Detrimental reliance and the dangers of emails: Hudson v Hathway [2022] EWCA Civ 1648

The Court of Appeal’s decision in Hudson v Hathway [2022] EWCA Civ 1648  is arguably the most important decision on the subject of constructive trusts of the family home since the House of Lords decided Stack v Dowden [2007] UKHL 17.

The decision brings clarity to an area of law that is notoriously nebulous. As Lord Justice Carnwath famously put it in the Court of Appeal’s judgment in Stack, the law in this area seems like a “witch’s brew, into which various esoteric ingredients have been stirred over the years, and in which different ideas bubble to the surface at different times.”

The decision offers something old, in restoring the orthodox understanding in terms of the requirement for detrimental reliance, and something new, in considering the need for the application of the law in relation to statutory formalities to keep pace with technological developments.

Lewison LJ gives the lead judgment, which lays out a supremely detailed analysis of the relevant case law and the considerations that have shaped the law. The decision of the Court of Appeal establishes two key points of significance:

• First, email communications may amount to signed writing for the purposes of the statutory requirements for disposing of a beneficial interest (under s.53(1)(c) of the Law of Property Act 1925) if the sender signs off with their name.
• Second, a party claiming a subsequent increase in their equitable share as a result of a post-acquisition changed common intention must show detrimental reliance on that changed common intention.

Background

Ms Hathway and Mr Hudson started a relationship in 1990. In 2007, they purchased Picnic House. The house was acquired in their joint names, with no express declaration of trust. In 2009, Mr Hudson left Ms Hathway for another woman. The mortgage was converted to interest only and continued to be paid from a joint bank account into which both paid their salaries; Mr Hathway making by far the greater financial contribution. In 2011, the house was blighted by an oil spill, making it difficult to sell. An environmental clean up was required and the resulting insurance claim dragged on for years. Over the better part of the following two years, the parties had sporadic email discussions about their financial arrangements, which culiminated in the following pivotal email from Mr Hudson on 30 July 2013:

“”So here it is. We were never married. You have no claim over what is mine. What I consider ring-fenced is what I get from my years of personal graft. They are not up for discussion. I’m not agreeing to give you any. …. The liquid cash, you can have. Savings in the bank, other plans, take it all. Physical property, the contents of the house … again I don’t want it; keep it. Which leaves the house, a bad asset which is preventing all of us [from] .. moving on with our lives…. You know what, I want none of the proceeds of that either. Take it. Buy yourself somewhere you can afford to live…. As for a Will, if I were to die before this financial mess is sorted, Heidi [his wife] will have no rights to Picnic House … What I want is an end to it. So have everything that’s available to have now and when the house is sold.”

The email was subscribed at the end “Lee”.”

After some further back and forth, he followed this up with a further email on 09 September 2013 that read:

“Under this arrangement, I’ve no interest whatsoever in the house, so whilst I will continue to contribute, I won’t do so forever.”

Again, that email was signed off “Lee”.

Consistent with the position that he had abandoned his interest in the property, Mr Hudson sent further emails to Ms Hathway in which he noted the length of time that had passed since the parties “came to a deal” and emphasised his consequential disinterest in what the property might sell for.

In January 2015, he stopped paying the mortgage and Ms Hathway took over the payments.

Then in 2019, Mr Hudson issued a claim for an order for the sale of Picnic House with equal division of the proceeds.

Ms Hathway argued that she was entitled to the whole of the proceeds under a constructive trust following a common intention and agreement, in reliance on which she said she had acted to her detriment by doing the following:

• Paying all interest payments on the joint mortgage from January 2015;
• Desisting from claiming against assets in Mr Hudson’s sole name acquired during their relationship;
• Not claiming financial support for the benefit of the children under the Children Act 1989;
• Accepting sole responsibility for the oil spill and insurance claim;
• Maintaining and redecorating the property at her own expense;
• Relying from 2014 on the understanding that she was sole beneficial owner, and living frugally to afford the upkeep and mortgage.

The decision at first instance

The trial judge ruled that Ms. Hathway had to demonstrate that she had changed her position or otherwise relied on the agreement to her detriment, in order to enforce the agreement evidenced in the emails. He rejected the majority of the matters relied upon as detrimental reliance. But he held that by giving up potential claims against Mr Hudson’s shares and pension which both she and Mr Hudson perceived she had (whether or not that belief was well-founded) did amount to relevant detrimental reliance. As a result, he concluded that Ms Hathway was entitled to the entire beneficial interest in Picnic House.

The first appeal

Mr Hudson appealed to the High Court. Kerr J disagreed with the trial judge on the question of whether it was necessary for Ms Hathway to show that she had changed her position or had acted to her detriment. He reasoned that any such requirement had been swept away by the decisions of the House of Lords and Supreme Court respectively in Stack v Dowden and Jones v Kernott. But if he was wrong about that, he went on to hold that the quality of the asserted change of position or detriment was a matter of evaluative judgment for the trial judge; and that the trial judge had been entitled to come to the conclusion that he did.

The decision of the Court of Appeal

Emails as signed writing

Much, one imagines, to the chagrin of Mr Hudson and despite valient efforts by his counsel to persuade them otherwise, the Court of Appeal allowed Ms Hathway to run before the Court of Appeal the entirely new point, which had not been argued either at trial or before Kerr J, of whether s.53(1)(c) of the Law of Property Act 1925 was satisfied by the emails exchanged between the parties.

Section 53 (1) of the Law of Property Act 1925 provides in so far as is relevant:

“(a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law;…

(c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.”

Strictly speaking, a beneficial co-owner of land under a joint tenancy cannot assign their interest to the other joint tenant (because under a joint tenancy each of the tenants is already the owner of the whole) but they can release their interest (as recognised and preserved by s.36(2) of the Law of Property Act 1925). No special technical language is required to achieve a release or an assignment; it is the intention not the language that matters.

The Court of Appeal concluded that Mr Hudson’s emails of 30 July and 9 September 2013 demonstrated a clear intention to divest himself of his equitable interest in the house. Mr Hudson’s emails were plainly written in frustration, but note that it did not matter what he subjectively had in mind here. As with any question of interpretation of a written document, the test is an objective one. His email of 30 July 2013 said “Take it” and his follow up on 9 September disavowed any interest in it. His further emails confirmed the finality of that decision. It did not matter that he had expressed himself in non-lawerly language.

The key question was whether or not the emails complied with s.53(1)(c) of the LPA 1925. The Court of Appeal concluded, given the wide meaning applied in the case law to the word “disposition”, that a release of a beneficial interest by one joint tentant to another and so must comply with the requirements of that section.

There was no doubt that the emails were writing for the purposes of s.53(1)(c). However, did concluding his emails with his name, “Lee”, amount to “signing”?

The touchstone for determining what is a signature is an intention to authenticate the document: Caton v Caton (1867) LR 2 HL 127. On this basis, it has been held that a printed name may amount to a signature (Schneider v Norris (1814) 2 M & S 286); as may the name on a telegram form (Godwin v Francis (1869-70) 5 CP 295), or a rubber stamp (Goodman v J Eban Ltd [1954] 1 QB 550).

It is a principle of statutory interpretation that an Act of Parliament is regarded as “always speaking”, so that the words of the Act should generally be interpreted so as to cover new technological developments which the legislators might not have foreseen, if they conform to the policy of the Act in question. After evaluating a substantial body of case law in other contexts to the same effect, the Court of Appeal concluded that deliberately subscribing one’s name to an email, in the manner that Mr Hudson had, amounted to a signature for the purposes of s.53(1)(c) and a “wet ink” signature was not required. Justifying that conclusion, Lord Justice Lewison noted:

“Given that so much correspondence takes place nowadays by email rather than by letters with a “wet ink” signature, it is, in my judgment, entirely appropriate that the law should recognise that technological developments have extended what an ordinary person would understand by a signature.”

Consequently, Mr Hudson was determined to have released his beneficial interest in Picnic House to Ms Hathway as a result of his emails.

It will be interesting to see how much further this principle extends. Might much more informal communications such as text messages satisfy s.53(1)(c) if they are deemed to have been “signed”? I may have to rethink my habit of signing off text messages “Cxxx”, lest I find I have committed myself to more than I intended!

Detrimental reliance

The conclusion on s.53 of the LPA was enough to dispose of the appeal, but the Court of Appeal nonethless went on to deal with the second important point of principle: whether or not a constructive trust can arise simply as a matter of common intention without the need to show detrimental reliance.

The Court of Appeal cited with approval a number of judicial pronouncements on the limitations of equity including Lord Walker’s statement in Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, 1 WLR 1752 where, referring to equitable estoppel, he said: “[equitable estoppel] it is not a sort of joker or wild card to be used whenever the court disapproves of the conduct of a litigant who seems to have the law on his side.”

Lord Neuberger’s colourful metaphor (writing extrajudicially in The stuffing of Minerva’s owl? Taxonomy and taxidermy in equity CLJ 537) was also referred to: “… equity is not a sort of moral US fifth cavalry riding to the rescue every time a claimant is left worse off than he anticipated as a result of the defendants behaving badly, and the common law affords him no remedy.”

It was noted that equity acts where the application of the common law would produce an unconscionable result. But to avoid the oft depricated “portable palm tree” justice, it is necessary to have some rules as about when equity will intervene.

After surveying the case law pre-Stack v Dowden, including the seminal constructive trust decisions such as Gissing v Gissing [1971] AC 886 and Grant v Edwards [1986] Ch 638, the Court of Appeal concluded that the authorities firmly established that detrimental reliance was a necessary requirement in order for it to be held unconscionable to allow a person to resile from a promise or agreement otherwise unenforcable at common law. That body of authority is also consistent with the maxim that “equity will not assist a volunteer” (classically expressed in the refusal of equitable relief where an intended gift in favour of someone who has not supplied any consideration has not been completed) exemplified by cases such as Milroy v Lord (1862) 4 De GF & J 264.

Contrary to the conclusion reached by Kerr J, the Court of Appeal held that the House of Lords in Stack v Dowden had not intended to remove the necessity for detrimental reliance. It was noted that the earlier case law, which had stressed the need for derimental reliance, had been cited in Stack without any hint of disapproval. Likewise, the Supreme Court in Jones v Kernott [2011] UKSC 53 had similarly cited the earlier case law and referred to the submissions of counsel with respect to detrimental reliance without any suggestion that this was not an applicable requirement.

Lewison LJ concluded:

“107. I do not, therefore, detect in either Stack v Dowden or Jones v Kernott any intention on the part of the court to abrogate the long-standing principle that what makes an unenforceable agreement or promise enforceable in equity is detrimental reliance. The principle of detrimental reliance was not challenged in either case, and that it why it was unnecessary for the court to deal with it. As Professor Dixon put it (Non-problems, future problems and fairy dust Conv 119):

“… detrimental reliance was not in issue in either Stack nor Jones, not least because its existence was blindingly obvious on the facts. It was not pleaded as an issue, and was not argued as an issue. To infer therefore that the silence about detrimental reliance in those cases means that it is not required is imaginative. I may not specifically mention that you may not steal my laptop, but I am not authorising you to take it.”

108. In my judgment it would have been astonishing if Lord Walker and Lady Hale intended to overrule a long-standing principle that detrimental reliance is necessary to crystallise a common intention constructive trust and to depart from two decisions of the House of Lords affirming that proposition without saying so, particularly in the light of their approving references (in Stack v Dowden) to Stokes v Anderson and (in both cases) to Grant v Edwards. Moreover, if that had been their intention, they would have needed to explain how a mere oral agreement (without more) overcame the statutory formalities laid down by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 and section 53 (1) of the Law of Property Act 1925. Apart from a brief tangential mention of section 53 (1) (b) (not section 53 (1) (a) or (c)) in paragraph of Lady Hale’s speech in Stack v Dowden, they are not referred to at all in any of the majority speeches or judgments. If that is what they did intend, their intention has gone virtually unnoticed.”

The critical point to be understood about both Stack and Jones, is that these were each cases that were concerned not with express discussions to acquire, or in the case of Jones vary, a particular interest in the propety concerned. Both cases were concerned with whether or not an intention to hold the relevant property in unequal shares could be discerned from the parties’ conduct. There was no need to explicitly address the issue of detrimental reliance because the self same conduct (and this is a point noted in the relevant textbook such as Snell’s Equity referred to in Lewison LJ’s judgment), supplies both the basis for inferring an intention to share in unequal proportions and the necessary detrimental reliance.

Lewison LJ reviewed the post-Stack case law, as well as the leading practitioner texts, which also supported the conclusion that detrimental reliance remained an essential requirement in order to establish that a constructive trust has arisen.

As to the factual determination of whether or not detrimental reliance had been proven, HHJ Ralton had found that Ms Hathway’s decision not to pursue claims against Mr Hudson’s assets (including pensions, share-save schemes, and savings) was sufficient detrimental reliance. Such claims might have been weak, but they could not be said to be “non-claims”. It was argued for Mr Hudson on appeal that Ms Hathway in fact had no viable claim against such assets and had not attempted to articulate one. The trial judge, however, had concluded that both Ms Hathway and Mr Hudson had the impression that she might have had a claim against the shares, even though the nature of that claim had not been properly articulated. Ms Hathway had argued that she and Mr Hudson had agreed to pool their assets. Further, on Mr Hudson’s side, the shares were referred to as “joint assets” in an email from him. Therefore, it was clear in Lewison LJ’s view that Ms Hathway’s claim would have been that she and Mr Hudson had a common understanding that assets accumulated during their relationship were joint assets and that, in reliance on this understanding, a constructive trust had arisen in relation to those assets. Such a claim might have had doubtful prospects but the question was whether Ms Hathway had lost an opportunity to pursue alternative courses available which offered a real prospect of benefit, notwithstanding that the prospect was contingent and uncertain. Further, whether detrimental reliance in the context of an express agreement is sufficiently substantial is an evaluative decision for the trial judge. It had been open to the judge to reach the view that he had.

Lewison LJ also thought that it might be said that HHJ Ralton had analysed the suggested elements of detriment in over-granular detail, picking them off one by one instead of looking at them in the round. He ought perhaps to have viewed Ms Hathway’s mortgage payments after January 2015 (a factor considered relevant in cases such as Jones v Kernott and Barnes v Phillips) with more favour.

The conclusions expressed by the Court of Appeal here in relation to the sufficiency of detrimental reliance, here, are consistent with a general trend that can be discerned in the case law concerning constructive trusts founded upon the parties discussions. Where there have been express discussions about ownership, the courts have often proved ready to find that comparatively slight conduct amounts to detrimental reliance. Thus, for example, in Eves v Eves [1975] 1 W.L.R. 1338, the efforts of the female claimant in decorating and DIY work in breaking up a patio was considered to amount to detrimental reliance (although these activities had been considered, at least at first instance, to be insufficient to warrant the inference that a trust had arisen). The detrimental conduct may also take the form of refraining from taking action – see e.g. Cox v Jones [2004] 2 FLR 1010 in which the detriment lay in the claimant’s failure to pursue her own attempts to acquire the property herself in her sole name.

Learning points for practitioners

There is much to take away from this decision that will be of relevance to practitioners advising in this area.

• A release of beneficial interest by one joint tenant to another must comply with the requirements of s.53(1)(c) of the Law of Property Act 1925.
• It is the intention to divest oneself of equitable interest in a property that matters, rather than the language used. Consequently, informal, non-legal language of the type found in Mr Hudson’s emails may suffice if that intention is sufficiently clearly expressed. Such documents are to be construed to ascertain their objective meaning.
• The touchstone for determining what constitutes a signature is the intention to authenticate the document. This already included non-traditional forms such as a printed name or a rubber stamp. Since technological developments have extended the way people do business and what an ordinary person would understand by a signature, an email to which a person signs off or “subscribes” their name can now be considered as signed writing in a variety of legal contexts.
• The Court of Appeal’s ruling that an email signature can be equivalent to a wet ink signature for the purposes of releasing a beneficial interest in land, based upon the recognition that statutes should be reinterpreted in light of technological advancements, opens up the possibility of extending this argument to other formal document execution requirements, such as the remote witnessing of a deed or a will through video technology rather than in the physical presence of the signatory – a much debated topic in the context of making wills in the course of the pandemic (which I have previously written on at length).
• Detrimental reliance remains a necessary requirement to make what would otherwise be an unenforceable agreement or promise enforceable in equity under a constructive trust. Nothing in Stack v Dowden or Jones v Kernott can be taken to have removed these requirements when properly understood as cases where conduct established both the intention to hold the property in unequal shares and the necessary detrimental reliance to convert such an understanding into a binding trust.
• Detrimental reliance need not be financial but must involve some sort of change of position or loss of opportunity that leaves that party in a worse position and which involves something substantial.
• Particularly in the context of express agreements for an interest in land, the courts are not overly exacting in their approach to what amounts to substantial detrimental reliance. In Hudson v Hathway the relinquishing of prospective claims that do not appear to have had particularly strong prospects of success was sufficient.
• Whether the detrimental reliance in the context of an express agreement is sufficiently substantial is an evaluative decision for the trial judge, and unlikely to be interfered with on appeal.