Case Commentary

The Court of Appeal held that detrimental reliance after death of legal owners cannot give rise to common intention constructive trust

The Court of Appeal held that detrimental reliance after the death of legal owners cannot give rise to common intention constructive trust

On 5 March 2020, the Court of Appeal (comprising Lam VP, Cheung JA and Au JA) handed down judgment in Cheung Lai Mui v Cheung Wai Shing & Ors [2020] HKCA 148, allowing the appeal by the Plaintiff in a land dispute involving issues of, inter alia, common intention constructive trust, proprietary estoppel, estoppel by silence and account of rent.

Brief Background

Wan, Kau and Fuk were three brothers and the registered tenants in common of a piece of land in the New Territories (“the Disputed Land”), each holding one-third equal and undivided shares.  Fuk died between 1991 and 1992.  Kau passed away in 1997 and Wan passed away in 1999.  After Kau passed away, probate of his will was granted in 1998 to the Plaintiff who was Kau’s adopted daughter and she became the executrix of Kau’s estate.  Letters of administration of Fuk’s estate were also granted to the Plaintiff in 2006 and she became the administratrix of Fuk’s estate.  As such the Plaintiff is the legal owner of two‑thirds and the beneficial owner of half of the Disputed Land because upon the death of Fuk who died intestate, his interest passed on to his two brothers in equal shares.

Wan had a son and a daughter, namely the 1st and 2nd Defendants.  After Wan passed away, the 1st Defendant became the executor of his estate.  Wan’s share of the Disputed Land was devolved upon the 1st and 2nd Defendants as co-owners in equal shares.  The 3rd Defendant is the son of the 1st Defendant.

The trial judge found that there was all along a family consensus/agreement/understanding that the 3rd Defendant (being the sole male descendant of the family) could use and own the Disputed Land as his home, and he could build a small house there when he became an adult (“the Common Understanding”).

The Dispute

The 3rd Defendant claimed that he is the sole beneficial owner of the Disputed Land by reason of, inter alia, common intention constructive trust, proprietary estoppel and estoppel by silence.  The 1st and 2nd Defendants also raised a counterclaim against the Plaintiff for an account and enquiry of the rent received by the Plaintiff and for one‑third of the rental income of a house which is under the common ownership of the Plaintiff and the 1st and 2nd Defendants.  The trial judge held in favour of the Defendants on all their claims.

One of the major arguments raised by the Plaintiff on appeal is that the 3rd Defendant did not plead any detrimental reliance (let alone sufficiently substantial one) known to Fuk prior to his death, and that the detrimental reliance relied on by the 3rd Defendant prior to the death of Kau in 1997, or prior to the death of Wan in 1999, was insufficient to give rise to common intention constructive trust, proprietary estoppel and estoppel by silence.

The Court of Appeal’s Holdings

The Court of Appeal allowed the Plaintiff’s appeal and further remitted the 3rd Defendant’s claims based on common intention constructive trust, proprietary estoppel (and if necessary, estoppel by silence) as well as the 1st and 2nd Defendants’ claim for an account of rent to the trial judge for determination in accordance with the legal analysis set out in the Court of Appeal’s judgment.

Significance of the Court of Appeal’s Judgment

In Cheung Lai Mui v Cheung Wai Shing & Ors [2020] HKCA 148, the Court of Appeal decided issues concerning common intention constructive trust and proprietary estoppel which have never been dealt with by any cases before. It is also the first appellate authority in Hong Kong which discussed the modern approach to equitable accounting.

On common intention constructive trust, the Court of Appeal accepted the Plaintiff’s argument that if there was no detriment prior to the death of the landowner, the conscience of the dead man could not have been affected. The Court of Appeal expressly held that “as a matter of law the cut-off date should be the date of death of the legal owners” (per Lam VP).

On proprietary estoppel, the Court of Appeal took the view that there is no “cogent reason for rigidly having a cut-off date upon the demise of the promisor as pre-empting the operation of equity if it is otherwise reasonable for the promisee to continue to rely on the promise in the meantime” (per Lam VP). Cheung JA’s concurring judgment gave a detailed analysis of the relevant moment for the purpose of ascertaining whether detriment had occurred so as to bind the conscience of the promisor and the requirement of knowledge of the detriment.

On account of rent, having re-examined the law in light of the modern position as reflected in the English authorities, the Court of Appeal held that the modern approach should be followed in Hong Kong, that is “a court of equity will order an inquiry and payment of occupation rent even if there is no ouster when it is necessary to do so to do equity between the parties” (per Lam VP).

Anson Wong Yu Yat (led by Ms Audrey Eu, SC) acted for the Plaintiff in the Appeal

The judgment of the Court of Appeal can be found here.