Common intention constructive trust arising on a family division

In Yip Chiu Fu v Ip Chiu Fat ([2015] HKEC 201, CFI) a family comprising three fongs owned a house in Shek O (‘the first house’). The family funds, beneficially owned by the entire family, were then used to buy another house in the village (‘the second house’) and a common intention was to be inferred from the source of the funds that the second house was held on trust for the entire family. There was a family division in the second world war. The first house was allocated to the first fong; the ground floor of the second house was allocated to the second fong and the first floor of the second house was allocated to the third fong. Legal title to the first house was now with representatives of the first fong. Legal title to the second house had been kept exclusively within the third fong.

Louis Chan J found that this family division gave rise to a common intention constructive trust that gave each fong beneficial ownership of the physical accommodation allocated to it ([223]). The detriment was the giving up by each fong of its claim to the area allocated to the other fongs ([224]).

Legal title to the second house passed from one generation to the next of the third fong with full knowledge of the beneficial entitlements so that they were not bona fide purchasers without notice ([226]). When the second fong complained, they were told that one of their representatives would be added to the legal title. This never happened but this failure had to be viewed against the background of the assurance of the third fong’s representative that the second fong’s rights would always be respected.

The second fong’s representative now sought a declaration that the third fong’s representatives held the ground floor of the second house on trust for them and that they had an exclusive right to the use and possession of it. She also sought an order vesting title to the property in her (as personal representative of the original head of the second fong). She obtained the orders that she sought.

The third fong argued that the claim was time-barred because of the failure to insist on compliance with the promise to include a representative of the second fong on the title deeds. This failed because this was not wrongful ([236]). In any event, s. 20(1)(b) of the Limitation Ordinance applies to constructive trustees and there is no period of limitation to recover trust property from a trustee ([239]).

Even assuming the failure to honour the promise as to the title to the second house to be wrongful, mere standing by after the breach had been completed could not amount to acquiescence ([243])

Michael Lower

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4 Responses to “Common intention constructive trust arising on a family division”

  1. Chi Fu SO Says:

    It is submitted that Louis Chan J is following Lloyds Bank v Rossett 1990 in deciding whether there is a comment intention, thought I think in this case he should use Stack/Jones/ Graham-York v York as authority because the context of common intention constructive trust has significantly change between 1990 and 2015.

    In Lloyds Bank v Rossett, Bridge LJ concluded two situations that the court can recognize a common intention. First, there must be an express agreement, arrangement and understanding, coupled with detrimental reliance of the non-legal owner (who are the three fongs in this case). Alternatively, beneficial interests can be inferred by direct financial contribution to the property, whether initially or paying mortgage installments.

    The two situations should be either-or, so if Louis Chan J has accepted that there is a direct financial contribution (via family trust in para 220), there it is necessary for him to mention detrimental reliance. The only requirement of inferring a common intention is just the conduct of direct financial contribution and Bridge LJ does not require detrimental reliance in the inferred case.

    However, since “they were told that one of their representatives would be added to the legal title”, would it be more appropriate if the court accepts and recognises that there is an express agreement coupled with detrimental reliance?

  2. Michael Lower Says:

    Thanks for your comment. It is a really interesting point. It could be that the ‘inference’ is based on the source of the funds. Looked at this way, the idea of ‘family money’ treats the family almost as an unincorporated association (with the family money beneficially owned by its members from time to time). The second house was bought using family money and the ownership arrangements concerning the money simply transfer to the house. The money may have been subject to a trust that simply transfers to the second house.
    Or the idea of ‘family money’ may be an indicator of the intention of the family members concerning the acquisition of the house. It may be an indicator of a common intention that all family members were equally entitled to a share in the property regardless of individual contributions. This would be like Chan Chui Mee. The court would be inferring or imputing an agreement based on the whole course of conduct. The dominant feature of the whole course of conduct would be that the family members shared this ‘all in it together’ view of the ownership of the family finances.
    Graham-York v York ackowledges that this approach (pointing towards, even raining a presumption of, equality of interests) is a possibility even in sole name cases but seems to be of the view that the facts of that case did not point in the direction of a ‘family money’ approach in that case.

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