Archive for the ‘Part peformance’ Category

Informal land contracts: overlapping equitable doctrines

March 3, 2021

Introduction

The judgment in Ng Yuk Pui Kelly v Dung Wai Man [2019] HKCFI 210, shows that part performance, common intention constructive trust and proprietary estoppel are each available to plaintiffs seeking to enforce oral land contracts. The court also decided that a belief that one is in possession as owner by virtue of a valid contract (even when this belief is correct), is no bar to a successful adverse possession defence / claim.

Facts

Kelly (P) and Kuen were brothers. Kuen provided the finance to acquire two flats but legal title was assigned to his wife (D). D held the flats on resulting trust for Kuen.

In 1985, Kuen was in financial difficulty and orally agreed to sell the flats to P for HK$1 million (‘the 1985 agreement’). P paid the HK$ 1 million to Kuen but agreed not to press D to assign the legal title to P.

Kuen died and D and her children denied that P was the beneficial owner pursuant to the 1985 agreement.

P relied on part performance, common intention constructive trust and proprietary estoppel. Alternatively P argued that his adverse possession since 1985 meant that D’s title was extinguished.

P was successful under each heading except for part performance (where the problem may have been technical rather than substantive).

Part performance

P argued that payment of the HK$ 1 million to Kuen was an act of part performance of the 1985 agreement. P’s claim failed because he had not shown that payment of the money was referable to the agreement ([460]).

Common intention constructive trust

This succeeded. The 1985 agreement provided the common intention and the payment of the HK$1 million was the detrimental reliance ([466]).

D’s attempt to rely on Luo Xing Juan (to argue that the fact that D was not a party to the common intention was fatal to P’s claim) failed. Kuen did own the beneficial interest and the common intention can refer to a beneficial interest ([468]).

D’s attempt to rely on CPO s. 3(1) also failed. Cobbe v Yeoman’s Row was distinguished on the basis that in that case there was no valid agreement while in this case there was ([469]).

Proprietary estoppel

P could also succeed in proprietary estoppel. The lack of written formality for the disposal of an equitable interest in land (CPO s. 5(1)) was not a problem ‘where constructive trust and proprietary estoppel overlap’ ([471]).

The 1985 agreement was the assurance and payment of the HK$ 1 million was the detrimental reliance ([473]).

Adverse possession

As mentioned above, the alternative adverse possession claim also succeeded ([488]).

Michael Lower

Part performance: contract unregistered and in breach of New Grant

May 6, 2013

In Silver Hope Ltd v Chan Kwai Wah Alice ([2013] 1 HKLRD 823, CFI) W had entered into a contract to purchase the property in 1996. The contract amounted to a breach of the New Grant covenants concerning the property. W paid the entire purchase price and entered into possession. The contract was stamped but not registered. In 2012, P obtained a charging order in respect of the property and later an order for sale. W now sought to be joined as a defendant to the proceedings and to stay the execution of the order. To succeed, W needed to show that there was an arguable case that he had an equitable interest in the property. W was met by two arguments. First, that the contract was unlawful and so void (because it was formed in breach of covenant). Second, that the charging order (which had been duly registered) had priority over the unregistered contract.

W succeeded in being joined as a party. He was not relying on the contract but on the equity that arouse out of his having paid the entire purchase price and gone into possession (presumably this is on the basis of the doctrine of part performance). Hence, it could be argued that W would not need to plead the unlawful contract (see Tinsley v Milligan).

As for registration, after Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd, it is clear that the court can look at the substance of the competing interests (and then consider the impact of registration or a failure to register). This could be seen as a contest between two equitable interests (Hong Kong Civil Procedure 2012 50/9A/17). Thus, it is arguable that W’s equitable interest has priority over the charging order notwithstanding the failure to register it.

SMS as a written memorandum of a contract?

May 15, 2012

In Distinct Fortune Ltd v Hyndland Investment Co Ltd ([2011] 1 HKLRD 817) P agreed to buy property in Tsim Sha Tsui from D. P signed a provisional agreement and paid earnest money. D did not sign a provisional agreement but preferred to sign a formal agreement prepared by the parties’ respective solicitors. The parties’ solicitors then corresponded with each other to negotiate the terms of the formal agreement. All correspondence was ‘subject to contract’. There were two or three telephone conversations between the parties’ solicitors and between the parties’ agents in which the terms of the formal agreement were settled.  D’s representative sent P’s representative a text message to say that P would tell his solicitors to go ahead with the deal. The SMS read ‘Kim said he’ll give instruction to pig to go ahead with the deal’. Kim was a director of D and ‘pig’ was the solicitor acting for D. The next day, D’s solicitors sent out an engrossment of the formal agreement for signature by P. The engrossment was sent out under cover of a letter marked ‘subject to contract’.  P signed the formal contract and returned it to D’s solicitors with a cheque for a further deposit. D’s solicitors returned the contract and the deposit payments since D had decided against proceeding with the transaction. P sought specific performance and D countered that there was no written contract or memorandum to satisfy section 3 of the Conveyancing and Property Ordinance. P relied on the SMS message  (read together with the engrossment of the formal agreement) as the memorandum. Alternatively it argued that returning the signed formal agreement together with a cheque for the deposit amounted to part performance. D succeeded in having the action struck out on the basis that there was neither a memorandum nor part performance.

There was no memorandum. The SMS  could not simply be read together with the formal agreement to form a memorandum since the formal agreement was accompanied by a ‘subject to contract’ letter. The reference in the SMS to the intructions to be given to D’s solicitor would include the instruction to send the agreement with a ‘subject to contract’ letter. The SMS merely referred to ‘the deal’ and so there was not enough detail to forge a link with the engrossed formal agreement. Another problem was that the formal agreement was not in existence at the time of the SMS. Further, the SMS could not be a memorandum since it did not in any sense purport to be signed by D’s representative.

Nor was there part performance; the acts of submitting the signed formal agreement with a deposit were acts preparatory to a contract and not part performance of it.

The case for saying that an oral agreement had been concluded was very weak. The solicitors had been careful to label all of their letters to each other ‘subject to contract’ and to declare that their respective clients were not to be bound by anything said in the correspondence until both parties had signed a formal agreement. Properly understood, the conversations between the parties had not crossed the boundary between negotiations and a concluded contract. The court would not have struck out the action on this basis, however, since a full consideration of the facts would be necessary.

Michael Lower

Oral agreement to surrender

April 23, 2012

Where tenants stay in possession after the time when they should have left the property in accordance with an oral agreement to surrender (unenforceable for failure to comply with s. 3(1) of the Conveyancing and Property Ordinance) there is no grant of a new periodic tenancy giving rise to a surrender by operation of law unless this accords with the substantive result intended by the parties. Whether the tenant can rely on the oral agreement (eg to assist its claim to recover the deposit paid under the lease) depends on whether or not, in substance, it would be seeking to enforce the oral agreement.

In Take Harvest Ltd v George H Liu ([1993] A.C. 552, PC) L granted a one year lease to T. The lease provided that the deposit would be repaid to T on the expiry of the term or the sooner determination of the term. The parties orally agreed that the lease would be surrendered on 30 November. Before then, L changed his mind and told T that the lease must continue. In the event, T sought to give back possession on 10 December but L refused to accept the surrender. T claimed the return of the deposit and L claimed for rent as if the lease had continued.

T had succeeded in the Hong Kong courts on the basis that when T stayed in possession after the 30 November there was the (fictitious) grant of a new periodic tenancy that did not need to be in writing because of section 6(2) of the Conveyancing and Property Ordinance. Since such a tenancy would be inconsistent with the preceding tenancy, the latter came to an end by virtue of a surrender by operation of law (for which writing is not needed). The Privy Council rejected this. There could only be a finding of the grant of a periodic tenancy and consequent surrender by operation of law if this was the substantive result intended by the parties. It was not; they had intended to agree only on a surrender.

T claimed in any event that it could rely on the oral agreement to allow it to recover the deposit. It would point to the express term in the lease entitling it to recover the deposit. It would only need to rely on the oral agreement to counter the landlord’s response that the lease had not yet come to an end. The tenant failed in this regard too; in substance it would be seeking to enforce the oral agreement. This was not like the case where a buyer pulled out of an oral contract and the seller retained the deposit in accordance with the terms of the oral agreement; in such a case, the seller would not be seeking to enforce the contract.

L had not pleaded section 3 until the matter came before the Privy Council. The Privy Council gave leave to alter the pleadings in this regard but also allowed T to plead part performance and estoppel for the first time. The matter was remitted to the District Court.

Gift in contemplation of marriage and resulting trust

December 14, 2011

In Lai Chung Ming v Fung Kar Luen Candy ([2011] HKEC 1633) P and D intended to get married. To provide his much younger intended bride with security, P transferred the title to a flat which was to be the matrimonial home to D. The relationship broke down before the marriage could take place and P asked D to re-convey the title back to him. D orally agreed with P to transfer the property back to him in return for $80,000 to cover her wasted expenses in preparing for the wedding. P made the payment but D refused to convey the title back to P. P sought to recover full legal and beneficial ownership. He argued that no gift had been intended and that the property was held on resulting trust for him. In the alternative, he sought to enforce the oral agreement relying on his payment of $80,000 as an act of part performance. He succeeded on both grounds and obtained an order vesting the legal and beneficial interest in the property in him.

Estoppel and the Statute of Frauds

November 14, 2011

An oral guarantee that results in the extension of credit or some other action or forebearance does not give rise to an estoppel in the absence of some further assurance and some further detriment than are inherent in the guarantee contract itself.

In Actionstrength Ltd v International Glass Engineering In.GL.en SpA ([2003] UKHL 17, HL) C was D1’s sub-contractor. D1 was the main contractor under a contract to build a factory for D2. D1 was in arrears with the payments due to D2 under the sub-contract. C alleged that there was a meeting at which D2 assured C that payments due to D1 would be withheld from D1 and used to pay C. This was disputed but for the purposes of D2’s claim to have the action struck out it was assumed that C’s account of the facts was accurate. D2 argued that the promise would amount to a guarantee and would be unenforceable because of the failure to comply with section 4 of the Statute of Frauds. C argued that, in reliance on D2’s assurance, it had continued to perform its obligations under the sub-contract for a further month. C argued that this gave rise to an estoppel; it would be unconscionable for D2 to resile from its assurance. C failed. This was a simple case of an unenforceable guarantee; there was no additional assurance / detriment to give rise to an estoppel. There was no independent equity subsisting alongside the contract. C had refused to rely on part performance.

Lord Bingham hinted that the outcome might have been different if D2 had made any payment to C pursuant to the alleged assurance (para 9).  Lord Hoffman made the point that equity can intervene where there have been subsequent acts of part performance (paras. 22 – 24). But part performance relies on the distinction to be drawn between the contract, on the one hand, and performance. It cannot intervene to make enforceable  a fully executory contract that does not comply with statutory formalities. It is the later performance that gives rise to the equity.  Giving credit is central to the guarantee arrangement. Treating it as giving rise to an estoppel would mean that estoppel could be invoked in the case of any guarantee (para. 26). Lord Clyde thought that where there was need for some ‘additional encouragement, inducement or assurance’ (para. 35).

Part performance: do the relevant acts have to point to a contract concerning land?

October 14, 2011

In Re Gonin ([1979] Ch. 16) was decided three years after Steadman v Steadman. During the Second World War, Miss G had acceded to her parents’ request to return and live with them and look after them. She alleged that there was a contract under which, in return, they had agreed to transfer the property to her when they no longer needed it. The father died and, years later, the mother. Miss G claimed to be entitled to the house under the terms of the alleged contract and in reliance on the doctrine of part performance (the services rendered by Miss G to her parents being the acts). Walton J. noted that the House of Lords in Steadman had been evenly split (had spoken ‘with divergent tongues’) on the question as to whether or not the act in question had to refer to a contract concerning land or could refer to any contract at all. He felt at liberty to choose between the approaches and preferred the stricter view that the act should point to a land contract. Strictly speaking, this was obiter, since he did not think that the act pointed to the existence of any contract at all (Miss G was simply agreeing to return to live with her parents).

Miss G, as administratrix of her mother’s estate, sought to rely on the rule in Strong v Bird. This failed too because there was no donative intent. Walton J was prepared to accept previous authority to the effect that the rule does apply to administrators (though he inclined to the view that it should not). This, perhaps, was a suitable case for invoking the doctrine of proprietary estoppel.

Michael Lower

No proprietary estoppel where weak evidence of promise

September 23, 2011

Yiu Lin Tei v Lui Pui Lan ([2011] HKEC 1154) concerned a claim by a mistress that she had an equitable interest in property owned by the estate of the deceased that had been their family home. She alleged that he had promised to transfer the ownership of the property to her and that she had acted detrimentally on the expectation created by that promise. The court decided, on the balance of probabilities that there had been no promise. This was fatal to the proprietary estoppel claim. The plaintiff also claimed that there was an agreement to transfer the property to her made enforceable by part performance. The court decided that there had probably not been an oral agreement.

Proprietary estoppel: Dillwyn v Llewellyn

May 3, 2011

A donor can be bound by an assurance that land has been given when the donee, with the donor’s knowledge, spends a substantial sum of money on the land.

In Dillwyn v Llewellwyn ((1864) 4 De G.F. & J. 517, 45 E.R. 1285, HL) a father gave his son possession of the land and a memorandum that he had made the gift so as to provide a dwelling-house for him. The son spent a large sum to build a house on the land. The father died. Was the gift of the land effective notwithstanding the failure to abide by the proper formalities to transfer title in the land to the son? Was this a case of an imperfect (failed) gift so that the land belonged to the father’s estate?

Lord Westbury held that the freehold in the land had been transferred to the son:

‘So if A puts B. in possession of a piece of land and tells him, “I give it to you that  you may build a house upon it” and B. on the strength of that promise, with the knowledge of A., expends a large sum of money in building a house accordingly, I cannot doubt that the donee acquires a right from the subsequent transaction to call on the donor to perform that contract and complete an imperfect donation which was made.’ (at 522)

The analogy with part performance is alluded to and there is an attempt to look at this in orthodox contractual terms but this was a gift.

Receipt of purchase price and delivery of possession are the clearest possible acts of part performance

January 15, 2011

Delivery up of possession and receipt of the purchase price are the clearest possible acts of part performance. The equitable interest created by a contract is not defeated by a successor in title of the seller who inherits the seller’s estate. Chinese customary law does not trump the system of registration contained in the Land Registration Ordinance.

In Wu Koon Tai v Wu Yau Loi ([1996] 2 HKLR 477, PC) a lease of land in the New Territories was granted to Wu Cheong U. He died and, in 1934, his son sold the land. In accordance with Chinese customary law the sale was effected through a document signed by neither party but by a middleman. The purchaser paid the price and went into possession. He and his successors remained in possession. The successor-in-title of the grandson of the seller claimed to be entitled to the land. Among other grounds relied on were the fact that there was no contract for sale satisfying CPO s.3(1) (the document had not been signed by the parties or their authorised repesentative). Lord Browne-Wilkinson held (at 483) that payment of the purchase pice and giving possession were the clearest acts of part performance. Thus there was a specifically enforceable contract. The equitable interest so created was binding on the successor-in-title of the seller’s grandson since he was a volunteer. The successor-in-title’s claim to possession failed. The 1934 sale was effective. In the course of argument the argument had been raised that failure to register the sale in 1934 did not matter since s.13 of the version of the New Territories Ordinance then in force allowed the court to recognise Chinese customary law and this did not require registration. This argument failed. Chinese customary law did not ‘trump’ the system of Land Registration in Hong Kong.