Equitable ownership of the family home: interaction of the common intention constructive trust and the presumed resulting trust

The Court of Appeal judgment in Primecredit Ltd v Yeung Chun Pang Barry ([2017] HKEC 1533, CA) deals with several important issues in the law of the ownership of the family home.

A husband (‘H’) and wife (‘W’) acquired a flat as the family home (‘the first flat’). Subsequently, the family bought a new flat  (‘the flat’) relying on the sale of the first flat to pay off a bridging loan used to acquire the flat.

W also helped to pay off the mortgage taken out to help fund the purchase. Title to the flat was in the name of the husband and S (the youngest child and the only son of the family).

Although H and S were legal joint tenants of the flat, W’s evidence was that she did not intend to make a gift to S during her life but only after H and W had died.

Primecredit (‘the creditor’) had the benefit of a charging order over the flat in respect of S’s indebtedness to the creditor.

H died and S became the sole legal owner through the right of survivorship. The creditor then sought an order for sale of the flat. W resisted this arguing that she had a beneficial interest.

Common intention constructive trust

The burden of proof was on W to show that beneficial ownership did not follow legal ownership.

There was no evidence of an express agreement that W was to have a beneficial interest in the flat. Could such a common intention be inferred? The majority of the Court of Appeal (Lam V-P and Cheung JA) thought so. Kwan JA agreed that W had a beneficial interest but on the basis of a presumed resulting trust rather than a common intention constructive trust.

Lam V-P thought that, ‘at least in the domestic context’, there was no need to resort to the resulting trust where the matter can be resolved by recourse to the common intention constructive trust ([1.3]).

He also said:

‘Since Stack v Dowden [2007] 2 AC 432 and Jones v Kernott [2012] 1 AC 776, as far as Hong Kong is concerned, the modern approach to constructive trust is to assess the common intention of the parties by a holistic approach having regard to the context, see Mo Ying v Brillex Development Ltd ([2015] 2 HKLRD 985. In a domestic context, particularly in relation to a matrimonial home, the court is not constrained in that exercise by pure direct monetary contributions to the purchase price, see the judgment of Baroness Hale at [69] in Stack.

In a Chinese setting, especially for the older generations, where explicit discussions on property rights within the family were not that common, the court has to pay regard to circumstantial matters.’ ([1.6]). Cheung J.A. made the same point ([2.9]).

Whichever route is followed, the court ‘should have regard to the inherent probabilities in light of the surrounding circumstances at the time when the property was acquired.’ (1.4]). The ‘surrounding circumstances’ (another term for ‘whole course of dealing’?) clearly do need to be taken into account when determining intention; where there are rival interpretations / accounts of the surrounding circumstances, which is the most likely?

The fact that the flat was H and W’s only property was highly relevant ([1.5] per Lam V-P). Cheung J.A. thought it credible that H and W would intend to retain ownership in their lifetimes even if S rather than W was joint legal owner ([2.97]).

Cheung JA pointed to several matters which made it appropriate to infer the necessary common intention. There was W’s evidence that there was no intention that S should have an interest during H and W’s lifetime. The common intention could be inferred from W’s financial contributions ([2.10]).

Cheung JA also said:

‘What the judge seems to have overlooked is that the mother’s interest in the matrimonial home is not solely determined by her financial contributions but by reason of her status of a married woman.’ ([2.10]).

Resulting trust

Kwan JA, alone of the members of the Court of Appeal thought that the first instance finding that there was no common intention (common to H, W and S) could not be overturned ([2.6]).

Instead, he found that W had an interest under a resulting trust. This was based on her contributions and her evidence that no gift to S was intended ([42]). Again the ‘inherent probabilities’ are relevant ([46] – [48]).

Common intention constructive trust and resulting trust?

While Lam V-P thought that the applicability of the common intention constructive trust ruled out any application for the resulting trust ([1.3]). Cheung JA thought that the presumed resulting trust still had a role to play even where the analysis was based on common intention constructive trust ([2.14]).

Charging orders and joint ownership

Lam V-P urged masters dealing with charging order applications in respect of jointly owned property not make the order absolute unless notice has been given to all co-owners ([1.9]).

Charging orders and severance

Lam V-P left open the question as to whether the making of a charging order equitably severed a joint tenancy ([1.8]).

Michael Lower

 

 

 

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Can the creation of a common intention constructive trust be inferred from conduct alone?

In Morris v Morris ([2008] EWCA Civ 257) Mrs Morris argued that she was beneficially entitled to a share in the assets of the farming partnership business carried on by her husband and his mother. Mrs Morris’ claim was based on common intention constructive trust and proprietary estoppel. There was no express agreement between Mrs Morris, on the one hand, and her husband and mother-in-law on the other. She argued that, after Stack, the common intention constructive trust could be inferred from her conduct. The conduct that she relied upon was the fact that she did substantial unpaid work in her husband’s business. Mrs Morris also carried on her own, separate horse riding school at the farm. She invested money in the improvement of the land to accommodate this business. She relied on her work and the payment for these works as the basis for inferring the common intention constructive trust.

The English Court of Appeal unanimously held that Mrs Morris’ contributions were not evidence of a common intention to share beneficial ownership of the farming business and its assets. The financial contributions were explained by her desire to develop her own horse riding business. The lack of any express assurance was also fatal to the proprietary estoppel claim. The judgments in the Court of Appeal are significant because they stress that the courts are reluctant to infer a common intention from conduct alone ([23] Sir Peter Gibson and [36] May LJ). Sir Peter Gibson suggests (at [26]) that the common intention can only be inferred from conduct where the alleged agreement is the only explanation of the conduct. This must be too stringent a test; the true test must be whether the alleged agreement is the most likely explanation for the conduct.

Michael Lower

 

Proving the existence of a common intention constructive trust in sole name cases: is marriage enough? Beneficiaries have a duty to inform purchasers where they are aware that a contract has been signed.

In Mo Ying v Brillex Development Ltd ([2015] HKEC 583, CA) H married W in Hangzhou. Shortly afterwards, H returned to Hong Kong and bought a flat in his sole name, using a combination of his own money and a mortgage taken out in his own name. A few months later, W joined him in Hong Kong and asked why her name was not on the title deeds. H told her that this was troublesome and would cause expense. W did not pursue the matter as she thought that the fact of the marriage entitled her to a share in the property. The marriage broke up and W argued that she had an interest under a common intention constructive trust.

On the facts of this case, the husband’s excuse could not be construed as an agreement that W was entitled to an interest. Unlike Grant v Edwards  and Eves v Eves, the words used were equivocal and W did not take them to mean that she was to have an interest in the property ([7.6]  and [7.7] per Cheung JA). There was a suggestion that H had told W that ‘What belongs to me belongs to you’. Had it been proved, this would have been decisive in W’s favour; it had not been proved ([7.2] per Cheung JA).

The whole course of conduct can be referred to when deciding whether or not a common intention constructive trust exists in a sole name case ([6.2] per Cheung JA).  The fact that the parties are married is an important feature of the whole course of conduct but, on its own, it does not give rise to an inference that a common intention constructive trust exists ([7.17] per Cheung JA and [11.4] per Yuen JA). There were no other features of the case that pointed to the existence of a common intention constructive trust. The evidence did not suggest that the parties had pooled their assets and liabilities ([7.19] per Cheung JA). Any payments that W had made towards household expenses were not referable to any common intention that she was to have an interest in the property ([7.20] per Cheung JA). Detrimental reliance remains a necessary element of the common intention constructive trust ([6.12] per Cheung JA).

H sold the property. W was informed of the sale once the provisional sale and purchase agreement had been signed but did nothing to protect her interest or to inform the purchaser of her rights. The sale was later completed. While the purchaser had constructive notice of any interest that W might have (because of her occupation and the purchaser’s failure to inspect) this did not mean that W could not be estopped from enforcing her rights against the purchaser. Her silence, once she knew of the contract, gave rise to an estoppel ([8.7]  and [8.12] per Cheung JA, [11.10] per Yuen JA and [20] per Kwan JA). Even if it were seen as being a proprietary estoppel, it could be relied upon as a defence. It is unhelpful to draw rigid distinctions between types of estoppel ([8.9] and [8.10] per Cheung JA).

This case provide an extremely important review by the Court of Appeal of the framework for the law of the common intention constructive  trust in Hong Kong. It draws on the English developments in Stack v Dowden, Abbott v Abbott and Jones v Kernott. Further, W had commenced divorce proceedings. The comparison between W’s family law rights and her rights as a matter of strict property law is a fascinating thread running through Cheung JA’s judgment. As a wife, W had rights under family law. Should the law of the common intention constructive trust also be especially responsive to the relationship? As explained above, the conclusion reached, ‘with regret’ ([7.23]) was that in the absence of any basis other than marriage for inferring an agreement, W had no claim as a matter of property law.

Michael Lower

Common intention constructive trust arising on a family division

In Yip Chiu Fu v Ip Chiu Fat ([2015] HKEC 201, CFI) a family comprising three fongs owned a house in Shek O (‘the first house’). The family funds, beneficially owned by the entire family, were then used to buy another house in the village (‘the second house’) and a common intention was to be inferred from the source of the funds that the second house was held on trust for the entire family. There was a family division in the second world war. The first house was allocated to the first fong; the ground floor of the second house was allocated to the second fong and the first floor of the second house was allocated to the third fong. Legal title to the first house was now with representatives of the first fong. Legal title to the second house had been kept exclusively within the third fong.

Louis Chan J found that this family division gave rise to a common intention constructive trust that gave each fong beneficial ownership of the physical accommodation allocated to it ([223]). The detriment was the giving up by each fong of its claim to the area allocated to the other fongs ([224]).

Legal title to the second house passed from one generation to the next of the third fong with full knowledge of the beneficial entitlements so that they were not bona fide purchasers without notice ([226]). When the second fong complained, they were told that one of their representatives would be added to the legal title. This never happened but this failure had to be viewed against the background of the assurance of the third fong’s representative that the second fong’s rights would always be respected.

The second fong’s representative now sought a declaration that the third fong’s representatives held the ground floor of the second house on trust for them and that they had an exclusive right to the use and possession of it. She also sought an order vesting title to the property in her (as personal representative of the original head of the second fong). She obtained the orders that she sought.

The third fong argued that the claim was time-barred because of the failure to insist on compliance with the promise to include a representative of the second fong on the title deeds. This failed because this was not wrongful ([236]). In any event, s. 20(1)(b) of the Limitation Ordinance applies to constructive trustees and there is no period of limitation to recover trust property from a trustee ([239]).

Even assuming the failure to honour the promise as to the title to the second house to be wrongful, mere standing by after the breach had been completed could not amount to acquiescence ([243])

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? 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

Joint name case: quantifying the beneficial interest by reference to the whole course of conduct

Hapeshi v Allnatt ([2010] EWHC 392) concerned a dispute as to the ownership of property bought in the joint names of a mother and her son M. There was an agreement that another son, K, was to have a beneficial interest in the property (para. 42). There had been no express agreement that the mother, M and K would hold as beneficial joint tenants. Although there was an express agreement that the mother and M were to hold as beneficial joint tenants, the judge thought that the mother (who spoke no English) had not understood the idea and that the property was actually held by them as tenants in common (para. 47). The mother and M died and the court had to decide how the beneficial ownership was to be divided between K and the estates of the mother and M. The judge referred to Stack and, based on an assessment of the whole course of conduct, decided that the mother’s estate was entitled to 50% of the equity, and that K and M’s estate were each entitled to 25% of the equity. Megarry & Wade’s explanation of the current law as to when a common intention constructive trust can arise (Megarry & Wade (2008) para. 11-025) was quoted with apparent approval (para. 18). This passage suggests that a common intention constructive trust can be inferred from the parties’ whole course of conduct. The finding at para. 42 seems to mean, however, that (in relation to the primary question as to the existence of a constructive trust) there was no need to rely on the whole course of conduct in the present case.

Michael Lower

The common intention constructive trust in the early 80s

Bernard v Josephs ([1982] Ch. 391 CA (Eng)) is interesting because it shows the English Courts reflecting on how to deal with break-ups of co-habitees. An unmarrried man and woman had contributed to the purchase price and mortgage instalments of their home. Title was in joint names but there was no declaration as to their respective beneficial entitlements. The couple quarrelled and the woman moved out. She sought an order for sale.  The English Court of Appeal pointed out the essential nature of the Court’s task in these cases: it is to discover the parties’ intentions as to their entitlements. The focus is usually on intention at the time of acquisition but evidence as to what happened later can shed light on that intention. In some cases, there might be a later agreement (express or implied)  to vary the share intended at the time of acquisition. Griffiths LJ pointed out that the decision not to marry might or might not (depending on the facts of each case) be relevant when determining the parties’ intentions (at 402). The Court of Appeal decided that the parties intended to share the beneficial entitlement equally. The order for sale would be postponed for four months to allow the man to buy out the woman’s share. The man was to pay an occupation rent from the time the woman moved out but was entitled to credit for the mortgage payments since then.

Michael Lower

Quantifying the beneficial interest under a constructive trust focuses on intention

When quantifying a beneficial interest under a common intention constructive trust the Court seeks the intention of the parties. When this has not been expressed, the court can take a holistic approach and look at the whole course of conduct between the parties to see what light it sheds on the matter.

In Holman v Howes ([2007] EWCA Civ 877 CA (Eng)) a couple bought property. They had been married and were divorced at the time of the acquisition. They were attempting a reconciliation. Title to the property was in the man’s name (the defendant). They had each contributed and the Court accepted his evidence to the effect that the intention had been that the property was jointly owned. The dispute was as to how the parties’ respective shares should be quantified. The English Court of Appeal applied the approach of Baroness Hale in paragraphs 69 and 70 of Stack v Dowden. It had to determine what the parties’ intentions had been. It could look at the whole course of dealings between them.  The Court decided that their intention had been that they would share equally in the beneficial ownership of the property.

The defendant had assured the claimant that she would be secure in her enjoyment of the property for as long as she wanted. The Court of Appeal held that this gave rise to an estoppel given that she had detrimentally relied on it. There would be no order for sale without her consent.

Michael Lower