IO asked to reimburse owner the cost of replacing an unauthorised structure that it had removed

In Lee Din Chun v Beverly Heights (IO) ([2013] HKEC 924, LT) L owned a parking space at the property. There was a canopy above the parking space. This was an unauthorised structure. The incorporated owners had it removed because it was impeding the progress of works on the sewers and drains beneath the parking space. L replaced the old canopy with a new canopy. The erection of the new canopy amounted to a breach of the DMC. Further, the Building Authority issued a notice requiring the demolition of the new canopy as it was in breach of the Buildings Ordinance. Nevertheless, L now sought compensation from the IO for the cost of erecting the new canopy. L failed. There was no basis on which the IO could be liable for the cost of the new canopy. Further, it was unreasonable to require it to pay for the cost of erecting an unlawful structure; this might expose it to the risk of having committed a criminal offence.

Michael Lower

Acquisition of right of way by prescription

In Cheung Yuk Ying v Lo Koon Fuk ([2013] HKEC 932, CFI) the path leading from P’s house to the public footpath crossed the land of a Tso (represented by D). P’s land was landlocked and P claimed a right of way by prescription under the doctrine of lost modern grant. This succeeded. The path over D’s land had been used as the access between P’s property and the public footpath ‘on a reasonably regular basis’ (though perhaps not continuously) since at least the 1940s. On that basis, the doctrine of lost modern grant applied ([146] – [147]). The fact that the house was in ruins between the mid 1950s and the mid 1990s did not matter since the path was still used as an access to the property (perhaps as a way of getting to a chicken farm beyond it) during that time. The fact that, for much of that time, the occupiers and owners were all likely to have been members of the Tso did not mean that the use of the path was a private privilege reserved for members of the Tso.

The court considered, and seems to have been inclined to accept, a second and independent basis on which the easement might have come into existence. There was a re-grant of all Government leases in the New Territories in 1973 (New Territories (Renewable Government Leases) Ordinance) and all Government leases in the New Territories had been extended in 1997 (New Territories Leases (Extension) Ordinance). P’s land was land-locked. The grant of the claimed right of way could be implied on the basis of necessity on the re-grant or extension of the lease of P’s land (with a corresponding reservation on the re-grant or extension of the lease of D’s land). Alternatively, the rule in Wheeldon v Burrows or section 16 of the Conveyancing and Property Ordinance could result in the implied grant of an easement based on the then existing use of the path as a means of access from P’s land to the public footpath.

Michael Lower

Allegation that directors lacked authority to commit corporate landlord

In Hong Kong Hai Zhou Tong Xiang Association Ltd v Ngai Shun Wah ([2013] HKEC 739, LT) T’s tenancy expired in 2012. L sought possession on the basis that the fixed term had expired and that T had sub-divided the property in breach of covenant. T’s defences were that he had been granted a new lease until July 2016 and that L had known all along of the sub-division and had acquiesced. L responded that the directors who had countersigned the company seal lacked authority and that the seal that had been used was a fake. T succeeded on both counts.

First, even if the countersignatories lacked actual authority (the Tribunal thought they probably had actual authority) they had apparent authority ([15]). As for the seal, even if it were a fake (and the Tribunal was not persuaded of this) T could rely on the rule in Turquand ([21]). Further, L had cured any possible procedural irregularity: its acceptance of rent amounted to a ratification of the lease  ([23]).

L had known of and acquiesced in the sub-division and could not complain of it. In any event, it had not served the notice required by section 58 of the Conveyancing and Property Ordinance.

Michael Lower

Removing internal staircase: infringement of right of way: encumbrance?

In Ho Ching Group Ltd v Tsang Pui Lin ([2013] HKEC 780, CFI) S agreed to sell the property (a ground floor shop) to P. There had been an internal staircase leading from the shop to the cockloft above (in separate ownership) and the owner of the cockloft had a right of way to use the staircase to get to the cockloft. The staircase had been removed and S acknowledged that this amounted to an infringement of the easement. The internal staircase had been replaced by an external staircase before S bought the property in 1998 and there had been no complaint by the owner of the cockloft. On the other hand, when approached by P, the owner of the cockloft refused to renounce its right to use the internal staircase. The question was whether the infringement of the easement amounted to an encumbrance on title.

The court held that it was not an encumbrance. J Poon J. stated the test thus:

‘In considering if a risk of litigation may constitute an encumbrance, the court will ask : are the facts and circumstances of the case so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the encumbrance.’ ([12]).

Here, there had been no complaint by the owner of the cockloft. There had been no threat of action concerning the removal of the staircase by other owners in the building or the Government. It seemed clear that the owner of the cockloft had abandoned the right of way. The risk of litigation was fanciful ([13]).

The sale and purchase agreement contained a clause requiring P to accept the situation as regards the staircase but the presence of this clause was not a factor in the judgment.

Michael Lower

Weekly review: 10th – 14th June

Contract: misrepresentation

A misrepresentation is material if it is one of the factors that induced the representee to enter into the contract. It is enough that, as a matter of fact, the representee was actually influenced by the representation. If a reasonable objective bystander would have been influenced it is for the representor to show that the representee was not influenced (Master Yield Ltd v Ho Foon Yung Anesis)

Leases: break clause: excess rent (for period after the date specified in an effective notice)

If rent is payable quarterly in advance  (for example) and the lease term expires between quarters the tenant need only pay rent calculated to the end of the term. The same is true if the lease ends because of the exercise of a break right and it is clear from the outset that the notice will certainly be effective (there is no outstanding condition). If the effectiveness of the notice is conditional then there will often be an implied right to recover the excess advance rent once the lease has actually come to an end. This is all subject to the general principles of contractual interpretation (Marks & Spencer plc v Bnp Paribas Securities Services Trust Company (Jersey) Ltd)

Proprietary estoppel

The detriment for proprietary estoppel purposes need not be substantial but it must be real and incurred in reliance on the relevant assurance (Cheung Pak Chuen v Au Yeung Wing Chi)

If the statement said to constitute an assurance or representation for promissory or proprietary estoppel purposes  is open to more than one reasonable interpretation (one of which is fatal to the estoppel defence) then the representee is not entitled to rely on what was said without further clarification and there is no basis for an estoppel. (Kim v Chasewood Park Residents Ltd)

Misrepresentation: whether material

In Master Yield Ltd v Ho Foon Yung Anesis ([2013] HKEC 898, CA) L induced T to enter into a tenancy agreement by a misrepresentation to the effect that it would be possible to install air-conditioning units on the external walls of the property. In fact, the consent of the incorporated owners was needed for this. Had they known, T would not have taken the lease and it was reasonable for T to take that attitude. The question was whether or not the misrepresentation was material and had induced the contract.

Lam JA said:

‘The ultimate question is whether a representee was induced by the representation and it is a question of fact to be asked in respect of this particular representee (as opposed to an objective reasonable bystander). The effect of a representation on an objective reasonable bystander is only relevant in terms of onus of proof.’ ([22])

That is, it is enough that the representee was subjectively influenced. If an objective reasonable bystander would have been influenced, the burden of proof shifts to the representor to show that there was no influence ([21]).

The representation need not have been the only factor influencing the representee to enter into the contract, just one of the factors ([26]).

Since in this case a reasonable, objective bystander would have been influenced and L had not shown that the representation had not influenced T, the misrepresentation claim succeeded. T was entitled to damages under section 3 of the Misrepresentation Ordinance.

Michael Lower

Proprietary estoppel: reliance and detriment

In Cheung Pak Chuen v Au Yeung Wing Chi ([2013] HKEC 721, CFI) C moved to Hong Kong to be with his father and step-mother. Encouraged by them, he brought his family to live in the property owned by the step-mother. He spent some money on the property and on the upkeep of his parents. In part, this was because of their assurance that the property would pass to him on their death provided he looked after them. Also at their suggestion, he gave up his employment and started his own business at the property. His father died. In her will, the step-mother left the property to her nephew rather than to C. After his step-mother’s death, C claimed that he had an interest in the property and he relied on proprietary estoppel.

The nephew argued that there was no reliance since all of C’s actions alleged to be the result of a reliance on the assurances were things that he would have done anyway as a good son. This failed since the assurances had been at least a partial cause of C’s actions (expenditure of money on the property and on looking after his parents).

The nephew also argued that there was no detriment since C had derived considerable advantages from being able to live at, and carry on his business from, the property. On balance, however, the court found that there was not merely a change of position but also detriment.

There is a summary of the law on proprietary estoppel at [72] – [81].

There was the necessary detrimental reliance in this case:

‘Looked at only in this way the detriment suffered by the Plaintiff is said by the Defendant not to be very substantial. Nevertheless, in my view, it is sufficient. He has spent money on the establishment of a business which, although no doubt primarily of benefit to himself and his own family, provided a basis on which he was able to reside with the Parents and, in due course, take care of them. He has provided financial support to the Parents via the “pocket money” some of which might well have been given in any event, but on the Plaintiff’s unchallenged evidence some not.’ ([86], Recorder Anthony Houghton SC)

When it came to the relief, the fact that there had been a clear assurance that the property would belong to C resulted in his being awarded outright ownership of the property ([93]).

Michael Lower

Tuen Ng Festival

A day to watch the Dragon Boats!

When is a statement clear and unambiguous for the purposes of equitable estoppel?

In Kim v Chasewood Park Residents Ltd ([2013] EWCA Civ 239, CA (Eng)) K was one of the flat owners at an estate called Chasewood Park (holding under the terms of a 125 year lease). The reversion (a much longer lease) came up for sale. Chasewood Park Residents Ltd was set up by the Residents’ Association to acquire the reversion. On 24th August 2006, the committee of the Residents’ Association sent out a circular letter to residents inviting them to contribute to the cost of acquisition. The letter summarised the benefits of the scheme and these were said to include the fact that those who participated would no longer need to pay the ground rent (then GBP100 annually) and that the 125 year terms could be extended to much longer terms at minimal extra cost.

K, believing that Chasewood Park would acquire the freehold and that a commonhold scheme would be established, agreed to participate. In fact, the reversion was a leasehold and what was proposed was an extension of the leases. Chasewood Park acquired the reversion and those who had agreed to participate were offered longer terms (as promised) but Chasewood Park said that a ground rent of GBP 100 would continue to be payable under the new leases.

K refused to pay the ground rent. In her defence to Chasewood Park’s claim for the rent arrears, she  argued that Chasewood Park was estopped from including a ground rent in the new leases since the circular letter contained statements that:

1. there would be no ground rent to pay following the purchase of the reversion; and

2. that participating residents would be able to extend their leases at no additional cost except a small fee.

The first, and as it happened determinative, issue was whether there had been a clear and unambiguous representation that participants would not have to pay a ground rent. On this, Patten L.J. said:

‘There is no doubt that in order to found a promissory estoppel (in the same way as any other estoppel based on a representation of fact) the representation or promise must be clear and unambiguous. But this principle raises a number of subsidiary questions. Does it mean that the estoppel cannot arise unless there is only one possible meaning of the words used or is the existence of other possible (but perhaps less probable) meanings not fatal to the creation of an estoppel where the Court can say that it was reasonable for the representee to have interpreted the words used in the way he did? There is also an issue about the test to be adopted by the Court. Few, if any, statements are not capable of being interpreted in more than one way. The Court’s usual role in construing, for example, a contract is to arrive at the legally correct meaning of the words. Their construction is a matter of law and the Court’s function is to resolve any ambiguities in reaching its conclusion. But it is arguable that in the case of estoppel it should not go any further than to identify the existence of any real ambiguities in the language. If the statement is open to more than one reasonable interpretation (one of which is fatal to the estoppel defence) then the representee was not entitled to rely on what was said without further clarification and there is no basis for an estoppel.’ ([23])

There was no clear and unambiguous statement here. The circular letter was simply a list of potential benefits. The suggestions were conditional and set out in an early stage in the scheme. They did not amount to the assurance contended for ([31] and [34]).

Nor had there been the necessary reliance since K had misunderstood the nature of the scheme. She had relied on her understanding that there would be a commonhold scheme and that she would not be a tenant at all. This was not merely a question of the legal mechanism to be put in place to give effect to an assurance. She had relied on an assurance that had not been made ([38] – [40]).

Patten LJ considered whether, had there been a promissory estoppel defence, its effect would have been merely suspensory. Would it have been unconscionable to withdraw any assurance that no ground rent was payable? It would not have been unconscionable. There was nothing to lead to such a conclusion. Chasewood Park had offered to reimburse K’s contribution but she had declined the offer. While Chasewood Park’s offer to reimburse K was not determinative, it reinforced the conclusion that it was not unconscionable to withdraw any assurance that no ground rent was payable ([42]).

Similar reasoning applied if one looked at the matter as a claim based on proprietary estoppel. The conclusion that any promissory estoppel would only be suspensory suggested that relief in proprietary estoppel should not take a form that would result in the permanent removal of a liability to pay ground rent. It would be inappropriate to grant relief in the form of a lease with no ground rent ([45]).

Michael Lower

Break clause: can the tenant recover ‘excess’ rent paid in advance?

In Marks & Spencer plc v Bnp Paribas Securities Services Trust Company (Jersey) Ltd ([2013] EWHC 1279 (Ch)) a lease contained a break clause. If exercised, the lease would determine in between the quarter days on which rent payments were to be made. The tenants exercised the break clause. On the next quarter day, they paid a full quarter’s rent. After the lease had come to an end, the tenants argued that they were entitled to a repayment of that portion of the rent attributable to the period after the end of the lease.

The lease provided that rent was payable ‘yearly and proportionately for any part of a year by equal quarterly payments in advance on the Quarter Days.’

The tenants rested their argument for recovery on (i) the express words just mentioned, (ii) the presence of an implied term that such repayment would be made, and (iii) restitution. There was no express right of recovery ([29]). They succeeded on the second ground; there was an implied term to this effect ([35] – [37]). The court would not have ordered repayment under the heading of restitution since there had been no total failure of consideration ([42]).

The other ‘excess’ payments made (car park licence fee [47] and insurance charge [49] – [52]) were also recoverable.

The service charge clause provided for an advance payment and (once the accounts for the year were settled) a balancing charge or credit. It was held that the tenants were entitled to invoke the balancing mechanism in the service charge clause even though this was an exercise which would take place after the end of the lease. As a credit against future service charge payments was of no use to them, they were entitled to a refund of the ‘credit’. In fact, the landlords had conceded this point ([56]).

Returning to the recoverability of the excess basic rent payment attributable to the period after the lease came to an end, the court held that:

1. if there had been no break clause and the term had expired between quarters then the tenant would, as a matter of the express terms of the lease (‘proportionately for any part of a year’) have been obliged only to pay rent up to the end of the term . The same result could be reached based on a ‘common sense view’ even without these words ([27]); and

2. the same would be true if the lease had been brought to an end by the exercise of a break clause and it was certain from the outset that the notice was effective to determine the lease ([28]).

The effectiveness of the break clause in this case, however, was conditional so that prima facie rent had to be paid for the full quarter ([28]). There was no express right of recovery of the excess and the words ‘proportionately for any part of a year’ did not confer any such right ([29]).

There was, however, an implied term to the effect that a repayment of the excess rental payment would be made. The court referred to the amounts that would have been payable had it been certain that the lease would end when it did, in fact, end. This meant that a reasonable person would think that no rent was payable for the period after the lease had ended. This conclusion was reinforced by the fact that the tenants had to pay a capital sum if they exercised the break right and it seems unlikely that they were to get both this and rent for the period after the lease ended ([35]).

As a cross-check, the court considered whether the implication of the term was reasonable ([36]) and necessary to give business efficacy to the agreement ([37]). These cross-checks reinforced the conclusion that a term as to repayment was to be implied.

There would be no such implied term if the lease had come to an end as a result of forfeiture ([38]).

The same claim based on restitution would have failed: it was not possible to say that the consideration for the final quarter’s rent had totally failed ([42]).

Michael Lower