Pratt & Anor v Medwin & Anor Rev 1

In deciding whether an endowment policy is jointly beneficially owned, the court must distinguish the policy’s beneficial ownership from the use of its proceeds as security for borrowing. A common intention constructive trust requires an objectively established inference from the parties’ words or conduct, assessed in all the circumstances. A shared purpose of reducing debt is not enough. The evidence must also show reliance on the alleged beneficial-sharing intention, rather than merely reliance on repayment of the loan. An implied indemnity arising from a property transaction governs the parties’ internal accounting and does not alter a principal debtor’s joint and several liability to creditors. The appeal was therefore dismissed.

The appellants challenged an order of Miss Sonia Proudman QC dated 20 September 2002 in a dispute arising from properties acquired by the late Mr Glyn Owen and Mr Robert Medwin as tenants in common. The lower court found no partnership and decided, among other matters, that the endowment policy taken out to support borrowing for 45 High Street was not jointly beneficially owned.

It also apportioned interest on £72,000 from the sale of 104 Darnley Road, used to reduce joint Lloyds borrowing, 50% to Mr Owen’s estate and 25% to each Medwin. The appeal concerned whether the policy proceeds were jointly owned and whether Mr Simon Medwin alone should bear the appellants’ share of the interest.

1. Disposition. The appeal was dismissed on both issues.
2. Endowment policy. Beneficial ownership of the policy had to be distinguished from the use of its proceeds as security for the borrowing from Guardian. The existence of a common intention constructive trust could not be inferred unless the evidence supported it. The inference had to be established objectively from words or conduct which could reasonably convey the intention, with all the circumstances examined as a whole. This reflected the approach in Gissing v Gissing [1971] AC 886, and the court also considered the conduct-based analysis in Lloyds Bank v Rossett [1991] 1 AC 107.
3. The fact that the policy was structured to repay the Guardian borrowing did not establish joint beneficial ownership. Relevant circumstances included the grantee named in the policy, the premium arrangements, the formal deed of charge, the parties’ treatment of other policies and the equivocal nature of the 1985 letter. The formal documentation and subsequent conduct did not support the alleged joint ownership. Smith v Clerical Medical & General Insurance [1993] 1 FLR 47 did not preclude that conclusion because each case depended on its own facts and the facts there were materially different.
4. The appellants also failed on reliance. The evidence did not show reliance, to detriment, on an intention that the policy proceeds were jointly beneficially owned. Evidence that the proceeds would reduce the debt addressed security and repayment, not beneficial ownership. The judge was entitled to reject reliance based on Mr Owen’s payment of the premiums. The court also criticised the use of leading questions on this important issue, noting that they undermined the evidential value of the answers.
5. 104 Darnley Road. The estate remained jointly and severally liable as principal debtor, and the judge had found that Mr Owen’s contribution to losses within the property venture remained 50%. Any implied indemnity arising from Mr Simon Medwin’s involvement affected the appellants’ internal accounting only. It did not alter the estate’s position as against the creditors or justify transferring the whole of the appellants’ interest burden to Mr Simon Medwin. The order apportioning that burden 25% to each appellant was therefore correct.

• Court of Appeal (Civil Division): On 18 June 2003, dismissed the appeal on both issues: [2003] EWCA Civ 906.
• Lower court: Miss Sonia Proudman QC made an order dated 20 September 2002, finding no partnership, rejecting the claim to joint beneficial ownership of the endowment policy and apportioning interest arising from the use of sale proceeds to discharge joint borrowing.