Posts Tagged ‘constructive notice’

Common intention constructive trust and equity’s darling

May 13, 2014

In Mo Ying v Brillex Development Ltd ([2014] HKEC 724, CFI) (partly reversed by the Court of Appeal) title to the flat that was the matrimonial home was in H’s name alone. H entered into an agreement to sell the flat to B and took a lease back. The lease arrangement continued after completion. When H failed to meet the rental payments, B brought proceedings to recover possession. W then claimed that she had a beneficial interest under a common intention constructive trust and that B had imputed or constructive notice of this interest and so took subject to it.

W argued that there was an express common intention in that, after acquisition, H had given an excuse for not putting her name on the title deeds. W invited the court to follow the example given by Grant v Edwards and Eves v Eves but the court refused to do so. The ‘excuse’ was equivocal and, anyway, did not induce W to believe that she had or would have any interest in the property ([59]). Further, this was an alleged post-acquisition agreement and the courts are reluctant to infer a common intention constructive trust in such a case ([60]). There was no express common intention.

W argued that a common intention constructive trust could be inferred from the fact of the marriage. Marriage, alone, however, is not a basis from which to infer a common intention constructive trust ([66] – [68]). W’s sister had made a loan to H. It could not be shown that this was used towards the purchase price of the property. In any event, it was not clear that this could be regarded as a contribution by W ([69] – [70]). While the pooling of family assets could be evidence of a common intention ([71]), there was no evidence of such pooling. In any event, it seems that the court was of the view that there was simply no such common intention ([80]); so even if there had been evidence of pooling, it would only be a factor to be taken into account in determining on the balance of probabilities whether or not there was a common intention. The court was not prepared to infer a common intention from W’s contributions to household expenses (‘the everyday expense of the family’ ([81])) ([81] – [85]).

There was no detrimental reliance; neither her contributions to household expenses nor her decision to give up her job could be so regarded in this case. The necessary causal link was missing ([92]).

Deputy Judge Eugene Fung SC went on to consider whether if, contrary to her view, W had a beneficial interest, B was subject to it. W argued that the estate agent handling the transaction knew of the interest and that this knowledge should be imputed to B. The factual basis of this proposition was doubted. In any event:

‘In cases where an agent’s function is to receive communications on behalf of his principal, one can readily understand why the knowledge of the agent would be imputed to the principal. However, I have some doubt as to whether such a principle applies to an estate agent in Hong Kong. In a typical case, an estate agent’s function is to perform a service by introducing a counter-party to his principal so as to enable his principal to conclude a particular transaction with that counter-party; his function is not to receive communications on behalf of his principal. No cases have been cited to suggest that an estate agent in Hong Kong has the general authority to receive communications for his principal. Accordingly, I am unable to accept Mr Wong’s submission that notice of an estate agent in Hong Kong is imputed to his principal.’ ([117]).

B had, however, failed to inspect the property and so, by virtue of W’s occupation, had constructive notice of any interest that W might have. The fact that this was a sale and leaseback made no difference to this ([131] – [132]).

B’s attempt to avoid this conclusion by invoking estoppel by representation failed since W did not owe B a duty to speak out and inform B of her interest ([148]). The facts did not support B’s defence of waiver ([154]) nor acquiescence ([155] – [157]).

Nor could B rely on laches. Section 20(2) of the Limitation Ordinance provided the limitation period for an action to recover trust property from a third party and this had not expired. In any event, there had been no substantial lapse of time and it was not inequitable for W to enforce her claim against B ([165]).

Michael Lower

Constructive notice: when is a purchaser or mortgagee put on enquiry?

October 6, 2010

When can a purchaser or mortgagee rely on an owner’s statement that there is no-one other than the owner living at the property? When must a purchaser or mortgagee make a physical inspection of the property to see whether there is anyone living there who might have an equitable interest under a resulting or constructive trust?

This question had to be considered in HKCB Finance v Yuen Yi Wan [2006] HKEC 230 (CA). A wife claimed an equitable interest in a property owned by her husband based on her financial contributions.  Her husband agreed to sell the property to Wong and Wong agreed a sub-sale to the first defendant. The sale to Wong was at a gross undervalue and the sub-sale was at a substantially higher price. The three were conspiring to defeat the wife’s claim to the property. The first defendant granted a mortgage to the plaintiff bank.The husband had replied to an enquiry by Wong’s solicitor saying that only he lived at the property. The sale and sub-sale agreements contained warranties to the effect that no-one else lived at the property with a legal or equitable interest in it. The bank had seen these agreements.

The question was whether the plaintiff bank had constructive notice of the wife’s equitable interest. Tang JA held that the wife had an arguable case that the bank had been put on enquiry as to her interest and should have made a physical inspection to see whether anyone else was living there. This was because her husband had sold the property at a gross undervalue and this is often a sign of a fraudulent transaction. If the bank had made the physical inspection they would have discovered the wife’s presence and she would have explained that she was claiming an equitable interest in the property.

Michael Lower

Good faith

October 2, 2010

The concept of ‘good faith’ is relevant to the law of priorities in two ways. First, an equitable interest in land can be defeated by a bona fide (good faith) purchaser for value of a legal estate without notice of the earlier equitable interest. Second, section 3(2) of the Land Registration Ordinance provides that a transaction that should have been registered but has not been is void as against ‘any subsequent bona fide purchaser or mortgagee for valuable consideration’.

What does good faith mean? How is it different (if at all) from the concept of notice? In Midland Bank Trust Co Ltd v Green (No 1) Lord Denning MR said in the Court of Appeal ([[1980] Ch 590) that bad faith is ‘any dishonest dealing done so as to deprive unwary innocents of their rightful dues.’ (at 625).

In the House of Lords ([1981] AC 513), Lord Wilberforce said:

‘I think it would generally be true to say that the words “in good faith” related to the existence of notice. Equity, in other words, required not only absence of notice but genuine and honest absence of notice. As the law developed this became crystallised in the doctrine of constructive notice”. (at 528)

Lord Wilberforce went on to say, however, that ‘good faith’ is not only concerned with the doctrine of notice:

‘Equity still retained its interest in and power over the purchaser’s conscience.’ (at 528)

Michael Lower