Posts Tagged ‘detriment’

Cheung Lai Mui v Cheung Wai Shing (Hong Kong Court of Appeal)

October 26, 2020

Introduction

Cheung Lai Mui v Cheung Wai Shing ([2020] 2 HKLRD 15) concerned a claim based on common intention constructive trust and proprietary estoppel. Where the landowner (the maker of the relevant assurance) has died, does detrimental reliance need to take place before the death? What kind of knowledge of the detrimental reliance must the maker of an assurance have for a proprietary estoppel claim to succeed.

Facts

Three brothers (W, K and F) were tenants in common in equal shares of land in a village near Sai Kung. From the late 1970s onwards, they reached a common understanding (‘the common understanding’) that D3 (W’s grandson and the sole surviving male descendant of the Cheung family) would own the land when he became an adult.

P was K’s daughter. When he died, she became the executrix of his estate. F died intestate and letters of administration of his estate were granted to P. She thus became the legal owner of K and F’s shares and the beneficial owner of K’s share and beneficial co-owner of F’s share.

W was the last of the brothers to die (he passed away in 1999). His share in the tenancy in common passed to his son and daughter (D1 and D2). D3 was D1’s son.

In 2002, D3 built a one-storey structure on the land and in 2003 he created a second one-storey structure to which he added a second storey. D3 and his family began to live in these buildings in 2002 or 2003.

P lived near D3’s home and visited it on various occasions. She knew that D3 carried out work on the land and raised no objections.

Relations between P and D3 started to deteriorate in 2012. P sought an order for D3 to remove the structures he had built. D3 claimed to be the sole beneficial owner of the land relying on common intention constructive trust and proprietary estoppel.

D3’s claim was based (a) on the common understanding, and (b) on P’s acquiescence in the works that D3 carried out on the land.

The common understanding: timing of the detrimental reliance

P argued that D3’s claims based on common intention constructive trust and proprietary estoppel had to fail because D3’s detrimental reliance (the building works) was incurred after the death of the brothers.

The Court of Appeal agreed that this would be fatal to a common intention constructive trust claim. The case was remitted to the first instance judge for him to determine whether there was any detrimental reliance while the brothers were still alive.

There appears to have been a difference of opinion as to whether detrimental reliance also needed to have been incurred before death for the proprietary estoppel claim to succeed.

Lam VP ([1.6] and Cheung JA ([6.35 and 6.38]) agreed that for common intention constructive trust purposes the detrimental reliance needed to take place before death.

If it had then the brothers’ estates were subject to the equity that had arisen. If not then the property would pass according to their wills or under the intestacy rules, unencumbered by any equity ([1.20] and [6.36]).

Lam VP thought that, in this respect, the law of proprietary estoppel might be different from that of the common intention constructive trust ([1.28]) and that D3’s proprietary estoppel claim based on the common understanding succeeded ([1.35]).

The assurance was that D3 would become the owner of the land when he became an adult. It was not a promise that he would inherit the property on the death of the brothers.

Cheung JA, on the other hand, thought that the requirement for detrimental reliance before the death of the brothers was the same both for proprietary estoppel and the common intention constructive trust ([6.38]).

Could D3 succeed even if there were no detrimental reliance before the death of the brothers? Estoppel by silence.

Cheung JA thought that D3 might still succeed in proprietary estoppel even if D3 only incurred detrimental reliance after the death of the brothers.

It might be possible to argue that she was a party to the common understanding ([6.39]).

Alternatively, there might be an estoppel by acquiescence or standing by ([6.40]). Cheung JA referred to the outline of the relevant law in Mo Ying ([5.6]). P stood by and allowed D3 to carry out the building works in (possibly mistaken) reliance on the common understanding. The case was being remitted to the Court of First Instance and this aspect of the matter would also need to be re-appraised.

Does the maker of the assurance need to know about the detrimental reliance?

It is not normally necessary for the maker of the assurance (the brothers) to know about the detrimental reliance ( Lam VP at [1.34]). Cheung JA addresses this issue at some length in his judgment.

Cheung JA tied his discussion of a knowledge requirement into the ‘narrow’ concept of unconscionability which is concerned with the state of mind of the person giving the assurance ([6.46]). The emphasis is on the quality of the words used not on knowledge of any actual detrimental reliance (Thorner v Major Lord Hoffmann at [5]).

In active encouragement cases (express words of encouragement or assurance) there is not usually any need for the maker of the assurance to have actual knowledge that there was detrimental reliance or the form it took. This knowledge is necessary in the case of estoppel by silence or acquiescence ([6.59] – [6.60]).

Comparison of the common intention constructive trust and proprietary estoppel

Lam V-P thought that the outcome was different in the case of proprietary estoppel when compared with common intention constructive trust. It is not surprising, then, that he draws attention to their differences ([1.4]).

Equitable estoppel ‘is the more flexible tool’ and the court looks backwards from the time when the promise falls to be performed([1.10] referring to Lord Hoffmann’s words in Walton v Walton at [105]).

Michael Lower

The family home. Types of constructive trust. The end of detrimental reliance?

August 22, 2020

Archibald v Alexander: the facts

In Archibald v Alexander ([2020] EWHC 1621) a mother and her three children (Patsy, Brenda and John) orally agreed that a house would be purchased in the name of the mother and one of the siblings. It was to be held on trust for the mother for life and then for the three children equally.

This was for tax-planning reasons and to protect the property from any claim by the mother’s husband should she re-marry. The assumption was that there was no need to take excessive care to formalise the trust given the loving family context.

The property was transferred to the mother and Patsy as joint tenants, neither Brenda nor John was available to attend the solicitor’s office at the time of the purchase.

When the mother died, there was a dispute as to whether Patsy was the sole owner of the property or held it on the terms of the oral trust.

Was there reliance?

If this was a common intention constructive trust, then Brenda and John needed to show detrimental reliance. Fancourt J. held that there was reliance: ‘the non-signing siblings were self-evidently relying on the word and promise of those who did become owners’ ([14]).

Was there detriment?

Given the finding of reliance, the detriment was the decision of Brenda and John not to take steps to legally protect their ownership interest in the house; this was a sufficient change of position ([30]).

Not a common intention constructive trust?

The findings on detrimental reliance were obiter:

‘the instant case is of a different kind, in which a property is transferred (gratuitously) into the name of the owner on the basis of their express agreement to hold the property on trust for another. The owner only obtains the property on the terms of the agreement and equity does not permit them unconscionably to refuse to give effect to the terms. The trust arises from the terms on which the property was transferred, not from detrimental reliance on the agreement by the beneficiary.’ ([32]).

The essential elements of this constructive trust are: ‘property had been transferred to a volunteer on the basis of his promise to hold it on certain terms, and would not otherwise have been so transferred’ ([37]).

Fancourt J. referred to Rochefoucauld v BousteadBannister v Bannister and De Bruyne v De Bruyne.

There is no need to establish detrimental reliance for constructive trusts like this.

Michael Lower

 

Proprietary estoppel and co-habitees: assurance must relate to a specific property

January 3, 2018

Lissimore v Downing ([2003] EWHC B1 (Ch)) concerned the proprietary estoppel claim brought by L on the break-down of her relationship with D, a rock star and the owner of Astbury hall, a large estate in England. The relationship began in 1993 and lasted for seven years. There was an ‘engagement’ but neither party expected to marry.

D was heavily invested in Astbury Hall, both in financial and in psychological terms. Astbury Hall represented the fruits of many years of hard work. Even before the relationship with L deteriorated, D consulted his solicitors as to the steps to be taken to ensure that L would have no claim to an interest in it.

HH Judge Norris QC outlined the law on proprietary estoppel. He emphasised the basic rule that a representation or assurance must relate either to some specific property ([12]) or to the whole of the representor’s property ([15]).

As regards detriment, the judge said, ‘the conduct must be in some sense prejudicial to the party relying on it, or of such a nature that it raises the inference that it must have been induced by some sort of promise.’ ([20]).

The claim failed because there was no representation; it was understood that L could live at Astbury Hall while the relationship lasted. Commenting on the legal effect of the relationship, HH Judge Norris QC said:

‘The fact that that state of affairs happened to endure for several years cannot of itself impose on Mr Downing an obligation to transfer some of his property when he did not undertake such an obligation at the outset. There may be a promissory estoppel (eg a defence to a claim to leave the property before reasonable notice of the change in the nature of the arrangements has expired): but proprietary estoppel is different’ ([37]).

He went on to note the problems that arise in this type of claim:

‘The advancing of a proprietary claim tends to require the claimant to list how much (s)he did, endowing small acts with a great significance whilst at the same time not recording that party’s true contribution to the relationship.’ ([47]).

L’s proprietary estoppel claim failed. D made no statement that would lead her to believe that she was to have a share in Astbury Hall. Nor did L believe that she had any such share ([51]). D’s statements ‘relate almost entirely to the currency of the relationship’ ([53]).

Nor was there any overall detriment: ‘looking at the matter in the round, balancing the burdens assumed in the relationship against the benefits derived from it, and making the assessment after the breakdown of the relationship, no substantial detriment had been suffered’ ([54]).

There is a distinction between property law and family law claims:

‘What I am being invited to do is to make a property adjustment order on the termination of the relationship, not to define what property rights were created during the relationship’ ([55]).

Michael Lower

 

Proprietary estoppel and co-habitation

January 12, 2017

In Southwell v Blackburn ([2014] EWCA Civ 1347, CA (Eng)) B and S began to co-habit in 2002. S bought a house in his name and he alone made the mortgage payments. He did not envisage marriage precisely because he knew that B might then have a claim against the house. Several years later, the relationship came to an end and S excluded B from the house. B’s claim that they had a common intention to be equal beneficial owners failed. In the alternative she relied on proprietary estoppel.

There was no specific assurance that B would have any right to the home. S did, however, assure B that he was making a long term commitment to provide B with a secure home. S’s assurance was that B would ‘have the sort of security that a wife would have, in terms of accommodation at the house, and income.’ ([16])

Before moving in with S, B had accommodation rented from a housing association. She spent GBP20,000 fitting and furnishing the house. Relying on S’s assurances, B left that accommodation. Although her income was much less than S’s, B did contribute to the couple’s joint expenses.

The first issue was whether the assurances were enough for proprietary estoppel purposes. It is clear that the assurance must be clear and unequivocal and relate to the property. An assurance that B would be provided with a secure home was sufficient to give rise to an equity (Greasley v Cooke). S’s assurance was not, in substance, conditional on the continuation of the relationship ([7]).

The fact that the common intention constructive trust claim to an equal beneficial share had failed did not mean that there could not be an assurance as to the security of B’s right to accommodation ([10]).

Then there was the question of detriment. B had enjoyed rent-free accommodation and had been able to take a degree that enhanced her earning capacity. Did this mean that the detriment had been dissipated over the course of the relationship?

First, it is true that ‘detriment has to be assessed over the course of the relationship’ ([13]). It was right to have regard to the benefits that had accrued to B as a result of the relationship ([14]). But S had also benefited from B’s contributions ([15]).

There are cases where, looking at the course of the relationship from the point at which the promisor reneges on his promise, the benefit has been dissipated. That said, ‘cases involving couples living together lend themselves .. less readily to an arithmetical accounting exercise’ ([17]). Benefits flowed both ways and were incidents of the relationship ([18]).

As for unconscionability, S contended that the relationship was not a marriage and was not expected to be permanent. Thus, there was no unconscionability about withdrawing the security of accommodation. This failed. The point was that B had incurred detriment in reliance on the assurances:

‘It is the detrimental reliance which makes the promise irrevocable and leads to the conclusion, at the end of a broad inquiry, that repudiation of the assurance is unconscionable.’ ([20]).

The relief that was awarded was a payment to reimburse her for the money that she had spent on the home that she had left and on S’s property.

Michael Lower

 

 

Proprietary estoppel: expectations and proportionality

May 25, 2016

In Davies v Davies ([2016] EWCA Civ 643, CA (Eng)) a couple owned a farm. E, the second of three daughters, lived with the parents for much of the time up to the time of her final falling out with them. E worked for her parents for little money, although her pay increased over time. Around 1985 her parents assured E that the farmhouse would be hers one day. She later fell out with them and moved out.  E was later reconciled with her parents but left the farm a second time after another falling out. E’s father induced her to return by promising that she could live rent free in the farmhouse. During part of the time that she lived away from the farm she worked as a technician for a company that provided livestock reproduction services. She enjoyed this work and was good at it. After a third dispute with her father, he brought proceedings to evict her from the farmhouse. She relied on proprietary estoppel to claim some interest in the farmhouse and / or the business. The Court of Appeal had already considered the threshold question as to whether or not E had established a right to some form of relief and decided that she had (see here ). These proceedings were concerned with the question as to the form that the relief should take.

The parents made an offer to their daughter which was calculated by reference to the detriment that she had suffered in reliance on the assurances made to her. The daughter sought a much larger sum that would reflect the expectations induced by the assurances. Lewison LJ gave the only full judgment. He set out some core propositions about the law of proprietary estoppel ([38]). He referred to the controversy as to whether expectations or detriment should govern the relief ([39]) and the proportionality test in Jennings v Rice and to the idea that in ‘bargain’ type proprietary estoppel  cases the claimant’s expectations represent a starting point([40]). But where to go from there if the expectation is only a starting point? Lewison LJ accepted the following proposition suggested by counsel as a useful working hypothesis:

‘there might be a sliding scale by which the clearer the expectation, the greater the detriment and the longer the passage of time during which the expectation was reasonably held, the greater would be the weight that should be given to the expectation.’ ([41]).

The assurances that had been given envisaged that the daughter would work long-term in the family farming business but she left the business (twice temporarily and then permanently). This was not like the decades-long arrangements in Gillet v Holt or Thorner v Major ([48]). While E had some expectation of inheriting the business, it was relatively vague and so a modest award would suffice ([64]). Modest sums were also in order in respect of the ‘non-financial detrimental reliance’ involved in giving up her work as a technician and moving from her home to the farmhouse ([65] and to reflect the delay in receiving payments relating to past expectations (such as her unmet expectation that she would be a partner in the farming business) ([68]). So a modest uplift from the payment offered by the parents was in order but this would fall far short of a payment that would reflect E’s expectations in full.

Michael Lower

 

Post-acquisition constructive trust: evidential burden where there is reliance on an express statement. Detriment: where the plaintiff’s benefit outweigh any detriment

June 10, 2015

In Kwan So Ling v Woo Kee Yiu Harry ([2015] HKEC 694, CFI) the plaintiff (a widow) claimed that her parents-in-law had promised to give her and her husband two flats that they owned in Hong Kong. The plaintiff followed her husband to Hong Kong from the mainland. The parents-in-law transferred the title to one of the flats to the plaintiff and her husband. The plaintiff and her husband were allowed to make full use of the other flat (‘the second flat’) for several decades. Sometimes they lived in the second flat and sometimes they rented it out. The plaintiff’s husband and father-in-law died. The mother-in-law, shortly before her own death, transferred the title to the second flat to one of the plaintiff’s nephews. The nephew claimed that the plaintiff was a mere licensee of the second flat and he revoked this licence. The plaintiff claimed that she was the sole beneficial owner of the flat under the terms of a common intention constructive trust. Alternatively, she sought relief on the basis of proprietary estoppel.

The plaintiff’s claims failed for the simple reason that Godfrey Lam J found that there was no common intention / assurance. Nevertheless, he commented on the assertion that a more compelling standard of proof was needed since this would be a post-acquisition constructive trust. He suggested that this idea had no application where the trust was based on an express promise ([24]).

Godfrey Lam J also considered whether there was detriment. The plaintiff and her husband spent several hundred dollars to create internal partitions within the second flat in the 1970s. While this could potentially be detriment, it was not in this case since the income and other benefits that the plaintiff and her husband derived from the second flat far outweighed the expenditure ([53]). The same consideration was also relevant at the level of calculating any relief (53)).

The fact that the plaintiff made significant changes to her life by moving to Hong Kong was potential detriment. There was no causal linkage between this and any possible assurance by the parents-in-law. She moved to Hong Kong because of her love for her husband (54)).

Michael Lower

Proprietary estoppel: holistic approach to detriment

May 23, 2014

In Davies v Davies ([2014] EWCA Civ 568, CA (Eng)) a couple owned a farm. E, the second of three daughters, lived with the parents for much of the time up to the time of her final falling out with them. E worked for her parents for little money, although her pay increased over time. Around 1985 her parents assured E that the farmhouse would be hers one day. She later fell out with them and moved out.  E was later reconciled with her parents but left the farm a second time after another falling out. E’s father induced her to return by promising that she could live rent free in the farmhouse. During part of the time that she lived away from the farm she worked as a technician for a company that provided livestock reproduction services. She enjoyed this work and was good at it. After a third dispute with her father, he brought proceedings to evict her from the farmhouse. She relied on proprietary estoppel to claim some interest in the farmhouse and / or the business.

The English Court of Appeal was concerned only with the threshold question as to whether she had established her right to some form of relief on the basis of proprietary estoppel. The particular issue was that of detrimental reliance. She had received countervailing benefits and the parents disputed her claim that she had been able to earn more from her work as a technician than she had from her work on the farm.

The question was whether the first instance decision that she was entitled to equitable relief was perverse or clearly wrong (Suggitt v Suggitt). In Gillett v Holt, Robert Walker LJ stated that the question of detriment should be approached as part of a broad inquiry. On this basis, the judge at first instance had been entitled to find that there was detrimental reliance:

‘The judge had to determine whether there was substantial detriment by contrasting the rewards of the job at Genus with its better lifestyle with those of working on the farm (including the free accommodation at Henllan) with its greater burdens in terms of working hours and more difficult working relationships. I am not at all persuaded that his conclusion as to where the scales came down in this balancing exercise was wrong.’ (Floyd L.J at [54])

Michael Lower

Proprietary estoppel: ‘detriment’ and countervailing benefits

December 14, 2013

In Mak Ho Fung v Mak Kai ([2013] HKEC 1924, CA) the Court of Appeal had to consider the concept of ‘detriment’ and the linked concept of countervailing benefits.

Two aunts persuaded their nephew (the plaintiff) to move to Hong Kong from Guangzhou in the early 1980s. They assured him that they would give him their flat if he looked after them. In reliance, he officially changed his surname to that of his aunts and became the foster-son of one of them. He moved to Hong Kong. The aunts had looked after him and had given him a substantial amount of cash to start a business. The question was whether this amounted to detriment or not. The Court of Appeal found that it did.

The question had to be assessed as at the date when the aunts sought to resile from their assurance. Countervailing benefits had to be taken into account. The Court referred to Robert Walker LJ’s statement on the subject in Gillett v Holt (Chu JA at [28]). The judge at first instance had been justified in finding that the nephew had incurred detriment.

On the question of countervailing benefits:

‘[A]lthough countervailing benefits should be taken into account in judging detriments, the court should not embark upon a quantified comparison of the benefits received and the detriments suffered by a claimant. The issue is to be approached on the basis of a broad inquiry.

In view of the life-changing consequences of the giving up of the family name and the adoption of a new surname, notwithstanding the countervailing benefits relied on by the defendants, the Judge would be entitled in the exercise of his wide judgmental discretion to conclude that substantial detriment had been suffered by the plaintiff.’ ([37] – [38]).

Jennings v Rice was not relevant to the appeal since it considered the role of countervailing benefits in deciding on the appropriate relief and this was not the point being considered ([36]).

The aunts had sold the flat to third parties (other nephews). The nephews were ordered to transfer the property to the plaintiff.

Michael Lower

Proprietary estoppel: reliance and detriment

June 13, 2013

In Cheung Pak Chuen v Au Yeung Wing Chi ([2013] HKEC 721, CFI) C moved to Hong Kong to be with his father and step-mother. Encouraged by them, he brought his family to live in the property owned by the step-mother. He spent some money on the property and on the upkeep of his parents. In part, this was because of their assurance that the property would pass to him on their death provided he looked after them. Also at their suggestion, he gave up his employment and started his own business at the property. His father died. In her will, the step-mother left the property to her nephew rather than to C. After his step-mother’s death, C claimed that he had an interest in the property and he relied on proprietary estoppel.

The nephew argued that there was no reliance since all of C’s actions alleged to be the result of a reliance on the assurances were things that he would have done anyway as a good son. This failed since the assurances had been at least a partial cause of C’s actions (expenditure of money on the property and on looking after his parents).

The nephew also argued that there was no detriment since C had derived considerable advantages from being able to live at, and carry on his business from, the property. On balance, however, the court found that there was not merely a change of position but also detriment.

There is a summary of the law on proprietary estoppel at [72] – [81].

There was the necessary detrimental reliance in this case:

‘Looked at only in this way the detriment suffered by the Plaintiff is said by the Defendant not to be very substantial. Nevertheless, in my view, it is sufficient. He has spent money on the establishment of a business which, although no doubt primarily of benefit to himself and his own family, provided a basis on which he was able to reside with the Parents and, in due course, take care of them. He has provided financial support to the Parents via the “pocket money” some of which might well have been given in any event, but on the Plaintiff’s unchallenged evidence some not.’ ([86], Recorder Anthony Houghton SC)

When it came to the relief, the fact that there had been a clear assurance that the property would belong to C resulted in his being awarded outright ownership of the property ([93]).

Michael Lower