Archive for the ‘promissory estoppel’ Category

Estoppel where the family home is owned by a company

April 26, 2019

 

The inference of a trust when the family home is owned by a company controlled by a spouse
In Prest v Petrodel Resources Ltd the UK Supreme Court established that English family law (specifically section 24 of the Matrimonial Causes Act) does not give the court any special power to pierce the corporate veil in the case of disputes concerning the family home owned by a company controlled by one of the spouses.

In an important passage of his judgment, however, Lord Sumption suggested that, ‘in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company.’ This beneficial interest would count among the spouse’s assets when dealing with ancillary relief.

Other forms of equitable intervention
There might be cases, though, where the courts do not feel able to infer the existence of a trust but where the spouse (or co-habitee) who owned and controlled the company has assured the other that they have or will have an interest in the family home.

On the face of it, the person giving the assurance has no legal or equitable interest in the property. It would seem to follow that there is no basis on which the recipient of the assurance can claim an interest in the family home.

How might equity intervene to protect the expectations of the recipient of the assurance in these circumstances? In 2008, in Luo Xing Juan v Hui Shui See, the Hong Kong Court of Final Appeal considered this question.

The facts in Luo Xing Juan v Hui Shui See

Luo Xing Juan (‘L’) and Hui Shui See (‘H’) co-habited in a property owned by Glory Rise Ltd (‘Glory Rise’). Glory Rise had acquired the property as an investment. The company had two shareholders when incorporated but subsequently H became the sole shareholder and director.

H asked L to marry him and she agreed. H assured L that he would give her a 35% interest in the property when he was in a position to do so. In the meantime, he transferred a 35% shareholding in Glory Rise to L.

H died before he was in a position to give effect to his promise to make L a co-owner of the property. H’s estate sought to revoke L’s licence to occupy the property. L responded with claims to an interest in the property based on the common intention constructive trust and proprietary estoppel.

The corporate veil rules out the use of the common intention constructive trust and proprietary estoppel

L’s claims failed because there was no reason to pierce the corporate veil: H had given an assurance about property owned not by him but by a third party, Glory Rise. Unlike Prest, it could not plausibly be suggested that the company held the property as trustee for H.

Promissory estoppel as the solution
L successfully resisted the company’s attempt to evict her by relying on promissory estoppel. H’s assurance was re-interpreted so that it related to the exercise of his powers as controlling shareholder of Glory Rise.

In effect, H had assured L that he would not allow his powers as controlling shareholder to be used to evict her until she had received the 35% beneficial interest in the property that she had been promised.

The Court of Final Appeal ordered that Glory Rise should be wound up on the just and equitable ground. The property was to be sold and L was to vacate it once a buyer had been found. L would then receive 35% of the net sale proceeds.

This solution has the clear merit of both respecting the corporate veil and of giving practical (and just) effect to H’s assurance and L’s detrimental reliance on it.

Promissory estoppel: no proprietary effect

Ribeiro PJ, in the main judgment in Luo Xing Juan, emphasised that promissory estoppel was a mere equity; it was not proprietary. It conditioned H’s exercise of the voting power connected with his controlling stake in Glory Rise and, indirectly, deferred Glory Rise’s ability to evict L.

The blurring of the distinction between proprietary and promissory estoppel

It is not surprising that promissory estoppel should be invoked so as to defer a licensor’s right to evict a licensee. Maharaj v Chand had already shown the way on this; promissory estoppel was used to prevent the man who was the legal owner of the family home from evicting his wife.

On the other hand, it is very noticeable that, in considering the relief to be granted, the Court of Final Appeal was guided by the classic English proprietary estoppel authorities (Crabb v Arun District Council; Pascoe v Turner; Gillett v Holt; Campbell v Griffin and Jennings v Rice). The Court of Final Appeal clearly intended that L’s relief should be designed with the exercise of the proprietary estoppel remedial discretion in mind.

Promissory estoppel was used, in effect, to protect L’s expectation of a 35% interest in Glory Rise’s property. This is surprising because it seems to contradict the proposition in Coombe v Coombe that promissory estoppel cannot be used as a cause of action.

The interplay between promissory estoppel and winding up on the just and equitable ground

The order was that Glory Rise should be wound up on the just and equitable ground. The substratum of Glory Rise was as ‘the intended vehicle for holding the Property as the matrimonial and family home of the deceased, Miss Luo and [Miss Luo’s daughter]’ (Ribeiro PJ at [74]). This substratum disappeared with H’s death.

This prompts the reflection that where, like L, the plaintiff is a shareholder in the company then a winding up petition (or, perhaps, unfair prejudice proceedings) are an option. Further, they represent an option which is available independently of any estoppel claim.

Limited to cases where the recipient of the assurance is a shareholder?

The Luo Xing Juan promissory estoppel approach is available even in cases where the recipient of the assurance is not a shareholder in the company that holds the property. Thus, in Hong Kong Hua Qiao Co Ltd v Cham Ka Tai (later upheld by the Hong Kong Court of Appeal), the Luo Xing Juan approach was adopted in a case with similar facts.

L and C began to co-habit in a property owned by a company in which L was effectively the sole shareholder. Each was already married when the relationship began.

L assured C that she would be able to live in the property for the rest of her life. L and C co-habited for five years before L died intestate. His wife and son sought to evict C from the property.

C was not a shareholder in the company that owned the family home, although the assurance concerned both the family home and shares in the company that owned it. Winding up would have been of no use to the recipient in this case.

Deputy Judge Saunders, relying on Luo Xing Juan, decided that L’s promises that C could live in the property for the rest of her life were ‘enforceable by way of promissory estoppel’ ([115]).

On relief, Deputy Judge Saunders, relying on Luo Xing Juan, said that C was entitled to an order transferring the legal title of the property to her ([118]). Again, this seems to have been a proprietary estoppel case in all but name.

Limited to family home cases?
Luo Xing Juan and Hong Kong Hua Qiao each concerned the use of promissory estoppel to establish a claim to the family home.

In Hong Kong Hua Qiao, Deputy Judge Saunders drew attention to the fact that both cases involved couples living together as man and wife ([93]) without explaining the significance of this fact. In Chan Sung Lai v Chan Sung Lim Paul, Deputy Judge Saunders (at [128]) expressed his uncertainty as to whether the doctrine could apply as between father and son.

Clearly, the distinction drawn in Thorner v Major between this context and the commercial context is likely to be relevant if there is any dispute as to the meaning of any words or conduct said to constitute an assurance.

Luo Xing Juan and Hong Kong Hia Qiao, however, were not concerned with questions of interpretation. If context was relevant it was for some other reason.

Deputy Judge Saunders may have intended to indicate that this approach to promissory estoppel was more likely to be used in the family home or ‘domestic’ context.

It may be that the Luo Xing Juan promissory estoppel will turn out to be confined to cases with the very specific features of these cases; it may be limited to cases where a couple are living together as man and wife (whether or not they are married) in a property owned by a company controlled by one of them (who gives the relevant assurance).

Limited to company owned by a single shareholder?

In both Luo Xing Juan and Hong Kong Hia Qiao, the company that owned the family home was solely owned by the maker of the relevant assurance. In Luo Xing Juan, H bought out his sister’s 20% minority stake around the same time as he transferred the 35% shareholding to L.

This raises the question as to whether the doctrine can only operate where the maker of the assurance is the sole shareholder. There are arguments in principle in favour of either possible answer to this question.

On the one hand, the relevant assurance is an assurance as to the exercise of voting control. There is no need for a shareholder to own all of the shares in a company to have the power to dictate the outcome of the board decision on any question.

On the other hand, if there are minority shareholders, other than the recipient of the assurance, then the effect of the use of the doctrine on their interests would need to be taken into consideration. They may view the property as an investment and in some market conditions might prefer the company to retain ownership.

This may seem a purely theoretical question but in Luo Xing Juan, H’s sister retained a 20% stake in the company for a few months after the transfer of the 35% shareholding to L. Had H died during those few months then this question would have had practical importance.

Limited to cases where the recipient of the assurance is in occupation of the relevant property at the time of the proceedings?

In Luo Xing Juan and Hong Kong Hia Qiao, the company that owned the family home sought to evict the recipient of the assurance who was in occupation of the property. Promissory estoppel is invoked, in the first place, as a defence against this attempted eviction.

Is this an essential element of the Luo Xing Juan doctrine? The company’s right to possession is not taken away but is conditioned by the estoppel. This accords with a traditional understanding of promissory estoppel and, as noted earlier, suggests a continuity with Maharaj v Chand.

Limiting the Luo Xing Juan approach to cases like this would be consistent with the idea, just discussed, that its use might be limited to family home cases.

A more general relaxation of the distinction between promissory and proprietary estoppel?

The approach in Luo Xing Juan challenges what had seemed to be a well-established distinction between proprietary and promissory estoppel in ways that I have indicated.

I have considered the possibility that the Luo Xing Juan approach is only intended to take effect in certain circumstances. I have considered what those circumstances might be.

It is possible, however, that the Court of Final Appeal intended to establish a more general proposition; it may be that the judgment intended to minimise or even abolish altogether the distinction between proprietary and promissory estoppel. This would explain why proprietary estoppel principles and authorities were applied so readily.

On the other hand, there is no express indication in any of the judgments to indicate that this was the intention; one would have expected that an intention to restructure the law in this way would be clearly flagged up and that some justification would be offered for it.

In paragraph [54] of his judgment, Ribeiro PJ raises the question of the relationship between promissory and proprietary estoppel:

‘The doctrine of estoppel continues to represent a developing area of the law and aspects of the applicable principles are subject to debate. Thus, there is discussion as to the extent to which promissory estoppel and proprietary estoppel overlap, with a body of opinion inclining towards the view that there is no real difference between them. In the present context, proprietary estoppel is inapplicable because the deceased, not being the owner of the Property, was not in a position to confer on Miss Luo a proprietary interest in it. However, as Maharaj v Chand establishes, this does not prevent recourse to promissory estoppel. The doctrines therefore differ at least to that extent. However, it is at the same time clear that many of the constituent elements of the two forms of estoppel are shared and where that is so, authorities on proprietary estoppel provide guidance in cases involving promissory estoppel.’

This passage leaves the question in the balance: there is substantial overlap but some (unspecified) difference. There is no suggestion here of an intention to effect radical change in the law.

Conclusion
When a limited company holds the title to the family home, assurances concerning ownership of the home given by a director or shareholder cannot directly limit the rights of the company nor give rise to a common intention constructive trust or proprietary estoppel claim.

Luo Xing Juan created the possibility that such an assurance could condition the exercise of that shareholder’s voting rights so that they could not be exercised in a way that is inconsistent with the assurance that has been given. This limitation is presented as a form of promissory estoppel.

The Court of Final Appeal went further when it decided that the effect of the estoppel was, in effect, to require the company to make good on the assurance given by the controlling shareholder.

It is not clear whether this promissory estoppel has general application or applies only in limited circumstances. If the latter, the circumstances in which the estoppel applies are not clearly defined.

Michael Lower

Oral variation of contract despite clause requiring variations to be in writing

July 27, 2016

In MWB Business Exchange Centres Ltd v Rock Advertising Ltd ([2016] EWCA Civ 553, CA(Eng)) Rock was the licensee of business premises managed by MWB. Rock fell into arrears with the payments due under the licence. MWB brought these proceedings to recover the arrears. Rock’s managing director had had a telephone conversation about the arrears with MWB’s credit controller. They reached an oral agreement to the effect that Rock could pay a reduced amount for a period and then pay a larger amount later so that by the end of the period the arrears would have been cleared. It was found as a fact that the agreement had been reached and that the credit controller had authority to conclude the agreement on behalf of MWB. MWB received the first payment under the revised schedule but then wanted to revert to the payment arrangements in the original contract. The main question was whether the oral agreement was binding on MWB.

At first instance, Rock failed because the licence agreement contained the following clause:

‘This licence sets out all of the terms as agreed between MWB and the licensee. No other representations or terms shall apply or form part of this licence. All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.’

It was held at first instance that this precluded the possibility of an effective oral variation. Rock’s appeal against this conclusion succeeded. Notwithstanding the clause, the oral agreement to vary the payment terms was contractually binding. The English law on these clauses was considered in depth by the English Court of Appeal in April 2016  in Globe Motors  Inc v TRW Lucas Varity Electric Steering Ltd ([2016] EWCA Civ. 396, CA (Eng)). This respects the freedom of the parties to a contract to agree new terms (Kitchin LJ at [34]).

MWB also argued that Rock had not given any consideration for the agreement to vary the payment terms. This argument, too, was the subject of extensive comment in the judgment of Kitchin LJ and was the principal focus of Arden LJ’s judgment. MWB argued that the rule in Pinnel’s Case and the judgment in Foakes v Beer established that an agreement to accept a partial payment of a sum due under a contract was not binding unless some new consideration had been given. The judge at first instance had this in mind but thought that the arrangement did secure enough of an advantage for MWB for there to be consideration. The Court of Appeal agreed with this conclusion. The agreement would avoid a commercially harmful void period for the property and at least ensured that MWB got some of what was due to it.

The Court of Appeal also considered when the contract to revise the licence terms took effect. Kitchin LJ was of the view that the agreement was formed when the first payment was made and the promise to make further payments in accordance with the revised payment schedule was given ([49]). Arden LJ thought that this might be a collateral unilateral contract:

‘meaning that, collaterally to the licence, for so long as Rock was entitled to and did occupy the unit and paid the licence fee as renegotiated, MWB would be bound on payment of the initial £3,500 to accept the deferral of the arrears in accordance with the variation agreement. ‘ (Arden LJ at [89]).

Rock succeeded on its arguments as to the effectiveness of the oral contract. The Court of Appeal also considered, obiter, whether equity might have a part to play. Could promissory estoppel, for example, prevent MWB from going back on the agreement? As a result, there is a useful survey of the law. Kitchin LJ’s judgment contains this summary:

‘Drawing the threads together, it seems to me that all of these cases are best understood as illustrations of the broad principle that if one party to a contract makes a promise to the other that his legal rights under the contract will not be enforced or will be suspended and the other party in some way relies on that promise, whether by altering his position or in any other way, then the party who might otherwise have enforced those rights will not be permitted to do so where it would be inequitable having regard to all of the circumstances. It may be the case that it would be inequitable to allow the promisor to go back upon his promise without giving reasonable notice, as in the Tool Metal case; or it may be that it would be inequitable to allow the promisor to go back on his promise at all with the result that the right is extinguished. All will depend upon the circumstances. It follows that I do not for my part think that it can be said, consistently with the authorities, including, in particular, the decisions of the House of Lords in Foakes v Beer and this court in In re Selectmove , that in every case where a creditor agrees to accept payment of a debt by instalments, and the debtor acts upon that agreement by paying one of the instalments, and the creditor accepts that instalment, then it will necessarily be inequitable for the creditor later to go back upon the agreement and insist on payment of the balance. Again, all will depend upon the circumstances.’ ([61])

Here Rock did not suffer any detriment as a result of the speedy change of mind by MWB. The promissory estoppel defence would have failed ([63]).

Michael Lower

 

Promissory estoppel: Hong Kong Hua Qiao in the Court of Appeal

November 18, 2015

In Hong Kong Hua Qiao Co Ltd v Cham Ka Tai ([2015] HKEC 394, CA) L co-habited with C from 1992 or 1993 until L’s death in 1997. They had been in an intimate relationship from 1988 or 1989. L gave C very clear assurances that she would be the owner of two flats and that she would have 300 shares in Hong Kong Hua Qiao Co Ltd (‘the Company’). The Company was to be used as the vehicle for investment in small houses by L, C and another investor. L gave C the title deeds to one of the properties (‘the Property’) but there was no formal transfer to her. Title to the property was in the name of the Company, not in L’s name. At L’s request, draft share transfer documents were sent to C but L died before any further action could be taken.

At first instance, the Court ordered title to the Property and the 300 shares to be transferred to C. This was on the basis that C had established the essential elements of a promissory estoppel claim, applying the law in Luo Xing Juan v Estate of Hui Shee See. The Court of Appeal (Kwan JA delivering the judgment) upheld the first instance decision. In the process, it commented on some of the essential elements of this type of ‘hybrid’ proprietary / promissory estoppel claim.

There was no doubt that the relevant assurances had been given clearly and repeatedly. The substance of what L intended was perfectly plain ([26]).

On the question of reliance, there was no ‘but for’ test. It is enough for the assurances to be among the factors that C relied upon in her later conduct. If the promises were made, and there was conduct by C of such a nature that inducement may be inferred, then a rebuttable presumption arises that C relied on the promises ([30] referring to Wayling v Jones).

Reliance and detriment are often intertwined ([31]). At first instance, the court pointed to the fact that C left her husband and co-habited with L. She contributed a substantial sum of money to the maintenance of the Property and their joint living expenses. She had also worked for the Company without any salary. There were clear acts of detrimental reliance. Some of these acts straddled the periods before and after the making of the promises but this did not mean that they were not acts of detrimental reliance when they continued after the making of the promises ([42]). Nor did this fact mean that the relief should be reduced; after the assurances had been given, continuing with the same course of conduct could amount to detrimental reliance ([44]).

On the approach to be taken to the design of the relief:

‘Whilst the court does not grant relief beyond the minimum necessary to do justice, this does not require the court to be parsimonious although it recognises justice must be done to the defendant. Where the equity is raised by promissory estoppel in relation to a clear-cut promise that can readily be given effect, the court’s natural response is to fulfil the claimant’s expectations, subject to the remedy not being disproportionate to the detriment which its purpose is to avoid. If realising the claimant’s expectations in full would result in such a disproportion, the court will seek to satisfy the equity in a more limited way, while not abandoning its attempt to fulfil those expectations to an appropriate degree.’ ([44] referring to Luo Xing Juan v Estate of Hui Shee See at [70]).

Here it was appropriate to give full effect to the clear promises that had been made ([44]).

There was an attempt to argue that C had enjoyed the ‘countervailing benefit’ of living in the Property. This was held to be a circular argument, presumably on the basis that she was living there because she already had some kind of equitable right to do so (perhaps by analogy with an equitable interest under a common intention constructive trust).

Michael Lower

The common intention constructive trust: post-acquisition statements in one’s own interest. Promissory estoppel: the limits of Luo Xing Juan v Estate of Hui Shui See

August 19, 2015

In Chan Sung Lai v Chan Sung Lim Paul ([2015] HKEC 1366) a father and his son (the plaintiff) held two properties as investments. Flat A was held by them as joint tenants and flat B was held by them as tenants in common in equal shares. A dispute arose as to the beneficial ownership of the properties. The father sought to establish that the properties were held on trust for him as sole beneficial owner. He relied on a declaration that he made long after the purchases to the effect that he was the sole beneficial owner. Deputy Judge Saunders held that this post-acquisition statement in his own interest was inadmissible (Shepherd v Cartwright followed in Hong Kong in Overseas Trust Bank v Lee See Ching Jong) ([88] – [90]).

The son sought a declaration that there was a common intention constructive trust so that flat A was held on trust for him as sole beneficial owner and that flat B was held on a beneficial joint tenancy. He relied on an alleged promise by his father that he would be the sole beneficial owner on his father’s death. This failed: there was clear evidence to show that the beneficial entitlement followed the legal title ([122] – [126]).

The son also sought to rely on promissory estoppel as articulated by the Court of Final Appeal in Luo Jing Xuan v Estate of Hui Shui See. This failed. The relationship was different: the parties were father and son (not an engaged couple); they had not used a company to hold the title. Where was the legal right the enforcement of which would be extinguished / suspended? No such right could be identified. In any event, there was no sufficiently clear representation, nor any evidence of detrimental reliance ([127] – [135]).

Michael Lower

Promissory estoppel: property owned by company controlled by the promissor

October 24, 2013

In Hong Kong Hua Qiao Co Ltd v Cham Ka Tai ([2013] HKEC 1182, CFI) L gave C (the unmarried partner with whom he co-habited) the title deeds to a property owned by a company controlled by him. At the same time, he told her that he would give her the property when he had redeemed the mortgage over it and that he would give her 300 shares in the company that owned the property. He had a transfer form prepared in respect of the shares. He died intestate as a result of an accident a year or so later.

C claimed to be entitled to the property and the shares. She based her claim on proprietary estoppel. The court dealt with the case as being one of promissory estoppel. It referred to the Court of Final Appeal’s decision in Luo Xing Juan v Estate of Hui Shui See and adopted the same approach.

The necessary pre-existing relationship was present in that L had sufficient control over the company that owned the property to cause it to exercise its ownership rights in a manner adverse to C (to evict her) ([92]). L made a clear promise to C that he would give her the property and shares ([101]). C had relied on the promise by remaining with L and separating from her husband ([105]). It would now be unconscionable for L (or his estate) to act inconsistently with that promise ([106]).

The court ordered that legal title to the property and the promised shares should be transferred to C ([118]).

It is interesting to note that the shares were also dealt with using promissory estoppel though there was no reason why proprietary estoppel could not be invoked.

The fact that the property was owned by the company and not L was held to be fatal to a claim based on a common intention constructive trust ([110]).

C also claimed to be entitled to another property owned by L. This too was considered under the promissory estoppel analysis but it was found that the promise made was equivocal and did not give rise to an estoppel. The facts did not support C’s common intention constructive trust claim in respect of this second property owned by L personally ([114]).

Michael Lower

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

June 11, 2013

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

Waiver by estoppel

June 27, 2012

In European Asia (Hong Kong) Investment Ltd v Wong Shun On Anthony ([2010] HKEC 747) W’s father had agreed to sell a flat to E. The father died intestate between contract and completion (in respect of which time was of the essence). Completion had been due to take place on 28 January 2008. On 8 January, E’s solicitors wrote a letter to the effect that their client was prepared to defer completion for six months to allow time for letters of administration to be obtained. The letter went on to say that E would entertain a request for a further extension if extra time was still needed. The father’s solicitors replied the next day to say that they had not yet received any instructions. Not having heard any more by 8 October, E alleged that the agreement had been repudiated and sought the return of the deposit. W having obtained letters of administration, his solicitors responded that the agreement was still in existence and that the letter of 8 January had waived the stipulation that time was of the essence. W gave E 60 days’ notice to complete the agreement.

The court had to decide whether the letter of 8 January had simply deferred the completion date by six months (with time remaining of the essence) or whether it had waived the time of the essence stipulation. The court decided the case on the basis that the letter and W’s subsequent reliance on it gave rise to a waiver by estoppel, similar to, perhaps even the same as, a promissory estoppel.  Time was no longer of the essence. E had repudiated the agreement by not completing within the sixty day period set by W. W was entitled to forfeit the deposit and to sell the property free from any claim by E.

Promissory estoppel: need for certainty

June 25, 2012

In Chekiang First Bank Ltd v Sino Legend International Enterprise Ltd ([2002] HKEC 264) a mortgagee sought possession of various properties over which it had a charge. The mortgagors claimed that a manager of the mortgagee had assured the mortgagors that they could handle the sale of the properties themselves provided the proceeds of sale were paid into the borrower’s account. They argued that as they had gone to the time and trouble of looking for buyers in reliance on this promise, the mortgagee was estopped from obtaining possession. This argument failed. The promise in promissory estoppel must be precise, clear, unambiguous. There was a lack of precision or certainty here. The limits on the price to be obtained and the length of time available to the borrowers to find buyers were not known (ie it was not clear how long the mortgagors were entitled to hold out in the hope of getting a better price than the mortgagee might obtain).

It is possible for a mortgagee to be bound by a collateral contract not to enforce its remedies but any conditions in this agreement must be strictly complied with. Even if the alleged promise had been made, the mortgagors had not complied with its terms since they had received deposits but not paid them into the borrower’s account.

The borrower also argued that the court had a discretion to postpone making an order for sale for a short time if there was a prospect that the indebtedness would be paid off in full. There was, however, no cogent evidence here to show that the loan could soon be paid off in full.

The borrower was concerned that the mortgagee would not get a good price for the properties but the court pointed out the mortgagee’s duty to get the best price reasonably obtainable.

Brikom Investments Ltd v Carr: promissory estoppel or a contractual approach?

January 19, 2012

In Brikom Investments Ltd v Carr  ([1979] Q.B. 467, CA (Eng)) B was the owner of some blocks of flats let at a rack rent. It offered long leases of these flats to the tenants. It gave the people who took the long leases an assurance that it would meet the cost of repairing the roofs of the flats even though the leases required the tenants to contribute to the cost. B later went back on that assurance and sought contributions to the cost of the repairs in accordance with the terms of the leases. One of the defendants was an original tenant while the other two were assignees. All refused to pay the contributions sought. The English Court of Appeal unanimously decided that B could not recover from the tenants. Lord Denning MR based the conclusion on promissory estoppel and thought that the benefit of the estoppel passed to successors in title. The other two members of the Court of Appeal reached the same conclusion on the basis that either B’s assurance was part of a collateral contract or that B’s assurance amounted to a waiver that affected its right to recover both from the original tenant and from assignees.

No constructive trust or estoppel where the ‘agreement’ or ‘assurance’ is a mistake of which the other party is unaware

January 4, 2012

The fact that one party enters into a transaction under a misapprehension as to its terms does not give rise to any kind of equitable claim (based either on estoppel or constructive trust) to give effect to a transaction on the terms that had been anticipated by the mistaken party.

Crossco No 4 Unlimited v Jolan Limited ([2011] EWCA Civ. 1619, CA (Eng)) arose out of a demerger that split a group into two (a trading group and a property group) with each group to be separately owned and controlled. Late in the demerger negotiations it was agreed that a property in central Manchester would be transferred to the property group. It was agreed, however, that the trading group would continue as tenants of the ground floor. The trading group had not checked the terms of the relevant lease. It did not appreciate that the lease contained a break clause allowing the landlord to terminate the lease by giving notice. The property group knew of the break clause and was entitled to assume that the trading group also knew of it. Once the demerger had been completed, the trading group served notice to terminate the lease in accordance with the break clause.

The trading group argued that the parties had a mutual understanding that the trading group could use the ground floor and that this gave rise to a common intention constructive trust (based on the Pallant v Morgan equity) that made it unconscionable for the property group to evict the trading group. Alternatively, the initial understanding meant that the property group was estopped from exercising its rights under the break clause. The property group failed on both grounds. They had simply made a mistake. There was no agreement, common intention or assurance to prevent the property group from exercising its legal rights.

There was a difference of opinion in the English Court of Appeal as to the jurisprudential basis on which the decision in Banner Homes rested. The majority thought that it was bound by authority to hold that it was a common intention constructive trust. Etherton LJ thought that it was, rather, a case of a breach of fiduciary duty.