2 August, 2016
Introduction
What happens when a party under a tenancy in common almost single-handedly pays off the mortgage instalments of a property?
Can he or she acquire a beneficial interest to the property by virtue of the actual contributions in the form of mortgage repayments?
These issues were recently considered by the apex court in the case of Su Emmanuel v Emmanuel Priya Ethel Anne and another (“Su Emmanuel”).1
In Su Emmanuel, the Singapore Court of Appeal (“CA”) considered an appeal against an order for the sale of a property located at Block 10D Braddell Hill (“the Property”) and a declaration that the first respondent, Priya, owns a beneficial interest in proportion to her actual contributions to the Property by way of mortgage repayments. The two issues in this appeal are thus whether the court should order a sale of the Property and the extent of Priya’s beneficial interest in the Property.
Facts
Su, a homemaker, purchased the Property in 1995 as joint tenants with her husband, Philip, the sole breadwinner. In 2002, Philip encountered financial difficulties and his sister, Priya, assisted by purchasing a 49% share in the Property from Philip in 2004, such that the three of them held the property as tenants in common. A fresh mortgage was also executed over the Property. Su and Philip continued to reside at the Property. Priya almost single-handedly serviced the fresh mortgage by paying the monthly instalments from her CPF account. Eventually, Priya faced difficulties meeting the loan repayments. Facing bankruptcyproceedings, Priya sought an order before the High Court (“HC”) for the sale of the Property so as to pay off her debts, as well as a declaration that she owns a beneficial interest in proportion to her actual contributions towards the Property.
The HC ordered the Property to be sold and held that Priya was beneficially entitled to 70% of the Property as compared to her 49% legal interest, in recognition of her contributions by way of mortgage repayments. Su appealed against this decision.
Capabilities Delivered Locally
Allowing the appeal in part, the CA rejected the appeal on the first issue and ordered the Property to be sold, but allowed the appeal relating to the second issue of Priya’s beneficial interest in the Property, finding that she was only entitled to 49% of the Property. However, the CA found that the facts of the case engaged the doctrine of equitable accounting, and ordered Su to pay Priya $74,586.77 from the proceeds of the sale of the Property as reimbursement for Priya’s mortgage repayment contributions.
Decision
1. Whether the court should order a sale of the Property
In deciding the first issue on whether to order a sale of a property, the CA found that three factors had to be balanced: i) the relationship between the parties and whether they can co-operate in the future; ii) the state of the Property; and iii) the likelihood of the relationship between the parties deteriorating without a sale, such that a clean break is preferable. In addition, the prejudice faced by each co-owner had to be weighed, as well as whether a sale would violate any prior agreement between co-owners as to the manner of disposal of the Property.2
Applying the above tests, the CA found that Priya was prima facie entitled to an order for sale of the Property. First, there was a clear impasse between the parties, with Su not being on speaking terms with Priya while also being estranged from Philip, such that the parties would struggle to co-operate as co-owners.
Second, Priya stood to suffer more injustice than Su as Priya had expended a significant amount of money on the Property compared to Su’s absent financial contribution.
Priya had also not enjoyed occupation of the Property despite her contributions. Disallowing a sale would mean bankruptcy and a loss of Priya’s entire life savings. This outweighed the prejudice to Su. Although Su was unemployed and had four
children, the CA noted that two of her older children had already started working, and she would also benefit from the realisation of her value in the Property.
Third the sale of the Property would not violate a prior sale and purchase agreement (“SPA”) between the co-owners as the contentious Clause 10 in the SPA between Priya and Philip was concerned with the issue of the occupation of the Property by
Su and not with its sale. It read as follows:
“10. Su Emmanuel and her children will not be removed or evacuated by any means (legally and forcefully) by the Purchaser or by the direction of the Purchaser as the house is the place of dwelling of Su Emmanuel and her
children.”
Su also claimed promissory estoppel based on Priya’s representations that Su would not be evicted from the Property and would not have to worry about making mortgage repayments.3
She argued that she relied on the representations when consenting to Philip selling 49% of the Property to Priya and when she undertook joint liability for the fresh mortgage. The CA, however, found that Su was unable to satisfy the requirement of detriment for promissory estoppel. The court was unconvinced by Su’s argument that she had suffered detriment as she had left the responsibility of making the mortgage repayment to Priya, and as a result had not looked for employment or other means of obtaining financing.4
The CA therefore found that the HC was correct in ordering a sale of the Property.
2. The extent of Priya’s beneficial interest in the Property
The CA held that Priya’s absolute interest in the Property stood at 49% as there was no presumption of resulting trust and no common intention constructive trust.
A. Resulting trust
A resulting trust arises by law unless the court is satisfied of an intention from the payor to benefit the recipient of the legal title. The court found that Priya could not have intended to acquire 70% of the Property as she claimed. When Philip sold his
share, the joint tenancy was severed into a tenancy in common under which Su and Philip each beneficially held 50% of the Property. Priya then acquired 49% of Philip’s interest in the Property and Su’s legal and beneficial interest in 50% of the Property was not affected. As Su had not dealt with any part of her share of the Property, Priya could not be said to have beneficially acquired any part of her interest in the Property. Priya’s actual intention was only to purchase 49% of the Property and no presumption of resulting trust arose.5
B. Common intention constructive trust
The CA then turned to Priya’s alternative argument on a common intention constructive trust. A common intention constructive trust arises where there is sufficient and compelling evidence of express or inferred common intention of parties as to how their beneficial interests are to be held.
6 There was no subsequent common intention to vary the beneficial interests in the Property from the proportions held by the parties after Priya’s acquisition. Even if Priya believed that her beneficial interest in the Property would be increased by virtue of herrepayment of the mortgage, the intention to vary the beneficial interest must be common to all the parties involved. Yet, it was clear that Su never intended to reduce her interest in the Property. In addition, the parties once contemplated selling the Property with the proceeds to be shared in the proportions in which they held the Property. Clearly, there was no subsequent common intention to vary the beneficial interests in the Property.
7 After dismissing both grounds, the CA made further observations on the difference between undertaking the liability for a mortgage and actually making mortgage repayments, and how each of these should be treated to determine each party’s
contributions to the acquisition of a property. The CA noted that subsequent mortgage payments, such as Priya’s contributions, can only be taken into account if there was prior agreement between the parties as to who would repay the
mortgage when the mortgage was obtained. They would not count as direct contributions if there was no such agreement.
The critical question was therefore whether the parties were in agreement, at the time of the acquisition of the property, as to what liability each party would undertake in respect of the mortgage. On the other hand, the CA highlighted that actual repayments that do not shed light to the parties’ agreement as to how the mortgage should be repaid should not be considered for determining ownership interest. This was because if they were computed as part of contributions to the purchase price of a property, the parties’ interests would be in “a state of flux” and this would be “wrong in principle”
3. Doctrine of Equitable Accounting
Although the CA struck down both of Priya’s claims and decided that she was only entitled to an absolute interest of 49% in the Property, the CA found that she was entitled to call in aid the doctrine of equitable accounting. The CA found that payments of capital and of interest made no difference since both types of payments “ultimately preserve or enhance the equity of redemption”9 which accordingly creates a right of contribution between the co-owners. For equitable accounting to be called in aid, the common understanding the parties had at the time the mortgage was taken out was material. If there was a material departure from the common understanding and one party repays more of the mortgage than initially planned, equitable accounting principles may be relied on, unless it is shown that at the time the mortgage repayments were made, the payor had the intention to benefit the other co-owners.10
On the facts: Priya paid more than 85% of the mortgage repayments, and had assisted Philip as a short term measure but expected him to repay her.
The parties confirmed that Priya was never expected to bear the entire burden of the mortgage, and the common understanding was that both Philip and Priya would pay off the mortgage.
Priya’s contributions of more than 85% of the mortgage repayments was thus a material departure from the parties’ understanding when the loan was obtained.
Based on the doctrine of equitable accounting, Priya was entitled to be reimbursed a sum of $74,586.77 from Su’s proceeds of sale.
Comments
One significant learning point from Su Emmanuel is that parties who enter into such agreements should expressly document the common intention as to how they are to hold beneficial interests or any understanding they had when they took out the
mortgage, rather than leaving it silent.
Another learning point is that clauses inserted by counterparties should be reviewed carefully. The contentious Clause 10 that was inserted by Su into a draft agreement eventually made its way into the SPA, even though Su was not a party to the SPA. This clause almost undermined Priya’s right of sale, and on hindsight it may have been clearer to make it subject to any of Priya’s rights to sell her shares in the Property.
In summary, Su Emmanuel also provided guidance as to the position of owners of property whose financial contributions may differ from their legal ownership, and helpfully clarified the doctrine of equitable accounting as a tool for retrospective adjustment under the context of mortgage repayments.
1 [2016] SGCA 30
2 Su Emmanuel at [57].
3 Su Emmanuel at [69].
4 Su Emmanuel at [70].
5 Su Emmanuel at [81].
6 Su Emmanuel at [83].
7 Su Emmanuel at [84].
8 Su Emmanuel at [92].
9 Su Emmanuel at [103].
10 Su Emmanuel at [10
For more information, please contact:
Sandra Han, Partner, RHT Taylor Wessing
sandra.han@rhtlawtaylorwessing.com
