Property acquired in contemplation of marriage

In Tsun Kok Chung Richard v Lee Chun Yu ([2016] HKEC 1482, CFI) P and D intended to get married. P bought a flat to be the matrimonial home and it was conveyed into the names of P and D as joint tenants. P alone paid the deposits and part of the purchase price. He was also solely responsible for repaying the loan taken out to cover the balance of the purchase price. D soon changed her mind about marrying P and moved out. The couple did not marry. P asked D to her to transfer her interest in the property to him. When she refused to do so, he brought proceedings seeking to compel her to make the transfer to him. P succeeded. The primary reason for the acquisition of the property was the intention that it should be the matrimonial home (Anderson Chow J at [80]). P did not intend an outright gift of a share of the purchase price to her. The intention was to make a gift to her that was conditional on marriage ([90]).  Anderson Chow J. referred to the judgment of the Court of Appeal in Ian Hung Wai v Cheung Sau Kuen ([2011] 3 HKLRD 458 at [19] – [20]) and to section 25 of the Law Amendment and Reform (Consolidation) Ordinance for the law concerning conditional gifts made by parties to an agreement to marry. Since the marriage did not take place the condition had not been satisfied. D was ordered to transfer her interest in the property to P ([94]).

Michael Lower

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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

‘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