England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LEEDS DISTRICT REGISTRY

		Leeds Combined Court Centre 1 Oxford Row Leeds, LS1 3BG
		22/05/2018

Mr Justice Turner :

A PRELIMINARY OBSERVATION

1. His Honour Judge Davy QC, before whom this matter was heard at first instance, bore witness to a festival of mendacity. The judge warned the parties that he intended to send a transcript of his judgment together with the case papers to the Director of Public Prosecutions. My inquiries have revealed that, in the event, this was not done. That is an omission which this Court intends to put right.

INTRODUCTION

2. I will keep this short. The claimant and the three defendants are brothers. Their father had developed a business empire the assets of which included a number of properties. After the death of his father, it was the second defendant who assumed de facto control of the relevant businesses the details of the operation and profitability of which were but lightly touched upon in the tax returns of the defendants.
3. For many years, the central role of the claimant in this fiscally clandestine organisation was that of employee of Girlington Motors Limited of which the first and second defendants were the director and shareholders.
4. The properties were held by the brothers in various legal shares as joint owners. In October 2012, the claimant started the process of serving notices of severance. Predictably, this proved to be an unpopular move with his brothers. Very soon after, and probably not coincidentally, he was sacked from his job at Girlington Motors. He went on to bring a claim in the Employment Tribunal which was settled upon the payment of a substantial sum.
5. The issue remained as to the extent of the claimant's interest in the properties and his entitlement, if any, to a share in the rental payments received in respect of such properties over the years.
6. The judge decided that the presumption that equity follows the law should prevail in the absence of credible evidence to suggest otherwise. Accordingly, the claimant was entitled to assert beneficial claims in respect of each property in accordance with his legal title.
7. However, the judge declined to make any award to the claimant in respect of rental payments accruing in respect of any of the properties. It is against this finding that the claimant now appeals.

THE LAW

8. There are relatively few cases on the proper approach to the distribution of profits such as rents from land between co-owners. Most litigation touching upon the issue has arisen in the context of the breakdown of domestic relationships often complicated by the bankruptcy of one of the parties. The relative dearth of guidance in circumstances in which commercial rents have been collected is probably to be attributed to the fact that the parties to such arrangements are likely to have taken the precautions of formalising their respective entitlements in advance. In the present case this was not done.
9. In Davis v Vale [1971] 1 W.L.R. 1022, the parties were a divorced couple. Upon their separation, the husband had remained in occupation of the former matrimonial home collecting rent from a subtenant and paying off the mortgage instalments as they became due. The central issue concerned the assessment of their respective shares in the property but Lord Denning went on to deal with the position relating to the husband's rental receipts in the following way:

"The only remaining question is as to the position after the wife left. The husband remained in the house, paying all the mortgage instalments, but receiving the rent from the subtenant. It seems to me that, on the realisation of the house or any taking of accounts between them, credit should be given for the fact that he has paid the whole of the instalments on the house, of which half is hers."

10. Although not made explicit, it is to be inferred that the account between the parties would be expected to include the mortgage payments made by the husband albeit reduced to reflect the rent he had been receiving from the sub-tenant. Of particular importance, however, is the acceptance of the Court of Appeal that the judge at first instance was correct to approach the issue on the basis that his task was to determine the common intention of the parties.
11. In Jones v Jones [1977] 1W.L.R. 438 Lord Denning grappled with the issue once more commenting by way of obiter observation:

"As between tenants in common, they are both equally entitled to occupation and one cannot claim rent from the other. Of course, if there was an ouster, that would be another matter: or if there was a letting to a stranger for rent that would be different, but there can be no claim for rent by one tenant in common against the other whether at law or in equity."

12. The position is summarised in Snell's Equity thus:

"20-084 Equitable accounting is fact sensitive and depends, to a significant extent, on the common intentions of the parties. To the extent rules have developed, these are (non-binding) guidelines or rules of convenience aimed at achieving justice between the co-owners...

20-088 If one co-owner receives rent or other profits from the land, e.g. by letting rooms, they must generally give credit for a proportion."

13. Accordingly, although a co-owner would normally be entitled to claim a share of rental profits in proportion to his share of the interest in the property, the determination of this issue, as a matter of equitable accounting, is ultimately a question of determining the common intention of the parties which is inevitably a fact sensitive exercise.

THE JUDGE'S FINDINGS

14. The judge concluded that it had not been the common intention of the brothers that the claimant should receive rent. He pointed out those factors which he considered supported this conclusion.
15. Shortly after the claimant was sacked, an informal mediation meeting was held. Amongst others, it was attended by the claimant and the first and second defendants. The claimant secretly recorded what was said at the meeting. Some of this was helpful to his case but the judge rightly pointed out that, at this stage, the claimant made no mention of any expectation that he should be entitled to payments relating to rents received in respect of the properties. Had the claimant perceived that it had been intended that he should be entitled to monies in respect of rent it is difficult to explain why he did not articulate this at the time.
16. He also observed that, during his lifetime, the claimant's father had distributed rents without regard to the legal or beneficial interests of his sons in the properties and that the second defendant had carried on as his father had done. Indeed the claimant took me to some payments in respect of rent evidenced in the documents contained in the appeal bundle which mostly related to the period before 2009 when his father died.
17. Clearly, the arrangements between the brothers were unorthodox and the judge's task was made no easier by the fact that he found that the evidence of all of them was utterly dishonest. The claimant seeks to argue before me today that there were a number of occasions upon which he raised the issue of rental payments before he started these proceedings but, as I explained to him, the judge at first instance had rejected his evidence on this issue and it is not open to this court on the facts of this case to go behind his findings on matters of credibility.
18. Of the evidence of the claimant, he remarked:

"…I do not believe him on this or indeed any other material matter."

He made the following further observations:

"The first defendant gave evidence which, insofar as it was designed to help the second defendant, was, I am sure, untruthful."

"On any view, the second defendant was egregiously dishonest…" and "in his evidence was…as heroically dishonest as he is in his everyday life."

"The third defendant gave evidence in a facetious manner, including winking at the claimant's counsel at one stage, a manner which revealed to me that he regards telling the truth as simply no more than a lifestyle choice."

19. Attempting to establish the common but unstated intention of a group of individuals all giving honest but conflicting evidence is difficult enough. Where, as here, each witness is attempting to outdo the other in a rich display of competitive dishonesty the task of the judge is unenviable. Notwithstanding these challenges, I am satisfied that the judge applied the correct legal test and reached a conclusion which fully reflected what little objective fact he could salvage from the tangled web of deceit which the parties had so enthusiastically weaved when giving their evidence.

CONCLUSION

20. In all the circumstances, the judge's conclusions that the claimant was not entitled to claim a share of the commercial rents generated from the properties was unassailable and this appeal is dismissed.