Ketteringham & Anor v Hardy

In disputes between co-owners, equitable accounting depends on the parties’ common intention and is fact-sensitive. The court must first determine the parties’ beneficial interests. A duty to account requires a breach or failure to comply with an obligation owed between them. An unexpressed intention of one party is insufficient. Where property is held in one party’s sole name, the mortgage is solely that party’s liability, the other party made no mortgage payments, and the surrounding documents indicate no assumption of mortgage liability, equitable accounting does not require contribution to negative equity.

The claimants, as executors of Nicholas Ketteringham’s estate, sought a determination that the estate was not liable to contribute to the negative equity on a residential property acquired by Nicholas Ketteringham and Jonathan Hardy.

The property was registered in Hardy’s sole name and the mortgage was solely his liability. Ketteringham contributed to the deposit, and a later declaration of trust recorded equal beneficial ownership. The parties subsequently entered into a contractual joint venture for a proposed development, which failed after planning permission was refused.

The principal issues were whether the parties were partners within the Partnership Act 1890 and, more importantly, whether their common intention created an equitable accounting obligation requiring the estate to contribute to the outstanding mortgage.

1. The court held that the partnership issue was not determinative. Even if a partnership existed, the equal-loss rule in section 24 of the Partnership Act 1890 was subject to an express or implied agreement between the partners.

2. If it had been necessary to decide the issue, the court would have concluded that no partnership existed in relation to the residential property. The contractual joint venture expressly stated that it did not constitute a partnership, and joint ownership alone was insufficient.

3. The more appropriate analysis was equitable accounting between co-owners. Following Clarke v Harlowe [2007] 1 FLR 1 and Wilcox v Tait [2006] EWCA Civ 1867, the liability to account depended on the parties’ common intention and was fact-sensitive. Equitable accounting was distinct from determining the parties’ beneficial interests.

4. A duty to account required a breach of, or failure to comply with, an obligation owed by one party to the other. The common intention had to be shared by both parties; the unexpressed intention of one party could not suffice.

5. The relevant factors pointed against any common intention that Ketteringham should contribute to mortgage liability beyond his initial investment: there was no discussion or express agreement; the property and mortgage were in Hardy’s sole name; Hardy alone paid the mortgage instalments; the rental income had initially been paid to Ketteringham; and the solicitor’s letter indicated an intention that Ketteringham should incur no liability under the mortgage.

No equitable accounting obligation therefore arose in respect of the outstanding mortgage. The estate was not liable to contribute to the loss arising on the sale of the property.