Tuesday, 30 July 2013

Is getting engaged detrimental?

I see that my old friends at Baxter Caulfield have recently entertained themselves with a successful visit to the Court of Appeal over a decision of our local County Court in a property dispute between a woman and her fiance.  You can find the judgment here:

Smith v. Bottomley and his company

Now on the face of it, this is, dare I say it, just a routine cohabitant dispute.  The story seems to be that the parties formed an intimate relationship in 1992.  They got engaged and had a child together, who was born in 1994.  In 1995 they broke up and Ms. Smith moved out, never having quite got round to marrying.  In 2001 or 2002, after having re-formed their relationship, they became engaged again but again never quite getting in front of a Registrar.  In 2002, they bought a house together, with a trust deed specifying their respective shares.  Mr. Bottomley got the greater share as he made the greater initial contribution to the purchase.

Now Mr. Bottomley had acquired other property down the years.  In 1985 he had bought The Coach House, where he had lived and where he still carried on his business.  He had bought some land adjoining it in 1995 and in 2000 he bought a property called The Mill.  The Mill was transferred to a company Mr. Bottomley formed in 2002 and later in the same year, the company sold it for a substantial profit.

Ms. Smith claimed "When I agreed to move back in with him again he said he would put everything 50/50. The agreement covered everything. He said he wanted to give me peace of mind. Coach House Properties [the Company] was [Mr Bottomley]. He said everything we have is 50/50; he did not go into detail. The company was Mr Bottomley."

Why is this important?  Well, because they weren't married of course.  Had they been, the legal title of the assets would be relatively academic as the court in divorce proceedings possesses the power to order the transfer of ownership from one spouse to the other, or the sale of property and payment of a lump sum.  They weren't, so it couldn't.  All Ms. Smith would be entitled to would be what she owned as a matter of law.

Once the company had sold The Mill, it bought The Barn.  It still owned this at the time when everything came to an end.  In 2010, the parties separated again, this time for good.  Ms. Smith brought an action claiming a half share of the Barn.  There are two interesting legal points in the Court of Appeal decision.  The first, which they fail to provide an answer for, is about detriment.  A promise, on its own, is not binding against the person who makes it.  For it to be enforceable, the recipient of it needs to show that she did something to her detriment in reliance on the promise.  So what did Ms. Smith do which was detrimental to her?  "she (i) agreed to marry Mr Bottomley and (ii) gave up her independent accommodation, in which she had lived since the end of her first period of co-habitation with Mr Bottomley."  Well, that was her case, anyway.

How can it be argued that agreeing to marry someone amounts to detriment?  If she gave up a promising career to further the engagement, that might make some sense.  If she gave away property of her own in reliance on her new-found joint ownership, that might too.  Just getting engaged - well, I can understand why the judge at first instance seems to have skated straight over it in his judgment.  How anyone seriously thought that could be good enough is something I struggle with. In fact, the judge ignored completely the lengthy submissions from both barristers on the subject of detriment but it is an essential element of the test to decide if Ms. Smith had acquired any ownership of the property.  Frustratingly though, the Court of Appeal ducks this very issue itself, saying,  "It is not necessary in this judgment to consider the distinct question whether, in any event, a promise to marry could in principle constitute sufficient detrimental reliance to found a claim to a constructive trust."  I really don't see that it's so difficult.

Likewise, while they lived apart, Ms. Smith rented a house to live in.  When they reconciled, she gave up the tenancy but in what way was this to her detriment?  Instead of paying rent for accommodation, there is nothing to suggest that Mr. Bottomley was charging her to live in the house he owned.  Surely she was better off, not worse off?  No detriment means no claim and this is well-established law.

The second interesting element was the ownership of The Barn.  It didn't belong to Mr. Bottomley - it belonged to his company.  As we have all recently been reminded, in no uncertain terms, by the Supreme Court no less, (Prest v. Petrodel), the two must be distinguished from each other.  Even on Ms. Smith's account of things, Mr. Bottomley made the promise, not the company.  The Court considered Petrodel and noted that it could not be said that Mr. Bottomley's company simply held The Barn on trust for him.  So for this second reason, the appeal was allowed.  Now it may seem a little too unusual to have wider application, but in recent times, particularly in relation to high value properties, companies have been increasingly used to own real property.  Sale of company shares do not carry stamp duty in the way that property transactions, so it has clear tax advantages.  We may actually see more of these complications cropping up in the future and Prest v. Petrodel being applied in circumstances which weren't envisaged at the time.

P.S. As an aside, I was relieved on a professional level to see the Court of Appeal graciously deciding that Mr. Bottomley's solicitors should not be criticised for failing to point out a deficiency in Ms. Smith's pleading of her case.  It's bad enough making sure your own client's case is properly put without being expected to argue the other side's case too!  After all, we do have an adversarial system of justice and solicitors are obliged to act in the best interests of their client, not their opponent.

P.P.S  Just on reflection, perhaps the most surreal part of this case is where the Court of Appeal considers the issue of agreeing to marry and detriment.  In deciding firmly to sit on the fence, the Court said, " The answer is likely to depend upon the particular factual circumstances: for instance, did acceptance of one offer of marriage preclude acceptance of another, competing offer which foreclosed the offeree from protecting his or her financial position more fully by accepting the competing offer?"  How Jane Austen is that?  I have a vision of a young lady pondering the many offers from her various suitors, comparing their prospects and estates before making up her mind whose is the most appealing!   Was this really happening in the 20th century, still less the early 21st?

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