Archive for the ‘equitable interests’ Category

Equity’s darling

September 17, 2013

In Pilcher v Rawlins ((1871 – 72) LR 7 Ch. App. 259) a father set up a trust for his children. There were three trustees, one of whom was P the children’s uncle (a solicitor). The trustees advanced money to R on the security of a mortgage (the mortgage deed explained the existence of the trust). Two of the trustees died leaving P as the sole trustee.

P and R connived in a fraudulent scheme. R (also a solicitor) prepared an abstract of title making no mention of the mortgage. R then purported to convey the property to S and L (who had no notice of the trust or the fraud). Immediately before that P executed a deed reconveying the property to R free of the mortgage (despite the fact that the loan had not been repaid). P and R agreed that the reconveyance to R would only be produced if necessary. S and L had no notice of this conveyance either.

The fraud came to light and the beneficiaries sought a declaration that they were the beneficial owners and an order that S and L convey the title back to the trust. They failed on the basis that S and L were bona fide purchasers for value without notice of a legal estate (Sir G Mellish LJ at 273).

Given the facts above, the conveyance of the property by P to R (with its reference to the trust) was an essential element of S and L’s title. This did not fix them with constructive notice. They had acted diligently and at the time of the purchase had reasonably believed that they had good title. The later conveyance to R only came to light in the course of the proceedings. At the relevant time, S and L had ‘neither knowledge nor means of knowledge’ of the trust (Sir G Mellish LJ at 274).

Michael Lower

Part performance: contract unregistered and in breach of New Grant

May 6, 2013

In Silver Hope Ltd v Chan Kwai Wah Alice ([2013] 1 HKLRD 823, CFI) W had entered into a contract to purchase the property in 1996. The contract amounted to a breach of the New Grant covenants concerning the property. W paid the entire purchase price and entered into possession. The contract was stamped but not registered. In 2012, P obtained a charging order in respect of the property and later an order for sale. W now sought to be joined as a defendant to the proceedings and to stay the execution of the order. To succeed, W needed to show that there was an arguable case that he had an equitable interest in the property. W was met by two arguments. First, that the contract was unlawful and so void (because it was formed in breach of covenant). Second, that the charging order (which had been duly registered) had priority over the unregistered contract.

W succeeded in being joined as a party. He was not relying on the contract but on the equity that arouse out of his having paid the entire purchase price and gone into possession (presumably this is on the basis of the doctrine of part performance). Hence, it could be argued that W would not need to plead the unlawful contract (see Tinsley v Milligan).

As for registration, after Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd, it is clear that the court can look at the substance of the competing interests (and then consider the impact of registration or a failure to register). This could be seen as a contest between two equitable interests (Hong Kong Civil Procedure 2012 50/9A/17). Thus, it is arguable that W’s equitable interest has priority over the charging order notwithstanding the failure to register it.

Incorporation of an unincorporated association: who owned the association’s property?

February 5, 2013

In Chap Yick Clansman’s Association Ltd v Mok Fai ([1997] HKLRD 580, HC) the property of an unincorporated association was held by four trustees on trust for the members for the time being of the association. A company was incorporated to take over as the vehicle for the running of the association and all members of the unincorporated association at the time of incorporation were automatically members of the company. There was never any formal assignment by the members of their beneficial interests in the property to the company (as required by section 5(1) of the Conveyancing and Property Ordinance). Twenty years after incorporation, the company became one of the trustees of the property. The question was whether the beneficial ownership of the property had passed to the company or remained with the members immediately prior to incorporation.

The court held that ownership had passed to the company. There had been a novation of the terms of the contract between the members of the unincorporated association when they approved the company’s constitution. This conclusion was reinforced by the fact that the company had been treated as owner of the property for a twenty year period from the date of incorporation to its appointment as trustee. In any event, any member of the unincorporated association would now be estopped from asserting a beneficial claim to the property.