In Leung Mee Kuen v Leung Siu Kuen Bessie ([2015] HKEC 1148) Property A was jointly owned by the plaintiff and her brother (‘LPH’). Property A was sold and some of the proceeds were used to acquire Property B. The title to Property B, however, was placed in the joint names of LPH and his mother. This was done to reassure the mother that she would always have a roof over her head. There was no intention to make a gift of part of the purchase price to the mother. Thus, the plaintiff and LPH were the beneficial owners. The mother executed a deed of gift of her share in Property B to the defendant (the plaintiff’s sister). This did not transfer any beneficial entitlement to the defendant as the mother had no such entitlement.

Michael Lower

In Begum v Issa (County Court (Leeds) 5 November 2014) the parties were a married couple with two children. The family home was in joint names and the transfer to them contained an express declaration that they held as beneficial joint tenants. Mr Issa (the husband), acting alone, transferred the property to his brother (it seems that Ms Begum’s signature on the transfer was forged). The brother was registered as the proprietor at HM Land Registry. Ms Begum, unaware of what had happened, remained in occupation with her husband and children. As Ms. Begum was in actual occupation and had not been a party to the transfer to the brother, the effect was that the brother’s registered title was subject to Ms Begum’s equitable interest (Land Registration Act 2002, s. 29).

The judge (HH Judge Behrens) then had to consider the rights of Ms Begum and the brother against each other as equitable co-owners. Section 12 of the Trusts of Land and Appointment of Trustees Act 1996 meant that both Ms Begum and the brother, as beneficiaries, had a right to occupation. Sections 13(1) and 14 gave the court power to exclude one co-owner (here the brother) from occupation on terms which may include the making of payments. Where the court makes such an order it must take into account the matters set out in section 15. The judge had regard to the intention of Ms Begum to occupy the property and the welfare of the two children (one of whom was disabled and who would find any move especially disruptive). On the other hand, it had to have regard to the brother’s intention to achieve a return on his investment in the property. The balance was struck by making an order for sale postponed for twelve months. This delay would allow Ms Begum time to find another suitable home. The brother was entitled to have Ms Begum make a contribution to the mortgage installments paid by the brother. However, the brother had borrowed GBP 92,250 while the outstanding amount on the mortgage taken out by the couple stood at GBP 33,241 at the date of the transfer to the brother. Ms Begum was only liable to pay a proportionate part of the brother’s mortgage payments (36% ie 33,241 / 92,250).

A further question was whether there should be any accounting as between Ms Begum and her husband who alone made all mortgage payments (even those due under the brother’s mortgage until the husband left the property). Was he entitled to a contribution to the mortgage payments from his wife despite their equitable joint tenancy? HH Judge Behrens decided that he was not. He referred to his own decision in Clarke v Harlowe and the English Court of Appeal decision in Wilcox v Tait. He concluded:

‘This is a case where the parties agreed that Nargis Begum would not work and would look after the children. All financial matters were dealt with by Nadeem Issa. In those circumstances I have no hesitation in coming to the conclusion that it was the common intention of the parties that neither should thereafter have to account to the other in respect of expenditure incurred by the other on the property during the period of cohabitation.’ ([112]).

The cohabitation context allows (but does not require) the court to infer a common intention that there would be no liability to account in respect of the period of co-habitation.

On the face of it, Ms Begum was subject to the rights of the mortgagee under the mortgage to which she was a party but not the rights of her brother-in-law’s mortgagee. However, the later mortgagee was subrogated to the rights of the earlier mortgagee to the extent of the amount outstanding under the earlier mortgage at the date of its redemption ([119]).

Michael Lower

Arnold v Britton ([2015] UKSC 36) concerned the construction of the service charge clauses in a number of long leases of chalets in a caravan park. The clauses in question required the lessees to pay, as a proportionate part of the landlord’s costs in providing the relevant services, GBP 90 plus VAT in the first year. This sum was to increase by 10% per annum. The startling result was that the GBP 90 had become GBP 3,366 by 2012 and would rise to GBP 1,025,004 by 2072 (the final year of the leases). It was possible that the sum payable by even one tenant occupying on these terms would exceed the actual cost of the provision of services for the whole estate. The leases of most of the chalets on the estate had been granted earlier than the disputed leases. These earlier leases provided for the initial GBP 90 to rise by 10% every three years (or by roughly 3% per annum). These earlier leases were referred to as the ‘triennial leases’. The clause in the triennial leases gave rise to very much more modest liabilities; even by 2072, the service charge would only have risen to GBP 1,900. These figures are taken from the table in Lord Carnwath’s dissenting judgment (see below).

The first question was whether the landlord’s interpretation of the service charge clause (in line with the above description) was correct so that there would be an automatic increase at 10% per annum. The tenants contended for an alternative construction. They pointed to the fact that the obligation was to pay a proportionate part of the landlord’s cost in providing the services and argued that the compounded GBP 90 merely provided a cap on the amount that was to be paid. The majority of the Supreme Court agreed with Lord Neuberger and rejected this interpretation. The wording of the provision was clear and the fact that it had disastrous consequences for the tenants did not entitle the court to rewrite the clause.

The second question was whether, as the tenants contended, an implied term should be read into the service charge clause. The leases contained a recital to the effect that they were intended to be ‘upon terms similar in all respects to the present demise’. The leases contained a covenant (in clause 4(8)) by the landlord  that the leases of the other chalets ‘shall contain covenants on the part of the lessees thereof to observe the like obligations as are contained herein or obligations as similar thereto as the circumstances permit.’ The questions were whether this created a building scheme or letting scheme and, if so, whether this gave rise to an implied term that would affect the interpretation of the service charge clause. The tenants argued that there was an implied term in the disputed leases to the effect that they were on the same terms as the triennial leases and that this prevented the landlords from increasing the service charge in the disputed leases at a rate that exceeded the rate of increase in the triennial leases.

First, Lord Neuberger was prepared to accept that the relevant terms did indeed create some kind of building or letting scheme and that it was ‘envisaged that there would be a degree of reciprocity and mutual enforceability between the lessees of chalets when it came to the covenants they entered into.’ ([49]). Building schemes can only cover restrictive covenants in the case of freehold land. Lord Neuberger thought it might be possible that they would extend to positive covenants in the case of letting schemes. Even if this were possible, however, it was questionable whether a covenant to pay a service charge or any other sum of money could be within the ambit of a scheme ([51]). In any event, there were other obstacles that, in Lord Neuberger’s view, prevented the tenant’s argument from succeeding: the relevant lease terms appeared to relate to future lettings (not past lettings like the triennial leases); even if there were an implied term as contended for it could not override the obligations that the tenants had expressly assumed; and clause 4(8) referred to ‘like’ or ‘similar’ terms and so envisaged the possibility of some degree of variation. More fundamentally, the implied term that was the best fit with the relevant provisions was to the effect that the triennial leases contained the same service charge provisions as the disputed leases (and not vice versa). While there was a good argument in favour of such an implied term, this did not help the tenants under the disputed leases; they suffered no damage as a result of a failure to impose the same term in other leases.

Lord Neuberger’s judgment contains a section ([14] – [23]) reviewing the major authorities on contractual interpretation. Amongst the points made in this section is that he is ‘unconvinced by the notion that service charge clauses are subject to any special rule of interpretation.’ ([23])

On the major question, the view of the majority is summed up thus:

‘In my judgment, there is no principle of interpretation which entitles a court to re-write a contractual provision simply because the factor which the parties catered for does not seem to be developing as the parties may well have expected.’ ([41] per Lord Neuberger).

Lord Carnwath gave a dissenting judgment. He inclined to the view that service charge clauses did merit special treatment to ensure that they give effect to their intended purpose and to guard against ‘unfair and unintended burdens being placed on the lessees.’ ([123]) Service charge clauses in many residential leases are subject to controls imposed by legislative scheme. There was no obvious policy reason to explain the fact that the disputed leases did not fall within the ambit of this legislation ([90] – [92]).

Lord Carnwath identified the following features of the factual matrix: the huge service charge liabilities that the tenants holding under the disputed leases would face in the later years of the terms and the gross disparity between these sums and those payable under the triennial leases ([104]); the service charge uplift was intended to respond to the very high inflation of the 1970s but the disputed leases were mainly granted between 1977 and 1991 at which time it was possible to anticipate lower rates of inflation ([106]); the lessees were taking the leases as a long term investment and so it is likely that they would have made enquiries of existing lessees (holding under the triennial leases) about their experiences and the costs associated with living on the estate  ([107]).

Something clearly had gone wrong in the drafting of the clause given the disconnection between the idea of contributing a proportionate part of the cost of providing the services and the obligation to pay a fixed sum each year ([125]). It was inconceivable that the lessees under the disputed leases would gamble on inflation being close to or exceeding 10% per annum for over 90 years ([139]). They would have known of the change from the triennial formula to the annual formula in their own leases and the likelihood is that they would have understood it as amounting to a cap or upper limit on their service charge liability ([142]). If questioned by the officious bystander they would have articulated this understanding ([143]).

Michael Lower

In Chan Po King v Yau Wai Yin ([2015] HKEC 1283, CA) two out of four tenants in common had granted a two year lease of land expiring on 31 December 2013.The tenant refused to leave when the term ended. One of the two tenants in common who had granted the lease brought proceedings to recover possession and seeking mesne profits in respect of the occupation after the end of the term. The tenant contended that both landlords had to be parties to the proceedings and that one tenant in common, acting alone, could not do so. This argument failed. The lease term had ended and the tenant had no further right to possession. There was no evidence to suggest that the other landlord was willing to allow the possession to continue. The applicant was entitled ‘in exercise of her right and interest to possession as a tenant-in-common’ to bring possession proceedings acting alone ([26] per Chu J-A).

Michael Lower

In Yip Yuk Kwong v Yip Chun Yin ([2015] HKEC 1312) title to property was in the names of a mother and son but (along with the father) the common intention was that the parents were the beneficial owners. The son’s name was on the title only because he was a solicitor and the firm that employed him would do the conveyancing at a concessionary rate if he were one of the buyers. The father made all the mortgage payments. The son became bankrupt in 1998 and he immediately asserted that he was only a trustee of the property. The court was satisfied that the common intention existed. It might have been better had there been a written declaration of trust but the purpose of the common intention constructive trust is precisely to allow the failure to comply with this formality to be overlooked ([18] per Deputy Judge Saunders).

Michael Lower

In Credit and Mercantile plc v Kaymuu Ltd ([2015] EWCA Civ 655) S, W and E were three businessmen who acted as a consortium to carry out property development ventures. There was no formal written agreement between them and they operated on the basis of trust. They agreed to distribute between themselves the proceeds of sale of shares in a company used as the vehicle for one of their ventures. It was agreed that W’s share would be used to finance the purchase of a house (Dalhanna) for occupation by W as his family home. W left all the arrangements for the purchase to S. The property was acquired and W went into occupation. Unknown to W, S had arranged for the property to be acquired by Kaymuu Ltd, a company wholly controlled by S. There was a short interval in the time between the transfer of title to Kaymuu and its registration at the Land Registry. In that interval, S arranged for Kaymuu to grant a charge to C & M in return for a loan of GBP500,000 which S took for himself. S went into bankruptcy and C & M sought possession of the property.

At first instance, W was found to have a beneficial interest under a Pallant v Morgan equity. W argued that his occupation, discoverable on a reasonably careful inspection of the land at the time of the disposition, meant that his interest was an overriding interest and that C & M was subject to it (Land Registration Act 2002, s. 29). This failed; W was prevented from having a right enforceable against C & M by virtue of the Brocklesbury principle (see Brocklesbury v Temperance Permanent BS [1895] AC 173). Sales LJ explained the principle thus:

‘The Brocklesby principle is not based on actual authority given to the agent, but rather on a combination of factors: actual authority given by the owner of an asset to a person authorised to deal with it in some way on his behalf; where the owner has furnished the agent with the means of holding himself out to a purchaser or lender as the owner of the asset or as having the full authority of the owner to deal with it; together with an omission by the owner to bring to the attention of a person dealing with the agent any limitation that exists as to the extent of the actual authority of the agent. This combination of factors creates a situation in which it is fair, as between the owner of the asset and the innocent purchaser or lender, that the owner should bear the risk of fraud on the part of the agent whom he has set in motion and provided (albeit unwittingly) with the means of perpetrating the fraud. The same principle applies where the dishonest vendor or mortgagor of the asset, who by the sale or mortgage raises money from an innocent third party, has been vested with the legal title as a trustee’ ([52])

The principle, which was the basis for the ruling in Abbey National Building Society v Cann, applied in the present case. W had given S authority to act on his behalf in relation to the purchase; S was given the freedom to make whatever arrangements he saw fit to effect the purchase and W exercised no supervision over S’s arrangements. W gave S the means to hold himself out to C & M as the true owner ([57]). As a result, ‘[W] was precluded by operation of the Brocklesbury principle from maintaining that he had a beneficial interest in relation to Dalhanna with potential to have priority over the security interest of C & M’ ([58]).

Michael Lower

In Wilcox v Tait ([2006] EWCA Civ 1867) W and T were co-habitees who acquired a property as the family home and the transfer to them contained an express declaration that they were beneficial joint tenants. When the relationship broke up, W sought a declaration as to her beneficial entitlement, an order for sale and a division of the property in equal shares. T argued that there should also be an equitable accounting. He had made nearly all of the mortgage payments and T argued that W should give credit for half of all of these from the time that the property was acquired. The effect would be to extinguish W’s share of the anticipated proceeds of sale. T failed.

There could be no hard and fast rule as to whether there should be such an accounting, it all depends on the intention of the parties as to how the expenditure should be treated (Jonathan Parker LJ at [65]):

‘That said … in the ordinary co-habitation case it is open to the court to infer from the fact of co-habitation that during the period of co-habitation it was the common intention of the parties that neither should thereafter have to account to the other in respect of expenditure incurred by the other on property during that period for their joint benefit. Whether the court draws that inference in the given case will of course depend on the facts of that case.’ (Jonathan Parker LJ at [66]).

Michael Lower

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

Rainy Sky SA v Kookmin Bank ([2011] UKSC 50) arose out of contracts for the building and sale of ships. The purchasers were to pay the purchase price in five installments and the contract provided that the installments would be refunded to the purchasers on the happening of any of certain events specified in the contract. The contracts required the shipbuilder to procure refund guarantees to protect the buyers against the possibility that the shipbuilder might fail to refund advance payments when required to do so under the terms of the contract. Kookmin Bank provided the refund guarantees. After the purchasers had paid the first installments due under their respective contracts, an event occurred entitling the purchasers to call for a refund of the installments. The purchasers invoked this clause but the shipbuilder refused to repay the money. The purchasers then sought payment from the Bank under the terms of the guarantee. The Bank refused to pay arguing that the guarantee did not cover the event that had occurred.

Lord Clarke (with whom the other members of the Supreme Court agreed) considered the rival constructions argued for by the parties and concluded that each interpretation was arguable. In such a case, the court could legitimately have regard to the commercial consequences of the rival interpretations. The interpretation that was most in line with the parties’ reasonable interpretations could be preferred:

‘If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.’ ([21])

Where, however, the language was unambiguous then the court must apply it ([23]). At first instance an experienced judge of the Commercial Court expressed the view that the Bank’s construction ‘defies commercial common sense’. The purchasers’ construction was, therefore, to be preferred ([45]).

Michael Lower

In Aberdeen City Council v Stewart Milne Group ([2011] UKSC 56) the Council sold some development land to Stewart Milne Group Ltd (‘SMG’). The contract for the sale provided for a further payment (‘Profit Share’) to be paid to the Council in the event of (i) the service of a notice by SMG on the Council to trigger the obligation to pay; or (ii) a sale by SMG; or (iii) the grant of a lease by SMG. There was to be only one such payment and once it had been made there would be no further obligation to make any payment even if one of the relevant events occurred.

SMG sold the property to SMW, another company in the same group, at a price that the Council alleged was well below the open market value. SMG contended that this triggered the once and for all obligation to make a Profit Share payment. The Council refused to accept that this was the case. There was a tension between the wording of the contract and the alleged commercial purpose. The contract did not expressly rule out an intra-group transaction in its definition of event (ii) (a sale triggering the obligation to pay). On the other hand there was evidence from other provisions within the contract pointing to a contractual intention that the Profit Share would be calculated by reference to the property’s open market value.

The Supreme Court decided that there was a clear commercial intention that the Profit Share would be calculated by reference to the open market value.  They preferred to think of this in terms of an implied term rather than as a process of interpretation (though the result is the same whichever route is used ([33] Lord Clarke). A term was to be implied to the effect that where the sale was not at arm’s length, an open market valuation (rather than the actual price paid) would be used in the calculation of the Profit Share ([20] Lord Hope; [32] Lord Clarke).

Michael Lower

In Yu Fung Co Ltd v Olympic City Properties Ltd ([2015] HKEC 1523, CFI) L was party to a ‘Redevelopment Agreement’ with Full Country Development Limited (‘Full Country’). Under the terms of the agreement, and subsequent sale and purchase agreements, L assigned his flat to Full Country in return for a new flat once a redevelopment scheme had been completed. L moved into the new flat in June 1997 but title to the flat was never assigned to him. Around the same time, June 1997, Full Country assigned the title to a third party. Title ultimately came into the hands of Olympic. Olympic borrowed from Yu Fung and Yu Fung had a charge over the flat. Olympic defaulted and Yu Fung brought possession proceedings. L argued that the sale and purchase agreement gave him an equitable title to the property and he was joined as a party to the proceedings.

The claim to an equitable interest in the flat as a result of the sale and purchase agreement failed: the agreement did not specify the flat (or quantify L’s undivided share in the development) ([33] – [34] per Deputy Judge Simon Leung).

L also relied on adverse possession. Possession had originally been with Full Country’s consent and so not adverse. This changed, however, when Full Country assigned the title to the flat. There was no evidence to show that the new owners had consented to L’s possession: the limitation period, therefore, began to run around June 1997. The fact that L believed that he was entitled to be in possession under the terms of the agreement did not stop the limitation period from running if possession and intention to possess were present ([71]). Time begins to run once a purchaser goes into possession pursuant to a sale with the intention of excluding the whole world including the vendor ([72]).

The question was whether the limitation period had expired. Proceedings against Olympic were brought in June 2008. Lai was joined as a party a month later, in July 2008. The claim against Lai was first made in a Notice and affidavit in October 2011. If the relevant proceedings were brought against Lai in June / July 2008, the limitation period would not have expired. If October 2011 was the relevant date then the limitation period had expired by then (twelve years from June 1997). Deputy Judge Simon Leung pointed to section 35(1)(b) of the Limitation Ordinance: new claims (other than third party proceedings) are deemed to have been commenced on the same date as the original action. The addition of a new party is a ‘new claim’ (Limitation Ordinance, s. 35(2)(a)). Thus, the limitation defence failed and Yu Fung was entitled to possession. L should have applied to strike out the 2011 Notice and affidavit on the grounds that they were an abuse of process ([84]). This application would, it seems, rely on section 35(3) of the Limitation Ordinance which prohibits new claims after the expiry of the time limit which would affect a new action to enforce that claim.

Michael Lower

In MTR Corp Ltd v Cheung Ching Kin ([2015] HKEC 1535, LT) MTR Corp (the applicant) was appointed Manager of an estate in Tseung Kwan O. The respondent was the owner of a flat on the estate occupied by his daughter (he had moved out). There were persistent and well-documented complaints of frequent loud hammering noises in the flat in the late night or early hours of the morning. The Tribunal had no hesitation in finding that these noises amounted to a nuisance. The applicant sought an injunction to restrain the nuisance. The relevant provision prohibited owners from doing anything which might be a nuisance or cause damage or annoyance to other owners and occupiers or to the public. There was also a prohibition on producing music or noise that might cause a nuisance to other users of the development. These covenants were extended; owners could not ‘permit or suffer’ a breach of the covenant. Here the noise was produced by the owner’s daughter, not the owner himself, so the question was whether he had permitted or suffered his daughter to cause the noise.

In Realty Harvest Limited & Others v Gold Margin Development Limited ([2001] 1 HKC 234, CA) the Court of Appeal endorsed the proposition that ‘permit’ and ‘suffer’ are synonyms. ‘Permit’:

‘ means one of two things, either to give leave for an act which without that leave could not be legally done, or to abstain from taking reasonable steps to prevent the act where it is within a man’s power to prevent it. Acts which fall short of that, though they be acts of sympathy or assistance, do not amount to permission at any rate in the covenants with which we are dealing.’

(Berton & Others v Alliance Economic Investment Company Limited [1922] 1 KB 742 at 759 per Atkins LJ).

The owner needs to know of the breach before he can be said to have permitted it ([38]). The owner knew of the breach and had taken no steps to prevent the noise problem from continuing. The injunction was granted.

Michael Lower

In Long Source Industrial Ltd v Guardian Property Management Ltd ([2015] HKEC 1964, LT) Guardian Property Management (‘GPM’) had been appointed manager of a development at Tai Po Kau. There is no owners’ corporation. The applicant, Long Source Industrial (‘LSI’), was an owner of the development. The owners of several houses had extended their rear gardens to incorporate common parts and a surface channel had been altered. LSI began proceedings in March 2013. At that time, GPM’s view was that the matter was in hand: it was monitoring the progress of rectification works and was liaising with the Buildings Department on the progress of its enforcement action. Subsequently, some owners were prosecuted and the owners of most of the houses had complied with the Building Orders issued by the Buildings Department by the time of the hearing.

The DMC contained the following provisions concerning the responsibility and powers of GPM as manager of the development:

‘the Manager shall be responsible for and shall have full and unrestricted authority to do all such acts and things as may be necessary or requisite for the proper management of the Development’.

For this purpose, it had the power to bring legal proceedings to enforce due observance and performance of the DMC terms by the owners.

LSI sought an order compelling GPM to bring proceedings against the owners in breach. The LT declined to grant this injunction. While the words ‘necessary or requisite’ were not expressly qualified by the word ‘reasonably’, it was enough for GPM to act reasonably here. It had acted reasonably. Even from the perspective of March 2013, GPM was acting reasonably. At that time, many of the owners were taking steps to rectify the breach. It would not have been managing the funds of the development properly, as it owed a fiduciary duty to do ([36]), had it commenced proceedings at that time.

Michael Lower

In Wong Kam Fung v Smart Profit Enterprises Ltd ([2014] 5 HKLRD 853, CA) S entered into a provisional sale and purchase agreement for the sale of property to P. P sent S a cheque for the deposit but the cheque was never presented. P registered the agreement at the Land Registry. P later repudiated the agreement and this was accepted by S. P refused to vacate the registration of the agreement at the Land Registry. S sought an order requiring P to remove the registration. P counterclaimed for the return of the deposit and for damages for breach of contract.

The agreement was clearly no longer in existence. P argued, however, that it had an equitable lien over the property arising out of the delivery of the deposit cheque to S and that this lien entitled it to maintain the registration. It argued that the equitable lien also covered the claim for damages (P did not register the lis pendens). P’s argument failed and it was ordered to vacate the registration.

Given that the deposit cheque had not been presented, there had been no part payment of the purchase price and so there could be no equitable lien:

‘[T]here are two requirements to be satisfied before a purchaser can claim an equitable lien over the vendor’s property, namely (a) money has been paid on account of the purchase price, and (b) the money has been paid to the vendor.’ (Kwan JA at [30]).

There were cases in which the court had accepted that an equitable lien could cover a claim for damages in addition to the part payment of the purchase price where justice demanded it. They were not authority that the lien could cover a damages claim on its own ([29]).

Michael Lower

In Yang Dandan v Hong Kong Resort Co Ltd ([2015] HKEC 2050, CFI) Y bought a duplex on the top floors of a block of flats. The apartment has the benefit of a sea view. Y claimed that she was induced to enter into the contract to buy the apartment from the developer by two representations:

1. the written representation in the sales brochure that the open land (‘the Amalfi land’) between her apartment and the sea would be used for a ‘mid-rise residential development’; and
2. an alleged oral representation made by the developer’s employee before the contract that the apartment would enjoy a view of Victoria Harbour and that only a hotel then under construction would interfere with the sea view.

The developer also owned the Amalfi land and block one of the later Amalfi development partially obscured the sea view from the terrace of Y’s apartment. Y sought damages for misrepresentation under section 3(1) of the Misrepresentation Ordinance. She claimed that the representations led her to believe that she would have an unobstructed sea view and that the developer intended to ensure that this would not change.

There was no actionable misrepresentation since Y had not pleaded that the developer had been reckless as to the truth of its statements as to its future intentions and yet the case did not concern a question of a present fact as at the time of the negotiations and contract. That aside, the question is how the representation would have been understood by a reasonable person in Y’s position and with her characteristics (a highly sophisticated and intelligent business person for whom an unobstructed sea view was important). In that regard, the written representation had to be considered in the context of the whole of the sales brochure in which it was to be found. The brochure contained disclaimers making it clear that the developer could change its mind as to how the Amalfi land would be developed.There was no evidence that the oral representation had been made.

Despite the finding that there had been no actionable misrepresentation, Kent Yee DJ went on to consider whether Y was estopped from bringing any such claim by virtue of a clause to the effect that, ‘The terms and conditions of this Memorandum shall supersede any and all oral and written agreements or representations made by or on behalf of the Vendor’. The developer sought to rely on contractual estoppel in this respect. Y’s argument that the controls on exemption clauses in section 4 of the Misrepresentation Ordinance were engaged by the clause was rejected since, on its proper construction, the clause did not exclude or limit liability. Rather, it allowed the written terms to supersede all earlier agreements and representations ([77]). Even if section 4 were engaged, the provision was reasonable ([78]). On the other hand, it was accepted that another clause in the agreement (the ‘entire agreement’ clause) did not preclude an action for misrepresentation.

Finally, had Y succeeded, she sought damages for loss of the opportunity to buy ‘the Ideal Property’ with the characteristics she thought she had been led to expect. This would be another property with a permanent and unobstructed sea view in Discovery Bay or elsewhere within her budget. Y had to show that she had a reasonable chance of buying such a property. Four comparable properties were identified but three of these were not available at the time of Y’s purchase. The fourth was in the same development as Y’s property and its sea view was similarly affected by the Amalfi development.

Michael Lower

In Green & Grace Ltd v Wang Lung Industrial Building ([2015] HKEC 1935, LT) the incorporated owners resolved to repair the external walls of the building. A later general meeting specified the contribution of each owner to the works that had been carried out, including the cost of repairing the external wall.

The DMC of the building retained the exclusive use of the external walls for the developer but provided that the developer would not be required to repair them. The question was whether the resolution to repair the external walls was void in the light of section 34H(1) of the Building Management Ordinance:

‘Where a person who owns any part of a building, has the right to the exclusive possession of any part of a building or has the exclusive right to the use, occupation or enjoyment  of that part as the case may be, but the deed of mutual covenant does not impose an obligation on that person to maintain the part in good repair and condition, that person shall maintain that part in good repair and condition.’

The incorporated owners responded by pointing out, among other things, that the DMC gave the Manager some limited control rights over the external walls and that, therefore, the developer’s rights were not ‘exclusive’. This contention failed as did the argument that the limited repairing and maintenance obligations imposed on the developer by the DMC meant that section 34H did not apply. The external wall, being for the developer’s exclusive use, was clearly not a common part.

Kot DJ found the reasoning in Uniland Investment Enterprises Ltd v IO of Sea View Estate ([1999] 4 HKC 141) especially helpful. This looked at the combined effect of sections 34H and 34C(2) of the Building Management Ordinance. The latter provision stipulates that section 34H takes priority over the terms of the DMC in the event of inconsistency. The conclusion was that the DMC provision purporting to relieve the developer from any obligation to maintain the common walls was inconsistent with section 34H and was void. It was for the developer, and not the incorporated owners, to repair the external walls or bear the costs of doing so.

Interestingly, Kot DJ commented on the Court of Appeal decision in 鄭惠娟 對 永利中心業主立案法團及另一人 . He found this unhelpful since the Court of Appeal’s attention had not been drawn to Uniland.

Michael Lower

In Chow Chung Kwan ([2015] HKEC 2112, CFI) H and W bought property as joint tenants and jointly charged it to a bank as security for the loan to fund the purchase. H’s bankruptcy severed the joint tenancy by operation of law. W claimed that she had provided the entire purchase price and that H and W held on trust for W alone under a common intention constructive trust.

Ng DJ referred to the recent review of the law in this area in Mo Ying v Brillex Developments and to the principles concerning common intention constructive trusts of the family home held in joint names in Jones v Kernott [51]. She also referred to the statements as to the whole course of conduct in Oxley v Hiscock and Stack v Dowden. 

The starting point where H and W held as joint tenants was that this was the actual ownership arrangement (Stack v Dowden). It was for W to prove that there was some other common intention ([28]). The fact that title was held by H and W as joint tenants and that they had jointly charged it to the bank provided the starting point for the analysis (Ip Man Shan Henry v Ching Hing Construction Co Ltd and Chan Chui Mee v Mak Chi Choi). Unequal contributions to the purchase price and mortgage installments will usually not be enough to establish the existence of a common intention constructive trust (Re Lau Hiu Tuen, bankrupt). Ng DJ said:

’35. In a family setting, if a married couple decides to buy a family home, almost always with the help of a mortgage for which they are jointly and severally liable, that is on the face of things a strong indication of emotional and / or economic commitment to a joint enterprise. The fact that parties in a trusting personal relationship do not hold each other to account financially is underpinned by the practical difficulty, in many cases, of taking such account many years later of the ups and downs of living together as a married couple.

36. A holistic approach should be adopted, and other than financial contributions for the purchase and usual outgoings, other relevant factors including how and why the property was acquired and the nature of the parties’ relationship would be considered in ascertaining the couple’s intention’

In fact, the facts did not establish that W had shouldered responsibility for making all of the payments. She had not established the existence of a common intention constructive trust in her favour.

The question then was whether H’s trustees in bankruptcy were entitled to an order for sale under section 6 of the Partition Ordinance. Section 6(1) focuses the question on the interests of ‘all of the persons interested.’ A sale was clearly not in the interests of H and W (both elderly and infirm). On the other hand, the creditors had a right to be paid. Ng DJ noted a difference of judicial opinion as to whether priority should be given to W’s interests and she had not been addressed on this conflict. She decided that she could not refuse an order for sale unless this were for the benefit of all of the co-owners (ie of the creditors, represented by H’s trustees in bankruptcy, as well as of W) ([40] – [46]). She granted the order for sale.

Michael Lower

In Aberdeen City Council v Stewart Milne Group ([2011] UKSC 56) the Council sold some development land to Stewart Milne Group Ltd (‘SMG’). The contract for the sale provided for a further payment (‘Profit Share’) to be paid to the Council in the event of (i) the service of a notice by SMG on the Council to trigger the obligation to pay; or (ii) a sale by SMG; or (iii) the grant of a lease by SMG. There was to be only one such payment and once it had been made there would be no further obligation to make any payment even if one of the relevant events occurred.

SMG sold the property to SMW, another company in the same group, at a price that the Council alleged was well below the open market value. SMG contended that this triggered the once and for all obligation to make a Profit Share payment. The Council refused to accept that this was the case. There was a tension between the wording of the contract and the alleged commercial purpose. The contract did not expressly rule out an intra-group transaction in its definition of event (ii) (a sale triggering the obligation to pay). On the other hand there was evidence from other provisions within the contract pointing to a contractual intention that the Profit Share would be calculated by reference to the property’s open market value.

The Supreme Court decided that there was a clear commercial intention that the Profit Share would be calculated by reference to the open market value.  They preferred to think of this in terms of an implied term rather than as a process of interpretation (though the result is the same whichever route is used ([33] Lord Clarke). A term was to be implied to the effect that where the sale was not at arm’s length, an open market valuation (rather than the actual price paid) would be used in the calculation of the Profit Share ([20] Lord Hope; [32] Lord Clarke).

Michael Lower

In Yu Fung Co Ltd v Olympic City Properties Ltd ([2015] HKEC 1523, CFI) L was party to a ‘Redevelopment Agreement’ with Full Country Development Limited (‘Full Country’). Under the terms of the agreement, and subsequent sale and purchase agreements, L assigned his flat to Full Country in return for a new flat once a redevelopment scheme had been completed. L moved into the new flat in June 1997 but title to the flat was never assigned to him. Around the same time, June 1997, Full Country assigned the title to a third party. Title ultimately came into the hands of Olympic. Olympic borrowed from Yu Fung and Yu Fung had a charge over the flat. Olympic defaulted and Yu Fung brought possession proceedings. L argued that the sale and purchase agreement gave him an equitable title to the property and he was joined as a party to the proceedings.

The claim to an equitable interest in the flat as a result of the sale and purchase agreement failed: the agreement did not specify the flat (or quantify L’s undivided share in the development) ([33] – [34] per Deputy Judge Simon Leung).

L also relied on adverse possession. Possession had originally been with Full Country’s consent and so not adverse. This changed, however, when Full Country assigned the title to the flat. There was no evidence to show that the new owners had consented to L’s possession: the limitation period, therefore, began to run around June 1997. The fact that L believed that he was entitled to be in possession under the terms of the agreement did not stop the limitation period from running if possession and intention to possess were present ([71]). Time begins to run once a purchaser goes into possession pursuant to a sale with the intention of excluding the whole world including the vendor ([72]).

The question was whether the limitation period had expired. Proceedings against Olympic were brought in June 2008. Lai was joined as a party a month later, in July 2008. The claim against Lai was first made in a Notice and affidavit in October 2011. If the relevant proceedings were brought against Lai in June / July 2008, the limitation period would not have expired. If October 2011 was the relevant date then the limitation period had expired by then (twelve years from June 1997). Deputy Judge Simon Leung pointed to section 35(1)(b) of the Limitation Ordinance: new claims (other than third party proceedings) are deemed to have been commenced on the same date as the original action. The addition of a new party is a ‘new claim’ (Limitation Ordinance, s. 35(2)(a)). Thus, the limitation defence failed and Yu Fung was entitled to possession. L should have applied to strike out the 2011 Notice and affidavit on the grounds that they were an abuse of process ([84]). This application would, it seems, rely on section 35(3) of the Limitation Ordinance which prohibits new claims after the expiry of the time limit which would affect a new action to enforce that claim.

Michael Lower