Beneficial interest in land arising from contributions to purchase price – Presumed resulting trust or common intention constructive trust?

A presumed resulting trust can arise where title to land is in A’s name but B contributed to the purchase price. The same facts would readily give rise to an inference that B has a beneficial interest under a common intention constructive trust.

This overlap between the presumed resulting trust and the common intention constructive trust matters because of the potential for different outcomes when it comes to valuing beneficial interests.

The beneficiary’s interest under a presumed resulting trust is strictly proportionate to their contribution to the purchase price. This may not be true in the case of the common intention constructive trust.

For example:

• the beneficiary may have made financial contributions that count for common intention constructive trust purposes but that are not relevant to the presumed resulting trust calculation (informal mortgage contributions are the most obvious example);
• or there may be a finding that A and B’s intentions concerning ownership were shaped by a domestic partnership / pooled assets mindset. Equality of shares, irrespective of financial contributions is the outcome in this case (eg Chan Chui Mee v Mak Chi Choi – the first instance judgment is outlined in this earlier blog post).

That being so, which approach should the court apply?

The normal approach is to make use of the common intention constructive trust, at least in the domestic context. This is illustrated by the recent court of first instance decision in Tang Hin Fai Chris v Tang Hin Lung.

Title to a flat was in the name of P1 and P2. D1 and D2 claimed to have contributed to the purchase price. The financial contributions were not, however, the only relevant evidence as there were rival contentions as to the express agreement that explained these contributions.

The claim to a beneficial interest failed. D1 and D2 made payments to P1 and P2 (the legal owners), but these were pursuant to an oral licence agreement. They were not made in accordance with an oral agreement that D1 and D2 should have an ownership interest.

DHCJ Jenkin Suen SC, referring to the Court of Appeal judgment in Primecredit confirmed the primacy of the common intention constructive trust in the domestic context ([99]).

This provides a solution to the question posed at the outset as to which trust should apply when the claim to a beneficial interest is based on a contribution to purchase price. There is a problem, though: is it always possible to distinguish between a domestic and a non-domestic context?

A better solution might be to say that the purchase price resulting trust is now, effectively, a sub-category of common intention constructive trust. I’ll return to this thought in another blog post.

Michael Lower

Australia: presumption of beneficial joint tenancy where both spouses contributed to the purchase price of the matrimonial home

In Trustees of Property of Cummins v Cummins ([2006] HCA 6) title to a married couple’s family home was held by them as legal joint tenants. The wife had contributed two thirds of the purchase price. The husband transferred his interest in the joint tenancy to his wife. He later went into bankruptcy. The bankruptcy severed the joint tenancy. The transfer was void against the trustee in bankruptcy as a transaction intended to defraud creditors. The question was whether the couple had been beneficial joint tenants on the basis that the beneficial ownership was in line with the legal ownership. In this case, half of the value of the home was available to the husband’s creditors. The wife contended that she had a two thirds share under a resulting trust to reflect the unequal contributions to the purchase price; in that case, only one third of the value of the home would be available to the creditors. The High Court of Australia held that there was a beneficial joint tenancy.

In determining the beneficial ownership, the court was not confined to the proportionate contributions to the purchase price but could look at ‘evidence of facts as to subsequent dealings and of surrounding circumstances of the transaction’ ([64]) The fact that the property was the matrimonial home had significant evidential value. The High Court endorsed the following statement in Professor Scott’s The Law of Trusts:

‘Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one-half interest in the property, regardless of the amounts contributed by them.’ ([70])

The same applied, even more strongly, where the couple were legal joint tenants ([71]). Further:

‘The subsistence of the matrimonial relationship … supports the choice of joint tenancy with the prospect of survivorship.’ ([71]).

Note that the statement approved requires that both spouses should have made a contribution to the purchase price before the presumption of a beneficial joint tenancy of the matrimonial home arises.

Michael Lower

 

Burns v Burns: unmarried cohabitees, title to family home in sole name

In Burns v Burns ([1984] Ch. 317, CA (Eng)) the couple were unmarried (though the woman had changed her  family name to be the same as her partner’s). They lived together for two years and had a child before buying the house that was to be the family home. Title was in the man’s sole name and he made all of the contributions to the purchase price and mortgage installments). Although the female partner contributed to household expenses (rates, phone bills, domestic fixtures and fittings and redecoration) these payments could not be said to have been necessary to allow the man to meet the mortgage payments. The couple lived in the home for seventeen years before separating. The female partner claimed to be entitled to a beneficial interest in the property under a common intention constructive trust.

The claim failed. There was no evidence of an express intention that she was to have an interest in the property. Nor had she made any payments that could give her an interest under a  resulting trust. It was not possible to infer the existence of a common intention constructive trust from the payments that she had made since they were not referable to the acquisition of the property (Fox LJ ). It would have been different if there had either been direct contributions to the purchase price or if her contributions to the household finances had been necessary to allow the man to make the mortgage payments.

The fact that the woman carried out domestic duties and looked after the children could not be taken into account: ‘the mere fact that the parties live together and do the ordinary domestic tasks is, in my view, no indication at all that they thereby intended to alter the existing property rights of either of them’ (Fox LJ at 331). May LJ made the same point:

‘when the house is taken in the man’s name alone, if the woman makes no “real” or “substantial” financial contribution towards either the purchase price, deposit or mortgage instalments by means of which the family home was acquired, then she is not entitled to any share in the beneficial interest in that home even though over a very substantial number of years she may have worked just as hard as the man in maintaining the family in the sense of keeping the house, giving birth to and looking after and helping to bring up the children of the union’ (at 345).

Michael Lower

 

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Charging order over share in the family home: striking the balance

In Melco Crown Gaming (Macau) Ltd v Wong Yam Tak ([2016] HKEC 237) title to the family home was in H’s name but W had an equal beneficial interest under a common intention constructive trust. M was granted a charging order nisi in May 2013 and (having been duly registered) this had priority over a consent order made in July 2013 in matrimonial proceedings ordering H to transfer his interest in the property to W ([43] Deputy Judge Yee).

The normal practice would be for the court dealing with ancillary relief in the matrimonial proceedings also to deal with the charging order. Here, however, there was unlikely to be any further application for ancillary relief ([48] – [49]).

Section 20(3) of the High Court Ordinance requires the court to consider all the circumstances of the case when considering whether or not to make the charging order absolute. It has to consider the personal circumstances of the debtor and whether any other creditor of the debtor would be likely to be unduly prejudiced by the making of the order. The factors to be borne in mind and the orders that might be made were considered by the English Court of Appeal in Kresmen v Agrest ([2013] EWCA Civ 41). There is a need to strike a balance between the expectations of the creditor and the hardship to W and the children. In Melco, W’s daughter was adult and independent so only W’s interest in having a roof over her head was relevant.

Here, even if the charging order over H’s share were made absolute, Melco could not expect to succeed in an application for an order for sale ([57]). Thus, a fair balance could be struck by making the order absolute. W would remain in exclusive occupation of the property ([58] – [59]).

Michael Lower

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

Proving the existence of a common intention constructive trust in sole name cases: is marriage enough? Beneficiaries have a duty to inform purchasers where they are aware that a contract has been signed.

In Mo Ying v Brillex Development Ltd ([2015] HKEC 583, CA) H married W in Hangzhou. Shortly afterwards, H returned to Hong Kong and bought a flat in his sole name, using a combination of his own money and a mortgage taken out in his own name. A few months later, W joined him in Hong Kong and asked why her name was not on the title deeds. H told her that this was troublesome and would cause expense. W did not pursue the matter as she thought that the fact of the marriage entitled her to a share in the property. The marriage broke up and W argued that she had an interest under a common intention constructive trust.

On the facts of this case, the husband’s excuse could not be construed as an agreement that W was entitled to an interest. Unlike Grant v Edwards  and Eves v Eves, the words used were equivocal and W did not take them to mean that she was to have an interest in the property ([7.6]  and [7.7] per Cheung JA). There was a suggestion that H had told W that ‘What belongs to me belongs to you’. Had it been proved, this would have been decisive in W’s favour; it had not been proved ([7.2] per Cheung JA).

The whole course of conduct can be referred to when deciding whether or not a common intention constructive trust exists in a sole name case ([6.2] per Cheung JA).  The fact that the parties are married is an important feature of the whole course of conduct but, on its own, it does not give rise to an inference that a common intention constructive trust exists ([7.17] per Cheung JA and [11.4] per Yuen JA). There were no other features of the case that pointed to the existence of a common intention constructive trust. The evidence did not suggest that the parties had pooled their assets and liabilities ([7.19] per Cheung JA). Any payments that W had made towards household expenses were not referable to any common intention that she was to have an interest in the property ([7.20] per Cheung JA). Detrimental reliance remains a necessary element of the common intention constructive trust ([6.12] per Cheung JA).

H sold the property. W was informed of the sale once the provisional sale and purchase agreement had been signed but did nothing to protect her interest or to inform the purchaser of her rights. The sale was later completed. While the purchaser had constructive notice of any interest that W might have (because of her occupation and the purchaser’s failure to inspect) this did not mean that W could not be estopped from enforcing her rights against the purchaser. Her silence, once she knew of the contract, gave rise to an estoppel ([8.7]  and [8.12] per Cheung JA, [11.10] per Yuen JA and [20] per Kwan JA). Even if it were seen as being a proprietary estoppel, it could be relied upon as a defence. It is unhelpful to draw rigid distinctions between types of estoppel ([8.9] and [8.10] per Cheung JA).

This case provide an extremely important review by the Court of Appeal of the framework for the law of the common intention constructive  trust in Hong Kong. It draws on the English developments in Stack v Dowden, Abbott v Abbott and Jones v Kernott. Further, W had commenced divorce proceedings. The comparison between W’s family law rights and her rights as a matter of strict property law is a fascinating thread running through Cheung JA’s judgment. As a wife, W had rights under family law. Should the law of the common intention constructive trust also be especially responsive to the relationship? As explained above, the conclusion reached, ‘with regret’ ([7.23]) was that in the absence of any basis other than marriage for inferring an agreement, W had no claim as a matter of property law.

Michael Lower

Legal joint tenancy: determining beneficial ownership under a common intention constructive trust

In Lo Kau Kun v Cheung Yuk Yun ([2015] HKEC 316, CFI) a married couple bought a flat as joint tenants. P claimed that the property was held on common intention constructive trust in equal shares. D claimed that she was the sole beneficial owner. Deputy Judge Sakhrani referred to the statements in Stack v Dowden ([68] in Stack) and Jones v Kernott ( [51] in Jones) to the effect that where the legal title is in joint names and there is a question as to beneficial ownership equity follows the law (so that a legal joint tenancy gives rise to equal shares) but that it may be possible to show a contrary intention (the burden of proof being on the party seeking to establish this). P had paid the down payment. P and D were jointly liable under the terms of the mortgage and each had contributed to the mortgage payments. Crucially, there was a finding that the parties had discussed their intentions concerning the ownership of the property ([63]). The couple had agreed that the property was to be a family asset (to be held equally as a family asset according to P) ([64]). This (not the record of financial contributions) was determinative. The property was held on common intention constructive trust in equal shares ([66]).

D also argued that she had extinguished P’s title by adverse possession. P had left the property in 1993 after a violent argument and never returned ([77]). This argument failed since D was entitled to be in possession as co-owner. There was no evidence of the ouster that would be necessary for this claim to succeed ([81]).

Michael Lower

Common intention constructive trust: evidence of an agreement

A common intention constructive trust can arise when there has been an agreement that the claimant is to have a beneficial interest and where, wholly or partly as a result of that agreement, the claimant has suffered some detriment.

In Grant v Edwards ([1986] Ch 638, CA (Eng)) property had been conveyed into the joint names of Edwards and his brother. The property was intended as a home for Grant and Edwards (who were co-habiting) and their family. Edwards told Grant that her name was not on the conveyance because that might prejudice her matrimonial proceedings. This excuse  was found to be evidence of an express agreement that she was to have a beneficial interest in the property. Edwards paid the deposit and mortgage instalments but Grant covered all other expenses and this allowed Edwards to concentrate on the mortgage instalments. The Court of Appeal found that there was a link between Grant’s financial contributions and the agreement that she was to have a share. Thus, she had a beneficial interest.

Michael Lower

‘Ambulatory’ constructive trust v post-acquisition agreement

There might be a common intention constructive trust where the parties have agreed that the precise apportionment of their respective beneficial interests is to be settled at some future date by reference to the course of dealings between them. This is not the same as the case where the parties have agreed on some particular apportionment and then, post-acquisition, agree to change this apportionment. Strong evidence will be needed of any such post-acquisition agreement.

In Chan Chui Mee v Mak Chi Choi ([2008] HKEC 1572) title to property was in the name of a husband. he had told his wife that it was to be ‘family property’. This was found to be evidence of an agreement that beneficial ownership was to be equally divided between them. The wife made some contributions to the mortgage payments and this provided the necessary reliance.

Speaking obiter Johnson Lam J said that strong evidence would be needed as to a post-acquisition agreement that someone was to have a beneficial interest in property or that the apportionment of beneficial ownership was to be altered. He also suggested that a post-acquisition variation of beneficial entitlements would not bind third parties. Thus, imagine that  A and B had been equally beneficially entitled and then (post-acquisition) they agreed that B was to have a 75% beneficial entitlement. This amounts to a disposal of 25% by A to B. As far as that 25% is concerned the interest of B would rank behind any interest acquired before the agreement concerning the change.

It would be otherwise if the parties had from the outset agreed that there was to be a constructive trust but that the precise beneficial entitlements would be calculated later by reference to the whole course of dealings. Here the priority date for the whole ‘ambulatory’ entitlement would be the date when the constructive trust arose.

Michael Lower