The Law Commission

PART IV

A WAY FORWARD

4.1      In Part II we identified several difficulties with the principles currently applied to determine whether a person has obtained a beneficial interest in the shared home in the absence of the parties having made express provision. We realise that one possible approach to reform would be to rationalise the rules of implied trusts in such a way as to lead to greater fairness, certainty, and predictability of operation.
4.2      However, we have considerable reservations about recommending any statutory reform of the present law of implied trusts. The principles which give rise to implied trusts are doctrines of common law which have been developed by the courts over many years. For the most part, those common law doctrines have served us well, and we do not consider that the problems we are now addressing justify a complete codification of the law of implied trusts. There is a real risk that statutory intervention on the fringes of this area of the law could have unforeseen and unintended consequences, and could even hinder further judicial development of the underlying legal principles.
4.3      The possibility of judicial development of the law does however remain, and in this Part we shall discuss whether there are particular ways in which reform could be advanced by the courts. We shall first consider how the other leading common law jurisdictions- Australia, Canada and New Zealand- have dealt with the problem- and how their courts have applied and developed doctrines such as the constructive trust.^[1] We shall see that while for the most part these jurisdictions have adopted a somewhat more expansive approach to constructive trust than that apparent in England and Wales, the underlying problems of uncertainty and obscurity remain. We shall however make suggestions for the continuing development of the common law by the English courts.
4.4      It is important to note that in many Australian states, and in New Zealand, a legislative solution has been applied, and that the principles emanating from their courts are now only invoked where the legislation is inapplicable.^[2]

Australia: "unconscionability"

4.5      Traditionally, Australian courts followed the English approach in applying the doctrine of the common intention constructive trust to resolve property disputes between those sharing a home.^[3] From the 1980s, however, the courts developed the concept of "unconscionability" as the basis of the constructive trust.^[4] This approach required the court to make an objective assessment of the parties' conduct rather than to carry out a search for their "common intention".
4.6      The Australian courts viewed the sharing of the home as a joint venture,^[5] focusing on the pooling of resources which often occurs in such situations. A more flexible concept of constructive trust was applied in order to prevent the unconscionable retention of disproportionate contributions to the "joint relationship".^[6] It appears that a claimant must establish the following elements in order to found a constructive trust:

(1) the parties entered into some form of "joint endeavour";^[7]

(2) the claimant contributed in some way to that endeavour; and

(3) it would be unconscionable for the other party to retain the benefit of those contributions in the event of separation or the termination of the joint endeavour.

4.7      A wide range of financial and non-financial contributions may be taken into account.^[8] More importantly, it remains to be seen whether, in the absence of any financial contribution, non-financial contributions (in particular domestic services) will be sufficient to found a constructive trust.^[9] Similarly, some reported decisions reveal a persistent demand for either a link between contributions and the acquisition, conservation or improvement of the property in question,^[10] or a physical pooling of assets.^[11]
4.8      The Australian courts will not impose a constructive trust in cases where a non-proprietary remedy would be sufficient to do justice to the claimant.^[12] For example, where the claimant has contributed towards improvements to the property, the courts are likely to compensate the claimant by imposing a charge on the property in their favour to the amount expended rather than conferring on them a beneficial interest under a constructive trust.^[13] The outcome in respect of quantum is unpredictable.^[14] However, as is the case with the common intention constructive trust, the new model trust will have retrospective effect, despite the absence of an express declaration by the court.^[15]
4.9      With the new model constructive trust Australia can be said to have made a distinctive contribution to the development of equitable doctrines,^[16] the most obvious advantage of which is the avoidance of the search for a common intention to share the beneficial interest. However complexity may have increased, as the common intention trust continues to be argued as a separate doctrine,^[17] thereby impeding the development of the broad concept of unconscionability as a single remedy. Moreover, the concept itself is susceptible to differing judicial interpretations, and can therefore be seen to increase the unpredictability of outcomes.^[18]

Canada: unjust enrichment

4.10      The Canadian courts have developed the "remedial constructive trust" to deal with economic injustice in the family context.^[19] Unlike the English common intention constructive trust, the Canadian model is based on principles of unjust enrichment, and it may be imposed in circumstances where the claimant has not provided any direct financial contribution to the acquisition of the property but has, for example, raised children or carried out other services in the home.^[20]
4.11      In order for a remedial constructive trust to be imposed the court must be satisfied both that unjust enrichment has occurred and that a proprietary remedy is justified. To establish unjust enrichment a claimant must demonstrate—

an enrichment, a corresponding deprivation and absence of any juristic reason for the enrichment.^[21]

4.12      "Enrichment" is interpreted widely so as to include financial contributions,^[22] payment of household expenses,^[23] domestic work,^[24] and the carrying out of repairs and maintenance.^[25] Insufficient are matters such as "willing assistance one might expect from a helpful friend"^[26] or relative.^[27] The contributions should be "sufficiently substantial and direct. The requirement of a "corresponding deprivation" is not difficult to satisfy, as once the claimant has demonstrated that they have conferred a benefit on the other party deprivation almost follows as a matter of course.^[28]
4.13      A more problematic criterion is the need to show the "absence of any juristic reason for the enrichment." Obvious examples which would fail to meet this test include cases where the transfer of property is intended as a gift^[29] or is transferred in accordance with the terms of a contract. However, in the case of services the point may turn on considerations as to whether they were requested or freely accepted and whether the defendant knew that the claimant would expect something in return.^[30]
4.14      The injustice in unjust enrichment is said to arise due to the claimant's "reasonable expectation" of receiving an interest in property, and the defendant's awareness thereof.^[31] It may be extremely difficult to discern the expectations of persons in close relationships, as the parties will rarely possess and communicate the sharply defined expectations associated with marketplace transactions. However, the courts have shown a fair degree of willingness to substitute the expectations of reasonable persons for those of the parties, even as they state the requirement that they exist in fact.
4.15      Where the various elements of unjust enrichment are present, the remedial constructive trust is applicable between friends, family, same-sex couples^[32] and married persons.^[33] However the courts will only award a proprietary remedy where monetary compensation, the ordinary form of relief, is inappropriate or insufficient.^[34] Moreover, the claimant must demonstrate a link between the enrichment and associated deprivation, and the property the ownership of which is in dispute.

•    New Zealand: "reasonable expectation"

4.16      The New Zealand Court of Appeal has adopted a broader approach to the constructive trust than the English courts, focusing on the "reasonable expectations" of the parties. In order to found a constructive trust a claimant must establish:

(1) that they have contributed in some way to the property;

(2) that they had a reasonable expectation that they would acquire an interest in the property; and

(3) that the defendant should have reasonably expected to have had to grant the claimant an interest in the property.

4.17      The contributions need not necessarily take the form of financial payments towards the acquisition of the house. Indirect contributions such as making improvements to the property,^[35] the payment of general household expenses,^[36] or child-rearing and general domestic work^[37] will be sufficient to found an interest in the same way as the payment of a deposit, or mortgage instalments.^[38]
4.18      The flexibility of constructive trust doctrine in New Zealand is more advantageous to claimants without legal title than the current law in England and Wales, in that the courts no longer insist on contributions toward the acquisition of the property in the absence of a common intention between the parties that the beneficial interest is to be shared. Once a trust has been established, the court must in the first instance have regard to any common intention of the parties concerning the size of the shares in the beneficial interest. Any clearly expressed intention will be treated as paramount,^[39] but if no intention can be found, the property will be divided according to the parties' respective contributions.^[40]
4.19      A clear distinction is drawn between the reasonable expectations of married and unmarried couples.^[41] The court may also grant a monetary award if a proprietary interest is inappropriate, and the claimant can show that the defendant would otherwise be unjustly enriched.^[42]

Summary

4.20      We should not be misled by the labels which different jurisdictions attach to legal doctrines. Although the concepts of "constructive trust" in the jurisdictions we have mentioned clearly differ from our own common intention constructive trust in a number of respects, they may be thought to bear very close similarities to the English law doctrine of proprietary estoppel. It is arguable that, in Canada, Australia and New Zealand, the essential elements which need to be present in order to found a constructive trust are recognisable as the basic requirements for an equity arising by estoppel under English law —

(1) some act of encouragement or acquiescence by one party;

(2) detrimental reliance by the other party; and

(3) unconscionability or unjust enrichment.^[43]

4.21      The courts in Canada, Australia and New Zealand will not award a proprietary remedy as a matter of course once the circumstances justifying the imposition of a constructive trust have been established.^[44] Indeed, the discretion which these jurisdictions exercise in this regard is reminiscent of that which is exercised by the courts in this country when giving effect to an equity arising by estoppel.^[45] Yet in England and Wales a constructive trust will arise in appropriate circumstances irrespective of the "adequacy" of a non-proprietary remedy.^[46]
4.22      This distinction in terms of flexibility is also evident in terms of the contributions which are considered to be significant. All three Commonweath jurisdictions have accepted, with possibly varying degrees of conviction, that "non-financial contributions" by way of domestic services, or expenditure on the joint household, may give rise to an interest by virtue of constructive trust.
4.23      There is no doubt that the broader approach of these jurisdictions tends to lead to greater uncertainty and unpredictability than the current English law, but this may be a necessary consequence of fairness. The view we have taken is that the principles set out by Lord Bridge in Lloyds Bank plc v Rosset are, on the whole, unduly restrictive, and that the courts should seek to be more flexible in their approach.
4.24      While we realise that the application of "common intention" causes real difficulties to the courts and that it can lead to a highly artificial exercise, it is difficult to present a convincing case for any more effective criteria on which an assessment of beneficial entitlement could be based. Intention is clearly important, as it would be wholly unsatisfactory if a person were to obtain a beneficial interest where it was made extremely clear that a particular contribution, by financial or other contribution, would not be met this way.
4.25      In our view, however, the courts have made it too difficult for a person to bring a claim to beneficial entitlement in the shared home in two respects.
4.26      The first is the requirement that the claimant make a direct financial contribution to the acquisition of the shared home. In many cases, a couple will not engage in discussion, but agree to an ordering of the household finances such that one pays off the mortgage while the other pays the household bills. In those circumstances, where the payment of those bills has enabled the other party to pay the mortgage instalments, we believe that the payer of the bills should be given due credit. In our view, an indirect contribution to the mortgage of this kind should be sufficient to enable the courts to infer that the parties had a common intention that the beneficial entitlement to the home be shared.^[47]
4.27      The second concerns the quantification of beneficial entitlement. We consider that there is a strong case for the courts to adopt a broad approach here as well. If the question really is one of the parties' "common intention", we believe that there is much to be said for adopting what has been called a "holistic approach" to quantification,^[48] undertaking a survey of the whole course of dealing between the parties and taking account of all conduct which throws light on the question what shares were intended.^[49]
4.28      We realise the force of the argument that there is a need for certainty in property transactions and that it is essential for third parties dealing with the shared home to be able to discover the extent of beneficial interests in the property. For the most part, however, mortgagees and purchasers have ample means of ensuring that they take free of the interests of persons who are occupying the home. It may be more difficult to assess precisely the extent of a person's beneficial interest, but this is largely a question between the legal owner and the person sharing with him or her. There is of course, as we have already emphasised many times, a simple remedy for this problem: execute a declaration of trust.
4.29      We are aware of course that the more flexible approach to constructive trusts applied in Australia and New Zealand is now seldom invoked, as most of the jurisdictions have in place legislation to govern "de facto relationships"- in part to deal in a more satisfactory manner with the financial consequences of a breakdown in the relationship between those sharing a home. In Part V we shall see how such legislation operates as we consider more broadly status-based approaches to the problems faced by those sharing homes.

Note 1    See generally S Gardner, “Rethinking Family Property” (1993) 109 LQR 263; J Mee, The Property Rights of Cohabitees (1st ed 1999).     [Back]

Note 2    See further paras 5.19et seq.    [Back]

Note 3    See, eg, Wirth v Wirth (1956) 98 CLR 228. The three elements of this type of constructive trust were described by O’Bryan J in Hohol v Hohol [1981] VR 221, 225 as common intention, detrimental reliance and the requirement that it be a fraud on the claimant for the defendant to deny the former any share in the beneficial interest in the property.     [Back]

Note 4    Muschinski v Dodds (1985) 160 CLR 583, Baumgartner v Baumgartner (1987) 164 CLR 137.    [Back]

Note 5    See Muschinski v Dodds above, at p 620, per Deane J. In Baumgartner v Baumgartner above, the judgments referred to a “joint relationship”, making clear that a commercial element is unnecessary (per Mason CJ, Wilson and Deane JJ at p 164; Gaudron J at p 157).     [Back]

Note 6    Baumgartner v Baumgartner above.    [Back]

Note 7    Or “joint venture”. There is no requirement that the parties should have specifically intended to set up a joint venture. The courts look to the reality of the situation with regard, eg, to the extent the parties shared their lives and resources (Hibberson v George (1989) 12 Fam LR 725).    [Back]

Note 8    See, eg, Miller v Sutherland (1990) 14 Fam LR 416 (assisting in building home); and Baumgartner v Baumgartner above (where the claimant was awarded a sum representing the earnings she had lost as a result of her career break to have a child). In Marks v Burles [1994] DFC 95 White J remarked at p 155: Even though the High Court was moved to recognise a non-financial contribution to the joint relationship there has by no means been an importation of the principles of the Family Law Act 1975 (Cth).    [Back]

Note 9    See Bryson v Bryant (1992) 16 Fam LR 112 where the majority of the Supreme Court of New South Wales (Sheller JA and Samuels A-JA) decided that domestic services would only be relevant where they were in addition to some financial contribution. Kirby P (at p 126) strongly objected to- leaving (those) who have provided ‘women’s work’ over their adult lifetime to be told most condescendingly, by a mostly male judiciary that their services must be regarded as ‘freely given labour’ only.    [Back]

Note 10    See, eg, Lipman v Lipman (1989) 13 Fam LR 1; Bryson v Bryant above.    [Back]

Note 11    See, eg, Brown v Manuel [1996] DFC 95.    [Back]

Note 12    The criteria used to assess whether or not a constructive trust should be imposed or a non-proprietary remedy awarded are not yet clear. See J Mee, The Property Rights of Cohabitees (1st ed 1999) p 251.    [Back]

Note 13    See, eg, Hibberson v George (1989) 12 Fam LR 725 where the claimant’s contributions to improvements were dealt with separately from other contributions that had been made - a charge being imposed to enable the recovery of the amount expended in relation to the former only. See also Giumelli v Giumelli (1999) 196 CLR 101. Cf SEC, DSS v Agnew (2000) 96 FCR 357     [Back]

Note 14    H A Finlay, R J Bailey-Harris and M F A Otlowski, Family Law in Australia (5th ed 1997) p 324, para 6.91.    [Back]

Note 15    Ikeuchi v Liu (2001) 160 FLR 94; [2001] QSC 54 (Queensland Supreme Court).    [Back]

Note 16    H A Finlay, R J Bailey-Harris and M F A Otlowski, Family Law in Australia (5th ed 1997) p 318, para 6.84.    [Back]

Note 17    See, eg, Rasmussen v Rasmussen [1995] 1 VR 613; Stowe v Stowe (No 1) (1995) 19 Fam LR 409, [1995] DFC 95; Green v Green (1989) 17 NSWLR 343. The two are often argued in the alternative: see eg Bryson v Bryant above; Bell v Bell (1995) 19 Fam LR 690.    [Back]

Note 18    Judicial opinion has been divided in this way in cases such asBryson v Bryant; Brown v Manuel above.    [Back]

Note 19    In Pettkus v Becker [1980] 2 SCR 423/ (1980) 117 DLR (3d) 257 a majority of the Supreme Court of Canada adopted the new remedial approach to property division in family cases.    [Back]

Note 20    It has been suggested that the Supreme Court in Peter v Beblow (1993) 44 RFL (3d) 329/ 101 DLR (4th) 621 “effectively created a presumption that the performance of domestic services will give rise to a claim for unjust enrichment.”: J Mee, The Property Rights of Cohabitees (1st ed 1999) p 192.    [Back]

Note 21    Pettkus v Becker above at p 274, per Dickson J. The test was first stated in Rathwell v Rathwell [1978] 2 SCR 436, 454 - 456.    [Back]

Note 22    See, eg, Wilcox v Wilcox (2000) 190 DLR (4th) 324.    [Back]

Note 23    In Wilcox v Wilcox above, the British Columbia Court of Appeal upheld a constructive trust in favour of the plaintiff, who had shared a house with her mother (then deceased), contributing towards its acquisition, housekeeping and maintenance.    [Back]

Note 24    Peter v Beblow (1993) 44 RFL (3d) 329/ 101 DLR (4th) 621. See also Sorochan v Sorochan [1986] 5 WWR 289/ (1986) 29 DLR (4th) 1.    [Back]

Note 25    Riess v Riess (1981) 22 RFL (2d) 152; Peper v Peper (1990) 38 ETR 212.    [Back]

Note 26    Dechenne v Sehne (1986) 49 RFL (2d) 420, 427.    [Back]

Note 27    Naylor v Naylor (1990) 37 ETR 274.    [Back]

Note 28    The provision of services of significant benefit to the other party is a detriment to the claimant “by virtue of the use of [her] time and energy”: Everson v Rich (1988) 16 RFL (3d) 337, 342/ 53 DLR (4th) 470. See also Sorochan v Sorochan above; and Thibert v Thibert (1992) 39 RFL (3d) 376.    [Back]

Note 29    See, eg, Abraham-Sherman v Sherman (1998) 37 RFL (4th) 26 (gift); Peter v Beblow above; Crick v Ludwig (1994) 117 DLR (4th) 228; Berdette v Berdette (1991) 3 OR (3d) 513/ 81 DLR (4th) 194.    [Back]

Note 30    R L A Goff & G Jones, The Law of Restitution (5th ed 1998) pp 18 - 22.    [Back]

Note 31    Pettkus v Becker above.    [Back]

Note 32    Brunet v Davis [1992] OJ No 1586 (Gen Div).    [Back]

Note 33    The doctrine may apply to married couples notwithstanding any provincial statutory regime for the division of matrimonial property: see Rawluck v Rawluck (1990) 65 DLR (4th) 161.    [Back]

Note 34    In Shannon v Gidden (2000) 178 DLR (4th) 395 the British Columbia Court of Appeal held that the trial judge had erred in awarding a proprietary remedy, as there were no concerns about the effectiveness or enforcement of a monetary award. See also Sorochan v Sorochan [1986] 5WWR 289; Georg v Hassanali (1989) 18 RFL (3d) 225; Rawluk v Rawluk (1990) 65 DLR (4th) 161; Peter v Beblow above.    [Back]

Note 35    Gillies v Keogh [1989] 2 NZLR 327.    [Back]

Note 36    Lankow v Rose [1995] 1 NZLR 277.    [Back]

Note 37    Lankow v Rose above.    [Back]

Note 38    Fitness v Berridge (1986) 4 NZFLR 243.    [Back]

Note 39    Cossey v Bach [1992] 3 NZLR 612, 629, per Fisher J.    [Back]

Note 40    Gillies v Keogh [1989] 2 NZLR 327, 334, per Cooke P (where the claimant’s contributions were said to amount to “no more than fair payment for board and lodging and the advantages of a home for the time being”).    [Back]

Note 41    “... a de facto union is not to be treated as the full equivalent of marriage.” Gillies v Keogh [1989] 2 NZLR 327, 332, per Cooke P. See also Lankow v Rose above, at p 295.    [Back]

Note 42    Gibb v MacDonnell [1992] 3 NZLR 475, Daly v Gilbert [1993] 3 NZLR 731.    [Back]

Note 43    See paras 2.88 et seq above.    [Back]

Note 44    In each case, a proprietary remedy will only be granted if a personal remedy, such as financial compensation, would be inadequate in the circumstances.    [Back]

Note 45    The courts may award a proprietary interest or some other form of relief in such cases but, either way, the intervention of the court will be required for the equity to be given effect.    [Back]

Note 46    By definition, of course, a constructive trust in this country entitles the beneficiary to a proprietary interest.    [Back]

Note 47    See Le Foe v Le Foe [2001] 2 FLR 970, 982, per Nicholas Mostyn QC.    [Back]

Note 48    Le Foe v Le Foe, above, at p 982.    [Back]

Note 49    Midland Bank plc v Cooke [1995] 2 FLR 915, 926, per Waite LJ.    [Back]