Hope is not enough for proprietary estoppel

In Attorney-General v Humphreys Estate (Queen’s Gardens) Ltd ([1987] HKLR 427 (PC)) the Hong Kong Government had agreed with Humphrey’s Estate (part of Hong Kong Land or ‘HKL’) that there would be an exchange of land. Humphrey’s Estate was to be granted a Crown lease of Queen’s Gardens and the right to develop it. In return, they were to transfer some flats in another development to the Government and to make a balancing payment of over HK$100 million. The agreement was subject to contract but the payment was made and the building on Queen’s Gardens was demolished. Agreement on the relevant details had been reached but communications between the parties, as well as internal Government communications, made it clear that each party still proceeded on the basis that it was free to back out of the transaction. HKL then withdrew from the negotiations. The Government claimed that it could not do so because it was bound by an estoppel. The Government failed. There was no clear assurance and no detrimental reliance by the Government. The Government hoped that the agreement would be entered into but that was not enough:

‘Their Lordships accept that the Government acted to their detriment and to the knowledge of HKL in the hope that HKL would not withdraw from the agreement in principle. But in order to found an estoppel the Government must go further. First the Government must show that HKL created or encouraged a belief or expectation on the part of the Government that HKL would not withdraw from the agreement in principle. Secondly, the Government must show that the Government relied on that belief or expectation. Their Lordships agree with the courts of Hong Kong that the Government fail on both counts.’ (per Lord Templeman at 432)

Will the use of the words ‘subject to contract’ always prevent an estoppel?

‘In the present case the Government acted in the hope that a voluntary agreement in principle expressly made “subject to contract” and therefore not binding would eventually be followed by the achievement of legal relationships in the form of grants and transfers of property. It is possible but unlikely that in circumstances at present unforeseeableĀ a party to negotiations set out in a document expressed to be “subject to contract” would be able to satisfy the court that the parties had subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document. But in the present case the Government chose to begin and elected to continue on terms that either party might suffer a change of mind and withdraw.’ (per Lord Templeman at 435)

Michael Lower

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