BESTKEY DEVELOPMENT LTD. v. THE INCORPORATED OWNERS OF FINE MANSION AND ANOTHER

CACV 255/98

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H E A D N O T E

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Separating promissory estoppel and proprietary estoppel for consideration is desirable.

CACV 255/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 255 OF 1998

(ON APPEAL FROM DCA 11433 OF 1995)

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J U D G M E N T

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Liu, JA:

1. This is a dispute about a space used for some 20 years as the management office of a building known as Fine Mansion. The background history of this action is uninvolved. When the building was being constructed, a sale brochure was distributed by the developer to potential purchasers. In that, a space was designated as the Attendant's Room (the Room). The Room has since 1972 been exclusively used as the management office of Fine Mansion. Madam Lau and Madam Go gave evidence before His Honour Judge To. Madam Lau's husband became one of the first purchasers, as did Madam Go. These two ladies visited the construction site in 1972. Occupation Permit for Fine Mansion was issued on 23 January 1973. Madam Lau's husband became a first purchaser on 30 March 1973, two days after the registration of the Deed of Covenant dated 1 March 1973 (DMC). Madam Go also became a first purchaser, but later on 9 April 1973. In the DMC, 1/87th share of the equity of Fine Mansion was reserved to the developer with the exclusive use of the penthouse, the roof, a store-room, the Room and a car-park. On 28 June 1973, this 1/87th share held by the developer was sold to Tung Po Investment Company Limited. In the assignment executed in favour of Tung Po Investment Company Limited, the Room was left out of the operative part. A series of mesne assignments followed. In none of those was the Room included in the description of the premises assigned, but in each a transfer of the said 1/87th share was effected. On 18 September 1991, the plaintiff became owner of the said 1/87th share of Fine Mansion. By assignment, the plaintiff acquired all the premises reserved for the exclusive use of the holder this 1/87th share except for the Room. It has to be accepted that no part of these premises could be separately disposed of unaccompanied by some carved-out portion of the said 1/87th share, but the parties seemed to have reached consensus to the sweeping effect that the Room which was explicitly excluded had nevertheless also passed to the plaintiff. For about a year the plaintiff was inactive. Finally, as proprietor of the said 1/87th share the plaintiff sued both defendants with respect to the Room - the 1st defendant in its statutory representative capacity for the owners, and the 2nd defendant as the management company of Fine Mansion. The 1st defendant counterclaimed for appropriate relief pursuant to s. 18(2)(g) of the Building Management Ordinance, Cap. 344, which reads:

" A corporation may, in its discretion - act on behalf of the owners in respect of any other matter in which the owners have a common interest".

2. It is to be noted that the 1st defendant was sued by the plaintiff in its statutory capacity as representing the owners. The plaintiff evidently recognised some common interest for which the 1st defendant could act, but it is sought to be argued that the 1st defendant could not counterclaim also in the same representative capacity in which it was sued. The contrast seems irreconcilable. Further, a dispute arose between the plaintiff and the rest of the owners of Fine Mansion, which had to be settled. Resolution of the dispute over the Room was clearly a common interest envisaged by s. 18(2)(g) of the Building Management Ordinance. In my view, the 1st defendant was entitled to counterclaim in its statutory representative capacity.

3. The Room has been put to use as the management office of Fine Mansion for 20 years before the plaintiff finally staked out his claim but only one year after its acquisition of the said 1/87th share. The plaintiff had thitherto been content to accept a conveyance excluding any reference to the Room. Supply and examination of the sale brochure with the Room earmarked in a location taken for a management office was produced by the two ladies. These two ladies also informed the District Judge of the existing user of the Room as a management office on their 1972 site visits. They claimed before the District Judge that they relied and acted on the information so provided and the actual user of the Room on site before they decided to and did ultimately purchase their respective properties as co-owners, in the case of one of the ladies, herself and in the case of the other lady, her husband. In effect, they said, they would re-consider their purchases if the management office was not in situ. They added that security might well pose a problem without it. They also took into account, one for herself and the other for her husband, the aesthetic appearance of the entrance where the Room was situated. The judge found that they were somewhat influenced by the facilities provided by the management office in Fine Mansion before a decision was taken to buy.

4. The ladies told the judge that they understood the Room to be a common area earmarked for the management office they found on their site visits. The 1st and the 2nd defendants had, throughout the years, maintained and furbished the Room in the course of its continued user as the management office of Fine Mansion. The judge accepted such evidence and he found as facts the matters I have just alluded to.

5. The point in issue was not where legal interests lay but whether the professed knowledge of these ladies was truthful. Their evidence was not challenged before the District Judge. No question was put to either of these ladies that their respective mistaken understanding was other than genuine. Madam Go and the husband of Madam Lau executed their respective assignments for the purchase subject to the DMC.

6. Mr Leong, Senior Counsel, makes great play of what he describes as subjective knowledge. The court, so counsel argues, should not overlook such subjective knowledge which the purchasers could not have failed to gain from the conveyancing documents. It would be almost sinful, so counsel submits, for either of these two ladies to assert what, they said, was their mistaken belief regarding the Room. Knowledge to be imputed from the executed assignments containing a direct reference to the DMC and from the statutory deeming provisions in the Conveyancing and Property Ordinance was not accepted by the District Judge as having the effect of displacing reality. The District Judge did not find such imputed knowledge to have undermined the claim of a genuine mistaken belief of these first purchasers, one on her own and another through her, her husband's. The District Judge was aware of the mention of the DMC in the executed assignments and the possible implications, but these ladies were believed.

7. There was no evidence that the attention of the first purchasers including these two ladies, one for her husband, was directed to the material part of the DMC. There was simply nothing to show that these two ladies and other first purchasers had actual knowledge of its contents. The judge believed that these two ladies were so mistaken and a fair inference might reasonably be drawn that other first purchasers were similarly misled. It was not argued before the District Judge that these two ladies and for that matter, the other first purchasers and their successors-in-title would be, in any way, cross-estopped from raising or relying on their genuine mistaken belief. The evidence of the ladies was wholly unopposed.

8. His Honour Judge To accepted the estoppel plea and refused the plaintiff's claim. The District Judge allowed the counterclaim. From these determinations, the plaintiff now appeals.

9. In the judgment of the District Judge, promissory estoppel was time and again brought into focus, more prominently at page 3 of the judgment, page 13 of the Bundle of Documents for the Appeal. No point is taken before us that the defendants may not rely on proprietary estoppel and promissory estoppel interchangeably. The joint consideration of these two limbs of the doctrine has made an otherwise well-structured judgment difficult to read.

10. In Wilken-Villiers on Waiver, Variation and Estoppel, estoppel is said to be divisible into three categories: estoppel by record, estoppel by deed and estoppel in pais. Estoppel in pais may be sub-divided into estoppel by convention and estoppel by representation. See paragraph 8.002 at p. 104. Estoppel by representation had its origin in equity, which is now universally accepted as sub-dividing again into proprietary estoppel and promissory estoppel, which may both be loosely said to be equitable estoppels. These equitable estoppels have gained common law recognition. It is perhaps pertinent to digress briefly from equitable estoppels for estoppel by convention, also known as common law estoppel by representation or estoppel proper. In that type of estoppel at common law, parties to a contract have acted on a certain interpretation in the course of dealing, giving rise to an estoppel to bind them to such assumed interpretation. Estoppel by Convention depends on a shared assumption. See Amalgamated Investment & Property Co. Ltd. (In Liquidation) v. Texas Commerce International Bank Ltd., [1982] QB 84 at p. 121 C/D. Reverting to estoppel in equity, first, proprietary estoppel, more appropriately described as an estoppel by acquiesce. Proprietary estoppel stemmed from Ramsden v. Dyson, (1866) LR 1, H L 129 and Willmott v. Barber, [1880] 15 Ch. D. 96. Promissory estoppel was introduced by Denning, J, as he then was, in 1946 in The Central London Property Trust Limited v. High Trees House Limited, [1947] 1 K.B. 130. Denning, J suggested that it was a derivative of an equitable estoppel canvassed by Lord Cairns, LC in Hughes v. Metropolitan Railway Company, (1877) 2 AC 439 at p. 448, but promissory estoppel is a new creature. At p. 135, Denning, J. was positive: "......the time has now come for the validity of such a promise to be recognised." A promissory estoppel depends on a promise, less than a contractual binding promise, intended to be acted upon and, in fact, acted upon to the detriment of the prospective plaintiff. Detriment need not involve expenditure of money on land. I shall return to detriment in a moment or two. Thus analysed, law and facts could be readily resolved with little confusion.

11. It is not to be forgotten that Scarman, LJ, as he then was, in Crabb v. Arun District Council, [1976] Ch. 179 at p. 193, suggested that the distinction between these two varieties of estoppel had little real significance. He observed:

"I do not find helpful the distinction between promissory and proprietary estoppel. This distinction may indeed be valuable to those who have to teach or expound the law; but I do not think that, in resolving the particular problem raised by a particular case, putting the law into categories is of the slightest assistance."

That said, given the intricate features of estoppel, keeping these two varieties discrete in concept would be helpful. Indeed, there still exists the significant difference between a proprietary estoppel which entitles the representee to attack and a promissory estoppel which would not, barring the attempt of a skilful pleader who may dexterously turn a shield into a sword. As a matter of fact, even in the latest case of Attorney General & Another v. Humphreys Estate (Queen's Gardens) Limited, [1986] HKC 592, at p. 595 or [1987] App. Cas. 114 at p. 121, a proprietary estoppel was advanced on its own for consideration. With promissory estoppel and proprietary estoppel set apart as above, it could be readily appreciated that in both scenarios the first purchasers were misled in terms of a promissory estoppel at the time when they decided to purchase and in terms of a proprietary estoppel at the time when the plaintiff sought to withdraw from these defendants the use of the Room.

12. In equity, detriment to feed an estoppel, promissory or proprietary, is not difficult to find. Lord Denning has tried, time and again, to dispense with the requirement of detriment altogether. See Greasley v. Cooke, [1981] WLR 1306 and Alan & Company Limited v. El Nasr Export & Import Company, [1972] 2QB 189. His herculean efforts were not well received. It is generally accepted today that some detriment in the sense expounded by the distinguished Australian Jurist, Dixon, J, would be required to feed an estoppel. In Grundt v. The Great Boulder Pty Gold Mines Limited, (1938) 59 CLR 641, in the High Court of Australia, Dixon, J emphasised this:

"This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong, and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice."

13. In this case, the test of detriment can be broadly put as whether it would be unjust or unconscionable for the plaintiff now to be allowed to resile from the said representations having regard to what the representees and their successors-in-title had done in reliance of them. The plaintiff's predecessors-in-title, at least the developer, must have been fully aware of the right to the Room. None of these predecessors-in-title came forward to claim otherwise. The plaintiff was fixed with that knowledge. The first purchasers made their respective purchases on the aforesaid representations and the owners through the defendants have expended money on the faith of such a mistaken belief. At least the developer, if not also all the plaintiff's predecessors-in-title, knew of the owners' user of the Room and had for years abstained from asserting this legal right.

14. The ingredients of promissory estoppel were clearly discussed in High Trees: A representation was made with the intention that it be acted upon, and it was, in fact, acted upon by the complainant to his detriment. The five ingredients of a proprietary estoppel were conveniently set out in Willmott v. Barber, [1879] 15 Ch. D. 96 at p. 105 per Fry, J. First, the plaintiff must have made a mistake as to his legal rights; secondly, the plaintiff must have expended some money or must have done some act on the faith of his mistaken belief; thirdly, the defendant, the possessor of the legal right, must know of the existence of his own right which is inconsistent with the right claimed by the plaintiff; fourthly, the defendant, the possessor of the legal right, must know of the plaintiff's mistaken belief of his rights; fifthly, the defendant, the possessor of the legal right, must have encouraged the plaintiff in his expenditure of money or in the acts which he has done, either directly or by abstaining from asserting his legal right.

15. I need not rehearse the facts as found by the District Judge. The ingredients of both estoppels were fulfilled, albeit at different stages - at the time of the purchase for a promissory estoppel and at the time when the plaintiff sought to resile from the 20-year acquiescence for a proprietary estoppel. The facts would fall orderly into places, so to speak, when these varieties of estoppel are kept apart for consideration. On any view, could it really be right that the management office is to be taken off the list of facilities Fine Mansion has consistently provided for 20 years?

16. What is said to be the crucial contention advanced on behalf of the plaintiff by Mr Leong, Senior Counsel, is that the DMC would not permit the mistaken belief to be aired in the District Court by either of these two ladies. But as I said, there was no cross-examination that they did not genuinely hold such a belief; nor was there any evidence that these ladies had actual knowledge of the contents of the DMC. No cross-estoppel was pleaded.

17. These ladies, one by herself, another by her husband, did make the purchases which fed the promissory estoppel. The position of the other first owners could hardly be expected to be different. It was also found by the judge that the 1st and 2nd defendants had expended time and money on the up-keeping and refurbishing of the Room as the management office which had been so used for upwards of 20 years. In this long period of forbearance or acquiescence, the proprietary estoppel was fed. Taking a firm grip on the essence of promissory estoppel and proprietary estoppel, the law is simple to apply as it should be.

18. There is, in my view, no merit in this appeal. I would dismiss it.

Pang, J. :

19. For the reasons given by Liu JA, I agree that this appeal should be dismissed.

Nazareth, V.-P.:

20. There was no dispute before us as to the relevant law on proprietary estoppel, or on promissory estoppel if such it was, that was relied upon. As Mr Alan Leong SC submitted, labels do not matter here. The issue in this appeal, as he says, concerns factual matters. Indeed, his tenacious submissions were directed against the judge's inferential findings of fact as to assurance, reliance and detriment, the primary facts being almost wholly undisputed.

21. Central to those submissions was the Deed of Covenant ("DMC") which Mr Leong said he could not over-emphasise. The DMC in its first schedule clearly included the attendant's room, amongst those parts of the building reserved to the developer and it ultimately was included with the penthouse the plaintiff acquired. In the face of that document, Mr Leong submitted, the original purchasers, including Madam Lau (whose husband was a purchaser) and Madam Go, must be regarded as being fixed in law with knowledge of the contents of the schedule in the DMC, and such knowledge, Mr Leong submits, leaves no room for reliance upon a representation in effect that the purchasers and their successors would enjoy exclusive possession of the attendant's room forever.

22. I am unable to accept that submission. There would not have necessarily been anything like the usual occasion for signing such instruments with the usually attendant explanation of its contents in the case of the DMC, since it did not have to be executed and took effect by virtue of statutory provisions or provision in the conveyance. Even if there were an explanation, it cannot, in my view, be safely assumed that the parties concerned would necessarily have appreciated nice legal matters like the distinction between a room being permitted to be used as a matter of grace and such use under a binding obligation to permit or enable such use. Furthermore, even if the witnesses or purchasers had those documents before them, and I refer to the first purchasers, they could easily have been mistaken as to the effect of their contents. More to the point, the two witnesses were not cross-examined as to their evidence upon the matter. The two witnesses did not mention the DMC. They mentioned the attendant's room and its use as a management office in a way that clearly entitled the judge to come to the conclusion that it influenced their decision to purchase and at the price they agreed to. I do not accept that as they must have had solicitors acting for them who should have fully appreciated that implication of the DMC, they are fixed with knowledge of it in law. No authority for that was cited. Once that position is reached, there is little left in the appeal. I do not find it necessary to add to what Liu JA has said. I also agree with his conclusion, including that there is no merit in the s.18(2)(g) locus point. I, too, would dismiss the appeal.

23. It is accordingly dismissed.