Receipt clauses and contractual estoppel

May 14, 2018

Introduction

In Asgain Co Ltd v Cheng Ka Yam ([2018] HKEC 889, CA) Asgain assigned land to CKM and CKY as tenants in common in equal shares. CKM was Asgain’s sole shareholder.

The consideration for the transfer was HK$1.5 million. The memorandum of agreement and the transfer each contained a clause acknowledging Asgain’s receipt of the purchase price.

In fact, however, no payment was made to Asgain at the time of the assignment. CKY subsequently made payments totalling HK$67,000 towards the purchase price.

CKY was later ordered to pay Asgain HK$683,000 (the outstanding balance of her share of the purchase price). She appealed arguing:

(i) that the receipt clauses gave rise to a contractual estoppel in favour of CKY; and

(ii) Asgain’s claim was defeated by section 18(1) of the Conveyancing and Property Ordinance.

 

Contractual estoppel

Lam V-P referred to the Court of Final Appeal decision in Ming Shiu Chung v Ming Shiu Sum ((2006) 9 HKCFAR 334), that of the Privy Council in Prime Sight Ltd v Lavarello ([2014] AC 436) and that in Grundt v Great Boulder Proprietary Gold Mines Ltd ((1937) 59 CLR 641).

Lam V-P also referred to this statement from the 4th edition of Spencer Bower, Estoppel by Representation:

‘an estoppel by convention need not involve any misleading of a representee by a representor, nor is it essential that the representee shall be shown to have believed in the assumed state of facts or law. The full facts may be known to both parties; but if, even knowing those facts to the full, they are shown to have assumed a different state of facts or law as between themselves for the purposes of a particular transaction, then a convention will be established. The claim of the party raising the estoppel is, not that he believed the assumed version of facts or law was true, but that he believed (and agreed) that it should be treated as true’ (at p.197).

Any estoppel was, however, extinguished ‘by a counter estoppel arising from the part payments by [CKY]’ (at [18]). These payments showed that her payment obligation had not been discharged by the receipt clauses. Reliance is not an element of this type of estoppel ([24]).

The contractual estoppel plea failed.

 

Section 18(1) of the Conveyancing and Property Ordinance

Section 18 reads:

‘A receipt for consideration in the body of an instrument shall be a sufficient discharge to the person paying the consideration and, in favour of any other person acting on the faith of the receipt, shall be sufficient evidence of payment.’

The effect of section 18(1) is that a receipt is conclusive at common law but in equity it only gives rise to a rebuttable presumption of payment. The vendor can sue, despite section 18, if there is evidence of non-payment.

Michael Lower

 

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Does acceptance of an obligation to fence off access to an easement amount to abandonment>

April 21, 2018

In Annetts v Adeleye ([2018] EWCA Civ 555) the English Court of Appeal had to consider whether a dominant owner’s acceptance of an obligation to fence off access from the dominant tenement to the servient tenement amounted to the abandonment of a right of way.

The dominant tenement (‘the strip’) had formerly been part of a larger portion of land (‘Summerhill’) with the same right of way. The owner of Summerhill imposed the covenant on the sale of the strip to the owner of a neighbouring property.

The court also to consider whether the right of access from Summerhill over the strip to the servient tenement would revive if Summerhill and the strip were again to come into common ownership.

 

Abandonment of an easement

The relevant legal principles are to be found in Gale on Easements which was cited with approval in Dwyer v Westminster CC ([2014] 2 P & CR 7):

‘a. whether a person intends an abandonment is not a subjective question; it is always a question of fact to be ascertained from the surrounding circumstances whether the act amounts to an abandonment or was intended as such;

b. abandonment depends on the intention of the person alleged to be abandoning the right of way as perceived by the reasonable owner of the servient tenement; to establish abandonment of an easement the conduct of the dominant owner must have beensuch  as to make it clear that he had at the relevant time a firm intention that neither he nor any successor in title of his should thereafter make use of the easement;

c. abandonment is not to be lightly inferred; owners of property do not normally wish to divest themselves of it unless it is to their advantage to do so, notwithstanding that they may have no present use for it;

d. non-user is not by itself conclusive evidence that a private right is abandoned; the non-user must be considered with and may be explained by the surrounding circumstances.’ (Arden LJ at [8])

 

The fact that the owner of the dominant tenement had no need for the time being to use the right over the servient tenement would also suggest that the right of way had not been abandoned (Arden LJ at [9] citing Dyer).

The search is for the objective intention of the dominant owner as reasonably perceived by the servient owner (Arden LJ at [10]).

Given the principles mentioned above, the question is whether the hypothetical servient owner would have concluded that the right of way from the strip had been abandoned (Arden LJ at [37]). The issue has to be determined at the date of the transfer ([54]).

 
The hypothetical servient owner has some knowledge of the law; this person knows that covenants to erect a fence (being positive covenants) do not run with the land and would not bind a later owner of the strip ([48]).

 

Application to the covenant to fence off access to the servient tenement

Whether building a fence to block access to the right of way is an abandonment has to be considered on a case by case basis in the light of the above principles.

Abandonment ‘is not to be lightly inferred … Even a major obstruction does not necessarily result in abandonment of a right of way’ (Arden LJ at [49]).

It was relevant that the servient owner, who had the most to gain from an abandonment, was not a party to the covenant to build the fence (Arden LJ at [51]).

There was no abandonment.

 

If Summerhill and the strip came into common ownership would the right to cross the strip to get to the servient tenement revive?

It would (Arden LJ at [56]). The position is similar to that where the dominant and servient tenement come into common ownership (Arden LJ at [58]).

Michael Lower

 

 

Seminar: Promissory estoppel as a cause of action? Luo Xing Juan v Estate of Hui Shui See

March 2, 2018

The Faculty of Law at CUHK will host this seminar on 19th March:

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Proprietary estoppel: Australian take on proving detrimental reliance in relationship cases

January 24, 2018

In Sidhu v Van Dyke ([2014] HCA 19) V was married to the brother of S’s wife. V lived with her husband in Oaks Cottage which was part of a larger lot of land (Burra Station) owned by S and his wife. V and his wife lived in a homestead which was part of the same lot. S and V began a sexual relationship. V and her husband divorced when the latter discovered the relationship.

S assured V on several occasions that he would transfer Oaks Cottage to her on the sub-division of the lot that included Oaks Cottage. S gave V a written note to confirm that he had promised to give Oaks Cottage to V.

V did not seek a property settlement in her divorce proceedings; S suggested that there was no need for her to do so since she had Oaks Cottage. V carried out substantial unpaid maintenance and renovation works on Oaks Cottage and on other parts of Burra Station. She was also actively involved in the work related to the application to sub-divide Burra Station.  V did not seek full-time employment during the years in which she lived in Oaks Cottage.

The relationship ended after nine years. V brought a proprietary estoppel claim when S and his wife refused to convey Oaks Cottage to V.

The first instance judge (Ward J) found that S made two promises to transfer Oaks Cottage to V by way of gift. These promises were, he found, conditional on the sub-division of the Burra Station lot. The claim failed. First, it would not have been reasonable for V to rely on the promises since the condition could only be satisfied with the consent of S’s wife. Second, Ward J. concluded that V had not been able to prove reliance on the promises. His reading of the evidence was that she might have incurred the detriment even in the absence of the promises.

V succeeded on appeal to the Court of Appeal of the Supreme Court of New South Wales. First, it was not objectively unreasonable for V to have relied on S’s promises. Second, the Court of Appeal relied on Greasley v Cooke: the circumstances were such as to raise a ‘presumption of reliance’. Barrett JA said:

‘Where inducement by the promise may be inferred from the claimant’s conduct, as is the case here, the onus or burden shifts to the defendant to establish that the claimant did not rely on the promise. It was therefore for [S] to rebut the presumption and establish that [V] did not rely at all on the promises in acting or refraining from acting to her detriment’ (Van Dyke v Sidhu (2013) 301 ALR 769 at 786 [83]).

The presumption of reliance was raised and had not been rebutted. Having regard to S’s wife’s interest in the property, the Court of Appeal refused to order the transfer of Oaks Cottage to V. Rather, S was ordered to pay equitable compensation by reference to the value of the disappointed expectation.

S appealed to the High Court of Australia. S contended that the Court of Appeal had gone astray in speaking of a presumption of reliance and thus reversing the burden of proof. Further, equitable compensation should be calculated by reference to the loss suffered in reliance on the promises and not by reference to V’s expectation.

The High Court of Australia rejected the notion that there could be a presumption of reliance:

‘In point of principle, to speak of deploying a presumption of reliance in the context of equitable estoppel is to fail to recognise that it is the conduct of the representee induced by the representor which is the very foundation for equitable intervention. Reliance is a fact to be found; it is not to be imputed on the basis of evidence which falls short of proof of the fact. It is actual reliance by the promisee, and the state of affairs so created, which answers the concern that equitable estoppel not be allowed to outflank Jorden v Money by dispensing with the need for consideration if a promise is to be enforceable as a contract’ ([58]).

There was no shifting of the burden of proof as regards reliance; the onus remained on V ([61]). Rather, ‘[t]he real question was as to the appropriate inference to be drawn from the whole of the evidence, including the answers elicited from the respondent in the course of cross-examination’ ([64]).

Put another way, the question was ‘whether, when all the facts are in, the court is satisfied on the balance of probabilities that the promises in question contributed to the respondent’s conduct in deciding to commit to her relationship  with the appellant and adhering to that relationship (with all that that entailed) for eight and a half years’ ([66]).

Nevertheless, V was able to show reliance: ‘A review of the whole of the evidence shows that the respondent had made out a compelling case of detrimental reliance’ ([67]). It was enough that the promises contributed to the decision by V to carry out work on the property. The promises did need not to be the sole cause of the detriment, merely to have influenced the decision (Amalgamated Investment & Property Co Ltd (In Liq) v Texas Commerce International Bank Ltd [1982] QB 84 at 104 – 105). In Steria Ltd v Hutchison ([2007] ICR 448) Neuberger LJ said that the representation need only have been ‘a significant factor’. V was able to show that this was the case.

On the measure of relief, the High Court said that, ‘[t]he requirements of good conscience may mean that in some cases the value of the promise may not be the just measure of relief ([83]). ‘If the respondent had been induced to make a small, readily quantifiable outlay on the faith of the appellant’s assurances, then it might not be unconscionable for the appellant to resile from his promises to the respondent on condition that he reimburse her for her outlay’ ([84]).

This was not the right approach in this case, however, since the detriment involved ‘life-changing decisions with irreversible consequences of a profoundly personal nature’ (Donis v Donis (2007) 19 VR 577 at 588 – 589 [34] per Nettle JA).

‘[I]n the circumstances of the present case … justice will not be done by a remedy the value of which falls short of holding the appellant to his promises … [W]here the unconscionable conduct consists of resiling from a promise or assurance which has induced conduct to the other party’s detriment, the relief which is necessary in this sense is usually that which reflects the value of the promise ([85]).

There was nothing conditional about the promises. These were ‘expressed categorically so as to leave no room for doubt that he would ensure that the subdivision would proceed and that the consent of the appellant’s wife would be forthcoming’ ([86]).

Michael Lower

 

Proprietary estoppel in relationship cases: assurance or not?

January 14, 2018

Cook v Thomas ([2010] EWCA Civ 227) concerned a proprietary estoppel claim by Mr and Mrs Thomas against Mrs. Cook (Mrs Thomas’ mother). Mrs. Cook owned a farmhouse with a small amount of farmland and outbuildings (‘the property’). Mrs. Cook (‘the claimant’) allowed Mr and Mrs Thomas (‘the defendants’) to place the mobile home they lived in on the property. When that was damaged by a storm, the claimant allowed the defendants to move into the farmhouse. The defendants repaired and improved the farmhouse and farmed the land. The parties fell out and the claimant sought to evict the defendants.

The defendants relied on proprietary estoppel. They alleged that they had been given assurances that: (i) they would be allowed to remain in the property during the claimant’s life; and (ii) they would inherit the property on her death. They claimed that their work on the property was carried out in reliance on these assurances.

The first instance judge found that the claimant had given the defendants permission to live in the property and to farm the land. She had not, however, given them any assurance that they had an irrevocable permission to remain. The defendants appealed and the Court of Appeal had to consider whether the first instance judge had been entitled to reach his conclusion that there was no assurance.

The Court of Appeal (Lloyd LJ giving the principal judgment) found that the first instance judge had been entitled to decide in favour of the claimant. The evidence pointed to ‘a limited and informal family arrangement’ ([63]).

The claimant told the defendants that ‘you know this is all going to be yours when I am gone anyway’ ([72]). This did not give rise to a proprietary estoppel: (a) because it was not taken as an assurance but as an indicator of current intent; and (b) because there was no detrimental reliance upon it ([72]).

There was no room to make use of the Greasley v Cook presumption of reliance: ‘In the present case, there is no need for a presumption. The matter was fully investigated in evidence … A presumption is only relevant in the absence of the relevant evidence’ ([77]).

Lloyd LJ acknowledged that, in assessing the defendant’s case, the facts had to be looked at as a whole as at the time when the claimant sought to act inconsistently with the alleged assurances. The judge had to ‘come to a view as to whether the combined effect of what the Claimant had said and done, on the one hand, and the overall conduct of the Defendants on the other, meant that the Claimant could not turn the Defendants out’ ([97]).

There was no evidence to show that the judge had failed to take account of any relevant conduct ([99]): ‘Nothing had been done which was relevant in support of the Defendants’ case, unlike the history in Thorner v Majors [2009] UKHL 18 where the claimant had been helping the deceased voluntarily for years before anything was said to him that could amount to a promise or representation’ ([99]).

The relevant assurances were said to have been contained in four promises alleged to have been given by the claimant to the defendants. The defendants criticised the first judgment for assessing the evidence in relation to each but for not giving a separate analysis of the cumulative effect of the promises. Lloyd LJ rejected this criticism: ‘It was not necessary for the judge, having dealt carefully and at length with the relevant conduct in making his findings as to the sequence of events, to set out any extended analysis of the matter looked at as a whole’ ([101]).

It was legitimate for the judge to have regard to the lapse of time between the alleged representations and the conduct said to amount to detrimental reliance: ‘If there is a noticeable delay, it may be capable of explanation, such as for reasons of lack of funds or otherwise, but absent such a reason given in evidence, a significant delay may well point to a lack of connection between the representation and the acts said to have been done in reliance on it’ ([103]).

Alternative claims for an interest under a common intention constructive trust and in unjust enrichment failed. There was no common intention and the defendants had done the repair and improvement works for their own benefit, to make the house habitable for themselves.

Michael Lower

Proprietary estoppel and co-habitees: assurance must relate to a specific property

January 3, 2018

Lissimore v Downing ([2003] EWHC B1 (Ch)) concerned the proprietary estoppel claim brought by L on the break-down of her relationship with D, a rock star and the owner of Astbury hall, a large estate in England. The relationship began in 1993 and lasted for seven years. There was an ‘engagement’ but neither party expected to marry.

D was heavily invested in Astbury Hall, both in financial and in psychological terms. Astbury Hall represented the fruits of many years of hard work. Even before the relationship with L deteriorated, D consulted his solicitors as to the steps to be taken to ensure that L would have no claim to an interest in it.

HH Judge Norris QC outlined the law on proprietary estoppel. He emphasised the basic rule that a representation or assurance must relate either to some specific property ([12]) or to the whole of the representor’s property ([15]).

As regards detriment, the judge said, ‘the conduct must be in some sense prejudicial to the party relying on it, or of such a nature that it raises the inference that it must have been induced by some sort of promise.’ ([20]).

The claim failed because there was no representation; it was understood that L could live at Astbury Hall while the relationship lasted. Commenting on the legal effect of the relationship, HH Judge Norris QC said:

‘The fact that that state of affairs happened to endure for several years cannot of itself impose on Mr Downing an obligation to transfer some of his property when he did not undertake such an obligation at the outset. There may be a promissory estoppel (eg a defence to a claim to leave the property before reasonable notice of the change in the nature of the arrangements has expired): but proprietary estoppel is different’ ([37]).

He went on to note the problems that arise in this type of claim:

‘The advancing of a proprietary claim tends to require the claimant to list how much (s)he did, endowing small acts with a great significance whilst at the same time not recording that party’s true contribution to the relationship.’ ([47]).

L’s proprietary estoppel claim failed. D made no statement that would lead her to believe that she was to have a share in Astbury Hall. Nor did L believe that she had any such share ([51]). D’s statements ‘relate almost entirely to the currency of the relationship’ ([53]).

Nor was there any overall detriment: ‘looking at the matter in the round, balancing the burdens assumed in the relationship against the benefits derived from it, and making the assessment after the breakdown of the relationship, no substantial detriment had been suffered’ ([54]).

There is a distinction between property law and family law claims:

‘What I am being invited to do is to make a property adjustment order on the termination of the relationship, not to define what property rights were created during the relationship’ ([55]).

Michael Lower

 

Compensation for land resumption: valuation where a restriction on use has been abandoned

December 19, 2017

In Cheermark Investment Ltd v Director of Lands ([2017] HKEC 2536 (CA)) the Court of Appeal had to consider appeals from the Director of Lands concerning the basis on which compensation was payable in respect of two shops, the ownership of which had been resumed by the Government.

The shops were held on Government Leases that included restrictions on use which were contravened by the use of the property as shops. The Lands Tribunal found that the Government had abandoned the restrictive covenant.

The Director of Lands appealed against this finding. The Director also argued that section 12 of the Lands Resumption Ordinance (‘LRO’) meant that any abandonment was irrelevant to the valuation exercise to be carried out. The compensation payable would be much lower if the valuation had to take account of the restrictive covenant.

The Government leases on which the shops were held contained a covenant that the lessee would not allow the land to be used other than for ‘dwelling houses workshops factories or godowns or similar purposes’ (‘the user covenant’).

The Court of Appeal (Kwan JA giving the main judgment), reversing the Lands Tribunal on this point, held that the use of the property as shops was a breach of the user covenant.

The Lands Tribunal found that the Government had abandoned the user covenant on the basis of ‘the open and notorious breaches over a lengthy period without enforcement action’. The Court of Appeal said that whether the facts are capable of establishing the abandonment of a covenant ‘is primarily a matter for the fact finding tribunal’ ([69]). There was no basis, in this case, to interfere with the Lands Tribunal’s judgment.

Did section 12 of the LRO mean that the abandonment was irrelevant when it came to calculating the compensation payable? The section provides, among other things, that, ‘no compensation shall be given in respect of any use of the land which is not in accordance with the terms of the Government lease under which the land is held’.

The use of the properties as shops was not in accordance with the terms of the Government lease unless the court could take account of the fact that the Government had abandoned the user covenant.

The owners were entitled to fair compensation following the resumption; this is the principle of equivalence which would operate even in the absence of article 105 of the Basic Law ([106]). Further, ‘the principle against doubtful penalisation imports a presumption against the imposition of a statutory detriment to a person’s property or other economic interests without clear language’ ([107]).

Through the abandonment, the Government had disposed of the right to enforce the restrictive covenant. It could no longer charge a premium for a change of use to that of a shop. The owners’ interest in the shop was to be valued in such a way as to reflect this: ‘compensation is required to be paid for the interest resumed’ ([108]).

Michael Lower

 

 

CUHK Property Law Seminar – Professor Steven Gallagher – January 2018

December 15, 2017

Professor Steven Gallagher will give a seminar Civil Evidence and Presumptions: When is a gift a trust? in January 2018 (first in the Graduate Law Centre at Bank of America and later on the Shatin campus).

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Recovering property transferred pursuant to an agreement tainted with illegality: Patel v Mirza in Hong Kong

December 2, 2017

In Chung Tin Pui v Li Pak Sau ([2017] HKEC 2103) P was the manager of a tso that owned two lots of land in the New Territories. The Tso entered into two contracts with D1. D1 was to build several houses on each of the two lots.

The tso would have the right to select three of these for itself and D1 would assign these to the tso. D1 would also rebuild the tso‘s ancestral hall. The tso and D1 entered into two deeds of development in pursuance of the two agreements.

The tso assigned its land to D1 and D2 for no consideration pursuant to the two contracts and deeds; the land was held on trust for the tso. D1 and D2 divided the land into smaller lots which were assigned to D3 – D13 who all had knowledge of the trust.

D1 and D2, in breach of contract and their duty as trustees, sold four of the sub-lots, failed to complete the development on time and failed to rebuild the ancestral hall.

P sought to re-amend its statement of claim to plead that:

  1. D3 – D13 were all subject to the trust since they knew of it;
  2. P should be allowed to set the contacts and deeds of development aside on the grounds that they were contrary to law and public policy (given that part of the scheme relied on D3 – D13 making false declarations to the government that they would be beneficial owners of the property) (‘the illegality point’);
  3. so that upon P’s withdrawal from the development the Ds would hold the land on resulting trust for P.

In considering the illegality point, the court (Louis Chan J) placed the UK Supreme Court decision in Patel v Mirza at the centre of his analysis; this was said to be ‘of very high persuasive authority’ ([51]).

Louis Chan J summarised the effect of Patel v Mirza thus:

’53. It is not necessary to discuss the question of locus poenitentiae (§116). A person who satisfies the ordinary requirements for a claim in unjust enrichment should be entitled to the return of his property; he should not be debarred from enforcing his claim
only because the property which he seeks to recover was transferred to the defendant for an unlawful purpose (§§116 and 121). There may be a particular reason for the court to refuse to assist an owner to enforce his title to property, but such cases are likely to be rare (§116).

54. In considering such a claim, the Court should consider whether the public interest like the integrity of the legal system (or certain aspects of public morality) would be harmed by the enforcement of the claim by taking into account:

  • the underlying purpose of the prohibition which has been transgressed, and whether the purpose would be enhanced by the denial of the claim;
  • any other relevant public policy on which the denial of the claim may have an impact; and
  • whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts (§120).’

It no longer mattered whether or not the illegal development had been wholly or substantially performed ([58]). Nor did it matter whether or not P’s manager had known of the illegality ([60]).

Rather, ‘[t]he question now is whether by allowing the 2nd defendant and her nominees to keep the rest of the lots is a proportionate response to the illegality that the plaintiff has hitherto subscribed’ ([59]).

P was given leave to re-amend the statement of claim and to consider whether he wanted to make any further re-amendments in the light of Patel v Mirza.

Michael Lower