Determining the Beneficial Ownership of Property

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1 Determining the Beneficial Ownership of Property Introduction It is not uncommon for two people in a close relationship to purchase a property together, and the informal nature of their bond often means that their financial contributions might not strictly accord with the formal ownership of the property. However, if the relationship breaks down, how will the true beneficial ownership of the property be determined? This was the question faced by the Court of Appeal in the case of Chan Yuen Lan v See Fong Mun [2014] SGCA 36. The case involved a dispute over property purchased by a husband and wife. As the couple did not commence matrimonial proceedings, the beneficial ownership of the property had to be settled by common law principles of trusts. While the husband had contributed a majority of the purchase price, the property was registered in the wife s sole name. Both parties claimed complete beneficial ownership. The Court examined the circumstances and evidence, and held that the wife held 84.17% of the beneficial interest in the property on a resulting trust for the husband. This judgment provides a comprehensive overview of the interaction between the principles of resulting trusts and constructive trusts, which often cause confusion when determining the beneficial ownership of property. It also provides a guide as to how to assess property disputes between parties who have contributed unequal amounts towards the purchase of a property. Brief Facts The husband ( Mr See ) and wife ( Mdm Chan ) married in The dispute centered around a property (the Property ) which was purchased in 1983 for around $1.8 million. The majority of the purchase price was paid by Mr See and his company, while Mdm Chan contributed a lesser sum. Nonetheless, the Property was registered in Mdm Chan s sole name. Mr See submitted that their intention was that the Property should be held in Mdm Chan s name, but that her contribution was only meant to be an interest-free loan to him. He relied partly on a power of attorney executed by Mdm Chan in respect of the Property, 1 Rajah & Tann LLP

2 allowing him to control and sell the Property. As the alleged loan had since been purportedly repaid, Mr See claimed full beneficial ownership of the Property. Conversely, Mdm Chan contended that the Property was to be owned by her absolutely. She alleged that her contribution was not intended to be a loan, and that the Property was for her financial security in light of the relationship problems between her and Mr See. The High Court held that Mdm Chan held the entire beneficial interest in the Property on a resulting trust for Mr See. Mdm Chan appealed against this decision. Holding of the Court of Appeal The Court of Appeal overruled the High Court s decision in part, finding that Mdm Chan s contribution to the Property s purchase price was not a loan, and that she thus held only 84.17% of the Property on a resulting trust for Mr See. Resulting trusts It is not uncommon for a property to be registered under a person s name even though he has not contributed to or only partially contributed to its purchase price. In such a situation, a resulting trust will arise in favour of the actual purchaser, that is, the person who actually made the financial contributions towards the purchase price, if there is a lack of intention on his part to benefit the registered owner. On the flip side, there also exists what is known as the presumption of advancement under the common law, which presumes that property transferred between family members (including situations which involve the making of financial contributions towards the purchase price of a property on behalf of another) is intended as a gift, and may thus operate to defeat a presumption of resulting trust. In this case, the Court of Appeal found that the presumption of resulting trust clearly applied as Mdm Chan had not paid the whole of the purchase price of the Property; the only question was whether Mr See had paid the entire purchase price. On the facts, it was found that Mr See only paid 84.17% of the purchase price, and that the remainder was contributed by Mdm Chan. This sum was not found to be a loan, meaning that Mdm Chan held 84.17% of the beneficial interest in the Property for Mr See. Further, the Court found that Mr See had no intention to benefit Mdm Chan through his contribution to his purchase price. Mdm Chan had signed a power of attorney giving control of the Property to Mr See, suggesting that the Property was not a gift to her. Also, at the point of purchase, the relationship between Mr See and Mdm Chan had broken down, and he had no reason to gift her with a house. 2 Rajah & Tann LLP

3 Finally, it was found that the presumption of advancement would not apply due to the state of the relationship between Mr See and Mdm Chan at the time. Therefore, there was nothing to counter the presumption of resulting trust. Constructive trusts The Court also discussed the tension between resulting trusts and constructive trusts, particularly in the domestic context. The common intention constructive trust was developed to mitigate the comparatively inflexible resulting trust, and there has been confusion over which type of trust applies in a given situation. In the UK, the common intention constructive trust has become the dominant model for domestic property disputes, replacing the resulting trust. In a domestic context, the starting point is that the equitable ownership of property follows the legal ownership. The Courts will then examine if this presumption can be displaced by showing that the parties had a common intention to hold the beneficial interest in the property in a different manner from the legal interest. This approach has been applied across a variety of domestic relationships, even beyond cohabiting couples for example, parent and child, or even close friends. The wide scope of the model makes it even more vital to determine whether it should apply in Singapore. The Court of Appeal in this case declined to apply the common intention constructive trust approach in Singapore domestic property disputes (as the default analysis), favouring the application of the resulting trust instead. The Court then set out a detailed guide as to how to determine the beneficial interest in a property where the parties have contributed unequal amounts to the purchase price: (a) Is there sufficient evidence of the parties financial contributions? If yes, the presumption of resulting trust arises, and they will be presumed to hold the beneficial interest in accordance with their contributions. If no, they will be presumed to hold the beneficial interest in the same manner as the legal interest is held. (b) Is there sufficient evidence of a common intention that the parties should hold the beneficial interest in the property in a proportion which differs from (a)? If so, the parties will hold the beneficial interest in accordance with the common intention. (c) If the answer to (a) and (b) is no, then the parties will hold the beneficial interest in the same manner as the legal interest is held. 3 Rajah & Tann LLP

4 (d) If the answer to (a) is yes, but (b) is no, is there sufficient evidence that the party who paid the larger part of the purchase price intended to benefit the other party? If yes, then he would be taken to have gifted the other party with his share of the beneficial interest. (e) If the answer to (d) is no, does the presumption of advancement displace the presumption of resulting trust in (a)? If yes, then there will be no resulting trust, and the property will be held in the name of whoever is the registered owner. If no, the parties will hold the beneficial interest in accordance with their contributions to the purchase price. (f) Is there sufficient evidence that the parties have developed a different common intention regarding the beneficial interest in the property which differs from the intention at the time the property was acquired? If yes, then the beneficial ownership will follow the new common intention. Concluding Words As demonstrated in the case above, the beneficial ownership of a property purchased in a domestic context can be a complicated affair. Neither the respective contributions to purchase price nor the legal registration of ownership may reflect the true beneficial ownership of the property. The intended proportion of ownership may even be subject to change over time. This is particularly important considering that the domestic context is continually expanding with changing societal norms. This judgment thus sets out an essential guide for determining the beneficial ownership of property. The test to be applied may not be simple, but it provides a clear framework for assessment, as well as a degree of certainty which is to be welcomed. To avoid such disputes, parties purchasing a property together may wish to discuss how the property should be divided should such an eventuality occur. Parties may also choose to express the intended beneficial ownership of the property in contemporaneous documents, such as trust documents, so as to clearly establish what proportion of the property should be held by each party. This dispenses with the need to infer the intention of the parties from testimony and other evidence, which may in any event be inconclusive and unnecessarily complicated. 4 Rajah & Tann LLP

5 Contacts Kee Lay Lian Partner D (65) F (65) lay.lian.kee@rajahtann.com Gregory Vijayendran Partner D (65) F (65) gregory.vijayendran@rajahtann.com Please feel free to also contact the Knowledge and Risk Management Group at eoasis@rajahtann.com Rajah & Tann LLP is the largest law firm in Singapore and Southeast Asia, with regional offices in China, Lao PDR, Vietnam, Thailand and Myanmar, as well as associate and affiliate offices in Malaysia, Cambodia, Indonesia and the Middle East. Our Asian network also includes regional desks focused on Japan and South Asia. As the Singapore member firm of the Lex Mundi Network, we are able to offer access to excellent legal expertise in more than 100 countries. Rajah & Tann LLP is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealing with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The contents of this Update are owned by Rajah & Tann LLP and subject to copyright protection under the laws of Singapore and, through international treaties, other countries. No part of this Update may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of Rajah & Tann LLP. Please note also that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann LLP or the Knowledge & Risk Management Group at eoasis@rajahtann.com. 5 Rajah & Tann LLP