Archive for the ‘ownership of the family home’ Category

The equity of exoneration: tenant in common charging her share to protect property from partner’s creditor

October 8, 2017

Insol Funding Company Limited v Cowlam ([2017] EWHC 1822 (Ch)) also raised the question of the equity of exoneration.

Ms Cowlam co-habited with Mr Cowey. They were equitable tenants in common of the family home (‘the property’). Insol was Mr Cowey’s creditor with an equitable charge over Mr Cowey’s share in the property. It sought an order for sale of the property.

To protect her rights in the property, Ms Cowlam agreed to pay Insol GBP 330,000. This was to be treated as part payment of Mr Cowey’s debt. Ms Cowlam granted Insol an equitable charge over her share to secure the sum that she had agreed to pay.

Ms Cowlam claimed to have a proprietary right over Mr Cowey’s share by virtue of the equity of exoneration. This would arise on the date when she charged her interest with the payment of the sum due under her agreement with Insol ([38]).

Ms. Cowlam argued that in granting the charge and in making payment to Insol, she had charged her share with the payment of part of Mr Cowey’s indebtedness to Insol ([35]). Ms Cowlam argued that she had become a guarantor or surety for Mr Cowey’s indebtedness and was entitled to be exonerated out of his share ([113]).

Master Bowles explained that:

‘an equity of exoneration can arise in circumstances where property is charged for the benefit, not of the chargor, but as security for the debts of another and that, where such an equity arises, the chargor is to be regarded as a guarantor, or surety, for the debtor and can look to the debtor for indemnity, or exoneration, in the event that the charge is called upon.’ ([114]).

The equity is proprietary as well as conferring personal rights as against the debtor ([114]). Master Bowles saw no reason why it should not entitle the person claiming it to security over the debtor’s property ([114]).

The equity of exoneration arises from the ‘express, implied, or presumed, intentions of the parties’ ([115]). It was not available here. Ms Cowlam ‘entered into the settlement agreement, in her own right and for her own reasons and was, in so doing, acting purely as a volunteer’.

Michael Lower

 

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Seminar about proprietary estoppel and the family home at CUHK Faculty of Law

October 6, 2017

We will run a seminar about the English Court of Appeal decision in Liden v Burton. Details are as follows:

Session A:
Date: 17 October 2017 (Tuesday)
Time: 1:00 – 3:00 pm
Venue: Classroom 3, CUHK Graduate Law Centre, 2/F., Bank of America Tower, Central
Speaker: Professor Michael Lower

Session B:
Date: 1 November 2017 (Wednesday)
Time: 1:30 – 3:30 pm
Venue: Breakout Room 510, 5/F, Lee Shau Kee Building, CUHK, Shatin
Speaker: Professor Michael Lower

 

(Same seminar in two different venues) 

 
All are welcome!
Please register at: www.law.cuhk.edu.hk/propertylawseminar
For enquiry, please contact Ms Vivian Chen at vivianc@cuhk.edu.hk.

 

ABSTRACT

Proprietary estoppel comes into play where: (1) a landowner (A) gives a third party (R) an assurance that R has or will have an interest in A’s land; (2) R incurs detriment; (3) in reliance on A’s assurance; and (4) in these circumstances it would be unconscionable for A to go back on the assurance given. In these circumstances, R can apply for relief and the court has a discretion to order the relief that it decides would undo the unconscionability arising from A’s attempt to resile from the assurance given.
Proprietary estoppel has a part to play where A and R are a couple in a stable relationship and the property to which the assurance refers is their family home. The courts have developed an approach to proprietary estoppel that is tailored to the family context and that surmounts potential obstacles to the use of proprietary estoppel here. Thus, the assurance may be couched in vague terms but still be clear enough in its context. The concept of detriment is wide enough to include the normal incidents of forming and maintaining a family. If claimants had to show that the assurance was the only factor inducing them to incur detriment it would be difficult for a proprietary estoppel claim to succeed; A would be able to defeat the claim by pointing to R’s mixed motives since the family relationship will often provide a convincing explanation for R’s actions. The courts have developed an approach to reliance that keeps alive the realistic prospect of a successful claim.
The decision of the English Court of Appeal in Liden v Burton ([2016] EWCA Civ 275) illustrates the ways in which the law of proprietary estoppel has been adapted by the courts for use in the family home context. Arguably, the decision represents a further stage in this process of adaptation. Here the assurance was that ‘we would be together for the future, that this would be our home and that he would look after me forever’. This might appear to be an assurance that A regarded the relationship as being for the long term. In its context, it was understood as an assurance that R would have an interest in A’s property.
Proprietary estoppel and the common intention constructive trust overlap; there is no obvious reason why Ms Liden could not have relied on the common intention constructive trust. It is, however, well-established that the fact that a property has been acquired as the family home of a couple who are married or in a long term stable relationship does not lead the courts to infer the existence of a common intention constructive trust. Arguably, there is a discrepancy here between the approach taken in Liden and that taken in common intention constructive trust cases.

 

 

Equitable ownership: single framework for ‘domestic consumer’ and ‘investment’ cases

August 27, 2017

Marr v Collie ([2017] UKPC 17) is an important Privy Council decision re-stating the framework for deciding when equitable ownership differs from the ownership position as revealed by the legal title. Lord Kerr, giving the judgment, stated that the same analytical framework is to be applied regardless of context. This framework applies equally to ‘domestic consumer’ and ‘investment’ or ‘commercial’ cases. Context has a role to play when inferring actual intentions.

 

The framework

When dealing with ownership disputes:

  1. determine the legal ownership of the property;
  2. the onus is then on the party claiming that the ownership position in equity varies from the legal position to establish that this is the case;
  3. where the only available relevant evidence is that the parties have made unequal financial contributions then it may be appropriate to have recourse to the presumed resulting trust;
  4. but the court may have evidence of the parties’ actual intentions so that it would be inappropriate to apply the presumption of resulting trust;
  5. in such cases, the court needs to make findings as to the parties’ actual intentions and give effect to them;
  6. in doing so, the court should examine the whole course of conduct (which would include the state of the title, the reasons for the decision to put the title in joint names if that is the case, the relationship between the parties, whether the property was intended as a family home, how the acquisition was financed and so on).

 

The facts

The case was an appeal from the Court of Appeal of the Bahamas. M was a Canadian citizen working in the Bahamas. C was a building contractor and a citizen of the Bahamas. M and C were in a personal relationship with each other from September 1991 to July 2008.

During that time M and C acquired several properties which were conveyed into their joint names. M paid the entire cost of purchasing the properties. When the relationship broke down, M claimed to be the sole beneficial owner applying the presumption of a resulting trust in his favour.

C claimed that the parties’ common intention was that they would be equal beneficial owners. According to C, the arrangement was that C would carry out renovation works at the properties. C also contended that M was the ‘breadwinner’ in the relationship and that this was relevant to the analysis.

M claimed that C had failed to carry out any renovation works. M also argued that his understanding was that C would make financial contributions to the acquisition of the properties that would equal his own but that no such contributions were made.

C had succeeded in the Court of Appeal. The court attached particular importance to an email from M to the bank that had provided a loan for the purchase of one of the properties. In this email, M told the bank that the property would be held in joint names, ‘meaning that we would have a 50% interest’. The Court of Appeal thought that this was very significant evidence as to the parties’ actual ownership intentions.

In the Privy Council, M’s case was that this email had not been mentioned at first instance nor in the Court of Appeal hearing. He argued that the Court of Appeal should therefore not have made use of the email in its analysis. In any event, the email was, M alleged, inadmissible for procedural reasons.

 

Clash of presumptions?

Lord Kerr considered whether cases like this gave rise to a ‘clash of presumptions’. On this view, the relationship between the parties might place the case in the ‘domestic consumer’ category; the result was a presumption that equity followed the law and that the parties were joint legal and beneficial owners. Or did the fact that the properties were bought as investments place the case in a ‘non-domestic’ category to which the presumption of resulting trust would apply ([53])?

Lord Kerr’s review of the authorities led him to reject this way of approaching the ownership question. He continued:

‘The Board considers that, save perhaps where there is no evidence from which the parties’ intentions can be identified, the answer is not to be provided by the triumph of one presumption over another. In this, as in so many areas of law, context counts for, if not everything, a lot. Context here is set by the parties’ common intention – or by the lack of it. If it is the unambiguous mutual wish of the parties, contributing in unequal shares to the purchase of property, that the joint beneficial ownership should reflect their joint legal ownership, then effect should be given to that wish. If, on the other hand, that is not their wish, or if they have not formed any intention as to beneficial ownership but had, for instance, accepted advice that the property be acquired in joint names, without considering or being aware of the possible consequences of that, the resulting trust solution may provide the answer.’ ([54]).

 

Further fact-finding necessary

The courts below had not considered the relevant facts in sufficient detail. For example, the significance of M’s email to the bank should have been considered at first instance. M should have been given adequate opportunity to make submissions with regard to it.

The Court of Appeal had not addressed the first instance finding that M’s evidence was to be preferred over C’s; this included his evidence as to ownership intentions and the expectation that C would make financial contributions that C had failed to make. The case had to be remitted for hearing before the Supreme Court of the Bahamas.

The court should also consider whether account should be taken of the contributions made by the parties to the costs of acquisition ‘in line with the decision in Muschinski‘ ([60]). This envisages that it might be appropriate (depending presumably on inferred intentions) to use the proceeds of sale of the property to repay the contributions made and then divide the balance between the parties in accordance with their common intention as to ownership ([39]).

Michael Lower

 

 

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

August 2, 2017

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

 

 

 

Common intention constructive trust: context

April 26, 2017

Cheung Lai Mui v Cheung Wai Shing ([2017] HKEC 740) concerned property that had been owned by three brothers (W, F and K) as tenants in common in equal shares.

W died and D1 and D2 inherited W’s share. When F and K died, P (K’s adopted daughter) applied to be administratrix and executrix of their respective estates.

D3 was D1’s son. He claimed to be solely beneficially entitled as a result of a common intention constructive trust. This succeeded.

This was a traditional Chinese family residing in the New Territories ([78]). D3 was the only male descendant of the family. This was a significant fact that lent credence to the allegation of the common intention.

There was evidence of express discussions concerning the common intention and other surrounding circumstances that made it likely that the common intention had come into existence.

The lack of any formal written evidence of the common intention was understandable in the family context ([94] – [95]).

A defence of estoppel by standing by also succeeded ([103]).

So did D3’s adverse possession claim. He had erected a gate. This was an unambiguous assertion of control even though the gate had not been locked ([108]).

Michael Lower

The equity of exoneration: family homes and indirect benefits

April 18, 2017

In Armstrong v Onyearu ([2017] EWCA Civ 268, CA (Eng)) title to Mr and Mrs Onyearu’s family home was in Mr Onyearu’s name but the couple had equal beneficial shares. Mr Onyearu borrowed money to finance his business. The loan was secured by a charge over the family home. The business failed. A was Mr Onyearu’s trustee in bankruptcy.

The question was whether Mrs Onyearu was entitled to rely on an equity of exoneration as against Mr Onyearu (and as against A). A contended that she was not since she had derived an indirect benefit from the loan: it enabled Mr Onyearu to keep his business going and so to continue to meet the mortgage payments.

David Richards LJ, delivering the Court of Apeal’s judgment, explained the equity of exoneration:

‘Where property jointly owned by A and B is charged to secure the debts of B only, A is or may be entitled to a charge over B’s share of the property to the extent that B’s debts are paid out of A’s share.’ ([1])

Whether the equity applies depends on the parties’ common intention ([3]). Where there is no evidence of an actual intention, a presumed intention may arise depending on all the relevant circumstances. In particular, the court looks at whether the co-owner derived any benefit from the debt secured on the property ([3]).

The equity is part of the law relating to the rights of sureties ([24]).

The importance of this case is that it examines whether the type of indirect benefit that Mrs Onyearu was said to have derived from the loan to her husband was relevant to the parties’ presumed intention ([8]).

A contended that the equity could only arise if Mrs Onyearu received no benefit, direct or indirect, from the secured loan ([20]). In effect, A was arguing that the equity could rarely arise in the family home context given the likelihood that the parties’ financial affairs were, at least somewhat, intertwined.

David Richards LJ’s review of the authorities led him to the conclusion that an indirect benefit is not sufficient to deny a right of exoneration to parties in the position of Mrs Onyearu ([82]).

He said:

‘An indirect benefit of the type relied on in this case is far from certain to accrue. In the present case, any benefit was subject to a double contingency: first, that the firm would survive and, secondly, that it would be profitable. Further, the intention as regards the equity is to be inferred as at the date of the transaction. As at that date, the prospect of benefit was wholly uncertain and incapable of any valuation … In general, the benefits must be capable of carrying a financial value’ ([83]).

Mrs Onyearu was entitled to rely on the equity.

Michael Lower

 

The priority of unwritten equitable interests

April 4, 2017

In Si Tou Choi Kam v Wealth Credit Ltd ([2017] 1 HKLRD 1074) A and B acquired property as legal joint tenants. B’s creditor, C, obtained and registered charging orders over the property. C then applied for an order for sale of the property. A obtained a declaration that A was sole beneficial owner of the property (having supplied the entire purchase price) and registered it at the Land Registry.

The priority of unwritten equitable interests is governed by the doctrine of notice. The charging order is to be treated as if it were an equitable charge. Priority is governed by the first in time rule. A’s interest, having arisen at the time of acquisition, has priority under this rule.

There is no authority for the proposition that A is under a duty to obtain a declaration and register it in order to preserve this priority. It was surprising, therefore, that the court held that A’s priority was governed by the date of registration of the declaration.

Michael Lower

 

 

Common intention constructive trust: condition attached to express agreement not satisfied

March 11, 2017

In Gallarotti v Sebastianelli ([2012] EWCA Civ 865, CA (Eng)) G and S were friends. They had each gone to England from Italy. G and S shared rented accommodation and then bought a flat. This was a platonic arrangement. They were happy to share until they were ready to buy homes of their own.

The title was in S’s name. G and S had an express agreement that they would be equal beneficial owners. This agreement was conditional on G contributing more than S to the mortgage repayments since S made a larger contribution than G to the down payment.

G did make some contributions but did not pay as much as S did towards the mortgage; the disparity was significant. The conditional element of the express agreement was not satisfied.

The friends fell out and G sought a declaration as to the extent of his beneficial interest. Arden LJ gave the only full judgment; the other members of the English Court of Appeal were content to agree with her.

The terms of the express agreement showed that ‘the parties were concerned that their ultimate shares in the Flat should, broadly speaking, represent their contributions to it’ ([24]). ‘[T]he inference to be made from the parties’ course of conduct was that they intended that their financial contributions should be taken into account but not that there should be any precise accounting’ ([25]). S had a 75% beneficial interest and G had 25%.

Michael Lower

 

 

Family ownership disputes: when does Jones v Kernott apply?

March 4, 2017

In Wodzicki v Wodzicki ([2017] EWCA Civ 95, CA (Eng)) G and his wife (‘W’) bought a house intending that it should be a permanent home for G’s daughter (‘D’) and her children. Title to the house was in G and W’s name as legal joint tenants.

G died intestate. W began possession proceedings. D counterclaimed that she was the sole beneficial owner of the property.

The first instance judge was of the view that G’s beneficial ownership share belonged to D. He ordered an account to be taken of W and D’s respective contributions to the purchase price, maintenance and outgoings. Their ownership shares would correspond to their contributions.

D appealed. She argued that this resulting trust approach was inappropriate in this domestic context. This argument failed. The first instance judge found that G and W intended  the property to be D’s long-term home. They did not, however, intend D to be the sole beneficial owner. There were no grounds for departing from this finding of fact.

D argued that Jones v Kernott applied and that the intention that she was to be the sole beneficial owner should be imputed as a matter of fairness. This could not succeed given the judge’s finding as to the parties’ actual intentions.

In any event, this was not a context akin to that of co-habitees. D and W were not close. The use of a resulting trust approach was not precluded here.

Even if G had intended D to be sole beneficial owner, this intention could have no effect on W. D sought to rely on Hammersmith & Fulham LBC v Monk and to argue that W was bound by the intention of her joint tenant. This was a misapplication of Monk. That decision has no relevance to a purported disposal of a beneficial interest ([27]).

The finding as to G’s actual intention also meant that D’s claim to sole beneficial ownership based on proprietary estoppel had to fail.

A strange feature of the proceedings was that W presented no evidence when the account was taken. The result was that D was found to be sole beneficial owner.

Michael Lower

Did son hold property on trust for his mother?

January 19, 2017

In Primecredit Ltd v Yeung Chun Pang Barry ([2016] HKEC 2667) title to the family home was in the name of a father and his son as joint tenants. The father died and the son became sole owner by virtue of the right of survivorship. Primecredit was a judgment creditor of the son. It obtained a charging order in respect of the debt. The defendant’s mother claimed that she had a beneficial interest in the property under a common intention constructive trust or a presumed resulting trust.

The mother had the burden of proof to show that the beneficial ownership was different from the legal ownership. She had undoubtedly contributed to the purchase price. On the facts, however, the court did not believe that a trust in her favour should be inferred from these payments. She had intended to make a gift of the contributions to her son.

Michael Lower