Lloyds Bank plc v Rosset

The House of Lords allowed the bank's appeal, holding that the trial judge's inference that Mrs Rosset had acquired a beneficial interest by way of a constructive trust was not supported by the evidence. The court stressed the distinction between (a) an express agreement or common intention that the property be shared, enabling an interest to be enforced if the claimant acted to their detriment, and (b) cases where no such agreement exists and the court must rely solely on conduct — in those cases the authorities require direct financial contributions or equivalent substantial conduct to infer a beneficial interest.

The decision considered the relevance of the Land Registration Act 1925, section 70(1)(g) (actual occupation as an overriding interest) only insofar as the finding of a beneficial interest might have given rise to an overriding interest; the primary legal conclusion turned on the law of constructive trusts and the requirements of the Law of Property Act 1925 (sections 53(1) and 51 as cited in the judgment) concerning formalities for disposition of interests in land.

Background and parties:

• The property, Vincent Farmhouse, was purchased by Mr Rosset and conveyed to him as sole legal owner on 17 December 1982. He executed a legal charge in favour of Lloyds Bank to secure an overdraft, registered 7 February 1983. Mrs Rosset (the second respondent) defended the bank's possession claim by counterclaiming that she held a beneficial interest by way of constructive trust and, being in actual occupation, that interest was an overriding interest under section 70(1)(g) of the Land Registration Act 1925.

Nature of the claim and relief sought:

• Mrs Rosset sought a declaration of a beneficial interest in the property and protection of that interest against the bank's legal charge. The bank sought possession and enforcement of its charge.

Procedural posture:

• At first instance Judge Scarlett found for Mrs Rosset on the existence of a constructive trust and gave possession to the bank subject to quantifying her beneficial interest later. The Court of Appeal (13 May 1988, amended 15 June 1988) upheld the judge on the relevant date question but was divided on whether she was in occupation on that date; the bank appealed to the House of Lords.

Issues framed by the House of Lords:

1. Whether, on the facts, Mrs Rosset had acquired a beneficial interest in the property by way of a constructive trust prior to completion.
2. Relatedly, whether her acts in renovating and assisting with the works could found an inference of a common intention to share the beneficial interest sufficient to create a constructive trust or proprietary estoppel.
3. The relevance of actual occupation and section 70(1)(g) of the Land Registration Act 1925 as regards priority against the bank's charge, insofar as a beneficial interest existed.

Court's reasoning:

• The Lords emphasised a primary distinction: where there is evidence of an express agreement or arrangement to share beneficial ownership, a subsequent detrimental reliance may give rise to a constructive trust or proprietary estoppel; where there is no such agreement, a court relying solely on conduct must generally look for direct contributions to purchase price or equivalent substantial contributions to justify inferring a proprietary share.
• On the facts the trial judge had rejected any concluded agreement before exchange of contracts, and his finding of a constructive trust rested mainly on Mrs Rosset's renovation activities between November and 17 December 1982. The House of Lords held that those activities — largely domestic labour and some skilled decorating and co‑ordination — were insufficient, by themselves, to establish the requisite common intention and to support a constructive trust against the sole legal proprietor. The monetary value of her contributions was negligible compared with the purchase and renovation costs.
• Because the constructive trust finding could not stand, the question of actual occupation as against the bank became academic for the purposes of this appeal.

Remedy and consequence:

• The House of Lords allowed the bank's appeal, set aside the Court of Appeal's order (save as to costs), restored the trial judge's order between the bank and Mrs Rosset, awarded costs to Mrs Rosset for the House of Lords appeal, and remitted the cause to the Queen's Bench Division to act consistently with the judgment.

Appeal allowed. The House of Lords held that the trial judge's inference that Mrs Rosset had acquired a beneficial interest by way of a constructive trust was unsupported by the evidence. The court emphasised the distinction between (i) an express agreement or common intention to share beneficial ownership, which if acted upon to the claimant's detriment can create enforceable rights, and (ii) reliance solely on conduct, where direct financial contributions or equivalent substantial contributions are normally required to infer a proprietary interest. Mrs Rosset's renovation and domestic contributions were insufficient to establish such an interest.

Trial: Queen's Bench Division (Judge Scarlett), order dated 22 May 1987. Court of Appeal: judgment 13 May 1988 (as amended 15 June 1988) in favour of Mrs Rosset (majority on the facts); appeal to the House of Lords allowed on 29 March 1990 ([1990] UKHL 4). Cause remitted to the Queen's Bench Division for further directions consistent with this judgment.