Common intention constructive trust and equity’s darling

In Mo Ying v Brillex Development Ltd ([2014] HKEC 724, CFI) (partly reversed by the Court of Appeal) title to the flat that was the matrimonial home was in H’s name alone. H entered into an agreement to sell the flat to B and took a lease back. The lease arrangement continued after completion. When H failed to meet the rental payments, B brought proceedings to recover possession. W then claimed that she had a beneficial interest under a common intention constructive trust and that B had imputed or constructive notice of this interest and so took subject to it.

W argued that there was an express common intention in that, after acquisition, H had given an excuse for not putting her name on the title deeds. W invited the court to follow the example given by Grant v Edwards and Eves v Eves but the court refused to do so. The ‘excuse’ was equivocal and, anyway, did not induce W to believe that she had or would have any interest in the property ([59]). Further, this was an alleged post-acquisition agreement and the courts are reluctant to infer a common intention constructive trust in such a case ([60]). There was no express common intention.

W argued that a common intention constructive trust could be inferred from the fact of the marriage. Marriage, alone, however, is not a basis from which to infer a common intention constructive trust ([66] – [68]). W’s sister had made a loan to H. It could not be shown that this was used towards the purchase price of the property. In any event, it was not clear that this could be regarded as a contribution by W ([69] – [70]). While the pooling of family assets could be evidence of a common intention ([71]), there was no evidence of such pooling. In any event, it seems that the court was of the view that there was simply no such common intention ([80]); so even if there had been evidence of pooling, it would only be a factor to be taken into account in determining on the balance of probabilities whether or not there was a common intention. The court was not prepared to infer a common intention from W’s contributions to household expenses (‘the everyday expense of the family’ ([81])) ([81] – [85]).

There was no detrimental reliance; neither her contributions to household expenses nor her decision to give up her job could be so regarded in this case. The necessary causal link was missing ([92]).

Deputy Judge Eugene Fung SC went on to consider whether if, contrary to her view, W had a beneficial interest, B was subject to it. W argued that the estate agent handling the transaction knew of the interest and that this knowledge should be imputed to B. The factual basis of this proposition was doubted. In any event:

‘In cases where an agent’s function is to receive communications on behalf of his principal, one can readily understand why the knowledge of the agent would be imputed to the principal. However, I have some doubt as to whether such a principle applies to an estate agent in Hong Kong. In a typical case, an estate agent’s function is to perform a service by introducing a counter-party to his principal so as to enable his principal to conclude a particular transaction with that counter-party; his function is not to receive communications on behalf of his principal. No cases have been cited to suggest that an estate agent in Hong Kong has the general authority to receive communications for his principal. Accordingly, I am unable to accept Mr Wong’s submission that notice of an estate agent in Hong Kong is imputed to his principal.’ ([117]).

B had, however, failed to inspect the property and so, by virtue of W’s occupation, had constructive notice of any interest that W might have. The fact that this was a sale and leaseback made no difference to this ([131] – [132]).

B’s attempt to avoid this conclusion by invoking estoppel by representation failed since W did not owe B a duty to speak out and inform B of her interest ([148]). The facts did not support B’s defence of waiver ([154]) nor acquiescence ([155] – [157]).

Nor could B rely on laches. Section 20(2) of the Limitation Ordinance provided the limitation period for an action to recover trust property from a third party and this had not expired. In any event, there had been no substantial lapse of time and it was not inequitable for W to enforce her claim against B ([165]).

Michael Lower

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‘Waiver’ of notice to quit? New tenancy and estoppel

In Kam Wing Property Investments Ltd v Koncord Ltd ([2005] HKEC 213, CA) T had the benefit of a periodic tenancy. L served notice to quit. T refused to leave and so L applied to the court for possession using the summary judgment procedure. T argued that L had ‘waived’ the notice to quit. This failed.

First, Deputy Judge A To pointed out that a notice to quit, once served cannot be withdrawn. The parties can agree to a new lease but there was no evidence of such an agreement here:

‘Technically, a notice to quit, once given, cannot be waived unilaterally by the party giving it. Even according to the evidence of the Defendant, the Plaintiff never expressly waived the notice to quit in the sense that it withdrew the notice. Instead, the documentary evidence consistently shows that the Plaintiff insisted on the notice. To the extent that “waiver” is used as a convenient misnomer, it requires the consensual agreement of the parties that the tenant remains in possession. As with any agreement in respect of disposition of interest in land, four certainties apply, namely certainty of parties, property, term and price. Even on the evidence of the Defendant there was no agreement as to the term of the new tenancy and the rental. The so called defence of “waiver” does not even get off the ground.’ ([13])

The possibility that the landlord might be estopped from relying on the notice was considered but there was no credible evidence of a representation that the notice would not be relied upon. L sought summary judgment but before a court would be persuaded that a full trial was necessary, T would need to ‘show that he has a fair or reasonable probability of showing a real or bona fide defence, i.e. that his evidence is reasonably capable of belief.’ ([16])

T had not succeeded in this.

Michael Lower

Assignor of reversion’s informal promise of an option to renew: binding on successor in title?

In Best Honour Investment & Development Ltd v Best Sonic Ltd ([2006] HKEC 1100, CFI) T refused to leave the demised premises at the end of the lease term. L obtained an order for possession and was awarded rent arrears and mesne profits as a result of a summary judgment.

T argued that L’s predecessor had (before the assignment to L) assured T that it could have an extension of its lease for a further two years at a rent that would not increase by more than 20% as compared with the rent payable under the prior lease. On this understanding, T had granted a sub-lease to H which had spent HK$6 million renovating the property. T argued that L was estopped from recovering possession as a result of this assurance.

This failed. There was nothing to suggest that L knew of the alleged representation. Nor was any factor present which would make it inequitable for L to disregard its predecessor’s assurance.

Even if there were a complete agreement for lease, it had to comply with section 3(1) of the Conveyancing and Property Ordinance since the alleged lease did not take effect in possession (Reyes J. at [16]).

Michael Lower

Creditor estopped from recovering a debt where he had misrepresented the amount

In Neville v Wilkinson ((1782) 28 E.R. 1289) W was N’s lawyer and a creditor of N. N wanted to marry the daughter of S but was worried that S would not consent if he knew the full extent of N’s indebtedness. N persuaded W to vastly understate the amount of N’s debt to W. W agreed and the marriage went ahead. W was estopped from recovering the full amount of the debt from N since the marriage arrangements made by S were induced by W’s representation to S as to the level of N’s indebtedness. The court spoke of fraud rather than estoppel.

Common law estoppel: mortgagee not revealing his interest in the property

In Pickard v Sears (112 E.R. 179) P was the the mortgagee of property which the remained in the actual possession of M (the mortgagor). A writ of fieri facias was executed and the sheriff took the property mortgaged to P. P spoke to the sheriff about the sale of the property but never mentioned his own mortgage. The property was sold to S. P then claimed the property or payment of his debt from S. S refused. It was held that P was estopped from pleading his own mortgage having failed to mention it to the sheriff before the sale:

‘But the rule of law is clear, that where one by his words or conduct wilfully causes another to believe the existence of a certain state of things, and induces him to act on that belief, so as to alter his own previous position, the former is concluded from averring against the latter a different state of things as existing at the time.’ (Lord Denman CJ).

Recovering payments made voluntarily and with full knowledge that they may not be due. Estoppel in pais

Grundt v The Great Boulder Proprietary Gold Mines Ltd ((1937) 59 CLR 641) concerned a tribute agreement (the right to mine gold from a specified seam). The agreement allowed G to mine the ore. He was then to deliver it to the mine owner which would process it and account to G for half of the proceeds of sale. On 8 May 1935, the mine owner complained to G that he was mining in an area that was not covered by the agreement. At a meeting on 29 May 1935, G offered to stop all mining until the dispute as to the extent of the seam covered by the agreement could be settled by arbitration. The owner’s representative told him not to do this but it was still clear that there was a dispute and that the owner was not prepared to agree to G’s understanding as to the area covered by the agreement. Nevertheless, the mine owner continued to process all of the ore delivered by G and to account for a half share even though the owner was aware that G was still mining the disputed area as well as the area that was certainly covered by the agreement. There were no further discussions but in August 1936, the owner purported to cancel the tribute agreement.

The High Court of Australia held that G had indeed trespassed beyond the area covered by the Tribute Agreement and would have to account for all of the excess profit earned up to May 1935. It would not, however, have to account for the excess profit in respect of the period from May 1935 up until the time of the attempted cancellation. There was unanimity as to this outcome but a difference of opinion as to how it should be arrived at. The majority (Dixon and McTiernan J) did not think that there was any estoppel. Rather they were of the opinion that it would be inequitable to allow the mine owner to recover the excess for that period since it had continued to receive the extra ore, process it and account for the proceeds of sale. It was also relevant to note the speculative and hazardous nature of G’s work in mining the ore. Dixon J. said:

‘Payments made in respect of a disputed liability are voluntary and cannot be recovered either directly or as damages representing part of a loss.’ (679)

and a little later:

‘Equitable remedies are not available to parties who, though openly claiming a right at the time, so conduct themselves as to make it unfair and inequitable to go back and rip up a transaction or dealing in order to enforce the right against those who infringed it.’ (679)

The majority thought that there was no estoppel since the owner had always made it clear that it disputed G’s right to the ‘extra’ ore; thus there was no representation by the owners nor were the owners misled by them into an assumption that the ‘extra’ ore was covered by the agreement. Latham CJ, by contrast, thought that estoppel in pais was applicable and led to the same outcome. The judgments both of Latham CJ and of Dixon J devote a considerable amount of attention to the essential elements of estoppel in pais.

Latham CJ said:

‘Where a person obtains advantages by relying upon rights which can exist only upon the basis of an assumed state of facts, he is not permitted thereafter to rely upon other rights in relation to the same person which are inconsistent with the existence of the rights formerly asserted.’ (657)

Latham CJ thought that these requirements were met in the present case. The mine owner had rejected the offer to cease mining. G was accordingly induced to spend money to mine the ‘extra’ ore. The owners had represented that they were content ‘to regulate the relations between the tributers and itself upon the basis that the agreement applied in all respects to the ore produced from the western swing.’ (657)

Dixon J said:

‘The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another to adopt or accept for the purpose of their legal relations … One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption.’ (674)

But, in addition:

“Before anyone can be estopped, he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it’ (675)

The parties can agree to withdraw or one party can waive ‘subject to contract’

In Law v Jones ([1973] 2 W.L.R. 994, CA (Eng)) the terms of an initial oral agreement to sell property for GBP 6,500 were recorded in two letters written by the defendant’s (the seller’s) solicitors to the solicitors acting for the plaintiff (the buyer). This correspondence was plainly covered by the ‘subject to contract’ label attached to the first of the two letters. Then the parties agreed to a price increase. In the meeting on March 13th at which the increase was agreed, the seller told the buyer, ‘I shall not go back on my word. My word is my bond. It is yours now: carry on and make all your arrangements.’ The seller’s solicitors wrote a letter on March 17th (not marked ‘subject to contract’ it seems) confirming the price increase and asking the buyer’s solicitors to amend the price recorded in the draft contract sent to them. The seller then purported to withdraw and the buyer sought specific performance.

The English Court of Appeal upheld the decision to grant specific performance. The majority of the Court of Appeal were of the view that the buyer had waived the ‘subject to contract’ label by his clear words on March 13th. Thus, it was possible to join the March 17th letter together with the earlier letters (now shorn of their ‘subject to contract’ status) to create a sufficient memorandum for the purposes of section 40 of the Law of Property Act 1925 (in the same terms as the current section 3(1) of Hong Kong’s Conveyancing and Property Ordinance but repealed in England and Wales).

Cohen v Nessdale had already made the point that the parties can expressly or impliedly agree to end the operation of ‘subject to contract’ so the idea that it can be waived is not surprising. Here, however, the buyer was relying on correspondence that had been labelled ‘subject to contract’ when written to provide the memorandum. The correspondence recorded the terms under discussion but, far from pointing to the existence of a contract, denied that a contract existed. Law v Jones therefore seems to rest on the proposition that a memorandum need only record the relevant terms and need not point to the existence of a contract. An alternative viewpoint is that the final letter, which was not subject to contract’ referred to the earlier correspondence for convenience (to avoid repetition) but pronounced them anew in a contractually binding way.

It may have been better if the court had been invited to look at the case as being one of estoppel by representation (akin to Walton’s Stores (Interstate) Ltd v Maher). The words used on March 13th seem to be a much stronger representation than that made in Walton’s Stores. Since the case was not looked at in this light the question of detrimental reliance was not discussed.

Russell L.J. (dissenting) was very anxious to preserve the use of  ‘subject to contract’ as a way of creating a safe haven in which negotiations can be conducted without fear of inadvertently creating a binding contract (at 120 – 121). In this sense, Law v Jones should be read in the light of Tiverton Estates Ltd v Wearwell Ltd).

It is unlikely that a Hong Kong court would have found that the oral discussions gave rise to a contract since it would be an ‘open’ contract (ie with no express completion date). In Kwan Sin Man Joshua v Yaacov Ozer it was held that failure to agree on a completion date in Hong Kong was a strong indicator that there was no intention to create legal relations.

Estoppel by representation is a rule of evidence

The common law doctrine of estoppel by representation is a rule of evidence. Where it is sucessfully invoked but there is a disproportion between the gain to the representee and the detriment suffered, equity can play a part and only allow the estoppel to be relied upon to the extent of the detriment suffered by the representee.

In National Westminster Bank plc v Somer International (UK) Ltd ([2001] EWCA Civ. 970, CA (Eng)) S told the bank that it was expecting to receive between US$70,000 and US$78,000 from M, a customer of S. Some time later the bank received just over US$76,000 from a different party intended for a different customer but, by mistake, told S that the expected payment from M had arrived. It credited this money to S’ account. As a result, S sent goods worth GBP 13,000 to M. The bank then realised its mistake and sought to recover the US$76,000 from S.

The English Court of Appeal decided that it was bound by authority to the view that estoppel by representation is a rule of evidence rather than of substantive law. This would appear to suggest an ‘all or nothing’ response to a case like the present; it appears that either S could keep all of the money or none of it, that the estoppel is either made out or not.  However, even though the doctrine was a creature of the common law, there was room for equity to play a part so that, in appropriate cases, the estoppel defence was only available to the extent of the detriment suffered (para 43 per Potter L.J.).

This was such a case: there was a clear disproportion between the amount received by S and the detriment that it had incurred. It would be unconscionable for it to be able to rely on the defence for any sum greater than the value of the goods sent to M after the bank’s representation. The balance was to be repaid to the bank.