Barnes v Phillips 2015 [EWCA] Civ 1056

  • Gwyn Evans Author: Gwyn Evans
  • Date: 24 Nov, 2015
  • In: Articles
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Background

The case concerned a disagreement between two former cohabitees, Ms Phillips (P) and Mr Barnes (B), as to the proportions in which they held a property in South-East London.  The property had been purchased in joint names in 1996, as a family home.  Granting permission to appeal, Longmore LJ in Phillips v Barnes 2015 [EWCA] Civ 109) stated that the transfer document had not in fact been produced by either party.  However the appellate court proceeded on the basis that it was a joint tenancy, as opposed to a tenancy in common.

A remortgage of the property in May 2005 discharged the initial mortgage and paid off B’s debts. The parties separated shortly thereafter and B moved out.  B continued to make contributions towards the mortgage for around 2½ years, but by January 2008, P was meeting the mortgage alone, and she had almost entire financial responsibility for the parties’ two children, contributions of child maintenance by B being sporadic.

At first instance His Honour Judge Madge determined that the parties’ shares in the property were 75:25 at the time of the remortgage, but had become 85:15 by the date of the trial. 


Key issues
Although B had also tried and failed to persuade the appellate court to consider fresh evidence, the key issues relating to the TLATA matters were as follows: -

  1. Given that the court found that there had been no agreement by the parties to change their beneficial interests, had the judge erred in law by imputing a common intention to the parties that their beneficial interests (shares) in the property were unequal?
  2. Had the court misapplied the law, or erred in principle, in quantifying the shares as 85% (P) and 15% (B) respectively?
  3. Was the court wrong in law to have taken into account a “supposed lack of child support payments” when quantifying the shares?

The court’s approach to the evidence

At the trial in February 2014, the court found P to be an honest and truthful witness. B had not been frank and open with his disclosure.  The evidence of Ms Phillips was therefore preferred wherever there was a conflict.

The Court of Appeal affirmed the decision of HHJ Madge that, at the time of purchase, the parties were joint tenants in law and equity, because that had been their common intention.  At the time of the subsequent remortgage and the separation, the lower court had concluded that it was not possible to ascertain by direct evidence or by inference what the parties’ actual intention was as to their shares.  It was permissible for the court, as it had done, to impute an intention as to shares.  The lower court had, however, simply not addressed a critical step in the required reasoning – i.e. that there had been a common intention to vary.  The Court of Appeal filled in that gap, as it considered that the weight of the evidence supported an inference that the parties had intended to alter their shares in the property.

B bemoaned the limitation of his share to 25% when he had subsequently contributed 64% of mortgage repayments over the next 34 months.  The appellate court, however, inferred a common intention at that point (effectively also the time of separation) to vary.  B had retained for his sole benefit from the remortgage a sum representing c. 25% of the net equity in the property.  The 75:25 apportionment at the time of separation was therefore entirely warranted on the facts (§ 37).


The 10% further adjustment of beneficial interests
Furthermore, “taking account of payments made (or not made)” for the children, P’s expenditure on repairs, and the non-payment by B of the mortgage for six years after 2008, meant that it was “clearly necessary to vary the intention to be imputed to the parties” as to their shares, and that a 10% further adjustment was “entirely justified” (§ 37).

In principle “it should be open to a court to take account of financial contributions to the maintenance of children (or lack of them) as part of the financial history of the parties save in circumstances where it is clear that to do so would result in double liability” (§ 41).


Significance of this decision
There are three significant aspects of this decision.  


Equitable accounting
Despite acknowledging that it had not been invited to take an equitable account, the court nonetheless effectively carried out this exercise when it considered the transition from a 75:25 to an 85:15 apportionment of shares, taking into account payments towards the mortgage, expenditure on repairs and lack of child support (despite the absence of a formal CSA claim until 2013).

This does not sit easily with the judgment of the court in Wilcox v Tait [2007] 2 FLR 871: -
"What can at least be said is that an exercise of equitable accounting is not to be confused with an enquiry as to the extent of the parties’ respective beneficial interests in the property in question. Questions of equitable accounting only arise once the extent of the parties’ beneficial interests has been determined, since the requirement to account (where it exists) is a reflection of and derives from those beneficial interests” (§ 64 at 885)


The scope for inference or imputation

The court relied on § 34 of Jones v Kernott [2011] UKSC 53 to conclude that the scope for inferring (and imputing) an intention to vary (let alone in what proportions) is “wide”. 


Consequences of failure to pay child maintenance
A failure to play child maintenance – even child maintenance which was a) not claimed formally, and b) once claimed formally, was something which could still be enforced through an entirely separate route via the Child Maintenance Service (CMS, formally the CSA and CMEC) – can lead to an adjustment of beneficial interests in a property.


Critique – and comparison with the approach in Capehorn v Harris
The insertion by the Court of Appeal of the absent stage of reasoning of the lower court is susceptible to criticism.  

Looking at the context of the sentence quoted from § 34 of Jones v Kernott, the question was one of “imput[ing] an intention to the parties as to the proportions in which the property would be shared” (§ 33, emphasis added), as opposed to being one of whether there was an intention to vary at all. Despite this, the Court of Appeal concluded that the scope for inferring that there was an intention to vary (let alone in what proportions) is wide.  Did the Court of Appeal take one step too far?

In Capehorn v Harris [2015] EWCA Civ 955 (click here), a case in which the various properties were in the parties’ sole, as opposed to joint, names, the lower court was criticised as follows: -

“In my judgment, the judge erred in this paragraph of the judgment. She imputed an intention to the parties for the first stage of the two stage analysis rather than identifying an actual agreement made by them that Mr Harris should have any beneficial interest in Sunnyside Farm.” § 21 

Clearly, in that case the intention which it was impermissible to impute was one of the establishment of a beneficial interest, as distinct from a variation in quantification of an existing beneficial interest.

However, the Court of Appeal held in Capehorn (§ 23) that
“it is impossible in the circumstances of this case to infer that nonetheless (unbeknown to themselves) the parties did in fact make an agreement by their conduct.” 

The distinction is a fine one: the court was content to find an agreement (by conduct) to vary in Barnes v Phillips but not an agreement (by conduct) to share in Capehorn v Harris.


Practical Implications
Practitioners should be alert to the following: - 

  1. The importance of obtaining the transfer document and any express declaration of trust from the conveyancing file or the Land Registry at the outset of any litigation;
  2. The need to ascertain from a client in the 'domestic consumer context' (the term used by Baroness Hale in Stack v Dowden [2007] UKHL 17 at § 58), what the arrangements were with respect to child maintenance;
  3. Whether either party in a TLATA case has made a claim to the CMS / CSA at any point resulting in a liability to pay, and if so whether any liability has been discharged, and / or enforced already – the “double recovery” point alluded to in this case at § 41;
  4. Obtaining from a client the clearest picture of the financial arrangements between the parties, particularly involving mortgages and remortgages;
  5. Making sure that any case for the taking of an equitable account is properly pleaded (it was not in this case), and quantified as best it can be.  The court referred to receipts for repairs, and to the quantum of mortgage payments made over time.  The more that can be done to assist the court in this respect, the lower the risk of the court jumping to the wrong conclusion;
  6. If the non-occupying party continues to pay the mortgage, be sure to include in any claim a claim for occupation rent from the occupying party if the non-occupying party has been excluded from a property.  Presumably such a claim was not made here as the non-occupying party had not paid the mortgage for 6 years!

A version of this article appeared on LexisNexisPSL.  Jordans Family Law also published another article I wrote on the same judgment here