Before: The Hon. Lord Justice Carswell
 
 

B E T W E E N

JUDGMENT
 
DATED: 13 May 1994

Lord Justice Carswell:

The plaintiff Britannia Building Society ("the Society") seeks by this originating summons delivery by the defendants of possession of the premises comprised in Folio AR11162 County Armagh, being a dwelling house and smallholding of 23 acres situate and known as 10 Cloghogue Road, Cullyhanna, Newry. The first-named defendant, William John Noel Johnston, is the registered owner of the lands, the family farm which he inherited in 1982 on his father's death. The second-named defendant Helen Johnston is his wife, who has at all material times lived with him on the lands. The third, fourth and fifth defendants are children of Mr and Mrs Johnston. The Society claims possession as the holder of a charge against the lands, under which the first defendant has made default in payment of instalments of principal and interest due to the Society. The first defendant entered an appearance, but subsequently his solicitors came off record with the leave of the court. He attended the hearing of the summons, but took no part in it. The second, third, fourth and fifth defendants were added to the proceedings by an order of the Master dated 25 January 1993, and were represented by counsel. He accepted that he could not put forward any defence to the claim for possession on behalf of the children, but claimed on behalf of the second defendant Mrs Johnston that a constructive trust had arisen in her favour, entitling her to a share in the lands, and that she had an overriding right which should prevail against the Society's claim, as being a burden coming within paragraph 15 of Schedule 5 to the Land Registration Act (Northern Ireland) 1970.

The premises constituted the family's smallholding, which at the time of the Johnstons' marriage in 1967 was worked by Mr Johnston's father. Mrs Johnston was a stitcher before her marriage, but on marriage gave up that work and she and her husband resided in the house on the farm with his father. Mr Johnston was employed as a lorry driver and worked part-time on the farm. Mrs Johnston, who is from a farming background, kept the house and helped with the livestock on the farm, as well as bringing up the family of children born to her.

Mr Johnston Senior's health declined in his later years, and he was not actively engaged in farming work for some time before his death in 1982 at the age of 84. During those years the farm was effectively being worked by the joint efforts of Mr and Mrs Johnston. On his father's death Mr Johnston succeeded to the farm and was registered as owner on 4 August 1982. For some two or three years after 1982 Mr Johnston continued his work as a lorry driver, and Mrs Johnston carried on with her work jointly with him on the farm. His job seems to have come to an end after that period, and from that time Mr Johnston had no other employment. They both continued thenceforth to work on the farm.

Mr Johnston had only unemployment benefit together with his profits from working the farm, and appears to have wanted money, although I had no details of his financial situation or his motives in obtaining a loan. In November 1989 he consulted Mr DG Williamson, an independent financial adviser carrying on business in Enniskillen. He wished to obtain an advance on the security of his farm, and Mr Williamson introduced him to the Britannia Building Society. An application form, described as a "Commercial Mortgage Application Form", was completed in Mr Williamson's office. Both Mr and Mrs Johnston were described as applicants for the advance, which Mr Williamson stated was done by him as a matter of course with married couples. The amount of the advance sought was £45,000, repayable over a term of 13 years, so fixed as to take its duration up to Mr Johnston's normal retirement age. The property was described in outline on the form and its estimated value was stated to be £62,000. Mr Johnston was described as self-employed, and attached copies of his farm accounts. The application was signed by Mr Johnston, but not in the first instance by Mrs Johnston. It was returned to Mr Graham to have her sign, and he sent it by post to her and received it back bearing what purports to be her signature.

The Society obtained a valuation report from one of its panel of valuers, whereby the valuation was stated to be £62,000. It obtained a report on title from Mr Johnston's solicitors, and on 20 April 1990 the Society made an offer to Mr Johnston of an advance of £45,000, repayable over 13 years, and subject to certain conditions which are not material for present purposes. Mrs Johnston was not included in the offer of advance, and no attempt was made to have her sign a deed of postponement, although the Society must be regarded as having been aware of her presence as an occupant of the lands.

A deed of charge was executed on 20 June 1990, whereby Mr Johnston charged the dwelling house and premises in favour of the Society with the principal sum of £45,000 and interest thereon. The charge was registered in the Land Registry as a burden on the lands comprised in Folio AR11162 County Armagh on 6 December 1992. Mr Johnston failed to pay any instalments whatever of principal and interest, and to date has made no repayment at all to the Society. On 10 May 1994, the date of the hearing of this summons, the arrears under the charge came to a total of £29,013.77 and the total amount of principal and accrued interest due was £80,499.27. The Society's power of sale has become exercisable and as against Mr Johnston there is no doubt that the Society is entitled to an order for possession of the lands. Mr Keogh for the other defendants acknowledged that he could not put forward any case on behalf of the children, and the only issue was whether Mrs Johnston was entitled to an equitable interest which overrode the Society's right to possession of the lands.

In her affidavit sworn on 9 November 1993 Mrs Johnston stated as follows:

"3. The property was owned by my husband's father who had always indicated that eventually the property would be ours.

4. Before I was married I worked as a stitcher in Newtownhamilton, County Armagh. But after our marriage I devoted myself entirely to helping my husband to run the farm and to looking after my husband's father. My husband had an outside job as a lorry driver and was only able to work part-time at the farm but I, coming from a farming background myself, was able to look after all the feeding of the livestock. At all times I relied on the expectation of an eventual interest in the property.

5. We both did a lot of work in improving and maintaining the property and in making the dwelling house a comfortable home for my husband's elderly father, as well as ourselves and for our own growing family.

6. My husband's father died in 1982, aged in his early eighties. The property was then transferred into my husband's name as sole legal owner. I continued to devote long hours working to assist my husband in his part-time farming activities and, although the property remained registered in his name, it was always understood between us that the farming work was a joint effort and that he held the property for our joint benefit.

7. My husband always looked after the farm finances himself and I understood he had a substantial bank overdraft facility, but to the best of my knowledge it was entirely unsecured. When he mortgaged the property to the Plaintiff in 1990 I was never asked to execute any deed of postponement of my interest in the property and if I had been asked I would certainly not have done so. To the best of my knowledge, the sum of £45,000 advanced by the Plaintiff to my husband was far in excess of anything needed to regularise his position with the bank."

Mrs Johnston gave oral evidence, in which she was asked about her contribution to the family finances and her expectations in respect of the ownership of the farm. She said she thought that she would be entitled to a share in the property because she worked on it. She stated that her father-in-law gave her an inkling that she was entitled to some share since she was working on it, but accepted that that was not in the early years and that it was just vague talk. She accepted that nothing was really agreed and that her father-in-law just expressed the thought that it might be fair if she got an interest in the lands. There was some talk from her husband at times that the lands would be hers as well as his, but Mrs Johnston accepted that that talk was also just vague. She agreed in cross-examination that no one had ever promised her a share. Her husband had inherited the farm from his father and had not paid any monies to the Society on foot of the mortgage. Accordingly her work on the farm helped to keep the farm and the family going, but did not contribute financially to the purchase of the dwelling house and lands.

The circumstances which are capable of giving rise to a constructive trust in cases of this nature are (a) an agreement, arrangement or understanding reached between the spouses that the property is to be shared beneficially, or (b) conduct on the part of the claimant, amounting to a direct contribution to the purchase price of the property, which gives rise to the inference of such a common intention to share the beneficial interest in the property. Lord Bridge of Harwich set out the limits of the circumstances which will so qualify in Lloyds Bank plc v. Rosset [1991] 1 AC 107, 132-3:

"The first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. Once a finding to this effect is made it will only be necessary for the partner asserting a claim to a beneficial interest against the partner entitled to the legal estate to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement in order to give rise to a constructive trust or a proprietary estoppel.

In sharp contrast with this situation is the very different one where there is no evidence to support a finding of an agreement or arrangement to share, however reasonable it might have been for the parties to reach such an arrangement if they had applied their minds to the question, and where the court must rely entirely on the conduct of the parties both as the basis from which to infer a common intention to share the property beneficially and as the conduct relied on to give rise to a constructive trust. In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do."

I can deal with the second possible ground quite shortly. It was laid down in this jurisdiction in McFarlane v. McFarlane [1972] NI 59 that an indirect contribution will not suffice to establish a constructive trust in favour of a claimant, and while the House of Lords did not rule definitively on this issue in Lloyds Bank plc v. Rosset [1991] 1 AC 107 Lord Bridge expressed himself in the passage which I quoted from his speech as being at least extremely doubtful whether anything less will do. When one adds to this the fact that no payments were ever made on foot of the mortgage debt, it could not readily be said that Mrs Johnston's labours on the farm contributed to the purchase price of the lands, whatever they may have done to help the family economy. In these circumstances it seems to me impossible to say that she made contributions of a type which is capable of giving rise to a constructive trust in her favour of an equitable interest in the lands.

If Mrs Johnston is to make out a case, accordingly, it must be done by the avenue of proving a sufficient agreement, arrangement or understanding, allied to proof that she has acted to her detriment or in some material way changed her position in reliance on the agreement. It is apposite to quote what Lowry J said in this context in McFarlane v. McFarlane [1972] NI 59 pages 76-77:

"The House of Lords has further made it plain that imputed intention is not enough: the intention must be a real one and not a legal fiction introduced for the purpose of achieving a result thought by the court to be just but not intended by the parties. A real intention may be either express or to be implied from the conduct of the parties, but the latter must not be confused with imputed intention. To find an implied intention one has to look at the facts of each case and see whether they warrant the implying of an intention by the spouses that, for example, the matrimonial home should be beneficially owned, (and not merely beneficially enjoyed), by both of them. One cannot imply an intention by predicating a supposedly desirable legal result and then inferring from what the spouses do in the course of a normal marriage that they must have intended that result."

Although Murray J was prepared to infer the necessary agreement from the acts of the parties in Northern Bank Ltd v. Beattie [1982] 18 NIJB, I should find it extremely difficult on the evidence given by Mrs Johnston to hold that anything approaching a definite agreement, arrangement or understanding was ever reached between her husband and herself. Moreover, the necessary element of acting to her detriment seems to me to be wholly lacking in the present case. The highest at which Mrs Johnston's case can be put is that she continued to work on the farm following such discussions as took place about her entitlement to a share in the lands. She was, however, doing this work all along since her marriage as part of her daily life, long before her husband succeeded his father as owner, and the evidence does not support a conclusion that she undertook any more or increased her efforts for the benefit of the farm on the strength of any such discussion. I am unable to hold that she has established a constructive trust in her favour on the first ground set out by Lord Bridge.

Mr Keogh was then compelled to fall back on an argument based on proprietary estoppel, to which the principles governing constructive trusts of this nature are closely akin. It involves the expenditure of money by the claimant on the lands, or at least an equivalent action to his or her detriment, allied to representations or encouragement on the part of the owner of the lands, sufficient to make it inequitable for the owner to insist on his strict legal rights: see Snell on Equity, 29th ed, pages 573-4. Mr Keogh cited Pascoe v. Turner [1979] 2 All ER 945 in support of his proposition, but the facts of that case are much stronger in favour of the implication of an estoppel. I do not consider that Mr Johnston's actions or statements were sufficient to constitute the necessary element of encouragement, nor do I think that Mrs Johnston changed her position to her detriment in any way sufficient to give rise to an estoppel.

I accordingly hold that Mrs Johnston has not made out her case for the implication of a constructive trust or proprietary estoppel. The Society is entitled to an order for possession of the lands, to enable it to carry out a sale and recoup the moneys owed to it by Mr Johnston.