England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BODMIN COUNTY COURT
HIS HONOUR JUDGE THOMPSON QC
5BJOO873

		Royal Courts of Justice Strand, London, WC2A 2LL
		26th April 2007

Lord Justice Mummery :

The appeal

1. This is an appeal from the order of HHJ Thompson QC dated 4 April 2006. He ordered the sale of 29 Highwood Park, Dobwalls, Liskeard (the Property) and gave consequential directions for the division of the proceeds between Mr Mark Soady, the appellant, and Ms Hunt, the respondent. According to the title documents they held the Property as beneficial tenants in common.
2. The judge dismissed a counterclaim by Mr Soady, who invoked equitable doctrines in support of his contentions that Ms Hunt was estopped from asserting any beneficial interest in the Property, that the Property was held on a constructive trust for him and that the court should order her to transfer her entire legal and beneficial interest in the Property to him.
3. I granted Mr Soady permission to appeal on 18 October 2006.

The background

4. Mr Soady, who is a self employed builder, and Ms Hunt (also referred to in some of the documents as Mrs Woodhouse) bought the Property for £41,000 in October 1995. It was conveyed to them as beneficial joint tenants, but the beneficial joint tenancy was severed by written notice served by Ms Hunt's solicitors on 4 December 2001. The Property is now estimated to be worth in the region of £150,000 with an equity of about £100,000.
5. They raised £40,000 on mortgage from Lloyds Bank (the Bank) and the balance of £1,000 cash was paid by them equally.
6. They lived together in the Property until Ms Hunt left with their children in August 1998. Since then Ms Hunt has lived in rented accommodation, including a house owned by her mother, and Mr Soady has remained in the Property. His new partner also lives there.
7. The mortgage repayments fell into arrears after Ms Hunt left. By the end of 1999 they amounted to about £3,500. An order for possession was made on the application of the Bank on 27 January 2000. It has never been enforced, though the Bank has recently made application for a warrant for possession.
8. On 8 June 2005 Ms Hunt began proceedings seeking an order for the sale of the Property. Mr Soady, who had refused to agree to a sale, counterclaimed for an order declaring his sole entitlement to the beneficial interest in the Property.

The dispute

9. The dispute centres on relatively few events occurring in the period between the departure of Ms Hunt in August 1998 and the commencement of her legal proceedings in June 2005.
10. Ms Hunt claims that the Property is held by them as tenants in common in equal shares, that the purpose for which the Property was purchased no longer subsists, that an order for sale should be made and that the net proceeds of sale should be divided in equal shares.
11. As long ago as 9 November 1999 Ms Hunt, through her solicitors, had asked for the Property to be sold and for the proceeds to be divided equally. On 3 December 1999 proceedings to force a sale were threatened.
12. Mr Soady has never agreed to a sale. His case is that in about January 2000 he informed Ms Hunt that there were mortgage interest arrears amounting to £3,500 and that the Bank had taken possession proceedings. They were due to be heard on 27 January 2000. According to him Ms Hunt orally agreed with him or represented to him that, in consideration of him paying off the mortgage arrears and other debts, she would transfer her interest in the Property to him.
13. Ms Hunt admits that at that time there was no equity, or very little equity, in the Property and that they would have incurred a loss if there was a forced sale by the Bank. She estimated that the then value of the Property was £49,000. On a sale by the Bank legal fees, estate agent's expenses and the Bank loan and costs would have to come out of the proceeds of sale. It was in the interests of both of them to avoid a sale.
14. Ms Hunt also admits that in about January 2000 she made a "provisional agreement" with Mr Soady: if he paid the mortgage arrears and obtained her release from the mortgage, she would transfer her interest to him. The oral agreement was evidenced in her solicitor's letter of 9 February 2000, which referred to recent letters and continued-

"…I understand that Mrs Woodhouse and yourself have now come to a provisional agreement regarding the property.

Mrs Woodhouse is agreeable to you retaining the property subject to the following:-

a. All mortgage arrears are cleared by you.

b. Mrs Woodhouse is thereafter released from her obligation under the mortgage by the building society/bank.

c. All expenses in respect of the transfer of the property are met in full by you.

Please provide a response to this letter within seven days. I would advise you to take legal advice."

15. Mr Soady did not respond to the letter within 7 days or within a reasonable time. He alleges that he later met Ms Hunt and told her that he accepted the proposals set out in the letter. The judge did not accept Mr Soady's evidence on this point and held that no concluded contract was made for the transfer of her interest to him. This finding of fact is not challenged on the appeal.
16. Ms Hunt also says that, if the offer was accepted, the intention was that the agreement would be performed within a reasonable time. This would enable her to apply for a mortgage and purchase a property belonging to her mother at 48 Highwood Park, which she was occupying at the time. Her release from the mortgage was not obtained by Mr Soady, either within a reasonable time or at all, nor were the arrears paid off within a reasonable time. Ms Hunt had not agreed to transfer her interest to Mr Soady upon him discharging the arrears, whenever that might occur. By the time the next relevant solicitor's letter was sent on nearly two years later on 4 December 2001, he had only paid off about £100 of the arrears and Ms Hunt's name was still on the mortgage.
17. The letter of 4 December 2001 enclosed the notice of severance of the joint tenancy mentioned earlier and continued as follows-

"It is some years since Mrs Woodhouse lived in the …property. She does however have a significant amount of capital tied up in the property. One of two courses of action will need to be followed:

1. That the property is valued and that an agreement is reached as to a lump sum for you to pay to Mrs Woodhouse. Her name would then be removed from the title deeds and you would be the sole owner of the property.

2. If no agreement can be reached an application will need to be made to the Court for an Order for the property to be sold and the proceeds of the sale divided between you and Mrs Woodhouse.

Please give this matter careful consideration and confirm with us your position. If you are in any doubt as to the legal implications of this letter we would strongly suggest that you consult a solicitor."

18. The letter could have left Mr Soady in no doubt that Ms Hunt was claiming a beneficial interest in the Property. The crucial question is whether she was prevented from asserting her claim by reason of a concluded agreement, by the doctrine of proprietary estoppel or as a result of a constructive trust.
19. Mr Soady did not reply to the letter. About two and a half years later on 13 August 2004 he wrote to Ms Hunt's solicitor. He referred to the letter of 9 February 2000. He stated that "all debts left by Ms Hunt (aka Mrs Woodhouse) have now been cleared" and that he "would therefore like Ms Hunt to make arrangements for her to sign over the property as stated in your letter."
20. No arrangements were made. Ms Hunt's solicitor informed Mr Soady that she was entitled to an equal share in the Property, which she wished to realise and suggested that, as she did not wish to force a sale, Mr Soady pay her a lump sum in respect of her interest and release her from the mortgage. The Property would then be transferred into his sole name. No such agreement was reached, as Mr Soady claimed that there was already a concluded contract that he should have the whole Property, as he had paid off all the arrears of interest. Alternatively, an estoppel had arisen in his favour in consequence of his detrimental reliance on a representation that Ms Hunt would transfer her share to him if he paid off the arrears. It was also contended that there was a constructive trust of the Property in his favour, as it was unconscionable for Ms Hunt to resile from her promise to transfer her half share to him after he had acted to his detriment in paying the arrears in the belief that the Property would become his once the arrears were paid off.
21. Although not mentioned in the pleadings some modifications made by him to the Property were relied on by Mr Soady at trial and on the appeal in support of his proprietary estoppel and constructive trust claims. He mentioned re-lining the roof, constructing boundary walls, re-instating the path and driveway, total re-decoration and modernising the kitchen and bathroom. During that time he had lived a modest life going without holidays, spending money on the arrears, living in very tight circumstances and suffering considerable hardship. He said that if Ms Hunt is allowed to renege on her agreement, he will have acted to his detriment.
22. Ms Hunt admitted in her evidence that Mr Soady had made some modifications to the Property after she had left, but she did not admit the extent of them adding that she did not know about all of the works described by Mr Soady and that some that she did know about were unfinished. No schedule has ever been produced by Mr Soady supplying details of the modifications, or their cost or stating what value (if any) they added to the Property. When it was pointed out during the opening of the case there was no pleading on this point, Mr Sheridan, who appeared for Mr Soady at trial and on this appeal, indicated that no schedule would be produced and no application was made by Mr Sheridan to amend the defence and counterclaim.
23. As for the long period of inactivity on her part between 2001 and 2004, Ms Hunt's explanation was that she did not feel able to take any action about the Property at that time, as she was still very frightened of Mr Soady against whom she made allegations of violence (which he disputes).

The judgment

24. The judge rejected Mr Soady's case of contract, proprietary estoppel and constructive trust. The general thrust of his case was that, when, in 2000, there were mortgage arrears and no equity in the Property, Ms Hunt was willing for Mr Soady to have the whole Property. She only revived and pursued her claim to a beneficial interest after he had paid off the arrears and there was a substantial equity in the Property. Mr Soady considers that she said one thing in 2000 and that it later suited her to change her mind and renege on the original agreement. In his view, the justice of the case required the judge to hold Ms Hunt to her original word.
25. As the judge pointed out, however, Ms Soady's original willingness in 2000 to relinquish her beneficial interest in the Property was subject to conditions which Mr Soady has not performed. The judge concluded that, whichever way his claim was put, it ran into difficulties on the facts and the law.
26. As for contract, Mr Soady's evidence was that he told Ms Hunt that he accepted the proposal in the letter of 9 February 2000. After examining the evidence in detail and forming an adverse view of the reliability of Mr Soady's recollection and that of a supporting witness, the judge preferred the evidence of Ms Hunt, who denied that Mr Soady had ever signified his agreement to the terms of the provisional agreement or that she had telephoned her solicitor to tell him that they had reached agreement.
27. The judge held that the offer or proposal had lapsed after the passage of a reasonable time (three to six months). He rejected the submission that, because the letter of 9 February 2000 mentioned no time for paying off the arrears, Mr Soady had an unlimited time in which to do that. The judge also held that any provisional agreement had been brought to an end by the severance of the joint tenancy in December 2001 when it was made clear that Ms Hunt was claiming a beneficial interest in the Property. In the light of the judge's findings of primary fact, which were not appealed against, the judge's ruling on the contract claim stands.
28. As for the proprietary estoppel claim, the judge held that there had been no detrimental reliance on a representation made by Ms Hunt in 2000 that, provided he paid off the mortgage arrears and obtained her release, she would sign over the Property to him. The judge pointed out that the only pleaded detriment was paying the mortgage arrears. Modifications of the Property and alleged hardship were not pleaded.
29. In my judgment, the judge rightly held that as the mortgage payments were a joint and several liability and, as Mr Soady continued in occupation of the Property, he did not act to his detriment in paying the arrears. The totality of the arrears accrued in the period when he was in sole occupation of the Property and they were paid off during the period after the Bank had obtained an order for possession of the Property.
30. As for constructive trust, the judge held that there had been no unconscionability on the part of Ms Hunt in resiling from the provisional agreement or promise. Mr Soady had not performed the conditions in the provisional agreement and had not suffered detriment. Indeed, it was she who had suffered detriment in consequence of Mr Soady's failure to obtain her release from the Bank's Mortgage. She was unable to obtain a mortgage in order to finance the purchase of the property which her mother was prepared to sell to her.

Appellant's submissions and discussion

31. Mr Sheridan had three points, which he supported by citation from Gillett v. Holt [2001] 1 Ch 210 at 225-226 and 232, and Jennings v. Rice [2002] EWCA Civ 159 at paragraphs 36, 42, 47 and 50.
32. His first point was on detriment. This, he said, was a case of a clear representation by Ms Hunt which, to her knowledge, Mr Soady had acted on to his detriment. The judge was wrong in finding that detriment was not made out by Mr Soady. The fact was that he alone had cleared off the mortgage arrears. His modifications to the Property amounted to a further detriment on his part.
33. The difficulty with this submission is that, assuming in Mr Soady's favour that a clear initial representation or promise was made by Ms Hunt, the representation or promise was made on conditions which Mr Soady did not perform. Further, after he had received the letter of 9 December 2001, he could not reasonably rely on the initial representation or promise, which was terminated or withdrawn Ms Hunt in consequence of the clear assertion of her claim to a beneficial interest in the Property and request to be paid a lump sum, failing which a sale would be necessary. As at the 9 December 2001 nothing had been done on Mr Soady's part to his detriment, which would prevent her from resiling from, withdrawing or terminating the initial representation or promise (assuming that it not already lapsed) or made it unconscionable for her to do so.
34. Mr Soady had not performed the conditions attached to the representation or promise: save for about £100, the arrears had not been paid off and Ms Hunt's name was still on the mortgage. More than a reasonable time had elapsed for him to perform the conditions on which she was prepared to relinquish her beneficial interest. What was done by Mr Soady after 9 December 2001 was not in reliance on the initial representation or promise, but in the knowledge that Ms Hunt had severed her beneficial joint tenancy and was asserting her entitlement to a half share in the Property. She was no longer willing to transfer her share to him.
35. I agree with the judge that the payment of the arrears could not, in any case, properly be regarded as detriment giving rise to an estoppel or making it unconscionable for her to resile from the representation or promise. Mr Soady was contractually bound to the Bank to pay the mortgage arrears. If he did not pay them, the Bank would be in a position to enforce the possession order in respect of the Property, which he was occupying as his home without paying any occupation rent to Ms Hunt. At one point a family friend (Mr Bunny) had paid £2,346 to avoid re-possession of the Property. In a real sense Mr Soady paid the arrears for his own benefit, to ensure continuing occupation of the Property.
36. Mr Sheridan's second point was unconscionability. He submitted that the judge ought to have held that an equity had arisen in Mr Soady's favour making it unconscionable for Ms Hunt to resile from her representation. It was irrelevant that she had been prevented from obtaining another mortgage. Alternatively, the Property was held on a constructive trust.
37. I would reject this criticism on the same grounds that I have rejected the submission of detrimental reliance.
38. The third and final submission was based on Ms Hunt's acquiescence in Mr Soady's modifications to the Property. Even if Mr Soady was not entitled to full beneficial ownership of the Property, Mr Sheridan contended that he had a lesser interest arising from having acted to his detriment while Ms Hunt stood by and raised no objection either to the modifications or to the payment of arrears. He had an equity which should have been satisfied in a way that was proportionate to the detriment suffered.
39. I cannot accept this submission. The case was never pleaded in this way. It was put as a case of a representation or promise to transfer the half share if Mr Soady did what was specified in the letter of 9 February 2000. Further, there was insufficient evidence of the alleged modifications, or of their cost or of the extent (if any) to which they enhanced the value of the Property. There was no disclosure of any documents relating to the alleged works or any indication whether they took place before or after the December 2001 notice of severance. The judge was unable to make relevant findings of fact about the modifications to the Property.

Conclusion

40. The parties were informed at the conclusion of the oral hearing that the Court had decided to dismiss the appeal, but would take time to put the judgments in writing.
41. The court heard submissions on costs. Mr Sheridan was unable to resist an order that Mr Soady pay Ms Hunt's costs of the appeal. As both parties are publicly funded, the order, which we asked counsel to draft and agree, should contain the usual provisions relating to the stay of enforcement of a costs order against a publicly funded party and the detailed assessment of the costs of both sides.
42. Although the point was mentioned in passing, it is not for this court to consider at this stage making an order in relation to the payment of the costs ordered against Mr Soady out of his share of the proceeds of sale of the Property.

Lord Justice Lawrence Collins:

43. I agree.

Sir Paul Kennedy:

44. I also agree.