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Where a dispute arises as to the beneficial ownership of and/or the use or occupation of real property then the court must consider the provisions of Trusts of Land and Appointment of Trustees Act 1996 ('TOLATA'), most commonly sections 14 and 15.

TOLATA disputes regularly arise for determination in the course of financial remedy proceedings [1]. Examples of this include situations where a parent of one of the parties in financial order proceedings has advanced money for the purchase of a property now occupied by the parties as a family home and now wishes to assert a property interest contrary to that of the parties and situations in financial remedy proceedings under Children Act 1989, Schedule 1 where cohabitants disagree as to the beneficial interests in the home which they occupy with their children. These disputes often need to be determined before the court can properly decide whether to exercise its adjustive powers as between the parties.

Financial Order proceedings

Where there is a divorce the court has jurisdiction to determine issues within the financial order proceedings and this will be procedurally governed by the FPR 2010 [2]. An application by a third party to intervene in this context should follow the Part 18 procedure [3]; but even where there is no third party intervention the existing parties should identify whether such a dispute is likely to arise and, if so, invite the joinder of the relevant third party to the proceedings [4]. The court should ensure that the parameters of any such dispute are sufficiently defined by the production of proper pleadings [5]. In relation to the costs of determining the TOLATA issue within financial order proceedings neither the general rule applicable in financial order proceedings (i.e. no order for costs) nor the general rule applicable in civil proceedings (i.e. the unsuccessful party will pay the costs of the successful party) applies; but the success by one party is likely to be an important factor in the determination of costs on these 'clean sheet' cases [6].

Schedule 1 applications

Within Schedule 1 applications the TOLATA claim will strictly be a free standing application and therefore governed by CPR 1998; but as a matter of sensible case management the two applications should be 'conjoined' and dealt with by the same judge [7].

Timing of TOLATA issue and FDR

The court will decide on the facts of the case whether it is appropriate to determine the TOLATA issue first at a separate hearing [8] and whether or not to hold an FDR before or after the TOLATA issue has been resolved. In TL v ML [2005] EWHC 2860 (Fam) Mostyn J (as he now is) expressed the view that the FDR should follow the resolution of the preliminary issue. In Shield v Shield  and  Holman J and Francis J (as he now is) successively expressed a preference for an FDR prior to the determination of the preliminary issue against the background of a case where the preliminary hearing had cost more than one million pounds.

Ascertaining the beneficial interests

The essential starting point for determining any TOLATA dispute is to look at the paperwork to find whether there has been an express declaration of trust or if there is (otherwise) clear evidence of a common intention held by the relevant parties. The conveyancing file and/or the TR1 should be searched for an express declaration of trust. An express declaration of trust will ordinarily determine the beneficial interests and further analysis of who contributed what will ordinarily be unnecessary [9]. There are exceptions to this (e.g. fraud, undue influence, non est factum), but ordinarily the beneficial interests will be declared in accordance with the express declaration of trust. Where there is an express 'joint beneficial tenancy' this will automatically become, on severance, a tenancy-in-common in equal shares [10]. A declaration on the face of the TR1 that the survivor of two joint legal owners can give valid receipt on a disposition does not, in itself, amount to a declaration of beneficial joint tenancy [11].

Where there is no express declaration of trust the determination of the beneficial interests will ordinarily be determined on constructive trust principles [12]. The starting point in relation to a family home [13] is that equity will follow the law so that a sole legal owner will be a sole beneficial owner and joint legal owners will hold joint and equal beneficial interests. The onus of displacing this presumption lies on a party contending for a different outcome who must establish that the interested parties had a different common intention formed at the time of the purchase of the property or later. Sometimes the common intention may be clearly recorded in a document. Failing this, the common intention has to be deduced objectively from the parties' conduct, i.e. inferred, but the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party's words and conduct. Examples of the sort of evidence which might be relevant to drawing such inferences include any advice or discussions at the time of the transfer which cast light upon their intentions then, the reasons why the legal title was recorded as it was, the purpose for which the property was acquired, the nature of the parties' relationship, how the purchase was financed, both initially and subsequently and how any cohabiting parties arranged their finances.

Where it is established that the parties had a common intention which is different from that recorded on the legal title then the court will ordinarily declare the beneficial interests in accordance with the common intention.

If the court concludes that the parties had a common intention which is different from that recorded on the legal title, but it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property the court may then, and only then [14], go on to consider the share which the court considers fair having regard to the whole course of dealing between them in relation to the property. The court may impute what the court considers an objectively fair solution, not just infer what the parties must have intended. In ascertaining a fair solution, financial contributions to the purchase are likely to be very important, especially where the parties are not cohabitants. In some cases, the requirement of fairness may cause the court to attach greater weight to other factors to reach a result which is different from that which would arise solely from an analysis of such contributions, but the court in these cases [15] 'is not concerned with some form of redistributive justice' and what is important is 'the whole course of dealing between them in relation to the property' not whether one party has 'endured years of abusive conduct by her partner'.

Once the beneficial interests have been established there may be adjustments to be made to reflect certain facts [16], for example where one party has been excluded from the property for a protracted period and occupational rent issues arise or where post-separation improvements to the property have been paid for by one party. This is sometimes referred to as 'equitable accounting', but is now strictly dealt with under TOLATA [17].

Where a debt incurred by one party is secured against the property the court may allow the other party to rely upon the 'equity of exoneration' so that the debt is paid out of the first party's share, unless it can be established that the debt was incurred for the joint benefit of the parties, the mere existence of an indirect benefit to a cohabiting party not being sufficient for these purposes [18].

Powers once beneficial interests have been ascertained

Once the beneficial interests have been ascertained the court has the power to order the sale of the property under TOLATA so that the interests can be realised in cash. There may, however, be other ways forward and whilst it does not permit property adjustment orders as such, TOLATA contains a range of powers which can be exercised to allow one beneficiary to buy out another on appropriate terms: Bagum v Hafiz & Anor [2015] EWCA Civ 801.

Interim Order for Sale

The traditional view is that the powers available to a court under Matrimonial Causes Act 1973 in financial order cases do not include the power to make an interim order for sale [19]. More recently Mostyn J has suggested this is not the case, but Cobb J has re-stated the traditional view [20]. In a small minority of cases this can be inconvenient. In some cases, for example where a party is deliberately causing delay or where preserving the property cannot be afforded because of substantial mortgage costs, it is open to a divorcing spouse to pursue an application under TOLATA to achieve such a result [21]. If this route is pursued then it will be necessary for the court to consider terminating the respondent's home rights pursuant to an order under Family Law Act 1996, section 33(3)(e), applying the evaluative factors in section 33(6) [22].

Applications of this nature will be refused if the court concludes that the application can reasonably be left to be resolved within the application for a financial order. In particular, if there is a measurable chance that the respondent to the TOLATA application will be able to preserve his or her occupation of the home by securing an outright transfer within the financial order proceedings, it is hard to conceive that an order for sale would reflect a proper exercise of discretion.

Agreements

It is worth remembering that TOLATA disputes are conducted according to civil law rather than family law litigation principles. In 'Binding agreements in TOLATA claims' [23] the author suggested five points to bear in mind which flow from that fact:

  1. There is generally no need in a TOLATA claim for the court's approval of an agreement.
  2. The terms of agreement are generally set out in a schedule to a Tomlin order which the court may not even inspect.
  3. Where one party seeks to resile from an agreement, a declaration may be sought.
  4. Contractual principles will apply to such an application (cf. the opposite position in financial remedies where Thorpe LJ's 'cardinal conclusion' was that they did not: see Xydhias at 691).
  5. Similarly, where a party seeks to argue that that an agreement is vitiated (or 'impeached'), whereby no order should be made, the relevant principles will be contractual.

Footnotes

  1. Indeed, the Briggs Report (The Civil Courts Structure Review, published July 2016) has recommended that free-standing TOLATA proceedings with a family law flavour should be heard in the Family Court
  2. Tebbutt v Haynes [1981] 2 All ER 238, Goldstone v Goldstone [2011] 1 FLR 1926 and FPR 2010, r 9.26B
  3. FPR 2010, r 9.26B(5)
  4. Fisher Meredith v JH and PH [2012] EWHC 408 (Fam)
  5. TL v ML [2005] EWHC 2860 (Fam)
  6. Baker v Rowe [2010] 1 FLR 761
  7. W v W [2004] 2 FLR 321, FPR 2010, r 1.4 & CPR 1998, r 3.1. For a helpful discussion on procedural issues see 'Strange bedfellows: case management in Schedule 1 and TOLATA' [2016] Family Law 1157
  8. Although dealing with preliminary issues separately gained judicial approval in OS v DS [2004] EWHC 2376 (Fam), and for a time became fashionable, the benefit of this approach is now to be doubted, for example by Moor J in Young v Young [2013] EWHC 3637 (Fam)
  9. Goodman v Gallant [1986] 1 FLR 513, Stack v Dowden [2007] 1 FLR 1858 at page 1876 & Pankanie v Chandegra [2012] EWCA Civ 1438
  10. Goodman v Gallant [1986] 1 FLR 513
  11. Huntingford v Hobbs [1993] 1 FLR 736, confirmed in Stack v Dowden [2007] 1 FLR 1858 at page 1876
  12. Oxley v Hiscock [2004] 2 FLR 669, Stack v Dowden [2007] 1 FLR 1858 & Jones v Kernott [2012] 1 FLR 45
  13. The starting point does not apply in relation to an investment property: Gaspar v Zaleski [2017] EWHC 1770 (Ch)
  14. Barnes v Phillips [2015] EWCA Civ 1056
  15. Graham-York v York & Ors [2015] EWCA Civ 72
  16. See, for example, Clarke v Harlowe [2007] 1 FLR 1, Wilcox v Tait [2007] 2 FLR 871, Re Pavlou [1993] 3 All ER 955, Byford v Butler [2004] 1 FLR 56 & Dennis v Macdonald [1982] Fam 63
  17. Stack v Dowden [2007] 1 FLR 1858 at page 1889. And see Davis v Jackson [2017] EWHC 698 (Ch) for a recent explanation of the principles
  18. Armstrong v Onyearu & Another [2017] EWCA Civ 268
  19. Wicks v Wicks [1998]1 FLR 470
  20. See BR v VT [2015] EWHC 2727 (Fam) and WS v HS [2018] EWFC 11. In the later case of SR v HR [2018] EWHC 606 (Fam) Mostyn J said 'I firmly and respectfully maintain my view'
  21. Miller-Smith v Miller-Smith [2010] 1 FLR 1402
  22. BR v VT [2015] EWHC 2727 (Fam)
  23. See Alexander Chandler, Family Law Week, July 2017

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