Archive for the ‘Resulting trust’ Category

Voluntary transfer and resulting trust

November 7, 2013

In Hodgson v Marks ([1971] 2 All ER 684, CA (Eng)) a lady (Mrs H) made a voluntary transfer of her house to her lodger. It was accepted that they both knew that no gift was intended and that the purpose was simply to prevent the lady’s nephew from ejecting the lodger.

The English Court of Appeal found as a fact that the lodger held the property on trust for Mrs H. This was so first because this was a voluntary transfer and the evidence showed that there was no intention to make a gift. Alternatively, the resulting trust arose because this was an attempt to create an express trust that failed for want of compliance with section 53(1) of the Law of Property Act 1925 (in this respect in the same terms as section 5(1) of Hong Kong’s Conveyancing and Property Ordinance) (Russell LJ at 689).

Alternatively, this was a case of an express trust where compliance with section 53(1) could not be relied upon:

‘Quite plainly Mr Evans could not have placed any reliance on s.53 for that would have been to use the section as an instrument of fraud.’ (Russell LJ at p 689).

Michael Lower

Common intention constructive trust or resulting trust?

October 10, 2013

In Liu Wai Keung v Liu Wai Man ([2013] HKEC 1567, CFI) property had been bought as a family home. Title went into the name of the daughter of the family but the payments associated with its purchase and the repayment of the mortgage came from the elder brother. The elder brother claimed that the sister held the property on trust for him absolutely. The property had been sold and he claimed the proceeds of sale.

Both common intention constructive trust and resulting trust were pleaded but the court took the view that where the plaintiff was going to rely on evidence of an actual agreement / intention then the case should be thought of as one of common intention constructive trust ([45]). The relevant principles concerning the common intention constructive trust are set out ([44] – [50]).

The court found that there had been an express agreement at the time of acquisition that the flat would be paid for and beneficially owned by the elder brother. His payments provided the necessary detrimental reliance ([113]).

The brother had asked for title to be assigned to him in 1998 or 1999. The sister claimed that the action was time-barred (Limitation Ordinance, s. 20). This failed:

‘It seems to me it would defeat the very purpose of trusts if a trustee could plead limitation of action against the beneficiary where the trustee still has the legal title but where the beneficiary has been in beneficial enjoyment of the trust property for over six years.’ (Godfrey Lam J at [127]).

The brother was entitled to the proceeds of sale.

Michael Lower

Transfer by mother to daughter for no consideration: resulting trust

September 3, 2013

In Suen Shu Tai v Tam Fung Tai ([2013] HKEC 1287, CFI) (subsequently affirmed by the Court of Appeal) a mother transferred title to two properties to her daughter (probably to avoid any possible claim against the properties on the part of the father). There was no consideration for the assignments. The court found on the balance of probabilities that the mother did not intend to make a gift of the properties and that the daughter therefore held them on resulting trust for the mother ([96]).

There is a lengthy discussion as to whether the presumption of advancement should be extended to assignments by a mother to her child ([61] – [76]). Although the court doubted whether the presumption should be extended to this relationship, it was emphasised that this was not a factor in the decision in this case ([76]).

The daughter had sold one of the properties to a third party and no order was made as to the property (or the proceeds of sale) until the claims made by the third party could be investigated.

Michael Lower

Trusts, ‘alienation’ and the Home Ownership Scheme

December 19, 2012

In Cheuk Shu Yin v Yip So Wan ([2012] HKEC 1554, CFA) the Court of Final Appeal had to consider whether the creation of a trust in respect of a flat purchased under the Home Ownership Scheme (‘HOS’) was an ‘alienation’ for the purposes of sections 17B and 27A of the Housing Ordinance. If so, the trust would be void and a criminal offence would have been committed. In the cases being considered, family members had joined together to contribute to the purchase price and mortgage instalments and it was understood that they would have a beneficial interest in the property as a result (by virtue of a resulting or constructive trust). The Court of Final Appeal decided unanimously that there was no alienation.

Chan PJ looked to the context of the HOS scheme and the language used to determine the relevant intention. The HOS scheme actually envisaged the possibility of a pooling of resources)([5]). It was concerned only to prevent speculative acquisition under the scheme with a view to resale (given the substantial discount enjoyed by first purchasers). The Ordinance did not seek to frustrate or outlaw the pooling of financial resources by family members ([6]). Turning to the language used, ‘alienation’ requires a positive act by the owner while resulting or constructive trusts arising by operation of law ([8]).

Lord Hoffmann’s analysis concentrated rather on the context or purpose of the prohibition. Although he was inclined to agree with Chan PJ on the language point he preferred not to rest his decision on it ([24]). The Court of Appeal had also looked to the purpose behind the scheme. It thought that unless the prohibition was given a wide ambit there would be scope to use the creation of an express trust or the possibility of an implied trust arising by operation of law as a way of sidestepping the policy of the act ([29]). Lord Hoffmann thought that these fears had been exaggerated and saw little scope for use of the trust as a way of creating commercially attractive investments in HOS flats ([30] – [32]). By contrast, allowing family members to pool their resources would promote the purpose of the scheme (to expand the pool of home-owners to include people of limited financial resources) ([33]):

‘[T]he fact that it would often be unjust to deny a beneficial interest to someone who paid the purchase price in the expectation that he would get one is a reason for not construing the statute so widely as to have this effect. Not only would he be denied a remedy, he would have committed a criminal offence for doing something which to most people in his position would seem normal and even generous.’ ([35])

This outcome did not depend on the fact that the trust in these cases arose by operation of law; on the contrary, the same approach applied to an express trust:

‘The reason why the creation of a beneficial interest does not come within s 17B is not because the trust arises by operation of law rather than by an intentional act but because the creation of an equitable interest is not in my opinion an alienation of the land assigned to the purchaser. It is the creation of a new interest in that land. It would in my opinion be very strange if the parties could create a constructive trust by their common intention but were required at all costs to avoid reducing this to an express declaration in writing.’ ([36])

Michael Lower

TANG KIM KWAN PATRICK v LEE CHI TING KAREN

December 5, 2012

TANG KIM KWAN PATRICK v LEE CHI TING KAREN.

via TANG KIM KWAN PATRICK v LEE CHI TING KAREN.

Tribe v Tribe: illegal purposes and rebutting the presumption of advancement

November 7, 2012

In Tribe v Tribe ([1996] Ch. 107, CA (Eng)) a father was worried that he would have to sell the shares in his business to meet the claims of creditors (landlords alleging substantial dilapidations for which the father would be liable as tenant). To put the shares out of their reach (and to give them the impression that he was less wealthy than he was in reality) he transferred his shares to his son on the understanding that they would be transferred back to him when the danger had passed. In fact, however, no creditor ever knew of the transfer so there had been no actual deception. The father was able to resolve the difficulties with the creditors. He then asked his son to transfer the shares back to him but the son refused. The father sought a declaration to the effect that he was entitled to the entire beneficial interest and succeeded. He was able to show that a resulting trust had arisen.

He had to rebut the presumption of advancement and, to do so, had to give evidence of the unlawful purpose (putting assets beyond the reach of creditors) that underlay the scheme. Normally, this would not be possible but there is an exception where the unlawful purpose has not been carried into effect (where no attempt has been made to deceive any actual creditor). The exception applies even though the reason for not carrying out the unlawful purpose is that the danger has passed. The policy underlying the exception is to encourage people to pull back from fraudulent schemes even though they have put the foundations in place. Once the unlawful purpose has been implemented (an attempt has been made to deceive a creditor) then it is too late to invoke the exception.

Millett L.J. pointed out that even where the presumption of advancement does not apply transferors should not be lulled into a false sense of security by Tinsley v Milligan. Where there is no presumption of advancement a presumption of resulting trust will arise:

‘But the transferee cannot be prevented from rebutting the presumption by leading evidence of the transferor’s subsequent conduct to show that it was inconsistent with any intention to retain a beneficial interest. Suppose, for example, that a man transfers property to his nephew in order to conceal it from his creditors, and suppose that he afterwards settles with his creditors on the footing that he has no interest in the property. Is it seriously suggested that he can recover the property? I think not. The transferor’s own conduct would be inconsistent with the retention of any beneficial interest in the property. I can see no reason why the nephew should not give evidence of the transferor’s dealings with his creditors to rebut the presumption of a resulting trust and show that a gift was intended. He would not be relying on any illegal arrangement but implicitly denying it. The transferor would have to give positive evidence of his intention to retain a beneficial interest and dishonestly conceal it from his creditors, evidence which he would not be allowed to give once the illegal purpose had been carried out.’ (129)

Tinsley v Milligan: resulting trusts arising out of unlawful schemes

November 6, 2012

In Tinsley v Milligan ([1994] 1 A.C. 340, HL) T and M carried on a joint business. A property was acquired with all of the funds needed for the down payment and mortgage instalments coming from the profits of the business. Title to the property went into T’s name alone to facilitate M’s purpose of making fraudulent social security claims. When T and M fell out, T sought an order for possession. M claimed a share under a resulting trust. The question was whether she could make this claim given the unlawful purpose that led to title being in T’s name.

The majority of the House of Lords (Lord Goff dissenting) held that she was entitled to claim an interest under a resulting trust since she did not need to plead her unlawful purpose. Lord Browne-Wilkinson said:

‘A party to an illegality can recover by virtue of a legal or equitable property interest if, but only if, he can establish his title without relying on his own illegality. In cases where the presumption of advancement applies, the plaintiff is faced with the presumption of gift and therefore cannot claim under a resulting trust unless and until he has rebutted that presumption of gift: for those purposes the plaintiff does have to rely on the underlying illegality and therefore fails.’ (at 375)

Co-ownership (NSW)

August 24, 2012

In Fallon v Madden (SC 2010/332163) B and M co-habited in property that was in M’s name. After several years of co-habitation they married. M died and B claimed that he had an interest under a resulting trust on the basis that he had provided all of the purchase price. The Supreme Court of New South Wales found that he had supplied 50.5% of the purchase price. Since the purchase preceded the marriage, the presumption of advancement did not apply. Thus, B was entitled to a 50.5% beneficial interest under a resulting trust. The co-ownership was as tenants in common (reflecting section 26 of the Conveyancing Act).

After M’s death (when the presumption ceased to apply) B made some repayments in respect of a loan which M had guaranteed (with the guarantee being secured by a mortgage over the property) and paid off M’s outstanding tax liability. He was entitled to recover these sums from M’s estate (which would otherwise have been liable). He paid for work at the property but was not entitled to compensation since the work did not increase the value of the property. He was entitled to compensation for the council rates that he had paid but not for water rates (a consumable). On the other hand, he had occupied the property. His claims to compensation relied on equity’s help. If he decided to press them (he had an option) then he must pay an occupation fee on the basis that he who seeks equity must do equity.

No equitable interest where the claimant would need to rely on an unlawful agreement

August 17, 2012

In Barrett v Barrett ([2008] EWHC 1061) T and J were brothers. T owned the freehold of a house. T was declared bankrupt. J acquired the house from the trustee in bankruptcy and some years later he sold it. T claimed that J held the title to the house in trust for him. He alleged that he and J had agreed that J would be the ‘paper’ owner, holding the property on trust for T who would meet all of the outgoings (which would be chanelled through J). The aim was to avoid T’s trustee in bankruptcy having any claim to T’s beneficial interest.

The judge thought that this could not be a resulting trust case since T had not directly contributed to the mortgage payments or purchase price. He paid J and J made the payments ([24]). There were alternative explanations for the payments made by J to T (J alleged that they were rent payments). So there was a need to show that the payments were referable to the unlawful agreement (unlawful because it was entered into to avoid s333(2) of the Insolvency Act 1986). The common intention constructive trust claim failed because of the unlawful purpose. The same problem would be fatal to claims based on the agreement to found a claim of an express trust, proprietary estoppel or a Pallant v Morgan equity.

As David Richards J. explained:

‘Without that [unlawful] purpose the agreement or arrangement has no rational explanation. Thomas needs to allege and prove it in order to establish the agreement, but in doing so he relies on his own illegal purpose and thereby renders his interest unenforceable.’ [25]

Nor was the unlawful purpose too remote from the creation of the alleged beneficial interest. The whole purpose of the alleged agreement was to deprive the trustee in bankruptcy of the opportunity to acquire T’s beneficial interest in the property.

Michael Lower

Resulting trust: gratuitous transfer to put property out of creditor’s reach

August 16, 2012

In Yue Shiu Ngam v Zen She Lin ([1999] HKCU 1669) P transferred the title to his flat to D1  (his brother-in-law) for no consideration. This was done to try to prevent a creditor from obtaining a charging order over it. D2 (P’s sister and D1’s wife) knew of the arrangement. D1 tranferred the title to D2 again for no consideration. P was able to obtain declarations that D1 held the property on resulting trust for him and that D2 had no beneficial interest in the property. D2 was ordered to assign the property back to P. The fact that P had entered into the arrangement with a view to defeating creditors was irrelevant since he did not need to plead that purpose; he could rely on the presumption of resulting trust.