Common intention constructive trust or resulting trust?

In Liu Wai Keung v Liu Wai Man ([2013] HKEC 1567, CFI) property had been bought as a family home. Title went into the name of the daughter of the family but the payments associated with its purchase and the repayment of the mortgage came from the elder brother. The elder brother claimed that the sister held the property on trust for him absolutely. The property had been sold and he claimed the proceeds of sale.

Both common intention constructive trust and resulting trust were pleaded but the court took the view that where the plaintiff was going to rely on evidence of an actual agreement / intention then the case should be thought of as one of common intention constructive trust ([45]). The relevant principles concerning the common intention constructive trust are set out ([44] – [50]).

The court found that there had been an express agreement at the time of acquisition that the flat would be paid for and beneficially owned by the elder brother. His payments provided the necessary detrimental reliance ([113]).

The brother had asked for title to be assigned to him in 1998 or 1999. The sister claimed that the action was time-barred (Limitation Ordinance, s. 20). This failed:

‘It seems to me it would defeat the very purpose of trusts if a trustee could plead limitation of action against the beneficiary where the trustee still has the legal title but where the beneficiary has been in beneficial enjoyment of the trust property for over six years.’ (Godfrey Lam J at [127]).

The brother was entitled to the proceeds of sale.

Michael Lower

Advertisement

Transfer by mother to daughter for no consideration: resulting trust

In Suen Shu Tai v Tam Fung Tai ([2013] HKEC 1287, CFI) (subsequently affirmed by the Court of Appeal) a mother transferred title to two properties to her daughter (probably to avoid any possible claim against the properties on the part of the father). There was no consideration for the assignments. The court found on the balance of probabilities that the mother did not intend to make a gift of the properties and that the daughter therefore held them on resulting trust for the mother ([96]).

There is a lengthy discussion as to whether the presumption of advancement should be extended to assignments by a mother to her child ([61] – [76]). Although the court doubted whether the presumption should be extended to this relationship, it was emphasised that this was not a factor in the decision in this case ([76]).

The daughter had sold one of the properties to a third party and no order was made as to the property (or the proceeds of sale) until the claims made by the third party could be investigated.

Michael Lower

When is there sufficient evidence that a resulting trust has been brought to an end?

In Rose Palace Ltd v Jung Christopher Lam ([2013] HKEC 146, CFI) in October 1988 W and C were the purchasers of the property in question under a sale and purchase agreement. They each contributed to the 10% deposit and they were to acquire the property as tenants in common in equal shares. Then they entered into a Memorandum of Direction providing that the property would be assigned solely to C. In fact, C entered into a sub-sale with SF Ltd and the property was assigned directly to SF Ltd. C joined in as confirmor but W did not. P acquired the property from a successor of SF Ltd and had entered into an agreement to sell it to D.

D raised a requisition asking how W’s beneficial interest under the resulting trust that arose when he contributed to the deposit had been brought to an end. P relied on statutory declarations from a partner in the firm that acted for W and C to the effect that his firm’s practice at that time was to explain to W that the Memorandum brought an end to his interest. It was held that this was sufficient evidence that the interest had come to an end (and this was corroborated by the fact that W had never made any claim in the intervening years ([20]).

The court also considered whether any potential action by W would be barred by virtue of section 7(2) of the Limitation Ordinance. The question here was whether P was a trustee for the purposes of section 20(1)(b) of the Limitation Ordinance since, if so, there would be no limitation defence to W’s action. The court held that the section did not apply to constructive trustees who were strangers to the trust but became trustees by virtue of some dishonest acts of interference. P (if it was a constructive trustee at all) could only belong to this category of constructive trustee and so section 20 did not apply. W’s action would be time-barred.

Trusts, ‘alienation’ and the Home Ownership Scheme

In Cheuk Shu Yin v Yip So Wan ([2012] HKEC 1554, CFA) the Court of Final Appeal had to consider whether the creation of a trust in respect of a flat purchased under the Home Ownership Scheme (‘HOS’) was an ‘alienation’ for the purposes of sections 17B and 27A of the Housing Ordinance. If so, the trust would be void and a criminal offence would have been committed. In the cases being considered, family members had joined together to contribute to the purchase price and mortgage instalments and it was understood that they would have a beneficial interest in the property as a result (by virtue of a resulting or constructive trust). The Court of Final Appeal decided unanimously that there was no alienation.

Chan PJ looked to the context of the HOS scheme and the language used to determine the relevant intention. The HOS scheme actually envisaged the possibility of a pooling of resources)([5]). It was concerned only to prevent speculative acquisition under the scheme with a view to resale (given the substantial discount enjoyed by first purchasers). The Ordinance did not seek to frustrate or outlaw the pooling of financial resources by family members ([6]). Turning to the language used, ‘alienation’ requires a positive act by the owner while resulting or constructive trusts arising by operation of law ([8]).

Lord Hoffmann’s analysis concentrated rather on the context or purpose of the prohibition. Although he was inclined to agree with Chan PJ on the language point he preferred not to rest his decision on it ([24]). The Court of Appeal had also looked to the purpose behind the scheme. It thought that unless the prohibition was given a wide ambit there would be scope to use the creation of an express trust or the possibility of an implied trust arising by operation of law as a way of sidestepping the policy of the act ([29]). Lord Hoffmann thought that these fears had been exaggerated and saw little scope for use of the trust as a way of creating commercially attractive investments in HOS flats ([30] – [32]). By contrast, allowing family members to pool their resources would promote the purpose of the scheme (to expand the pool of home-owners to include people of limited financial resources) ([33]):

‘[T]he fact that it would often be unjust to deny a beneficial interest to someone who paid the purchase price in the expectation that he would get one is a reason for not construing the statute so widely as to have this effect. Not only would he be denied a remedy, he would have committed a criminal offence for doing something which to most people in his position would seem normal and even generous.’ ([35])

This outcome did not depend on the fact that the trust in these cases arose by operation of law; on the contrary, the same approach applied to an express trust:

‘The reason why the creation of a beneficial interest does not come within s 17B is not because the trust arises by operation of law rather than by an intentional act but because the creation of an equitable interest is not in my opinion an alienation of the land assigned to the purchaser. It is the creation of a new interest in that land. It would in my opinion be very strange if the parties could create a constructive trust by their common intention but were required at all costs to avoid reducing this to an express declaration in writing.’ ([36])

Michael Lower

Occupation of the property as a source of constructive notice

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