Davis (As Trustee In Bankruptcy of Jackson) v Jackson & Anor

Equitable accounting between co-owners is a flexible jurisdiction directed to achieving justice on the facts. Mortgage payments made by one co-owner may attract a credit for the appropriate share, but ordinary maintenance expenditure does not unless it increases capital value. The mere fact that one co-owner occupies the property and another does not does not ordinarily justify an occupation rent. In a bankruptcy case, the court may consider the parties’ arrangements and circumstances before bankruptcy. Where the bankrupt never had, and was never intended to have, a right of occupation, vesting his interest in a trustee does not automatically create an entitlement to rent. Unjust enrichment principles cannot deprive a beneficial owner of the increase in value of his proprietary interest, although they may support recovery of mortgage payments made on his behalf.

The trustee in bankruptcy appealed from an order of District Judge Cross dated 22 December 2015 declaring that the bankrupt husband and his wife held their home in equal beneficial shares and ordering its sale. The property had originally been acquired and occupied by the wife alone. The husband later became a joint legal owner and signed an express declaration that they held it as joint tenants, but he never occupied the property or paid mortgage instalments or outgoings.

On an earlier application, the court upheld the declaration of equal beneficial ownership but directed that an equitable account be taken before the proceeds were divided. The issues were the wife’s entitlement to credit for mortgage payments, whether she should pay an occupation rent after the husband’s bankruptcy, and whether unjust enrichment entitled her to the whole of the proceeds.

1. Equitable accounting. The court held that equitable accounting consists of flexible, non-binding guidelines directed to achieving justice between co-owners. The court may credit expenditure which increases capital value and may charge occupation rent where fairness requires it. The jurisdiction continues to apply to payments and expenditure on jointly owned property.
2. Mortgage payments. Applying Re Byford, Byford v Butler [2004] 1 FLR 56 and Re Gorman [1990] 1 WLR 616, the wife was entitled to credit for one half of all mortgage interest payments made from acquisition until sale or agreement. The credit reflected payments made on behalf of both beneficial owners to preserve the property from enforcement.
3. Occupation rent. The statutory regime in sections 12 to 15 of Trusts of Land and Appointment of Trustees Act 1996 was not exhaustive in this bankruptcy context. The court preferred to apply general equitable principles. The default position is that sole occupation by one tenant in common does not itself generate rent. The court may depart from that position where the circumstances make it equitable to do so, including practical exclusion or other conduct relevant to fairness.
4. On the unusual facts, the trustee was not entitled to occupation rent. The bankrupt had never had, and was never intended to have, a right to occupy the property. The trustee acquired no better position by vesting than the bankrupt had possessed. Charging rent would have produced an unjust windfall for creditors, particularly since the wife had paid all mortgage instalments and outgoings.
5. Unjust enrichment. The four-stage analysis in Menelaou v Bank of Cyprus [2016] AC 176 applied. The husband’s retention of the benefit of appreciation in property in which he held a beneficial interest was not unjust enrichment. Any restitutionary claim arising from mortgage payments made for him would be limited to the value transferred, rather than the whole increase in the property’s value.
6. The net proceeds were therefore to be divided equally, with the wife receiving an additional credit for one half of all mortgage payments made from acquisition to sale. No credit was allowed for ordinary outgoings, repairs or maintenance, and no occupation rent was debited. The parties were invited to consider whether the wife could purchase the trustee’s interest; otherwise the order for sale and warrant for possession were likely to be reinstated under section 335A(3) of Insolvency Act 1986.

• High Court (Chancery Division): The court upheld the declaration of equal beneficial ownership, but varied the order for sale by directing an equitable account before division of the proceeds.
• County Court sitting at St Albans: District Judge Cross ordered on 22 December 2015 that the trustee was entitled to one half of the equity and ordered sale of the property.