Adverse possession by co-owner in breach of DMC

April 10, 2017

In Foremost Hill Ltd v Li Hon ([2017] HKEC 708) P and D owned adjoining shops in a building covered by a Deed of Mutual Covenant (‘DMC’). P had been in possession of part of D’s shop (‘the disputed area’) since 1981 (possibly earlier) due to a wrongly positioned partition wall. P claimed to have acquired title to the disputed area by adverse possession. The court agreed.

There was a clear ouster; P’s actions were incompatible with D’s right to exclusive occupation of the disputed area.

D also relied on the DMC covenant provisions conferring on each owner a right to the exclusive use of its own unit. Andrew Chung J commented that this effectively raised the question as to whether adverse possession can ever operate as between co-owners of units covered by a DMC ([25]).

The matter seemed not be covered by authority and should be approached from first principles.

An action to enforce the DMC term as a contractual term was time-barred after six years (section 4(1) of the Limitation Ordinance).

There was no limitation period for an action to enforce a restrictive covenant in equity but the doctrine of laches applies. The adverse possession began so long ago that it would be inequitable to allow D to enforce the covenant against P.

Andrew Chung J. also agreed with the proposition that since the action was, in substance, an action to recover land the limitation period in section 7(2) is engaged ([37]).

Michael Lower

The priority of unwritten equitable interests

April 4, 2017

In Si Tou Choi Kam v Wealth Credit Ltd ([2017] 1 HKLRD 1074) A and B acquired property as legal joint tenants. B’s creditor, C, obtained and registered charging orders over the property. C then applied for an order for sale of the property. A obtained a declaration that A was sole beneficial owner of the property (having supplied the entire purchase price) and registered it at the Land Registry.

The priority of unwritten equitable interests is governed by the doctrine of notice. The charging order is to be treated as if it were an equitable charge. Priority is governed by the first in time rule. A’s interest, having arisen at the time of acquisition, has priority under this rule.

There is no authority for the proposition that A is under a duty to obtain a declaration and register it in order to preserve this priority. It was surprising, therefore, that the court held that A’s priority was governed by the date of registration of the declaration.

Michael Lower

 

 

Estoppel by convention: need for a common assumption or understanding

March 28, 2017

In Preedy v Dunne ([2016] EWCA Civ 805, CA (Eng)) D’s mother (J) and his step-father (B) were partners in a pub business. J owned the pub building.

J died leaving her half share in the pub business to trustees. B had a life interest in the half share. After B’s death the half share was to go to D and his two siblings (J’s children).

D spent over GBP300,000 on renovations at the pub between 1999 and 2003. B sold D a half share in the business in 2001. The renovations enhanced the value of the interests of B as well as D and his siblings.

The dispute was as to whether the trustees of J’s share of the business were liable to contribute to the cost of the renovations.

D relied on estoppel by convention. He alleged a common assumption that the trustees owned J’s share of the business (they did not) and so jointly and severally liable to contribute to the repayment of the loan of the funds for the renovations. The claim failed because there was no such common assumption.

D tried to make a ‘wider case’ based on the proposition that he ought not, in justice, to be left to bear the cost of the renovation works on his own. This was rejected (Vos LJ at [59]).

D’s problem was that he had undertaken the work without securing a clear commitment from anyone else to contribute to the cost.

Michael Lower

Sale of land as ‘agricultural land’ in the New Territories

March 20, 2017

In Splendid Resources Inc v Secretary for Justice ([2017] HKEC 504) the plaintiffs had constructed columbaria on land owned by them. The Government contended that this was a breach of the terms of the Government lease.

The lease did not contain an express covenant not to use the land for any purposes other than as agricultural land. It had, however, been sold as ‘agricultural land’.  The question was whether this was purely descriptive of the use at the time of sale or implied a covenant only to use the land for this purpose.

Deputy Judge Le Pichon pointed to various features of the New Grant that could only be explained on the basis that the words imposed a restriction on the use to which the property could be put. These included a provision requiring the land to be cultivated.

The judge referred (at [35]) to a statement in Halsbury’s Laws of Hong Kong that ‘[w]ithout special permission from the Government, all Government leases granted in the New Territories are for agricultural purpose and can not be used for other profitable purposes.’

Further, ‘where an interpretative ambiguity arises in the context of a Government lease, a presumption in favour of the Government applies’ (at [36]).

The landowner’s argument that the covenant was purely personal to the original lessee was also rejected.

Finally, Deputy Judge Le Pichon held that the columbarium was a structure; it was a breach of the covenant not to build any structure on the land.

Michael Lower

Common intention constructive trust: condition attached to express agreement not satisfied

March 11, 2017

In Gallarotti v Sebastianelli ([2012] EWCA Civ 865, CA (Eng)) G and S were friends. They had each gone to England from Italy. G and S shared rented accommodation and then bought a flat. This was a platonic arrangement. They were happy to share until they were ready to buy homes of their own.

The title was in S’s name. G and S had an express agreement that they would be equal beneficial owners. This agreement was conditional on G contributing more than S to the mortgage repayments since S made a larger contribution than G to the down payment.

G did make some contributions but did not pay as much as S did towards the mortgage; the disparity was significant. The conditional element of the express agreement was not satisfied.

The friends fell out and G sought a declaration as to the extent of his beneficial interest. Arden LJ gave the only full judgment; the other members of the English Court of Appeal were content to agree with her.

The terms of the express agreement showed that ‘the parties were concerned that their ultimate shares in the Flat should, broadly speaking, represent their contributions to it’ ([24]). ‘[T]he inference to be made from the parties’ course of conduct was that they intended that their financial contributions should be taken into account but not that there should be any precise accounting’ ([25]). S had a 75% beneficial interest and G had 25%.

Michael Lower

 

 

Family ownership disputes: when does Jones v Kernott apply?

March 4, 2017

In Wodzicki v Wodzicki ([2017] EWCA Civ 95, CA (Eng)) G and his wife (‘W’) bought a house intending that it should be a permanent home for G’s daughter (‘D’) and her children. Title to the house was in G and W’s name as legal joint tenants.

G died intestate. W began possession proceedings. D counterclaimed that she was the sole beneficial owner of the property.

The first instance judge was of the view that G’s beneficial ownership share belonged to D. He ordered an account to be taken of W and D’s respective contributions to the purchase price, maintenance and outgoings. Their ownership shares would correspond to their contributions.

D appealed. She argued that this resulting trust approach was inappropriate in this domestic context. This argument failed. The first instance judge found that G and W intended  the property to be D’s long-term home. They did not, however, intend D to be the sole beneficial owner. There were no grounds for departing from this finding of fact.

D argued that Jones v Kernott applied and that the intention that she was to be the sole beneficial owner should be imputed as a matter of fairness. This could not succeed given the judge’s finding as to the parties’ actual intentions.

In any event, this was not a context akin to that of co-habitees. D and W were not close. The use of a resulting trust approach was not precluded here.

Even if G had intended D to be sole beneficial owner, this intention could have no effect on W. D sought to rely on Hammersmith & Fulham LBC v Monk and to argue that W was bound by the intention of her joint tenant. This was a misapplication of Monk. That decision has no relevance to a purported disposal of a beneficial interest ([27]).

The finding as to G’s actual intention also meant that D’s claim to sole beneficial ownership based on proprietary estoppel had to fail.

A strange feature of the proceedings was that W presented no evidence when the account was taken. The result was that D was found to be sole beneficial owner.

Michael Lower

Trustee acquiring property on his own account using trust property

February 26, 2017

In Tang Ying Loi v Tang Ying Ip ([2017] HKEC 204, CFA) D was the administrator of his father’s estate, his father having died intestate. D bought a property for himself for HK$27.3 million.

He obtained 40.4% of the funds used to purchase the property from cash forming part of his father’s estate. The plaintiff, D’s brother, argued that he was entitled to a share in the value of the property, which had increased in value since the purchase.

The Court of Final Appeal (Lord Millett giving the only full judgment) held that the plaintiff was entitled to this.

Since the estate had provided part of the purchase price, it had a proprietary interest in the property that had been acquired; this is not a question of tracing, the estate was a purchaser of the property ([17]).

When the beneficiaries discovered the unauthorised disbursement by D, they could elect either to reject or affirm the transaction. If P had elected to reject the transaction, he would have no interest in the property but D would be obliged to make good the amount missing from the estate accounts.

P had, however, elected to affirm the transaction (since the property had increased in value). This meant that P had a proprietary interest in the property but there was no deficit in the estate accounts.

Lord Millett explained that:

‘The policy behind a claim by a beneficiary for a breach of trust of the present kind is to deter the trustee from using the trust fund as his personal bank account, borrowing from it for his own private purposes and merely repaying the amount he has borrowed. Such conduct puts the trust fund at risk without hope of gain. Equity’s response is to insist that any profit is for the beneficiaries and any loss for the trustee.’ ([27])

D argued that the amount taken from the estate should be taken as a loan: he had always intended to repay it and had repaid it. This was unsuccessful: it was for the court, not one of the parties to the transaction, to determine the legal nature of the transaction ([19]).

Nor, despite what had been said in the courts below, was this a case of a trustee having made a secret profit; it was much simpler than that.

Michael Lower

England: oral agreements and the common intention constructive trust

February 19, 2017

In Matchmove Ltd v Dowding ([2016] EWCA Civ 1233, CA (Eng)) Matchmove (a company controlled by F, a property developer) was negotiating for the purchase of a plot of land (‘the land’) and the adjoining meadow. F intended to split the land into two plots and to build a house on each plot. He orally agreed with his friend D that D would buy one of the plots and the meadow (D wanted to keep horses on the meadow).

In due course, Matchmove entered into a written contract for the sale of the plot to D and this sale was completed. There was, however, no written contract for the sale of the meadow to D. F and D fell out and F sought to resile from the oral agreement to sell the meadow to D.

D sought a declaration that Matchmove held the meadow on trust for him. Matchmove denied the existence of a binding agreement for the sale of the meadow. It relied on the lack of a signed written agreement to satisfy section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989.

F had intended the oral agreement concerning the meadow to be immediately binding. He was well known by D to have a business approach that attached real importance to his word as a businessman. By the time of the dispute, D had paid the entire purchase price for the meadow to Matchmove.

In these circumstances, the question was whether the agreement gave rise to a common intention constructive trust that could fall within section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989.

The Court of Appeal referred to Arden LJ’s discussion of this question in Herbert v Doyle. There, Arden LJ said that section 2(5) could  not be relied on:  (1) if the parties intend to make a formal agreement setting out the terms on which one or more of the parties is to acquire an interest in property; (2) if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified; and (3) if the parties do not expect their agreement to be immediately binding.

The Court of Appeal did not see this statement as setting out three conditions to be satisfied but as being three ways of making the same point about the effect of the judgment in Cobbe v Yeoman’s Row ([32]).

There was a clear express agreement between the parties. Although both parties were well aware that a written contract would be needed, they regarded this as a technicality and took the view that they already had a binding agreement. The payments made by D provided the detrimental reliance.

There was a common intention constructive trust that fell within section 2(5). D could enforce the oral agreement for the purchase of the meadow.

Michael Lower

 

 

Failure to pay deposit by stipulated date: the seller did not waive the breach by cashing a cheque for the deposit after communicating an intention to treat the agreements as terminated

February 11, 2017

In Fast Happy Ltd v Lee Chun Pong Bruce ([2017] HKEC 121) the plaintiffs entered into provisional sale and purchase agreements (‘the agreements’) for the sale of land by the plaintiffs to the defendants. The initial deposit was to be paid in two instalments on dates specified in the agreements.

The cheque for the first instalment was not honoured when presented. The cheque for the second instalment was proffered after the date specified in the agreements. Time was of the essence for making the payments.

The sellers’ solicitors sent an email and a letter to the estate agents handling the transactions terminating the agreements on the grounds of the buyers’ breach. The plaintiffs’ bank then re-presented the cheque for the first instalment of the deposit and it was honoured.

The defendants registered the agreements at the Land Registry and the plaintiffs sought the vacation of these registrations. The defendants argued that the plaintiffs had waived the breach by presenting the cheque for the first instalment of the deposits after the defendant’s breach.

The defendant’s argument failed. The sellers were entitled to cash the deposit cheque and to forfeit the deposit without waiving the breach. This was especially the case since the sellers had by then given clear notice of their intention to treat the agreement as having come to an end.

This was a case where the estate agents were acting for both parties and not only for the sellers. Thus notice of termination given to the agents was an effective way of giving notice to the defendants.

Michael Lower

Agreement determines whether landlords must give credit for security deposit when enforcing a judgment against tenant

February 3, 2017

In Power Plus Ltd v Fruit Design & Build Ltd ([2016] 5 HKLRD 707, LT) the tenant of a flat paid a security deposit of HK$150,000 at the commencement of the tenancy. The forfeiture clause provided that this would be forfeited to the landlord ‘as liquidated damages’ should the tenant be in breach of its obligations under the terms of the lease. The tenant fell into arrears with the rent and the landlord obtained judgment for the sum of HK$105,000. The question was whether the landlord could forfeit the deposit and, in addition, enforce the judgment.

The Lands Tribunal (Judge Wong King Wah) decided that whether this was possible or not depended on the terms of the lease. In this case, on a proper interpretation of the forfeiture clause, the landlord was not entitled to forfeiture and to enforce the judgment without giving credit for it ([15]). The parties’ intention was that the security deposit should be liquidated damages in respect of any claim that the landlord might have against the tenant in respect of the lease.

Michael Lower