Proprietary estoppel: Does detrimental reliance need to be incurred before the death of the promisor?

In Cheung Lai Mui v Cheung Wai Shing ([2021] HKEC 2263) the Court of Final Appeal had to consider whether, in proprietary estoppel cases, detrimental reliance had to be incurred before the death of the landowner who gave the assurance. If it did, they had to consider whether this requirement was satisfied in the present case.

The dispute concerned land in a village in the New Territories. The landowners in question were three brothers, each with a one third share in the land. D3 was the only grandson of the three brothers’ father.

There was a common understanding between the brothers, from the 1970s onwards, that D3 would inherit the land.

Knowing of this, D3, a building contractor, began building a wall around the property in the 1980s. D3 did further work in the early 1990s.

The death of the last of the brothers was in 1999. D3 erected two buildings and did improvement work at the property after 1999.

D3 inherited a one third share of the land. P was the executrix / administratrix of the other two thirds. She sought an order for sale of the land under the Partition Ordinance.

There were two questions:

(1) Did D3’s detrimental reliance have to have been incurred before the death of the brothers?

(2) If so, was the work that he did in the 1980s and early 1990s substantial enough to amount to detrimental reliance?

The Court of Final Appeal held that the detriment had to be incurred before the death of the landowner ([31]).

Where there were co-owners, the detriment had to be incurred before the last of the co-owners who gave the assurance ([33]).

Post-death events might be relevant to the form that the relief should take ([32]).

Implicitly, the Court of Final Appeal accepted that D3’s work before 1999 was detrimental reliance.

D3’s claim succeeded.

P held the two-thirds share on constructive trust for D3 who became, therefore, the sole beneficial owner ([38]).

Michael Lower

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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

 

Proprietary estoppel: Australian take on proving detrimental reliance in relationship cases

In Sidhu v Van Dyke ([2014] HCA 19) V was married to the brother of S’s wife. V lived with her husband in Oaks Cottage which was part of a larger lot of land (Burra Station) owned by S and his wife. V and his wife lived in a homestead which was part of the same lot. S and V began a sexual relationship. V and her husband divorced when the latter discovered the relationship.

S assured V on several occasions that he would transfer Oaks Cottage to her on the sub-division of the lot that included Oaks Cottage. S gave V a written note to confirm that he had promised to give Oaks Cottage to V.

V did not seek a property settlement in her divorce proceedings; S suggested that there was no need for her to do so since she had Oaks Cottage. V carried out substantial unpaid maintenance and renovation works on Oaks Cottage and on other parts of Burra Station. She was also actively involved in the work related to the application to sub-divide Burra Station.  V did not seek full-time employment during the years in which she lived in Oaks Cottage.

The relationship ended after nine years. V brought a proprietary estoppel claim when S and his wife refused to convey Oaks Cottage to V.

The first instance judge (Ward J) found that S made two promises to transfer Oaks Cottage to V by way of gift. These promises were, he found, conditional on the sub-division of the Burra Station lot. The claim failed. First, it would not have been reasonable for V to rely on the promises since the condition could only be satisfied with the consent of S’s wife. Second, Ward J. concluded that V had not been able to prove reliance on the promises. His reading of the evidence was that she might have incurred the detriment even in the absence of the promises.

V succeeded on appeal to the Court of Appeal of the Supreme Court of New South Wales. First, it was not objectively unreasonable for V to have relied on S’s promises. Second, the Court of Appeal relied on Greasley v Cooke: the circumstances were such as to raise a ‘presumption of reliance’. Barrett JA said:

‘Where inducement by the promise may be inferred from the claimant’s conduct, as is the case here, the onus or burden shifts to the defendant to establish that the claimant did not rely on the promise. It was therefore for [S] to rebut the presumption and establish that [V] did not rely at all on the promises in acting or refraining from acting to her detriment’ (Van Dyke v Sidhu (2013) 301 ALR 769 at 786 [83]).

The presumption of reliance was raised and had not been rebutted. Having regard to S’s wife’s interest in the property, the Court of Appeal refused to order the transfer of Oaks Cottage to V. Rather, S was ordered to pay equitable compensation by reference to the value of the disappointed expectation.

S appealed to the High Court of Australia. S contended that the Court of Appeal had gone astray in speaking of a presumption of reliance and thus reversing the burden of proof. Further, equitable compensation should be calculated by reference to the loss suffered in reliance on the promises and not by reference to V’s expectation.

The High Court of Australia rejected the notion that there could be a presumption of reliance:

‘In point of principle, to speak of deploying a presumption of reliance in the context of equitable estoppel is to fail to recognise that it is the conduct of the representee induced by the representor which is the very foundation for equitable intervention. Reliance is a fact to be found; it is not to be imputed on the basis of evidence which falls short of proof of the fact. It is actual reliance by the promisee, and the state of affairs so created, which answers the concern that equitable estoppel not be allowed to outflank Jorden v Money by dispensing with the need for consideration if a promise is to be enforceable as a contract’ ([58]).

There was no shifting of the burden of proof as regards reliance; the onus remained on V ([61]). Rather, ‘[t]he real question was as to the appropriate inference to be drawn from the whole of the evidence, including the answers elicited from the respondent in the course of cross-examination’ ([64]).

Put another way, the question was ‘whether, when all the facts are in, the court is satisfied on the balance of probabilities that the promises in question contributed to the respondent’s conduct in deciding to commit to her relationship  with the appellant and adhering to that relationship (with all that that entailed) for eight and a half years’ ([66]).

Nevertheless, V was able to show reliance: ‘A review of the whole of the evidence shows that the respondent had made out a compelling case of detrimental reliance’ ([67]). It was enough that the promises contributed to the decision by V to carry out work on the property. The promises did need not to be the sole cause of the detriment, merely to have influenced the decision (Amalgamated Investment & Property Co Ltd (In Liq) v Texas Commerce International Bank Ltd [1982] QB 84 at 104 – 105). In Steria Ltd v Hutchison ([2007] ICR 448) Neuberger LJ said that the representation need only have been ‘a significant factor’. V was able to show that this was the case.

On the measure of relief, the High Court said that, ‘[t]he requirements of good conscience may mean that in some cases the value of the promise may not be the just measure of relief ([83]). ‘If the respondent had been induced to make a small, readily quantifiable outlay on the faith of the appellant’s assurances, then it might not be unconscionable for the appellant to resile from his promises to the respondent on condition that he reimburse her for her outlay’ ([84]).

This was not the right approach in this case, however, since the detriment involved ‘life-changing decisions with irreversible consequences of a profoundly personal nature’ (Donis v Donis (2007) 19 VR 577 at 588 – 589 [34] per Nettle JA).

‘[I]n the circumstances of the present case … justice will not be done by a remedy the value of which falls short of holding the appellant to his promises … [W]here the unconscionable conduct consists of resiling from a promise or assurance which has induced conduct to the other party’s detriment, the relief which is necessary in this sense is usually that which reflects the value of the promise ([85]).

There was nothing conditional about the promises. These were ‘expressed categorically so as to leave no room for doubt that he would ensure that the subdivision would proceed and that the consent of the appellant’s wife would be forthcoming’ ([86]).

Michael Lower

 

Variation of an express trust or a common intention constructive trust

In Insol Funding Company Ltd v Cowlam ([2017] EWHC 1822 (Ch)) Ms Cowlam and Mr Cowey began to co-habit in 1994 and had a son in 1995. They lived in a property owned by Ms Cowlam. They sold it and in 1998 they bought a new property to be the family home (‘the property’). The transfer of the property into their joint names recorded that they held it as beneficial joint tenants. They did not sign the transfer form.

The purchase of the property was funded by the proceeds of sale of Ms Cowlam’s home and by a mortgage. Initially, they each contributed to the repayment of the mortgage. Ms. Cowlam later injected further substantial capital sums into the property helping to pay off the mortgage and to finance improvement works.

In November 2001 the couple agreed that, in the light of Ms Cowlam’s greater contributions to the property, she had an 80% share and Mr Cowey had a 20% share.

Mr Cowey received GBP85,000 as a severance payment from his employers. He used this to finance his new business. He refused to use any part of it towards the property. He also made it clear that he did not intend to marry Ms Cowlam. From 2006, Ms Cowlam made nearly all of the mortgage payments. From 2007 onwards she made all of the payments.

The court had now to consider the extent of the respective beneficial interests of Ms Cowlam and Mr Cowie (since Mr Cowie’s charge was subject to an equitable charge in favour of Insol Funding Company Ltd).

The declaration in the 1998 transfer of the property to the couple would have been decisive had it been signed by the couple ([76]). It could not have been displaced by a common intention constructive trust ([77] – [79]). It could have been affected by proprietary estoppel ([79]).

The declaration was not enforceable, however, since it was not manifested and proved in writing signed by the parties as required by section 53(1)(b) of the Law of Property Act 1925 (cf Conveyancing and Property Ordinance, s. 5(1)(b)).

There was, however, a presumption of a beneficial joint tenancy under a common intention constructive trust given the domestic context and the fact that the title was in joint names ([86]). There was nothing here to rebut the presumption. The presumption reflected the reality that in 1997 Ms Cowlam and Mr Cowie were a mutually committed couple ([89]).

It is, however, possible for a common intention constructive trust to be varied where the later emergence of a different common intention can be proved.

Such a variation could be shown here. The principal evidence of this was the express agreement between the parties in 2001 that Ms Cowlam had an 80% share. The variation was confirmed by Mr Cowey’s refusal to apply the severance pay to the property and by Ms Cowlam’s assumption of sole responsibility, in fact, for the mortgage payments.

This latter fact was also the necessary detrimental reliance on the changed common intention. Detrimental reliance remains an essential element of the common intention constructive trust ([99]). The fact that Ms Cowlam was also motivated by a concern to maintain a home for her son did not affect this conclusion ([102]).

Ms Cowlam had an 80% beneficial share in the property. Master Bowles would have been prepared to reach the same conclusion had he relied on the principles of proprietary estoppel ([109] – [110]).

Michael Lower

Proprietary estoppel and co-habitation

In Southwell v Blackburn ([2014] EWCA Civ 1347, CA (Eng)) B and S began to co-habit in 2002. S bought a house in his name and he alone made the mortgage payments. He did not envisage marriage precisely because he knew that B might then have a claim against the house. Several years later, the relationship came to an end and S excluded B from the house. B’s claim that they had a common intention to be equal beneficial owners failed. In the alternative she relied on proprietary estoppel.

There was no specific assurance that B would have any right to the home. S did, however, assure B that he was making a long term commitment to provide B with a secure home. S’s assurance was that B would ‘have the sort of security that a wife would have, in terms of accommodation at the house, and income.’ ([16])

Before moving in with S, B had accommodation rented from a housing association. She spent GBP20,000 fitting and furnishing the house. Relying on S’s assurances, B left that accommodation. Although her income was much less than S’s, B did contribute to the couple’s joint expenses.

The first issue was whether the assurances were enough for proprietary estoppel purposes. It is clear that the assurance must be clear and unequivocal and relate to the property. An assurance that B would be provided with a secure home was sufficient to give rise to an equity (Greasley v Cooke). S’s assurance was not, in substance, conditional on the continuation of the relationship ([7]).

The fact that the common intention constructive trust claim to an equal beneficial share had failed did not mean that there could not be an assurance as to the security of B’s right to accommodation ([10]).

Then there was the question of detriment. B had enjoyed rent-free accommodation and had been able to take a degree that enhanced her earning capacity. Did this mean that the detriment had been dissipated over the course of the relationship?

First, it is true that ‘detriment has to be assessed over the course of the relationship’ ([13]). It was right to have regard to the benefits that had accrued to B as a result of the relationship ([14]). But S had also benefited from B’s contributions ([15]).

There are cases where, looking at the course of the relationship from the point at which the promisor reneges on his promise, the benefit has been dissipated. That said, ‘cases involving couples living together lend themselves .. less readily to an arithmetical accounting exercise’ ([17]). Benefits flowed both ways and were incidents of the relationship ([18]).

As for unconscionability, S contended that the relationship was not a marriage and was not expected to be permanent. Thus, there was no unconscionability about withdrawing the security of accommodation. This failed. The point was that B had incurred detriment in reliance on the assurances:

‘It is the detrimental reliance which makes the promise irrevocable and leads to the conclusion, at the end of a broad inquiry, that repudiation of the assurance is unconscionable.’ ([20]).

The relief that was awarded was a payment to reimburse her for the money that she had spent on the home that she had left and on S’s property.

Michael Lower

 

 

Post-acquisition constructive trust: evidential burden where there is reliance on an express statement. Detriment: where the plaintiff’s benefit outweigh any detriment

In Kwan So Ling v Woo Kee Yiu Harry ([2015] HKEC 694, CFI) the plaintiff (a widow) claimed that her parents-in-law had promised to give her and her husband two flats that they owned in Hong Kong. The plaintiff followed her husband to Hong Kong from the mainland. The parents-in-law transferred the title to one of the flats to the plaintiff and her husband. The plaintiff and her husband were allowed to make full use of the other flat (‘the second flat’) for several decades. Sometimes they lived in the second flat and sometimes they rented it out. The plaintiff’s husband and father-in-law died. The mother-in-law, shortly before her own death, transferred the title to the second flat to one of the plaintiff’s nephews. The nephew claimed that the plaintiff was a mere licensee of the second flat and he revoked this licence. The plaintiff claimed that she was the sole beneficial owner of the flat under the terms of a common intention constructive trust. Alternatively, she sought relief on the basis of proprietary estoppel.

The plaintiff’s claims failed for the simple reason that Godfrey Lam J found that there was no common intention / assurance. Nevertheless, he commented on the assertion that a more compelling standard of proof was needed since this would be a post-acquisition constructive trust. He suggested that this idea had no application where the trust was based on an express promise ([24]).

Godfrey Lam J also considered whether there was detriment. The plaintiff and her husband spent several hundred dollars to create internal partitions within the second flat in the 1970s. While this could potentially be detriment, it was not in this case since the income and other benefits that the plaintiff and her husband derived from the second flat far outweighed the expenditure ([53]). The same consideration was also relevant at the level of calculating any relief (53)).

The fact that the plaintiff made significant changes to her life by moving to Hong Kong was potential detriment. There was no causal linkage between this and any possible assurance by the parents-in-law. She moved to Hong Kong because of her love for her husband (54)).

Michael Lower

Looking after the family as detrimental reliance?

In HKCB Finance Ltd v Yuen Yi Wan ([2006] HKEC 1425, CA) title to a family home was in the husband’s name. The husband owned the home and had paid off the mortgage before his marriage (so subsequent payments by the wife could not be referred to payment of the purchase price in any way). The husband sold the property to A who immediately sub-sold to B. B relied on a loan from HKCB to finance the purchase. The original owner’s wife claimed to have an equitable interest under a common intention constructive trust. The basis of the alleged common intention constructive trust was an agreement to be inferred from the wife’s conduct in financially supporting the family, the upbringing of the children and her performance of the household chores and the sum of $50,000 she gave to her husband ([9]).

The majority of the Court of Appeal (Cheung JA dissenting) found that the payments that were made were not referable to any common intention that the wife should have an interest in the property ([16]).  The question as to whether the bank was on notice because of its failure to inspect the property did not arise since the wife had no equitable interest ([17]).

Rogers V-P said:

‘In every case the facts are different. But in the present case the [wife’s] contribution of financially supporting the family and upbringing the children and her performance of the household chores over the six years in which she was in Hong Kong and living with [her husband] even taken together with the sum of $50,000 are so distinct from any right in respect of the property that I cannot see how any claim to an interest in the property arises. The [wife’s] evidence, as already indicated, does not establish that it was her expectation to receive an interest in the property. Still less was there any evidence that [her husband] ever had any intention that the second respondent would have any interest in the property.’ ([24])

Cheung JA (in his dissenting judgment) thought that the proposition that looking after the home and caring for the children could not be the basis for inferring a common intention (Burns v Burns) should be rejected. He referred with approval to approaches in Canada and New Zealand that took a different line. He proposed what might be termed an imputed intention approach:

‘When parties enter into a long term relationship it is most unlikely that they will ever discuss whether they have a share in the family assets or how much each of them would be entitled to at the end of the day. I agree with the view of Cory J that it is just and reasonable that the situation be viewed objectively and that an inference be made out, in the absence of the evidence establishing a contrary intention, the parties expected to share in the assets created in the matrimonial relationship should it end.’ ([63])

In any event, he thought that a common intention constructive trust could be shown even following traditional English / Hong Kong principles. In the typical Hong Kong context (where there are regular management fees to be paid) contributions to ongoing maintenance could be as significant as contributions to purchase price. In the case of a long marriage, the nature of the relationship and the pooling of financial resources were relevant factors ([65] – [70]). Cheung JA thought that the wife was entitled to a half share ([73]).

Cheung JA thought that the suspicious circumstances (the quick sub-sale at double the price) put the bank on notice. It was not entitled to rely on the husband’s statement that there were no other occupiers of the property. It had failed to inspect and had constructive notice of the wife’s equitable interest.

Michael Lower

 

Proprietary estoppel: holistic approach to detriment

In Davies v Davies ([2014] EWCA Civ 568, CA (Eng)) a couple owned a farm. E, the second of three daughters, lived with the parents for much of the time up to the time of her final falling out with them. E worked for her parents for little money, although her pay increased over time. Around 1985 her parents assured E that the farmhouse would be hers one day. She later fell out with them and moved out.  E was later reconciled with her parents but left the farm a second time after another falling out. E’s father induced her to return by promising that she could live rent free in the farmhouse. During part of the time that she lived away from the farm she worked as a technician for a company that provided livestock reproduction services. She enjoyed this work and was good at it. After a third dispute with her father, he brought proceedings to evict her from the farmhouse. She relied on proprietary estoppel to claim some interest in the farmhouse and / or the business.

The English Court of Appeal was concerned only with the threshold question as to whether she had established her right to some form of relief on the basis of proprietary estoppel. The particular issue was that of detrimental reliance. She had received countervailing benefits and the parents disputed her claim that she had been able to earn more from her work as a technician than she had from her work on the farm.

The question was whether the first instance decision that she was entitled to equitable relief was perverse or clearly wrong (Suggitt v Suggitt). In Gillett v Holt, Robert Walker LJ stated that the question of detriment should be approached as part of a broad inquiry. On this basis, the judge at first instance had been entitled to find that there was detrimental reliance:

‘The judge had to determine whether there was substantial detriment by contrasting the rewards of the job at Genus with its better lifestyle with those of working on the farm (including the free accommodation at Henllan) with its greater burdens in terms of working hours and more difficult working relationships. I am not at all persuaded that his conclusion as to where the scales came down in this balancing exercise was wrong.’ (Floyd L.J at [54])

Michael Lower

Proprietary estoppel: ‘detriment’ and countervailing benefits

In Mak Ho Fung v Mak Kai ([2013] HKEC 1924, CA) the Court of Appeal had to consider the concept of ‘detriment’ and the linked concept of countervailing benefits.

Two aunts persuaded their nephew (the plaintiff) to move to Hong Kong from Guangzhou in the early 1980s. They assured him that they would give him their flat if he looked after them. In reliance, he officially changed his surname to that of his aunts and became the foster-son of one of them. He moved to Hong Kong. The aunts had looked after him and had given him a substantial amount of cash to start a business. The question was whether this amounted to detriment or not. The Court of Appeal found that it did.

The question had to be assessed as at the date when the aunts sought to resile from their assurance. Countervailing benefits had to be taken into account. The Court referred to Robert Walker LJ’s statement on the subject in Gillett v Holt (Chu JA at [28]). The judge at first instance had been justified in finding that the nephew had incurred detriment.

On the question of countervailing benefits:

‘[A]lthough countervailing benefits should be taken into account in judging detriments, the court should not embark upon a quantified comparison of the benefits received and the detriments suffered by a claimant. The issue is to be approached on the basis of a broad inquiry.

In view of the life-changing consequences of the giving up of the family name and the adoption of a new surname, notwithstanding the countervailing benefits relied on by the defendants, the Judge would be entitled in the exercise of his wide judgmental discretion to conclude that substantial detriment had been suffered by the plaintiff.’ ([37] – [38]).

Jennings v Rice was not relevant to the appeal since it considered the role of countervailing benefits in deciding on the appropriate relief and this was not the point being considered ([36]).

The aunts had sold the flat to third parties (other nephews). The nephews were ordered to transfer the property to the plaintiff.

Michael Lower

Proprietary estoppel: reliance and detriment

In Cheung Pak Chuen v Au Yeung Wing Chi ([2013] HKEC 721, CFI) C moved to Hong Kong to be with his father and step-mother. Encouraged by them, he brought his family to live in the property owned by the step-mother. He spent some money on the property and on the upkeep of his parents. In part, this was because of their assurance that the property would pass to him on their death provided he looked after them. Also at their suggestion, he gave up his employment and started his own business at the property. His father died. In her will, the step-mother left the property to her nephew rather than to C. After his step-mother’s death, C claimed that he had an interest in the property and he relied on proprietary estoppel.

The nephew argued that there was no reliance since all of C’s actions alleged to be the result of a reliance on the assurances were things that he would have done anyway as a good son. This failed since the assurances had been at least a partial cause of C’s actions (expenditure of money on the property and on looking after his parents).

The nephew also argued that there was no detriment since C had derived considerable advantages from being able to live at, and carry on his business from, the property. On balance, however, the court found that there was not merely a change of position but also detriment.

There is a summary of the law on proprietary estoppel at [72] – [81].

There was the necessary detrimental reliance in this case:

‘Looked at only in this way the detriment suffered by the Plaintiff is said by the Defendant not to be very substantial. Nevertheless, in my view, it is sufficient. He has spent money on the establishment of a business which, although no doubt primarily of benefit to himself and his own family, provided a basis on which he was able to reside with the Parents and, in due course, take care of them. He has provided financial support to the Parents via the “pocket money” some of which might well have been given in any event, but on the Plaintiff’s unchallenged evidence some not.’ ([86], Recorder Anthony Houghton SC)

When it came to the relief, the fact that there had been a clear assurance that the property would belong to C resulted in his being awarded outright ownership of the property ([93]).

Michael Lower