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High road, low road

16 July 07

Some contrasts in the approaches of Scots and English law to property claims by cohabitants, in the light of a recent English House of Lords appeal

by Kenneth Norrie

Last year, in these pages, I discussed the English financial provision on divorce case of Miller v Miller; MacFarlane v MacFarlane [2006] 2 AC 618 (Journal, July 2006, 16), which was made notable in Scotland by Lord Hope expressing the view that Scots law on the matter should be reviewed and brought closer to English law. The major difference in this area between the two jurisdictions is that in England the focus is very much on the uncertain concept of fairness, while in Scotland the benefits of certainty are given more weight.

I want this month to discuss another financial provision case from the House of Lords in which, again, Lord Hope usefully sets out how Scots law would deal with the issue. This time, however, the case involved separating cohabitants. The claims an ex-cohabitant may make to share the wealth generated during the relationship are very much more limited than those of a spouse on divorce or a civil partner on dissolution, even after the coming into force, in Scotland, of the Family Law (Scotland) Act 2006.

Balance of advantage

Imagine the following scenario. A couple, Moneybags and Pauper, get together in 1975, renting accommodation for their joint use. In 1983 Moneybags inherits a sum of money from an uncle and uses it as the deposit for the purchase of a new family home, title to which is taken in her name alone. She is in employment and the mortgage is paid by standing order from her sole bank account. Pauper, who is unemployed, contributes physical labour to the decoration, renovation and extension of the property. By 1993 both parties are in paid employment and Pauper now begins to contribute to the mortgage, though to a lesser extent than Moneybags. In 2007 the couple separate, at which point in time the mortgage has been paid off and the property has a net value of £600,000.

Had they married in 1975, or entered a civil partnership in 2006, a claim under s 9(1)(a) of the Family Law (Scotland) Act 1985 would prima facie entitle Pauper to a half share of the net value, that is to say £300,000. If they remained unmarried or unempartnered (if that is what the word is to be), all that is available to Pauper is a claim under s 28 of the 2006 Act to recover “contributions”. Now, this includes more than the direct financial contributions made to the mortgage and, under s 28(3)(a), the court will take account of the extent to which Moneybags “has derived economic advantage from contributions made by” Pauper. But however the enhancement to the house is valued, it is highly unlikely to reach a figure anywhere near one half of the value of the property. So in these days of increasing house prices, it remains financially advantageous for the less well-off of the two to marry or civilly empartner rather than to cohabit, and financially disadvantageous for the other.

A real question

The scenario above is similar to that in the English case of Stack v Dowden [2007] UKHL 17. That jurisdiction does not yet have, of course, any equivalent to our Family Law (Scotland) Act 2006 and the only claim possible, therefore, was a common law claim. All the judges in Stack agreed that if the title to the property is in the name of one party alone, then it is for the other party to show that they have a share in that ownership; similarly if the property is jointly owned the onus is on the party seeking to show that ownership is shared other than equally. (It was indeed this latter scenario that Stack itself was concerned with.)

The real question before the House was how the presumption of either sole or equal ownership could be overturned. They held that what needs to be identified is the parties’ shared intention, actual, inferred or imputed from their whole course of conduct in relation to the property, and that if this common intention indicates a departure from sole or equal ownership then that intention will be given effect to as opposed to the terms of the title. In English parlance, a “constructive trust” must be shown which requires beneficial title to be shared differently from legal title.

In Stack Ms Dowden was awarded 65% of the value of the house (her share of the “equity”), on the basis that she contributed financially far more to its purchase than, as the legal title indicated, 50%. Baroness Hale, incidentally, gave the interesting warning at para 85 of her speech that while the extra 15% of the house’s value amounted to over £111,000, the costs of pursuing that sum all the way to the House of Lords were “quite disproportionate” to that figure.

Same starting point…

As in Miller; MacFarlane, above, the most interesting speech from a Scottish perspective is that of Lord Hope, who explains to us how Scots law would deal with the issue. He suggests that the problem would be resolved in much the same way on both sides of the border. He is correct to point out that the Family Law (Scotland) Act 2006 does not provide the answer. He is also correct (self-evidently so, in a system that does not distinguish between the legal and beneficial interests in heritable property) to state that, as in England, if property is taken in the name of one of a couple, the presumption here is that of sole ownership, and if taken in the name of both, the presumption is of equality of shares. So the starting point is the same in both jurisdictions. And the contentious issue is also the same: how do you overturn the presumption?

In Scotland, cases such as these have of late been dealt with through the law of restitution – obligations law rather than property law. Recent examples referred to in Lord Hope’s speech include Satchwell v McIntosh 2006 SLT (Sh Ct) 117 and McKenzie v Nutter 2007 SLT (Sh Ct) 17.

In Satchwell, title to the property was taken in the name of one of the cohabitants but the other had contributed to the purchase price and to certain refurbishment costs. The non-entitled cohabitant successfully claimed back the monies directly contributed. In McKenzie, title was taken in joint names but only one had contributed to the purchase price and to refurbishment. When the other cohabitant insisted on a division and sale she was held to be unjustly enriched and required to pay her share of the proceeds to the other. The injustice lay in the fact that the agreement had been that each would sell their existing properties in order to purchase the joint property: one did and the other did not. (The English courts would probably hold this created a common intention that generated a constructive trust.)

Satchwell is likely, today, to be dealt with under the 2006 Act. But McKenzie went rather further in that a full share of the proceeds of sale was recovered: fairness demanded that the value of the property was shared, rather than simply the value of the contribution.

… different routes

While the result in all these cases might well, on their facts, be the same in Scotland and in England, it is important to note that the route to that result is very different – with the consequence that on different facts a different result might emerge. In England, absent a statute, the matter is analysed as one of “common intention constructive trust”, with the courts aiming to give effect to what is taken to be the intention of the parties. This is not a search for a “fair” outcome (per Baroness Hale at para 61 and Lord Neuberger at paras 127 and 144). In Scotland, however, where the matter is dealt with as unjustified enrichment, notions of fairness are central to the analysis. So, in England (as we learnt last year in Miller; MacFarlane), fairness is central to the division of property at the end of marriage or civil partnership, but at best incidental (as we learn here) at the end of a cohabitation; in Scotland fairness is central at the end of a cohabitation but is no more than a moderating influence on certainty at the end of a marriage or civil partnership.
The 2006 Act of course might well change things. If the courts are willing to take a liberal view of s 28 of the 2006 Act, and assess the advantages and disadvantages that underpin claims under that section to the full extent of property values, then the continued need for the common law remedy would evaporate. And an attractive consistency of approach between claims of separating cohabitants would be achieved with those of divorcing/dissolving spouses/civil partners. The claims of the former would remain very much more limited than those of the latter, but the balance between fairness and certainty would be the same. This would bring a welcome harmony to an increasingly fractured Scottish family law.
Kenneth McK Norrie is a Professor of Law in the University of Strathclyde