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Joint Interest

2 May 2017

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Armstrong v Onyearu and another [2017] EWCA Civ 268

20 Oct 2016; 11 April 2017 Court of Appeal: Sir Geoffrey Vos C, David Richards LJ, Sir Patrick Elias

Joint interest — Joint tenancy — Equity of exoneration — Husband and wife joint beneficial owners of matrimonial home — Husband securing loan by charge on matrimonial home — Whether wife entitled to equity of exoneration — Whether doctrine applying where joint owner of property receiving indirect benefit from secured indebtedness

The husband was the sole registered proprietor of the matrimonial home which he occupied with his wife and family. Subsequently the husband took out a bank loan, secured by a legal charge on the home, to meet the liabilities of the solicitor’s practice which he carried on as sole practitioner. The husband was later declared bankrupt and the trustee in bankruptcy applied for an order for sale of the home. The chief registrar granted a declaration that the husband and wife were joint beneficial owners of the home. At the restored hearing the deputy registrar refused the application, holding that the wife was entitled to a charge on her husband’s share of the home through the equitable doctrine of exoneration in respect of the loan, and that the charge exhausted the husband’s half interest in the home. The trustee appealed, contending that the doctrine did not apply because the wife had obtained an indirect benefit from the loan in that it had enabled the husband to continue his solicitor’s practice and draw down on its funds to meet the monthly interest payments on their original mortgage loan. The deputy judge dismissed the appeal, holding that the presence of any benefit was insufficient to deny application of the equity, and finding that the correct inference was that the husband and wife had had the joint intention that the burden of the liability of the loan should fall as between themselves on the husband’s share of the property. The Court of Appeal granted permission for a second appeal on the basis that there was no English authority on whether the doctrine applied where the joint owner of the property had received an indirect benefit from the secured indebtedness.

On the trustee’s appeal—

Held, appeal dismissed. The doctrine of exoneration was best understood as part of the relief generally available to sureties against a principal debtor unless evidence established a contrary intention or it could be inferred from the circumstances that it should not apply. Without evidence of actual contrary intention, the doctrine had been applied by the English courts to married or unmarried cohabiting couples operating as a family unit as well as other co-owners. It also applied to cohabiting couples where the cohabitee acting as surety received an indirect benefit from the indebtedness of the other. Couples arranged their affairs in numerous ways and it was not for the courts to suggest how those matters should be arranged. An indirect benefit was not of itself sufficient to deny a right of exoneration to the surety. The benefit had to be direct or closely connected to the secured indebtedness. In general, the benefits had to be capable of carrying a financial value. The court should not simply examine all the circumstances of a case and decide on the appropriate inference without being guided by established principles to ensure a consistent approach. In the present case, the purpose of the bank loan had been to pay the creditors of the husband’s practice and any benefit to the wife was too remote to justify an inference or presumption that she had intended to bear the burden of the loan equally. They had kept their finances separate and shared family expenses. By denying the wife an equity of exoneration, she would be paying her share of the expenses as well as the husband’s, a result that would not accord with the notions of equity. Accordingly, the decisions of the deputy registrar and deputy judge were correct (paras 78–89).

Day v Shaw [2014] 2 P & CR DG1, Graham-York v York [2016] 1 FLR 407, CA and Cadlock v Dunn [2015] BPIR 739 applied.

Decision of Jonathan Klein sitting as a deputy judge of the Chancery Division [2015] EWHC 1937 (Ch) affirmed.

Appearances: Simon Passfield (instructed by Howman & Co) for the trustee. Jack Parker (instructed directly) for the husband and wife.

Reported by: Scott McGlinchey, barrister.

Solicitors Journal case digest is prepared by the Incorporated Council of Law Reporting for England and Wales (ICLR)

Categorised in:

Property Marriage & Civil partnership