Common intention constructive trust: the intention to create the trust cannot be imputed

In Capehorn v Harris ([2015] EWCA Civ 955, CA (Eng)) C and H had been unmarried cohabitees but the relationship had come to an end. The question was whether H had a beneficial interest in property which was in C’s sole name. The first instance judge found that there was no actual agreement to this effect but that one should be imputed to the parties.

The Court of Appeal overturned this decision. Imputation is relevant only to the question of quantification and not to the prior question in sole name cases as to whether or not there is a common intention constructive trust ([16] and [17] per Sales LJ). As there was no actual agreement, there was no common intention constructive trust.

Michael Lower

Legal joint tenancy: determining beneficial ownership under a common intention constructive trust

In Lo Kau Kun v Cheung Yuk Yun ([2015] HKEC 316, CFI) a married couple bought a flat as joint tenants. P claimed that the property was held on common intention constructive trust in equal shares. D claimed that she was the sole beneficial owner. Deputy Judge Sakhrani referred to the statements in Stack v Dowden ([68] in Stack) and Jones v Kernott ( [51] in Jones) to the effect that where the legal title is in joint names and there is a question as to beneficial ownership equity follows the law (so that a legal joint tenancy gives rise to equal shares) but that it may be possible to show a contrary intention (the burden of proof being on the party seeking to establish this). P had paid the down payment. P and D were jointly liable under the terms of the mortgage and each had contributed to the mortgage payments. Crucially, there was a finding that the parties had discussed their intentions concerning the ownership of the property ([63]). The couple had agreed that the property was to be a family asset (to be held equally as a family asset according to P) ([64]). This (not the record of financial contributions) was determinative. The property was held on common intention constructive trust in equal shares ([66]).

D also argued that she had extinguished P’s title by adverse possession. P had left the property in 1993 after a violent argument and never returned ([77]). This argument failed since D was entitled to be in possession as co-owner. There was no evidence of the ouster that would be necessary for this claim to succeed ([81]).

Michael Lower

Common intention constructive trust: valuation in sole name cases where there is no actual agreement as to how ownership is shared

In Graham-York v York ([2015] EWCA Civ 72, CA (Eng)) the English Court of Appeal looked at the approach to be taken to the valuation of an interest under a common intention constructive trust where title was in the sole name of one of the parties and there was no evidence of a common intention as to how the beneficial ownership was to be divided between the parties. Here a couple had co-habited for over forty years and had two children (one of whom was brought up by them and another by a relative). The man had provided nearly all of the family’s financial resources from the various businesses that he ran.

At first instance, the court found that there was evidence of a common intention that his partner (Miss Graham-York) should have an interest in the family home given her financial contribution to the family income before and at the time of the purchase of the property. The court also found that there was no express agreement as to the share that Miss Graham-York should have and that a 25% interest in the property would be a fair reflection of her financial and non-financial contributions over the years.

Miss Graham-York appealed against this finding. She argued that where there was no evidence as to a common intention concerning the size of her share, the court should take fairness as the guide to what they must reasonably be taken to have intended. Her initial and ongoing financial contributions, the length of the co-habitation and her contribution to the bringing-up of her daughter were each, she argued, factors pointing towards equal beneficial ownership ([18]).

Tomlinson LJ gave the principal judgment. He pointed to the joint judgment of Lord Walker and Lady Hale in Jones v Kernott as ‘the most authoritative modern guidance as to the proper approach in cases of this sort’ ([20]). While the search was primarily for the parties’ actual shared intentions, there were two situations in which this was not the case. The first of these was the situation in which the presumed resulting trust operated. The second, relevant here, involved cases, ‘where it is clear that the beneficial interests are to be shared, but it is impossible to divine a common intention as to the proportions in which they are to be shared.’ Here, ‘the court is driven to impute an intention to the parties which they may never have had.’ (Jones v Kernott, [31]).

Tomlinson LJ went on to comment on the scope of the enquiry as to fairness in these circumstances. The court must do what is fair having regard to the whole course of dealing in relation to the property (Jones v Kernott, [51]). The court ‘is not concerned with some form of redistributive justice’; so, here, the abuse that Miss Graham-York had suffered during her long relationship was not a relevant factor (Graham-York v York, [22]).

There is no presumption of equality of interests in sole name cases, even where the other party has made a substantial contribution. (Graham-York v York [25]).The first instance judge had identified the appropriate legal principles and applied them correctly. Miss Graham-York’s appeal was dismissed.

Michael Lower

Common intention constructive trust and equity’s darling

In Mo Ying v Brillex Development Ltd ([2014] HKEC 724, CFI) (partly reversed by the Court of Appeal) title to the flat that was the matrimonial home was in H’s name alone. H entered into an agreement to sell the flat to B and took a lease back. The lease arrangement continued after completion. When H failed to meet the rental payments, B brought proceedings to recover possession. W then claimed that she had a beneficial interest under a common intention constructive trust and that B had imputed or constructive notice of this interest and so took subject to it.

W argued that there was an express common intention in that, after acquisition, H had given an excuse for not putting her name on the title deeds. W invited the court to follow the example given by Grant v Edwards and Eves v Eves but the court refused to do so. The ‘excuse’ was equivocal and, anyway, did not induce W to believe that she had or would have any interest in the property ([59]). Further, this was an alleged post-acquisition agreement and the courts are reluctant to infer a common intention constructive trust in such a case ([60]). There was no express common intention.

W argued that a common intention constructive trust could be inferred from the fact of the marriage. Marriage, alone, however, is not a basis from which to infer a common intention constructive trust ([66] – [68]). W’s sister had made a loan to H. It could not be shown that this was used towards the purchase price of the property. In any event, it was not clear that this could be regarded as a contribution by W ([69] – [70]). While the pooling of family assets could be evidence of a common intention ([71]), there was no evidence of such pooling. In any event, it seems that the court was of the view that there was simply no such common intention ([80]); so even if there had been evidence of pooling, it would only be a factor to be taken into account in determining on the balance of probabilities whether or not there was a common intention. The court was not prepared to infer a common intention from W’s contributions to household expenses (‘the everyday expense of the family’ ([81])) ([81] – [85]).

There was no detrimental reliance; neither her contributions to household expenses nor her decision to give up her job could be so regarded in this case. The necessary causal link was missing ([92]).

Deputy Judge Eugene Fung SC went on to consider whether if, contrary to her view, W had a beneficial interest, B was subject to it. W argued that the estate agent handling the transaction knew of the interest and that this knowledge should be imputed to B. The factual basis of this proposition was doubted. In any event:

‘In cases where an agent’s function is to receive communications on behalf of his principal, one can readily understand why the knowledge of the agent would be imputed to the principal. However, I have some doubt as to whether such a principle applies to an estate agent in Hong Kong. In a typical case, an estate agent’s function is to perform a service by introducing a counter-party to his principal so as to enable his principal to conclude a particular transaction with that counter-party; his function is not to receive communications on behalf of his principal. No cases have been cited to suggest that an estate agent in Hong Kong has the general authority to receive communications for his principal. Accordingly, I am unable to accept Mr Wong’s submission that notice of an estate agent in Hong Kong is imputed to his principal.’ ([117]).

B had, however, failed to inspect the property and so, by virtue of W’s occupation, had constructive notice of any interest that W might have. The fact that this was a sale and leaseback made no difference to this ([131] – [132]).

B’s attempt to avoid this conclusion by invoking estoppel by representation failed since W did not owe B a duty to speak out and inform B of her interest ([148]). The facts did not support B’s defence of waiver ([154]) nor acquiescence ([155] – [157]).

Nor could B rely on laches. Section 20(2) of the Limitation Ordinance provided the limitation period for an action to recover trust property from a third party and this had not expired. In any event, there had been no substantial lapse of time and it was not inequitable for W to enforce her claim against B ([165]).

Michael Lower

Proving the common intention constructive trust

In Ip Man Shan Henry v Ching Hing Construction Co Ltd ([2003] 1 HKC 256, CFI) ICP paid for land but he channeled the payment through his company (Ching Hing). Ching Hing then paid the construction costs for the large family residence constructed on the land. Title to the land went into the name of ICP’s son, Henry. There was evidence to show that the common intention of ICP and Ching Hing was that the beneficial interest would be shared between them. Henry knew that he was merely nominee or trustee of the land. Thus, beneficial ownership of the property was shared between ICP and Ching Hing.

The court took a common intention constructive trust approach ([79]).

Johnson Lam J (then acting as a Deputy Judge) said that he thought Lord Bridge’s expression of the approach to proving the existence of the trust in Lloyds Bank v Rosset was too narrow:

‘I do not think that his Lordship intended to rule out completely the possibility of establishing common intention through conduct other than the payment of purchase price or mortgage instalments. I prefer to read the dicta as saying that the conduct relied upon have to be as concrete and compelling as these conduct.’ ([86]).

Relevant evidence here that shed light on the common intention included the way in which other provision had been made for this son, the way other family investments had been handled, the fact that Henry had only recently graduated and a gift of such a large property made little sense, express discussions between ICP and his wife (the other major controller of Ching Hing) and a declaration explaining his intentions made by ICP. Also relevant was the fact that Ching Hing had paid the premium for the land but had been immediately reimbursed by ICP. Further, Henry had immediately on obtaining the Government lease granted a lease of the property to Ching Hing for virtually the entire term (including any renewal).

As to quantification, the judge took a whole course of dealing approach ([192]) and said:

‘In the absence of evidence as to precise agreement on the proportion in which the beneficial interest in the property was to be shared between ICP and Ching Hing, I think a fair inference in the circumstances of the present case is that each party held a beneficial interest in proportion to his contribution to the acquisition of the property, including the construction costs of the building. That proportion was crystallized upon the completion of the construction in 1965.’ ([194]).

Michael Lower

Common intention constructive trust as a vehicle for an investment agreement

In Pang Ketian Sally v Tam Yak Hung Annie ([2013] HKEC 990, CFI) P, D and F entered into an agreement whereby each of them was to contribute to the deposit for the purchase of a flat and have a proportionate beneficial interest. D was named as the sole purchaser in the sale and purchase agreement. Completion of the purchase was expected to take place some 18 months later. The parties intended to achieve a sub-sale at a profit before the completion date. The property market deteriorated in the period before completion so that even if a sale had been possible it would have been at a loss rather than a profit. The parties had a second meeting at which P agreed to surrender her interest in the property in return for being released from any obligation to fund the purchase and any other costs associated with it. There was exceptionally clear evidence as to the terms of the original and of the second agreements.

P claimed to be entitled to a 5% share in the property in accordance with the original agreement. This failed since it was found as a fact that she had surrendered her interest as part of the second agreement. The case was expressly dealt with as one of a common intention constructive trust rather than resulting trust ([61]).

The court relied on the first instance judgment in Chan Chui Mee v Mak Chi Choi and the House of Lords decision in Stack v Dowden for statements of the relevant legal principles ([57] – [59]).

Michael Lower

Herbert v Doyle: certainty and the common intention constructive trust

Introduction

Section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 requires agreements for the sale or other disposition of an interest in land to be in writing and section 2(3) requires the written agreement to be signed by or on behalf of the parties to the agreement. Land contracts that do not comply with section 2(1) are invalid. Section 2(5), however, provides that resulting, implied or constructive trusts are not subject to these formality requirements.

The common intention constructive trust arises when A, the owner of an estate in land, enters into an agreement with B to the effect that B will have a beneficial interest in respect of that estate and B relies on that agreement to his detriment (Lloyds Bank v Rossett [1991] 1 AC 107, p. 132). While the common intention constructive trust often arises in the domestic context, it  can arise even out of commercial bargains entered into between sophisticated business people. The necessary agreement can even arise when the parties have negotiated a detailed formal agreement which they expect to be in a form that would comply with section 2(1) but which does not do so. This seems surprising since the constructive trust then seems to offer a relatively easy way to by-pass the formalities requirements of section 2.

In fact, it is not so easy to persuade a court that the agreement necessary to the common intention constructive trust has been formed. If the parties intend to enter into a formal written agreement, their failure to do so will usually be a signal that the parties were still negotiating and that their mutual assurances were, in effect, ‘subject to contract’. If some details of the informal agreement have not been fully articulated and agreed upon, there may be an argument that the ‘agreement’ is not sufficiently certain or complete to be made enforceable by means of the common intention constructive trust.

In Herbert v Doyle ([2010] EWCA Civ 1095), the English Court of Appeal had to consider whether a commercial land contract that did not comply with section 2 nevertheless gave rise to a constructive trust. The facts of the case required the court to examine the degree of certainty required for the purposes of the common intention constructive trust. It also had to decide whether the parties intended to be bound by their mutual assurances.

The facts in Herbert v Doyle
Mr Herbert was the freehold owner of a house and large garden. Mr Doyle and Mr Talati owned the freehold of a neighbouring property in which they carried on their practice as dental surgeons. Mr. Herbert got planning permission to build houses on the garden of his property. To carry out the development, Mr Herbert needed to acquire some of the parking spaces on his neighbours’ land.

In essence, the parties agreed to a land exchange; Mr Doyle and Mr Talati were to have title to car parking spaces on Mr Herbert’s land. In return, they would convey car parking spaces on their land to Mr. Herbert. Mr. Herbert was also to grant leases of two other parts of his land to them. Mr. Doyle and Mr. Talati were to pay a premium to Mr. Doyle. These terms had been agreed in principle in February 2003. It was, however, in April 2003, when Mr. Herbert was getting ready to begin the development work, that the parties had a further meeting at which they agreed that these terms would be immediately binding upon them despite the lack of the anticipated formal written contract. This arrangement was altered as a result of two later variations that the parties agreed. Other variations were discussed but these discussions did not lead to any further agreed variations.

Mr. Herbert later decided that he did not wish to proceed with the agreement. The question was whether the April 2003 agreement gave rise to a constructive trust so that it could be enforced by Messrs. Doyle and Talati notwithstanding the failure to comply with section 2(1).

Cobbe-compliant?
Mr. Herbert argued that the conditions for the creation of a common intention constructive trust were not satisfied. Arden L.J. identified the essence of what the House of Lords had said in Cobbe v Yeoman’s Row Management Ltd ([2008] 1 WLR 1752) about the element of certainty required:

‘[I]f the parties intend to make a formal agreement setting out the terms on which one or more is to acquire an interest in property, or, if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified, neither party can rely on constructive trust as a means of enforcing their original agreement.’ (Herbert v Doyle [2010] EWCA Civ 1095 [57]

There had to be clarity both as to the intention to be bound and as to the interest in property that is the subject matter of the trust. Mr. Herbert contended that each of these types of certainty was lacking as regards the April 2003 agreement.

Intention to be bound or mere agreement in principle?
Was this a case, like Yaxley v Gotts ([2000] Ch. 162) in which the parties intended to be bound by an informal agreement? Or was it, like Cobbe, one in which the parties regarded themselves as being bound in honour only until a formal written agreement had been prepared and signed? The judge at first instance had found that the April 2003 agreement was not ‘subject to contract’  and that the parties intended to be bound by it. Arden L.J. regarded this as being surprising but thought that there was no basis on which the Court of Appeal could hold that this conclusion was clearly wrong (Herbert v Doyle [2010] EWCA Civ 1095 [79]).

Certainty as to the relevant property and terms
The April 2003 agreement could only give rise to a constructive trust if the relevant property and the terms of the agreement were sufficiently certain. While the number of spaces to be transferred by Mr. Herbert to Messrs. Doyle and Talati had been agreed in April 2003, one of the spaces had not been. The Court of Appeal upheld the decision at first instance to the effect that the parties had impliedly agreed that the court could identify a suitable space if Mr. Herbert refused to do this himself (Herbert v Doyle [2010] EWCA Civ 1095 [71] – [72]). The way to this conclusion was eased by the fact that the judge at first instance had found that the agreement was to transfer ‘reasonably accessible parking spaces on the site, so far as possible adjacent to [Mr. Herbert’s property].’ As Morgan J. (sitting in the Court of Appeal) pointed out, when the judge at first instance nominated a space, he did no more than to give effect to the term that the parties had already agreed (Herbert v Doyle [2010] EWCA Civ 1095 [87]).

Second, the fact that the parties continued to negotiate after the April 2003 had been reached did not mean that the April 2003 agreement was not sufficiently certain at the time when the parties’ property interests were agreed (Herbert v Doyle [2010] EWCA Civ 1095 [73]).

The April 2003 agreement provided for Mr. Herbert to grant leases of parts of his property. He argued that the terms of these leases had not been agreed and so there was a lack of certainty in this respect too. This failed since it had been agreed that the terms of these leases would follow the terms of an existing lease between the parties (Herbert v Doyle [2010] EWCA Civ 1095 [76]).

The question is whether the parties intended to be bound by their assurances
As Arden L.J. remarked, there is something surprising about the idea that the common intention constructive trust can be based on a sophisticated commercial agreement negotiated by experienced business people. Its more natural home is the agreement between a co-habiting couple as to how the beneficial ownership of their home is to be shared between them. In this domestic context it is easy to understand that the parties might be reluctant to reach a formal agreement when so much depends on trust and where even to raise the question of ‘shares’ seems incongruous. Herbert v Doyle is a striking illustration of the fact that in either context the question is ultimately whether each party was entitled to believe that their legal rights and duties had been affected by the agreement. Must the parties be taken to have gone past the negotiation stage of the discussions? Did they have an intention to create legal relations?

Inconsistent with principle?
Tanney (Anthony Tanney, ‘Constructive trusts to grant leases: have we not been here before?’, (2012) 16 L. & T. Review 53) has expressed some doubts as to whether the agreement in Herbert v Doyle can properly be thought of as a common intention constructive trust. Tanney questions whether this development is consistent with principle.

First, while it is true that an enforceable land agreement gives rise to an equitable interest (Walsh v Lonsdale (1882) L.R. 21 9 Ch.D. 9) the agreement in Herbert v Doyle was not enforceable since it did not comply with section 2(1). Second, some aspects of the agreement in Herbert v Doyle required the grant of new leases; that is they were agreements for the grant of new estates in land rather than for the sharing of the beneficial ownership of an existing interest. Where the enforceable contract is for the grant of a lease, the equitable interest relates not to the reversion but is a new equitable interest. Typically, however, the common intention constructive trust arises out of an agreement to share an existing interest in land.

Proprietary estoppel the appropriate remedy
Concerns have been expressed, then, as to whether all aspects of the agreement in Herbert v Doyle could all be properly take effect as a common intention constructive trust. Were it not for section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989,  Herbert v Doyle could have been dealt with as a proprietary estoppel claim; Mr. Herbert had encouraged his neighbours to believe that they would acquire an interest in land and they had relied on that assurance to their detriment. Since Yaxley v Gotts ([2000] Ch. 162), however, the courts have thought it necessary, in the case of some types of informal land bargain, to think only in terms of the common intention constructive trust. The saving  for constructive trusts in section 2(5) has led to doubts as to whether there is any room for proprietary estoppel to work in relation to agreements concerning land.

Owen and Rees (Gwilim Owen and Osian Rees, ‘Section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989: a misconceived approach?’ [2011] Conv. 495) argue that this concern is misconceived. Proprietary estoppel is entirely independent of contract and proprietary estoppel claims do not engage section 2(1). Cases like Herbert v Doyle could more easily be dealt with as proprietary estoppel claims.

Michael Lower
Faculty of Law
The Chinese University of Hong Kong

Common intention constructive trust? Applying Jones v Kernott.

Geary v Rankine ([2012] EWCA Civ 555, CA (Eng)) concerned a claim by G to a beneficial interest under a common intention constructive trust of property initially bought as a commercial investment, title to which was in R’s name alone. R had supplied the entire purchase price. The Court of Appeal summarised its understanding of the relevant principles after Jones v Kernott. On the primary question as to whether there is a trust or not, Lewison L.J. said:

‘Mrs Geary has the burden of establishing some sort of implied trust; normally what is now termed a “common intention” constructive trust. The burden is all the more difficult to discharge where, as here, the property was bought as an investment rather than as a home. The search is to ascertain the parties’ actual shared intentions, whether express or to be inferred from their conduct.’ ([18]) (emphasis added)

There are two exceptions to this exclusive focus on actual intention. First, where there is a presumed resulting trust (but R had supplied the entire purchase price so there was no such trust in this case). This seems to suggest that the presumed resulting trust is in some way disconnected from actual intention. Second, the court can impute an intention once the existence of a trust has been proved but where the court cannot discern any actual agreement as to how the beneficial interests are to be shared. The quantification of the beneficial interests can rely on an imputed intention but imputation is not relevant to the question as to whether or not a common intention constructive trust had come into existence ([19]).

Lewison LJ, dealing with the question as to whether or not a common intention constructive trust had come into existence said:

‘actual intention may have been expressly manifested, or may be inferred from conduct; but actual intention it remains.’ (at [21]).

Here there was no evidence of a common intention (either formed at the time of acquisition or subsequently) that G was to have a beneficial interest at all.

Michael Lower

Evidence of a common intention

In Thomson v Humphrey ([2009] EWHC 3576) T and H co-habited in property belonging to H (Church Farm). He had previously bought a home for T and her children to live in (Long Stratton). This too had been in H’s name and had been sold, H retaining the proceeds of sale. When the relationship broke up, T claimed a beneficial interest in Church Farm. She failed. The court applied the approach in Lloyds Bank v Rosset as explained in Stack v Dowden. There was no evidence of an express agreement. Indeed, H had instructed his solicitor to prepare a cohabitation agreement that made it clear that H retained sole ownership of the property. This had been carefully explained to T. She had not signed it and H had continued to live with her but the court did not think that an agreement could be inferred from this. Nor had she incurred any detrimental reliance. There was no evidence that she was worse off than if she had not co-habited with T (though, of course, she would have made different arrangements).

Constructive trust: significance of assuming joint liability for mortgage

In Hyett v Stanley ([2003] EWCA Civ. 942, CA (Eng)) F and H co-habited. Their home was in F’s name alone. They pooled their financial resources. They were under financial strain and the bank would only lend money if H agreed to accept joint liability for the mortgage payments. F told her that she could safely do this without a formal transfer of title since, he asserted, allowing her name to be added to the mortgage have her a right to the property. The Court of Appeal found that this could only be construed as an agreement that she was to have an interest under a common intention constructive trust. Since she was jointly and severally liable under the terms of the mortgage the Court of Appeal inferred an understanding that each would have a one half beneficial interest in the property.

There was also a mortgage protection life assurance policy. F and H were said to be joint tenants of the proceeds of the policy. F had died and H claimed the entire proceeds. The Court of Appeal confirmed the first instance decision that the policy had first to be applied in paying off the mortgage. H was only entitled to the balance remaining after that repayment.