
32. On conventional principles what the judge ought then to have done was to order a sale of the house and direct that in the division of the net proceeds of sale Mrs Woodman should be debited with the sum of £3,230 and possibly with other adjustments and that, subject thereto, the proceeds should be divided equally between her and Mr Tracey. That, indeed, from her skeleton argument, appears to have been the submission of counsel for Mrs Woodman, at least initially. However, the judge took the value of the house as it stood, on the evidence, at or shortly prior to the hearing, that is £62,000; from that he deducted the then amount of the mortgage debt, £38,000, leaving an equity of £24,000, from Mrs Woodman's half share of which, £12,000, he then deducted the £3,230. It was on that basis that he ordered Mr Tracey to pay £8,770 to Mrs Woodman.
33. Mr Tracey complains that the sum of £8,770 is an unreasonable figure which does not reflect the current commitments and charges against the estimated value of the house. That may or may not be so depending on its current value, which Mr Tracey accepts may now be more than £62,000. He has told us today that his best guess as to the value of the house is that it would be worth not more than £70,000. He goes on to say that, if you deduct from that the £37,000-£38,000 at present owing to the Abbey National on the mortgage and, further, a second mortgage amounting to £11,000-£12,000 and if he then, out of the balance, has to pay to Mrs Woodman the £8,770 plus costs and, no doubt, interest at the judgment rate on the £8,770, there will be little or nothing left for him. The house will have to be sold and he and his 15 year old son will be homeless.
34. The first point I would make about that is that it is not open to this court, great though its sympathy may be for the position in which Mr Tracey finds himself, to alter the judge's judgment because of the arithmetical consequences which may now ensue. Secondly, it is clear that it is not open to Mr Tracey to bring in the second mortgage of £11,000 or £12,000 as against Mrs Woodman. That is a mortgage from which she has obtained no benefit. The third point is that it is not clear - it cannot be clear because there is no current valuation - that the house is worth no more than £70,000 at current values. Fourthly, it does not help Mr Tracey to say, as he has told us this morning, that he has not done anything to keep the house in repair and good condition in recent times. The residue of the equity belongs to him and it is in his interests to maintain it in order to maximise its value. So, hard though it may seem to Mr Tracey, no basis is shown on which we can interfere with the figure of £8,770.
35. There remains one point with which I must deal. I have explained what order the judge ought to have made on the conventional approach. That is established by authority: see, for example, Turton v Turton [1988] Ch 542. On that approach it is not open to the court to order the payment of a fixed sum to one of the beneficiaries. However, in this case, after judgment had been delivered, neither counsel objected to the order proposed by the judge, who clearly thought it was the fair result. In the circumstances, it would be neither right nor proper for this court to interfere with that order and to substitute some other order which the judge did not see fit to make.
36. For these reasons I would dismiss Mr Tracey's appeal, with the result that the stay of Mr District Judge Caddick's order of 21st December 2000 granted by Lord Justice Judge will go. Unless Mr Tracey wishes to make some application to us to give him a further period to raise the necessary funds to pay out Mrs Woodman, the district judge's order must now be complied with. I should add that Mr Tracey has raised a further point on the district judge's order. He has said that the direction that Mrs Woodman's solicitors shall have the conduct of the marketing of the house and the conveyancing on the sale leaves him at a disadvantage. I do not share that view. The best order is usually for the conduct of the sale to be entrusted to the party who has an interest in having the property sold. In my view it was a very sensible direction for the district judge to have made.
37. Finally, I propose that the office should send a copy of the approved transcript of our judgments to the district judge, so that he will be able to see the views we have expressed on certain points with which he may still be concerned.
38. LORD JUSTICE WARD: Mr Tracey has appeared before us today and has presented his arguments, if I may say so, with engaging frankness and a good deal of humour, which I always like, and I am therefore sympathetic to his predicament. I am also sensitive to the fact that he has a boy who is now 15 years old and he faces the prospect of becoming homeless. It may be that he will reflect on what my Lord has said about seeking to persuade us to give him more time to raise the necessary money so as to avoid the prospect of a sale. We will hear him if he chooses to do so. But let me say why I agree with the judge and express my view as simply as I can so that he can perhaps understand it.
39. On the findings the judge made (and these do not appear to have been in any real dispute in the court below), at the time at which we have to look at this matter - April 1998, when this conveyancing transaction went through - there was evidence that the property at that point in time was worth £48,000. That was the evidence accepted by the judge and behind which we cannot go. There was at that stage an existing mortgage of £33,500, so that on the face of it there was an equity in the property, the benefit of which, subject to the cost of the improvements, was a benefit accruing to Mr and Mrs Woodman. The judge calculated that (and arithmetically he was correct) at £14,000-odd. So there was passing to Mr Tracey that benefit, he having to take out an increased mortgage of £38,000 to assist in the cost of the building work.
40. On any view Mr and Mrs Woodman were making a contribution to the acquisition of a property which was then going into the sole name of Mr Tracey. Once that contribution is established, then on the established law the judge had to consider what the common intention of the parties was, judged from their conduct. To that there was only one answer: namely, that this was a couple who were then engaged and hoping to marry (however sinister that may now seem to Mr Tracey, but that is how it stood at the time); and in those circumstances the common intention appears to me to be as the judge found it - that Mrs Woodman was retaining her half interest in the property. On that basis it seems to me that the judge was absolutely correct.
41. Subject to a small matter which I will raise with my Lord, I agree that this appeal should be dismissed.
Order: not to be drawn pending further reflection by the court on one matter; stay continued; applicant granted four months from today to raise money; transcript of final approved judgments to be sent to the district judge.