Author Archive

Registrability and priority of an assignment of the proceeds of a future sale of land

January 9, 2022

In Winland Finance Limited v Gain Hero Finance Limited ([2021] HKCA 576) the Court of Appeal looked at the registrability of a loan agreement where the borrower assigned the right to the net proceeds of any future sale of real property to the lender by way of security. It also looked at the relative priorities of such an agreement and a later charging order.

T owned a flat in Kowloon (‘the flat’). In June 2014, T entered into a loan agreement with Winland Finance Limited (‘WF’). T borrowed HK$2.1 million from WF and assigned to WF the net proceeds of any sale of the flat. T also gave WF the title deeds to the flat. WF registered the loan agreement at the Land Registry on 17 September 2014.

In November 2014, T entered into a further loan agreement with Gain Hero Finance Limited (‘GH’). In June 2015, GH obtained judgment against T for breach of the agreement. In August 2015, GH obtained a charging order absolute over the flat. In March 2017, GH obtained an order for sale of the flat. Under the terms of the order, payment would be made to GH and the surplus of the net proceeds of sale would be paid to T.

WF brought proceedings arguing that its earlier, registered loan agreement gave it priority over GH’s charging order or that the delivery of title deeds to it gave it an equitable mortgage with priority over the charging order. WF failed. Yuen JA gave the principal judgment.

First, the WF loan agreement did not relate to land and should not have been registered ([22.2]). Yuen JA expressed the hope that the Land Registry would refuse to register such agreements in the future ([23]).

Second, the WF loan agreement did not disclose any intention that the delivery of title deeds was to give rise to an equitable mortgage.

Third, while the charging order was to be treated as if it were an equitable charge over the flat (High Court Ordinance, s. 20B(3)), WF only had an equitable interest in the proceeds of any future sale. Thus, GH had priority. In fact, GH had a proprietary interest in the flat ([28.1]) and WF did not.

Fourth, it would have been prudent for the masters who dealt with GH’s charging order applications to order service direct on WF but they did not do so ([31.1]). WF, however, did not take any steps to have the order set aside. Had it done so, the court could have considered whether T was insolvent at the time of the charging orders. The court could then have considered the impact of a charging order on the fair distribution of assets.

Michael Lower

Seminar: Private takings of land for urban redevelopment – 16 February 2022

December 30, 2021

Registration link for an upcoming Property Law seminar: click here.

Estate encroaching into neighbouring estate

December 7, 2021

Wah Fung (IO) v Morengo Court (IO) ([2021] HKCFI 3400) was an adverse possession claim by the incorporated owners of one estate (Wah Fung) against the incorporated owners of a neighbouring estate (Morengo). Counsel for Morengo suggested that the outcome of the case is likely to have implications for other neighbouring estates ‘in densely packed Hong Kong’ ([5]).

Wah Fung claimed that it had installed a number of ‘encroaching structures’ on the Morengo estate and that there was a long history of Wah Fung owners making use of these structures. The alleged possession began in 1986 so the limitation period was 20 years.

Recorder Chan SC outlined the essential elements of adverse possession and concluded that Wah Fung had failed to establish either that it had installed the encroaching structures or that Wah Fung owners enjoyed exclusive access to them or alone were able to make use of them. The adverse possession claim failed.

The judgment is perhaps notable in emphasizing (relying on Hong Kong authorities) the need for compelling evidence to establish the elements of adverse possession given its ‘draconian effects’.

The case provides a pointer as to the type and quality of evidence that might be needed in similar cases.

Even if the evidence will not support a claim to have enjoyed exclusive possession, there is the possibility of a claim to some other right such as an easement or a licence (possibly irrevocable) based on proprietary estoppel, the doctrine of lost modern grant or an actual implied licence.

Michael Lower

Covid restrictions, leases and failure of basis

October 31, 2021

London Trocadero (2015) LLP v Picturehouse Cinemas Ltd ([2021] EWHC 2591 (Ch)) concerned a claim that a tenant of premises let as a cinema was relieved from the obligation to pay rent in respect of periods when lockdown restrictions meant that the cinema had to be closed down.

The claim was based on an alleged implied term and on the argument that there was a failure of basis during the lockdown periods. The tenant did not argue that the lease was frustrated.

Facts

The lease in question specified that the property could only be used as a cinema. There was a keep open clause requiring the tenant to operate the cinema throughout the lease term. It also contained a clause to the effect that the landlord gave no warranty that the demised premises could lawfully be used as a cinema.

The implied term argument

The tenant argued that there was an implied term that the obligation to pay rent was suspended in respect of periods when it was illegal to use the premises as a cinema and / or the level of trade was below that anticipated by the parties when the lease was granted ([55]).

The judge (Robin Vos sitting as a Deputy Judge of the High Court) adopted Carr LJ’s summary of the law of implied terms in Yoo Design Services Limited v Iliv Realty Pte Limited ([2021] EWCA Civ 560 at [61]).

The suggested implied terms were not ‘so obvious that they go without saying’ nor ‘necessary to give the leases business efficacy’ ([67]). The implied terms would impose a commercial risk on the landlord and there was no reason for the court to intervene in this way ([72] and [75]).

The fact that the lease expressly provided there was no warranty that the premises could lawfully be used as a cinema cast further doubt on the argument for an implied term ([78]). Similarly, the clause for suspension of rent could have been made to apply to this situation but did not ([79]).

The second part of the suggested implied term was too uncertain ([80]).

The failure of basis argument

The following explanation of the elements of a failure of basis claim was explained:

‘a benefit has been conferred on the joint understanding that the recipient’s right to retain it is conditional. If the condition is not fulfilled, the recipient must return the benefit. The condition might take one of a variety of forms. For instance, it might consist in the recipient doing or giving something in return for the benefit … Alternatively, the condition might be the existence of a state of affairs, or the occurrence of an event, for which the recipient has undertaken no responsibility.’

(Goff and Jones, The Law of Unjust Enrichment, (9th ed) at [12-01])

Failure must be total (Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited [1943] AC 32 at [77] per Lord Porter).

Where there is a subsisting contract, the claim must be consistent with the terms of the contract and must not interfere with the contractual allocation of risk between the parties (Dargamo Holdings Limited v Avonwick Holding Limited [2021] EWCA Civ 1149).

The failure of basis claim failed here because the use of the premises as a cinema was not fundamental to the basis of the lease. The clause providing that the landlord did not warrant that the premises could lawfully be used as a cinema was important in reaching this conclusion ([123]) as was the fact that the suspension of rent clause was not triggered by the lockdown restrictions ([130]). The failure of basis claim would be inconsistent with the terms of the lease ([132]).

Use as a cinema could be fundamental, it depends on the terms of the lease ([126]). The claim could not be defeated just by the argument that the tenant still had possession of the premises ([137]).

That said:

‘the default position is that, in the case of a lease, an inability to use premises for the intended purpose is unlikely to constitute a failure of basis as it may be relevant to the presumed allocation of risk between the parties. However, there can be no general rule. Each case will depend on its own facts.’ ([141]).

Since failure of basis has to be total, the claim could only succeed if the lease was severable. The argument could then be made that there was a total failure of basis in respect of those periods during which the premises could not be used as a cinema.

The lease could be severed in this way. The lease provided for an apportionment of rent for other purposes and this supported a similar severability for this purpose ([158]). If the failure of basis claim was available, the lease could be severed ([159]).

Michael Lower

Proprietary estoppel and oral land contracts: the last word?

September 26, 2021

Howe v Gossop ([2021] EWHC 637) addressed the question as to whether proprietary estoppel can be relied upon where the claim arises out of an oral agreement concerning land.

The problem is that such an agreement is only enforceable if the formalities requirements in section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 have been satisfied. There are concerns as to whether it would be legitimate to allow oral land agreements to be the basis of a successful proprietary estoppel claim. In that case, proprietary estoppel appears to undermine the formalities rules.

In Howe v Gossop, the court resolved this conundrum with the proposition that proprietary estoppel claims can arise out of oral agreements concerning land so long as the relief sought does not amount to the enforcement of the oral agreement.

Facts

Mr and Mrs Howe sold land and buildings near their farm to Mrs Gossop. The terms of the transfer required Mr and Mrs Howe to pay GBP7,000 to Mrs Gossop for road resurfacing work carried out at Mrs Gossop’s expense.

Mr and Mrs Howe and Mr and Mrs Gossop subsequently orally agreed that the Howes would transfer two parcels of land (the ‘Green land’ and the ‘Grey land’) to the Gossops in return for a waiver of the obligation to pay GBP 7,000.

The Gossops carried out work on the Green land and the Grey land. Then relations between the parties broke down. The Howes brought proceedings to recover possession of the Green land and the Grey land.

The Gossops relied on proprietary estoppel in their defence, seeking a declaration that they were entitled to an irrevocable licence to occupy and use the land. They only raised this defence in relation to the Green land because the parties had not clearly delineated the Grey land. The defence succeeded in the court below.

Appeal

The Howes argued that a proprietary estoppel claim could not succeed because the agreement was not in writing as required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. They argued that a claim based on an oral land contract could only succeed in exceptional circumstances (relying on passages in the House of Lords decision Cobbe v Yeoman’s Rowe Management Ltd and the Court of Appeal decision in Herbert v Doyle).

Decision

Snowden J. rejected the appeal. There was no requirement that the case be exceptional before proprietary estoppel can be relied on ([65]).

He distinguished cases in which proprietary estoppel was being used, in effect, to secure specific performance of an oral contract from cases where proprietary estoppel was being used as a defence to an action for possession.

The Gossops sought an irrevocable licence rather than specific performance of the contract and so there was no clash with the formalities requirements for land contracts ([50] and [53]).

Nor did it matter that the parties attempted to arrange for the agreement to be embodied in a written contract ([79]).

Snowden J. does not appear to rule out entirely the use of proprietary estoppel to enforce an oral land agreement but this would only be possible where there was some additional (unspecified) factor:

‘if a claimant is seeking relief that amounts to enforcement of a non-compliant contract, he needs to point to something else as the basis for an estoppel based on unconscionability.’ ([66])

Kinane v Mackie-Conteh ([2005] EWCA Civ. 45) is given as an example. In these cases, ‘some additional representation or conduct by the defendant’ is needed ([70]).

The fairness of the decision

Snowden J. pointed out that the Howes could not complain of being unfairly treated; the Gossops waived the GBP7,000 debt and got only equitable relief in return ([76]).

Michael Lower

Recovering pre-payment of purchase price where the agreement was never completed

September 11, 2021

In Hui Tze Ha v Ho Yuet Lin ([2021] HKCFI 1901) D and P entered into a written agreement on 18 September 1992 under which D agreed to sell property in Kowloon to P for HK$1.2 million. P paid a ‘deposit’ of HK$1 million. The agreement was never completed. Time for completion was of the essence.

P died in 2001. In March 2016, P’s estate brought proceedings to recover the deposit of HK$1million. In October 2016, D counterclaimed that she was entitled to forfeit the deposit and a declaration that the agreement was terminated by virtue of P’s repudiatory breach in failing to take the steps necessary to complete.

Deputy Judge MK Liu said that when neither party took the necessary steps to complete on the contractual completion date, the effect was that each party then had a reasonable time to complete (Camberra Investment Ltd v Chan Wai Tak, Chong Kai Tai Ringo v Lee Gee Kee).

Deputy Judge ML Liu held that D elected to treat the agreement as at an end when she brought her counterclaim for a declaration to this effect in October 2016 (drawing on the principles set out in Chao Keh Lung v Don Xia).

The payment of HK$1 million out of a total agreed consideration could not be treated as a deposit (Polyset Ltd v Panhandat Ltd). It was a payment in advance ([33]).

P’s estate’s unjust enrichment claim arose when the contract was terminated in October 2016 ([37]).

D was ordered to repay the HK$1 million ([46]).

Michael Lower

Online Property Law seminar – 6 October

August 17, 2021

Professor Steven Gallagher will speak on  Non-fungible Tokens and Digital Art: what are they and what do you get if you buy one? Link here.

When is an occupation rent payable?

August 14, 2021

In Cheung Lai Mui v Cheung Wai Shing ([2021] HKEC 2263) the Court of Final Appeal was asked to consider whether the obligation to pay an occupation rent only arose when there was an ouster or where partition proceedings or some analagous process (such as sale and division of the proceeds) had been initiated.

The alternative view, rejected by the Court of Final Appeal, was that there is a new ‘modern’ approach in which an occupation rent is payable whenever this is equitable.

P, D1 and D2 were co-owners of a house. P had a two-thirds share in the tenancy in common of the house and D1/D2 were co-owners of the remaining one-third share.

P occupied one floor of the house herself. The other two floors were let out and P received the rent. There was no ouster of D1 or D2. Were they entitled to an occupation rent and an account of the rental income received and retained by P?

The Court of Final Appeal rejected this claim:

‘We conclude that the authorities considered above do not establish any new, free-standing “modern approach” such as that urged by the respondents and favoured by the Court of Appeal. Claims by one co-owner against a co-owner in occupation for payment of occupation rent or for an account of rent can only arise in accordance with the principles laid down in the established authorities. Unity of possession precludes such claims otherwise than in cases of ouster (including “constructive exclusion” as in domestic violence cases); or where an operative agreement renders the co-owner in occupation an agent or bailiff so as to come under a duty to account to the other. Where partition or analogous proceedings have been instituted, apart from cases of ouster, equity may recognise a defensive equity in favour of one of the co-owners regarding expenditure appropriately incurred and may, in the process of equitable accounting, require the other, viewed as a seeker of equity required to do equity, to be debited with an occupation rent to set off the expenditure incurred, thus reciprocally balancing the parties’ interests in the distribution of the realised proceeds of the co-owned property.’ (at [104])

There is no right to an occupation rent or to an account of rental income unless there is ouster (including constructive ouster) or agreement. Where a partition or order for sale has been sought or a sale has taken place, the court can order payment of an occupation rent or account for income as part of an equitable accounting exercise.

Michael Lower

Proprietary estoppel: Does detrimental reliance need to be incurred before the death of the promisor?

July 12, 2021

In Cheung Lai Mui v Cheung Wai Shing ([2021] HKEC 2263) the Court of Final Appeal had to consider whether, in proprietary estoppel cases, detrimental reliance had to be incurred before the death of the landowner who gave the assurance. If it did, they had to consider whether this requirement was satisfied in the present case.

The dispute concerned land in a village in the New Territories. The landowners in question were three brothers, each with a one third share in the land. D3 was the only grandson of the three brothers’ father.

There was a common understanding between the brothers, from the 1970s onwards, that D3 would inherit the land.

Knowing of this, D3, a building contractor, began building a wall around the property in the 1980s. D3 did further work in the early 1990s.

The death of the last of the brothers was in 1999. D3 erected two buildings and did improvement work at the property after 1999.

D3 inherited a one third share of the land. P was the executrix / administratrix of the other two thirds. She sought an order for sale of the land under the Partition Ordinance.

There were two questions:

(1) Did D3’s detrimental reliance have to have been incurred before the death of the brothers?

(2) If so, was the work that he did in the 1980s and early 1990s substantial enough to amount to detrimental reliance?

The Court of Final Appeal held that the detriment had to be incurred before the death of the landowner ([31]).

Where there were co-owners, the detriment had to be incurred before the last of the co-owners who gave the assurance ([33]).

Post-death events might be relevant to the form that the relief should take ([32]).

Implicitly, the Court of Final Appeal accepted that D3’s work before 1999 was detrimental reliance.

D3’s claim succeeded.

P held the two-thirds share on constructive trust for D3 who became, therefore, the sole beneficial owner ([38]).

Michael Lower

Philanthropy in the Age of COVID-19: Asian and Global Perspectives – Online conference – 22 July 2021

June 11, 2021

You might be interested in this online conference on Philanthropy in the Age of COVID-19: Asian and Global Perspectives (the fourth conference in the “Modern Studies in the Law of Trusts and Wealth Management” series).

The workshop is co-organised by the Centre for Commercial Law in Asia at Singapore Management University, the University of York, and the Asian Law Centre at Melbourne Law School, The University of Melbourne.

Details and registration link HERE.