Archive for the ‘constructive trust’ Category

Constructive or resulting trust?

July 30, 2012

Lee Koon Wan v Sherman Ngai Wing Lee ([2012] HKEC 1046, CFI) concerned a dispute between father and son as to the beneficial ownership of three properties. Title was in the son’s name but the father claimed that they were held on resulting or constructive trust. The court found that the father had paid for the properties and there was a clear understanding that the son would hold them on trust for his parents and, on their death, for himself and his brothers. The judge preferred to think of this as a constructive rather than a resulting trust (though he was clearly of the view that the elements of each were satisfied) ([53]). The resulting trust analysis clearly shows the primacy of the search for actual intention with the presumptions being considered but not playing any role in the analysis ([47]).

Michael Lower

Common intention constructive trust: imputed intention in a sole name case

July 4, 2012

In Aspden v Elvy ([2012] EWHC 1387) A and E had cohabited and had two children. Long after the relationship broke down A transferred the ownership of a barn with planning permission for conversion to a dwelling-house to E. He may have hoped that they would resume their relationship. A also provided between GBP65,000 to GBP70,000 towards the cost of the conversion works. They had a further dispute and there was a question as to whether A had an interest in the barn under either a common intention constructive trust or proprietary estoppel. The judge found that A had intended an outright gift of the title but had not intended to make a gift of the money needed for the conversion works. He intended to acquire an interest in the barn and E knew this. As a result, he was entitled to a 25% interest in the barn (it had a market value of GBP400,000 so this would give him GBP100,00 which the judge thought was a reasonable return on his investment). The judge said that the elements of a proprietary estoppel were also present and would have led to the same outcome.

On the question of the valuation, HH Judge Behrens said that there had been no express discussion as to how the beneficial ownership was to be shared and the only available evidence was the market value of the property. In these circumstances,

‘I have to impute an intention by reference to what is fair having regard to the whole course of dealing between the parties.’ ([123]).

Resulting / constructive trust of Ting house

June 8, 2012

In Lau Kwai Kiu v Bian Xintian ([2012] 2 HKLRD 954) O applied for land by way of private treaty grant in Lok Lo Ha Village near Shatin under the Small House Policy. He was successful. He paid the premium and a grant of land in the village was made to him. At that time, the Lands Department did not require applicants to sign a declaration to the effect that they had not entered into an agreement to sell the land, hold the property on trust or sell it (the Department later did insist on such declarations).

O had agreed to sell the land to P before making the application. P had supplied the funds for the premium. Once the grant was made, she supplied the funds for the construction of the house and she and her family lived in it from the time of the issue of the certificate of compliance. O had written letters to P confirming that he would give the property to her and would transfer the title to her after five years. This would require a further application to the Government and payment of a premium to lift the restriction on alienation in the grant to O. This application was never made because P could not afford the additional premium. O died and the question of P’s interest in the land had to be decided.

O’s wife argued that P had no interest in the land and that any resulting or constructive trust there might have been was unenforceable on the grounds that the arrangement was illegal or contrary to public policy.

It was held that P had an interest under either a resulting and / or a common intention constructive trust because of the payments and the agreement set out in the letters (signed by the parties and, in the case of one letter, witnessed). There was no illegality on the facts of this case. Even if there were, P had no need to plead it since she could rely on the payments she had made to establish her beneficial interest; she did not need to rely on the letters at all (see Tinsley v Milligan). Nor was the arrangement contrary to public policy since there had been no false declaration. The express agreement envisaged that the necessary application to the Government would be made and the additional premium for the lifting of the restriction of alienation would be made.

The Court of Appeal held that the land was held on a resulting and / or a common intention constructive trust (but expressly subject to the Government’s rights).

Michael Lower

Post-acquisition common intention to create an ambulatory constructive trust

May 11, 2012

In Tong Ka Nin v Tam Chun Wah ([2012] HKEC 563) P and D were joint owners of a flat as tenants in common. They made equal contributions to the down-payment and, at first, to the mortgage installments. Then D became unable to keep up with his share of the mortgage installments so P took on a larger portion of these payments. The judge found that there was “sufficient and / or compelling evidence”  that, after the acquisition, the parties had formed  a common intention that P’s beneficial share would be larger than 50% and that his ultimate beneficial share should reflect his total contribution to the purchase price. That is there was the necessary compelling evidence (Chan Chui Mee v Mak Chi Choiof an agreement to create a post-acquisition ambulatory constructive trust.

Michael Lower

Resulting or common intention constructive trust

March 23, 2012

In Lui Kam Lau v Lui Hon Yiu ([1992] HKEC 8) title to property was in the name of N. She had paid about half of the price and D had paid the other half. He had not intended his contributions to be a gift. N and D had gone through a form of marriage ceremony but were not legally married. N died and the question of beneficial entitlements had to be resolved. The court’s analysis was principally that of resulting trust and it held that D was entitled to 50% of the beneficial ownership on the basis of his contributions. The judge started his analysis by saying that this was a resulting trust case rather than a constructive trust case. Nevertheless, he referred to the Gissing v Gissing line of authorities to the effect that mortgage contributions could be evidence from which to infer a common intention constructive trust. It is possible to argue that the court was simply pointing to the strong similarities between the two types of trust in this context. Unfortunately, the line is blurred where the judge says:

‘The key to the resolution of disputes such as the present one is therefore to identify the common intention of the parties by reference to the evidence.’

The latter part of the analysis seems to be principally that of constructive trust despite the fact that the court had decided that this was a resulting trust case.

Michael Lower

Will the real constructive trustee please stand up?

March 16, 2012

It is important to distinguish between constructive trustees who are really trustees (who received property on the express understanding that they would hold it as trustees) and people who are made liable to account as if they were constructive trustees. This distinction is important because, for example, there is no limitation period in England for recovery of trust property from real constructive trustees but the Limitation Act does apply to actions against those liable to account as if they were constructive trustees.

In Paragon Finance plc v D B Thakerar & Co ([1999] 1 All ER 400) Paragon provided mortgage finance to a number of borrowers in connection with the purchase of residential accommodation. The homes were being acquired by sub-sales and the prices paid on the sub-sales were substantially higher than those being paid by the intermediate vendor. This allowed the ultimate purchasers to borrow more than the properties were worth. The borrowers defaulted. Paragon brought possession proceedings and also actions against the solicitors who had acted for them alleging breach of contract, negligence and breach of fiduciary duty. After the limitation period had expired they sought to alter their pleadings to add claims of fraud, conspiracy to defraud, fraudulent breach of trust and intentional breach of fiduciary duty.

The Court of Appeal decided that these were new claims and so it became important to decide whether the Limitation Act applied to them. It does not apply to claims for breach of trust (in the absence of laches and acquiesence). The question was whether the solicitors could be treated as trustees for the purposes of the Limitation Act. The Court of Appeal (Millett L.J. giving the principal and very well-known judgment) held that they were not true constructive trustees since the claim against them was not based on their breach of an understanding (formed before they received the money) that they would hold it on trust for Paragon. Rather, the claims sought to be added would make them account as if they were constructive trustees. Thus, the limitation period did apply and the new claims would have to have been brought within the limitation period.

Bribes: what kind of constructive trust?

March 13, 2012

Secretary for Justice v Hon Kam Wing ([2003] 1 HKLRD 524) concerned an action by the Hong Kong Government to recover what it alleged to be bribes and property paid for with those alleged  bribes. They had been received not later than 1971 and the Government knew of them by 1976 but did not bring proceedings until March 2000. There was a question as to whether the action was time-barred by the provisions of sections 4(1)(a) and 4(2) of the Limitation Ordinance. It was accepted on both sides that the bribes, if such they were, would be held on constructive trust. But what kind of constructive trust was it? The court had to apply Lord Millett’s distinction between ‘real’ constructive trusts and situations where someone is made accountable as if they were a constructive trustee (Paragon Finance Plc v DB Thakerar & Co). The court decided that this was a ‘real’ constructive trust with the result that there was no limitation period. The crucial pointer to this conclusion was that the recipient of the alleged bribes held them on trust for the employer as soon as they were received (para. 62).

Membership of rival bidding consortia

March 6, 2012

In Button v Phelps ([2006] EWHC 53 (Ch)) P signed on 9th May contractually binding heads of terms to participate in a consortium headed by B (Ryeheath) that would bid for certain commercial properties. At the same time, he was a member of and working for a rival consortium intending to bid for the same properties. On 23rd May P made it clear that he was not part of the Ryeheath consortium and he had no duty towards Ryeheath after that date. Neither of these consortia was successful; the successful bidder was another consortium of which P was a member that participated in a second round of bidding. B claimed damages for breach of contract (essentially to recover the wasted costs of the Ryeheath bid). That claim succeeded.

B’s further claim for an account of profits (based on breach of fiduciary duty or on the Pallant v Morgan equity) failed. It is interesting to see that the court took the view that these were separate potential sources of an equitable claim and that the Pallant v Morgan equity is a constructive trust. The fiduciary duty claim failed because P never undertook to act on behalf of Ryeheath or its members: he had been assigned no clear role by the heads of terms (paras. 60- 61). In any event, there could be no liability to account because there was no link between the alleged breach and the profit made by participating in a later-formed consortium that bid in the second round (para. 66). The Pallant v Morgan claim failed because of the lack of the relevant pre-acquisition arrangement or understanding and because of the lack of advantage / detriment.

Lam Lin v Lam Lok Yiu

February 16, 2012

In Lam Lin v Lam Lok Yiu ([2012] HKEC 206) a grandfather (P1) transferred three pieces of  land in Tai Po to his grandson (D1). D1 sold two of the pieces of land to D2. P1 and his son (P2) claimed that the land had been conveyed to D1 for him to hold on trust for the benefit of family members. It was argued that P1 had misunderstood the nature of one of the documents that he had executed to transfer title to D1 (a deed of gift) and that he had never intended to make a gift of the land to D1. P1 and P2 also claimed that D2 had notice of the alleged family trust and failed to make any enquiries as to whether the beneficiaries consented to the sale. Thus, it was argued, D2 had dishonestly assisted D1’s breach of trust. All of P1 and P2’s claims failed. There was no evidence of a trust having been created. Thus, the claims against both D1 and D2 failed.

Attempting to invoke the Pallant v Morgan equity to overcome lack of agency or partnership

February 9, 2012

In National Trust for Places of Historic Interest v Birden ([2009] EWHC 2023) N and B entered into a share farming agreement from 1995 to 2004. B was to farm N’s land and the profit was to be divided between them. The arrangement was entered into to avoid creating a tenancy. It was agreed that each party was carrying on its own business and that there was no agency or partnership. The judge was happy to accept that this reflected the true nature of the parties’ relationship. The agreement provided that any government subsidies paid would be shared between them. When the agreement ended B moved to another farm not owned by N. In the meantime, the nature of the subsidy paid to farmers changed as a result of EC legislation. B claimed the subsidy he was entitled to in respect of the new farm to which he had moved. His period of managing N’s farm was an important part of his entitlement to the claim in respect of the new farm (the claim was for subsidy for the period after the share farming agreement had ended). N made its own claim for subsidy for the same period (which began after the end of the share farming agreement) and B completed certain forms in an attempt to assist. The government refused to pay N since it did not meet the statutory criteria. N then asked B to hand over part of the payment that he had received on the basis that it was partly attributable to the time that he had spent farming on N’s farm. Thus, N argued, it fell within the requirement to share subsidies.

The court found that the payment was not caught by the subsidy-sharing clause in the agreement. N argued that the agreement showed that there was a common intention that such payments should be shared and that a common intention constructive trust (along the lines of the Pallant v Morgan equity as explained in Banner Homes) came into effect. This failed too. This was an attempt to argue that the share farming agreement amounted to a joint venture and the court found that there was no ‘joint venture’ (para. 157). There was nothing unconscionable about B’s retention of the entire amount of the subsidy he had received.