Archive for the ‘presumed resulting trust’ Category

Recovery of land transferred pursuant to an unlawful contract

December 31, 2016

In Li (or Lei) Ting Kit Tso v Cheung Tin Wah ([2016] HKEC 2720) the managers of a Tso entered into an oral agreement with D1. Under the terms of the agreement, the Tso would transfer land to D1 or a party nominated by him. Thirteen houses would be built on the land and the Tso would receive three of these and a cash payment.

D1 had one year from the date of the agreement (in October 1996) to obtain the necessary approval for the development from the Lands Department in accordance with the Small House Policy; otherwise, P could call for the re-assignment of the land to it. D1 agreed that he would not transfer the land to third parties nor allow any nominee of his to do so.

D1 nominated a company, D2, as the party that would enter into the written agreement in line with the oral agreement with D1. The Tso entered into the written agreement with D2 and transferred the land to it. No consideration was paid by D2 to the Tso (although the assignment to D2 stated that D2 had provided consideration).

No development had taken place by 2011 and the Tso wrote to D2 purporting to accept its repudiatory breach in delaying the carrying out of the development and calling on D2 to transfer the land back to it.

D2 had already divided the legal title to the land into thirteen sections and assigned some of them to third parties. After receiving D2’s letter it assigned the remaining sections to third parties.

It was accepted by the Tso that its agreement with D2 was unlawful since it would inevitably involve indigenous villagers making false declarations to the Lands Department. As a result, the Tso could not sue for breach of the agreement.

The Tso was able to rely on the presumption of resulting trust as against D2. The unlawful agreement was not consideration for the assignment to D2. Nor was the Tso estopped by the deed from showing that no consideration had been paid to it.

The problem was that D2 no longer had the land, title to which was in the hands of the various assignees. Since there was nothing to show that the assignees were anything other than good faith purchasers, the Tso had no claim against them.

Instead, D2 was ordered to pay equitable compensation to the Tso (the market value of the land as at the date of the writ).

Michael Lower

Actual intention? Common intention constructive trust not presumed resulting trust.

November 1, 2016

In Re Superyield Holdings Ltd ([2000] 2 HKC 90) a father and son each had one of the two issued shares in SH Ltd. SH Ltd, in turn, held one of the two issued shares in SC Ltd (along with another company LKR Ltd which was essentially owned and controlled by the son). SC Ltd owned a residential property (‘the property’). The question was whether the son was solely beneficially entitled to the property. Recorder Robert Kotewall SC found that he was. The son argued that since the property was bought using a combination of the son’s own funds and a loan to the company that the son had arranged, he could rely on the presumption of a resulting trust. The court seems rather to have found for the son on the basis of the father and son’s actual intention. The judge thought that where the trust rested on actual intention then the presumption of resulting trust had no part to play (at 111). He accepted that SH Ltd was in substance the son’s company and that the father was only involved as a formality to satisfy the then requirements of the Companies Ordinance. The father had been one of the joint guarantors of the loan to SC Ltd used to buy the property and it was possible to argue that this should be treated as a contribution to the purchase price by the father. This would depend upon underlying intention. In any case, the presumption of advancement would apply so that this contribution should be presumed to be a gift from father to son.

Michael Lower

Express agreement leads to constructive trust not resulting trust

October 8, 2016

In Wong Yuk Tung v Wong Po Ling ([2016] HKEC 2143) a husband and wife were legal joint tenants of the family home. The husband’s business ran into difficulties. He and his wife transferred title to the wife and two of their daughters as tenants in common in equal shares. The husband alleged that the arrangement was entered into to put the home out of reach of his creditors and that the daughters held on trust for him. The daughters disputed this. Recorder Lisa KY Wong SC held that since the question was whether or not there was an express agreement between the father and his daughters, this was a common intention constructive trust rather than a resulting trust case. She referred to Re Superyield Holdings Ltd and Liu Wai Keung v Liu Wai Man. She found that there was evidence of an express agreement that accorded with the father’s case. The daughters held the property (and the properties later bought using the proceeds of sale) on trust for the father.

Michael Lower

Illegal sale of ding rights: Tinsley v Milligan re-affirmed

March 9, 2016

In Kan Wai Chung v Hau Wan Fai ([2016] HKLRD 632, CFI) developers entered into cooperation agreements with the plaintiffs (villagers with ding rights). The developers transferred title to parcels of land in a village to the plaintiffs. The agreement provided that the villagers held the lots as nominees and on trust for the developers. The developers and villagers worked together to exploit the ding rights. It was accepted by all of the parties that this aspect of the agreement and the actions done in pursuance of it were illegal.The houses were built and the developers entered into sale contracts (‘the first contracts’) with third parties; the villagers were nominally the vendors in those agreements. The villagers then entered into their own contracts with another purchaser for the sale of the same lots (‘the second contracts’). The developers brought proceedings seeking an injunction to prevent the second contracts from being completed so as to interfere with performance of the first contracts. These proceedings were ultimately settled in such a way as to allow the developers to complete the first contracts and retain the proceeds of sale. The villagers now brought proceedings against the developers and the solicitors who had prepared the first contracts alleging that they amounted to an unlawful conspiracy. This had caused them loss in the form of their own legal costs in defending the injunction proceedings and the costs order made against them.

This was a trial of two preliminary issues. The first of these was whether the villagers had any equitable interest in the property. If they did not then they could not be said to have suffered any loss as a result of the outcome of the earlier proceedings ([33] per Anthony To J). The villagers had not given any consideration for the transfer of the land to them (though the  assignments to them stated otherwise). On the face of it, therefore, the developers could rely on the presumption of resulting trust. The villagers argued that the developers could not rely on the presumption because of the illegality of the agreement concerning the ding rights. This failed since the case fell squarely within the approach laid down by the House of Lords in Tinsley v Milligan ([39] to [48]). The developers could rely on the presumption to establish their proprietary interest and had no need to plead the illegality.

There was some discussion as to whether the High Court of Australia’s approach to illegality in Nelson v Nelson was to be preferred to Tinsley. Anthony To J. considered that he was bound by several Court of Appeal decisions to accept that Tinsley was the approach taken in Hong Kong. It would be for the Court of Final Appeal to reconsider this if asked to do so in some later proceedings ([45]).

Michael Lower

 

Resulting or express trust?

October 28, 2015

In Ng Tak Kau v Cheung Man Kwai ([2015] HKEC 1942, CFI) title to the family home was conveyed into the names of a father and son as joint tenants. When the son ran into financial difficulties, the son assigned his interest in the property to the father. The son’s major creditor argued that this assignment was voidable under section 60 of the Conveyancing and Property Ordinance (on the basis that it as entered into with the intent to defraud creditors).

The first question that the court had to consider was whether the father was the sole beneficial owner. The evidence showed clearly that he had provided the entire purchase price and that, although the presumption of advancement arose, there was no intention to make a gift to the son. There was clear evidence of an agreement (reached with the concurrence of other family members) that the son’s name was on the title purely with a view to ‘easy administration of family assets’ in the event of the father’s death ([19]). Thus, the son had no share and the transaction was merely the exercise of the father’s rights as sole beneficial owner. The creditor’s claim failed. There was no question of estoppel since the creditor did not rely on any belief as to the son’s ownership when making the loan to the son.

It is perhaps surprising that the conclusion was that there was an express trust in favour of the father ([40]) given the lack of writing to evidence the trust (as required by section 5(1) of the Conveyancing and Property Ordinance). The analysis had been couched in resulting trust terms and could easily have been thought of as a common intention constructive trust.

Michael Lower

Occupation of the property as a source of constructive notice

October 6, 2010

In Wong Chim-Ying v Cheng Kam-Wing ([1991] 2 HKLR 253) a husband paid for a flat but it was transferred into the name of his wife. He lived in the flat with her and their children.  The wife sold the flat and absconded. The husband refused to leave and the purchaser sought possession of the property. The Court of Appeal held that the husband was the sole beneficial owner of the property. The purchaser had actual notice of his occupation and had not enquired as to whether or not he had any legal or equitable interest in it. Clough JA explained that, ‘The principle is that notice of occupation is notice of the occupier’s rights.’ (at 262)  As a result, the purchaser had constructive notice of the husband’s beneficial ownership. She held the property on trust for the husband and had to transfer the title into his name.

Michael Lower