Purchaser pays owner who enters into a second contract to sell to a third party

Introduction

In Mui So Bing v Wan Chi Sing ([2019] HKCA 1341) D1 and D2 orally agreed to sell property to P. The parties later entered into signed written agreements; these were not registered at the Land Registry.

P paid the entire purchase price in stages to D1 and D2. D1 and D2 then entered into signed written agreements to sell the same property to D3 and D4. D3 and D4 registered their agreements at the Land Registry.

At first instance, P’s claim to be entitled to the property as against D3 and D4 based on a presumed resulting trust failed. The facts did not bring the case within any category of resulting trust. There was no voluntary transfer by P nor did P provide any part of the purchase price at the time of D1 and D2’s acquisition.

P’s claim against D1 and D2 in unjust enrichment succeeded.

P appealed against the first instance decision seeking to rely instead on the common intention constructive trust or the vendor and purchaser constructive trust.

The common intention constructive trust

While a common intention constructive trust can arise in the commercial context, there was no such trust here. There was no basis for finding that D1 and D2 had agreed to hold the property on trust for P. They had agreed to sell the property to P ([25] Yuen JA).

Vendor and purchaser trust

The vendor and purchaser resulting trust only arises if specific performance is available ([27.3]). Since P had not argued for the existence of such a trust at trial, a number of facts relevant to whether specific performance would be awarded were not explored ([27.4]). It was too late for P to raise this argument on appeal.

Priority

In any event, the contract with D3 and D4 had priority over the contract with P. P had not registered and so D3 and D4 could rely on section 3(2) of the Land Registration Ordinance. Notice was irrelevant because D3 1nd D4 had duly registered ([28.4]).

Any unwritten equity that P may have had (though the Court of Appeal was clearly sceptical as to whether there was any) was subsumed by the written agreement between P and D1 / D2 ([28.3])

Importance of pleading the relevant legal consequence

The Court of Appeal was severely critical of P’s attempt to plead legal consequences (common intention constructive trust and vendor and purchaser constructive trust) for the first time on appeal:

 ‘As the court’s primary aim in exercising its powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties, and to further these objectives by actively managing cases 35 , it seems to me to be high time that consideration should be given to requiring legal representatives to plead not only material facts, but also all the legal consequences to which those facts validly lead 36 , with the effect that the parties would be barred from contending different legal consequences on appeal.’ ([23.3] per Yuen JA).

Michael Lower

Advertisement

No presumption of advancement between siblings

In Lee Yee Yan Eva v Lee Tak Gate Richard ([2018] HKCFI 1137) a flat was bought in the joint names of a sister and brother (E and R). E provided the entire purchase price. R refused to comply with E’s request to transfer the legal title into her sole name.

Peter Ng J. saw this as a classic purchase price resulting trust. He referred to Lord Browne-Wilkinson’s statement of the law:

‘Under existing law a resulting trust arises in two sets of circumstances: (A) where A … pays (wholly or in part) for the purchase of property which is vested … in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the … property is held on trust for A (if he is the sole provider of the money) … It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter-presumption of advancement or by direct evidence of A’s intention to make an outright transfer.’ (Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, 708A-B).

It all depended on E’s subjective intention ([38]) and, as to this, the evidence supported E’s case; there was no suggestion that she intended R to be an equitable co-owner.

Peter Ng J. also pointed out that there was no authority for the idea of a presumption of advancement between siblings ([27]).

R was ordered to convey the property to E.

Michael Lower

 

Whitlock v Moree: clauses declaring that a joint bank account is held under a joint tenancy

 

Introduction
When two or more people open a joint bank account, the account opening document may contain a provision to the effect that the account holders are joint tenants and that the right of survivorship is to apply. What is the status of such a statement? Is it determinative of the legal and beneficial ownership of the account? Does it merely deal with legal title so that it is principally concerned with the relationship between the joint holders and the bank?
Seventy years ago, in Niles v Lake ([1947] SCR 294), the Canadian Supreme Court had to consider a clause providing that the holders of a joint bank account were joint tenants. The court decided that the clause dealt only with legal title. It had recourse to the presumed resulting trust; the account holder who had supplied all the funds in the account was the sole beneficial owner.
In Whitlock v Moree ([2017] UKPC 44) the Privy Council had to consider a clause (clause 20) in a bank’s standard joint account opening document very like that in Niles v Lake:

‘JOINT TENANCY: Unless otherwise agreed in writing, all money which is now or may later be credited to the Account (including all interest) is our joint property with the right of survivorship. That means that if one of us dies, all money in the Account automatically becomes the property of the other account holder(s). In order to make this legally effective, we each assign such money to the other account holder (or the others jointly if there is more than one other account holder).’

The majority (Lord Briggs, Lady Hale and Lord Sumption) concluded that the declaration of joint tenancy covered both legal and beneficial ownership. The clause was dispositive; it brought about the proprietary arrangements that it described ([37]).
The meaning to be attached to such a clause depends on the principles of contractual interpretation applied to each specific case. There is no general rule that account agreements are only about legal title. It is a question of contractual interpretation in each case ([42]).

 

Facts
L was a successful businessman. With his friend, M, he opened a joint bank account which contained $190,000 at the date of L’s death. All the money in the joint account came from another account in L’s sole name. A bank official inserted the comment that the purpose of the account was ‘to pay utilities’.
The account opening form signed by L and M included clause 20 (set out above). L died in 2010. He left his home to M who was also one of three residuary legatees. The question was whether the money in the bank account: (a) belonged to M because of the right of survivorship; or (b) was held on presumed resulting trust for L so that it now formed part of L’s estate.
The Privy Council decided that L and M were joint tenants for all purposes so that M became solely entitled to the money in the bank account on L’s death.

 

Lord Briggs’ statement of ‘first principles’ about the law of co-ownership
Paragraphs [21] to [28] of Lord Briggs’ judgment contain a set of statements of first principles concerning the law of co-ownership. One of these is that a written declaration as to beneficial interests, whether in the instrument transferring the property to the co-owners or in a declaration by the co-owners, is usually conclusive ([23] – [24]). In the context of a joint bank account, the account opening document is the instrument most likely to include an express declaration as to beneficial interests ([27]).
Where a clause such as clause 20, properly interpreted, is intended as a declaration of beneficial interests then that is the end of the matter: ‘the document is determinative of itself in relation to the beneficial interests in the account’ ([30]). There is no room for the application of the doctrine of presumed resulting trusts ([31]). Lord Briggs thought that it would be undesirable for the courts to go behind a written declaration ([33]). The declaration is not simply one guide (among several) to intention. It is definitive.

 

 

The relevance of the approach to co-ownership arrangements in other types of property
Here, Lord Briggs refers to the co-ownership principles developed in the residential property context. Where there is no express written declaration, the common intention constructive trust or, as a ‘last resort’, the presumed resulting trust ([25]) come into play to settle ownership rights. These principles, in the view of the majority, are not confined to real property ([26]).
Lord Briggs notes that in the context of English residential property, there is a presumption that beneficial ownership reflects the legal title ([25] referring to Stack v Dowden [2007] UKHL 17, [53] and following). It should be said, though, that in the context of a bank account there is no need for the account holders to hold on any kind of trust.

 

The proper construction of clause 20
The view of the majority of the Privy Council was that, on an objective interpretation, clause 20 dealt with beneficial ownership. Key phrases were: ‘joint tenancy’; ‘our joint property with the right of survivorship’; and ‘if one of us dies, all money in the account automatically becomes the property of the other account holders’ ([47]).
Lord Briggs commented:

‘The meaning of this phrase is to be ascertained by reference to an objective assessment as to what reasonable Bahamian private customers of a bank would think that they meant. Private customers of a bank, whether in the Bahamas or elsewhere in the common law world, do not go around, like lawyers, thinking constantly of distinctions between legal title and beneficial ownership when contemplating the ownership of property.’ ([47])

Essentially, the parties must be taken to have meant something by this clause in a document that they have signed. The most natural approach is to imagine that they meant what they said!

 

 

The minority’s approach to the construction: account opening documents are sui generis

Lord Carnwath, speaking for the minority, thought it much more likely that the account opening document was intended solely to deal with legal title.

 

Lord Carnwath said:

‘from the point of view of the customer, the purpose of a bank account is not generally seen as to effect the transfer of property in the longer term, but rather to provide a convenient vehicle for holding and dealing in money for the time-being’ ([55]).

The ‘first principles’ that are relevant are the first principles relating to joint back accounts. This context, argues Lord Carnwath, is an important factor to be borne in mind in the process of interpretation; the decision in Niles v Lake provides an important benchmark for assessing similar clauses.
Lord Carnwath could see nothing to suggest that clause 20 was intended to deal with beneficial ownership ([86]). It was, he thought, implausible to suggest that ordinary people would use clause 20 to make a gift ([86]). Clause 20 had to be interpreted in the context of the agreement as a whole ([87]). The clause was part of the bank’s standard documentation and was not the sort of document that one would expect to see used to make a very generous personal gift ([88]).
Michael Lower

Gift or trust: proving the relevant intention

Leung Wing Yi Asther v Kwok Yu Wah ((2015) 18 HKCFAR 605) arose out of ancillary relief proceedings on the divorce of H and W. W was the daughter of F, a highly successful businessman. In 2005 F transferred shares in his company to W. The result of this transfer, and a 2006 issue of further shares to W arranged by F, was that W had 20 million shares in F’s company. H argued that these shares should be regarded as an asset of W for the purposes of the ancillary relief proceedings.

F and W argued that F had not given the shares to W but remained the sole beneficial owner of them. They pointed to the way in which, even before 2005, F had transferred shares to his children but later insisted on their re-transfer to him. They also pointed to the company’s 2012 purchase of two very valuable properties. The divorce proceedings had already begun by then. F and W argued that F would not have enhanced the company’s value in this way had he thought that part of the gain would go to H.

H succeeded at first instance and in the Court of Appeal. In the Court of Final Appeal, F and W argued that the first instance judge had mistakenly considered that he should decide on F’s objective intention in making the transfer. Stock NPJ agreed that the judge had to ascertain F’s subjective intention; in the absence of an express declaration this, ‘requires an objective inference drawn from the parties’ words and conduct’. The presumptions of resulting trust and advancement are only relevant where there is no evidence of actual intention ([53]). The judge had, however, taken the right approach to this question.

F and W also argued that the first instance judge had not given due weight to the 2012 acquisitions by the company when considering F’s intention. This conduct, though it post-dated the transfer to W, was admissible as evidence of F’s intention in making the transfer. That said, ‘contemporaneous conduct is inherently more likely to be a reliable indicator of intention, to be given greater weight, than are words and conduct after the event.’ ([56])

Michael Lower

 

 

 

Equitable ownership: single framework for ‘domestic consumer’ and ‘investment’ cases

Marr v Collie ([2017] UKPC 17) is an important Privy Council decision re-stating the framework for deciding when equitable ownership differs from the ownership position as revealed by the legal title. Lord Kerr, giving the judgment, stated that the same analytical framework is to be applied regardless of context. This framework applies equally to ‘domestic consumer’ and ‘investment’ or ‘commercial’ cases. Context has a role to play when inferring actual intentions.

 

The framework

When dealing with ownership disputes:

1. determine the legal ownership of the property;
2. the onus is then on the party claiming that the ownership position in equity varies from the legal position to establish that this is the case;
3. where the only available relevant evidence is that the parties have made unequal financial contributions then it may be appropriate to have recourse to the presumed resulting trust;
4. but the court may have evidence of the parties’ actual intentions so that it would be inappropriate to apply the presumption of resulting trust;
5. in such cases, the court needs to make findings as to the parties’ actual intentions and give effect to them;
6. in doing so, the court should examine the whole course of conduct (which would include the state of the title, the reasons for the decision to put the title in joint names if that is the case, the relationship between the parties, whether the property was intended as a family home, how the acquisition was financed and so on).

 

The facts

The case was an appeal from the Court of Appeal of the Bahamas. M was a Canadian citizen working in the Bahamas. C was a building contractor and a citizen of the Bahamas. M and C were in a personal relationship with each other from September 1991 to July 2008.

During that time M and C acquired several properties which were conveyed into their joint names. M paid the entire cost of purchasing the properties. When the relationship broke down, M claimed to be the sole beneficial owner applying the presumption of a resulting trust in his favour.

C claimed that the parties’ common intention was that they would be equal beneficial owners. According to C, the arrangement was that C would carry out renovation works at the properties. C also contended that M was the ‘breadwinner’ in the relationship and that this was relevant to the analysis.

M claimed that C had failed to carry out any renovation works. M also argued that his understanding was that C would make financial contributions to the acquisition of the properties that would equal his own but that no such contributions were made.

C had succeeded in the Court of Appeal. The court attached particular importance to an email from M to the bank that had provided a loan for the purchase of one of the properties. In this email, M told the bank that the property would be held in joint names, ‘meaning that we would have a 50% interest’. The Court of Appeal thought that this was very significant evidence as to the parties’ actual ownership intentions.

In the Privy Council, M’s case was that this email had not been mentioned at first instance nor in the Court of Appeal hearing. He argued that the Court of Appeal should therefore not have made use of the email in its analysis. In any event, the email was, M alleged, inadmissible for procedural reasons.

 

Clash of presumptions?

Lord Kerr considered whether cases like this gave rise to a ‘clash of presumptions’. On this view, the relationship between the parties might place the case in the ‘domestic consumer’ category; the result was a presumption that equity followed the law and that the parties were joint legal and beneficial owners. Or did the fact that the properties were bought as investments place the case in a ‘non-domestic’ category to which the presumption of resulting trust would apply ([53])?

Lord Kerr’s review of the authorities led him to reject this way of approaching the ownership question. He continued:

‘The Board considers that, save perhaps where there is no evidence from which the parties’ intentions can be identified, the answer is not to be provided by the triumph of one presumption over another. In this, as in so many areas of law, context counts for, if not everything, a lot. Context here is set by the parties’ common intention – or by the lack of it. If it is the unambiguous mutual wish of the parties, contributing in unequal shares to the purchase of property, that the joint beneficial ownership should reflect their joint legal ownership, then effect should be given to that wish. If, on the other hand, that is not their wish, or if they have not formed any intention as to beneficial ownership but had, for instance, accepted advice that the property be acquired in joint names, without considering or being aware of the possible consequences of that, the resulting trust solution may provide the answer.’ ([54]).

 

Further fact-finding necessary

The courts below had not considered the relevant facts in sufficient detail. For example, the significance of M’s email to the bank should have been considered at first instance. M should have been given adequate opportunity to make submissions with regard to it.

The Court of Appeal had not addressed the first instance finding that M’s evidence was to be preferred over C’s; this included his evidence as to ownership intentions and the expectation that C would make financial contributions that C had failed to make. The case had to be remitted for hearing before the Supreme Court of the Bahamas.

The court should also consider whether account should be taken of the contributions made by the parties to the costs of acquisition ‘in line with the decision in Muschinski‘ ([60]). This envisages that it might be appropriate (depending presumably on inferred intentions) to use the proceeds of sale of the property to repay the contributions made and then divide the balance between the parties in accordance with their common intention as to ownership ([39]).

Michael Lower

 

 

Equitable ownership of the family home: interaction of the common intention constructive trust and the presumed resulting trust

The Court of Appeal judgment in Primecredit Ltd v Yeung Chun Pang Barry ([2017] HKEC 1533, CA) deals with several important issues in the law of the ownership of the family home.

A husband (‘H’) and wife (‘W’) acquired a flat as the family home (‘the first flat’). Subsequently, the family bought a new flat  (‘the flat’) relying on the sale of the first flat to pay off a bridging loan used to acquire the flat.

W also helped to pay off the mortgage taken out to help fund the purchase. Title to the flat was in the name of the husband and S (the youngest child and the only son of the family).

Although H and S were legal joint tenants of the flat, W’s evidence was that she did not intend to make a gift to S during her life but only after H and W had died.

Primecredit (‘the creditor’) had the benefit of a charging order over the flat in respect of S’s indebtedness to the creditor.

H died and S became the sole legal owner through the right of survivorship. The creditor then sought an order for sale of the flat. W resisted this arguing that she had a beneficial interest.

Common intention constructive trust

The burden of proof was on W to show that beneficial ownership did not follow legal ownership.

There was no evidence of an express agreement that W was to have a beneficial interest in the flat. Could such a common intention be inferred? The majority of the Court of Appeal (Lam V-P and Cheung JA) thought so. Kwan JA agreed that W had a beneficial interest but on the basis of a presumed resulting trust rather than a common intention constructive trust.

Lam V-P thought that, ‘at least in the domestic context’, there was no need to resort to the resulting trust where the matter can be resolved by recourse to the common intention constructive trust ([1.3]).

He also said:

‘Since Stack v Dowden [2007] 2 AC 432 and Jones v Kernott [2012] 1 AC 776, as far as Hong Kong is concerned, the modern approach to constructive trust is to assess the common intention of the parties by a holistic approach having regard to the context, see Mo Ying v Brillex Development Ltd ([2015] 2 HKLRD 985. In a domestic context, particularly in relation to a matrimonial home, the court is not constrained in that exercise by pure direct monetary contributions to the purchase price, see the judgment of Baroness Hale at [69] in Stack.

In a Chinese setting, especially for the older generations, where explicit discussions on property rights within the family were not that common, the court has to pay regard to circumstantial matters.’ ([1.6]). Cheung J.A. made the same point ([2.9]).

Whichever route is followed, the court ‘should have regard to the inherent probabilities in light of the surrounding circumstances at the time when the property was acquired.’ (1.4]). The ‘surrounding circumstances’ (another term for ‘whole course of dealing’?) clearly do need to be taken into account when determining intention; where there are rival interpretations / accounts of the surrounding circumstances, which is the most likely?

The fact that the flat was H and W’s only property was highly relevant ([1.5] per Lam V-P). Cheung J.A. thought it credible that H and W would intend to retain ownership in their lifetimes even if S rather than W was joint legal owner ([2.97]).

Cheung JA pointed to several matters which made it appropriate to infer the necessary common intention. There was W’s evidence that there was no intention that S should have an interest during H and W’s lifetime. The common intention could be inferred from W’s financial contributions ([2.10]).

Cheung JA also said:

‘What the judge seems to have overlooked is that the mother’s interest in the matrimonial home is not solely determined by her financial contributions but by reason of her status of a married woman.’ ([2.10]).

Resulting trust

Kwan JA, alone of the members of the Court of Appeal thought that the first instance finding that there was no common intention (common to H, W and S) could not be overturned ([2.6]).

Instead, he found that W had an interest under a resulting trust. This was based on her contributions and her evidence that no gift to S was intended ([42]). Again the ‘inherent probabilities’ are relevant ([46] – [48]).

Common intention constructive trust and resulting trust?

While Lam V-P thought that the applicability of the common intention constructive trust ruled out any application for the resulting trust ([1.3]). Cheung JA thought that the presumed resulting trust still had a role to play even where the analysis was based on common intention constructive trust ([2.14]).

Charging orders and joint ownership

Lam V-P urged masters dealing with charging order applications in respect of jointly owned property not make the order absolute unless notice has been given to all co-owners ([1.9]).

Charging orders and severance

Lam V-P left open the question as to whether the making of a charging order equitably severed a joint tenancy ([1.8]).

Michael Lower

 

 

 

The priority of unwritten equitable interests

In Si Tou Choi Kam v Wealth Credit Ltd ([2017] 1 HKLRD 1074) A and B acquired property as legal joint tenants. B’s creditor, C, obtained and registered charging orders over the property. C then applied for an order for sale of the property. A obtained a declaration that A was sole beneficial owner of the property (having supplied the entire purchase price) and registered it at the Land Registry.

The priority of unwritten equitable interests is governed by the doctrine of notice. The charging order is to be treated as if it were an equitable charge. Priority is governed by the first in time rule. A’s interest, having arisen at the time of acquisition, has priority under this rule.

There is no authority for the proposition that A is under a duty to obtain a declaration and register it in order to preserve this priority. It was surprising, therefore, that the court held that A’s priority was governed by the date of registration of the declaration.

Michael Lower

 

 

Did son hold property on trust for his mother?

In Primecredit Ltd v Yeung Chun Pang Barry ([2016] HKEC 2667) title to the family home was in the name of a father and his son as joint tenants. The father died and the son became sole owner by virtue of the right of survivorship. Primecredit was a judgment creditor of the son. It obtained a charging order in respect of the debt. The defendant’s mother claimed that she had a beneficial interest in the property under a common intention constructive trust or a presumed resulting trust.

The mother had the burden of proof to show that the beneficial ownership was different from the legal ownership. She had undoubtedly contributed to the purchase price. On the facts, however, the court did not believe that a trust in her favour should be inferred from these payments. She had intended to make a gift of the contributions to her son.

Michael Lower

Recovery of land transferred pursuant to an unlawful contract

In Li (or Lei) Ting Kit Tso v Cheung Tin Wah ([2016] HKEC 2720) the managers of a Tso entered into an oral agreement with D1. Under the terms of the agreement, the Tso would transfer land to D1 or a party nominated by him. Thirteen houses would be built on the land and the Tso would receive three of these and a cash payment.

D1 had one year from the date of the agreement (in October 1996) to obtain the necessary approval for the development from the Lands Department in accordance with the Small House Policy; otherwise, P could call for the re-assignment of the land to it. D1 agreed that he would not transfer the land to third parties nor allow any nominee of his to do so.

D1 nominated a company, D2, as the party that would enter into the written agreement in line with the oral agreement with D1. The Tso entered into the written agreement with D2 and transferred the land to it. No consideration was paid by D2 to the Tso (although the assignment to D2 stated that D2 had provided consideration).

No development had taken place by 2011 and the Tso wrote to D2 purporting to accept its repudiatory breach in delaying the carrying out of the development and calling on D2 to transfer the land back to it.

D2 had already divided the legal title to the land into thirteen sections and assigned some of them to third parties. After receiving D2’s letter it assigned the remaining sections to third parties.

It was accepted by the Tso that its agreement with D2 was unlawful since it would inevitably involve indigenous villagers making false declarations to the Lands Department. As a result, the Tso could not sue for breach of the agreement.

The Tso was able to rely on the presumption of resulting trust as against D2. The unlawful agreement was not consideration for the assignment to D2. Nor was the Tso estopped by the deed from showing that no consideration had been paid to it.

The problem was that D2 no longer had the land, title to which was in the hands of the various assignees. Since there was nothing to show that the assignees were anything other than good faith purchasers, the Tso had no claim against them.

Instead, D2 was ordered to pay equitable compensation to the Tso (the market value of the land as at the date of the writ).

Michael Lower

Actual intention? Common intention constructive trust not presumed resulting trust.

In Re Superyield Holdings Ltd ([2000] 2 HKC 90) a father and son each had one of the two issued shares in SH Ltd. SH Ltd, in turn, held one of the two issued shares in SC Ltd (along with another company LKR Ltd which was essentially owned and controlled by the son). SC Ltd owned a residential property (‘the property’). The question was whether the son was solely beneficially entitled to the property. Recorder Robert Kotewall SC found that he was. The son argued that since the property was bought using a combination of the son’s own funds and a loan to the company that the son had arranged, he could rely on the presumption of a resulting trust. The court seems rather to have found for the son on the basis of the father and son’s actual intention. The judge thought that where the trust rested on actual intention then the presumption of resulting trust had no part to play (at 111). He accepted that SH Ltd was in substance the son’s company and that the father was only involved as a formality to satisfy the then requirements of the Companies Ordinance. The father had been one of the joint guarantors of the loan to SC Ltd used to buy the property and it was possible to argue that this should be treated as a contribution to the purchase price by the father. This would depend upon underlying intention. In any case, the presumption of advancement would apply so that this contribution should be presumed to be a gift from father to son.

Michael Lower