State of play: case summaries

Jennifer Ridgway and Karen Bayley review case law concerning constructive trust, divorce settlements and vulnerable clients

Constructive trust

O'Kelly v Davies

This was an appeal against the decision of Judge Vosper QC who, in the case of O'Kelly v Davies [2014] EWCA Civ 1606, declared that Ms O'Kelly held the property known as 74 Lon Olchfa, Swansea, on trust for herself and Mr Davies in equal shares. The judge inferred a common intention that the beneficial interest in the property was shared. Ms O'Kelly appealed on the grounds the judge had been wrong to infer this intention.
She also argued that Mr Davies' claim to an equitable interest in the property required him to assert an unlawful agreement and this would be contrary
to public policy.

Ms O'Kelly and Mr Davies had previously lived in another property
(42 William Street, Swansea) which they originally bought in their joint names. This property was later transferred into Ms O'Kelly's sole name. Some time later, Ms O'Kelly sold this property to Mr Davies and at the same time, bought
74 Lon Olchfa in her sole name.

The property at 42 William Street was rented out but later repossessed. When the parties separated, Mr Davies claimed they had always intended to have an equal beneficial interest in 74 Lon Olchfa.

The judge at first instance held that the common purpose for the transfer of 42 William Street into Ms O'Kelly's sole name was to enable false claims for benefits. Mr Davies' income had funded the mortgage payments on 42 William Street and it followed that the parties intended Mr Davies to have an interest in it.

This common intention subsisted in relation to 74 Lon Olchfa, which replaced 42 William Street as the family home, with Mr Davies continuing to use his income for mortgage payments and living expenses. It was reasoned that the property at 74 Lon Olchfa was placed into Ms O'Kelly's sole name to enable her to continue claiming false benefits and the parties' actions in doing so had been unlawful. Following these findings, the judge declared Ms O'Kelly held
74 Lon Olchfa on trust for herself and Mr Davies in equal shares.

Ms O'Kelly's appeal was dismissed by Pitchford LJ. Having examined the dealings between the parties, he found that the judge was correct to infer a common intention of the parties to equally share the beneficial interest in the property.

In doing so, Pitchford LJ considered Tinsley v Milligan (1994), where the concept of a resulting trust was applied in aid of a defendant beneficiary who otherwise might have needed to rely on a fraudulent purpose. In Tinsley, the House of Lords reasoned that the existence of a resulting trust was claimed in order to rely on an already acquired equitable proprietary interest, and not to enforce unperformed provisions of an unlawful transaction.

Pitchford LJ concluded that this was also true for the constructive trust in the present case. Indeed the reason for the purchase of the property in Ms O'Kelly's sole name had been unlawful, but this only explained the conduct of the parties. It was their conduct itself that had given rise to the constructive trust. The acquisition of a beneficial interest had arisen from the parties' common intention inferred from their continuing course of dealings, and not from the illegal purpose. In these circumstances, Mr Davies did not need to rely on an illegal purpose to make good his claim
of a constructive trust.

See O'Kelly v Davies [2014] EWCA
Civ 1606

 

Divorce settlement

AM v SS was a divorce case in which the wife claimed for a financial remedy far in excess of her husband’s assets. The basis of her argument was broadly that the husband’s father was considerably wealthy and could be expected to make capital available to meet the wife’s claim.

The question was the extent to which valuable resources which do not belong to one of the parties could be taken into account. In this case, the resources were those of the husband’s father, but it was acknowledged they might otherwise include a family trust (for example).

The husband maintained he had assets of a few hundred thousand pounds, including a property in Maida Vale worth roughly £1m (but with equity of only about half that sum) and a salary of about £100,000.

The marriage between the wife and the husband lasted only about two years and they had one child. The couple had been in divorce related litigation since October 2009 and they had both incurred considerable legal costs.

The wife submitted that the husband’s father had assets of about £1bn and had been very generous to his children and grandchildren in the past. Against this background, the wife was seeking a £3m lump sum, £10,000 per month maintenance and a full-time nanny and maid. By the end of the hearing, she had moderated her claim to a capital payment of £2m.

Mr Justice Coleridge stated, quoting Waite LJ in Thomas v Thomas (1995), that there would be occasions when it became permissible for a judge to deliberately frame his orders in a form affording judicious encouragement to third parties, in order to provide the maintaining spouse with the means to comply with the court’s view of the justice of the case.

However, here the external resources belonged wholly to a parent who had no legal obligation towards his adult son or, based on his live evidence on video link, any inclination to provide further sums.

The judge was satisfied that the husband’s father would help out, but only to the amount necessary to relieve his son from visible financial hardship.

He would not fund sums unrelated entirely to his son’s current level of wealth, and could not be expected to make extra provision to meet the wife’s claim. The father’s past generosity was not “a proper or safe basis on which to make lavish orders”.

The court awarded the wife maintenance of £4,000 per month. He also ordered that the Maida Vale property be transferred to the wife whereby two-thirds of the equity went to her absolutely, and the balance of one-third for the wife’s use for her life and then ultimately to the daughter.

See AM v SS [2014] EWHC 865 (Fam)

 

Vulnerable Client

Rochdale Council v K W & Ors

The court had to decide whether the care arrangement put into place for ‘Katherine’ by the council amounted to a deprivation of her liberty (DoL).

Katherine, 52, was severely mentally incapacitated as well as having epilepsy and physical disabilities. Having been discharged from hospital and then a rehabilitation unit some years ago, she began living in a housing association bungalow, receiving 24-hours care which was publically funded.

She was just about able to walk with the aid of a Zimmer frame, but believed she was living in the year 1996, at home with her three small children (who were in fact adults); she tended to wander off to try and find those children.

Article 5 of the European Convention of Human Rights 1950 determines that no one shall be deprived of liberty and security with the exception of:

• € The lawful detention of persons for the prevention of spreading infection diseases, of persons of unsound mind, alcoholics or drug addicts or vagrants.

• (4) Everyone who is deprived of their liberty by arrest or detention shall be entitled to take proceedings by which lawfulness of his detention shall be decided speedily by a court and his release order if the detention is not lawful.

For there to be a DoL the following has to be shown:

• an objective element of a person’s confinement to a certain limited place for a not negligible length of time;

• a subjective element that the person had not validly consented to the confinement in question; and

• the DoL must be one of which the state was responsible.

Liberty is the state or condition of being free from external constraint and the decision on such was to be determined primarily on an objective basis.

Whether the liberty had been restricted was to be determined by comparing the extent of the actual freedom in question, against someone of a similar age and station whose freedom was not limited.

A key element of the objective test of confinement was whether a person was ‘free to leave’. This would involve leaving a place in order to live where she or he chose to live and with whom.

Mostyn J felt that in considering this question, he must consider Katherine’s personal circumstances. He considered that her ability to walk was reducing significantly.

The natural consequences of this would mean that her freedom to leave would be diminished. Thus Katherine did not have the lack of freedom to leave, rather her physical disabilities did not allow her to exercise that freedom.

Therefore Mostyn J felt that this element of the test was not satisfied.

The court further advised that it would not be impossible for someone to be deprived of their liberty by confinement in their own home, but that it is likely. This is due to the significant amount of cases where a physically and mentally disabled elderly person is being looked after in their own home, and where those arrangements are placed and funded by the state rather than the persons own family, Article 5 would not be engaged.

Mostyn J felt, however that the matter should be reconsidered by the Supreme Court.

See Rochdale Metropolitan Borough Council v KW & Ors (Rev 1) [2014] EWCOP 45

 

Vulnerable Client

The Public Guardian v VT

This was a decision from Senior Judge Lush regarding the revocation of a Lasting Power of Attorney (LPA) for both Property and Financial Affairs, and Health and Welfare. While the details of the case are complicated and sad, the primary point of interest is the below restriction placed upon the LPA Property & Financial Affairs:

“I do not want any public authority or body, or their employees or contractors, to handle my money, financial affairs or property at any time, and I do not want them to obtain any information about these at any time”.

The donor, P, had appointed her daughter V to be her attorney for both LPAs. District Judge Lush indicated that the LPAs were drafted by V, including the restriction. It is surprising that the restriction was not severed from the LPA before it was registered.

It became an issue in subsequent proceedings for the LPA to be revoked on the basis that V was not acting in her mother’s best interests. V sought to rely on the restriction, while resisting attempts for investigations to be made into her handling of her mother’s financial affairs, on the basis that it was an invasion of privacy.

The Court of Protection and The Office of the Public Guardian are both public authorities. The Mental Capacity Act 2005 confers on their various functions which are designed to protect the donors of LPAs, and to prevent crime and abuse.

Article 8.1 of The European Convention on Human Rights states: “Everyone has the right to respect for his private and family life, his home and his correspondence”.

However this right is qualified and in certain circumstances, public authorities can interfere with the private family life of the individual, which are set out in Article 8.2:

“There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic wellbeing of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.”

District Judge Lush concluded:

“In my judgment, the provision in this LPA for property and financial affairs, which excludes any public authority from obtaining any information about the donor’s property and financial affairs at any time, is contrary to public policy because it seeks to stifle any investigation into the donee’s misconduct, prejudice the administration of justice and oust the jurisdiction of the court. This provision should have been severed from the LPA, pursuant to paragraph 11 of Schedule 1 to the Mental Capacity Act 2005 before the LPA was registered.”

This judgement sets out a definitive message with clarity to anyone seeking to impose or defend this or similar conditions in an LPA. The courts will always seek to act in the best interests of the person without capacity.

See The Public Guardian v VT [2014] EWCOP 52

 

Jennifer Ridgway is an associate in the private client team at Michelmores

Karen Bayley is a solicitor at Barlow Robbins

Jennifer and Karen write regular case updates for Private Client Adviser