In Coventry v Lawrence (No 2) ([2014] UKSC 46) one question was whether a landlord was liable for its tenant’s nuisance (see Coventry v Lawrence). Lord Neuberger (with whom Lord Clarke and Lord Sumption agreed) took as his starting point the statement of Lord Millett in Southwark LBC v Mills that:

‘The person or persons directly responsible for the activities in question are liable; but so too is anyone who authorised them. Landlords have been held liable for nuisances committed by their tenants on this basis. It is not enough for them to be aware of the nuisance and take no steps to prevent it. They must either participate directly in the commission of the nuisance, or they must be taken to have authorised it by letting the property: see Malzy v Eichholz [1916] 2 KB 308 .’ ([2001] 1 AC 1 at 22).

Did the letting amount to an authorisation of the nuisance?

The letting itself did not amount to an authorisation since the nuisance was not an inevitable result of the letting ([15]).

Had the landlord actively or directly participated in the nuisance?

This is largely a question of fact ([19]). Did the landlord’s leading role in trying to prevent the local authority from taking action in respect of the noise and in defending the nuisance claim amount to participation? This was not the case since this was a justified measure taken by the landlord to protect the value of his reversion ([24]).

Dissenting on this issue, Lord Carnwath and Lord Mance thought that the landlord’s role did amount to participation in the nuisance:

‘What is required in my view is a broad, common-sense judgment, based on the facts as a whole, as to whether there was such active involvement by the landlord in the offending activities as to make him jointly responsible in law for their consequences.’ ([59]).

He was of the view that the landlord’s actions amounted to ‘active encouragement of the tenants’ use and direct participation in the measures and negotiations to enable it to be continued. ‘ ([64]).

Michael Lower

In Tsang Kwong Kuen v Hau Wai Keung Gaius ([2014] HKEC 1612, CA) P claimed to have acquired title of Tong land as a result of adverse possession. The claim failed for several reasons at first instance.

One of these was the principle in Leung Kuen Fai v Tang Kwong Yu (applied in Wong Shing Chau v To Kwok Keung). There were members of the Tong whose beneficial interests had not been defeated.

In the present case, Lam V-P explained the principle thus:

‘The essence of the relevant principle is that due to the peculiar characteristic of a Tso or Tong (preserved by Chinese customary law and s 13 of the New Territories Ordinance Cap 97) with new equitable interest stemming from each new member being admitted upon birth by reason of his hereditary link with the focal ancestor, a person who is in adverse possession cannot extinguish the title of the Tso or Tong under the Limitation Ordinance unless he can establish the requisite limitation period against all the living members of the Tso or Tong.’ (at [5]).

In this appeal, the plaintiff contended that there was insufficient evidence to prove the existence of the Tong.  This failed since the oral evidence to this effect given in the first instance proceedings had not been contradicted by the plaintiff. ‘There is no requirement that a Tong must have a written document proving its nature as a hereditary Tong. ‘([9]).

The plaintiff further argued that there was insufficient evidence to show that the members said to have undefeated equitable interests really were members of the Tong. The managers relied upon their own knowledge and on informal methods of finding out about new members.  This method was adequate in the context of this type of institution:

‘First, in dealing with a customary hereditary institution like a Tong, it would not be appropriate to expect records are being kept in the same manner as in the case of a register of members for a large commercial corporation. Hau Keung’s evidence on how the list was compiled makes perfect sense in the context of an institution of this nature. It had been verified by all the managers and basically they knew each other. In any event, the presumption of regularity is applicable.’ ([12]).

Michael Lower

In Howarth Cheung Natalie Jane YS v Tsang Hong Kwang Ok ([2014] HKEC 1683, CA) S entered into a preliminary agreement for the sale of property to P. The agreement provided for P to pay a deposit of just under 5% of the purchase price. The cheque was not honoured as the bank thought that there was a discrepancy between the signature on the cheque and the specimen signature that they had. S accepted the repudiatory breach and P sought specific performance. S counter-claimed for payment of the deposit.

It was accepted by both parties that time for payment of the deposit is of the essence in Hong Kong even in the absence of an express stipulation to this effect. So the delay in paying the deposit was a repudiatory breach ([4.1] – [4.5] per Cheung JA). P argued, however, that the contract included an implied term to the effect that the stipulation as to time was suspended because the extraordinary event that had happened was beyond P’s control. This failed. The obligation was specified in clear terms ([5.9]); S should not be affected by disputes between P and her agent ([5.10]); the term was not needed to give business efficacy to the contract ([5.11]); nor was it capable of clear expression ([5.12]).

P argued that she should be granted equitable relief from termination of the agreement. This was rejected. First, the point had already been dealt with by the Privy Council in Union Eagle ([6.1]). The Australian courts took a different approach and granted equitable relief where the delay was occasioned by fraud, mistake, accident or surprise (and the High Court of Australia considered the ambit of these exceptions in Tanwar Enterprises Pty Ltd v Cauchi (2003) 201 ALR 359). Even if the Australian approach were followed, it would not allow for relief in the present case:

‘The parties themselves have stipulated the time for payment which is of the essence of the contract. The purchaser had chosen to pay by cheque which in law is in the nature of payment by cash. This by itself precludes any argument on suspension of this obligation. Further, the possibility of the bank not honouring the cheque is not beyond the reasonable contemplation of the parties as mishaps do happen. Hence payment of the deposit can be subject to an exculpatory provision which has not been sought for by the purchaser in the first place. As presently drafted, the payment term is not subject to the purchaser tendering another payment upon discovering that the cheque has not been made. In any event, HSBC is not a third party in the strict sense of the term but an agent of the purchaser. To decree relief will deprive the vendor of an essential right of the agreement. The whole circumstances just do not come within the ambit of the requirement for relief that, although the accident was not occasioned by the vendors who were innocent, it was sufficient of itself to render it unconscionable or inequitable for the vendors to insist upon its legal rights.’ ([6.20] per Cheung JA).

Finally, S could recover the unpaid deposit from P. Contractual damages aim to put S in the position that he would have been in had the contract been performed (and in that event the deposit would have been paid). Alternatively, the effect of the acceptance of a repudiatory breach is to discharge the parties from all executory obligations but does not affect rights and obligations that have already accrued (Damon Compania Naviera S.A. v. Hapag Lloyd International S.A. [1985] 1 WLR 435). This approach has been taken by the Hong Kong courts (for example, Sun Lee Kyoung Sil v Jia Weili [2010] 2 HKLRD 30).

Michael Lower

In Wellfit Investments Ltd v Commence Ltd ([1997] HKLRD 857, PC) the Privy Council had to consider the impact of an agreement to effect a Hong Kong style completion and the fact that both parties were aware that the transaction was a sub-sale on the construction of the provisions as to completion in the sub-sale agreement.

The agreement was for the sub-sale of an apartment. Time was of the essence in the agreement. The funds from completion of the sub-sale were to be used to finance completion of the head contract. The sub-sale was to be completed by 3pm on the stipulated date and the deadline for completion under the head contract was two and a half hours later. The sub-contract was ‘subject to and with the benefit of’ the head contract. The sub-contract provided that on completion, the seller would execute a ‘proper assurance’ and give vacant possession. The parties agreed to a ‘Hong Kong style’ completion (on completion, the seller gave an undertaking to forward the executed assignment within 17 days of completion). The sub-purchaser had not provided the completion monies by 3pm and the sub-seller rescinded 24 minutes later. The sub-purchaser sought specific performance.

The buyer’s argument that the deadline had been waived or varied  by virtue of a telephone conversation between the solicitors acting for the parties failed. The words used did not amount to a clear representation that the sub-seller would not insist on its contractual rights.

The buyer argued that the seller was in breach since on completion it would not be in a position to execute a proper assurance or give vacant possession (it could only do this when the head contract was completed). This failed since these obligations were to be interpreted in the light of the agreement to complete by undertakings and because both parties were aware of the sub-sale context and had factored this into their contract.

The sub-purchaser sought relief in equity. This judgment was handed down a few months before Union Eagle. The Privy Council expressed no view as to whether such jurisdiction existed. We had to wait for Union Eagle to learn the answer to this. The Privy Council held that it would not grant such relief even if it had the power to do so. Given the linkage between the sub-contract and the head contract, there was nothing unconscionable in the sub-seller’s insistence on its strict contractual rights.

Michael Lower

In Chong Kai Tai Ringo v Lee Gee Kee ([1997] HKLRD 461, PC) D entered into a provisional sale and purchase agreement to sell a flat in Hong Kong to P. P was at the end of a chain of sub-sales and, as a result, the purchaser under a contract higher up the chain was to execute the assignment to P. Time was of the essence for completion. The contract included a liquidated damages clause in the event of default by either party. P failed to provide the completion monies by the time stipulated for completion. D argued that this was a repudiatory breach and it purported to accept it. P sought specific performance.

The Privy Council (Lord Hutton giving the only full judgment) held that the obligations to pay the purchase price and to deliver the executed assignment are to be carried out simultaneously (in the absence of an express or implied agreement to the contrary). D was not in a position to deliver the executed assignment by the completion date because it had not arranged for the purchaser higher up the chain to execute the assignment (D anticipated dealing with this after completion). Since it was not ready to complete, P’s duty to provide the completion monies was not triggered.

The result was not to bring the contract to an end but that time ceased to be of the essence  and completion was to take place within a reasonable time. D was not entitled to rescind.

D argued that the liquidated damages clause meant that specific performance was no longer available. The Privy Council declined to consider whether this was true as a general proposition. D’s argument failed because it had not offered to pay the liquidated damages. In that case, the liquidated damages clause did not prevent the award of specific performance.

Michael Lower

In HKCB Finance Ltd v Yuen Yi Wan ([2006] HKEC 1425, CA) title to a family home was in the husband’s name. The husband owned the home and had paid off the mortgage before his marriage (so subsequent payments by the wife could not be referred to payment of the purchase price in any way). The husband sold the property to A who immediately sub-sold to B. B relied on a loan from HKCB to finance the purchase. The original owner’s wife claimed to have an equitable interest under a common intention constructive trust. The basis of the alleged common intention constructive trust was an agreement to be inferred from the wife’s conduct in in financially supporting the family, the upbringing of the children and her performance of the household chores and the sum of $50,000 she gave to her husband ([9]).

The majority of the Court of Appeal (Cheung JA dissenting) found that the payments that were made were not referable to any common intention that the wife should have an interest in the property ([16]).  The question as to whether the bank was on notice because of its failure to inspect the property did not arise since the wife had no equitable interest ([17]).

Rogers V-P said:

‘In every case the facts are different. But in the present case the [wife's] contribution of financially supporting the family and upbringing the children and her performance of the household chores over the six years in which she was in Hong Kong and living with [her husband] even taken together with the sum of $50,000 are so distinct from any right in respect of the property that I cannot see how any claim to an interest in the property arises. The [wife's] evidence, as already indicated, does not establish that it was her expectation to receive an interest in the property. Still less was there any evidence that [her husband] ever had any intention that the second respondent would have any interest in the property.’ ([24])

Cheung JA (in his dissenting judgment) thought that the proposition that looking after the home and caring for the children could not be the basis for inferring a common intention (Burns v Burns) should be rejected. He referred with approval to approaches in Canada and New Zealand that took a different line. He proposed what might be termed an imputed intention approach:

‘When parties enter into a long term relationship it is most unlikely that they will ever discuss whether they have a share in the family assets or how much each of them would be entitled to at the end of the day. I agree with the view of Cory J that it is just and reasonable that the situation be viewed objectively and that an inference be made out, in the absence of the evidence establishing a contrary intention, the parties expected to share in the assets created in the matrimonial relationship should it end.’ ([63])

In any event, he thought that a common intention constructive trust could be shown even following traditional English / Hong Kong principles. In the typical Hong Kong context (where there are regular management fees to be paid) contributions to ongoing maintenance could be as significant as contributions to purchase price. In the case of a long marriage, the nature of the relationship and the pooling of financial resources were relevant factors ([65] – [70]). Cheung JA thought that the wife was entitled to a half share ([73]).

Cheung JA thought that the suspicious circumstances (the quick sub-sale at double the price) put the bank on notice. It was not entitled to rely on the husband’s statement that there were no other occupiers of the property. It had failed to inspect and had constructive notice of the wife’s equitable interest.

Michael Lower

In Heslop v Burns ([1974] 1 WLR 1241, CA) T allowed a family (Mr and Mrs Burns) to live rent-free in a house he owned for many years. He covered all of the outgoings. This action was inspired by sympathy and affection for them. When T died, his executors argued that they were licensees and sought to evict them. Mr and Mrs Burns argued that they had been tenants at will. If this succeeded, they would be able to rely on the Limitation Act 1939 to resist eviction.

The Court of Appeal found that they were licensees and not tenants. There was no intention to create legal relations; the arrangement was an instance of ‘generosity on a very large scale’ (Roskill LJ at 1249). Roskill LJ observed:

‘a licence will be more readily inferred than a tenancy at will first where the advantage given to the suggested “tenant” is obviously intended to be personal to him, and secondly, following what Denning L.J. subsequently pointed out in Facchini v. Bryson [1952] 1 T.L.R. 1386 , 1389, where there has been something in the circumstances, such as a family arrangement, an act of friendship or generosity, or such like, to negative any intention to create a tenancy.’ (at 1248 – 9)

Further, the evidence showed that T felt entitled to come and go to the property as he pleased; there was no intention that his right to possess should be excluded by the arrangement.

Michael Lower

In Shebelle Enterprises Ltd v The Hampstead Garden Trust Ltd ([2013] EWHC 948) the Hampstead Garden Trust Ltd (‘the Trust’) exercised the rights and powers of management under a scheme of management under England’s Leasehold Reform Act 1967 (‘the Act’). Shebelle (‘S’) held a long lease of a house in the area covered by the scheme of management and the Trust was the landlord. The lease contained an express covenant for quiet enjoyment. F owned the freehold of the neighbouring house (enfranchised under the Act and subject to the scheme of management) which was higher up a hill than S’ property. Although F owned the freehold, the Trust was ‘for the purposes of the scheme to be treated as the landlord for the time being’.

F proposed to carry out extensive works at their property. The scheme of management required them to get the Trust’s consent to the work. F applied and S objected because of concerns about the the effect of the development on the movement of ground water. When the Trust indicated that it was minded to grant consent to the works, S sought a quia timet injunction on the grounds that this would amount to a breach of the covenant for quiet enjoyment. The Trust cross-applied for summary judgment on the grounds that S had no real prospect of success.

S relied on the proposition drawn from Sanderson v Berwick-Upon-Tweed that: ‘if a common landlord A demises land to B and also demises neighbouring land to C, A will be liable to B for breach of the covenant if it authorises C to act in a way which will interfere with B’s quiet enjoyment.’ ([27] in Shebelle per Henderson J.). Either the Trust was to be regarded as being akin to a landlord ([27]) or else the proposition should be understood in such a way as to rely on the Trust’s degree of control over F and not on privity of estate ([29]).

One element of the Trust’s defence was the argument that the covenant for quiet enjoyment could not be invoked so as ‘to interfere with (and/or subvert) the performance by the landlord, in its capacity as a “custodian of the public interest”, of a role under a statutory scheme under which the landlord owes a duty to act in the public interest.” ‘ ([31]). This argument succeeded and the Trust was granted summary judgment. It did not matter that at the time of the grant of the lease the landlord was a private body:

‘The freehold reversion to the Lease was always freely assignable, and the parties must be taken to have contemplated that it might at some date become vested in a body which had duties of a public nature to perform. If the proper performance of those public duties impinged on the normal use and enjoyment of the demised premises by the tenant, it must in my view have been envisaged that the tenant would to that extent be deprived of a remedy under the covenant.’ ([63]).

Michael Lower

In Quintance v Tandan ([2012] EWHC 4416 (Ch)) a co-habiting couple bought a property in joint names. They agreed to hold it on trust for themselves as beneficial tenants in common in equal shares. Q made no contribution to the purchase price (though he was a party to the mortgage). Within weeks of acquisition of the property, Q abandoned T. T made all the payments as she had already been doing up until then). When the property was sold, Q claimed that he was entitled to half of the net proceeds of sale. This claim failed. The approach taken in Jones v Kernott was applied. Q’s conduct showed an agreement to abandon his half share. This could be expressed either as a variation of the original agreement inferred from post-acquisition conduct or as the fair outcome where there was no evidence that the parties had formulated any actual intention ([17] per HH Judge Waksman QC)). The question of fairness is fact-sensitive ([19]).

Michael Lower

In Tang Tak Sum v Tang Kai Fong ([2014] HKEC 1977, CA) P and D were tenants in common of land. D operated the land as a car park and kept all of the income from this use. P now sought an account of the income and expenditure concerning the land. D conterclaimed that it had defeated P’s title by adverse possession.

The adverse possession claim failed. In principle, a co-owner’s possession is explained by the fact of ownership and is not adverse to the title of other co-owners (Cheung JA [34]). There needs to be a dispossession (actual ouster in the case of co-ownership) ([37]). In a case, such as the present, this could be shown where a co-owner who has received the income from the land has refused to accede to a co-owner’s demand for his or her rightful share. It might also be shown, depending on the facts of the case, where one co-owner has retained all of the income for a long period of time even though there has been no demand ([36] – [37]). In this case, however, there had been no ouster. P had made visits to the property and parked there without payment and this was an exercise of the right to possession; the slightest acts of the owner of the paper title are enough to counter the assertion that that owner has been dispossessed ([39]).

D was under a duty to account to P: ‘the duty by a co-owner to account to another co-owner for rent received by him arises where there is an agreement making him the bailiff of the other’ ([46]). There was evidence to show that D had been charged as bailiff with collection of the rents ([49]).

Michael Lower

In O’Kelly v Davies ([2014] EWCA Civ. 1606, CA (Eng)) the parties cohabited for many years. Title to the first family home had been in joint names at first. Title was then transferred into O’s sole name. When they moved to a second home, title to this was also in O’s name. D alone made all the mortgage payments. This was done to allow O to make fraudulent claims to state benefits. There was no express agreement that D was to have an equitable interest but both the first instance judge and the English Court of Appeal found that an agreement was to be inferred from the whole course of conduct between the parties relating to the property ([29] per Pitchford LJ).

The question was whether public policy prevented D from enforcing his claim to an equitable interest given the unlawful agreement upon which his claim rested. Did Tinsley v Milligan apply to a common intention constructive trust case where there was no presumption of resulting trust to help D? The Court of Appeal held that Tinsley v Milligan was equally applicable in this context. Since D needed only to plead the facts that gave rise to the implied agreement, and had no need to plead the unlawful purpose, he was entitled to rely on the Tinsley v Milligan approach:

‘It was not necessary for the respondent to advance his unlawful agreement in order to make good his claim to a constructive trust. As in Tinsley v Milligan the merits as between the parties are all one way. The issue is whether public policy should intervene to prevent the respondent from enforcing his interest. The conduct identified by the judge was not the making of the unlawful agreement (which was about purpose and not about shared equitable interest) but the course of dealing between the parties relating to their financial contributions to the purchases. While it is no longer appropriate to think in terms of an evidential presumption as to intention, the very conduct that, formerly, would have created that presumption supported the inference drawn by the judge and, in my judgment, for that reason the intervention of public policy is avoided.’ ([32])

This case can be contrasted with Barrett v Barrett where there was a need to plead the unlawful purpose given the equally plausible explanations advanced as to the reasons for which the payments had been made ([33]).

Pitchford LJ’s judgment is also worth reading as an example of the approach taken to implying a common intention after Jones v Kernott.

Michael Lower

In Liu Wai Keung v Liu Wai Man ([2014] HKEC 2065, CA) title to a flat was in the name of a sister who held it on common intention constructive trust for her brother. The brother and his family were living in the property. He had made two demands for her to transfer title to him (in 1998/99 and in 2004/5) and these had not been complied with. The sister now sought to rely on section 20(2) of the Limitation Ordinance to defeat her brother’s claim. This failed, since the action fell within section 20(1)(b) of the Limitation Ordinance. It was an action ‘to recover from the trustee trust property or the proceeds thereof in the possession of the trustee’. The sister argued that ‘possession’ meant actual possession and that her brother was in possession. Kwan JA (giving the reasons for judgment of the court) explained that the trustee remained in possession ‘if the trustee has the power of control over the property and is in a position to obtain possession of it’. This was true in the present case because of the sister’s legal title ([21]). The sister’s legal title could not be said to be adverse to her brother’s beneficial interest but was entirely consistent with it ([26]). Lord Sumption JSC explained the underlying policy in Williams v Central Bank of Nigeria ([2014] AC 1189): trustees still in possession of the trust asset (here the legal title) should not be allowed to use the Limitation Ordinance to defeat the beneficiary’s claim and keep the trust property for themselves. This reasoning only applied to those who have assumed the responsibilities of a trustee, expressly or de facto. It did not apply to those ‘under a purely ancillary liability’ since their dealings with the assets were at all times adverse to those of the beneficiary.

Michael Lower

In Kingsway Finance Ltd v Wang Qingyi ([2014] HKEC 1969, CA) W owned property and had entered into the following transactions:

19/8/2010 – Granted all moneys charge to Oi Wah

30/5/2011 – Granted second all moneys charge to Kingsway (as security for ‘the Kingsway first loan’)

3/8/2011 – Granted third charge to Wing Wei

9/8/2011 – Took out ‘the Kingsway second loan’ to discharge the Oi Wah mortgage

16/11/2011 – Took out ‘the Kingsway third loan’ to discharge the Kingsway first and second loans.

W defaulted, the property was sold and the proceedings concerned the relative priorities of the interests of Kingsway and Wing Wei over the proceeds of sale. Kingsway argued that, so far as the Kingsway third loan was concerned, it was entitled to the same rights as those enjoyed by Oi Wah and those that it had enjoyed by virtue of the charge that it had been granted to it. Kingsway argued that it was entitled to equitable subrogation to those rights because it had supplied the funds to repay the loan provided by Oi Wah and to repay the Kingsway first and second loans. Kingsway was not entitled to tack the second and third loans to the charge granted at the time of the first loan because the conditions in section 45 of the Conveyancing and Property Ordinance were not satisfied. Was Kingsway entitled to equitable subrogation? This would determine the priority question. The Court of Appeal (Cheung CJHC giving the main judgment) held that Kingsway was entitled to equitable subrogation to the Oi Wah and Kingsway charges.

Equitable subrogation

This is ‘based on the doctrine of unjust enrichment, rather than the agreement or common intention of, the party enriched and the party deprived as such’ ([14]). Intention may be relevant to equitable subrogation but it is not central ([16]). In Filby v Mortgage Express (No 2) Ltd ([2004] EWCA Civ 759, [[62]) May LJ said:

‘Accordingly so far as is relevant to this appeal, the remedy of equitable subrogation is a restitutionary remedy available to reverse what would otherwise be unjust enrichment of a defendant at the expense of the claimant. The defendant is enriched if his financial position is materially improved, usually as here where the defendant is relieved of a financial burden – see Peter Birks, An Introduction to The Law of Restitution page 93. The enrichment will be at the expense of the claimant if in reality it was the claimant’s money which effected the improvement. Subject to special defences, questions of policy or exceptional circumstances affecting the balance of justice, the enrichment will be unjust if the claimant did not get the security he bargained for when he advanced the money which in reality effected the improvement, and if the defendant’s financial improvement is properly seen as a windfall. The remedy does not extend to giving the claimant more than he bargained for. The remedy is not limited to cases where either or both the claimant and defendant intended that the money advanced should be used to effect the improvement. It is sufficient that it was in fact in reality so used. The remedy is flexible and adaptable to produce a just result.’

Did Kingsway get what it bargained for?

Wing Wei argued that Kingsway had got what it bargained for when it made the second and third loans, viz. the benefit of the security of the all moneys charge in favour of Kingsway; the fact that the inability to tack the advances to that charge meant that the later loans would not enjoy the priority conferred by the charge to Kingsway was, argued Wing Wei, irrelevant. This argument was dismissed:

‘[the argument adopted] a highly technical and unreal approach to determining Kingsway’s intention in requiring as a condition for the 3rd and 4th loans respectively a first mortgage over the property. When considered in the commercial context of the present case, there can be no doubt that what Kingsway intended to obtain, and what it actually bargained for, was first priority over the property as a secured creditor, just like Oi Wah under the Oi Wah mortgage, once that mortgage was discharged by means of the 3rd loan which Kingsway was advancing to Wang. ‘ ([28])

Even if Wing Wei were right on the question of intention, this would not be decisive. The ultimate question was whether, absent subrogation, Wing Wei would be unjustly enriched ([30]).

Unjust enrichment

On the facts, it was plain that Wing Wei would be unjustly enriched if its arguments succeeded ([34]). Even if the interest rate under the Kingsway third loan were higher than that payable under the Oi Wah and Kingsway charges, which had not been shown, this would be irrelevant. Equitable subrogation would not entitle Kingsway to a higher rate than that payable under the charges to which they were subrogated ([33]).

Subrogation upon subrogation?

The Kingsway third loan had been used partly to repay the Kingsway second loan and the latter had given Kingsway subrogated rights under the Oi Wah mortgage. Wing Wei argued that Kingsway’s third loan could not give rise to be subrogated to the rights enjoyed as a result of the Kingsway second loan. This argument failed, there was no rule that limited subrogation to a one-time application ([35]).

Contrary to public policy?

Allowing Kingsway to make use of equitable subrogation would not bypass the requirements of CPO, s. 45, ‘when there was, in reality, no additional money lent to the borrower, and the prior mortgage was not made to secure any additional indebtedness as such.’ ([43]).

Michael Lower

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In Tai Fat Development (Holding) Co Ltd v Gold King Industrial Building (IO) ([2014] HKEC 2130, CA) the question was whether 13 car parking spaces in a building in multiple ownership were common areas or whether they had been retained by the first owner of the entire building. Barma JA referred to the principles of contractual interpretation in Jumbo King ([15]). Commercial common sense can be an aid to construction where the words used are capable of differing, but equally plausible, meanings ([16]). Here the relevant documents were the first assignment of a unit in the building, the DMC, the Special Conditions of Grant and the Approved Building Plans ([17]). The wording of the first assignment gave primacy to the DMC  when it came to defining the common areas. The DMC identified the car parking spaces in question as common areas ([23]). A number of other factors supported this conclusion. First, the DMC did not attach ownership shares to the spaces in question ([25]). Second, the DMC referred to ‘Parking Spaces’ (which were not common areas) as being spaces to be allocated to individual buyers; that these spaces had never been assigned was telling ([26]). If the spaces were in private ownership there would be no loading or unloading areas available to non-owners and the accessway would have to be used for this purpose ([27]).

Michael Lower

In Tung Lo Court (IO) v Leung May Chun Alison Aliance ([2014] HKEC 2104, CA) the basement of the building (which included the car parking spaces) had become dilapidated and the incorporated owners decided to have repair and renovation works carried out. Once the work had begun there was an unanticipated problem when the basement was flooded with underground water. The contractors took advice and they were told that safety demanded that the basement be completely closed for four months. The incorporated owners followed this advice. L contended that this closure amounted to a breach of the DMC and also constituted a nuisance. The Court of Appeal rejected this. Given the strong advice that they had received about the risk to safety, it was reasonable for them to have closed down the basement ([31.1]). It was also legitimate to bear in mind the complicated legal issues that might have arisen if someone had been harmed or suffered damage to their property had the basement remained open; it would not have been clear whether the liability was that of the contractor or of the incorporated owners ([31.2]). It was also legitimate to base the decision on financial considerations; closing down the basement meant that the work could be done more quickly and at a lower cost that would otherwise have been the case ([38.4]).

Michael Lower

Re Nisbet and Potts’ Contract ([1906] 1 Ch. 386, CA (Eng)) concerned N’s contract to sell land to P. N’s title was possessory. The formal title had been defeated and there had been several conveyances of the possessory title before its conveyance to N. The contract beween N and P required P to accept this title. At the time of his purchase, N had not investigated title for the full forty years then demanded by conveyancing practice. Had he done so, investigating the paper title that had been defeated, he would have discovered that the paper title was subject to a restrictive covenant controlling what could be built on the land. P was a builder and he acquired the land with a view to building shops and other buildings on it. Before the contract was completed, the neighbour with the benefit of the restrictive covenant informed him of it and that proceedings would be brought in the event of breach. P refused to complete on the basis of this undisclosed encumbrance. The question was whether the covenant was binding on N; if so, P was justified in refusing to complete.

The English Court of Appeal held that a restrictive covenant is an equitable proprietary interest binding on all but a good faith purchaser for value without notice of it (Collins M.R. at 403; Romer LJ at 405 and 406). It was not defeated merely because the paper title had been extinguished. Time would only begin to run against the covenantee when there had been a breach so that the covenantee had a right to bring proceedings (Collins M.R. at 401 and 402).

The squatter himself is always subject to the covenant whether or not he had notice of it (Cozens Hardy L.J. at 410). A purchaser of the squatter’s title is subject to the restrictive covenant unless he is a good faith purchaser for value without notice (Cozens Hardy L.J. at 410). N was not such a purchaser. He had not investigated the title for the full forty year period  and so had constructive notice of any interests that he would have discovered had he done so. N’s title was subject to the restrictive covenant and P was entitled to resile from the contract.

Michael Lower

In Desir Anthony C v Knight Frank (Services) Ltd ([2015] HKEC 44) a resident in a building (‘D’) left bicycles in a common area of the building. The building’s DMC allowed the Owners’ Corporation to appoint an agent with a duty, among other things, to prevent people from occupying common areas. The DMC did not authorise the sale of items unlawfully left in common areas. The Management Company issued a series of circulars, followed up by ‘Final Notices’ requiring D to remove the bicycles or accept that the management company would remove and dispose of them. The bicycles were removed and, after a series of further exchanges, sold. The main question was whether this sale was lawful.

It was not lawful. The Incorporated Owners were involuntary bailees of the bicycles ([80]). An involuntary bailee who sells the bailor’s goods is liable in conversion unless the sale is carried out in good faith and with reasonable care ([82]). Further, the bailee was not entitled to dispose of the bicycles merely because they had become a nuisance and the bailor had rejected the opportunity to collect them. A disposal was only lawful where there was an actual commercial necessity, the bailee acts prudently and in good faith and has been unable to communicate with the bailor before the disposal (a sale on these grounds is lawful in the case of goods that are deteriorating or depreciating in value but is unavailable where the disposal is solely for the bailee’s benefit) ([83]). In the absence of a provision in the DMC authorising the disposal, the sale was prima facie an act of conversion for which the Incorporated Owners were liable ([88]). The bicycles could only have been sold if this were in the bailor’s interests but this was not the case here. The sale was motivated by the desire to be rid of the nuisance of storing D’s bicycles. There were no legal grounds for the sale. ([97]). The Incorporated Owners were liable in conversion and were ordered to pay D the value of the bicycles at the time of the sale ([106]).

Michael Lower

In Ho Hai Kwan v Chan Hon Kuen ([2015] HKEC 132, CFI) the question was whether there had been an equitable severance of a joint tenancy by virtue of a charging order in respect of the property against one of the co-owners. Was it an act operating on the joint tenant’s share? There were obiter dicta in previous Court of Appeal decisions (Malahon Credit Co Ltd v Siu Chun Wah Alice and Fortis Bank v Yu Kam Hoi Herman) to suggest that this was the case. In this case, it was successfully argued that a charging order did not have this effect. The argument was that a charging order (enforceable in the same way as an equitable charge by virtue of section 20B(3) of the High Court Ordinance) does not confer any title on the person who obtained it but merely creates an encumbrance ([19]). Thus, a charging order had no effect on the four unities of the joint tenancy and was insufficiently final and irrevocable; there was no alienation ([20] – [31]). The charging order did not sever the joint tenancy ([58]).

Michael Lower

In Best Linkage Ltd v Marbella Garden Ltd ([2015] HKEC 167, CFI) the parties had entered into a provisional agreement for the sale and purchase of the plaintiff’s property. The agreement required the defendant to pay $200,000 as an initial deposit and then provided for a further deposit (to take the total of the deposits to 10% of the purchase price) on the signing of the formal agreement. Two clauses had been deleted from the standard form of provisional agreement signed by the parties. One was the clause entitling the seller to forfeit the deposit (and still pursue its other remedies) in the event of the buyer’s default. The other was the ‘escape’ clause entitling the seller to terminate the contract by refunding the initial deposit and making a further payment to the buyer of an equivalent amount. The buyer later wrongfully refused to proceed with the purchase. The seller later sold to another party at a very much higher price. The seller sought, and was granted, declarations that the buyer had wrongfully repudiated the agreement and that the seller was entitled to forfeit the initial deposit.

Although the clause expressly entitling the seller to forfeit the deposit had been deleted, the parties still intended the payment to be a deposit and the nature of a deposit is now well settled (see Polyset Ltd v Panhandat Ltd) ([66]). Where there was an ambiguity, deletions have a limited role to play in interpreting a contract but there was no ambiguity here. Even if there were an ambiguity, it is not legitimate to infer from a deletion (of the clause entitling the seller to forfeit the deposit) that the parties intended the reverse proposition to govern their agreement (that the deposit could not be forfeited (see The Golden Leader)).

Michael Lower