Can legal tenants in common create an equitable joint tenancy?

Introduction

Is it possible for legal tenants in common to create an equitable joint tenancy?

If a couple own a flat as legal tenants in common, can they declare that they hold the title to the flat on trust for themselves as joint tenants?

Each tenant in common has a share which is legally distinct from the share of the other tenant in common. How can tenant in common A declare a trust over the share of tenant in common B?

If tenants in common want to create a joint tenancy, do they need to assign the property to themselves as joint tenants?

These were the questions facing the Court of Appeal in Tam Lan Chi Lorche v Chan Siu Mui ([2023] HKCA 1326).

Facts

Mr. and Mrs. Tan were tenants in common of a flat. They executed a declaration that they held the property on trust for themselves as joint tenants.

Mr. Tan died. Mrs. Tan claimed to be the sole beneficial owner by virtue of the right of survivorship.

This was met with the argument that the deed of trust was ineffective.

The analysis in the judgment

Hon. G Lam JA held that the declaration of trust was effective.

While it is true that each tenant in common has a separate share ([18]), the effect of the declaration of trust was that each tenant in common created a trust in respect of their share.

While the form was a single declaration of trust, there were, in substance, two declarations: ‘Strictly speaking there are two trusts, each set up by a different settlor and with a different trustee, but with the same two beneficiaries’ ([19]).

Under the trusts declared, each tenant in common declared that they held their share on trust for both legal tenants in common – Mr. and Mrs. Tan – as equitable joint tenants ([19]).

The declaration was an effective way of creating an equitable joint tenancy.

‘Should one predecease the other, by the right of survivorship which is a characteristic of joint tenancy, the survivor would become solely beneficially entitled under both trusts, in that under one trust the deceased’s estate (or rather, his or her personal representative) would hold the deceased’s half share at law for the survivor in equity, and the other trust would come to an end as the survivor would hold his or her half share for himself or herself absolutely’ ([19]).

An assignment to themselves as joint tenants would be an effective, but not the only, route to beneficial joint tenancy ([21] – [22]).

Wasn’t the declaration of a legal tenancy in common conclusive?

The Court of Appeal also considered the argument that an assignment to the couple as tenants in common was conclusive (relying on Whitlock v Moree [2017] UKPC 44).

Express declarations concerning ownership are conclusive (as between the parties to the deed) as at the date of the deed.

This does not mean, however, that the parties cannot subsequently agree to change the ownership arrangement ([15]); here the declaration of trust changed the ownership arrangements.

It seems reasonable to think that a subsequent enforceable contract could do the same. Presumably, a common intention constructive trust could also bring about a change of ownership.

Michael Lower

Non-registration of trust. Dispositions to defraud creditors

In Goldfame Consultants Ltd v Tse Sai Ming ([2016] HKEC 1113, CFI) TCS agreed to sell land to Goldfame. The contract provided for the payment of deposits and then for the payment of the balance of the purchase price to be made on 14 August 2006. The contract provided that the assignment of the land would take place within 7 days of receipt of a letter from the Buildings Department approving the proposed site formation plan or at such other time as the purchaser might specify. The balance of the purchase price was duly paid on 14 August 2006 but the approval had not been received and the assignment did not take place. Instead, TCS executed Declarations of Trust under which he held the land on trust for Goldfame. TCS also nominated Goldfame as attorney to act for him in relation to the land. Neither the contract nor any of the other documents were registered with the Land Registry.

TCS died intestate in 2010 and TSM was granted letters of administration of his estate. TSM sold the land to H. Goldfame brought an action against TSM for breach of contract seeking damages or the return of the price paid to TCS. It also sought a declaration that TSM held the land on trust for Goldfame. It sought to have the sale to H set aside under section 60 of the Conveyancing and Property Ordinance.

There was no answer to the breach of contract claim and TSM was ordered to repay the purchase price with interest. It was accepted on all sides that the sale contract and the declarations of trust were void as against H since they had not been registered and there was no reason to doubt his good faith. Section 3(2) of the Land Registration Ordinance took effect.

Goldfame was forced to rely on section 60 of the Conveyancing and Property Ordinance. In Tradepower (Holdings) Ltd (in liquidation) v Tradepower (Hong Kong) Ltd, Ribeiro PJ  said that ‘where the disposition was made for valuable consideration, or where the disponor is not insolvent or where the disposition does not deplete the fund potentially available to creditors, an actual intent to defraud creditors must be shown as an inference properly to be drawn on the available evidence before s. 60 is engaged.’ (at [88]). The sale to H was not at an undervalue, nor was there any intention to defraud creditors ([94]). The claim against H failed.

In commenting on the expert evidence as to the market value of the property at the time of the sale to H, Recorder Coleman SC expressed his preference for valuation methods based on direct comparables where available. The subject matter of the transaction (undeveloped rural land where there was no guarantee that the approvals needed for development would be obtained) was somewhat out of the ordinary and so indices looking at the property market as a whole were unhelpful. Valuations based on the residual method involved too many assumptions to be as useful as direct comparables.

Michael Lower