Proprietary estoppel and development of a ‘small house’ in the New Territories

In Best Star Holdings Ltd v Lam Chun Hing ([2012] HKEC 252) D1 and D2 were the owners of two lots in Tai Po. They held the land under the terms of grants that restricted their right to sell the land (subject to the right to sell in certain situations with the consent of the District Lands Officer). D3 sold to P the ‘exclusive right to develop’ the land (despite not having either the authority of D1 and D2 to commit them to a sale nor being a party to any contract to acquire the land from D1 and D2). The court found that the contract between P and D3 was not a contract to sell the land (either in its own name nor as agent for D1 and D2). It was simply a sale of ‘the exclusive right to develop.’

The transaction between P and D3 was completed when D1 and D2 attended the offices of the solicitors acting for P and signed a bundle of documents. Each gave G (representing P) a general power of attorney and signed 8 letters addressed to the District Lands Officer relating to various matters in connection with the development of a small house. Despite this, D2 later sold the various floors of the ‘small house’ on his property to third parties.

The court found that P had a successful claim in proprietary estoppel as against D1 and D2. By attending at P’s solicitors offices and signing the powers of attorney and other documents they led P to believe that it was acquiring an interest in the houses that they would build on the land. P spent substantial sums of money in reliance on this representation (such as the payment to D3 and the money spent in the construction of the small houses) (paras. 138 – 140). The judge thought that P would succeed either on the basis of proprietary estoppel by representation or on the basis that D1 and D2 had stood by and allowed P to spend money on the land when they knew of his mistaken belief that he would acquire an interest in it.

In terms of relief, the court declared that D1 and D2 were estopped from asserting their proprietary rights in the property against P (para. 147). It stopped short of ordering title to be transferred to P since the purchasers from D2 were not parties to the proceedings and so the court had not had the opportunity to address the issue of priorities. It did not rule out the prospect of such an order being made at a later date (paras. 148 – 150).

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