Posts Tagged ‘sham’

Settlement induced by misrepresentation that one of the parties had title to land as bona fide purchaser for value

July 25, 2017

In Howin Industrial Ltd v China Group Global Ltd ([2017] HKEC 1485) P transferred land to D2 to D13 for no consideration. D2 to D13 were male indigenous villagers entitled to ding rights. D2 to D13 executed declarations of trust confirming that each of them held his land on trust for P. These declarations were not registered at the Land Registry.

P was wound up. The Government subsequently issued notices of resumption in respect of the land. D2 to D13 assigned the land to D1 which had been incorporated to handle the compensation claims.

P’s liquidators discovered the declarations of trust. They made inquiries and were led to believe that neither D1 nor its lawyers knew of the declarations and that D1 was a bona fide purchaser for value of the land (‘the representation’). This was shown to be false in subsequent criminal proceedings.

Influenced by the representation, P’s liquidators entered into a deed of settlement (‘the deed’) dividing the compensation monies between P and D1.

When P’s liquidators discovered the truth, they sought to have deed set aside. They were successful. It was enough that they were influenced to enter into the deed by the representation (Zurich Insurance Co plc v Hayward [2016] 3 WLR 637, SC).

Time did not start to run until they had discovered the fraud or concealment (Limitation Ordinance, s. 26(1)).

P was entitled to a declaration that it was the sole beneficial owner of the land. This appears to be founded on a resulting trust arising from the fact that D2 to D13 did not give consideration. P did not need to plead the illegality.

In the criminal proceedings, the Court of Appeal had taken the view that the assignments to D2 to D13 were sham documents having no legal effect. D2 to D13 thought that the point of the documents was to transfer the ability to exploit their ding rights.

P was entitled to all of the compensation paid by the Government.

Michael Lower

An express declaration of trust is conclusive in the absence of a vitiating factor

March 23, 2016

In Pankhania v Chandegra ([2012] EWCA Civ 1438, CA (Eng)) title to a house was transferred into the joint names of P and C (an aunt and nephew). The transfer contained an express declaration of trust that P and C were equitable tenants in common in equal shares. P sought an order for sale and an equal share of the net proceeds. C claimed that there was, at the time of the acquisition, a common intention that she was to be the sole beneficial owner. C succeeded at first instance but P’s appeal was successful.

The express declaration was conclusive (Goodman v GallantPettitt v Pettitt) in the absence of a vitiating factor such as fraud or mistake. If the express declaration did not reflect the parties’ subjective intentions, either of them could apply for rectification but that had not been done. Further, the fact that the express declaration may not have reflected subjective intentions was not enough to render the declaration a sham. There was no attempt to deceive any third party; the arrangements between the co-owners were a matter of indifference to the mortgage lender.

Michael Lower

Common intention constructive trust: valuation outside the ‘domestic consumer context’

February 10, 2016

In Erlam v Rahman ([2016] EWHC 111) E had the benefit of a charging order over a house in R’s sole name. R’s wife (‘W’) claimed that she had the benefit of a prior interest over the property by virtue of a Deed of Trust. The Deed of Trust, on its proper construction, did not purport to create a trust but to record the fact that W had contributed 75% of the purchase price and so had a 75% beneficial interest. Chief Master Marsh pointed out that the property had been acquired as a buy-to-let investment. As a result, the right approach, following Laskar v Laskar, was to apply the resulting trust approach rather than the approach applicable to jointly-owned family property explained in Stack v Dowden. W had not shown that she had made any qualifying contributions and so she had no beneficial entitlement. Following Laskar, there was a clear difference in approach as between family homes (‘the domestic consumer context’) and the commercial context (even when the business partners were also family members).

The judge went on to consider the possibility that the Deed of Trust did not intend to record the existence of a prior implied trust but was intended to create a trust. In this case, he would have held that the document was a sham (see [42] – [44] for a discussion of the legal principles concerning shams particularly in the context of a property transaction). The existence of the Deed of Trust had not been revealed to any third parties and no restriction relating to it had been registered at the Land Registry. As between themselves, R and W acted as if the property belonged to R (he kept all of the rental income) ([78] – [82]).

Michael Lower