Woodman v Tracey

In an equitable account between co-beneficial owners, a party who improves trust property is not automatically entitled to a further credit for work funded by additional borrowing. The account must consider how the borrowing was used, who bore its repayment and whether the claimed credit would duplicate an allowance already reflected in the mortgage deduction. The judgment indicated that mortgage-payment credits should distinguish capital reduction benefiting the other owner from interest paid for the payer’s own share. On an application for sale under section 15 of the Trusts of Land and Appointment of Trustees Act 1996, the court must consider the trust’s creation, its purpose and the welfare of any minor child. The child’s interests may yield to a co-owner’s legitimate enforcement of sale.

The parties occupied a dilapidated property which had originally been in the joint names of Mr and Mrs Woodman. Mr Tracey later acquired the property through borrowing secured on it and carried out improvements. The Canterbury County Court found that the beneficial interests were held by Mr Tracey and Mrs Woodman in equal shares, and ordered Mr Tracey to pay Mrs Woodman £8,770, subject to equitable accounting, failing which the property could be sold.

Mr Tracey appealed. He sought a further deduction for the value of his improvement work and challenged the consequences of an order for sale, including the potential effect on his teenage son. The central questions concerned the proper equitable accounting for improvement expenditure and mortgage payments, and the factors relevant to sale under section 15 of the Trusts of Land and Appointment of Trustees Act 1996.

Lord Justice Ward gave the fuller reasons for dismissing the appeal. Sir Martin Nourse agreed.

1. Beneficial interests. The April 1998 conveyancing transaction reflected a common intention that Mr Tracey and Mrs Woodman should hold the beneficial interests in equal shares. The constructive trust was therefore subject to an equitable account.
2. Improvement expenditure. No further deduction of £4,000 was made for Mr Tracey’s work. The evidence did not establish how the £4,500 surplus borrowed above the old mortgage had been applied. The current valuation deducted the whole £38,000 mortgage, so both parties had already borne the effect of that borrowing. A further allowance risked duplicating compensation. The uncertainties could not be resolved without findings of fact from the judge.
3. Mortgage payments. The court expressed considerable doubt that Mr Tracey was entitled to credit for all mortgage payments made while the parties lived in the property. Most early repayments would have represented interest rather than capital reduction. At most, credit would ordinarily relate to capital reduction benefiting Mrs Woodman, and only to her share of that benefit. This was additional guidance on the proper account rather than a necessary recalculation of the sum ordered.
4. Appellate procedure. The accounting point had not been included in the grounds of appeal. It required permission to amend and notice to Mrs Woodman, and was raised too late for the court to entertain it.
5. Sale and welfare. In deciding whether to permit enforcement of the sale order under section 15 of the Trusts of Land and Appointment of Trustees Act 1996, relevant considerations included the intentions of the persons creating the trust, the purpose for which the property was held and the welfare of the minor child. On the facts, the child’s interests did not outweigh Mrs Woodman’s interest in enforcing a sale. The appeal was dismissed. Mr Tracey was given until 13 September to pay £8,770; the sale directions were stayed meanwhile and the order was not to take effect for two weeks.

1. Court of Appeal (Civil Division) dismissed the appeal and extended the time for payment to 13 September, with a stay of the sale directions meanwhile: [2002] EWCA Civ 880.
2. Canterbury County Court, before His Honour Judge Poulton, found equal beneficial ownership, ordered payment of £8,770 following equitable accounting and provided for enforcement of sale if payment was not made.