England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)

		Royal Courts of Justice Strand, London, WC2A 2LL
		18th June 2003

Lady Justice Arden :

1. This is an appeal from the order of Miss Sonia Proudman QC dated 20 September 2002. Essentially, the judge had before her a complex dispute as to the rights and liabilities of the late Mr Glyn Owen ("Mr Owen") and the appellants, whom I will call Mr Robert Medwin and Mr Simon Medwin respectively. The dispute arose in relation to three properties purchased by Mr Owen and Mr Robert Medwin as tenants in common. In 1992 Mr Robert Medwin transferred his interest in one of these properties, 29 High Street, Sevenoaks, Kent, to Mr Simon Medwin, his son. The judge decided that there was no partnership. She went on to decide a number of further questions with which we are not concerned save for two matters, namely (1) the beneficial ownership of an endowment policy taken out by Mr Owen to secure monies raised to purchase 45 High Street, Sevenoaks, Kent and a further issue as to whether the entitlement of the respondents to this appeal, the executors of Mr Owen, to be compensated for the use of the proceeds of sale of a property, 104 Darley Road, Gravesend, solely owned by Mr Owen, to repay joint borrowings of Mr Owen, Mr Robert Medwin and Mr Simon Medwin should be borne by the appellants jointly or by Mr Robert Medwin alone.

Beneficial Ownership of the Endowment Policy taken out with Guardian Assurance plc (Guardian)

2. Mr Howard Lederman, for the appellants, contends that the judge erred in not holding that the appellants had established that the proceeds of this policy were beneficially owned by Mr Owen and Mr Robert Medwin jointly on the basis of what is sometimes called a common intention constructive trust (see for example, Worthington, Equity (Clarendon) (2003) page 239). He does not claim that there was an express agreement for sharing the proceeds of this policy. He submits that the court should have inferred a common intention to share the policy beneficially from the conduct of the parties, which I will describe below. In Lloyds Bank v Rossett [1991] 1 AC 107, Lord Bridge of Harwich contrasted the situation where there were express discussions for sharing property from the situation where the intention had to be inferred from the parties' conduct:-

"In sharp contrast with this situation [i.e. where there were express discussions] is a very different one where there is no evidence to support a finding of an agreement or arrangement to share, however reasonable it might have been for the parties to reach such an arrangement if they had applied their minds to the question, and where the court must rely entirely on the conduct of the parties, both as to the basis from which to infer a common intention to share the property beneficially and as to the conduct relied on to give rise to a construct trust. In this situation direct contributions to the purchase price by the partner who was not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do." (page 132).

3. I now turn to the evidence on which Mr Lederman relies in support of his contention that a common intention to share the beneficial ownership of the endowment policy with Guardian can be inferred.
4. Mr Owen and Mr Robert Medwin wished to buy 45 High Street, Sevenoaks, Kent and also the share of Mr Robert Lawrence in their partnership business of insurance broking, Lawrence Insurance Group ("LIG"). They applied to Guardian for a loan. The correspondence with Guardian starts with a letter dated 24 July 1985 from Guardian to Mr Owen referring to a telephone conversation and suggesting that it would be appropriate to effect at least partial endowment "cover".
5. On 1 August 1995, Mr Owen replied to that letter, and his letter was approved by Mr Robert Medwin before it was sent. In that letter, Mr Owen explained that it was intended to purchase 45 High Street, Sevenoaks on a "50/50 basis" as between himself and Mr Robert Medwin. The letter also stated that:-

"We (meaning Mr Robert Medwin and Mr Owen) will be happy to effect low cost endowment for say £100,000 over 20 years on my life."

6. Thereafter, Mr Owen made an application for a loan to Guardian. In the form which he completed, it was stated that repayment would be by "part low cost endowment", and the name of the grantee of this policy was left blank. The property offered as security was 45 High Street, Sevenoaks and it was stated that the names in which the deeds were to be held were Mr Robert Medwin and Mr Owen "in equal proportions". On 12 August 1985, Guardian made an offer of a facility to Mr Robert Medwin and Mr Owen. The principal condition of this loan was that part of the loan was to be repaid from the proceeds of the endowment policy. On 23 September 1985 Mr Owen returned to Guardian a completed proposal form "in my own name".
7. On 27 September 1985, Mr Owen and Mr Robert Medwin purchased 45 High Street and on the same day executed a legal charge of the property to Guardian. On 15 October 1985, Guardian sent Mr Owen a form of direct debiting mandate for him to complete and it is common ground that Mr Owen did complete this form giving details of LIG's bank account.
8. On 17 October 1985, the endowment policy was issued. The grantee was stated to be Mr Owen. The endowment sum assured was the sum of £47,893 with profits and "a reinforcement benefit" as to £52,120 decreasing by £2,606 per annum over 20 years. The policy contained a death guarantee, that is "on death within the term, the cover provided by this policy will never be less than the amount of the mortgage shown above." The endowment policy was not charged to Guardian until a further charge was executed on 17 April 1986. The parties to this deed were Mr Robert Medwin, Mr Owen, their respective wives and Guardian. The object of this further charge was to grant Guardian security over the private houses of Mr Owen and Mr Robert Medwin and over the endowment policy.
9. Recital (4) to the deed cited that "Mr Owen is entitled to the policy of life insurance referred to in the third schedule hereto". In addition clause 5 of the deed provided as follows:-

"Mr Owen as benefical owner HEREBY ASSIGNS unto the Lender ALL THAT policy of assurance mentioned in the schedule hereto and all monies which shall become payable thereunder and the benefit of all powers and remedies for enforcing the same to hold the sum unto the Lender subject to the proviso for redemption hereandafter contained."

10. Mr Owen and Mr Robert Medwin jointly and severally agreed that Mr Owen would pay the premiums on the endowment policy. Notwithstanding the terms of Recital (4) and clause 5, the respondents do not rely on estoppel by deed.
11. On 19 December 1986 and 14 August 1987 the security provided by the further charge was extended to cover further advances but no reference was made to the endowment policy.
12. Mr Owen died in 1992. Shortly before his death he drew up a list of his insurance policies. In respect of the endowment policy with which this appeal is concerned, the list states in his handwriting that the policy document was "held by [Guardian] as part security on my share of mortgage of 43/45 High Street".
13. The premiums were paid out of the bank account of LIG, the business in which Mr Robert Medwin and Mr Owen were partners, but the partnership accountant posted the premiums to Mr Owen's drawings account so that the ultimate liability for these premiums lay with Mr Owen. Mr Robert Medwin would not have seen details of Mr Owen's drawings account and therefore was unaware, as the judge found, that he was paying the premiums personally in this way. There was evidence that the partners paid premiums on other pension policies in this manner.
14. On 25 August 1992 Mr Simon Medwin wrote to the first respondent on his father's instructions stating that his father's "impression" was that "the repayment by the policy proceeds is shared equally between himself and Glyn." This statement asserts joint beneficial ownership of the policy but is said only to be an "impression". The strength of that impression was tested in the course of the trial as appears below.
15. In paragraph 16 of his witness statement Mr Robert Medwin said this:-

"Guardian required a nominal life policy to be effective. Because of my age this was done on the life of Glyn Owen. The intention was (and there was no other intention) that any proceeds would be to the benefit of Glyn Owen and myself. We agreed that when the policy matured it would pay off part of the Guardian loan equally as regards Glyn and myself. Again, no formal agreement was entered into about ownership of the proceeds of the life policy as far as I am aware …"

16. In her judgment, the judge rejected the idea that Mr Owen could have paid the premiums out of his drawings account by mistake. She concluded:-

"There was an assumption on [Mr Robert Medwin's] part that the policy was to enure for the benefit of the business, but that appears to have been based simply on the fact that the policy was taken out to secure the joint borrowings. The letter to [Guardian] (which was taking a charge over the policy to support joint borrowing and was not concerned with beneficial ownership of the proceeds) using the word 'we' falls short of establishing a representation to Mr Medwin. In any event it is hard to see how he acted on it to his detriment in entering into the [Guardian] charge and allowing Mr Owen to pay the premiums."

17. The letter to which the judge refers is the letter of 1 August 1985 referred to above.

The Appellants' submissions

18. Mr Lederman relies on Smith v Clerical Medical & General Insurance [1993] 1 FLR 47, in which a question arose as to the ownership of the proceeds of an endowment policy which the plaintiff and the deceased had taken out when they purchased a house in which they cohabited. In that case the endowment policy was applied for by them jointly, the premiums were paid for by them jointly, and the policy was intended to be collateral security for a mortgage taken out to finance the purchase. The Court of Appeal held that the proceeds belonged to the plaintiff. As Parker LJ said at page 51:-

"the entire purpose of the transaction was that this money should be used to pay off the mortgage so that in the event of either of the assured dying before the mortgage was paid off the survivor would be left not only with the title to the property by survivorship but with that property free of the mortgage. That that was the joint intention of both these parties appears to me to be beyond all doubt. That being the case, if the building society for some reason chose not to demand the policy monies in order to pay off the mortgage, there can be no possible ground upon which the personal representatives could claim to be beneficially entitled to the monies."

19. Mr Lederman also relies on the answers which Mr Robert Medwin gave in cross-examination. He said that the intention was that the proceeds should be used to pay off the mortgage.
20. As to reliance, Mr Lederman submits that the common intention between the parties was acted upon. Mr Robert Medwin entered into the further charges and transactions in his uncorrected belief, reasonably held, that the endowment policy would be available for partial repayment of the loan.
21. Mr Lederman relies on the dictum of Lord Diplock in Gissing v Gissing [1971] AC 886, 906, that "[the] common intention [of the parties] is more likely to have been concerned with the economic realities of the transaction than with the unfamiliar technicalities of English law of legal and equitable interests in land." He submits that Mr Robert Medwin read the relevant documents and did not understand their legal significance.
22. Mr Lederman accepts that the onus is on the appellants to establish that there was a common intention constructive trust.

Conclusions

23. In my judgment, a distinction must be drawn between, on the one hand, beneficial ownership of the property and on the other hand, the use of the proceeds of sale as security for the borrowing from Guardian. The judge had this distinction very much in mind because she drew it in an intervention at the end of the relevant line of questions in the course of the cross-examination of Mr Robert Medwin, and she refers to it in the passage which I have set out above from her judgment.
24. The court cannot draw inferences as to a common intention unless the evidence supports that inference. All the circumstances must be examined as a whole. The question is not, therefore, concluded by the fact that Mr Robert Medwin did not, in fact, contribute to the premiums. On the other hand, the inference must be objectively established:-

"[a party] is not bound by any inference which the other party draws as to his intention unless that inference is one which can reasonably be drawn from his words or conduct. It is in this sense that the branch of English law relating to constructive, implied or resulting trusts effect is given to the inferences of the intention of the parties to a transaction which a reasonable man would draw from their words or conduct and not to any subjective intention of absence of intention which was not made manifest at the time of the transaction itself." (per Lord Diplock, Gissing v Gissing above at page 906).

25. I accept that in the present case the transaction was structured so that the proceeds of the policy would be used to repay the borrowing from Guardian if required. I also accept that on the judge's findings, both Mr Robert Medwin and Mr Owen owned 45 High Street as tenants in common in equal shares. However, it was also an integral part of the transaction that they charged their private houses and it is not suggested that they beneficially owned those properties in equal shares. Furthermore, the fact that they agreed that the premiums should be paid out of the bank account of LIG does not mean that they necessarily intended that the premiums should be paid by them jointly. In fact, nothing was said about how those premiums were to be dealt with within the accounts of LIG and they were, in fact, debited to Mr Owen's account. The evidence does not disclose any enquiry by Mr Robert Medwin as to who was paying the premiums. Mr Owen and Mr Robert Medwin dealt with other policies to which they were indisputably sole beneficial owners in the same way. The grantee of the relevant policy was Mr Owen alone.
26. Moreover the provisions of the deed make it clear that beneficial ownership of the policy was vested solely in Mr Robert Medwin. I accept that, in the words of Lord Reid in Gissing v Gissing, that the legal technicalities of the deed were probably terra incognita to Mr Robert Medwin, but the impact of the relevant provisions is relatively clear and it is curious that opportunity was not taken by the solicitors advising both Mr Robert Medwin and Mr Owen to set out the position accurately (on Mr Robert Medwin's case) given that a formal document was being entered into.
27. In addition, on the cross-examination read as a whole, I consider that the judge was correct in her conclusion that the answers given by Mr Robert Medwin established that he understood that the proceeds of the policy would be used to repay Guardian but not that there was any intention on the part of Mr Owen at least that the proceeds would be owned jointly.
28. Mr Lederman relies heavily on the letter of 1 August 1985, but the statement in question in that letter is equivocal as to beneficial ownership of the policy, and the letter is overtaken by the subsequent conduct of the parties and the terms of the formal documentation.
29. Lastly, on this point, I do not consider that Smith v Clerical Medical and General Insurance precludes the judge's decision. Each case in this field must turn on its individual facts, and the facts of this case are self-evidently very different from those in the Smith case.
30. I now turn to reliance. As I have explained, the judge found that there was no reliance in any event. Mr Lederman's submission was that Mr Robert Medwin did rely, to his detriment, on the common intention by entering into the further charges. The position on the evidence is as follows. There is no evidence in Mr Robert Medwin's witness statement that he relied on the common intention in this manner. In his examination in chief, it was put to him that he had relied on the common intention in this way. However, the reason that he gave was that "There was never any question in my mind [but] that it would be, as advised, to reduce the debt." (Transcript, 25 July 2002, page 12D).
31. This reason does not in any event meet the point that the common intention relied on is that the whole of the proceeds should be beneficially owned, whether or not the mortgagee sought to exercise its security over the policy. Moreover, it was given in answer to a series of leading questions. There was no objection to the line of leading questions by the respondents' counsel and no intervention by the judge. But even though there was no objection, it is highly to be regretted that leading questions were put on this important issue. The effect was to undermine the evidence. As Phipson on Evidence states, the reasons for the rule that leading questions should not (save in exceptional situations) be asked are:-

"that the witness is presumed to be favourable to the party calling him, who, knowing exactly what the witness can say, might prompt him to give only favourable answers. Such evidence would obviously be open to suspicion as being rather the pre-arranged version of the party than the spontaneous narrative of the witness. Or, the witness may simply be tempted, consciously or unconsciously, to agree with the questioner." (15^th ed, 2000, para. 11-11).

32. Mr Robert Medwin was cross-examined on his answers in this respect:-

"Q… The question was put … that if you had known that Glyn Owen was asserting ownership of the full policy proceeds you would not have signed any further charges. What I am suggesting to you is that if you had known Glyn was prepared to satisfy the requirements of the mortgage company and pay for the premiums himself, you would have had no problem with that.

A. No; No.

THE DEPUTY JUDGE: Is that a 'No', you agree or a 'No', you do not agree?

A. I would have had no problem with it. Yes I agree I suppose." (Transcript, 26 July 2002, page 52 C-F).

33. In the upshot, therefore, Mr Robert Medwin's evidence does not support that the submission which Mr Lederman makes. Nor did the judge accept that there was further reliance by entering into the further charges. She considered whether there was any form of reliance by allowing Mr Owen to pay the premiums and rejected it.
34. In the circumstances, in my judgment, the appellants cannot succeed on this issue.

104 Darnley Road

35. 104 Darnley Road, Gravesend was a property privately owned by Mr Owen which he charged as part security for a loan from Lloyds TSB plc ("Lloyds") made jointly to Mr Owen, Mr Robert Medwin and Mr Simon Medwin. 104 Darnley Road was sold after Mr Owen's death. The sum of £72,000 was paid out of the proceeds of sale to reduce the debt to Lloyds.
36. Of this sum of £72,000, half was attributed to borrowings from Lloyds in respect of 29 High Street, Sevenoaks and as to the other half in respect of 43/45 High Street, Sevenoaks. By virtue of a declaration contained in the judge's order, the share of capital, profits and liabilities in respect of 29 High Street was declared to be 50% to Mr Owen and 50% to Mr Simon Medwin and in respect of 43/45 High Street, 50% to Mr Owen and 50% to Mr Robert Medwin. There is no appeal from this part of the order. It was common ground that Mr Owen's executors were entitled to credit for the proceeds of sale of Darnley Road used to discharge the Lloyds borrowing. The issue then was how the executors should be compensated in interest for the use of the proceeds in this way. The judge's order provides for the executors to have credit for such interest on the proceeds of sale at a rate which is not now in issue "such interest to be borne as an expense attributable to 50% to [the respondents] and as to 25% to [Mr Robert Medwin] and as to 25% to [Mr Simon Medwin]." Mr Lederman's submission is that the whole of the share attributable to the appellants should have been attributable to Mr Simon Medwin. His argument is based on the judge's holdings at page 65 and 69 of her judgment that:

"the commercial purpose and intended effect of the arrangements respecting 29 High Street was for Mr Simon Medwin to stand in his father's shoes as far as his property interest in number 29 was concerned and to provide whatever security was required in order to refinance the borrowing in relation to the venture as a whole."

and that

"… equity may well require the implication of an indemnity from the nature of the transaction to save Mr Simon Medwin from excess liability over and above the benefits which he acquired from the transfer of the property."

37. However, the judge went on to say later in her judgment at pages 69 - 70:

"That said, the intervention of Mr Simon Medwin cannot in my judgment operate so as to throw an increased burden of losses on Mr Owen. At all times he (and his estate after his death) has been and remains jointly and severally liable as principal debtor to the creditors for all liabilities. Within the property venture his contribution to losses was and remains 50%. He has not been unjustly enriched by Mr Simon Medwin's involvement because the only liabilities which Mr Simon Medwin assumed were those previously referable to Mr Medwin. Accordingly, it is my judgment that although the transaction may well have given rise to an implied indemnity, the burden of that indemnity lies with Mr [Robert] Medwin. On the taking of an account, such an indemnity would only affect [the appellants] inter se and would not affect the position of [the respondents] as against [the appellants]."

38. Mr Lederman's submission is that Mr Simon Medwin should only be bound to pay his just proportion of the liability in respect of interest on the proceeds of sale of 104 Darnley Road, whether in equity or under section 5 of the Mercantile Law Amendment Act 1856, and that in the light of the judge's holdings at page 65 and 69 of her judgment that proportion should be nil.
39. In my judgment, the judge made the correct order. It follows from her findings in the passage cited from pages 69 to 70 of the judgment and not challenged by Mr Lederman, that that was the appropriate order. The judge was clearly not satisfied that the liabilities should be borne by Mr Robert Medwin alone with the result that if he should be unable to pay Mr Owen would be unable to recover those expenses. Moreover, the order is consistent with the judgment declaration as to Mr Simon Medwin's share of the liabilities attaching to 29 High Street, and I do not see how in the light of the judge's findins the order in relation to interest on the proceeds of sale of 104, Darnley Road can be different. Accordingly in my judgment, the appeal on this issue must also be dismissed.

Disposition

40. In the circumstances, in my judgment, the appeal should be dismissed on both issues.