NG LAI LING WINNIE AS THE EXECUTOR OF THE ESTATE OF DUNG WAI MAN, DECEASED AND ANOTHER v. NG YUK PUI KELLY

FAMV No. 345 of 2021

[2021] HKCFA 40

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 345 OF 2021 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL FROM

CACV NO. 86 OF 2019)

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REASONS FOR DETERMINATION

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Mr Justice Ribeiro PJ:

1.  At the hearing, we dismissed this application for leave to appeal for reasons which we now provide.

A.     The parties

2.  Ng Bing Kuen (“Kuen”) was married to Dung Wai Man (“Mrs Ng”).  The plaintiff, Kelly Ng Yuk Pui (“Kelly”), is Kuen’s brother and during Kuen’s lifetime, he and Kuen were very close.  The present proceedings were commenced by Kelly in October 2011 to recover two flats in D’Aguilar Street as property to which he claims to be beneficially entitled.  Kuen had died in February 2010 and Mrs Ng subsequently died in January 2020.  The proceedings are being carried on against their estates represented respectively by two of their children. 

B.     The facts

3.  In 1973, Kuen bought the two flats, placing them in the registered ownership of Mrs Ng.  The trial Judge[1] found that Kuen’s family (including Mrs Ng and their children) knew that he had funded the purchase and was the beneficial owner of the Flats.[2] In 1976/77, Kuen allowed Kelly to use and occupy the flats for a monthly rental of $2,000 paid by him to Kuen (not to Mrs Ng).[3] 

4.  In 1985, Kuen needed to raise money to meet certain mortgage debt obligations.  After trying unsuccessfully to sell the flats in the market, he entered into an oral agreement with Kelly on 12 or 13 September 1985 to sell those flats to him for $1 million.  Kelly paid Kuen the money which the latter used towards paying off the aforesaid debts.[4] However, there was neither a written memorandum of their agreement nor an assignment of title to Kelly.  The properties remained registered in Mrs Ng’s name.  Kuen had sold the flats to Kelly as their beneficial owner, with Mrs Ng holding them as Kuen’s nominee or bare trustee.[5]  She was not a party to the oral agreement.  But the Judge found that Mrs Ng was aware of the agreement and that she had benefited by the discharge of the aforesaid debts.[6]  After entering into the agreement, Kelly stopped paying rent and took up payment of the management fees and rates.[7]

5.  In 1987, Kelly asked for title to be assigned to him so that he could mortgage the flats to raise capital needed for his business.  However, Kuen asked him to allow the registered ownership to remain with Mrs Ng because she was suffering from a mental condition and he did not want her to suffer stress, suggesting instead that Kelly should raise funds by having Mrs Ng execute a mortgage on the flats.  This was done by way of a mortgage in 1987 and in 1990 by a further charge with Mrs Ng signing as mortgagor in favour of United Chinese Bank as mortgagee to secure banking facilities granted to Kelly.[8] Over the years, Kelly repeated his request for title to be assigned to himself but was on each occasion persuaded to allow Mrs Ng to remain as registered owner of the flats on the grounds of her mental health.[9] 

6.  The proceedings by Kelly to recover the flats were triggered when, on 10 October 2011, Mrs Ng signed a preliminary sale and purchase agreement to sell one of the flats for $7.2 million.

C.     The legal issues in the courts below

7.  Kelly’s action to enforce his oral agreement with Kuen was an action on a contract for the sale or other disposition of land and was met with the defence that it was unenforceable for want of the formalities required under the Conveyancing and Property Ordinance.[10] Section 3 provides:

3. Land contracts to be in writing

(1) Subject to section 6(2) [presently not relevant], no action shall be brought upon any contract for the sale or other disposition of land unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged or by some other person lawfully authorized by him for that purpose.

(2) This section applies to contracts or other dispositions whenever made and does not affect the law relating to part performance or sales by the court.

8.  Kelly sought specific performance of the agreement, and, having been met with a section 3(1) defence, he based his suit on part performance, relying on section 3(2).  The Judge rejected his case on part performance but held in Kelly’s favour on the grounds of common intention constructive trust, of proprietary estoppel and “alternatively” of adverse possession. 

9.  On appeal, the defendants (the present applicants) argued (i) that the Judge could not, while rejecting part performance, validly grant Kelly equitable relief on the other grounds since such relief would be inconsistent with the statutory requirements of section 3; and (ii) that by virtue of the mortgage and further charge signed by Mrs Ng and Kelly in which Mrs Ng had declared herself beneficial owner of the flats, Kelly was contractually estopped from denying her beneficial ownership and claiming entitlement to such ownership for himself.

10.  The Court of Appeal[11] reversed the Judge on part performance, holding that he had misapplied the test as laid down by Viscount Dilhorne in Steadman v Steadman[12] which requires that “the acts of part performance which are alleged to have taken place must point to the existence of some such contract as alleged”. 

11.  Applying that test, the Court of Appeal[13] held that, having proper regard to the evidence and the Judge’s findings, his Lordship should have found part performance established, bringing the case within section 3(2).  The defendants’ argument on inconsistency between the other equitable remedies sought and section 3 therefore fell away and did not require determination by the court.  The Court of Appeal thus upheld the judgment below on a different ground and dismissed the appeal.

D.     The leave application

12.  The applicants seek to raise three questions of law and two grounds on the “or otherwise” basis.  They are set out in the Annex to this Determination.  In our view, those grounds are not reasonably arguable.

D.1   Question 2: part performance

13.  Question 2 relates to part performance[14] and should logically be addressed first.  The applicants seek to argue that the Court of Appeal wrongly concluded that the acts which it identified were capable of constituting part performance.  Question 2 focuses on three such acts: (i) Kelly remaining in possession; (ii) his ceasing to pay for use of the land; and (iii) his demanding transfer of the legal title.  The applicants contend that “... whether the three said individual factors which the CA had identified could satisfy the requirement of unequivocal referability, individually or collectively, involves a matter of principle.”[15]  So, they submit, each of those acts must be individually examined and “if none of the relevant individual factors could pass the requirement of unequivocal referability, it is reasonably arguable that they could not do so cumulatively.”[16] By Question 2, they ask whether the aforesaid acts “would generally meet the requirement of unequivocal referability”, contending that such is the appropriate test for part performance.

14.  The propositions implicit in Question 2 are contrary to authority and unsustainable.  In deciding whether the doctrine applies, the court looks at all the acts relied on as part performance to see whether, leaving aside evidence of the oral agreement, those acts prove on the balance of probability that they were done in reliance on a contract between the parties consistent with the contract sued upon by the plaintiff.  There is no arguable basis for suggesting that one must look at each act individually to see if it is “unequivocally referable” to the contract.  Nor is there any basis for the suggestion that one must refrain from assessing the cumulative effect of the acts relied on unless the individual test is satisfied.  The authorities are clearly to the contrary. 

15.  In Maddison v Alderson,[17] Lord Selborne explained that part performance is a doctrine by which equity prevents injustice resulting from permitting a statute to be used as an engine of fraud:

“In a suit founded on such part performance, the defendant is really ‘charged’ upon the equities resulting from the acts done in execution of the contract, and not (within the meaning of the statute) upon the contract itself. If such equities were excluded, injustice of a kind which the statute cannot be thought to have had in contemplation would follow. Let the case be supposed of a parol contract to sell land, completely performed on both sides, as to everything except conveyance; the whole purchase-money paid; the purchaser put into possession; expenditure by him (say in costly buildings) upon the property; leases granted by him to tenants. The contract is not a nullity; there is nothing in the statute to estop any Court which may have to exercise jurisdiction in the matter from inquiring into and taking notice of the truth of the facts. All the acts done must be referred to the actual contract, which is the measure and test of their legal and equitable character and consequences.”[18]

His Lordship added:

“... when the statute says that no action is to be brought to charge any person upon a contract concerning land, it has in view the simple case in which he is charged upon the contract only, and not that in which there are equities resulting from res gestae subsequent to and arising out of the contract. So long as the connection of those res gestae with the alleged contract does not depend upon mere parol testimony, but is reasonably to be inferred from the res gestae themselves, justice seems to require some such limitation of the scope of the statute ...”[19]

16.  Thus, the approach of equity is to consider all the acts done – the res gestae (ie, things done) – subsequent to and arising out of the alleged contract to decide whether the alleged contract is reasonably to be inferred from such acts.

17.  Similarly, in Steadman v Steadman Lord Reid stated:

“In my view, unless the law is to be divorced from reason and principle, the rule must be that you take the whole circumstances, leaving aside evidence about the oral contract, to see whether it is proved that the acts relied on were done in reliance on a contract: that will be proved if it is shown to be more probable than not.”[20] (Italics supplied)

18.  Echoing Lord Selborne, Viscount Dilhorne held in Steadman v Steadman that one must consider “[the] res gestae subsequent to and arising out of the contract”, explaining that:

“The true principle ... of the operation of acts of part performance seems only to require that the acts in question be such as must be referred to some contract, and may be referred to the alleged one; that they prove the existence of some contract, and are consistent with the contract alleged.”[21]

19.  Lord Simon of Glaisdale explained that in referring to the res gestae, Lord Selborne “was emphasising that what gave rise to the equity was, not the contract itself, but what was done ancillary to it” and that

“ ... once it was considered incumbent to do equity without undermining the statute, it was reasonable to look for attendant circumstances which inherently rendered it probable that there had been an antecedent contract the obligations of which it would be inequitable to allow a party to escape.”[22]

So what was done ancillary to the alleged agreement and the attendant circumstances have to be examined as a whole.

20.  We would point out, moreover, that Question 2 singles out the three matters mentioned while ignoring other acts which constituted important aspects of part performance, obviously including payment of the $1 million purchase price and the execution of the mortgage documents to secure banking facilities for Kelly.  It is hard to see any benefit in dealing with the three named items without taking the whole of the acts relied on into account.

21.  Thus, it is not reasonably arguable that the Court of Appeal applied an inappropriate test or that it erred in concluding that Kelly’s contractual claim against Kuen is enforceable on the basis of part performance.

D.2   Question 1: contractual estoppel

22.  Question 1 seeks to raise issues concerning the scope or reach of the estoppel created where the doctrine of contractual estoppel applies.  It asks whether such an estoppel is “confined to dealings arising from the contract” or whether it extends “to other aspects of their relationship which have nothing to do with the contract”.  Particular instances are set out in sub-paragraphs (a) to (d) of Question 1.

23.  As indicated above, the applicants seek to contend that by virtue of the mortgage and further charge signed by Mrs Ng and Kelly in which Mrs Ng declared herself beneficial owner of the flats, Kelly is contractually estopped from denying her beneficial ownership and claiming such ownership for himself and so is precluded from pursuing his action to recover the properties, even if lack of formality is overcome by part performance.

24.  In our view, the applicants’ case on contractual estoppel faces difficulties much more fundamental than the issues raised in Question 1.  For the doctrine to preclude Kelly from recovering the flats which Kuen had agreed to sell to him, it is Kuen (and now his estate) who must be able to raise the estoppel.  Kelly must be estopped from contending as against Kuen that he, Kelly, is beneficially entitled to the properties.  Kuen could only raise the estoppel on the basis of something that he and Kelly had mutually agreed.  Contractual estoppels can only arise as between parties to a contract on the basis of their mutual agreement.  That is why they are called “contractual estoppels”.

25.  Thus, in the leading case of Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd,[23] Moore-Bick LJ explained the doctrine’s operation by reference to what was agreed between the contractual parties:

“There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not. For example, it may be desirable to settle a disagreement as to an existing state of affairs in order to establish a clear basis for the contract itself and its subsequent performance. Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed. The contract itself gives rise to an estoppel: see Colchester Borough Council v Smith [1991] Ch 448, affirmed on appeal [1992] Ch 421.”[24]

26.  And in Springwell Navigation Corp v JP Morgan Chase Bank,[25] another leading authority, Aikens LJ stated:

“... I will try and analyse the matter from principle. If A and B enter into a contract then, unless there is some principle of law or statute to the contrary, they are entitled to agree what they like. Unless Lowe v Lombank is authority to the contrary [which was held not to be the case], there is no legal principle that states that parties cannot agree to assume that a certain state of affairs is the case at the time the contract is concluded or has been so in the past, even if that is not the case, so that the contract is made upon the basis that the present or past facts are as stated and agreed by the parties.”[26]

He added:

“Like Moore-Bick LJ in Peekay I see commercial utility in such clauses being enforceable, so that parties know precisely the basis on which they are entering into their contractual relationship.”[27]

27.  Finally, we should mention First Tower Trustees Ltd v CDS (Superstores International) Ltd,[28] in which Lewison LJ stated:

“It is now firmly established at this level in the judicial hierarchy that parties can bind themselves by contract to accept a particular state of affairs even if they know that state of affairs to be untrue. This is a particular form of estoppel which has been given the label ‘contractual estoppel’. Unlike most forms of estoppel it requires no proof of reliance other than entry into the contract itself. Thus as a matter of contract parties can bind themselves at common law to a fictional state of affairs in which no representations have been made or, if made, have not been relied on.”

28.  Plainly, nothing in the oral contract between Kuen and Kelly could enable Kuen to set up such an estoppel. He agreed to sell the flats to Kelly, promising as beneficial owner of the properties held by Mrs Ng as his nominee or bare trustee, to procure their assignment to Kelly.[29]  He was paid $1 million by Kelly as the purchase price and it was obviously mutually intended that Kelly should be entitled to the properties.  Kelly already had possession and was asked on several occasions to forbear from demanding an immediate assignment, reflecting recognition of his entitlement.

29.  The applicants’ attempt to rely on the mortgage and further charge is misconceived.  As the Court of Appeal noted,[30] Kuen was not a party to those transactions and he cannot rely on what is said in the mortgage documents to raise an estoppel against Kelly’s enforcement of the oral agreement against himself.  The fact that Mrs Ng and Kelly had signed the mortgage documents does not assist Kuen or his estate in setting up the estoppel.  Mrs Ng is a necessary or proper party to Kelly’s action for the purpose of ordering title to be assigned to him, not because she was party to the oral agreement.  Moreover, the mortgage transactions involved a further party consisting of the bank which was not party to the oral agreement.  No doubt Mrs Ng and Kelly would be contractually estopped as against the bank from denying that Mrs Ng was the beneficial owner of the flats.  But as between Kelly and Kuen, those mortgage transactions were res inter alios acta. 

D.3   Question 3: proprietary estoppel

30.  Question 3 seeks to raise an issue regarding possible inconsistency between section 3 rendering a contract unenforceable and invoking proprietary estoppel.  Since the Court of Appeal correctly held that the contract between Kuen and Kelly is not unenforceable and considered it unnecessary to consider proprietary estoppel in any detail, this question does not arise.

D.4   First “or otherwise” ground

31.  This ground is premised on the suggestion that the Court of Appeal overturned the Judge’s findings of fact, the complaint being that it did so when such findings were not “plainly wrong”.  That premise is untenable.  The Court of Appeal did not overturn any findings.  It held that the Judge erred in that he “failed to apply the law correctly as he did not examine all the relevant acts and consider the same in the whole surrounding circumstances”[31] in respect of the matters detailed in the judgment.[32]

D.5   Second “or otherwise” ground

32.  This ground complains that the Court of Appeal’s reference to the possibility of Kuen being regarded as holding his beneficial interest in the properties on constructive trust for Kelly was not Kelly’s case and not a conclusion reached by the Judge.

33.  This point also does not arise on any potential appeal to the Court.  It was a matter briefly considered by the Court of Appeal after it had already held in Kelly’s favour on the basis of part performance, making it clear that consideration of the further grounds relied on by Kelly was not necessary to its decision.[33]

34.  The point emerged in the context of an argument by counsel for the defendants (Mr Paul Lam SC appearing in the Court of Appeal) against the establishment of any common intention constructive trust.  He submitted that such a trust could not arise since Mrs Ng was the legal owner and was not privy to the common intention, citing Luo Xing Juan v Estate of Hui Shui See.[34] The Court of Appeal observed that the subject-matter of the common intention constructive trust did not have to be the legal estate but could comprise Kuen’s equitable interest in the flats.[35]  In any event, it was made clear that even if the challenge to the Judge’s finding of a common intention constructive trust were to succeed, given the Court of Appeal’s analysis upholding judgment for Kelly on the basis of part performance “it would not provide any comfort to the Defendants”.[36]

35.  Accordingly, none of the grounds put forward are reasonably arguable and the application was dismissed with costs.

ANNEX

Question 1

(1) Whether the doctrine of contractual estoppel should usually be confined to the dealings arising from the contract; and in the absence of clear agreement between the parties, it should not extend to other aspects of their relationship which have nothing to do with the contract in question? Without prejudice to the generality of the foregoing, in particular:

(a) Whether the doctrine of contractual estoppel would usually bar a party in any subsequent legal proceedings against the other party to the contract (or its privies) from asserting a fact/facts inconsistent with that/those which has/have been agreed irrespective of whether those subsequent legal proceedings are related to the contract, unless there is an agreement suggesting otherwise?

(b) Whether the question of whether contractual estoppel should extend to other dealings, or other aspects of the relationship, between the contractual parties which have nothing to do with the contract should depend on a proper construction of the relevant contractual term by reference to the usual principles of contractual interpretation (as opposed to whether there is a clear agreement to such effect)?

(c) Whether the question of whether contractual estoppel should extend to other dealings, or other aspects of the relationship, between the contractual parties which have nothing to do with the contract should also depend on the subject matter of the estoppel in issue (i.e. what had been agreed), such as the legal status of one of the parties, the characterisation of the legal relationship between the parties, or the ownership of a property?

(d) Whether the doctrine of contractual estoppel would usually cease to be applicable upon the discharge of the contract or conclusion of the transaction/dealing arising out of that contract?

Question 2

(2) In respect of the law of part performance, what should be the appropriate test regarding the requirement of unequivocal referability?  Without prejudice to the generality of the foregoing, in particular, whether the following acts would generally meet the requirement of unequivocal referability:

(a) to remain in possession, as opposed to the taking and delivery of possession, of the land?

(b) to cease payment for the use of the land?

(c) to demand for transfer of the legal title of the land?

Question 3

(3) Whether the doctrine of proprietary estoppel may be invoked to enforce an agreement for sale of land which would otherwise be unenforceable because of s.3(1) of the Conveyancing and Property Ordinance (Cap. 219); and if so, in what circumstances it may be so invoked?

“Or otherwise” Ground 1

The CA overturned the Learned Judge’s finding on part performance on the ground that he had failed to apply the law correctly as he did not examine all the relevant acts and consider the same in the whole circumstances. Upon a proper construction of the CFI Judgment, the Learned Judge had not made the said mistake. His conclusion was a finding of fact. The CA erred in overturning the Learned Judge’s finding of fact when it was not “plainly wrong”.

“Or otherwise” Ground 2

In respect of constructive trust, the CA held that the more accurate analysis based on the facts as found by the Learned Judge is that Kuen held his beneficial interest over the Flats on constructive trust for P after the sale in 1985 whilst Dung held the legal title as a bare trustee. The CA erred in adopting such analysis because this was not P’s case and how the Learned Judge came to his conclusion, which was based on a factual finding that there was only a common intention shared between Kuen and P (but not Dung).