A cogent explanation as to why a person's name is not on the title deeds is required in claiming beneficial entitlement to a property

In Leung Mee Kuen v Leung Siu Kuen Bessie, two sisters were in dispute over the beneficial ownership of a property.  The property had been bought using the proceeds of sale of another property. The dispute as to beneficial ownership was in respect of both properties. To determine who was the beneficial owner, the Hong Kong Court of First Instance required the sisters to provide cogent explanations as to why their names were not on the relevant title deeds. This case is a helpful demonstration of the uncertainties involved in proving beneficial entitlement to a property, when a person is not the registered owner. Therefore, beneficial owners of a property should always try to record their trust arrangements with the legal owners in writing. 

Background

This case involved a dispute as to who owned a property ("Disputed Property") between the plaintiff daughter ("Plaintiff Daughter") and mother ("Mother") on the one hand and the defendant daughter on the other ("Defendant Daughter"). The Disputed Property was purchased in 2006 using the proceeds of sale from another property which was purchased in 1994 ("Old Property"). The Old Property was originally purchased using funds owned by the father of the family ("Father"), but was held in the names of the Plaintiff Daughter and one of her brothers ("Brother") as joint tenants. When the Old Property was sold and the Disputed Property purchased, the Disputed Property was registered in the name of the Mother and the Brother as joint tenants.  Neither the Plaintiff Daughter nor the Defendant Daughter was the registered owner.

In 2007, one year after the purchase of the Disputed Property, the Mother executed a deed of gift ("Deed of Gift").  By this document, she purported to transfer her interests in the Disputed Property to the Defendant Daughter.  Title to the Disputed Property was transferred to the Defendant Daughter and the Brother as joint tenants. In 2012, the Mother and the Plaintiff Daughter commenced proceedings against the Defendant Daughter in respect of the Disputed Property.  They sought orders that the Deed of Gift was void and that it be set aside, with a consequential order that the registration in the Land Registry be restored to the Mother and Brother. In the alternative, they sought a declaration that the half share in the Disputed Property registered in the name of the Defendant Daughter was held on trust for the Plaintiff Daughter.

The Plaintiff Daughter's and the Mother's case

The Plaintiff Daughter claimed that she and the Brother were always the legal and beneficial owners of the Disputed Property. She said that at the time of purchase of the Disputed Property, she and the Brother had agreed orally that the Disputed Property would be used as a home for the Mother during her lifetime. In order to give the Mother reassurance, akin to some kind of security of tenure, the Plaintiff Daughter agreed with the Mother that the Plaintiff Daughter's share of the Disputed Property would be put in the name of the Mother, who would hold it on trust for the Plaintiff Daughter. None of this was recorded in writing. Based on these facts the Plaintiff Daughter alleged that the Deed of Gift was void because it purported to transfer away from the Mother an interest in the Disputed Property which she did not hold, namely the beneficial interest in one half of that property.

The Defendant Daughter's case

The Defendant Daughter argued that the Father and/or the Mother intended that each of their children should have a property or part of a property as a gift from their parents. Given that the brothers of the family had previously been given a property, the Old Property was a gift to the Plaintiff Daughter and the Defendant Daughter, rather than to the Plaintiff Daughter and the Brother. She explained that the Brother was named as an owner of the Old Property on her behalf together with the Plaintiff Daughter because at the time the Old Property was purchased it was not convenient for her to execute the documents to become a legal owner of that property. The Defendant Daughter then argued that since the Disputed Property was bought using proceeds from the sale of the Old Property, she thus owned half of the beneficial interest in the Disputed Property.

However, the Defendant Daughter also argued:

• That at the time of the purchase of the Disputed Property, the Plaintiff Daughter and the Defendant Daughter intended the Disputed Property to be a gift to the Mother; or
• All parties shared the common intention that the Mother was to have the whole of the beneficial interest in the Disputed Property when it was purchased.

In either case, the Deed of Gift was effective.

Questions for the Court

The Court had to decide the following questions:

1. Did the Defendant Daughter have any beneficial interest in the Old Property?
2. If the answer to 1 was yes, were the proceeds of sale of the Old Property impressed with a trust, and did the Defendant Daughter obtain an interest in the Disputed Property, irrespective of the Deed of Gift?
3. In any event, did the Plaintiff Daughter give half the Disputed Property to the Mother and / or was there any common intention between the parties that the Mother held both the legal and beneficial titles to half of the Disputed Property, either at the time at which her name was registered as a joint owner of the Disputed Property, or later?
4. If the answer to 3 was yes, was the Deed of Gift an effective transfer of her beneficial ownership in the Disputed Property to the Defendant Daughter?

Judgment

(1)  Did the Defendant Daughter have any beneficial interest in the Old Property?

The Court noted that the starting point of this question was the Land Register, which stated that the Old Property was owned by the Plaintiff Daughter and the Brother. To rebut this, the Defendant Daughter had to show that half of the Old Property was a gift to her. The Defendant Daughter also had to give a cogent explanation as to why the Brother's name, but not her name, was on the title documents.

In this regard, the Court considered that the Defendant Daughter failed to provide sufficient evidence. The Defendant Daughter's case was largely based on an inference as to what the Father might have intended, namely it would not make sense for the Brother to be given a share in the Old Property when he had been given a share in two other properties. She also failed to explain why her name was not on the title documents, the Court's finding that her reason as to why she could not sign the transfer documents was weak. Therefore, the Court held that the Land Register told the whole story about the ownership of the Old Property: it was owned legally and beneficially by the Plaintiff Daughter and the Brother.

(2)  Were the proceeds of sale of the Old Property, and therefore was the Disputed Property, impressed with a trust in favour of the Defendant Daughter?

The Court's finding on the first question meant the second question no longer needed to be answered.

(3)  Did the Plaintiff Daughter intend to give half of the Disputed Property to the Mother and / or was there a common intention between the parties that the Mother would own half of the Disputed Property?

In examining whether the Plaintiff Daughter intended to make a gift of her half share of the Disputed Property to the Mother at the time of purchase, the Court noted that it was not practical to simply ask the legal question: did the Plaintiff Daughter intend to transfer both legal and beneficial title to half of the Disputed Property to the Mother? Instead, the Court asked the practical question: why did the Plaintiff Daughter put a share of the Disputed Property in the Mother's name, instead of holding it herself? In this regard, the Court found that the Plaintiff Daughter's explanation that the legal title to the Disputed Property was given to the Mother because she wanted to give the Mother some reassurance was credible.  It dismissed all of the Defendant Daughter's allegations. The Plaintiff Daughter therefore did not give half of the Disputed Property to the Mother.

(4)  Was the Deed of Gift an effective transfer of the Mother's beneficial interest in the Disputed Property?

In light of the above, the Court found that the Deed of Gift was not an effective transfer of the Mother's beneficial interest in the Disputed Property.

Comments

This case is a good example of the importance of recording any trust arrangements in writing. In the absence of such written evidence, the Court will often find that Land Registration documents record the ownership of a property.  This will be so unless a party can provide a cogent reason as to why his or her interest is not recorded in the title documents. We recommend that parties always document their trust arrangements in writing to avoid future disputes.

If you wish to discuss, please contact Richard Norridge or Joanna Caen of our Private Wealth and Trusts team.