Posts Tagged ‘presumed resulting trust’

Gift or trust: proving the relevant intention

October 16, 2017

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

 

 

 

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

August 27, 2017

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

August 2, 2017

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

April 4, 2017

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?

January 19, 2017

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

December 31, 2016

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.

November 1, 2016

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

Illegal sale of ding rights: Tinsley v Milligan re-affirmed

March 9, 2016

In Kan Wai Chung v Hau Wan Fai ([2016] HKLRD 632, CFI) developers entered into cooperation agreements with the plaintiffs (villagers with ding rights). The developers transferred title to parcels of land in a village to the plaintiffs. The agreement provided that the villagers held the lots as nominees and on trust for the developers. The developers and villagers worked together to exploit the ding rights. It was accepted by all of the parties that this aspect of the agreement and the actions done in pursuance of it were illegal.The houses were built and the developers entered into sale contracts (‘the first contracts’) with third parties; the villagers were nominally the vendors in those agreements. The villagers then entered into their own contracts with another purchaser for the sale of the same lots (‘the second contracts’). The developers brought proceedings seeking an injunction to prevent the second contracts from being completed so as to interfere with performance of the first contracts. These proceedings were ultimately settled in such a way as to allow the developers to complete the first contracts and retain the proceeds of sale. The villagers now brought proceedings against the developers and the solicitors who had prepared the first contracts alleging that they amounted to an unlawful conspiracy. This had caused them loss in the form of their own legal costs in defending the injunction proceedings and the costs order made against them.

This was a trial of two preliminary issues. The first of these was whether the villagers had any equitable interest in the property. If they did not then they could not be said to have suffered any loss as a result of the outcome of the earlier proceedings ([33] per Anthony To J). The villagers had not given any consideration for the transfer of the land to them (though the  assignments to them stated otherwise). On the face of it, therefore, the developers could rely on the presumption of resulting trust. The villagers argued that the developers could not rely on the presumption because of the illegality of the agreement concerning the ding rights. This failed since the case fell squarely within the approach laid down by the House of Lords in Tinsley v Milligan ([39] to [48]). The developers could rely on the presumption to establish their proprietary interest and had no need to plead the illegality.

There was some discussion as to whether the High Court of Australia’s approach to illegality in Nelson v Nelson was to be preferred to Tinsley. Anthony To J. considered that he was bound by several Court of Appeal decisions to accept that Tinsley was the approach taken in Hong Kong. It would be for the Court of Final Appeal to reconsider this if asked to do so in some later proceedings ([45]).

Michael Lower

 

Resulting or express trust?

October 28, 2015

In Ng Tak Kau v Cheung Man Kwai ([2015] HKEC 1942, CFI) title to the family home was conveyed into the names of a father and son as joint tenants. When the son ran into financial difficulties, the son assigned his interest in the property to the father. The son’s major creditor argued that this assignment was voidable under section 60 of the Conveyancing and Property Ordinance (on the basis that it as entered into with the intent to defraud creditors).

The first question that the court had to consider was whether the father was the sole beneficial owner. The evidence showed clearly that he had provided the entire purchase price and that, although the presumption of advancement arose, there was no intention to make a gift to the son. There was clear evidence of an agreement (reached with the concurrence of other family members) that the son’s name was on the title purely with a view to ‘easy administration of family assets’ in the event of the father’s death ([19]). Thus, the son had no share and the transaction was merely the exercise of the father’s rights as sole beneficial owner. The creditor’s claim failed. There was no question of estoppel since the creditor did not rely on any belief as to the son’s ownership when making the loan to the son.

It is perhaps surprising that the conclusion was that there was an express trust in favour of the father ([40]) given the lack of writing to evidence the trust (as required by section 5(1) of the Conveyancing and Property Ordinance). The analysis had been couched in resulting trust terms and could easily have been thought of as a common intention constructive trust.

Michael Lower

Occupation of the property as a source of constructive notice

October 6, 2010

In Wong Chim-Ying v Cheng Kam-Wing ([1991] 2 HKLR 253) a husband paid for a flat but it was transferred into the name of his wife. He lived in the flat with her and their children.  The wife sold the flat and absconded. The husband refused to leave and the purchaser sought possession of the property. The Court of Appeal held that the husband was the sole beneficial owner of the property. The purchaser had actual notice of his occupation and had not enquired as to whether or not he had any legal or equitable interest in it. Clough JA explained that, ‘The principle is that notice of occupation is notice of the occupier’s rights.’ (at 262)  As a result, the purchaser had constructive notice of the husband’s beneficial ownership. She held the property on trust for the husband and had to transfer the title into his name.

Michael Lower