The family home. Types of constructive trust. The end of detrimental reliance?

Archibald v Alexander: the facts

In Archibald v Alexander ([2020] EWHC 1621) a mother and her three children (Patsy, Brenda and John) orally agreed that a house would be purchased in the name of the mother and one of the siblings. It was to be held on trust for the mother for life and then for the three children equally.

This was for tax-planning reasons and to protect the property from any claim by the mother’s husband should she re-marry. The assumption was that there was no need to take excessive care to formalise the trust given the loving family context.

The property was transferred to the mother and Patsy as joint tenants, neither Brenda nor John was available to attend the solicitor’s office at the time of the purchase.

When the mother died, there was a dispute as to whether Patsy was the sole owner of the property or held it on the terms of the oral trust.

Was there reliance?

If this was a common intention constructive trust, then Brenda and John needed to show detrimental reliance. Fancourt J. held that there was reliance: ‘the non-signing siblings were self-evidently relying on the word and promise of those who did become owners’ ([14]).

Was there detriment?

Given the finding of reliance, the detriment was the decision of Brenda and John not to take steps to legally protect their ownership interest in the house; this was a sufficient change of position ([30]).

Not a common intention constructive trust?

The findings on detrimental reliance were obiter:

‘the instant case is of a different kind, in which a property is transferred (gratuitously) into the name of the owner on the basis of their express agreement to hold the property on trust for another. The owner only obtains the property on the terms of the agreement and equity does not permit them unconscionably to refuse to give effect to the terms. The trust arises from the terms on which the property was transferred, not from detrimental reliance on the agreement by the beneficiary.’ ([32]).

The essential elements of this constructive trust are: ‘property had been transferred to a volunteer on the basis of his promise to hold it on certain terms, and would not otherwise have been so transferred’ ([37]).

Fancourt J. referred to Rochefoucauld v Boustead; Bannister v Bannister and De Bruyne v De Bruyne.

There is no need to establish detrimental reliance for constructive trusts like this.

Michael Lower

 

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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 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

Trusts, ‘alienation’ and the Home Ownership Scheme

In Cheuk Shu Yin v Yip So Wan ([2012] HKEC 1554, CFA) the Court of Final Appeal had to consider whether the creation of a trust in respect of a flat purchased under the Home Ownership Scheme (‘HOS’) was an ‘alienation’ for the purposes of sections 17B and 27A of the Housing Ordinance. If so, the trust would be void and a criminal offence would have been committed. In the cases being considered, family members had joined together to contribute to the purchase price and mortgage instalments and it was understood that they would have a beneficial interest in the property as a result (by virtue of a resulting or constructive trust). The Court of Final Appeal decided unanimously that there was no alienation.

Chan PJ looked to the context of the HOS scheme and the language used to determine the relevant intention. The HOS scheme actually envisaged the possibility of a pooling of resources)([5]). It was concerned only to prevent speculative acquisition under the scheme with a view to resale (given the substantial discount enjoyed by first purchasers). The Ordinance did not seek to frustrate or outlaw the pooling of financial resources by family members ([6]). Turning to the language used, ‘alienation’ requires a positive act by the owner while resulting or constructive trusts arising by operation of law ([8]).

Lord Hoffmann’s analysis concentrated rather on the context or purpose of the prohibition. Although he was inclined to agree with Chan PJ on the language point he preferred not to rest his decision on it ([24]). The Court of Appeal had also looked to the purpose behind the scheme. It thought that unless the prohibition was given a wide ambit there would be scope to use the creation of an express trust or the possibility of an implied trust arising by operation of law as a way of sidestepping the policy of the act ([29]). Lord Hoffmann thought that these fears had been exaggerated and saw little scope for use of the trust as a way of creating commercially attractive investments in HOS flats ([30] – [32]). By contrast, allowing family members to pool their resources would promote the purpose of the scheme (to expand the pool of home-owners to include people of limited financial resources) ([33]):

‘[T]he fact that it would often be unjust to deny a beneficial interest to someone who paid the purchase price in the expectation that he would get one is a reason for not construing the statute so widely as to have this effect. Not only would he be denied a remedy, he would have committed a criminal offence for doing something which to most people in his position would seem normal and even generous.’ ([35])

This outcome did not depend on the fact that the trust in these cases arose by operation of law; on the contrary, the same approach applied to an express trust:

‘The reason why the creation of a beneficial interest does not come within s 17B is not because the trust arises by operation of law rather than by an intentional act but because the creation of an equitable interest is not in my opinion an alienation of the land assigned to the purchaser. It is the creation of a new interest in that land. It would in my opinion be very strange if the parties could create a constructive trust by their common intention but were required at all costs to avoid reducing this to an express declaration in writing.’ ([36])

Michael Lower

TANG KIM KWAN PATRICK v LEE CHI TING KAREN

TANG KIM KWAN PATRICK v LEE CHI TING KAREN.

via TANG KIM KWAN PATRICK v LEE CHI TING KAREN.

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.

No equitable interest where the claimant would need to rely on an unlawful agreement

In Barrett v Barrett ([2008] EWHC 1061) T and J were brothers. T owned the freehold of a house. T was declared bankrupt. J acquired the house from the trustee in bankruptcy and some years later he sold it. T claimed that J held the title to the house in trust for him. He alleged that he and J had agreed that J would be the ‘paper’ owner, holding the property on trust for T who would meet all of the outgoings (which would be chanelled through J). The aim was to avoid T’s trustee in bankruptcy having any claim to T’s beneficial interest.

The judge thought that this could not be a resulting trust case since T had not directly contributed to the mortgage payments or purchase price. He paid J and J made the payments ([24]). There were alternative explanations for the payments made by J to T (J alleged that they were rent payments). So there was a need to show that the payments were referable to the unlawful agreement (unlawful because it was entered into to avoid s333(2) of the Insolvency Act 1986). The common intention constructive trust claim failed because of the unlawful purpose. The same problem would be fatal to claims based on the agreement to found a claim of an express trust, proprietary estoppel or a Pallant v Morgan equity.

As David Richards J. explained:

‘Without that [unlawful] purpose the agreement or arrangement has no rational explanation. Thomas needs to allege and prove it in order to establish the agreement, but in doing so he relies on his own illegal purpose and thereby renders his interest unenforceable.’ [25]

Nor was the unlawful purpose too remote from the creation of the alleged beneficial interest. The whole purpose of the alleged agreement was to deprive the trustee in bankruptcy of the opportunity to acquire T’s beneficial interest in the property.

Michael Lower