Davis v Smith  EWCA Civ 1603 - Severance of joint tenancy by solicitors correspondence.
On 23rd November 2011 the Court of Appeal handed down a judgment in a case involving severance of a joint tenancy by communication between solicitors pertaining to a financial dispute between a divorcing couple. It has implications for the way that solicitors phrase any communications relating to joint property and as to how solicitors negotiate about division of assets.
The background facts are relatively straightforward.
Mr Michael Smith and Mrs Margaret Smith were married in 1988 and they moved into a property of which Mrs Smith had been a tenant since 1974. In August 1989 they purchased the property in their joint names under the relevant right to buy legislation and the property was conveyed to them as legal and beneficial joint tenants.
In late 2008 the marriage was in difficulties and on 5th April 2009 Mr Smith moved out of the property. A divorce petition was served on 29th May 2009. The assets of the marriage were the property, two bank accounts with a relatively small amount of credit, and a modest endowment policy.
As a result of correspondence between the parties’ solicitors it was agreed that the property should be put on the market for sale and the endowment policy surrendered. The parties also agreed that Mr Smith would receive a larger portion of the policy proceeds with a balancing payment to Mrs Smith from the proceeds of sale of the property. Both parties had been advised by their respective solicitors to serve a notice of severance of the joint tenancy but neither had done so when Mrs Smith died suddenly on 7th October 2009.
Mr Recorder Hollington QC sitting in Cambridge County Court in March 2011 held that the correspondence between the solicitors whereby they agreed a sale of the property and an equal division of the proceeds of sale amounted to the severance of the joint tenancy so that Mr Smith did not inherit the entire property by survivorship but one half thereof fell into Mrs Smith’s estate.
That decision was upheld by the Court of Appeal on 23rd November 2011.
The Court held that it can be inferred from negotiations between the parties that there was an intention to sever the joint tenancy, even if the negotiations break down. The Court relied on three main factors, namely:
(1) That the parties had stated in correspondence and in a meeting in June 2009 that the house should be sold and the proceeds divided and there was to be inferred a common intention that there would be a sale and an equal division of the proceeds of sale (albeit with the possibility of a balancing payment to take account of the unequal division of the proceeds of the policy);
(2) That each party had been advised that the likely outcome was a fifty-fifty split of the assets;
(3) The parties had cashed in the endowment policy and distributed it unequally on a clear understanding that there would be a balancing payment to Mrs Smith from the proceeds of sale of the property.
Lord Neuberger also states, however, that he is of the view that the correspondence alone justified a finding of a severance even if the parties had not acted on the common intention by surrendering the policy and dividing the proceeds of it. It was also stated that the fact that Mrs Smith had been about to serve a notice of severance when she died was irrelevant.
The case raises issues about how a solicitor acting for a party should approach corresponding and negotiating with the opponent’s solicitor in a financial dispute and how to advise a client about severance of joint tenancies. There was nothing particularly unusual about the correspondence or negotiations in this case and it is not unusual for a party to be advised that there is likely to be a fifty-fifty split in the modest assets of a reasonably lengthy marriage.
Solicitors will need to bear in mind the guidance of the Court in this case when advising clients and when writing correspondence if an inadvertent severance of the joint tenancy is not to be avoided.
The above analysis was provided by barrister Michelle Temple, member of Trinity Chambers' Chancery Group.