The Singapore Law Gazette

Remaining Issues for Direct Contributions Under the Presumption of Resulting Trust

This article examines the lesser known types of costs that are potentially direct contributions under a presumption of resulting trust, namely (a) renovation or repair costs; and (b) legal fees and stamp duty. It is argued that the amount of costs incurred for both categories should be accounted for as direct contributions over other more restrictive views.

Introduction

1. The law on the presumption of resulting trust has undergone a significant period of autochthonous development in Singapore since the Court of Appeal’s seminal decision in Lau Siew Kim¹Lau Siew Kim v Low Guan Chye Terence (2008) 2 SLR(R) 108 (Lau). and the Court’s decision to maintain the applicability of the said presumption in property co-ownership cases (and declining to adopt the Stack v Dowden²Stack v Dowden (2007) 2 AC 432. approach) in Chan Yuen Lan.³Chan Yuen Lan v See Fong Mun (2014) 3 SLR 1048 (Chan).
2. The presumption of resulting trust focuses on the direct contributions⁴Lau at (114), citing Robert Pearce and John Stevens, The Law of Trust and Equitable Obligations 4^th Ed (OUP, 2006) (Pearce & Stevens) at 243. of the parties to the purchase⁵Lau at (34), citing Westdeutsche Landesbank Girozentrale v Islington London Borough Council(1996) AC 669 at 708 of the property, operating on the default inference that a party did not intend to benefit another when making that contribution.⁶Lau at (35). As a result, the parties’ respective interests are presumed to be “the exact mathematical equivalent of his or her contribution”⁷Lau at (113). made at the time of purchase.⁸Lau at (112).
3. In the context of buying real property in Singapore, the potential types of direct contribution are:
   1. payments, whether in cash or using CPF Ordinary Account funds, made toward the 25% down-payment, which includes the option fee and the exercise fee;⁹Chan at (18(f)).
   2. the value of the loan from a financial institution, usually secured by a mortgage over the property. Here, the value of the loan is attributed according to the operating agreement of the parties on how the loan is to be repaid. Actual repayments are of themselves irrelevant, but can shed light on what the initial operating agreement was. If there is insufficient evidence of such an agreement, the nature of legal liability to the lender provides a default answer;¹⁰Su Emmanuel v Emmanuel Priya Ethel Anne (2016) 3 SLR 1222 at (89) – (91).
   3. sometimes the cost of repairs or renovation of the property;¹¹Lau at (126). and
   4. arguably the legal costs and stamp duty associated with purchasing the property.¹²Tay Yak Ping v Tay Nguang Kee Serene (2022) 2 SLR 641 (Tay).
   
4. The position concerning the first two (2) types of direct contribution are now settled. What this article seeks to address are the outstanding issues relating to the latter two (2) types of potential direct contribution.

Renovation or Repair Costs

5. It is not controversial that renovation or repair costs are relevant. What is less clear is how this type of direct contribution is to be accounted for. Is it the cost incurred that is accounted for, or the increase in value in the property attributable to the works paid for that is accounted for?
6. The controversy arises from the following passage in Lau:¹³Lau at (126).

126 Finally, it should be pointed out that contributions to the cost of repairs or renovation of a property may be relevant when computing a party’s contribution to the purchase price of property. In Pearce & Stevens ([31] supra), it was stated at p 246:

Where the property is repaired or renovated, and its value is thereby increased, a person who contributes towards the cost of such repairs or renovations will be entitled to an interest in the land by way of a resulting trust proportionate to the extent to which the increase was attributable to their contribution. Improvements made much later than the date of purchase may give rise to a constructive trust.

Hence, where a property is redeveloped closely after purchase and where its value is increased by the redevelopment, contributions to the costs of redevelopment can be relevant in determining the respective proportion of contributions to the purchase price of the property for the purposes of a presumption of resulting trust …

7. If we read the words of the Court alone (in italics), it would seem clear from the words in bold that it is the costs incurred that count as a direct contribution.
8. Yet, the Court based its views on a passage from the 4^th edition of Pearce & Stevens, where the authors appear to express a different view. Taking the extract from the textbook in Lau alone, what is required inter alia is that “[the property’s] value is thereby increased”, following which “a person who contributes towards the cost of such repairs or renovations will be entitled to an interest in the … proportionate to the extent to which the increase was attributable to their contribution” (emphasis added in bold). Thus, the authors of the textbook appear to be taking the view that it is the appreciation attributable to the works that counts as a direct contribution.
9. The authority cited in Pearce & Stevens for this proposition is Drake v Whipp.¹⁴(1996) 28 HLR 531. The facts of the case were straightforward. An unmarried couple bought a barn to convert into a home. The property was purchased in the defendant’s sole name for £61,254. The plaintiff provided £25,000 of the purchase price and the defendant the balance £36,254. The precise figures are important to decipher the Court’s reasoning later on. The conversion works cost £129,536. The plaintiff contributed £13,000. The defendant contributed the balance £116,536. The parties also worked on the conversion themselves, with the plaintiff contributing 30 per cent of the total hours spent and the defendant 70 per cent. The plaintiff claimed a share of the property after they separated.
10. The complication in the case arose because of the way the litigation progressed at first instance. Although there was evidence of a common intention for each party to share in the property beneficially, plaintiff’s counsel framed her claim based on a resulting trust basis which sought to limit the relevant direct contributions to those made toward the purchase price alone.¹⁵This case was actually maintained on appeal: Drake v Whipp at 535 to 536. On her case, the plaintiff would have been entitled to 40.1 per cent of the property, being £25,000 of £61,254. The defendant’s counsel similarly conceded that there was no agreement or common intention, and based her argument on whether the conversion costs were a relevant direct contribution for resulting trust purposes.
11. Walker J decided that issue in favour of the defendant, and therefore awarded the plaintiff 19.4 per cent of the property based on her share of contributions to the purchase price and cost of conversion.¹⁶The total of the purchase price and the conversion costs appears to be £190,790, but the judgment at 535 states that the “total expenditure” as £195,790. It is unclear where the additional £5,000 comes from, but it explains why the plaintiff’s proportion was 19.4% as opposed to 19.9%. The first instance decision in Drake supports the proposition that the relevant direct contribution refers to the costs incurred rather than the appreciation in value. That proposition was in itself not disturbed by the English Court of Appeal, which instead allowed the plaintiff’s appeal based on its view that a common intention constructive trust applied to displace the resulting trust analysis.
12. The better view on the authorities is therefore that the passage in Pearce & Stevens was infelicitously worded.
13. Treating the parties’ contributions to renovation or repair costs as the relevant direct contribution is also preferable for practical reasons. In general, the total amount of renovation or repair costs is readily evident from contractors’ invoices. The parties’ respective contributions are also evident usually from bank transfers, and the law is equipped to deal with issues arising out of payments from joint bank accounts.
14. If instead the relevant contribution were the amount of appreciation attributable to the works, expert evidence would need to be led on the extent of appreciation as a whole, and on which part of that appreciation was attributable to the works as opposed to say broader market movements. That would be an inordinate amount of litigation costs over what is usually a minor part of the direct contribution calculus.
15. That said, it appears that in cases where the renovation works appear to have been for the benefit of one party only, evidence that the renovation works have increased the value of the property will nevertheless be required.¹⁷Khoo Jee Chek v Lim Beng Tiong (2023) SGHC 233 (Khoo) at (116).

Legal Fees and Stamp Duty

16. This final type of potential direct contribution has turned out to be the most controversial.
17. In Tay,¹⁸Tay at (61). the Appellate Division considered the English position to be that set out in Curley v Parkes,¹⁹(2004) EWCA Civ 1515 (Curley) which is commonly understood as standing for the proposition that solicitors’ fees and expenses do not count as part of the purchase price for resulting trust purposes.²⁰Pearce & Stevens at 246; Ben McFarlane & Charles Mitchell eds, Hayton and Mitchell: Text, Cases and Materials on the Law of Trusts and Equitable Remedies 14^th Ed (Sweet & Maxwell, 2015) at fn 76 to para 14–036.
18. However, a closer reading of Curley v Parkes reveals that Peter Gibson LJ did not go quite so far in his judgment. In that case, Curley argued that he had made three (3) direct contributions to the purchase price of the property, one of which was the payment of solicitors’ fees and expenses of £2,858.²¹Curley at (12) That argument, however, concealed certain nuances that were only revealed in Peter Gibson LJ’s reasoning.
19. Peter Gibson LJ rejected the claim in the following manner:
    1. He observed that the legal fees were billed to a third party company Cendant. Cendant was among other things the purchaser of another property owned by Parkes. The proceeds of sale of that property were used to the Battalion Drive property which formed the subject matter of the dispute. He therefore inferred that any payment by Cendant would have been made after the purchase of Battalion Drive, and that any payment would have been pursuant to an agreement between Cendant and Curley. As a result, the particular payment of legal fees was no part of the purchase price.²²Curley at (21)
    2. He also referred to a passage in the 16th edition of Underhill & Hayton, Law of Trusts & Trustees which tentatively stated that payment of legal fees and stamp duties should be treated as part of the purchase cost, commenting that the case of Huntingford v Hobbs²³(1993) 1 FLR 736. cited in support of the proposition was a constructive trust case rather than a resulting trust case.²⁴Curley at (22)
20. With respect, it is therefore not obvious that the proposition that ancillary acquisition costs such as solicitors’ fees are not direct contributions formed the basis for Peter Gibson LJ’s rejection of the claim. Instead, it appears that the argument was rejected on the facts because of the probable chain of payments for the solicitors’ fees. The case was not one where Curley was directly liable for and made direct payment of the solicitors’ fees.
21. If anything, the English position should instead be considered unsettled.
22. The Australian authorities have by contrast settled to a degree on a position that ancillary costs are relevant direct contributions at least to some extent. There is, however, a divergence between the New South Wales and Victorian positions, as the Appellate Division noted.²⁵Tay at (63) – (64).
23. In a line of authority beginning with Currie v Hamilton, the New South Wales courts have consistently held that direct contributions “include the aggregate cost to the purchaser, elements of which are incidental costs, fees and disbursements”.²⁶Carrington v Wallace (No. 2) (2022) NSWSC 1306 at (30). In particular, it is settled in New South Wales that “[r]egard may be had to the incidental costs of the purchase, such as legal expenses, stamp duty and registration.”²⁷Murtagh v Murtagh (2013) NSWSC 926 at (81); Ryan v Ryan (2012) NSWSC 636 at (46); Shepherd v Doolan (2005) NSWSC 42 at (24) (White J, as his Honour then was); Black Uhlans Inc v New South Wales Crime Commission (2002) NSWSC 1060 at (144); Ryan v Dries (2002) NSWCA 3 at (52) – (53); Currie v Hamilton (1984) 1 NSWLR 687 at 691.
24. In Victoria, on the other hand, Kyrou J in Sivritas v Sivritas²⁸(2008) VSC 374 (Sivritas). expressed the more restrictive view that “only costs necessarily incurred prior to and as a condition of obtaining registration of the interest which is to be held on trust should be included in the purchase price. On this basis, stamp duty and registration fees would be included but legal fees and bank fees would not be.”²⁹Sivirtas at (126) This dividing line was drawn on the basis that the “purchase price is what is paid in order to acquire the property”,³⁰Calverley v Green (1984) 155 CLR 242 at 257. with stamp duty and registration fees being strictly necessary but legal fees not.
25. It appears, however, that an earlier Victorian decision in Martech Energy Systems Pty Ltd (in liq) v Bell³¹(2005) VSC 198 (Martech). which “[took] into account all of the costs incurred to acquire the factory, which include not only the consideration payable to the vendor, but also incidental costs, fees and disbursements necessary for the transfer to occur, such as legal costs and stamp duty” (albeit on an agreed basis)³²Martech at (8). was not cited in Sivritas.
26. It is submitted that the Appellate Division’s preliminary view that all costs to the purchasers are direct contributions³³Tay at (68). should be fully endorsed at the first available opportunity.³⁴The broad position taken by the Appellate Division has since been applied at first instance in Khoo at (114) to (115). This is so for four (4) reasons.
27. First, excluding legal fees and stamp duty either because that cost may not be incurred by the time of purchase or because they do not form part of the purchase price payable to the vendor would lead to an inconsistency in approach between the treatment of renovation or repair costs on the one hand and legal fees and stamp duty on the other.
28. As far as the time at which the cost is incurred is concerned,³⁵As alluded to in Curley. renovation or repair costs are usually incurred after the date of purchase. They purchasers have to collect the keys from the vendors before they can hand the keys over to the renovation contractors. Then, at least the final payment for the renovation works is usually only made when the works are completed. Yet, this gap in time between payment for the renovation works and the date of purchase forms no obstacle to the costs of renovation being accounted for as a direct contribution.
29. Stamp duty is payable at the time the option to purchase is exercised and raises no timing objection. Legal fees, on the other hand, are only payable after solicitors issue their bill for work done. The bill is in turn usually issued after the date of completion. Settlement of payment against the deposit placed occurs 48 hours after that.
30. The reason why the renovation or repair costs are part of the direct contributions despite being incurred after the date of purchase is that the works done to the property to improve it are treated as part of the same transaction of acquiring the property in its final improved form. That being the case, legal costs which are in reality incurred before and up to the date of purchase in order to carry out the purchase transaction should a fortiori be included even if solicitors generally only issue their bills and set off the invoice amount against the client’s deposit after completion.
31. In other words, the determinative factor is not whether the cost item was incurred before or after the date of purchase per se, but whether it was incurred in the same transaction as the purchase of the property.
32. Second, restricting relevant costs to only that that are “necessary” to the exclusion of legal or banking fees adopts an overly technical and unrealistic view of property purchase transactions. From the perspective of the ordinary purchaser, legal and banking fees are not an option expense. The view expressed by Kyrou J in Sivritas implies that the ordinary purchaser of property in Singapore should not require legal advice and services in what is likely to be the highest value transaction in his or her lifetime to date. Further, considering that the courts rely on conveyancing solicitors to advise purchasers on their manner of holding in such transactions to avoid disputes over ownership of property, an approach to direct contributions for resulting trusts that then treats the cost of that advice as unnecessary would be very surprising. Therefore, in the Singapore context, the option of purchasing property without a lawyer is largely illusory.
33. Third, refusing to recognise legal fees and stamp duties as direct contributions arbitrarily favours some sources of funds used in the acquisition of a property over others based on what the CPF Board allows CPF funds to be used for.³⁶Tay at (68); Khoo at (115). The party who has more CPF funds will be disenfranchised when using those funds to pay for legal fees³⁷https://www.cpf.gov.sg/member/faq/home-ownership/housing-scheme/can-i-use-my-cpf-savings-to-pay-for-the-legal-fees-incurred-when or stamp duty³⁸https://www.cpf.gov.sg/member/faq/home-ownership/housing-scheme/can-i-use-my-cpf-savings-to-pay-stamp-duty–survey-and-other-rel vis-à-vis the other party who has cash in hand to pay for renovations.
34. Finally, given the draconian increases to Additional Buyers’ Stamp Duty taking effect from 27 April 2023 especially for foreigners, stamp duty is likely to loom even larger in parties’ real-life calculations of purchase costs. To exclude an expense that could be up to 60 per cent of the purchase price (or 37.5 per cent of the purchase cost excluding other cost items) would certainly defeat the reasonable expectations of honest persons.

Conclusion

35. It is therefore submitted that (a) renovation or repair costs and (b) legal expenses and stamp duty expenses should all be treated as direct contributions for computing the parties’ shares under the presumption of resulting trust.