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August 16, 2023

An interesting case on “common intention” constructive trusts - and when not to bother arguing them!

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An interesting case on “common intention” constructive trusts - and when not to bother arguing them!

Hudson v Hathway [2023] 2 W.L.R. 1227 ([2022]EWCA Civ 1648) is, even to a M&A lawyer such as myself, a particularly interesting case, despite being: (i) being decided at the end of last year, rather than just last week (my daily law reports email only mentioned it very recently, however), and (ii) of more interest to matrimonial (or family) and property lawyers, than to corporate lawyers (apart, perhaps, from its confirmation - at Court of Appeal level -  of the validity of "emailed signatures" for the purposes of any legal signing or documentary requirement (e.g., section 53(1), Law of Property Act 1925 (LPA) – dispositions of interests in land)). To be frank, its focus is not exactly core to M&A practice (unless you have a need to rely on (or defeat) a "common intention" constructive trust legal argument! All of that said ....

1. The W.L.R. report of the case lists an incredible 98 cases either cited in Lewison LJ's judgment or in argument (including skeleton arguments). Lewison LJ referred to no less than 59 cases in his own judgment!

2. When overruling Kerr J - who had suggested that by not mentioning the long established requirement for reliance to one's detriment as a key constituent element of any "common intention" constructive trust, the Supreme Court (in Jones v Kernott) must have thought it wasn't such a key constituent element or requirement, rather considering it necessary to state the obvious (that it was a key requirement) – Lewison LJ also rejected the judge's suggestion that the "learned texts do not speak with one voice". Lewison LJ – "But in my judgment they do. They all take the same view as I expressed in Curran v Collins"! He then proceeded to quote from no less than seven textbooks to prove his point! Detrimental reliance is in deed a prerequisite for any "common intention" constructive trust claim to succeed.

3. "Equity cannot repeal the statute", Lewison LJ strikingly said, in holding that a mere oral agreement or disposition without the "detrimental reliance" element could not be binding and create enforceable proprietary rights. There are strict limits as to what equity can be made to do when relying on it to provide relief from the common law position. In this context, Lewison LJ was happy to quote Lord Neuberger's "colourful metaphor" that "equity is not a sort of moral US fifth cavalry riding to the rescue very 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". On the contrary, Lewison LJ said "it is necessary to have some principles about what equity would recognise as an unconscionable result, otherwise, as Donaldson LJ put it in Chief Constable of Kent v V [1983] QB 34, 45E, one might as well 'issue every civil judge with a portable palm tree'"

4. And finally, this decision illustrates a welcome readiness on the part of the English courts to be pragmatic when deciding whether to allow a new point to be taken on appeal. As Lewison LJ noted "for reasons which are difficult to understand whether section 53(1) [LPA] was satisfied [i.e., whether there was a written disposition for the purposes of that section] was not argued either at trial or on the first appeal". Nevertheless, noting Snowden LJ's comments in Notting Hill Finance Ltd v Sheikh, that there is a balance to be struck between, on the one hand, not allowing a new point to be argued where that might have changed the course of the evidence given at trial and require further factual enquiry and, on the other, a "pure point of law" which will not have any impact on the previously considered evidence or conduct of the trial, in this case the respondent was - with a little prompting from the court! - allowed to raise this new section 53(1) point. A point that rather made redundant all the previous "common intention" constructive trust arguments!

"But equity is not a sort of moral US fifth cavalry riding to the rescue very 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" Lord Neuberger, "The Stuffing of Minerva's Owl? Taxonomy and Taxidermy in Equity", [2009] CLJ 537, 540

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Michael Scargill

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