Archive for the ‘agency’ Category

Subrogation to the unpaid vendor’s lien

November 26, 2015

In Bank of Cyprus UK Ltd v Menelaou ([2015] UKSC 66) PM and DM sold property which was subject to a charge in favour of Bank of Cyprus UK Ltd (‘the Bank’). They contracted to purchase a new house using the proceeds of sale. The Bank agreed to this on condition that they obtained a first charge over the new house. The purchase of the new house was in the name of PM and DM’s daughter (‘the daughter’). She knew nothing of the arrangement with the Bank or of its involvement. The purchase was completed without the creation of a valid charge in favour of the Bank. The Bank claimed to be entitled to be subrogated to the unpaid vendor’s lien in respect of the new house. The obstacle that it faced was that it could be argued that it was not the source of the funds used to pay for the purchase (the proceeds of sale of the old house had been used).

The Supreme Court was unanimous in finding that the Bank was subrogated to the unpaid vendor’s lien. The majority did so on the basis of unjust enrichment with equitable subrogation as the remedy. Lord Carnwath reached the conclusion on the more straightforward basis that the Bank was beneficially entitled to the proceeds of sale of the old house under a Quistclose trust and so was entitled to step into the shoes of the unpaid vendor. Lord Neuberger relied on unjust enrichment but expressed agreement with Lord Carnwath’s views.

An unjust enrichment claim requires four questions to be answered:

  1. has the defendant been enriched?
  2. was the enrichment at the claimant’s expense?
  3. was the enrichment unjust?
  4. are there any defences available to the defendant?

(Benedetti v Sawiris [2013] UKSC 50).

The daughter had been unjustly enriched at the bank’s expense. This was because ‘the value of the property to [the daughter] was considerably greater than it would have been but for the avoidance of the charge and the Bank was left without the security which was central to the whole arrangement.’ ([24] Lord Clarke). There was a sufficient causal link between the benefit to the daughter and the loss to the Bank ([27] Lord Clarke). Lord Neuberger commented that the daughter’s enrichment was unjust because she had received the house as a gift from her parents and that if she had been a bona fide purchaser for value without notice of the Bank’s rights then it may not have been possible to say that her enrichment was unjust ([70]). Lord Clarke thought that the fact that the daughter was a donee was relevant when considering whether any defences were available to the daughter.

Subrogation to the unpaid vendor’s lien was available as a remedy to reverse the daughter’s unjust enrichment ([49] Lord Clarke). Lord Neuberger thought that it would be ‘hard to identify a more appropriate remedy’ since subrogation would give the Bank a right similar to that which it should have had under the anticipated charge ([79]). Lord Neuberger stressed that the conclusion that the Bank should be subrogated to the unpaid Vendor’s lien needed to be supported by principle ([94]). He thought that the facts that the house could only have been acquired using funds that the Bank could have demanded, that the failure to grant a Charge was the result of the solicitors acting for the Bank and the daughter and that the use of the funds with the Bank’s agreement discharged the unpaid vendor’s lien ([95]).

Lord Neuberger pointed out that the subrogation claim would have been uncontroversial had the Bank insisted on receiving the proceeds of sale of the original house and then making a fresh loan. The fact that they agreed to allow the proceeds of sale to be retained by the solicitors and re-used for the acquisition by the daughter was ‘a small and practical change’. It would be pure formalism if this change were to defeat the Bank’s claim ([99]).

Lord Carnwath thought that the Bank’s subrogation claim could succeed ‘by a strict application of the traditional rules of subrogation, without any need to extend them beyond their traditional limits.’ ([107]). He thought that this was a case where equitable subrogation was available without any need for recourse to the law of unjust enrichment and that there was a distinction to be made between a claim to a property right (subrogation to a vendor’s lien) and one based on unjust enrichment ([108]). He was prepared to accept that subrogation might be an available remedy in an unjust enrichment case but he did not decide the case on the basis of unjust enrichment ([109] – [110]).

In Lord Carnwath’s view, the Bank had to establish that its money had been used towards the purchase price to allow it to be subrogated to the unpaid vendor’s lien ([128]). It must be possible to trace money belonging to the Bank into the money used to pay the purchase price; ‘a sufficient link could not be found in a looser test based on economic reality or simple causation’ ([132]). The Bank did have a sufficient interest in the funds used to pay the purchase price. The Quistclose principle could be applied; the solicitors acting for the daughter and the Bank held the proceeds of sale of the original property for the Bank but had the power to apply it to the purchase of the property on behalf of the daughter ([134] – [139]).  There was no difficulty ‘in finding the necessary “tracing link” between the Bank and the money used to purchase the new property.’

Michael Lower



Representation: agent’s ostensible authority. When damages for purchaser’s repudiation to be assessed

January 4, 2013

In Montrio Ltd v Tse Ping Shun David ([2012] HKEC 1781, CA) P entered into provisional and formal agreements for the sale of property to D. D alleged that certain representations had been made to him by P’s agent concerning the size of the property and that these were false. P sought damages for D’s repudiatory breach and to forfeit the deposits he had received. D sought to rescind. P argued that damages should be measured by looking at the difference between the contract price and the market value at the time of breach. P succeeded.

It was accepted that P had not actually authorised the making of any representations as to the size of the property. He accepted that he had always known that it was likely that the agents would be taking some steps to market the property (even at times when he was not actively seeking to sell). D argued that the agents therefore had ostensible authority to make the relevant representations. This failed:

‘The mere expectation that an estate agent might try to market a property cannot be treated as any kind of permission or authority for the agent to do so. Nor was there any obligation on the owner’s part to stop or prevent an agent in attempting to find potential buyers as a broker …  In no way could the plaintiffs be regarded as having in some way instigated or permitted Ms Lam to make the Statement as their agent, nor had they put her in a position where she appeared to be authorised to make the Statement as their agent.’ (Kwan JA at [31])

The normal rule for assessing the damages would be to look at the difference between the contract price and the market value at the time of the breach ([58]). There was no reason to depart from that approach in the present case ([65]).

Rescission: misrepresentation and presence of unauthorised structures

December 5, 2012

In Yili Concepts (HKG) Limited v Lee Wai Chuen ([2000] HKEC 1043, CFI) the agents acting for sellers of a flat made negligent misrepresentations as to the size of the flat and that the area that they had given could be used as the basis for determining the price or valuation. The buyer entered into a provisional agreement but later refused to proceed when he learned the truth about these matters and that there were unauthorised structures. He sought to rescind and recover his deposit relying on the misrepresentations and further arguing that the presence of the unauthorised structures amounted to a defect in title.

The court decided that the agents had been acting with the seller’s authority with regard to one of these misrepresentations but not the other. The buyer had relied on them. The misrepresentations had been the cause of the collapse of the transaction. The misrepresentations entitled to the buyer to rescind.

There was a real risk of enforcement action in respect of at least some of the unauthorised structures. Even if casual mention had been made of the works that had been done, this was not enough to amount to a waiver of the contractual right to a good title. Hence they amounted to a defect in title giving the buyer a right to rescind and recover his deposit.

The agreement had not been stamped and was not admissible in evidence. The agreement was still enforceable as the defendants had acknowledged the existence of a signed, written agreement in the pleadings.

Despite the fact that they had been sole authors of one of the misrepresentations, the agents were entitled to claim their full commission from the sellers. This did not amount to such a breach of their duties as would allow the principal to refuse to pay the remuneration due under the provisional agreement.

Exchanging contracts: solicitor’s authority

October 16, 2012

In Domb v Isoz ([1980] Ch. 548, CA (Eng)) S agreed to sell her house to P. The form of the contract had been agreed and P’s solicitor sent the part of the contract signed by his clients to S’s solicitor together with a cheque for the deposit. S’s solicitor agreed to hold the contract to P’s solicitors order. S’s solicitor held his own client’s signed part of the contract. The two solicitors then spoke to each other and agreed that an exchange of contracts had been effected. Then S refused to complete. The question was whether there had been an effective exchange of contracts. The English Court of Appeal unanimously affirmed that there had been an effective exchange of contracts.

Conveyancing solicitors have implied and ostensible authority to effect an exchange of contracts by such method as they see fit (Templeman L.J. at 563):

‘Exchange by telephone, it seems to me, eliminates, or at any rate substantially reduces, the danger that any client will lose a bargain or be left without a home. Exchange by telephone can only take place after both vendor and purchaser sign contracts in identical form (subject to the question of rectification, which can apply to any contract) so that there is no doubt about the terms of the contract. Exchange by telephone can only take place when a contract signed by a client is in the physical possession of his own solicitor or in the possession of the solicitor on the other side who has agreed to hold that part to the order of the despatching solicitor … [I]f two solicitors exchange by telephone, they should then and there agree and record identical attendance notes.’ (Templeman LJ at 564)

The part of the contract signed by S had an extra clause (with the agreed apportionment of the price between the house and certain fittings). This did not prevent an exchange in this case since there was no doubt that the apportionment had been agreed and Buckley LJ would have been prepared to order rectification if need be (559).

Agent’s authority: limited to open contract?

December 2, 2011

In Wisecal Ltd v Conwell International Ltd ([2011] 4 HKLRD 275, CA) C was a company that owned a flat. C’s sole director and shareholder (its alter ego) gave F authority to sell the flat at an agreed price. C then refused to complete the sale. W (the purchaser) sought damages from C (or from F if F had acted without authority). At first instance, it was decided that F had had authority to sign a contract. F was nevertheless found to be liable because he had not been given specific authority to enter into a contract in the form used (containing, for example, the usual liquidated damages clauses). On appeal, F pointed out that C had not pleaded this point and it had been raised by the judge in the course of final submissions. If C had intended to argue that, were it to be held that F had authority, then that authority did not extend to those particular clauses then that should have been included in its pleadings. It was not. F’s appeal was allowed. C was ordered to pay the damages to W. The Court of Appeal seemed to doubt that C would have succeeded even had it pleaded that F had no authority to sign up to these standard contract terms.

When is one co-owner who collected rent liable to account to the other?

November 24, 2011

Where one co-owner collects rents the mere fact of being co-owners does not give rise to a liability to account to the other co-owner(s). A liability to account to the other for the latter’s share arises where the former is the agent or bailiff of the latter. It can also arise in partition actions (or actions that are equivalent), administration actions, in other cases where there is a fund in court, where the court makes an order for sale as an alternative to partition or where one party claims an interest under a resulting or constructive trust and the court is asked to quantify that interest (paras. 103 – 105).

Where one co-owner collects the other’s share of rent, it is possible to imply an agency. It is also possible (depending on the context) that this agent holds the rents collected on a ‘real’ constructive trust so that there is no limitation period in respect of the claim by the agent for the rents received (see Limitation Ordinance, s. 20).

In Chen Yu Tsui v Tong Kui Kwong ([2005] HKEC 1679, CA) property was held by two brothers as tenants in common in equal shares. One brother (the defendant) collected all the rents and after a time stopped accounting to the other (the plaintiff’s deceased husband) for his share of the rents. The plaintiff brought an action to recover the rents. It was held that there was a duty to account in this case  since the defendant had impliedly acted as his brother’s agent (paras. 111 – 112). The action was not time-barred. This was a ‘real’ constructive trust to which section 20(1) of the Limitation ordinance applied (para. 123).

Michael Lower

Sale by agent and purchaser in occupation pending completion

March 11, 2011

Authority to act as agent for the sale of land does not need to be in writing.

In Yuen Lai Tui v All occupiers of ground floor of building on Lot No 2352 ([2006] HKEC 2116) the plaintiff was the administratrix of her deceased husband’s estate. The estate included two neighbouring houses in a village in the New Territories. The defendant occupied the ground floor of one of the houses and the plaintiff sought possession. The judge found that the ground floor property had been sold to the defendant. He had paid most but not all of the purchase price. The sale had been agreed by an agent acting for the deceased owner and there was no need for this authority to be in writing. The plaintiff was ordered to complete the sale to the defendant (who was willing to pay the balance of the purchase price).

The house had been built under the Small House Procedure and the Court explained the conveyancing steps necessary in such cases. The parties were at liberty to apply for a new order if the necessary certificates for a sale could not be obtained.

No contract where the auctioneer’s authority has been revoked

March 9, 2011

An auctioneer can only create a binding contract for the sale of land where he has the actual authority of the seller.

In Hoie Sook Fong v Ismail Halima ([2008] HKEC 2213) the owner of a flat arranged for it to be sold at auction. She revoked the auctioneer’s authority before the auction. Despite that, the property was offered for sale and there was a successful bid. The flat owner refused to complete the sale. It was held that there was no binding contract since the auctioneer’s authority had been revoked and auctioneers need actual authority if they are to bind the principal. The auctioneers were liable to the successful bidder for breach of warranty of authority.