Sale of property – Equitable accounting – Trustee in bankruptcy – Wife buying house for her sole occupation – Property being transferred into joint names with husband – Husband being made bankrupt – Court declaring trustee in bankruptcy entitled to half equity in net proceeds of sale of property – Court varying order to provide for equitable accounting between parties – Whether wife liable to pay occupation rent – Whether wife entitled to credit for all mortgage payments and expenses – Issues determined
The defendants were a married couple. They had been estranged since 2001 and lived apart when a house at 194 Harrington Road in south east London was acquired by the wife in 2003 in her sole name. The title to the property and an interest-only mortgage were in the wife’s sole name and she lived in the property with her children. The husband was never intended to live in the property and had not done so.
The property was transferred into the defendants’ joint names when the house was remortgaged but the husband never paid any of the instalments or contributed to the outgoings. The husband was later made bankrupt and the claimant trustee in bankruptcy sought an order for the sale of the property. A district judge declared that the claimant was entitled to one half of the equity in net proceeds of sale and directed that the net proceeds be divided equally between the claimant and the wife.
The High Court dismissed an appeal by the wife but varied the order for sale to provide for an equitable account to be taken in relation to the division of the anticipated proceeds of sale. An issue arose in relation to the manner of equitable accounting between the parties.
The claimant argued that the starting point was an equal division of the net proceeds of sale. Then the wife should be credited and the claimant debited with one-half of all the mortgage interest payments made until the date of the bankruptcy. However, after the bankruptcy, any credit for further mortgage interest payments had to be offset by the wife’s liability to pay an occupation rent to the claimant. The wife submitted that any equitable account should reflect all the financial contributions she had made to the property by way of mortgage payments and other expenses.
Held: The issues raised were determined.
(1) The doctrine of equitable accounting had been developed to strike a balance between co-owners. Where it was just to do so, co-owners might be given credit for monies paid and expenditure incurred on jointly owned property. A co-owner in sole occupation of the property might be charged with or required to give credit to his co-owner for an occupation rent. Those credits might be set off against each other. Those general principles continued to apply as regards monies paid and expenditure incurred on jointly owned property, although there was an issue as to the extent to which sections 12-15 of the Trusts of Land and Appointment of Trustees Act 1996 had replaced the doctrines of equitable accounting in respect of occupation: Murphy v Gooch [2007] EWCA Civ 603 followed.
(2) Credit would generally be given to a party who had made payments in respect of repairs or improvements that increased the capital value of the property. In the present case, although the wife had paid all the outgoings and some items of repair and maintenance in relation to the property whilst in occupation, she did not contend that any of them had contributed to any increase in the capital value of the property. Therefore, she was not entitled to any credit for such payments: Re Pavlou [1993] 1 WLR 1046 followed.
(3) The wife was entitled to claim a credit of one-half of the payments of interest which she had made under the mortgage of the property and there was no reason in principle why the credits should not include all monies that she continued to pay until any sale of the property or agreement between the parties. All such payments had been made on behalf of both parties in order to ensure that the mortgagee did not take possession: Re Byford, Byford v Butler [2004] 1 FLR 56 followed.
(4) There was nothing in the preamble to the 1996 Act to suggest that it was intended to abolish the principles of equitable accounting entirely in relation to the payment of occupation rent. In cases involving trustees in bankruptcy, if sections 12-15 of the 1996 Act were held to be an exhaustive regime, in practice neither a bankrupt nor the trustee in bankruptcy would ever be able to claim a credit or payment under section 13 in respect of the occupation by a co-owner of jointly-owned domestic property after the appointment of the trustee because neither would be able to establish a statutory right to occupy under section 12. The bankrupt would no longer have any beneficial interest in the house within section 12(1) because his interest vested in the trustee. A claim by the trustee would inevitably be defeated by section 12(2) which provided that a beneficiary did not have a right to occupy land if it was “unsuitable for occupation by him”. Therefore, the court was not bound to apply the statutory scheme under the 1996 Act to this case: Stack v Dowden [2007] 2 AC 432 and French v Barcham [2009] 1 WLR 124 considered.
(5) The default position when only one co-owner was in occupation was that occupation rent was not payable. There had to be some conduct by the occupying party, or at least some other feature of the case relating to the occupying party, to justify a court of equity concluding that it was appropriate or fair to depart from the default position and order the occupying party to pay rent. The court could have regard to the circumstances existing before the party seeking payment of an occupation rent acquired his interest.
In the present case, there was no agreement or expectation either that the husband would have a right to occupy the property or have to pay rent to anyone for the wife’s occupation. It was not in accordance with equity or justice for the trustee, who had simply had the husband’s interest in the property vested in him, automatically to become entitled to claim an occupation rent from the wife. Against the very unusual facts of this case, it was not equitable to charge the wife a rent for continuing to occupy the property that she alone had been intended to occupy without charge. The limited involvement of the husband and the trustee with the property would be fully and properly reflected in a limited share in the increased equity, once the wife was given credit for all the mortgage payments.
(6) The principles of restitution for unjust enrichment could not assist the wife to establish a claim to the whole of the proceeds of sale. The relevant transfer of value between the defendants which a restitutionary remedy was designed to reverse was limited to the payments which the wife effectively made on behalf of her husband. It was not the concern of the English law of restitution to strip the trustee of the gain that had resulted to him purely from the rise in value of the husband’s beneficial interest in the property: Benedetti v Sawaris [2004] AC 938 and Menelaou v Bank of Cyprus [2016] AC 176 applied.
Daisy Brown (instructed by Harrison Clark Rickerbys) appeared for the claimant; the second defendant appeared in person; the first defendant did not appear and was not represented.
Eileen O’Grady, barrister
Click here to read a transcript of Davis (as trustee in bankruptcy) v Jackson and another.
