Morris v Morris - third party interests
Recently, the Court of Appeal was asked to consider the issues
of constructive trust and propriety estoppel in the light of third
party interests.
(see definitions below)
background
Catherine Morris, the
claimant, was the second wife of Richard Morris ("Mr Morris"), one
of the five defendants against her claim for a beneficial interest
in the assets of a farming partnership, which Mr Morris had entered
into with his late mother, Mrs Olive Morris ("Mrs Morris
Senior").
The partnership was called E
M Morris and its assets, included a property known as a Ty Canol
Farm ("the farm") in Caerphilly. It was the claimant's
position that she had a beneficial interest in the farm on the
grounds of constructive trust and/or by proprietary estoppel.
The farm had been owned by
three generations of the Morris family. When Mr Morris'
father died in 1974, Mrs Morris Senior continued to farm the farm,
with the assistance of Mr Morris. In 1980, Mrs Morris Senior
and Mr Morris entered into a partnership agreement as equal
partners. On the same day, Mrs Morris Senior also entered
into a tenancy agreement in respect of the Farm, as landlord with
herself and Mr Morris as tenants.
In 1987, Mrs Morris Senior
sold the original farmhouse along with 20 acres of land for
development. She utilised the proceeds of sale to build a new
farmhouse on the farm, and in the same year, when Mr Morris married
his first wife, she moved off the farm.
The claimant met Mr Morris
in the early 1990s. At that time she worked as a
secretary/receptionist for local estate agents in Caerphilly.
Shortly after meeting, the couple began co-habiting at the farm,
getting engaged in 1992. After their engagement, the claimant
continued working at the estate agency for a while, but then gave
up her position and began assisting Mr Morris on the
farm.
The claimant's interest was
in horses and she started buying and selling them. In 1995
she decided to provide riding tuition, and after obtaining the
appropriate qualifications, started to run a riding school at the
farm. As her riding school prospered, her contribution to the
farming activities decreased, but she continued to assist Mr Morris
in the farming business when required. In 1997, the claimant
contributed £4,500 from her business account towards the
construction of a ménage on the farm.
The parties married in
2001. In 2002, the claimant decided to build an indoor riding
school at the farm. She instructed an ADAS consultant to
provide a farm business development plan to support an application
by E M Morris for a grant from the Welsh Development Agency.
The grant application was successful and during 2003/04, the
indoor riding school was built on the farm. The school was
funded by a grant of £26,366 from the Welsh Development Agency and
a loan of £28,366 to E M Morris from Caerphilly Riding School and
Trekking Centre Ltd ("the Company"). The claimant was the
sole director and shareholder of the Company.
In 2004, the claimant
discovered that Mr Morris had committed adultery and commenced
divorce proceedings and sought ancillary relief. She moved
out of the farmhouse and in December 2005, ceased trading due to Mr
Morris' obstructive behaviour. In May 2006, the Company sold
the horses.
In January 2005, Mrs Morris
Senior died. Her will dated 9 September 2004, named Mr Morris
as executor, but left her estate to Mr Morris' two children by his
first marriage. This will revoked her earlier will executed
in 1986, which had appointed Mr Morris executor and beneficiary to
her estate. Under the original will, Mr Morris would have
inherited the farm. One would find it unlikely to disagree
with the judge at first instance's inference, namely that the
second will was entered into in order to reduce the matrimonial
assets available to the claimant.
the proceedings
Proceedings commenced on 16
June 2006. In her original claim, the claimant's argument was
that she and her husband, Mr Morris had an equal beneficial
interest in the farm. By amendment at trial, the further
claim was made that she was entitled equally with Mr Morris and the
estate of Mrs Morris Senior to a beneficial interest in the E M
Morris assets. The claimant asserted that there was a common
intention between Mr Morris, Mrs Morris Senior and her that she
should have a beneficial interest in the farm. It was
interesting, however, that during proceedings the claimant made it
clear that it was only when she consulted solicitors that she
discovered Mr Morris did not own the farm.
The judge at first instance,
made a number of findings, the significant being:
- The partnership agreement and the tenancy agreement were
authentic.
- Whatever works the claimant did on the farm she did for no
pay.
- The claimant paid £4500 towards the construction of the
ménage.
- At least part of the money for the indoor riding school was
provided by a loan of £28,000 from the Company, the claimant and Mr
Morris being content that no repayment of the loan should be
made.
- For most, if not all, of her period of cohabitation with Mr
Morris, the claimant believed that the farm was owned by Mr Morris
and his mother equally and in partnership. The claimant
understood that Mr Morris and his mother intended that the farm
would devolve on Mr Morris' children from his first marriage, but
it would first devolve on Mr Morris.
- The claimant was aware of the E M Morris partnership but not
its terms. She was not aware that the legal estate in the
farm vested in Mrs Morris Senior.
- There were no express discussions between the claimant and Mr
Morris or Mrs Morris Senior and Mr Morris as to the claimant
acquiring a beneficial interest in the Farm, or becoming a partner
in the partnership.
- The claimant believed that she was an integral part of all the
enterprises on the Farm, and Mr Morris and his mother knew that and
encouraged that belief by their conduct and words.
- At all material times legal title to the farm vested in Mrs
Morris Senior.
- The construction of the ménage and indoor riding school
probably had the effect of enhancing the capital value of the
farm.
decision at first instance
The court accepted the
claimant's claim on both grounds, holding that she was entitled to
a beneficial interest in the farm to the value of 25%.
The judge felt the following
conduct was sufficient to establish the common intention between
the parties:
- claimants contribution of £4,500 towards the construction of
the ménage;
- the loan of £28,666 to E M Morris towards the construction of
the indoor riding school by the Company;
- the claimants' assistance to Mr Morris in the farming
enterprise for no payment, as well as operating the riding
school.
In particular, the judge
stated:
"I have reached the firm
conclusion that there is a sound factual basis from which to
conclude that it must have been the common intention of Mr Morris,
Mrs Morris Senior and the claimant that she should acquire a
beneficial interest in the farm…….that conclusion is reinforced by
my finding that both Mr Morris and Mrs Morris Senior led the
claimant to believe that Mr Morris had a beneficial interest in the
farm. The claimant's conduct in providing a financial
contribution and devoting time and effort to the farming enterprise
was obviously detrimental to her."
Having found that there was
a common intention, the judge went on to state:
"It seems to me that the
doctrine of proprietary estoppel is obviously applicable in the
present case. On my finding the true legal owner, Mrs Morris
Senior, knew that the claimant had an expectation that she was
acquiring an interest in the Farm by virtue of her financial
contribution and her work. Mrs Morris Senior did nothing to
disabuse the claimant of that belief at minimum but……encouraged
that belief. The claimant clearly acted to her detriment. She
provided direct financial contribution to the construction of the
ménage and she made a loan to the partnership to facilitate the
setting up of the riding school. She undertook that
expenditure in the belief that she was helping to promote a
business in which she had a direct interest and which she cared for
a great deal. The business was not just the business of the
riding school but the whole of the farming enterprises as I have
indicated. Further she carried out unpaid work on a scale
which went way beyond that which was normally to be expected of a
cohabitant or wife. In my judgment there can be no doubt but
that Mr Morris and Mrs Morris Senior behaved unconscionable towards
the claimant when the matter is 'looked at in the round' when in
2004 and following the separation of Mr Morris and the claimant
they did their best to prevent the claimant enjoying any interest
in the farm."
Court of Appeal
Allowed Mr Morris'
appeal.
Sir Peter Gibson provided
the lead judgment. He had difficulty in reconciling the
findings of fact of the lower court. In particular, he made
the following observations:
- The judge at first instance remarked that the claim was about
the Farm and whether the claimant could establish a beneficial
interest in the Farm but, made no order as to the claimant's claim
that she was entitled to an equal share between Mr Morris, Mrs
Morris Senior and E M Morris assets.
- The judge at first instance had said that the partnership's
assets included the Farm.
Sir Peter Gibson commented
that for a claim for a common intention constructive trust, the
court had to be satisfied that the relevant parties each had the
intention, communicated to each other, that, notwithstanding the
paper title in Mrs Morris Senior and notwithstanding the absence of
any writing, there should be a disposal of a beneficial interest in
land to the claimant. He attached considerable weight that
this was not a case where there had been any agreement or
discussion on the point by the relevant parties.
The court was unable to find
a clear statement that the claimant herself had the belief or
expectation that she was entitled to an interest in the
land itself even though she believed that she had an
integral part to play in the farming and riding school enterprises
carried on at the Farm.
An inference could not be
drawn from the claimant taking an active part in the farming
business given that the land was owned by Mrs Morris Senior and
subject to a tenancy agreement. Nor could an inference be
drawn from the claimant's riding school business because, the
claimant had asserted in her evidence that this business was her
own and indeed, was evidenced by her transferring it to the Company
in 2003.
Sir Peter Gibson stated:
"On the evidence, Mrs Morris
Senior did not act or speak in a way which would have encouraged
the claimant to believe she had an interest in the Farm or expect
her to believe she would acquire such an interest. The fact
that Mrs Morris Senior was pleased about the claimant embarking on
the riding school business, and expressed approval of that, or that
important decisions relating to the activities at the Farm were
discussed with her, does not lead to the conclusion that the
claimant was being encouraged by Mrs Morris Senior to believe or
expect that, through the claimant's activities, she was acquiring
an interest in the land. Nor do I see that any reasonable
objective observer,…..would find that it must have been the belief
of the claimant that she was acquiring an interest in the
Farm. The circumstances were not such that any duty arose on
Mrs Morris Senior, or indeed Mr Morris, to disabuse the claimant of
a mistaken belief. Had there been something said by the
claimant to Mr Morris or Mrs Morris Senior that positively pointed
to the claimant believing that she was acquiring such an interest
in land, the position might have been different."
Furthermore, the Court did
not view the financial contributions by the claimant or her support
in the farming business as being of an 'exceptional' nature for the
purposes of a constructive trust and pointed out that the direct
financial contributions by the claimant in relation to the riding
school were, in the long term, to her own financial benefit.
It is interesting to note
that the Court of Appeal took issue with the loan of £28,366 to E M
Morris, emphasising that it was not paid by the claimant, but by
the Company.
In essence, the Court of
Appeal felt that the judge of first instance made a material error
of law when he held that there was exceptional conduct giving rise
to a constructive trust. In the words of Sir Peter Gibson,
"the judge did not have the material on which he could properly
base a finding that there was a common intention constructive trust
in the circumstances of the present case".
proprietary estoppel claim
It follows that if the
claimant is unable to establish a common intention for the purposes
of a claim for constructive trust, then that conduct which is
relied upon will not be sufficient to show that there has been a
specific representation or assurance to the claimant.
Consequently, the claim for an interest via proprietary estoppel
falls at the first hurdle.
summary
Morris v Morris is
interesting for a number of reasons. Firstly, the parties to
the claim were not co-habitants but husband and wife.
Secondly, the judge at first instance appears to have overlooked
what to some might seem a striking fact, that being, that the
partnership assets did not include the Farm. Perhaps if
greater consideration had been given to the position of the
claimant's company and its possible beneficial interest separate
from that of the claimant, the outcome may have been different.
The decision appears to
follow that of James v Thomas [2007] EWCA Civ
1212. The courts seem to be taking a harsh approach to claims
that specific conduct gives rise to a common intention constructive
trust and it would seem that a claimant seeking to assert a claim
would need to show conduct that is unquestionable to an objective
observer. One might argue that as the years pass, the courts
are narrowing the opportunities for co-habitants or spouses to
claim a beneficial interest via a common intention constructive
trust or proprietary estoppel.
definitions
constructive trust
If legal title to a property
vests in one party's sole name, and the other party wishes to claim
a beneficial interest in the property they will need to establish a
constructive trust. They must show:
- a common intention (express or inferred) that both parties
should have a beneficial interest; and
- the claimant has acted to their detriment in the belief that by
so acting they were acquiring a beneficial interest (Lloyds
Bank v Rosset [1991] AC 107 [1990] 1 All ER 111).
proprietary estoppel
A party seeking to establish
an interest in the owner's property must show that:
- a representation or assurance by the owner to the claimant
that they have or will have an interest in the property;
- reliance by the claimant upon that representation or assurance;
and
- that the owner then sought to deny the claimant an interest in
a way that would result in unconscionable detriment to the
claimant.
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