Gift or trust: proving the relevant intention

Leung Wing Yi Asther v Kwok Yu Wah ((2015) 18 HKCFAR 605) arose out of ancillary relief proceedings on the divorce of H and W. W was the daughter of F, a highly successful businessman. In 2005 F transferred shares in his company to W. The result of this transfer, and a 2006 issue of further shares to W arranged by F, was that W had 20 million shares in F’s company. H argued that these shares should be regarded as an asset of W for the purposes of the ancillary relief proceedings.

F and W argued that F had not given the shares to W but remained the sole beneficial owner of them. They pointed to the way in which, even before 2005, F had transferred shares to his children but later insisted on their re-transfer to him. They also pointed to the company’s 2012 purchase of two very valuable properties. The divorce proceedings had already begun by then. F and W argued that F would not have enhanced the company’s value in this way had he thought that part of the gain would go to H.

H succeeded at first instance and in the Court of Appeal. In the Court of Final Appeal, F and W argued that the first instance judge had mistakenly considered that he should decide on F’s objective intention in making the transfer. Stock NPJ agreed that the judge had to ascertain F’s subjective intention; in the absence of an express declaration this, ‘requires an objective inference drawn from the parties’ words and conduct’. The presumptions of resulting trust and advancement are only relevant where there is no evidence of actual intention ([53]). The judge had, however, taken the right approach to this question.

F and W also argued that the first instance judge had not given due weight to the 2012 acquisitions by the company when considering F’s intention. This conduct, though it post-dated the transfer to W, was admissible as evidence of F’s intention in making the transfer. That said, ‘contemporaneous conduct is inherently more likely to be a reliable indicator of intention, to be given greater weight, than are words and conduct after the event.’ ([56])

Michael Lower

 

 

 

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Family ownership disputes: when does Jones v Kernott apply?

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

Express agreement leads to constructive trust not resulting trust

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

Common intention constructive trust: valuation outside the ‘domestic consumer context’

In Erlam v Rahman ([2016] EWHC 111) E had the benefit of a charging order over a house in R’s sole name. R’s wife (‘W’) claimed that she had the benefit of a prior interest over the property by virtue of a Deed of Trust. The Deed of Trust, on its proper construction, did not purport to create a trust but to record the fact that W had contributed 75% of the purchase price and so had a 75% beneficial interest. Chief Master Marsh pointed out that the property had been acquired as a buy-to-let investment. As a result, the right approach, following Laskar v Laskar, was to apply the resulting trust approach rather than the approach applicable to jointly-owned family property explained in Stack v Dowden. W had not shown that she had made any qualifying contributions and so she had no beneficial entitlement. Following Laskar, there was a clear difference in approach as between family homes (‘the domestic consumer context’) and the commercial context (even when the business partners were also family members).

The judge went on to consider the possibility that the Deed of Trust did not intend to record the existence of a prior implied trust but was intended to create a trust. In this case, he would have held that the document was a sham (see [42] – [44] for a discussion of the legal principles concerning shams particularly in the context of a property transaction). The existence of the Deed of Trust had not been revealed to any third parties and no restriction relating to it had been registered at the Land Registry. As between themselves, R and W acted as if the property belonged to R (he kept all of the rental income) ([78] – [82]).

Michael Lower

Resulting or express trust?

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

Deed of gift where the donor held the property on trust

In Leung Mee Kuen v Leung Siu Kuen Bessie ([2015] HKEC 1148) Property A was jointly owned by the plaintiff and her brother (‘LPH’). Property A was sold and some of the proceeds were used to acquire Property B. The title to Property B, however, was placed in the joint names of LPH and his mother. This was done to reassure the mother that she would always have a roof over her head. There was no intention to make a gift of part of the purchase price to the mother. Thus, the plaintiff and LPH were the beneficial owners. The mother executed a deed of gift of her share in Property B to the defendant (the plaintiff’s sister). This did not transfer any beneficial entitlement to the defendant as the mother had no such entitlement.

Michael Lower

Presumption of advancement and participation in an unlawful scheme

In Yip Wai Hong v Yip Kai Tong ([2015] HKEC 501, CFI) a father transferred a village house to each of his two sons.  The consideration referred to in the assignments was never paid. The father now contended that the sons each held their village house on resulting trust for him. The sons sought to rely on the presumption of advancement and Deputy Judge Burrell decided that they were entitled to do so. It did not matter that the defence made no specific reference to the presumption. It was enough to show that there had been a transfer from father to son for the presumption to arise ([34] – [38]). The father also argued that the presumption is now a ‘weak  concept’. This was rejected: Tribe v Tribe from the UK and Calverly v Green from Australia show that the presumption is still alive and well ([41] – [42]).

The father could not rebut the presumption. One reason for this was that in order to do so he would need to rely on evidence of an illegal scheme. The houses were among several built on land owned by the plaintiff under a scheme which involved indigenous villagers selling their ‘Ting’ rights to allow the houses to be built under the Small House Policy. The father alleged that the sons, like the other villagers, had simply sold their ‘Ting’ rights. The overall scheme was undoubtedly unlawful. The sons had to make statutory declarations that they ‘had no intention at present to make any private arrangement for any rights under the Small House Policy to be sold to other individual / developer’ and that they were each the sole owner of the relevant house ([44]). These would be untrue if the sons were not the sole legal and beneficial owners. Although the father was not the maker of the false declarations, his knowledge  that the scheme was unlawful was enough to prevent him from relying on the scheme to rebut the presumption. Further, his actions in making the allegedly false declarations possible by transferring ownership to the sons would be illegal ([54]).

Michael Lower

Resulting trusts and land transferred under an unlawful joint development agreement

In Tang Teng (or Ting) Hong (or Hon) v Cheung Tin Wah ([2014] HKEC 643, CFI) a Tso transferred property to a developer under the terms of a development agreement that provided for the return of the land to the Tso in the case of certain events of default. There was no intention, the court found, to make an outright transfer to the developer. This implies, presumably, that the transfer was simply part of the machinery for implementing the agreement. The developer had failed to apply for building licences as envisaged by the agreement. The Tso sought the return of the land to it relying not on the terms of the agreement but on the basis that the developer held the property on resulting trust for it (there being no intention that the developer should be the beneficial owner of the land).

The main question was whether the claim must fail since the agreement was tainted with illegality  in that its implementation necessarily involved the making of false declarations to the Government by tings ((ie a male indigenous villager of the New Territories entitled to benefit under the Small House Policy). The court found that the Tso could recover the property since it did not need to rely on the unlawful agreement (it merely supplied an explanation as to why the tso  had made the transfer to the developer) ([49]).

The assignment to the developer contained an acknowledgement of receipt of the purchase price (though it had not been paid). It was held that this did not prevent the resulting trust claim since this was collateral to the assignment and not an action on the assignment. The plaintiff was not estopped from bringing evidence to show that the consideration had not been paid ([44]).

Michael Lower

Presumption of advancement between mother and child in Hong Kong

Suen Shu Tai v Tam Fung Tai ([2014] HKEC 1125, CA) is a case where a mother transferred two properties to her daughter. The question was whether the daughter held the properties on resulting trust.

The presumption of advancement as between mother and child

Whether a person who has made a voluntary transfer of property to another intended to make a gift  or to retain beneficial ownership is ultimately a question of fact. Where there was no intention to transfer the equitable ownership, a resulting trust arises. The courts may make use of the presumption of resulting trust and, in appropriate cases, the presumption of advancement to help them find their way through the evidence and to reach a conclusion as to the transferor’s intention.

Historically, the presumption of advancement (equity’s presumption of an intention to make a gift in relevant cases) did not apply as between mother and child (Bennet v Bennet (1878 – 79) L.R. 10 Ch.D. 474). A number of jurisdictions have recently made the point that in modern times, there is no reason to distinguish between fathers and mothers when it comes to the presumption of advancement. This not only reflects the changed social and economic context but also legal policy as regards sex discrimination.  Obiter statements in this case argue that Hong Kong should now take the line that the presumption of advancement applies equally as between fathers and mothers.

In Suen Shu Tai v Tam Fung Tai a mother transferred title to two properties she owned to her daughter.  The mother claimed that the daughter held the properties on resulting trust for her. She succeeded at first instance where the judge found as a fact that the mother did not intend to make a gift of the properties to her daughter. This finding, which the Court of Appeal saw no reason to question, led inevitably to the conclusion that the daughter held the properties on resulting trust. There was no need to rely on any presumption.

Nevertheless, Cheung JA, giving the main judgment, commented on the possible operation of a presumption of advancement as between mother and child. He referred to the approach in other common law jurisdictions and to academic authority. He noted that the Court of Appeal had presumed that the presumption did apply in Au Yuk Liu v Wong Wang Hin Eddy ([2013] 4 HKLRD 373). He concluded that the position in Hong Kong was that there was no basis for distinguishing between fathers and mothers when it comes to the presumption of advancement ([10.15]).

Of course, the presumption of advancement remains an evidential tool and its weight and usefulness depends on the facts of each case. It might be irrelevant in the case of an independent adult child ([10.16] – [10.19]). Little weight would have been attached to it in the present case ([10.20]).

Can there be a resulting trust where the assignments are expressed to be for consideration and record the seller’s receipt of the money?

The daughter also sought to rely on the terms of the assignments to rebut the mother’s claim that there was a resulting trust. The assignment of each of the properties stated that the assignment was made in consideration of the payment of a purchase price and stated that the seller had received the purchase monies. In fact, no money had changed hands.

The daughter first relied on CPO, s.17:

‘Unless the contrary provision is expressed in the assignment, an assignment shall operate to assign all the estate, right and interest in the land assigned which the assignor has in that land, and which he has the power to assign.’

The daughter argued that this provision meant that the mother must be taken to have assigned all of her interest in the property unless an intention to retain a beneficial interest is recorded in the assignment. Cheung JA rejected this. Section 17 did not ‘override the question of intention of the plaintiff at the time of the transfer and also the operation of the resulting trust’ ([7.4]).

The daughter also sought to rely on CPO, s.18:

‘A receipt for consideration in the body of an instrument shall be a sufficient discharge to the person paying the consideration and, in favour of any other person acting on the faith of the receipt, shall be sufficient evidence of payment.’

The daughter (relying on passages in Tsang Chun v Li Po Kwai and Mascall v Mascall) argued that there is a rule to the effect that one cannot adduce evidence to contradict the terms of the receipt clause.  Cheung JA rejected the application of any such rule to the facts of the present case. He referred to a passage in the judgment of Godfrey JA in Tsui Hoi Pan v Wong Chun Ling:

‘as between immediate parties who know all the circumstances, there can be no estoppel by deed. If the facts are as the plaintiff  has pleaded, there is no objection to his asserting the existence of an implied, constructive or resulting trust, merely because of the fact that the assignment to the 1st defendant, on the face of it, appears to be an instrument of value. The law does not allow an instrument such as the instrument here to be used as an instrument of fraud: see eg Booth v Turle’ (Godfrey JA at 3).

Michael Lower

Tang Kim Kwan Patrick – Court of Appeal

Tang Kim Kwan Patrick v Lee Chi Ting Karen ([2014] HKEC 292, CA) concerned four properties in Hong Kong. Three were purchased in the name of the defendant and one was in the joint names of the plaintiff and the defendant. The defendant, who had been the plaintiff’s mistress and had a child by him, had not provided any of the purchase price for any of the properties. The relationship between the parties broke down and the plaintiff alleged that the properties were all held on resulting trust for him and, in one case, the company that he used for his property investment activities.

The defendant appealed against the first instance decision in respect of two of the properties. In the case of one of the properties (Metro Harbour View) the plaintiff had told the defendant that this had been purchased for her ‘to hold onto’. What was the reasonable inference to be drawn from the plaintiff’s words and conduct (including the words just mentioned) ([21])? They were unequivocal evidence of an intention to make a gift ([25]). This was borne out by certain post-acquisition statements of the plaintiff which could be accepted as good evidence of his intention at the time of the acquisition ([27]). The property was intended to be a gift ([29]).

It was accepted that another property (Royal Peninsula) was held on resulting trust for the plaintiff. It had been found, however, that the intention was that the property should be re-sold quickly and that the defendant was entitled  to keep any profit. Although the profit could not be the subject matter of a gift, a power of sale could be. The plaintiff had made a gift of the power of sale ([43]). This was combined with a power to keep the net profit after sale ([42]). The defendant was ordered to sell the property and hand over the original purchase price to the plaintiff. She could keep the net profit (net of any rentals received) ([44]).

Michael Lower