12 May, 2015
The Court of Appeal (“CA“) in Mo Ying v Brillex Development Limited and Another CACV 120/2014 affirmed the decision of the Court of First Instance to reject the plaintiff wife’s (“Wife“) claim of beneficial interest in a Hong Kong matrimonial home (“Property“) registered in the sole name of her husband (“Husband“). This case is a helpful demonstration of how the Court approaches the issue of common intention constructive trusts in cases where the registered owner of a property provides an excuse not to include his/her spouse as a co-owner. The CA also held that the Wife was estopped from asserting her beneficial interest against the subsequent purchaser (“Purchaser“) of the Property notwithstanding that the Purchaser was found to have constructive notice of her interests. Persons who are not registered as co-owners should not safely assume that they will have an interest in their matrimonial home simply by reason of their marriage.
Background
The Husband and the Wife were married in 1987. The Husband bought the Property in May 1988 in his sole name because the Wife was still living in Hangzhou at that time. The Wife came to Hong Kong in December 1988 and lived together with the Husband in the Property, which was their matrimonial home. Shortly after the Wife moved in, she discussed with the Husband about adding her name as a registered owner of the Property. However, the Husband refused, saying to the Wife that “it’s troublesome, having to pay“. The Wife did not pursue having her name added to the title further after this discussion.
The Husband and Wife’s relationship began to deteriorate in mid-1995. In July 2008, the Husband entered into a provisional agreement to sell the Property to the Purchaser. The Husband did not tell the Wife, but she found out by other means. Later, during the proceedings, the Wife admitted that she knew of the sale before completion.
The Wife brought the action on 20 January 2011 against the Husband and the Purchaser. She also commenced divorce proceedings against the Husband on 30 January 2011.
The Wife claimed that:
- the Husband held the Property on a common intention constructive trust for himself and her; and
- the Purchaser had constructive notice of the Wife’s beneficial interest in the Property because it did not inspect the Property before the purchase.
Contrasting Common Intention Constructive Trust With The Matrimonial Regime
The CA discussed briefly that under the matrimonial regime the starting point of the Wife’s interest in the Property would be of an equal share. However, the Property had long been sold and was no longer an existing matrimonial asset between the Husband and the Wife. To assert an interest in the Property against the Purchaser, the Wife would have to establish a constructive trust over the Property.
Express Common Intention Trust
The Wife relied on two English Court decisions where the woman in each case was held to have a beneficial interest in the matrimonial home. In both cases, the registered owner of the house provided reasons not to include the other as a co-owner. The first was that the woman was under the age of 21. The second was that putting the woman on the title would have prejudiced her in matrimonial proceedings with her former husband.
In this case, the Husband’s excuse was “it’s troublesome, have to pay“. The Judge found that the Husband, having said those words, did not want to make the Wife a co-owner of the Property. The Judge further found that the Wife knew that this was the case, particularly given that she never raised the subject with the Husband again. Further, on the Wife’s evidence, her erroneous belief that she had an interest in the Property was not led by the Husband’s response. Instead, she believed that she was to have an interest by reason of her marriage.
In any event, the Judge held that the nature of the words used by the Husband was very different from that of the reasons made by the men in the two English cases. To rely on those two cases, the nature of the reason had to be such that the woman could reasonably believe that her name would be added to the title of the property when the reason was no longer relevant. In the present case, the Wife could not have reasonably believed that the reason given by the Husband, being it was too troublesome, would one day disappear. Hence, the Wife failed to establish an express common intention constructive trust. This ruling was affirmed on appeal.
The Wife also sought to rely on the evidence given in cross-examination, when the Wife gave evidence that the Husband, when refusing to register her name, said, “What’s the problem with adding your name or not? What belongs to me belongs to you, I am also yours“. While the CA agreed that the words would be the best evidence to support an express common intention of the parties on the beneficial interest of the Wife, this statement was not pleaded in the Statement of Claim nor stated in her witness statement. It was not relied on at trial in the closing submissions. The CA viewed that evidence as an afterthought and held that in any event the Wife never said that her belief of having an interest in the Property was led by those words. Hence, this argument did not assist her case.
Inferred Common Intention Trust
The Wife relied on the following main factors to infer common intention:
- marriage between the Wife and the Husband and acquisition of the property as matrimonial home for their family/children;
- the Wife’s financial contribution to the family; and
- funding of purchase through a loan from the Wife’s sister and the sister’s occupation of the property after the purchase.
For the first factor, the CA held that this was only one of the factors to be considered and the Court must not too readily infer the existence of the common intention of a claimant’s beneficial interest simply because of this relationship.
As to the second factor, the Wife claimed that her contribution to family expenses relieved the Husband’s burden to pay the mortgage instalments. However, the CA rejected this argument on the ground that the Husband did not need any assistance from the Wife to repay the mortgage loan. The CA accepted the Judge’s holding that “mere payment of household expenses is not an expenditure that is referable to the acquisition of the property“.
On the third factor, the CA held that it did not add much to the inference of the common intent.
Estoppel
The CA also proceeded to discuss whether the Purchaser may raise the defence of estoppel if the Wife could establish a constructive trust (which she did not). At first instance the Judge held that, since the Purchaser failed to inspect the Property in the first place, it acquired constructive notice of the Wife’s interest and could not reasonably assume that the Wife would not claim any interest in the Property.
The CA disagreed with the Judge and held that although constructive notice displaces the Purchaser’s priority over the Property, it does not mean that the Wife’s priority can never be lost, estopped and/or waived. The CA found the Wife had a duty to speak up once she knew about the sale before completion. As a result of her silence the sale was completed and she is estopped from asserting her interest against the Purchaser.
Outcome
Given the above, the Wife failed to establish a common intention constructive trust over the Property. The court commented that her remedy was instead to pursue in the matrimonial regime for a share of the flats bought by the Husband with the proceeds of the sale of the Property.
Conclusion
It is quite common for a non-registered owner of his/her matrimonial home in Hong Kong not to take steps to include his/her name to the title. Either or both spouses may regard it as too troublesome or believe that he/she will be entitled to half of the share of the matrimonial home in any event. However, as this case demonstrates, this may not be the case, especially if the matrimonial home is later being sold to a third party purchaser. In light of the decision in Mo Ying, a non-registered owner should protect his/her interests in the matrimonial home by insisting on including his/her name in the title notwithstanding the reasons or excuses given by the spouse who is the registered owner. Even if that is not possible, the non-registered owner should claim his/her interest against potential purchasers when he/she finds out that his/her spouse is attempting to sell the matrimonial home to a third party purchaser.
For further information, please contact:
Richard Norridge, Partner, Herbert Smith Freehills
richard.norridge@hsf.com
