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Acknowledgement of Debt, Agreement for Sale and Purchase, Beneficiaries, Gifting, Resulting trusts, Settlors, trust, Trustees, Trusts

Resulting trust arises in contractual vacuum

The bare facts of Chang v Lee can be summarised as follows:

  • Ms Lee purchases a property in Sunnynook
  • Mr Chang (Ms Lee’s uncle) advances Ms Lee $275,000 of the $566,000 purchase price
  • The advance was not a gift
  • The terms of the loan advance were incomplete
  • Mr Chang made the advance to Ms Lee on the expectation that he would continue to work in a well-paid role for the company of which Ms Lee’s mother  was the CEO (Goal) for a period of 10 years
  • Mr Chang’s income falls and he ceases employment with Goal

In the High Court, Fogarty J found that the balance of the loan (presuming interim reductions) must be repaid after 10 years.

Mr Chang appealed the decision to the Court of Appeal submitting that “Fogarty J erred in finding that Mr Chang intended the advance to be a loan. However, even if Mr Chang did intend to provide a loan to Ms Lee, she submits that Ms Lee holds the property on a resulting trust for Mr Chang in shares proportionate to their contributions to the purchase price. In this respect proof of a positive intention to obtain a beneficial interest in Sunnynook was not required — in accordance with settled principles, all that was necessary was proof of an intention not to benefit Ms Lee. Therefore, Ms Reed submits, Fogarty J erred in imposing a formal loan arrangement through a hybrid of contractual and equitable concepts.”

The Court of Appeal was clear that there was no consensus regarding what the parties agreed and (at [26] “… While Mr Chang may have proceeded on the unilateral intention of lending the money, the parties never agreed to that effect and there is no finding that Ms Lee received the funds on that condition. Equity cannot create consensus. If viewed through the lens of orthodox contract law, there was no consideration for the advance and that crucial element cannot be satisfied retrospectively by judicial construction of terms and conditions on which the parties never agreed. As the Judge himself found [in the High Court], neither party was able “to reduce what happened to a bargain enforceable under the law of contract”.

The result was a declaration that 48.6% of the value of the Sunnynook property was held by Ms Lee on resulting trust for Mr Chang.

A resulting trust arises, as stated in Westdeutsche Landesbank Girozentrale v Islington London Borough Council where:

“… A makes a voluntary payment to B or pays (wholly or in part) for the purchase of a property which is vested in either B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B; the money or property is held on trust for A (if he is the sole provider of the money) or in the case of the joint purchase by A and B in shares proportionate to their contribution. It is important to stress that this is only a presumption, which presumption can be easily rebutted either by the counter-presumption of advancement or by direct evidence of A’s intention to make an outright transfer …

 

As noted at [20] “the rationale for a resulting trust is that, absent evidence to the contrary, the law presumes a person intends to retain the beneficial ownership of funds which he or she advances towards the purchase price of a property.”

The Court’s inquiry into the settlor’s “… intention [is] confined in its scope to the question only of whether [the settlor] intended to part with beneficial ownership through payment of the funds.

As the Court of Appeal noted that the reference to a common intention resembles the language of contract there is no need to find a common bargain.  Rather, the question as stated at [22] is whether money was advanced for a specific purpose – where this is the case ” equity fastens on [the other party’s] conscience and presumes a common intention for [the settlor] to benefit from the application of the funds. There can be no presumed intention of a contractual nature about the terms and conditions on which the money was received if one never existed.”

References:

  • Chang v Lee [2017] NZCA 308
  • Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669

 

 

 

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