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Dispositions of equitable interests in the digital age: Hudson v Hathway

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16th January 2023

Mattie Green discusses Hudson v Hathway [2022] EWCA Civ 1648, focusing mainly on the application of section 53 of the Law of Property Act 1925.

Introduction

Hudson v Hathway [2022] EWCA Civ 1648 is the most recent case in the long line of cases concerning the equitable interest in property purchased by an unmarried couple in joint names, without an express declaration of trust, who later separate.

The decision reaffirms the requirement for a joint tenant who is claiming an increase in their equitable share in the property based on a common intention constructive trust to show detrimental reliance (overturning the High Court on this point (see Hudson v Hathway [2022] EWHC 631 (QB))). However, this article focuses on the aspects of the Court of Appeal’s decision concerning section 53 of the Law of Property Act 1925 (LPA 1925), which will be of particular interest to property lawyers.

Facts

The parties started a relationship in 1990 but remained unmarried. In 2007, they purchased the property, Picnic House, in joint names without expressly declaring how the equitable interest in the property was held. In 2009, Mr Hudson left Ms Hathway and moved out of Picnic House. Ms Hathway remained at the property with the parties’ two sons.

In 2011, the property was affected by an oil spill from a neighbouring tank, which made the property difficult to sell. Following the oil spill, the parties exchanged various emails relating to their financial arrangements.

In an email sent on 31 July 2013, Mr Hudson agreed to give Ms Hathway various assets. In relation to the house, he said that he wanted “none of the proceeds of that either…”. The email was subscribed “Lee”.

Ms Hathway responded by email dated 13 August 2013. She said “your suggestion, as I understand it, is you get sole ownership of your shares and pension, I get the equity from the house…. Is that right? If so, then I will accept this…” Mr Hudson replied on 9 September 2013 confirming “yes, that’s right”. Again, the email was subscribed “Lee”.

In January 2015, Mr Hudson stopped contributing to the mortgage.

In October 2019, Mr Hudson issued proceedings seeking an order for the sale of Picnic House with an equal division of the proceeds. Ms Hathway agreed that the property should be sold but argued that she was entitled to the entire proceeds under a constructive trust following a common intention and agreement, which she had relied on to her detriment.

Previous litigation

At first instance, the judge held that Ms Hathway was entitled to the entire proceeds of the sale of Picnic House.

On appeal in the High Court, the issue was whether a party claiming an increase in their equitable share in a property must necessarily have acted to their detriment, or if a common intention was sufficient to alter the beneficial interests. Kerr J held that it was not necessary to show detrimental reliance to establish a common intention constructive trust; a common intention was sufficient.

Issues in the Court of Appeal

The issues in the Court of Appeal were:

• Did the communications between the parties expressing their common intention that Ms Hathway should have the whole beneficial interest in the property comply with the statutory formalities? (This point was not considered )
• Is detrimental reliance required to increase a party’s equitable share of property based on common intention?
• If so, on the facts, was the test of detrimental reliance met?

Court of Appeal decision

At first instance, the parties accepted that the deal between them did not satisfy the statutory formalities for disposing of an equitable interest under section 53 of LPA 1925.

In the Court of Appeal, Ms Hathway applied to amend the Respondent’s Notice to argue that Mr Hudson’s emails of 31 July 2013 and 9 September 2013 complied with section 53. Permission to amend was granted.

The Court of Appeal held that the emails did comply with the statutory formalities. In particular, it was held that:

• When a joint tenant releases their beneficial interest to another joint tenant, this is a “disposition” within the meaning of section 53 of the LPA 1925;
• A release of an equitable interest does not need any particular form of words; and
• Deliberately subscribing one’s name to an email can amount to a signature for the purposes of section 53(1)(a) and (c).

As stated by Lewison LJ at paragraph 46 of the judgment, it is not technically possible for an equitable joint tenant to assign their equitable interest to another joint tenant because, in contrast to equitable tenants in common, each joint tenant is jointly entitled to the whole. However, a joint tenant may release his interest to the other joint tenants pursuant to section 36 of the LPA 1925 (as amended by the Trusts of Land and Appointment of Trustees Act 1996).

It was held that Mr Hudson’s emails did amount to a release of his equitable interest; they evidenced “a clear intention to divest himself of that interest immediately, rather than a promise to do so in the future.”

There was no dispute that the emails were “writing” as defined by Schedule 1 of the Interpretation Act 1978. The relevant question was whether the emails were signed, there being no statutory definition of “signed”.

Although emails could not have been in the contemplation of Parliament in 1925, an Act of Parliament is “always speaking”, which means that Acts should generally be taken to cover developments in technology if they give effect to the statutory purpose. Lewison LJ referred to a number of authorities in which it has been held that deliberately subscribing one’s name to an email amount to a signature and held that Mr Hudson’s emails of 31 July 2013 and 9 September 2013 were signed for the purpose of section 53(1)(a) and (c) of LPA 1925. Accordingly, Mr Hudson expressly released his beneficial interest in Picnic House to Ms Hathway by the emails.

In the circumstances, there had been an express disposition of the equitable interest, which complied with the statutory formalities. Therefore, it was not necessary for Ms Hathway to rely on a common intention constructive trust. However, as set out above, the Court of Appeal did consider whether detrimental reliance was required to establish a common intention constructive trust as it is an important point of principle. It held that it is necessary.

Commentary

 By adding his name, “Lee” to the bottom of his emails, the requirement that a disposition of an equitable interest be made in signed writing under section 53(1)(c) of LPA 1925 was satisfied. This accords with the decision of Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd [2012] EWCA Civ 265. The fact that individuals may be familiar with each other, such that emails are signed off using first names, does not undermine the seriousness of transactions they are undertaking. Moreover, there is no distinction between typing one’s name and an automatically generated email sign-off (Neocleous v Rees [2019] EWHC 2462 (Ch)). Both are sufficient to indicate that the sender intended to authenticate the document; a signature. In circumstances such as this, there is no presumption that parties do not intend to create legal relations (see paragraph 49 of Lewison LJ’s judgment).

This case highlights the need to take care when embarking on email correspondence in relation to property rights. The formality requirements of section 53 of LPA 1925 no longer seem so formal.

Another example is Re Stealth Construction Ltd [2011] EWHC 1305 (Ch), which concerned whether the creation of a charge complied with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989), which provides that contracts for the sale of land or creation of interests in land must be in signed writing. Section 2(3) of the LP(MP)A 1989 requires the document incorporating the terms to be signed by or on behalf of each party to the contract. In that case, it was held that where both parties had signed-off their emails and one party had replied to the other’s initial email creating a string, this constituted a single document. That scenario was contrasted with the situation where a new email is sent simply referring to an earlier email.

Parties must carefully consider their email communications in relation to property transactions moving forward.

 

This article first appeared in Practical Law’s Property Litigation Column on 12th January 2023.

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