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Update on the Principles of Constructive Trust and Proprietary Estoppel
18 August 2021

In a recent CFA judgment in the case of Cheung Lai Mui v. Cheung Wai Shing & Ors. [2021] HKCFA 19, the principles of constructive trust and proprietary estoppel were considered. Further, clarification was made as to whether “unity of possession” or modern approach of equity should be followed in account of rent.

This is an unique case for commentary because the promisors, being tenants in common of a piece of New Territories land, all made a promise to the promise (the 3rd Defendant), but the promisee only showed sufficient detriment reliance after the demise of the promisors.

Background

The said promisors were three brothers of the Cheung family namely Wan, Kau and Fuk. They each held one-third equal and undivided shares of the land (the “Disputed Land”). After each brother’s passing, the following events gave rise to the dispute set out below :-

(1) Kau passed away in 1997 and probate of his will was granted to the Plaintiff because she was Kau’s adopted daughter and she became the executrix of Kau’s estate and also the beneficiary.

(2) Fuk passed away sometime in 1991 or 1992 and letters of administration was granted to the Plaintiff in 2006 and she became the administratrix of Fuk’s estate.

(3) From (1) and (2) above, the Plaintiff’s legal owner of two-thirds in the disputed land.

(4) Wan passed away in 1999 and the 1st Defendant became the executor of his estate. Wan’s 1/3 share of the Disputed Land was passed to the 1st Defendant and 2nd Defendant being his son and daughter by succession.

(5) In 2002 and 2003, the 3rd Defendant (being the son of the 1st Defendant) constructed two structures on the Disputed Land. The 3rd Defendant and his family began to live in the two structures since 2003.

(6) Separately, the Plaintiff, 1st Defendant and 2nd Defendant are joint owners of Lot 774 in DD221 which is nearby the Disputed Land. The Plaintiff grew up in the house erected thereon (“House 744”).

Party’s Claims

The Plaintiff (being the Appellant) sought an order for sale of the Disputed Land and claimed that the Defendants have without her knowledge and consent erected the two structures and sought to have them removed.

The 3rd Defendant in his defence claimed that he was the beneficial owner of the Disputed Land as a result of a constructive trust (“CT”) and proprietary estoppel (“PE”).

The 1st and 2nd Defendant counterclaimed for an account for one-third of the rental income of House 744.

Decisions before the CFA

Court of First Instance
The CFI declared that the 3rd Defendant was the sole beneficial owner of the Disputed Land and the Plaintiff was a constructive trustee holding 2/3 interest in the Disputed Land for the 3rd Defendant. By reason that there was a common understanding and/or assurance to the 3rd Defendant from the 3 brothers that he should become the legal owner of the Disputed Land and he could build a small house on the land when he reached the adult age of 18 (“Common Understanding”). The Common Understanding was mentioned on various family gatherings from 1978 to 1996. Further, the Plaintiff was aware that the 3rd Defendant carried out extensive works (build stonewalls around the boundary and installed electricity cables) on the Disputed Land since 1992 but acquiesce or standing by so she was estopped from complaining. Still further, the 3rd Defendant is the only male descendent of the family and is only natural that the three brothers being senior members of the family pass the Disputed Land to him.

The CFI also ordered that the Plaintiff give an account and payment to 1st and 2nd Defendants of 1/3 of the rental income of House 774.

The Court of Appeal
The Plaintiff appealed and the CA concluded that a claim on constructive trust cannot succeed if there was no detrimental reliance on the promise by the time of the demise of the promisors. The CA did not see that there were findings on detrimental reliance by the 3rd Defendant prior to the death of the three brothers. As to proprietary estoppel, the CA accepted the Plaintiff’s argument that there was no detrimental reliance prior to the death of the promisors to bind the conscience of the dead man and as a matter of law the cut-off date for detrimental reliance is the death of the promisors. The CA did not agree that the 3rd Defendant’s detrimental reliance prior to the death of the promisors was substantial enough to give rise to CT and PE. The CA allowed the Plaintiff’s appeal and remitted the 3rd Defendant’s claim on constructive trust to the trial judge.

The CA considered the account on rent counterclaimed by the 1st and 2nd Defendant and held that the modern approach should be followed in Hong Kong that is the court of equity will order an inquiry and payment of occupation rent in absence of ouster or prior agreement.

The Plaintiff applied to the CA for leave to appeal to the CFA but was rejected. The Plaintiff then applied to the Appeal Committee and the Appeal Committee stayed the CA’s Remitter Order and granted leave to appeal to the CFA in terms of the 2 questions set out below.

The Court of Final Appeal
The CFA considered two questions which were reasonable arguable and of general or public importance :-

(1) Whether there can be proprietary estoppel arising from an oral promise relating in an interest in land binding on the estate of the promisor in absence of any reasonable detriment reliance by the promisee prior to the death of the promisor (the “PE Question”);

(2) Whether a co-owner in sole occupation of the land, in cases other than ouster or in absence of agreement, should be ordered to account to the other co-owners for occupation rent (the “Rent Question”).

The CFA’s Decision

The CFA in determining the PE Question held that in case a land is co-owned then the cut-off date is the death of the last survivor. Then the CFA emphasized that the approach of equity concerning PE should take a “comprehensive view” and operates by principles rather than by rules to produce a “fair result”. In terms of detriment, it need not only be limited to money or other quantifiable financial detriment and may consist of manual labour. Further, if the promise is made over a period of years then it is necessary to look at the claim as a whole. The CFA agreed with the trial judge and held that there were sufficient activities by the 3rd Defendant on the Disputed Land prior to the death of Wan in 1999 which showed that there was sufficient detrimental reliance by the 3rd Defendant on the Common Understanding.

The CFA in determining the Rent Question held that Re Pavlou decision did not support a modern flexible approach of occupation rent without confinement to ouster and agreement. The CFA disagreed with the CA and held that the principle of unity of possession prevails in tenancy in common whereby a co-owner can only claim from another co-owner their share of occupation rent if there is ouster or an agreement.

Points to takeaway from CFA’s Decision

(1) The cut-off date is the last survivor’s death and the promisee has to show sufficient reliance prior to the cut-off date.

(2) Sufficient reliance is not limited to monetary detriments.

(3) The unity of possession in tenancy in common remains applicable under Hong Kong law.

If you have any questions on the above eNews or require advice on land or tenancy dispute matters, experience lawyers in our Litigation and Dispute Resolution team will be happy to assist you.

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