Posts Tagged ‘commercial agreement’

Common intention constructive trust as a vehicle for an investment agreement

July 16, 2013

In Pang Ketian Sally v Tam Yak Hung Annie ([2013] HKEC 990, CFI) P, D and F entered into an agreement whereby each of them was to contribute to the deposit for the purchase of a flat and have a proportionate beneficial interest. D was named as the sole purchaser in the sale and purchase agreement. Completion of the purchase was expected to take place some 18 months later. The parties intended to achieve a sub-sale at a profit before the completion date. The property market deteriorated in the period before completion so that even if a sale had been possible it would have been at a loss rather than a profit. The parties had a second meeting at which P agreed to surrender her interest in the property in return for being released from any obligation to fund the purchase and any other costs associated with it. There was exceptionally clear evidence as to the terms of the original and of the second agreements.

P claimed to be entitled to a 5% share in the property in accordance with the original agreement. This failed since it was found as a fact that she had surrendered her interest as part of the second agreement. The case was expressly dealt with as one of a common intention constructive trust rather than resulting trust ([61]).

The court relied on the first instance judgment in Chan Chui Mee v Mak Chi Choi and the House of Lords decision in Stack v Dowden for statements of the relevant legal principles ([57] – [59]).

Michael Lower

When can an informal agreement give rise to a constructive trust?

November 29, 2011

An agreement will not give rise to a constructive trust where: (1) a formal agreement is contemplated but not concluded; (2) some of the terms to be agreed have not been agreed so that the interest in property is not identified; or (3) the parties did not expect their agreement to be immediately binding.

In Herbert v Doyle ([2010] EWCA Civ 1095, CA (Eng)) H and D were neighbours who had negotiated an agreement for the exchange of interests in land. They reached agreement on the terms at a meeting in February 2003. In April 2003 they had a further meeting at which they agreed to proceed on the basis of the February agreement. Both sides intended to be bound as a result of the April meeting. In essence, the question was whether this agreement gave rise to a constructive trust and was enforceable. The judge at first instance held that the agreement did give rise to a constructive trust.

On appeal, H argued that the first instance decision was incompatible with the House of Lords decision in Cobbe v Yeoman’s Row. Arden LJ found that the agreement did give rise to an enforceable constructive trust. In an important passage she said that an agreement will not give rise to a constructive trust (or to a claim in proprietary estoppel) where: (1) a formal agreement is contemplated but not concluded; (2) some of the terms to be agreed have not been agreed so that the interest in property is not identified; or (3) the parties did not expect their agreement to be immediately binding (para. 57). There was some doubt as to whether the property that was the subject of the agreement had been identified with sufficient certainty. In the end this doubt was resolved in D’s favour. The court felt able to fill in the gaps in the agreement in this regard; this was not a case of an incomplete agreeement. Thus, none of the three factors were present here and the judge at first instance had been right to find that there was a constructive trust.

Michael Lower