Archive for the ‘promissory estoppel’ Category

Proprietary estoppel and subject to contract: proposed lease of a farm

December 19, 2011

In James v Evans ([2000] 3 EGLR 1, CA (Eng)) H and E had agreed in principle for the grant by H to E of a lease of a farm. The discussions were ‘subject to contract’ and, in any event, section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 required the contract to be in writing. H had allowed E into possession of the farm pending completion of the lease. The negotiations failed and H’s estate sought to recover possession of the farm (H had died in the meantime). E argued that because he had gone into possession and worked on the farm, H was estopped from recovering possession. The English Court of Appeal found that there was no estoppel; this was a simple case of subject to contract negotiations that never came to fruition. Because they were subject to contract there could be no estoppel.

Wright J provided this summary of the ratio in Attorney-General of Hong Kong v Humphrey’s Estate (Queen’s Gardens) Ltd:

‘where negotiations for the sale of an interest in land were being carried on “subject to contract”, so that it was clear that the parties did not intend to be bound until the execution of the documents necessary to give legal effect to the transaction, and unless it could be shown that it was unfair or unjust or unconscionable for the vendor to refuse to proceed, no estoppel operated to prevent him from exercising his legal right to refuse to execute the document and to withdraw from the transaction.’ (per Wright J at 3)

There is an explanation of the fact that a solicitor generally lacks implied authority to bind his client to a contract.

 
 
 
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Promissory estoppel and permanent licence to occupy family home

December 15, 2011

In Maharaj v Chand ([1986] 3 W.L.R. 440, PC) M and C were an unmarried co-habiting couple. M applied to the Fiji Housing Authority for a lease of land under a scheme intended to make land available for married couples and built a house on it. M told C that this was to be the family home. In reliance on this she gave up her flat and used her savings to meet household needs. M abandoned C and sought vacant possession of the property. C argued that M had given her a permanent licence of the property and that he was estopped from seeking vacant possession. M argued that such a licence would be illegal since it would be a dealing with the property without the consent required by s.12 of the Native Land Trust Act. The Privy Council found for C. She could rely on promissory estoppel to defend herself from the possession proceedings. While a constructive trust would have contravened section 12, the purely personal licence arrangement did not.

Michael Lower

Proprietary estoppel

October 22, 2011

A brief account of the law of proprietary estoppel is available from Bepress by clicking here.

Crabb v Arun District Council

October 20, 2011

In Crabb v Arun District Council ([1976] Ch. 179) P owned land with access to a road owned by D at point A. P then decided to sell his land as two separate plots. This meant that he needed an extra right of access to the road from one of the plots at a different point. P and D agreed in principle that a right of access would be granted at a point labelled ‘B’, although details remained to be negotiated (as to whether the right would be an easement or licence and as to the payment required from P). Nevertheless, D erected a new substantial gate at point B. P, thinking he had the new right he needed, sold off the part of the land that would use the access at point A without reserving a right for the retained plot to be able to get to point A. P did this thinking that the retained plot had the benefit of the access at point B. D, however, changed its mind and blocked off the access at point B. P sought a declaration and injunction to the effect that D was estopped from denying that P had a right of access to the road at point B.

The English Court of Appeal agreed that B should have an easement starting at point B on the basis of proprietary estoppel. The agreement reached and D’s conduct in encouraging P to believe that he had the relevant right (eg by installing a permanent gate at point B) provided the necessary representation. The sale of the plot without the reservation of a right of way from point A was the detrimental reliance. It would be unconscionable for D to dispute that P had the right claimed. Given the loss and delay caused by D’s high-handed actions (that had prevented the land from being put to use in a way that would have benefited not only P but also, perhaps, the local economy) the appropriate award was an easement (rather than a licence) and an award of damages for the lost opportunity to profit from the land during the time that it was land-locked.

It is interesting to note that the assurance was effective in this case despite the parties’ awareness that the agreement in principle would need to be made firmer (by agreeing on details such as payment) and would need to be incorporated in a deed or contract. The subsequent conduct both illustrated that the parties’ thought that there was a firm agreement and amounted to a representation in its own right.

Lord Denning commented (at 187) on the fact that some estoppels (proprietary estoppel) can provide a cause of action. He also sought to explain that, in this case too, equity is modifying common law rights where conscience required it. Lord Scarman doubted that there was any benefit in distinguishing between proprietary and promissory estoppel (at 193).

Weekly review: 8 – 12 August

August 13, 2011

Land covenants: abandonment

Land covenants often impose restrictions on what can be built on land and the uses to which it can be put. Should a covenant created in the nineteenth century still govern the use of land today? This gives great weight to the intentions of the long-dead parties to the deed. The character of the area and the pressures on the use of the land may have changed greatly. Thus in Attorney-General of Hong Kong v Fairfax Ltd, the Crown sought to enforce a restriction in an 1862 Crown Lease of land near the centre of Hong Kong (Hing Hon Road and Bonham Road). Since the 1950s high-rise, high-density development had been the norm in the area. Nevertheless, in the 1990s, the Crown still sought to enforce a covenant that allowed only the building of ‘villa residences’, The Crown’s acquiescence over many years in other obvious breaches of the same covenant persuaded the Privy Council that it had abandoned the covenant and was no longer entitled to enforce it.

Gray and Gray point out that although the Upper Tribunal (Lands Chamber) (formerly the Lands Tribunal) in England has the power to discharge or modify restrictive covenants (Law of Property Act 1925, s. 84) it is often reluctant to do so. The covenants can often play a useful part in protecting ‘environmental amenity’ (Elements of Land Law, pp. 255 – 256). Property Prof Blog has a number of posts about the use of conservation easements in the US.

Land Covenants: who can benefit?

Privity of contract means that only the parties to a contract can enforce it. Section 26 of the Conveyancing and Property Ordinance provides a way of extending the range of parties to land covenants:

‘A person may take an immediate or other interest granted to him in respect of land or the benefit of any condition, right of entry, covenant or agreement granted to him over or in respect of land, although he may not be named as a party to the instrument.’

One practical use of this is as a way of passing the benefit of land covenants onto the owners of identified parcels of land (as one element of a building scheme). White v Bijou Mansions shows that the person relying on section 26 must show that he falls within ‘the scope and benefit’ of the covenant and not merely that enforcement would be useful to him. Section 26 does not abolish the law on privity and applies only to land (Beswick v Beswick).

Promissory estoppel

It is usually said that promissory estoppel is a sword and not a shield. The Australian High Court allowed it to be used as a cause of action in Walton’s Stores (Interstate) Ltd v Maher. More recently, the Hong Kong Court of Final Appeal seems to have done the same in Luo Xing Juan v Estate of Hui Shui See.

Proprietary estoppel

Sometimes the relevant promise or representation in a proprietary estoppel claim stands out a mile; there have been frequent public assurances. On other occasions, however, the evidence is not overwhelming but is sufficient. Suggitt v Suggitt is an example of the latter.

Vacant possession

A seller of land often agrees to sell with vacant possession. At the end of a lease, a tenant has to give back possession. The meaning of ‘vacant possession’ was considered again in NYK Logitics (UK) Ltd v Ibrend Estates BV.

Promissory estoppel as a sword?

August 10, 2011

In Walton’s Stores (Interstate) Ltd v Maher (164 CLR 387) the majority of the Australian High Court took the view that promissory estoppel could be used to found a cause of action. M and W were in negotiation for the grant of a six year lease by M to W of some business premises. The agreement was that once there was a binding lease agreement, M would demolish property on his land and erect a new building to W’s specifications. W’s solicitors submitted a draft lease and M’s solicitors made amendments. Time was pressing if the work was to be completed according to the envisaged schedule. M’s solicitors explained this and that their client did not want to carry out demolition works until the lease had been entered into. They asked whether their amendments were accepted. They were told that they could assume that the amendments were accepted unless they heard to the contrary. W’s solicitors sent M’s solicitors a form of lease incorporating their amendments. Since W’s solicitors did not come back to them with any objection to the amendments, M executed the lease and returned it to W’s solicitors. They got on with the demolition and construction work. In the meantime, W reviewed its commercial strategy and had second thoughts about proceeding. It told its solicitors to ‘go slow’. Even when it became aware of the work being done by M, it did nothing to warn him that there was no binding agreement or of its change of mind. It only revealed its change of heart when the works were nearly half complete.

The Australian High Court unanimously affirmed the order of the court below that W pay damages to M. The majority of the High Court took the view that W was estopped from reneging on an implied promise to complete. W had induced M’s belief that exchange was a mere formality, known of M’s reliance and detriment and done nothing to warn M of the true state of affairs. It was unconscionable for W to be allowed to retreat from the belief that it had induced. Promissory estoppel is invoked as the cause of action. An alternative route to the same conclusion followed by two members of the High Court relied on estoppel by conduct (estoppel in pais): W was estopped from denying that a contractually binding exchange had taken place.

Failure to spot a break clause

April 14, 2011

Crossco No 4 Unlimited v Jolan ([2011] EWHC 803 (Ch)) arose out of the demerger of the property and trading divisions of a group. The group was divided into a Trading Group and a Property Group. The demerger would result in the creation of two separate groups divided along these lines and separately controlled. The freehold of a building in the centre of Manchester was transferred to a company in the Property group. A company in the Trading group had a lease of the property. This lease, however, contained a break clause that allowed the freeholder to bring the lease to an end on giving three months’ notice. The freeholders intended to redevelop the building and exercised the break right. The tenants wanted to continue to trade from the building and contested the landlord’s right to exercise the break right.

The tenants (the Trading Group) had failed to notice the existence of the break clause before the demerger. The Property Group had noticed it but assumed that the Trading Group was aware of it too. They did not know that the Trading group had missed it and they had not contributed to or encouraged the Trading group’s ignorance. The Trading Group had simply assumed that they would be able to rely on the lease to ensure their right to possession for several more years.

The Trading Group relied, inter alia, on proprietary estoppel,  estoppel by convention and the idea of a Pallant v Morgan-style constructive trust in support of their claim that the Property Group could not exercise the break right. All of these claims failed because of the absence of any assurance that the break right would not be exercised, of any awareness on the part of the Property Group of the Trading Group’s ignorance of the right or of any unconscionable behaviour. The case provides a useful overview of the law in these areas.

Proprietary and promissory estoppel: recent academic commentary on Luo Xing Juan Angela v Estate of Hui Shui See Willy

November 8, 2010

I have already posted a blog entry on this case. This post draws attention to some critical commentary on the decision in recent case notes. Kelvin F.K. Low (‘Luo Xing Juan Angela v Estate of Hui Shui See Willy, Deceased: family property and interposed companies’, [2009] Conveyancer and Property Lawyer 524) suggests that the CFA  applied ‘proprietary estoppel principles in the context of a promissory estoppel claim.’ (at 528) In ‘Disputes over family homes owned through companies: constructive trust or promissory estoppel?’ (2009) 125 Law Quarterly Review 25) Rebecca Lee and Lusina Ho criticise the decision for a variety of reasons. As far as promissory estoppel is concerned, they argue that the CFA relaxed, almost to the point of abandoning, the requirement of a pre-existing legal relationship between the parties. They make the point that, in effect, promissory estoppel was used to found a cause of action.

Promissory estoppel and proprietary estoppel. Both needed?

November 8, 2010

In Bestkey Development Ltd v Incorporated Owners of Fine Mansion ([1999] 2 HKLRD 662, CA) the developer of apartments kept a share in the building. The Deed of Mutual Covenant reserved exclusive use of several parts of the building for the owner of that share. One of these parts was a room that was used as the management office. A successor in title of the developer brought proceedings against the incorporated owners and the management company seeking possession of the room. The claim failed. The defendants relied successfully on both promissory estoppel and proprietary estoppel. Some of the owners claimed that they had relied to their detriment on assurances that the management office was on site. This representation was made both in the sales brochure and in other representations to individual buyers. The office had been maintained and refurbished by the defendants for 20 years before the plaintiff’s claim. The former seems to have been the basis of the promissory estoppel claim and the latter the basis of the proprietary estoppel claim.

Liu JA remarked that it is helpful to retain the distinction between proprietary and promissory estoppel:

‘Indeed, there still exists the significant difference between a proprietary estoppel which entitles the representee to attack and a promissory estoppel which would not ..’ (at 668)

Luo Xing Juan v Estate of Hui Shui See: common intention constructive trust and promissory estoppel

October 26, 2010

In Luo Xing Juan v Estate of Hui Shui See ((2009) 12 HKCFAR 1) Mr Hui had co-habited with Miss Luo. They lived in a property owned by Mr Hui’s company Glory Rise. Mr Luo proposed marriage to Miss Luo and was accepted. To give her financial security in anticipation of their marriage he transferred 35% of the shares in Glory Rise to her. He expressly assured her that she was to have a 35% interest in the property. Mr Hui died suddenly without making a will. His estate, as 65% owners of Glory Rise, sought to terminate Miss Luo’s licence to occupy the property.

The Court of Final Appeal rejected the possibility of a common intention constructive trust despite the findings of an agreement that Miss Luo was to have a 35% share in the property and of her detrimental reliance on that agreement. The corporate veil between Mr Hui and Glory Rise was the obstacle here:

‘There is certainly no reason – and none is alleged – to lift the corporate veil or for treating Glory Rise as anything other than a legal person distinct from its shareholders. The basic proposition that a shareholder has no legal or equitable interest in the company’s property (as opposed to a right to share in the profits of its business and to a distribution of any surplus on liquidation) therefore applies.’ (per Ribeiro PJ at para. 34)

The common intention constructive trust arises because of the impact of the agreement on the owner’s conscience but here the owner, Glory Rise, had given no assurance: A and B’s common intention cannot impose a constructive trust on the owner of the property C who is not party to and who does not unconscionably depart from the common intention (at para. 39 per Ribeiro PJ). The CFA preferred not to follow the English decision in Re Schupann ([1997] 1 BCLC 2556).

Ribeiro PJ went on, however, to consider the applicability of promissory estoppel. Proprietary estoppel was not available because Mr Hui was not the owner of the property (at para. 54).

Ribeiro PJ outlined the elements of promissory estoppel:

‘A promissory estoppel may be said to arise where (i) the parties are in a relationship involving enforceable or exercisable rights, duties or powers; (ii) one party (the promisor), by words or conduct, conveys or is reasonably understood to convey a clear and unequivocal promise or assurance to the other (the promisee) that the promisor will not enforce or exercise some of those rights, duties or powers; and (iii) the promisee reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.’ (at 55)

The CFA found that there was a clear and unequivocal promise given by Mr Hui that Miss Luo was to have a 35% equitable interest in the property. This time, the corporate veil was not an obstacle. Mr Hui had sufficient control over Glory Rise to ensure that it gave effect to his intentions (at para 63).

The central finding, then, is that:

‘[T]here was a clear and unequivocal promise made by the deceased to Miss Luo sufficient to found a promissory estoppel. The substance of the promise, expressed in terms which take into account the legal forms employed, was that the deceased would, as controlling shareholder of Glory Rise, secure for Miss Luo a 35% interest in the value of the Property if and when the same should be realised by the company and that, unless and until the Property was disposed of and her 35% entitlement duly provided for, Miss Luo would have the security of being allowed to occupy it as her home without interference by the company. Put negatively, the deceased was promising to forgo exercising his legal powers (as controlling shareholder of Glory Rise) to cause the Property to be disposed of without Miss Luo receiving a 35% share of the proceeds or to cause her to be evicted pending disposal.’ (at para 64)

Miss Luo had relied on the assurances and accordingly had an equitable claim (a personal or mere equity).  Ribeiro PJ noted that the court has a wide discretion as to the way in which the equity should be satisfied. The CFA ordered that Glory Rise should be wound up.The liquidator was to sell the property and then transfer 35% of the net proceeds of sale to Miss Luo. Miss Luo should be allowed to remain in occupation until the sale was complete (although the liquidator could require her to leave on reasonable notice to allow for a sale with vacant possession).

This is an extremely interesting judgment that respected the realities of the agreement between Mr Hui and Miss Luo. It shows a technical limitation on the applicability of the common intention constructive trust and proprietary estoppel where the promise is given by a controlling shareholder of the company which owns the property. The approach to the corporate veil is particularly interesting. The corporate veil is respected in the context of the  constructive trust / proprietary estoppel. There was no basis on which the corporate veil could be lifted; the property truly was owned by Glory Rise. On the other hand, in its consideration of the doctrine of promissory estoppel, the CFA took account of the fact that Mr Hui was in a position to give assurances as to how he would exercise his powers as controlling shareholder. It seems that, in effect, the doctrine of promissory estoppel has been used as the basis for Miss Luo to acquire an interest in land; this was achieved by construing Mr Hui’s promise as being a promise not to exercise his legal rights unless he had secured a proprietary interest for Miss Luo.

Michael Lower