Common intention constructive trust: when is the agreement ‘subject to contract’?

In Ely v Robson [2016] EWCA Civ 774 (CA, Eng) E and R co-habited in a property the title to which was in E’s name. When the relationship between E and R broke down, E began possession proceedings and R counterclaimed that she had a beneficial interest in the property under the terms of a common intention constructive trust. The couple met and orally agreed a relatively complex settlement under the terms of which E would hold the property for himself for life with the remainder interest belonging 80% to his children and 20% to R. There were terms governing the payment of outgoings, the right to occupy the property and the compromise of E’s claims to other properties owned by R. It was accepted that the terms of the arrangement would be reflected in a trust deed and that the precise form of the agreement was provisional since, amongst other things, the tax implications of the way in which the deal was structured would need to be considered. E did not pursue the proceedings any further given R’s acceptance of the settlement.

R claimed that the settlement was not binding on her since it was not incorporated in a signed, written agreement satisfying section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. E argued that R was bound by the agreement on the basis of either a common intention constructive trust or proprietary estoppel.

For the purposes of the judgment, the English Court of Appeal  (Kitchin LJ giving the judgment) assumed that R, prior to the agreement, had a beneficial interest in the property under a common intention constructive trust. It reminded itself of Lord Scott’s approach in Cobbe v Yeoman’s Row to the use of proprietary estoppel in the context of agreements concerning land that did not satisfy section 2(1). Lord Kitchin also referred to the passage of Arden LJ’s judgment in Herbert v Doyle concerning such agreements. There is no common intention constructive trust where:

1. a formal written agreement is anticipated; or
2. further terms remain to be agreed so that the interest in property to be acquired is not clearly identified; or
3. the parties did not expect their agreement to be immediately binding.

In these situations, if the agreement is incomplete, the parties cannot rely on constructive trust or proprietary estoppel (Herbert v Doyle, Arden LJ [57]).

The Court of Appeal rejected R’s contention that these requirements were not satisfied in the present case:

1. although a formal written agreement was contemplated, nothing was said or written that precluded the possibility that a binding compromise had been agreed in the meeting between the parties (‘This was not a commercial transaction.’); and
2. there were no terms still to be agreed; and
3. the terms were sufficiently clear to constitute a binding agreement.

E relied on the agreement to his detriment by: not pursuing the possession proceedings; abandoning his claims to R’s other properties; and allowing R to remain in possession. Consequently, E held the property on constructive trust in accordance with the terms that had been agreed.

Michael Lower

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The common intention constructive trust is not limited to the ‘domestic consumer’ context

In Chan Sang v Chan Kwok ([2015] HKEC 822, CFI) title to shop premises was in the joint names of the plaintiff and the defendant (who were brothers). The legal title was held by them as tenants in common in equal shares. The plaintiff successfully claimed to be the sole beneficial owner. The court made a declaration to this effect and ordered the defendant to convey his half share to the plaintiff. The defendant’s name was on the title deeds because of an agreement between the parties and their father. The father made a loan to the plaintiff to allow him to purchase the shop and the defendant’s name was on the title deeds as a form of security. The agreement was that the defendant would give up his share once the loan had been fully repaid. The plaintiff had fully repaid the loan and had also made all the payments due to a bank under the mortgage that had been entered into at the time of acquisition. The defendant made no payments that were referable to the property. The plaintiff had established that he was sole beneficial owner under either a common intention constructive trust or a resulting trust ([76]).

The defendant, basing himself on Laskar v Laskar, argued that the common intention constructive trust had no application here and applied only in the ‘domestic consumer’ context.  Anderson Chow J. rejected this.  Laskar was, rather, authority for the proposition that the Stack v Dowden presumption of equality in joint name cases only applied to the ‘domestic consumer’ context.  In fact, the case goes to show that it is difficult to draw a dividing line between the domestic and consumer contexts.

Michael Lower

Interpretation of clause modifying duty to respond to requisitions concerning unauthorised structures

In Channel Green Ltd v Huge Grand Ltd ([2013] HKEC 1124, CFI) CG had entered into a contract to buy property from HG. It had paid a 15% deposit. The contract contained a clause to the effect that the property was sold on an ‘as is’ basis. The clause provided that CG could neither raise requisitions concerning unauthorised additions, alterations or illegal structures nor refuse to complete or delay completion on account of any such matters. There were several unauthorised structures at the property. CG raised requisitions concerning these structures and refused to complete. HG elected to terminate the contract and forfeit the deposit as a result.

The question was whether, as a matter of contractual interpretation, the relevant clause meant that CG had no right to raise requisitions nor to refuse to complete on account of the unauthorised structures. The Court of First Instance decided that this was the case ([91] – [98] per Recorder Coleman SC).

The court noted that although the content of pre-contractual negotiations is irrelevant to the process of interpretation, statements of fact made in the course of negotiations are good evidence as to the context or factual matrix and so  are relevant to the construction of the contract ([23]). Thus, the fact that HG had informed CG of the existence of a number of the unauthorised structures before contracts had been exchanged was relevant to the construction of the clause.

The court also considered whether the 15% deposit was a true deposit or whether it could potentially be a penalty and decided that it was a true deposit. While the amount exceeded the conventional 10%, this was justifiable in the context of a lengthy period between contract and completion ([109]).

Michael Lower