Estoppel by deed

In Prime Sight Limited v Lavarello ([2013] UKPC 22, Privy Council) M assigned a long lease to Prime Sight (‘the company’) a company which was controlled by him. The deed of assignment acknowledged the payment and receipt of the consideration. No consideration had been paid. M’s trustee in bankruptcy sought payment of the consideration. When this was not forthcoming, L petitioned for the winding up of the company.

The company sought to have the petition struck out on the ground that the debt was disputed on substantial grounds.  The basis for the dispute was the company’s argument that M (and so the trustee) were estopped by the acknowledgement in the deed. The question was whether the company could rely on this acknowledgement when both parties knew it to be untrue.

The Privy Council concluded that the estoppel defence did amount to a substantial ground on which the debt was disputed and the winding up order that had been made at first instance was set aside.

First, it needed to be shown as a matter of construction that the statement was intended to bind either or both of the parties ([32]).

Lord Toulson approved this passage in in Spencer Bower on Estoppel by Representation 4th ed (2004) (at p. 197),

‘… an estoppel by convention need not involve any misleading of a representee by a representor, nor is it essential that the representee shall be shown to have believed in the assumed state of facts or law. The full facts may be known to both parties; but if, even knowing those facts to the full, they are shown to have assumed a different state of facts or law as between themselves for the purposes of a particular transaction, then a convention will be established. The claim of the party raising the estoppel is, not that he believed the assumed version of facts or law was true, but that he believed (and agreed) that it should be treated as true.’ (at [45]).

This statement also appled to estoppel by deed ([46]). The court may refuse to apply the convention in cases of fraud, illegality, mistake and misrepresentation or on the grounds that to apply it would be contrary to public policy ([47]). If the trustee wanted to argue that there was something illegal or contrary to public policy in the present case he would need to persuade the court that this was so ([51]).

Michael Lower

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Lease: estoppel; Lands Tribunal’s jurisdiction to award specific performance

In Fordtime Industrial Ltd v Yip Shing Lam ([2013] HKEC 1613, LT) F had acquired a shop and the cockloft above it (which was a separate property). The acquisition of the cockloft was subject to a tenancy in favour of the previous owner of the shop. The tenancy had come to an end but the tenant refused to leave. The landlord sought vacant possession and mesne profits and was successful.

The tenant contended that the subject matter of the lease did not exist since the cocklofts were not referred to in the DMC. The judge found as a matter of fact that the cockloft did exist at the time of the execution of the DMC. The developer (as owner of all of the unassigned shares) was free to allocate a share to it. In any event, the tenant having enjoyed undisturbed possession during the lease term was estopped from denying the landlord’s title ([33] – [37]).

The landlord also sought an order for specific performance of the tenant’s covenant to reinstate the property by replacing the floor slab between the shop and cockloft at the end of the lease. The Lands Tribunal decided that it did not have jurisdiction to grant specific performance in an action for possession (see Lands Tribunal Ordinance ss. 8(8) and 8(9)).

Michael Lower

When is a statement clear and unambiguous for the purposes of equitable estoppel?

In Kim v Chasewood Park Residents Ltd ([2013] EWCA Civ 239, CA (Eng)) K was one of the flat owners at an estate called Chasewood Park (holding under the terms of a 125 year lease). The reversion (a much longer lease) came up for sale. Chasewood Park Residents Ltd was set up by the Residents’ Association to acquire the reversion. On 24th August 2006, the committee of the Residents’ Association sent out a circular letter to residents inviting them to contribute to the cost of acquisition. The letter summarised the benefits of the scheme and these were said to include the fact that those who participated would no longer need to pay the ground rent (then GBP100 annually) and that the 125 year terms could be extended to much longer terms at minimal extra cost.

K, believing that Chasewood Park would acquire the freehold and that a commonhold scheme would be established, agreed to participate. In fact, the reversion was a leasehold and what was proposed was an extension of the leases. Chasewood Park acquired the reversion and those who had agreed to participate were offered longer terms (as promised) but Chasewood Park said that a ground rent of GBP 100 would continue to be payable under the new leases.

K refused to pay the ground rent. In her defence to Chasewood Park’s claim for the rent arrears, she  argued that Chasewood Park was estopped from including a ground rent in the new leases since the circular letter contained statements that:

1. there would be no ground rent to pay following the purchase of the reversion; and

2. that participating residents would be able to extend their leases at no additional cost except a small fee.

The first, and as it happened determinative, issue was whether there had been a clear and unambiguous representation that participants would not have to pay a ground rent. On this, Patten L.J. said:

‘There is no doubt that in order to found a promissory estoppel (in the same way as any other estoppel based on a representation of fact) the representation or promise must be clear and unambiguous. But this principle raises a number of subsidiary questions. Does it mean that the estoppel cannot arise unless there is only one possible meaning of the words used or is the existence of other possible (but perhaps less probable) meanings not fatal to the creation of an estoppel where the Court can say that it was reasonable for the representee to have interpreted the words used in the way he did? There is also an issue about the test to be adopted by the Court. Few, if any, statements are not capable of being interpreted in more than one way. The Court’s usual role in construing, for example, a contract is to arrive at the legally correct meaning of the words. Their construction is a matter of law and the Court’s function is to resolve any ambiguities in reaching its conclusion. But it is arguable that in the case of estoppel it should not go any further than to identify the existence of any real ambiguities in the language. If the statement is open to more than one reasonable interpretation (one of which is fatal to the estoppel defence) then the representee was not entitled to rely on what was said without further clarification and there is no basis for an estoppel.’ ([23])

There was no clear and unambiguous statement here. The circular letter was simply a list of potential benefits. The suggestions were conditional and set out in an early stage in the scheme. They did not amount to the assurance contended for ([31] and [34]).

Nor had there been the necessary reliance since K had misunderstood the nature of the scheme. She had relied on her understanding that there would be a commonhold scheme and that she would not be a tenant at all. This was not merely a question of the legal mechanism to be put in place to give effect to an assurance. She had relied on an assurance that had not been made ([38] – [40]).

Patten LJ considered whether, had there been a promissory estoppel defence, its effect would have been merely suspensory. Would it have been unconscionable to withdraw any assurance that no ground rent was payable? It would not have been unconscionable. There was nothing to lead to such a conclusion. Chasewood Park had offered to reimburse K’s contribution but she had declined the offer. While Chasewood Park’s offer to reimburse K was not determinative, it reinforced the conclusion that it was not unconscionable to withdraw any assurance that no ground rent was payable ([42]).

Similar reasoning applied if one looked at the matter as a claim based on proprietary estoppel. The conclusion that any promissory estoppel would only be suspensory suggested that relief in proprietary estoppel should not take a form that would result in the permanent removal of a liability to pay ground rent. It would be inappropriate to grant relief in the form of a lease with no ground rent ([45]).

Michael Lower

Incorporation of an unincorporated association: who owned the association’s property?

In Chap Yick Clansman’s Association Ltd v Mok Fai ([1997] HKLRD 580, HC) the property of an unincorporated association was held by four trustees on trust for the members for the time being of the association. A company was incorporated to take over as the vehicle for the running of the association and all members of the unincorporated association at the time of incorporation were automatically members of the company. There was never any formal assignment by the members of their beneficial interests in the property to the company (as required by section 5(1) of the Conveyancing and Property Ordinance). Twenty years after incorporation, the company became one of the trustees of the property. The question was whether the beneficial ownership of the property had passed to the company or remained with the members immediately prior to incorporation.

The court held that ownership had passed to the company. There had been a novation of the terms of the contract between the members of the unincorporated association when they approved the company’s constitution. This conclusion was reinforced by the fact that the company had been treated as owner of the property for a twenty year period from the date of incorporation to its appointment as trustee. In any event, any member of the unincorporated association would now be estopped from asserting a beneficial claim to the property.

Estoppel in the face of a statute: public policy

In Kok Hoong v Leong Cheong Kweng Mines Ltd ([1964] A.C. 993, PC) K entered into an agreement to hire machinery to LCKM. A few months later, K obtained a default judgment in respect of rent arrears. K later brought a second action to recover further arrears. This time, LKCM argued that the arrangements were void and unenforceable as a result of a failure to comply with Malaya’s Moneylenders and Bills of Sale Ordinances. K responded that LCKM was estopped by the 1954 judgment from pleading the failure to comply with these Ordinances.

The Privy Council (on appeal from the Supreme Court of Malaya) held that while it was possible for a default judgment to form the basis of an estoppel, it was necessary to look carefully at the basis of the judgment and to consider what was  in substance the ratio of and fundamental to the decision (1012 per Viscount Radcliffe). There was no estoppel here.

In any event, it would be against public policy to allow an estoppel to take effect in the face of the Moneylenders Ordinance and the Bills of Sale Ordinance.

The Privy Council considered the general proposition that an estoppel cannot be set up in the face of a statute. It acknowledged that there can be estoppel in respect of some statutes (such as the Statute of Frauds). The test as to whether this would infringe public policy was stated as follows:

‘[A] more direct test to apply in any case such as the present, where the laws of moneylending or monetary security are involved, is to ask whether the law that confronts the estoppel can be seen to represent a social policy to which the court must give effect in the interests of the public generally or some section of the public, despite any rules of evidence as between themselves that the parties may have created by their conduct or otherwise.’ (1016 per Viscount Radcliffe)

Adverse possession: tenant estopped from denying an acknowledgement given in a compromise after the limitation period had ended

In Colchester BC v Smith ([1992] Ch. 421, CA (Eng)) T had been in possession of land belonging to the Council for a period exceeding twelve years. To avoid being the subject of proceedings that the Council intended to instigate, T entered into a lease of the land that acknowledged the Council’s title and that he had no claim to the land by virtue of adverse possession. He then sought to claim that he had defeated the Council’s title and that the acknowledgement was ineffective since it had been given after the limitation period had expired (section 29(7) of England’s Limitation Act 1980 provides that an acknowledgement at this stage is ineffective). T failed. He was estopped from denying the acknowledgement since it had been given as part of a genuine compromise agreement.

CPO s.3(1) and res iudicata

In Humphries v Humphries ([1910] 2 K.B. 531, CA (Eng)) L agreed to grant T a fourteen year lease of a house but there was no written contract or memorandum complying with section 4 of the Statute of Frauds (the equivalent of section 3(1) of the Conveyancing and Property Ordinance). T denied the existence of the contract in an action for rent arrears but did not plead the Statute of Frauds. L succeeded. T fell into arrears again and L brought proceedings. This time, T sought to rely on the Statute of Frauds but was not allowed to do so:

‘It may well be expedient to avoid the risk of fraud and perjury when there is no written evidence of a contract relating to land, by refusing to allow any evidence of such a contract to be given; but where the evidence has actually been taken and the contract has been proved by parol to the satisfaction of the Court, the reason for refusing it has disappeared, and a refusal to allow the contract to be sued upon would be an encouragement to dishonesty without any corresponding advantage to the public.’ (537, Farwell L.J.)

Michael Lower

Lost waiver and its effect on later agreement between the parties

In Favourable Issue Co Ltd v Secretary for Justice ([2012] HKEC 1416, CFI (later overturned as regards the issue of waiver by the Court of Appeal) the Government granted a lease to F’s predecessor of some land in 1962. The lease contained a special condition prohibiting any building exceeding 30% of the overall size of the Lot. The Lot was eventually assigned to F. The Government later wrote to F informing it that it was in breach of the special condition and requiring it to carry out work to comply with the special condition. Both F and the Government believed that there had been a breach of the special condition. A Temporary Waiver (and certain ancillary documents concerning breach of the terms of the licences of adjoining Government land occupied by F) were agreed.

Later, it was discovered that the relevant Government departments had, at the time the building was erected, given their express consent to the building as it stood even though it covered significantly more than 30% of the Lot.  F successfully argued that the Government had waived the breach long before the Temporary Waiver. Thus, the Temporary Waiver was the result of a common mistake that the Government had been entitled to enforce the special condition and so the Temporary Waiver was void or rescinded ([78]). F was not estopped (by its entry into the Temporary Waiver and associated dealings) from attacking the basis on which the Temporary Waiver had been entered into ([87] – [88]).

F failed, however, in its attempt to argue that it had taken over the benefit of Permits to occupy adjoining Government Land granted to F’s predecessor. Further, the Government’s claim that there had been breaches of these Permits was accepted.

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).