Co-owner in occupation ordered to account for income

In Tang Tak Sum v Tang Kai Fung (No 2) [2020] 2 HKLRD 338, P and D were tenants in common of a property, P owned a 25% share and D a 75% share. For many years, D granted leases and received the income without accounting to P.

In earlier proceedings, D was ordered to account to P for the income and expenditure relating to the property. These proceedings concerned a dispute as to how the account was to be conducted.

Was the account to be in common form or on the basis of wilful default?

‘Wilful default … refers to a default whereby an accounting party, in breach of duty, failed to obtain a benefit which should have been obtained for the fund’ ([19]).

If the account was on the basis of wilful default, D would have to account not only for income actually received but for income which ought to have been received.

Master Anthony HK Chan decided that the account should not be on the basis of wilful default. This was not what the Court of Appeal had ordered. Wilful default had not been pleaded or proved ([16]). Default in rendering an account is not, on its own, a sufficient basis to ground a claim for an account on the basis of wilful default ([20]).

Should D be ordered to pay an occupation rent?

An ouster may not be absolutely necessary for an occupation rent to be ordered. It may be equitable to order such a payment where an owner in occupation seeks an allowance for improvements ([28]) or where there was a prior agreement to pay an occupation rent ([32]). None of these factors was present and there would be no order to pay an occupation rent.

Michael Lower

 

 

 

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Occupation rent: joint tenant’s trustee in bankruptcy

What principles govern an application for occupation rent by a joint tenant’s trustee in bankruptcy?

The facts

In Davis v Jackson ([2017] EWHC 698 (Ch)) Mr and Mrs Jackson were legal and equitable joint tenants of their family home. The couple were estranged when the property was acquired and it was never envisaged that Mr Jackson would live in it. Mrs Jackson made all the mortgage payments.

Mr Jackson was made bankrupt and the trustee in bankruptcy obtained an order for the sale of the property and an equal division of the proceeds of sale between him and Mrs Jackson.

The court ordered that there should be equitable accounting and that Mrs Jackson should be entitled to a contribution from the trustee of one half of the mortgage payments made by her up to the time of the sale of the property.

The trustee in bankruptcy contended that it should be entitled to charge Mrs Jackson an occupation rent in respect of her occupation during the period after the bankruptcy.

The relevant law

The default position is that an occupation rent is not payable; there must be some conduct or feature of the case that would justify equity in requiring the occupier to pay rent ([61]).

When deciding on whether such circumstances exist, ‘the court can have regard to the circumstances in existence before the tenant in common seeking payment of an occupation rent acquired his interest’ ([67] per Snowden J).

The court ‘has a broad equitable jurisdiction to do justice between co-owners on the facts of each case’ ([71]).

It was never envisaged that Mr Jackson would occupy the property:

‘That being so, for my part I simply cannot see how it could be in accordance with equity or justice for the Trustee, who has simply had Mr. Jackson’s interest in the Property vested in him, automatically to become entitled to claim an occupation rent from Mrs. Jackson. The Trustee has in no sense been excluded from the Property; and it is not merely that it is unreasonable for the Trustee to start occupying the Property with Mrs. Jackson and her children; the true position is that Mr. Jackson never had such a right at all. I therefore do not see how the Trustee can in effect claim to stand in a better position and charge Mrs. Jackson rent in place of seeking to occupy the property’ (75]).

Mrs Jackson could not be charged an occupation rent.

Michael Lower

Equitable accounting: is an ouster necessary before an occupation rent becomes payable?

In Murphy v Gooch ([2007] EWCA Civ 603), a co-habiting couple bought a 25% stake in a shared ownership property. The relationship between the couple broke down and Ms Murphy left the property. Ms Murphy applied for a declaration that they were tenants in common in equal shares, an order for sale and for an account to be taken as part of which Mr Gooch should be ordered to pay an occupation rent in respect of the period in which he was in sole occupation.

The English Court of Appeal (Lightman J giving the judgment) held that Mr Gooch could be ordered to pay an occupation rent if this was just and equitable even if there was no ouster ([18]).

Lightman J was prepared to hold, in any event, that there was a ‘constructive ouster’ since Ms Murphy left the property on the breakdown of the relationship ([18]).

Ms Murphy was entitled to set this occupation rent off against the sums paid by Mr Gooch in respect of mortgage interest and the rent payable in respect of the 75% share of the property still owned by the Housing Association from which the couple bought their share ([21]).

This decision was reached under the terms of the Trusts of Land and Appointment of Trustees Act 1996. Lightman J states, however, that the same decision would have been reached through an application of equitable accounting principles.

Michael Lower

Whitlock v Moree: clauses declaring that a joint bank account is held under a joint tenancy

 

Introduction
When two or more people open a joint bank account, the account opening document may contain a provision to the effect that the account holders are joint tenants and that the right of survivorship is to apply. What is the status of such a statement? Is it determinative of the legal and beneficial ownership of the account? Does it merely deal with legal title so that it is principally concerned with the relationship between the joint holders and the bank?
Seventy years ago, in Niles v Lake ([1947] SCR 294), the Canadian Supreme Court had to consider a clause providing that the holders of a joint bank account were joint tenants. The court decided that the clause dealt only with legal title. It had recourse to the presumed resulting trust; the account holder who had supplied all the funds in the account was the sole beneficial owner.
In Whitlock v Moree ([2017] UKPC 44) the Privy Council had to consider a clause (clause 20) in a bank’s standard joint account opening document very like that in Niles v Lake:

‘JOINT TENANCY: Unless otherwise agreed in writing, all money which is now or may later be credited to the Account (including all interest) is our joint property with the right of survivorship. That means that if one of us dies, all money in the Account automatically becomes the property of the other account holder(s). In order to make this legally effective, we each assign such money to the other account holder (or the others jointly if there is more than one other account holder).’

The majority (Lord Briggs, Lady Hale and Lord Sumption) concluded that the declaration of joint tenancy covered both legal and beneficial ownership. The clause was dispositive; it brought about the proprietary arrangements that it described ([37]).
The meaning to be attached to such a clause depends on the principles of contractual interpretation applied to each specific case. There is no general rule that account agreements are only about legal title. It is a question of contractual interpretation in each case ([42]).

 

Facts
L was a successful businessman. With his friend, M, he opened a joint bank account which contained $190,000 at the date of L’s death. All the money in the joint account came from another account in L’s sole name. A bank official inserted the comment that the purpose of the account was ‘to pay utilities’.
The account opening form signed by L and M included clause 20 (set out above). L died in 2010. He left his home to M who was also one of three residuary legatees. The question was whether the money in the bank account: (a) belonged to M because of the right of survivorship; or (b) was held on presumed resulting trust for L so that it now formed part of L’s estate.
The Privy Council decided that L and M were joint tenants for all purposes so that M became solely entitled to the money in the bank account on L’s death.

 

Lord Briggs’ statement of ‘first principles’ about the law of co-ownership
Paragraphs [21] to [28] of Lord Briggs’ judgment contain a set of statements of first principles concerning the law of co-ownership. One of these is that a written declaration as to beneficial interests, whether in the instrument transferring the property to the co-owners or in a declaration by the co-owners, is usually conclusive ([23] – [24]). In the context of a joint bank account, the account opening document is the instrument most likely to include an express declaration as to beneficial interests ([27]).
Where a clause such as clause 20, properly interpreted, is intended as a declaration of beneficial interests then that is the end of the matter: ‘the document is determinative of itself in relation to the beneficial interests in the account’ ([30]). There is no room for the application of the doctrine of presumed resulting trusts ([31]). Lord Briggs thought that it would be undesirable for the courts to go behind a written declaration ([33]). The declaration is not simply one guide (among several) to intention. It is definitive.

 

 

The relevance of the approach to co-ownership arrangements in other types of property
Here, Lord Briggs refers to the co-ownership principles developed in the residential property context. Where there is no express written declaration, the common intention constructive trust or, as a ‘last resort’, the presumed resulting trust ([25]) come into play to settle ownership rights. These principles, in the view of the majority, are not confined to real property ([26]).
Lord Briggs notes that in the context of English residential property, there is a presumption that beneficial ownership reflects the legal title ([25] referring to Stack v Dowden [2007] UKHL 17, [53] and following). It should be said, though, that in the context of a bank account there is no need for the account holders to hold on any kind of trust.

 

The proper construction of clause 20
The view of the majority of the Privy Council was that, on an objective interpretation, clause 20 dealt with beneficial ownership. Key phrases were: ‘joint tenancy’; ‘our joint property with the right of survivorship’; and ‘if one of us dies, all money in the account automatically becomes the property of the other account holders’ ([47]).
Lord Briggs commented:

‘The meaning of this phrase is to be ascertained by reference to an objective assessment as to what reasonable Bahamian private customers of a bank would think that they meant. Private customers of a bank, whether in the Bahamas or elsewhere in the common law world, do not go around, like lawyers, thinking constantly of distinctions between legal title and beneficial ownership when contemplating the ownership of property.’ ([47])

Essentially, the parties must be taken to have meant something by this clause in a document that they have signed. The most natural approach is to imagine that they meant what they said!

 

 

The minority’s approach to the construction: account opening documents are sui generis

Lord Carnwath, speaking for the minority, thought it much more likely that the account opening document was intended solely to deal with legal title.

 

Lord Carnwath said:

‘from the point of view of the customer, the purpose of a bank account is not generally seen as to effect the transfer of property in the longer term, but rather to provide a convenient vehicle for holding and dealing in money for the time-being’ ([55]).

The ‘first principles’ that are relevant are the first principles relating to joint back accounts. This context, argues Lord Carnwath, is an important factor to be borne in mind in the process of interpretation; the decision in Niles v Lake provides an important benchmark for assessing similar clauses.
Lord Carnwath could see nothing to suggest that clause 20 was intended to deal with beneficial ownership ([86]). It was, he thought, implausible to suggest that ordinary people would use clause 20 to make a gift ([86]). Clause 20 had to be interpreted in the context of the agreement as a whole ([87]). The clause was part of the bank’s standard documentation and was not the sort of document that one would expect to see used to make a very generous personal gift ([88]).
Michael Lower

Legal tenancy in common: contractual interpretation

In Lam Kwok Hing v Lam Siu Keung ([2015] HKEC 2228, CFI) four brothers were tenants in common in equal shares of land in the New Territories (‘the Land’). They were also co-owners of several adjoining lots. The brothers entered into four contemporaneous transactions in 1972 to re-arrange the ownership of the Land and the adjoining lots. The 1972 transaction concerning the land assigned it to two of the brothers, LLW (2/5 shares) and LTW (3/5 shares). A separate ‘Division of Property’ document, signed by the four brothers, confirmed the overall effect of the four transactions. In a  document called ” 執照 ” and dated 2 September 1974, the District Commissioner, New Territories certified that LLW owned 2/5 and LTW owned 3/5 of the shares in the Land. LLW died in 1976 and in 2005 his family contended that his share was 9/20 rather than 2/5 (that he owned an additional 1/20).

The court now had to decide on the parties’ respective shares. The fact that the 1972 assignment recorded LLW as owner of 2/5 provided the starting point. All of the relevant legal and factual material available to the court supported the contention of the LTW family that the assignment accurately recorded the parties’ contractual intention. The undivided shares reflected the physical division of the Land between the two families. the Division of Property and the 執照 confirmed the ownership intention. Finally, the Schedule of Property annexed to the Letters of Administration of LLW’s estate also referred to his ownership of a 2/5 share.

The case is interesting since there was no recourse to the concept of the common intention constructive trust. In Hong Kong, unlike England, disputes as to ownership shares can be resolved through a process of contractual interpretation that focuses on ownership of the legal title.

Michael Lower

Alleged ouster of co-owner: injunction?

Khan v Mansoori ([2012] 5 HKLRD 637, CFI) concerned a dispute between P and D1 and D2 who were tenants in common of property in Kowloon. P lived in the USA. D1 and D2 changed the locks at the property. P alleged that he had been ousted from possession. D1 and D2 contended that P1 had no beneficial interest in the property but held his share as nominee for D1 and D2. The question at this stage was whether P should have an injunction pending the trial to restrain any actions by D1 and D2 ousting him from possession. The injunction was not granted. The balance of convenience weighed in favour of damages being the appropriate remedy should P succeed in the trial. P lived in the US, rarely visited Hong Kong and had no practical need to enter the property.

Co-ownership (NSW)

In Fallon v Madden (SC 2010/332163) B and M co-habited in property that was in M’s name. After several years of co-habitation they married. M died and B claimed that he had an interest under a resulting trust on the basis that he had provided all of the purchase price. The Supreme Court of New South Wales found that he had supplied 50.5% of the purchase price. Since the purchase preceded the marriage, the presumption of advancement did not apply. Thus, B was entitled to a 50.5% beneficial interest under a resulting trust. The co-ownership was as tenants in common (reflecting section 26 of the Conveyancing Act).

After M’s death (when the presumption ceased to apply) B made some repayments in respect of a loan which M had guaranteed (with the guarantee being secured by a mortgage over the property) and paid off M’s outstanding tax liability. He was entitled to recover these sums from M’s estate (which would otherwise have been liable). He paid for work at the property but was not entitled to compensation since the work did not increase the value of the property. He was entitled to compensation for the council rates that he had paid but not for water rates (a consumable). On the other hand, he had occupied the property. His claims to compensation relied on equity’s help. If he decided to press them (he had an option) then he must pay an occupation fee on the basis that he who seeks equity must do equity.

Order for sale: ‘beneficial to all the persons interested’

In Chan William Lai Yee v Chan Yau Yuen Fun Therese ([2012] HKEC 363) two luxury properties were held by the parties as tenants in common. The plaintiffs sought an order for sale. The defendant lived in one of the properties rent-free with her family. The plaintiffs were four elderly people who depended on their share of the property to support them financially. Essentially, they were not getting any benefit (either in terms of rent or possession) from the property occupied by the defendant. Section 6 of the Partition Ordinance gives the court the power to make an order for sale where partition is not practicable. In Wong Chun Kei Johnny v Poon Vai Ching ([2007] 1 HKLRD 825) Recorder Fok SC (as he then was) said:

‘When it is impracticable to make an order for partition, the court should make an order for sale unless it is persuaded (the burden being on the opposing co-owner) that such an order will not be beneficial to all the co-owners, or that it will result in very great hardship to one co-owner.’

He went on to say that whether the order is beneficial to all the co-owners is an objective question and that it might be beneficial even if some co-owners opposed the making of an order. Presumably this means that one looks at the interests of the co-owners as a body or perhaps at the interests of a hypothetical co-owner of the relevant property.

In this case, it was clear that the parties were unwilling to continue as co-owners and the primary purpose of the legislation is to allow unwilling co-owners to terminate an unwanted co-ownership (Pun Jong Sau v Poon Wing Kong). An order for sale would allow all the parties to benefit from a reasonably bouyant market. It would not cause undue hardship to the defendant (para. 22).

Wai Ming Trading Ltd v Poon Tang Fat

In Wai Ming Trading Ltd v Poon Tang Fat ([2012] HKEC 146) W owned 11 / 12 and P owned 1 / 12 of a plot of land. P had assured W that he would sell the 1/12 share to W and, on the strength of that, W had acquired the interests of the other former owners. P later decided not to sell. W now sought an order for sale and P resisted. W was successful; partition was not practicable and there was nothing to indicate that the interests of the co-owners would be better served by continuing the co-ownership. There was no evidence that the sale would impose any hardship on P. The agreement was another relevant factor.

Gift of land and duress

In Mir Abdul Rehman v Mir Heena ([2011] HKEC 1644) P and D had been tenants in common of a flat (with P owning a 75% share and D a 25% share). In 2001 P executed a deed of gift of his share to D. The relationship broke down in 2006. At that time, D executed a deed of gift of a 50% share to P. P applied for an order for sale and for the proceeds to be divided equally between P and D. The 2006 deed of gift had, however, been executed under duress and the court made an order setting it aside. P also claimed that at the time of the 2001 deed of gift there had been an understanding that D held the 75% share on trust for P. The court did not believe that any such understanding had been reached. D was the sole legal and beneficial owner of the property.