KERNOTT V JONES: WHAT ARE THE ISSUES AND WHAT CAN WE EXPECT FROM THE SUPREME COURT?

SOME INTERESTING QUOTATIONS ...

“This is, therefore, a very unusual case.”

Baroness Hale in Stack –v- Dowden [2007] 1 FLR 1858

“I agree with Baroness Hale of Richmond that this is, on its facts, an exceptional case.”

Lord Walker of Gestingthorpe in Stack –v- Dowden [2007] 1 FLR 1858

“I am not sure, with respect, what is to be made of the emphasis by BaronessHale and LordWalker that Stack was an exceptional case.”

Rimer LJ in Jones –v- Kernott [2010] 2 FLR 1631

“When everyone is somebody, then no-one's anybody"

The Grand Inquisitor in Act II of the Gondoliers by Gilbert & Sullivan. December 1889

‘[i]t is widely accepted that the present law is unduly complex, arbitrary and uncertain in its application. It is ill-suited to determining the property rights of those who, because of the informal nature of their relationship, may not have considered their respective entitlements

Law Commission’s 8th Programme of Law Reform, Law Com No 274 of 2001

‘[i]t is quite simply not possible to devise a statutory scheme for the ascertainment and quantification of beneficial interests in the shared home which can operate fairly and evenly across the diversity of domestic circumstances which are now to be encountered’

Paragraph 1.31 of the Law Commission Discussion Paper, Sharing Homes (Law Com No 278) published in 2002

“I wish to make the following Statement to the House announcing the Government's response to the Law Commission's report Cohabitation: The Financial Consequences of Relationship Breakdown.

The Law Commission published its report on 31 July 2007, but no action was taken by the previous Administration, who wished to first seek research findings on the Family Law (Scotland) Act 2006. This Government have now carefully considered the recommendations of this thorough report, together with the outcomes of research on the 2006 Act.

The findings of the research into the Scottish legislation do not provide us with a sufficient basis for a change in the law. Furthermore, the family justice system is in a transitional period, with major reforms already on the horizon. We do not therefore intend to take forward the Law Commission's recommendations for reform of cohabitation law in this parliamentary term.”

Mr Jonathan Djanogly, Parliamentary Under-Secretary of State, Ministry of Justice in a Written Ministerial Statement dated 6th September 2011 published in Hansard.

“We hope that implementation will not be delayed beyond the early days of the next parliament, in view of the hardship and injustice caused by the current law,”

Professor Elizabeth Cooke, Law Commissioner in charge of the Cohabitation Project, a few days later ...

“Even if my views are accepted they only go a short way towards solving
the many problems which are coming before the Court in increasing numbers.
We were informed that last year there were 900 applications in the High
Court besides an unknown number in the County Courts. The whole question can only be resolved by Parliament and in my opinion there is urgent need for comprehensive legislation.”

Lord Reid in Pettitt –v- Pettitt [1970] AC 777

“The road to hell is paved with good intentions.”

William Blake: Songs of innocence and experience 1789

KERNOTT –v- JONES

  1. The Supreme Court heard the arguments in Kernott v Jones on 4th May 2011. My clerk, Dan Barnett, had ascertained that it was hoped that a decision would be handed down within 8 to 12 weeks of the arguments. This did not seem unreasonable: the argument lasted less than a full day and it was a five person tribunal. The decision in Radmacher –v- Granatino, with a nine judge panel had only taken six months to be handed down.
  1. The truncated afternoon session of the hearing had been largely concerned with an endowment policy (not as I understand it) before the Court of Appeal which, it was common ground, was owned as to about 80% to Ms Jones and as to 20% to Mr Kernott. Ms Jones had used her 80% ish share to pay down the mortgage. Issues of equitable accounting had not been, as yet, addressed by any of the courts that had heard this case as it moved up the ladder.
  1. In March of this year, Becky Bailey-Harris and I wrote an article for Family Law Week. In it we urged practitioners to beware of taking cohabitation claims to a final hearing prior to the judgment of the Supreme Court in case they fell foul of the fate that caught some practitioners post White –v- White[1]. We wrote that article in part because we were against one another in a substantial large TLATA claim that was pending and it was the view of Mostyn J that there was no point in having a quasi-FDR prior to the law being clarified by the Supreme Court. We built a timetable around a hearing on 11thNovember as, surely, there would be a decision by then. That hearing (insofar as it was intended to deal with the merits) has now been adjourned off until the New Year.
  1. I learnt yesterday that, in fact, the judgment will be handed down on 9th November 2011.
  1. There have been very few developments in the law of cohabitation since it was announced that Kernott v Jones was going to the Supreme Court. Practitioners have been perhaps conscious of Dharamshi –v Dharamshi [2001] 1 FLR 736 and S –v- S (Ancillary Relief: Consent Order) [2002] 1 FLR 992 amongst others.
  1. Why has it taken so long? This was a case where the assets in dispute amounted to half of £218,000. The case took less than a day to argue and most of the issues were considered at some length by the House of Lords in Stack v Dowden as recently as 2007! What is their problem?
  1. Well, I think that the problems facing the Supreme Court are substantial. They are, furthermore, compounded by developments that are completely outside their remit. In September 2011 the Government stated that it was not going to take on board the proposals of the Law Commission upon the reformation of the law as it relates to cohabiting couples. The Supreme Court must therefore consider plugging the gap left by Parliamentary inactivity. I believe that the Supreme Court will do so it’s best to do so.
  1. The Government has chosen to leave the law in its current arbitrary mess. The reasons for doing so are not satisfactory. However, it is the case that there is little by way of consensus as to how cohabiting couples should be treated when it comes to property rights on separation. There is no broad church that easily permits compromise. When the FLBA met with the Law Commission as part of its consultation process it was not possible to address it with a single voice on behalf of the association. Just as within Parliament there is within the FLBA a very broad range of views upon this issue.
  1. I suspect that the Government’s decision to sit on its hands has added a greater urgency (and difficulty) to the task facing the Supreme Court. The decision of the Court of Appeal in Jones –v- Kernott [2010] 2 FLR 1631 was greeted with relief by the purists (including me). The decision of the lower courts, whilst just, appeared to be arbitrary. In the wider, tabloid, world, however, it was received with dismay and astonishment. It was seen to be unfair.

The facts of Jones v Kernott

  1. An unmarried couple purchased a property in joint names for £30,000, for use as their family home. The woman supplied a deposit of £6,000; the balance was funded by an interest only mortgage. A year later the man built an extension to the property, with the help of a £2,000 loan, paid for largely by the man; the extension enhanced the property’s value by about £14,000. During the relationship the household bills, including the main mortgage payments, were shared. The couple had two children together. After over 8 years in the property the relationship broke down and the man moved out; thereafter all payments were met by the woman, who maintained the property and supported the children with little or no contribution from the man. The parties agreed to cash in a life insurance policy, dividing the proceeds, in part to enable the man to buy a property in his sole name. Subsequently, when both properties had increased in value, the man served a notice of severance in respect of the property in joint names. The equity in the property in joint names was about £218,000; the equity in the man’s sole property was about £167,000. The woman responded by bringing a claim under the Trusts of Land and Appointment of Trustees Act 1996 in respect of both properties. At first instance the judge held that the woman was entitled to 90% of the value of the property in joint names, on the basis that this was fair and just. The man appealed contending that the court’s view of what was fair was not the correct criterion and relying heavily on Holman v Howes [2007] EWCA Civ 877 in which a woman left in sole occupation of a property had been denied more than 50% of the property.
  1. The man’s appeal was heard by Nicholas Strauss QC sitting as a Deputy High Court Judge. He refused the man’s appeal ([2010] 1 FLR 38) and confirmed that the beneficial interests in the property were held as to 90% to the woman and 10% to the man. The head note reads as follows:

Held – dismissing the man’s appeal –

(1)Applying Oxley v Hiscock [2004] EWCA Civ 546, para [69] and the House of Lords decision in Stack v Dowden [2007] UKHL 17, para [61] per Baroness Hale of Richmond, while the court should not override the intention of the parties in favour of what the court itself considered to be fair to the extent that the intention of the parties could not be inferred, the court was free to impute a common intention to the parties, which attributed an intention that they either had not had or had not communicated to each other. It was difficult to see how that process would work without the court supplying, to the extent that the intention of the parties could not be deduced from their words or conduct, what the court considered to be fair. The court was not entitled to disregard evidence of what the parties had probably intended, and substitute what it thought was fair, but the court could, while respecting the parties’ intentions so far as they were apparent, consider what was fair so as to supply any missing elements. In cases in which the parties had not indicated in any way what their respective shares were to be, or how they were to be altered to take account of changing circumstances, their actual or subconscious intention might well be that if they could not reach agreement in changed circumstances, their respective shares, should be whatever the court decided was fair in all the circumstances. The court could not assume that two parties, who had not fully clarified their intentions as to their respective beneficial interests either initially or on the breakdown of the relationship, had not intended considerations of fairness to be relevant in determining their respective beneficial interests. Further, if considerations of fairness were to be wholly set aside in such cases, there would be a practical difficulty in searching for a result that the parties must in the light of their conduct be taken to have intended, in preference to what the court itself considered to be fair, when there was no evidence as to what they did intend as regarded their respective shares; in many cases there would be no way of resolving the issue if fairness were disregarded. The view expressed by Lord Neuberger of Abbotsbury in Stack v Dowden that fairness was ‘forbidden territory’ was part of his dissent from the majority view. Holman v Howes depended on its own facts, in particular the fact that the breakdown of the relationship had been contemplated by the parties, and they had discussed what would then happen: the court hearing that case had not laid down any general rule, or even made any general observations, on the effect of one of the parties remaining in occupation of the property following a breakdown in the relationship with the other (see paras [28]–[36], [40]).

(2)Despite the absence of any communication by either party to the other of any actual intention, there was evidence of conduct from which it was right to conclude that the parties intended their respective shares to alter following the man’s departure. The first instance judge had been right to decide that the parties had intended, or were to be taken as having intended, that their respective beneficial interests should be altered to take account of changing circumstances, and in reaching that decision he had not needed to invoke fairness: the change in intention could easily be inferred or imputed from the parties’ conduct. After the split the couple’s original intention to pool their resources had ceased, and they had maintained separate finances (see paras [31], [47], [49]).

(3)However, in the absence of any indication by words or conduct as to how the parties’ interests should be altered, the appropriate criterion was what the judge considered to be fair and just; the only available criterion was what was objectively fair and the only available judge of that was the court. Since the parties had no discernible intentions as to the amount of the adjustment, they must be taken to have intended that it should be whatever was fair and reasonable; this conclusion did not override any different intention that, from their words or conduct, could reasonably have been attributed to them. The judge’s approach could either be justified as being in accordance with the common intention of the parties, or, if this were regarded as a fiction, as the only option available to the court on quantification, once it had rightly been decided that the parties had intended their respective beneficial interests to change (see paras [31], [49]).

(4)The first instance judge’s attribution of 90% to the woman was justifiable, without taking into account the possibly controversial factor of the man’s failure to contribute to the maintenance of the children. The man’s departure and acquisition of another property did not justify saying that he was to be taken as having entirely abandoned whatever stake he had in the previously shared property, but his decision no longer to contribute to the jointly-owned property had allowed him to purchase another property, on which he had made a substantial capital gain. It would not be reasonable for the man to have, and the parties could not be taken to have intended that he should have, a significant part of the increased value of both properties, therefore, it would not be reasonable for him to retain more than a small interest in the jointly-owned property (see paras [48], [50], [51]).

Per curiam: although it was taken into account as a major factor in this case, a parent’s failure to contribute to the maintenance of the children was a factor that could legitimately be taken into account (see para [52]).

  1. Mr Kernott appealed to the Court of Appeal. The Court of Appeal allowed his appeal by a majority (Wall and Rimer LJJ with Jacobs LJ dissenting) declaring that he had a fifty percent interest in the equity in the property. The headnote reads as follows:

(1)The appeal was to be resolved under the law relating to trusts, in particular by applying Stack v Dowden [2007] UKHL 17 to the facts, not by analogy with cases involving married couples (see paras [6], [24], [55], [65]).

(2)The starting presumption was that the beneficial interest followed the legal interest. The critical question was whether, given the total lack of direct evidence about the couple’s intentions on separation, the court could infer from the parties’ conduct since separation a joint intention that, over time, the beneficial interests would be varied so that they were no longer equal. Stack v Dowden did not enable the courts to find, by way of the imputation route, an intention where none was expressly uttered nor inferentially formed; the court’s goal was to find the parties’ intentions, which meant their real intentions (see paras [56], [57], [69], [70], [77]).

(3)The court could not infer a joint intention to vary the shares in which the property was held from the parties’ conduct in this case. The conveyance into joint names had created joint beneficial interests, and the parties had agreed that when they separated they had equal interests; the mere passage of time was insufficient to displace those equal interests, even though during that time one party had acquired alternative accommodation and the other had paid all the outgoings. If the parties had truly intended that the man’s beneficial interest in the property should reduce post-separation, or on acquisition of his own property, they should have adjusted their beneficial interests in the property accordingly. The parties held the severed joint tenancy as tenants in common in equal shares (see paras [58], [62]–[64], [69], [82], [83]).

Per Wall LJ: the man’s failure to maintain the children might be relevant were the man to seek to charge the woman for her occupation of the property, and were the process of equitable accounting to be applied between them (see para [51]).