Relief from forfeiture will ordinarily only be granted once during a lease term

May 27, 2017

In Ramadour Industries Ltd v Bullen ([2017] HKEC 974, CA) L granted T a lease of a house on Lamma Island for a two year term. T fell into arrears with the rent but was granted relief from forfeiture. T quickly fell into arrears again and L brought new proceedings seeking possession. T sought relief from forfeiture a second time but this was refused.

The Court of Appeal (Yuen JA giving the court’s judgment) upheld this refusal. The court’s power to grant relief is now codified in section 21F of the High Court Ordinance. Section 21F(1A) provides that relief will only be granted to a tenant once during the term, ‘unless the Court is satisfied that there is good cause why this section should apply in favour of a lessee’.

The intention is clear: relief pursuant to section 21F will normally only be granted once to a tenant during a lease term. The onus is on the tenant trying to invoke section 21F for a second time during a term to show that there is good cause.

Michael Lower

Developer’s informal allocation of private parking space in the common area

May 20, 2017

In Faraday House (IO) v Shine Wheel Ltd ([2017] HKEC 957, LT) P was the purchaser of a flat in Faraday House in 1992. The estate was then a new development and she bought from the developer. She wanted three car parking spaces. Two of the spaces she was offered were allocated as private car parking spaces. The third space (‘the Adjacent Space’) was next to these spaces but was in the common area of the development.

The selling agent assured P that he would arrange for the developer to expressly acknowledge her right to use the Adjacent Space as a private car parking space (‘the Assurance’). P paid HK$250,000 for the two ‘official’ spaces and HK$50,000 for the Adjacent Space.

The Adjacent Space was never re-designated as an area for P’s exclusive use but P was issued with a Permission Letter allowing her to use the space. She was given three car parking permits. The owners incorporated in 1996 and a new manager was appointed at that time.

P used the three spaces for sixteen years until 2014. The owners’ corporation then demanded that she cease using the Adjacent Space. When P refused to comply, the corporation brought proceedings seeking an injunction preventing P from parking in the Adjacent Space. Parking in the common areas was a breach of the DMC.

The Lands Tribunal (Judge Kot) started from the proposition that the Permission Letter to use the Adjacent Space was a licence. The developer could not have granted a licence over the Adjacent Space since it had already been designated as a common area; the licence was invalid. Even if it were valid, it would be revocable; there were no equitable grounds for restraining this revocation. Even if it were irrevocable, it would not bind the IO which took over control of the common parts in 1996.

Promissory estoppel, the principles of which were most recently articulated in Hong Kong in Luo Xing Juan v Estate of Hui Shui See ((2009) 12 HKCFAR 1) could not help. The IO were not bound by an assurance given by the developer. The act of allowing P to park in the Adjacent Space for many years could be seen as an assurance. P had not, however, incurred any detriment in reliance on this (the HK$50,000 having already been paid).

Acquiescence was a possible defence given the nature of the covenants that had been broken. There had been an assurance or lying by on the part of the owners. It was not, however, unjust in all the circumstances to grant the injunction sought. P had had the benefit of the Adjacent Space over many years and would not be caused any hardship.

Michael Lower

Ouster and car parking: applying Batchelor

May 12, 2017

In Kettel v Bloomfold Ltd ([2012] EWHC 1422) the claimants were long leaseholders of flats in a development. Their leases granted them the right to park in the car parking space identified in the lease. The developers wanted to allocate them new spaces and build on the existing spaces. The developers fenced off the area that they wanted to build on and enclosed the spaces. The flat owners sought an injunction to restrain this interference with their car parking rights.

The owners argued that they had either a lease or an easement of the space. It was agreed on all sides that, if there was no lease,  they had an easement. The judge (HHJ David Cooke) found that there was no lease. Despite the fact that the parties agreed that there was an easement, he considered whether the ouster principle prevented the flat owners from having an easement.

Moncrieff had not overruled Batchelor v Marlow and the judge accepted that Batchelor was binding on him: the test was whether the exercise of the car parking right left the developer with no reasonable use of the car parking space. It was a question of fact in each case whether the right granted made ownership of the servient land illusory.

In this case, the developer could pass over the space on foot when there was no car parked there and could authorise others to do so: it had granted such rights to pass over the spaces to other tenants in the leases to them. It could change or repair the surface, arrange for service media to pass under, or wires to pass over, the space. It could build over the space (and had made plans to do so). These rights had importance and value to the developer in managing the estate ([24]). The ouster principle was not infringed.

The flat owners were entitled to an injunction to restrain the actual and threatened interference with the car parking rights. This was not one of these exceptional cases where damages should be awarded instead. It would not be right to expropriate the car parking rights.

The judge held that if, contrary to his view, damages were to be awarded then they should be more than purely nominal. Even assuming that the flat owners were given an equivalent car parking space, they were entitled to damages on a release fee basis:  the flat owners should be awarded a sum that would be negotiated between willing parties for the right to build on the spaces ([61]).

Michael Lower

Car parking easements and the ouster principle: understanding Batchelor

May 4, 2017

In Virdi v Chana ([2008] EWHC 2901 (Ch)) A claimed to have acquired a car parking easement over land (‘the servient land’) partly owned by B. The question was whether the claim was invalidated by the ouster principle.

In Batchelor v Marlow, the English Court of Appeal rejected a claimed car parking easement on the basis that it left the servient owner without any reasonable use of the land.

If the whole of the surface area would be taken up by the car there was an ouster. An application of this test might seem to invalidate the easement claimed in Virdi.

Batchelor came in for severe criticism by the UK Supreme Court in Moncrieff v JamiesonMoncrieff made ‘control and possession’ the test. This was a relaxation of the strict test in Batchelor.

Judge Purle QC noted, however, that Moncrieff had not overruled Batchelor and felt bound to apply Batchelor. He held that the easement was valid even when the Batchelor test was applied.

First, peculiar to the facts of this case, B did not own all of the servient land, only a part of it. It could not be said that the claimed easement prevented B from parking since B had no right to  do so.

Second, some uses of the land owned by B remained possible: planting trees or shrubs, erecting a trellis. These could be done so long as they did not prevent the parking of a car.

Judge Purle thought that even the right to resurface the land prevented the easement from infringing the ouster principle. When the land was next to domestic property, resurfacing might have aesthetic value. Such a right was not wholly insignificant and illusory.

Michael Lower

Common intention constructive trust: context

April 26, 2017

Cheung Lai Mui v Cheung Wai Shing ([2017] HKEC 740) concerned property that had been owned by three brothers (W, F and K) as tenants in common in equal shares.

W died and D1 and D2 inherited W’s share. When F and K died, P (K’s adopted daughter) applied to be administratrix and executrix of their respective estates.

D3 was D1’s son. He claimed to be solely beneficially entitled as a result of a common intention constructive trust. This succeeded.

This was a traditional Chinese family residing in the New Territories ([78]). D3 was the only male descendant of the family. This was a significant fact that lent credence to the allegation of the common intention.

There was evidence of express discussions concerning the common intention and other surrounding circumstances that made it likely that the common intention had come into existence.

The lack of any formal written evidence of the common intention was understandable in the family context ([94] – [95]).

A defence of estoppel by standing by also succeeded ([103]).

So did D3’s adverse possession claim. He had erected a gate. This was an unambiguous assertion of control even though the gate had not been locked ([108]).

Michael Lower

The equity of exoneration: family homes and indirect benefits

April 18, 2017

In Armstrong v Onyearu ([2017] EWCA Civ 268, CA (Eng)) title to Mr and Mrs Onyearu’s family home was in Mr Onyearu’s name but the couple had equal beneficial shares. Mr Onyearu borrowed money to finance his business. The loan was secured by a charge over the family home. The business failed. A was Mr Onyearu’s trustee in bankruptcy.

The question was whether Mrs Onyearu was entitled to rely on an equity of exoneration as against Mr Onyearu (and as against A). A contended that she was not since she had derived an indirect benefit from the loan: it enabled Mr Onyearu to keep his business going and so to continue to meet the mortgage payments.

David Richards LJ, delivering the Court of Apeal’s judgment, explained the equity of exoneration:

‘Where property jointly owned by A and B is charged to secure the debts of B only, A is or may be entitled to a charge over B’s share of the property to the extent that B’s debts are paid out of A’s share.’ ([1])

Whether the equity applies depends on the parties’ common intention ([3]). Where there is no evidence of an actual intention, a presumed intention may arise depending on all the relevant circumstances. In particular, the court looks at whether the co-owner derived any benefit from the debt secured on the property ([3]).

The equity is part of the law relating to the rights of sureties ([24]).

The importance of this case is that it examines whether the type of indirect benefit that Mrs Onyearu was said to have derived from the loan to her husband was relevant to the parties’ presumed intention ([8]).

A contended that the equity could only arise if Mrs Onyearu received no benefit, direct or indirect, from the secured loan ([20]). In effect, A was arguing that the equity could rarely arise in the family home context given the likelihood that the parties’ financial affairs were, at least somewhat, intertwined.

David Richards LJ’s review of the authorities led him to the conclusion that an indirect benefit is not sufficient to deny a right of exoneration to parties in the position of Mrs Onyearu ([82]).

He said:

‘An indirect benefit of the type relied on in this case is far from certain to accrue. In the present case, any benefit was subject to a double contingency: first, that the firm would survive and, secondly, that it would be profitable. Further, the intention as regards the equity is to be inferred as at the date of the transaction. As at that date, the prospect of benefit was wholly uncertain and incapable of any valuation … In general, the benefits must be capable of carrying a financial value’ ([83]).

Mrs Onyearu was entitled to rely on the equity.

Michael Lower

 

Adverse possession by co-owner in breach of DMC

April 10, 2017

In Foremost Hill Ltd v Li Hon ([2017] HKEC 708) P and D owned adjoining shops in a building covered by a Deed of Mutual Covenant (‘DMC’). P had been in possession of part of D’s shop (‘the disputed area’) since 1981 (possibly earlier) due to a wrongly positioned partition wall. P claimed to have acquired title to the disputed area by adverse possession. The court agreed.

There was a clear ouster; P’s actions were incompatible with D’s right to exclusive occupation of the disputed area.

D also relied on the DMC covenant provisions conferring on each owner a right to the exclusive use of its own unit. Andrew Chung J commented that this effectively raised the question as to whether adverse possession can ever operate as between co-owners of units covered by a DMC ([25]).

The matter seemed not be covered by authority and should be approached from first principles.

An action to enforce the DMC term as a contractual term was time-barred after six years (section 4(1) of the Limitation Ordinance).

There was no limitation period for an action to enforce a restrictive covenant in equity but the doctrine of laches applies. The adverse possession began so long ago that it would be inequitable to allow D to enforce the covenant against P.

Andrew Chung J. also agreed with the proposition that since the action was, in substance, an action to recover land the limitation period in section 7(2) is engaged ([37]).

Michael Lower

The priority of unwritten equitable interests

April 4, 2017

In Si Tou Choi Kam v Wealth Credit Ltd ([2017] 1 HKLRD 1074) A and B acquired property as legal joint tenants. B’s creditor, C, obtained and registered charging orders over the property. C then applied for an order for sale of the property. A obtained a declaration that A was sole beneficial owner of the property (having supplied the entire purchase price) and registered it at the Land Registry.

The priority of unwritten equitable interests is governed by the doctrine of notice. The charging order is to be treated as if it were an equitable charge. Priority is governed by the first in time rule. A’s interest, having arisen at the time of acquisition, has priority under this rule.

There is no authority for the proposition that A is under a duty to obtain a declaration and register it in order to preserve this priority. It was surprising, therefore, that the court held that A’s priority was governed by the date of registration of the declaration.

Michael Lower

 

 

Estoppel by convention: need for a common assumption or understanding

March 28, 2017

In Preedy v Dunne ([2016] EWCA Civ 805, CA (Eng)) D’s mother (J) and his step-father (B) were partners in a pub business. J owned the pub building.

J died leaving her half share in the pub business to trustees. B had a life interest in the half share. After B’s death the half share was to go to D and his two siblings (J’s children).

D spent over GBP300,000 on renovations at the pub between 1999 and 2003. B sold D a half share in the business in 2001. The renovations enhanced the value of the interests of B as well as D and his siblings.

The dispute was as to whether the trustees of J’s share of the business were liable to contribute to the cost of the renovations.

D relied on estoppel by convention. He alleged a common assumption that the trustees owned J’s share of the business (they did not) and so jointly and severally liable to contribute to the repayment of the loan of the funds for the renovations. The claim failed because there was no such common assumption.

D tried to make a ‘wider case’ based on the proposition that he ought not, in justice, to be left to bear the cost of the renovation works on his own. This was rejected (Vos LJ at [59]).

D’s problem was that he had undertaken the work without securing a clear commitment from anyone else to contribute to the cost.

Michael Lower

Sale of land as ‘agricultural land’ in the New Territories

March 20, 2017

In Splendid Resources Inc v Secretary for Justice ([2017] HKEC 504) the plaintiffs had constructed columbaria on land owned by them. The Government contended that this was a breach of the terms of the Government lease.

The lease did not contain an express covenant not to use the land for any purposes other than as agricultural land. It had, however, been sold as ‘agricultural land’.  The question was whether this was purely descriptive of the use at the time of sale or implied a covenant only to use the land for this purpose.

Deputy Judge Le Pichon pointed to various features of the New Grant that could only be explained on the basis that the words imposed a restriction on the use to which the property could be put. These included a provision requiring the land to be cultivated.

The judge referred (at [35]) to a statement in Halsbury’s Laws of Hong Kong that ‘[w]ithout special permission from the Government, all Government leases granted in the New Territories are for agricultural purpose and can not be used for other profitable purposes.’

Further, ‘where an interpretative ambiguity arises in the context of a Government lease, a presumption in favour of the Government applies’ (at [36]).

The landowner’s argument that the covenant was purely personal to the original lessee was also rejected.

Finally, Deputy Judge Le Pichon held that the columbarium was a structure; it was a breach of the covenant not to build any structure on the land.

Michael Lower