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

 

 

 

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Settlement induced by misrepresentation that one of the parties had title to land as bona fide purchaser for value

July 25, 2017

In Howin Industrial Ltd v China Group Global Ltd ([2017] HKEC 1485) P transferred land to D2 to D13 for no consideration. D2 to D13 were male indigenous villagers entitled to ding rights. D2 to D13 executed declarations of trust confirming that each of them held his land on trust for P. These declarations were not registered at the Land Registry.

P was wound up. The Government subsequently issued notices of resumption in respect of the land. D2 to D13 assigned the land to D1 which had been incorporated to handle the compensation claims.

P’s liquidators discovered the declarations of trust. They made inquiries and were led to believe that neither D1 nor its lawyers knew of the declarations and that D1 was a bona fide purchaser for value of the land (‘the representation’). This was shown to be false in subsequent criminal proceedings.

Influenced by the representation, P’s liquidators entered into a deed of settlement (‘the deed’) dividing the compensation monies between P and D1.

When P’s liquidators discovered the truth, they sought to have deed set aside. They were successful. It was enough that they were influenced to enter into the deed by the representation (Zurich Insurance Co plc v Hayward [2016] 3 WLR 637, SC).

Time did not start to run until they had discovered the fraud or concealment (Limitation Ordinance, s. 26(1)).

P was entitled to a declaration that it was the sole beneficial owner of the land. This appears to be founded on a resulting trust arising from the fact that D2 to D13 did not give consideration. P did not need to plead the illegality.

In the criminal proceedings, the Court of Appeal had taken the view that the assignments to D2 to D13 were sham documents having no legal effect. D2 to D13 thought that the point of the documents was to transfer the ability to exploit their ding rights.

P was entitled to all of the compensation paid by the Government.

Michael Lower

Easements of necessity

July 17, 2017

In Manjang v Drammeh ((1990) 61 P & CR 194, PC) R, having already occupied 63 Wellington Street in The Gambia for some time, was granted a lease of it for 21 years from 2 February 1977.

R also occupied an adjoining strip of land that lay between 63 Wellington Street and the River Gambia (‘the River Strip’). The only means of access to the River Strip on foot was through 63 Wellington Street. Again after a period of occupation on an uncertain legal basis, R was granted a lease of the River Strip in  1986.

In 1982, R assigned the lease of 63 Wellington Street to A. The assignment did not reserve an express right of way over 63 Wellington Street to access the River Strip.

R argued that a reservation of the right of way should be implied into the assignment. This argument failed.

Lord Oliver set out the three essential requirements for an easement of necessity to be implied: (1) there should have been a common owner of the two plots of land at the time of the assignment; (2) it had to be established that the only way to get to the public highway from the River Strip was across 63 Wellington Street; and (3) there must not have been a specific grant of the right claimed (196 – 7).

The first condition was not satisfied: R had not been the owner of the River Strip at the time of the assignment (R was granted the lease of the River Strip four years later).

It was also arguably the case that the second condition was not satisfied either: it was possible to access the River Strip by boat.

Contrary to the view of the majority of the Gambian Court of Appeal, an easement of necessity can not be implied purely on the grounds of convenience.

Michael Lower

Car parking spaces: common parts?

July 14, 2017

Tai Fat Development (Holding) Co Ltd v Gold King Industrial Building (IO) ([2017] HKEC 1366, CFA) concerned a dispute as to whether or not thirteen car parking spaces in the building were common parts. The first owner of the building claimed to be entitled to their exclusive use.

As always, this was a question of interpretation of the words used in the light of the DMC as a whole, other relevant documents and the factual matrix. The CFA agreed with the courts below that these factors all pointed to the conclusion that the car parking spaces were common parts.

The DMC referred to the spaces as ‘loading and unloading areas’. If the spaces were not common parts there would be a breach of the terms of the Government Grant. There would also be severe practical difficulties.

The first owners also relied on estoppel by convention. The incorporated owners had taken leases of the spaces from them. The necessary common understanding that the first owners owned the spaces was lacking, however; the incorporated owners disputed this claim even as they accepted the leases. Nor could the first owners point to any detriment.

Michael Lower

 

Repairing covenant and the removal of a handrail from a staircase

July 3, 2017

In Dodd v Raebarn Estates Ltd ([2017] EWCA Civ 439, CA (Eng)) Mr D was staying in a friend’s first floor flat. He died after falling while walking down the staircase leading from the flat to the ground floor.

Raebarn owned the freehold of the building. Part of the building was sub-let to an intermediate landlord which had granted further sub-leases of individual flats. The intermediate landlord had, with Raebarn’s consent, altered the building. It removed two existing staircases and replaced them with a new staircase.

The staircase as built did not conform to the plans approved by the local authority in that it seemed likely that the new staircase never had a handrail.

Mrs D brought proceedings against Raebarn under section 4(4) of the Defective Premises Act 1972. Under section 4(4) Raebarn could only be liable if the fact that the new staircase had no handrail amounted to a failure to maintain or repair the property. The question, then, was whether the lack of a handrail amounted to disrepair.

Lewison LJ gave the main judgment with which the other members of the Court of Appeal agreed. The obligation to repair only arises when the demised premises are out of repair ([16]). The duty to repair is not a duty to make safe ([17]). Where, however, there is a need to repair, the work must be carried out in accordance with any applicable regulations and in accordance with standards of good practice at the time that the work is carried out ([25]).

Mrs D’s argument was that the removal of the original staircases was a deterioration in the property giving rise to a need to repair them. The repair works had to be carried out to the requisite standard. The missing handrail meant that they did not satisfy this standard. There had therefore been a failure to maintain and repair the property so that Raebarn was liable under s. 4(4).

This argument failed. The work on the staircases did not give rise to a lack of repair since the head-lease contemplated that such work might be carried out with Raebarn’s consent.

Once the new staircase had been installed, the repairing covenant applied to the staircase as altered. Had it deteriorated? It had not if there had never been a handrail.

Even if the altered staircase had once had a handrail which had been removed, it did not necessarily follow that the staircase was in disrepair. If there was no disrepair, the duty to carry out repairing works to the requisite standard never arose.

Michael Lower

Adverse possession: death of licensor terminates a licence

June 26, 2017

The facts of Hsieh Haw Shane Gary v Chang Ho Ying ([2017] HKEC 1246) illustrate that a licensor’s death terminates a licence to occupy land.

Madam Chang was registered as the owner of a flat (‘the flat’). She died intestate in 1966. Letters of Administration were granted to Mr. Chang, her husband, in 1967. He was solely beneficially entitled to the flat but the legal title was never assigned into his name.

Mr. Chang married Madam Lee in 1970. He died intestate in 1984. Madam Lee did not seek Letters of Administration de bonis non in respect of Madam Chang’s estate. Madam Lee took possession of the flat on her husband’s death and rented it out.

Madam Lee moved to Malaysia in 1998. She gave the keys to the flat to her son, Gary. Gary paid all of the expenses in respect of the flat and collected the rents from then on. Madam Lee died in 2002.

The question was whether Gary had acquired title by adverse possession by 2013 when the flat (and the whole building of which it formed part) was acquired by a developer pursuant to the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545).

Mr. Chang’s death in 1984 brought an end to any licence that he may have granted to Madam Lee. Gary began a new period of possession in his own name when he was given the keys and managed the property from 1998. He had therefore been in adverse possession for more than twelve years by 2013.

Gary had defeated Madam Chang’s title and he was entitled to the proceeds of sale of the flat.

Michael Lower

Adverse possession and the Land (Compulsory Sale for Redevelopment) Ordinance

June 19, 2017

In Chung Chiu Hing v Law Sam ([2017] HKEC 1198) Madam Law was the registered owner of a flat (‘the Flat’). P claimed to have acquired title through adverse possession. The Flat had been sold pursuant to the Land (Compulsory Sale for Redevelopment) Ordinance (‘the Ordinance’) and P further claimed to be entitled to the share of the proceeds of sale attributable to the Flat.

Madam Law was the registered owner of the Flat. She granted an oral tenancy to P’s mother-in-law. Madam Law died in 1981. At some point she had simply stopped collecting the rent due under the agreement.

C, P’s husband, moved into the Flat to look after the Mother-in-Law in 1985 and they had joint possession of the Flat. The Mother-in-Law moved out in 1999 and P moved in at around the same time. C died in 2000. P continued in possession from then on.

Chu J. had little difficulty in accepting that the Mother-in-Law and C had been in possession with the necessary intention to possess since 1986 at the latest. P had taken over this possession

Time could only start to run when the oral tenancy agreement came to an end. There was no evidence that the Mother-in-Law or C would have been prepared to pay rent if it had been demanded in 1986; this evidence of their intention to possess suggested that the tenancy had ended.

In any event, section 12(2) of the Limitation Ordinance deems an oral periodic tenancy to come to an end one year after its grant (or from the date of the most recent receipt of rent if later than that).

P had defeated Madam Law’s title. Madam Law’s shares had, however, been sold pursuant to the Ordinance. The Ordinance provided for the relevant share of the proceeds of sale to be paid to the person who had been the owner of the undivided shares prior to the sale. The question was whether the adverse possession claim made P the owner of the undivided shares for this purpose.

Chu J. held that it did; the Ordinance required the owner of the undivided shares to give vacant possession. Madam Law could not give vacant possession because of P’s adverse possession defence. P could be regarded as the owner of the undivided shares for the purposes of the Ordinance.

Alternatively, P’s title was to be regarded as an incumbrance. The Ordinance required the proceeds of sale to be applied towards the discharge of any incumbrance.

Michael Lower

Interpretation of DMC apportionment provision and order for sale of defaulting owner’s shares

June 11, 2017

In Hertford Mansion (Un Chau Street) (IO) v Wong Shing Kwan ([2017] HKEC 1154, DC) the Management Committee of an Owners’ Corporation decided to carry out major renovation works at the property.

The building’s DMC provided that each owner would contribute the proportion of the expenses of managing the property set out in the Fifth Schedule to the DMC. This made the defendant liable for 110 / 1300 of any expenditure. The Management Committee demanded that proportion of the costs of the renovation works.

The Third Schedule to the DMC contained another charging provision. It required the owners to pay a ‘due proportion’ of management expenses including costs of repair, renewal and redecoration.

The defendant refused to pay the proportion of the renovation costs demanded of him. He argued that he was only responsible for a ‘due proportion’ of these costs and that the due proportion should be calculated (in the absence of any indication to some other effect) by reference to the proportion of the undivided shares in the building owned by the defendant. Thus calculated, the due proportion would be less than the sum demanded.

Judge Andrew Li rejected the defendant’s argument. The ‘due proportion’ (on a proper interpretation of this DMC) could only be the proportion specified in the Fifth Schedule. The Third Schedule required owners to pay a due proportion ‘in accordance with the provisions of this Deed’. The Fifth Schedule was the relevant provision of the deed for this purpose. It would be absurd to suppose that the Third and Fifth Schedule contained divergent mechanisms for apportioning exactly the same expenditure.

The defendant repeatedly refused to pay the contribution demanded. The DMC provided that unpaid sums were to be charged on the defaulting owner’s shares. The Management Committee registered a Memorandum of Charge accordingly. They now sought an order for sale of the defendant’s undivided shares.

The order for sale was granted. The DMC made the charge enforceable by the Management Committee. The defendant had ignored repeated warnings.

Michael Lower

Adverse possession: the significance of a failure to fence rural land

June 3, 2017

In Winpo Development Ltd v Wong Kar Fu ([2017] HKEC 1093) P sought an order for possession in respect of land occupied by D. D relied on adverse possession in his defence and counterclaim.

The claim concerned a large and remote area of land in the New Territories. D’s family had lived on and farmed the land since at least 1968.

The land was unfenced. Recorder Whitehead SC accepted that this fact tells strongly against D having had possession of the land ([64]). Here, however, the natural landscape formed clear barriers; fencing would have been superfluous and impractical ([65]).

D had shown the intention to possess. He and his family dealt with the land ‘as an occupying owner might have been expected to deal with it, and to the exclusion of the world at large, including the owner with the paper title’ ([69]).

D’s adverse possession defence succeeded.

Michael Lower

Relief from forfeiture will ordinarily only be granted once during a lease term

May 27, 2017

In Ramadour Industries Ltd v Bullen ([2017] HKEC 974, CA) L granted T a lease of a house on Lamma Island for a two year term. T fell into arrears with the rent but was granted relief from forfeiture. T quickly fell into arrears again and L brought new proceedings seeking possession. T sought relief from forfeiture a second time but this was refused.

The Court of Appeal (Yuen JA giving the court’s judgment) upheld this refusal. The court’s power to grant relief is now codified in section 21F of the High Court Ordinance. Section 21F(1A) provides that relief will only be granted to a tenant once during the term, ‘unless the Court is satisfied that there is good cause why this section should apply in favour of a lessee’.

The intention is clear: relief pursuant to section 21F will normally only be granted once to a tenant during a lease term. The onus is on the tenant trying to invoke section 21F for a second time during a term to show that there is good cause.

Michael Lower