Equity’s darling revisited

In Ng Luk  Mui v Shiu Tsun Wai Vincent ([2011] HKEC 1325, CA) a grandmother bought a flat as an investment. As she was in poor health and elderly, she assigned it to her grandson to hold on trust for her. He (in breach of trust) transferred it to his wife in return for the considerable amount of money that she had given him to cover his gambling debts (the wife wanted  to save the marriage). The wife did not know of the trust. She renovated the property and intended to let it to a tenant. When she brought a potential tenant to visit the property, she found the grandmother and mother living there and they refused to leave. The grandmother and mother sought a declaration that the assignment to the wife was in breach of trust and an order that the wife transfer the title into the names of the mother and grandmother. The wife argued that she was not subject to the plaintiffs’ rights under the trust as she was a bona fide purchaser for value without notice of the equitable interest. The Court of Appeal agreed with her. She was a purchaser (this is a term of art not limited to a sale and purchase). She had clearly given value; there was some question as to whether or not she had paid the full market value but this is not the correct test. She was in good faith; it is difficult to think of a situation in which someone with no notice of the trust can be in bad faith (though one can be in good faith even with notice of the trust).