Privy Council clarifies rules to determine ownership of property
By:0 commentsMay 31, 2017
Last week the Privy Council handed down its judgment in the case Marr v Collie, an appeal from the Court of Appeal of the Commonwealth of the Bahamas. The judgment did not add a great deal to our understanding of the complex topic of determining what should happen to property owned by cohabiting couples when their relationship breaks down, but it did make one important clarification as to the approach that should be taken to deciding these cases when the property was purchased for investment, rather than domestic, purposes.
Before I proceed I should explain some terminology, for the benefit of non-lawyer readers (and for any lawyer readers, please excuse the over-simplification, done for the sake of clarity).
The first thing to understand is that under the law the ownership of property has two parts: the legal ownership and the ‘beneficial’ ownership. The legal ownership is essentially what the deeds say. Thus, if the deeds say that the property is owned jointly by two people, then they are both legal owners. However, that is not to say that they are each entitled to half of the property (assuming the deeds do not specify their shares). The ‘beneficial’ ownership determines who should have the benefit of the property. Accordingly, it is possible for a property to be legally owned by two people but only one of them is the ‘beneficial’ owner, entitled to the entire property.
OK, now on to the more complicated part. Where two joint owners who aren’t married can’t decide upon the beneficial ownership of a property then they can ask the court to determine the issue (married couples apply to the divorce court, which uses different rules to decide who should have what). Over the years the courts have devised various rules to apply to these cases, the two most common being the ‘resulting trust’ and the ‘constructive trust’.
The ‘resulting trust’ rule basically says that the property is presumed to be owned by the parties in accordance with the contributions that each made to its purchase. Thus, if one party contributed 100 per cent of the purchase price, then that party beneficially owns the entire property, and the other party is merely holding the property on trust for the beneficial owner. The presumption can be rebutted by the other party, if they can show that the contributing party intended to make a gift of a share of the property to them.
Still with me? Good. The ‘constructive trust’ rule looks at the ‘common intention’ of the parties regarding the property. Did they intend that only one party should be the beneficial owner? Did they intend that each should have a half share? Or did they intend unequal shares? The starting-point is what the deeds say. Accordingly, if the legal ownership is in joint names, then the starting-point (or presumption) is that the beneficial ownership is equal. It is then up to the party claiming otherwise that equal beneficial ownership was not the intention of the parties.
Now, obviously, each of the two rules can come up with a different result. If one party contributed 100 per cent to the purchase price but the court uses the constructive trust approach and finds that the parties intended that the beneficial ownership should be shared, then we have a different result from what would have happened if the resulting trust rule had been applied. Note also that the burden of displacing the presumption or starting-point shifts, depending upon the rule. It is therefore important which rule the court uses to determine the issue of beneficial ownership.
This is where there was thought by some to be a difference between property that was purchased for domestic purposes (i.e. the parties purchased it as a home for themselves) and property purchased for investment purposes. The House of Lords made it clear back in 2007 in the case Stack v Dowden that the constructive trust approach is usually the correct one in the context of domestic properties, but until now some have considered that the resulting trust approach is correct when it comes to investment properties.
And this is where the Privy Council has clarified matters. In Marr v Collie the parties had been in a relationship for some years, but the properties over which they were in dispute had been purchased in joint names as investment properties, in each instance Mr Marr paying all (or most of) the purchase price. It was argued on his behalf that as they were investment properties the court should determine the beneficial ownership of them by reference to the resulting trust approach.
The Privy Council made it clear that the fact that it is an investment property does not necessarily mean that the resulting trust approach should be used. Lord Kerr said:
“Where a property is bought in the joint names of a cohabiting couple, even if that is as an investment, it does not follow inexorably that the “resulting trust solution” must provide the inevitable answer as to how its beneficial ownership is to be determined … It is entirely conceivable that partners in a relationship would buy, as an investment, property which is conveyed into their joint names with the intention that the beneficial ownership should be shared equally between them, even though they contributed in different shares to the purchase. Where there is evidence to support such a conclusion, it would be both illogical and wrong to impose the resulting trust solution on the subsequent distribution of the property.”
He went on:
“The Board [i.e. the Privy Council] considers that, save perhaps where there is no evidence from which the parties’ intentions can be identified, the answer is not to be provided by the triumph of one presumption over another. In this, as in so many areas of law, context counts for, if not everything, a lot. Context here is set by the parties’ common intention – or by the lack of it. If it is the unambiguous mutual wish of the parties, contributing in unequal shares to the purchase of property, that the joint beneficial ownership should reflect their joint legal ownership, then effect should be given to that wish. If, on the other hand, that is not their wish, or if they have not formed any intention as to beneficial ownership but had, for instance, accepted advice that the property be acquired in joint names, without considering or being aware of the possible consequences of that, the resulting trust solution may provide the answer.”
The issue of intention is therefore critical, and this was as far as the Privy Council got in Marr v Collie, finding that the courts below had not sufficiently addressed the issue. Without a proper examination of the actual intentions of the parties there could be no proper determination made of the respective beneficial interests of the parties in respect of the investment properties. Accordingly, the case was remitted for hearing before the Supreme Court of the Bahamas, particularly so that the intention of the parties at the time of the purchase of the investment properties, and in the course of dealing with those properties, could be determined.
The full report of the judgment can be found here.
Photo by Ian Muttoo via Flickr under a Creative Commons licence.
May 31, 2017
Categories: Family Law