Capehorn v Harris

In a common intention constructive trust claim between cohabiting partners, the court must separate two stages. First, the claimant must establish an actual agreement, express or inferred from conduct, that he or she is to have a beneficial interest. The court cannot impute such an intention at that stage. Only after an agreement is established may the court impute an intention as to the size of a fair share where the parties did not agree its extent. Findings about contributions and overall fairness cannot replace the required agreement. An express bargain for the transfer of a business will not ordinarily support implication of a different or escalating payment without a proper contractual basis.

Mrs Capehorn and Mr Harris were former partners who had operated a frozen-food business together. Mrs Capehorn owned Sunnyside Farm, 19 Beaumont Road and the business, while Mr Harris owned the shares in LMC Trade Sales Ltd. Following disputes about their respective interests, Mrs Capehorn brought proceedings.

District Judge Langley, in a judgment dated 26 June 2014, found that Mr Harris had beneficial interests in Sunnyside Farm and the business and ordered repayment of substantial sums. Both parties appealed aspects of that decision. The central issues were whether the findings established common intention constructive trusts, whether the payment agreed for the business could increase to a market rental, and the proper duration of the payment arrangement.

The Court of Appeal allowed Mrs Capehorn’s appeal and dismissed Mr Harris’s cross-appeal. Lord Justice Sales gave the judgment, with Lady Justice Sharp and the President of the Queen’s Bench Division agreeing.

1. The applicable framework for common intention constructive trusts required a two-stage analysis. First, the claimant had to establish an actual agreement that he or she should have a beneficial interest, even if the precise extent of that interest had not been agreed. Secondly, only if such an agreement existed could the court impute an intention that the claimant should receive a fair share, assessed in the light of the parties’ dealings. The distinction was supported by Oxley v Hiscock [2005] Fam 211, Stack v Dowden [2007] AC 432 and Jones v Kernott [2011] UKSC 53.
2. The district judge had wrongly elided the two stages. Her findings showed that there had been no agreement giving Mr Harris a beneficial interest in Sunnyside Farm, and no agreement giving Mrs Capehorn a beneficial interest in the company shares. Contributions and fairness could not justify imputing the existence of an agreement at the first stage.
3. Accordingly, Mrs Capehorn was the sole legal and beneficial owner of Sunnyside Farm and 19 Beaumont Road. Mr Harris was the sole legal and beneficial owner of the company shares. The company owned the business transferred to it in 2007.
4. The repayment order was also erroneous. It rested on the mistaken constructive-trust analysis, and no claim had been made for a money payment by Mrs Capehorn.
5. The parties had expressly agreed that the consideration for the transfer of the business was £750 per week. There was no basis to imply a term increasing that sum to the market rental. The parties agreed that payment would continue while Mr Harris or the company occupied Sunnyside Farm, or until the interest-only mortgage expired in 2019, whichever was sooner.

1. Court of Appeal (Civil Division): In [2015] EWCA Civ 955, Mrs Capehorn’s appeal was allowed and Mr Harris’s cross-appeal was dismissed.
2. Central London County Court: District Judge Langley’s judgment dated 26 June 2014 determined the parties’ interests in the properties, business and company shares and ordered repayment by Mrs Capehorn.