Equity follows the law: the burden of proof

In Lam Fung Ching Annie v Tse Kwok Wing Jacky ([2016] HKEC 2387, CA) the Court of Appeal rejected an application to appeal to it. L, T and T’s father held property as joint tenants. L severed the joint tenancy by notice and successfully applied for an order for sale. T sought to appeal against this finding and order. It appears to have been accepted that there was an equitable tenancy in common since it was accepted that T held her share on trust for her father. At first instance, the judge rejected T’s argument that her father was the sole beneficial owner; L was able to show that she was entitled to a one-third beneficial interest. There was some discussion as to the burden of proof. The Court of Appeal (Kwan JA giving the judgment) took the view that, following the severance, L had a one third share as a legal tenant in common. It was for T to show why the equitable position should differ from this and she had failed to do so ([22] and [23]).

Michael Lower

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Does a charging order sever a joint tenancy?

In Ho Hai Kwan v Chan Hon Kuen ([2015] HKEC 132, CFI) the question was whether there had been an equitable severance of a joint tenancy by virtue of a charging order in respect of the property against one of the co-owners. Was it an act operating on the joint tenant’s share? There were obiter dicta in previous Court of Appeal decisions (Malahon Credit Co Ltd v Siu Chun Wah Alice and Fortis Bank v Yu Kam Hoi Herman) to suggest that this was the case. In this case, it was successfully argued that a charging order did not have this effect. The argument was that a charging order (enforceable in the same way as an equitable charge by virtue of section 20B(3) of the High Court Ordinance) does not confer any title on the person who obtained it but merely creates an encumbrance ([19]). Thus, a charging order had no effect on the four unities of the joint tenancy and was insufficiently final and irrevocable; there was no alienation ([20] – [31]). The charging order did not sever the joint tenancy ([58]).

Michael Lower

Agreement in principle not enough to sever

An agreement in principle to sever a joint tenancy is not enough to amount to a mutual agreement or a course of conduct.

In Gore and Snell v Carpenter ((1990) 60 P & CR 456) a husband and wife owned two houses as joint tenants. They agreed in principle that they would have one of the houses each (and end the joint tenancies). A draft separation agreement included a clause severing one of the joint tenancies but this agreement was part of a package of proposals. Final agreement on the proposals had not been reached by the time of the husband’s death. Judge Blackett-Ord held that there had been no severance. It is a question of intention in each case (at 464). In this case, the parties had come close to agreeing but had not agreed. There was no course of conduct. This requires both parties to commit themselves to a severance but the wife never had.

Agreeing to make mutual wills can sever a joint tenancy

An agreement to make mutual wills concerning property that the parties held as joint tenants can sever the joint tenancy.

In Re Wilford’s Estate ((1879) L.R. 11 Ch.D. 267) two sisters held certain property as joint tenants. They mutually agreed that they would each make wills leaving the property to the surviving sister and after her death to a niece. It was held that this was a dealing by each of the sisters with her half ‘share’ in the property. It is an example of severance by course of conduct.

Equitable severance by mutual agreement

An oral (unenforceable) agreement whereby joint tenants agree that one of them is to acquire the other’s interest is an equitable severance. It is a mutual agreement and may sometimes (depending on the facts) be a course of conduct. A mutual agreement need not be specifically enforceable. Mutual agreement and course of conduct are separate methods of severing a joint tenancy.

In Burgess v Rawnsley ([1975] Ch 429, CA (Eng)) H and Mrs R bought a property as beneficial joint tenants. Mrs R orally agreed to sell her interest in the house to H but then refused to proceed because she wanted a higher price than that originally agreed. The Court of Appeal held that the joint tenancy had been severed. The oral agreement was a mutual agreement to sever even though the agreement could not be enforced (because neither written nor recorded in writing). Lord Denning MR thought it possible that there had also been a severance by course of conduct but the other members of the Court of Appeal disagreed. Mutual agreement and course of conduct are separate methods of severing a joint tenancy.

Lord Denning MR doubted that Nielson-Jones v Fedden had been correctly decided but the other members of the Court of Appeal did not find it necessary to consider this point.

Severance of an equitable joint tenancy under section 36(2) of the Law of Property Act 1925

A divorce petition asking the court to make an order (with an effect to be decided on by the court) at some time in the future does not satisfy the requirements in section 36(2) of the UK’s Law of Property Act 1925 for an effective notice to sever an equitable joint tenancy.

In Harris v Goddard ([1983] 1 WLR 1203 CA (Eng)) Mrs H filed a petition to divorce her husband (H). It contained a paragraph asking the court to make an order concerning the ownership of the property.  H died three days before the hearing and the question was whether the petition severed the joint tenancy.

Lawton LJ stressed that this decision was based on the correct interpretation of s.36(2) of the Law of Property Act 1925 (at 1208). Section 36(2) of the English Law of Property Act 1925 requires a notice purporting to sever an equitable joint tenancy to:

(a) express an intention for the severance to occur immediately (not at some time in the future); and

(b) for the proceeds of sale to be ‘held upon the trusts which would have been requisite for giving effect to the beneficial interests if there had been an actual severance.’

It was held that the relevant paragraph in the petition was not drafted in such a way as to satisfy s.36(2). It was quite unlike the petition in In Re Draper’s Conveyance ([1969] 1 Ch 486).

The applicability of this decision in Hong Kong is unclear since it rests on an interpretation of the Law of Property Act 1925. On the other hand, Lawton LJ commented that s.36(2) is an extension of severance by mutual agreement as expressed in Williams v Hensman (at 1208).

Severance of joint tenancy: must be irrevocable and a mere declaration is not sufficient

Only an irrevocable action can sever a joint tenancy in equity. A mere declaration of intention to sever is not enough.

In Nielson-Jones v Fedden ([1975] Ch 222, [1974] 3 WLR 583 and [1974] 3 All ER 38) the plaintiff and her husband were legal and beneficial joint tenants of the matrimonial home. They both signed a memorandum authorising the husband to sell the home and use the proceeds of sale to buy a home for himself. The husband died after entering into a contract to sell but before the sale had been completed. The question was whether there had been a severance of the joint tenancy.

Walton J held that there had been no severance. The memorandum was too ambiguous to constitute an agreement to sever or an assignment by the wife of her interest in the joint tenancy. The parties’ subsequent conduct (each taking some of the money received as a deposit) was not a course of conduct that could amount to a severance. They were still negotiating about the separation of their financial affairs.

Two important ideas emphasised in Walton J’s judgment are that only irrevocable actions (from which the party severing cannot resile) can amount to a severance and that a unilateral declaration of intention to sever (however clear) is not a severance.

 

In Burgess v Rawnsley Lord Denning MR doubted whether this case had been correctly decided.