Ng Yuk Pui Kelly v. Ng Lai Ling Winnie As the Executor of the Estate of Dung Wai Man, Deceased and Others

CACV 86/2019

[2021] HKCA 724

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 86 OF 2019

(ON APPEAL FROM HCA 1826/2011)

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BETWEEN

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Before:  Hon Lam VP, Chu and Au JJA in Court

Date of Hearing:  20 April 2021

Date of Judgment:  20 April 2021

Date of Reasons for Judgment:  14 May 2021

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REASONS FOR JUDGMENT

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Hon Lam VP (giving the Reasons for Judgment of the Court):

1.On 24 January 2019, L Chan J gave judgment after trial in favour of the Plaintiff declaring that the 1^st Defendant (Mrs Ng) is and has been holding the Flats as a bare trustee on trust for the benefit of the Plaintiff since 13 September 1985. The Flats are the properties known as Flats B and C, 1^st Floor & Portions of the Flat Roof of Winner Building, Block A, No 37 D’Aguilar Street. The judge also ordered the 1^st Defendant (Mrs Ng) to assign and transfer the title to the Flats to the Plaintiff. Injunctive relief was granted to enjoin the 1^st and 2^nd Defendant from selling, assigning, transferring, mortgaging or otherwise dealing with the Flats.

2.The judge also granted other “alternative” reliefs by way of declarations relating to adverse possession.  

3.The judge ordered that the 1^st and 2^nd Defendants be jointly and severally liable to pay the costs of the action to the Plaintiff.

4.Though the judge was at one stage minded to order costs against the 4^th to 6^th Defendant (who were joined as parties to the action by the judge for the purpose of considering if such order should be made under Section 52A(2) of the High Court Ordinance Cap 4), after considering the written submissions of the Plaintiff and the 4^th to 6^th Defendants the judge handed down a decision on 2 May 2019 ([2019] HKCFI 1157) deciding that no costs order should be made against the 4^th to 6^th Defendants.  Hence, this appeal does not concern the personal interest of the 4^th to 6^th Defendants.  However, the 6^th Defendant (Winnie) acted as the representative for the estate of Mrs Ng in the capacity as the 1^st Defendant and the 4^th Defendant (Vincent) acted as representative for the estate of their father (Kuen) as the 2^nd Defendant.  Other than those representative capacities, the 4^th to 6^th Defendants are not parties to the appeal.

5.This is the 1^st and 2^nd Defendants’ appeal against the judgment.  Though Mrs Ng was alive when the appeal was brought, she passed away on 15 January 2020.  The subsequent developments were set out at [3] of the judgment of this Court on 29 January 2021 ([2021] HKCA 134).

6.At the substantive appeal hearing, Mr Paul Lam SC and Mr Victor Lui appeared for the 1^st and 2^nd Defendants.  As can be seen from the title of the appeal, the 2^nd Defendant is the estate of Ng Bing Kuen, deceased (whom the judge referred to as “Kuen” and we shall adopt the same nomenclature).  Kuen was the late husband of Mrs Ng.  One of the sons, Vincent, represented the estate of Kuen.  By reason of the demise of Mrs Ng, her estate is represented by her daughter Winnie.

7.Vincent, James and Winnie were the children of Kuen and Mrs Ng.

8.Mr Anthony Ismail and Mr Justin Ismail appeared for the Plaintiff at the hearing.  The Plaintiff (whom the judge referred to as “Kelly” and we shall adopt the same nomenclature) is the brother of Kuen.

9.After hearing counsel, we dismissed the appeal with costs.  We now give reasons for our determination of the appeal.

The judgment below

10.In the judgment of 24 January 2019[1], the judge accepted the evidence of Kelly and his witness Jennifer Ng (who is his daughter).  He rejected the evidence of Mrs Ng and her children.  Though Mr Lam made a valiant effort in his attempt to challenge the factual findings of the judge, it is plain from his submissions that counsel placed greater emphasis on the legal arguments.  For reasons we shall elaborate later, notwithstanding Mr Lam’s advocacy, we are of the view that the challenge to the findings of fact is unmeritorious.  Thus, in the following discussion, we shall first set out the facts as found by the judge before we address the legal submissions.  We shall address the challenge to the factual findings at the latter part of this judgment.

11.The Flats were purchased by Kuen at the price of $200,000 each in 1973 but Mrs Ng (his wife) was named as the legal owner because he did not want others to know that he had accumulated wealth through gambling in greyhound racing.  He was also wary of potential investigation by authorities[2].  Kuen’s family (including Mrs Ng and their children) knew that he funded the purchase and was the beneficial owner of the Flats[3].  The registration of the legal titles of the Flats under Mrs Ng was not intended to make her the beneficial owner by way of gift[4].  

12.Kelly was younger than Kuen for more than 10 years and they were very close.  Their father passed away when Kelly was very young.  Another elder brother and Kuen took care of Kelly and Kelly regarded Kuen as bringing him up.

13.In about 1976 or 1977, Kuen let Kelly use the Flats as the office of his businesses.  Kelly paid Kuen a monthly rent of $2,000 for such use.  Kelly was in the advertising business. The decision of letting Kelly use the Flats was that of Kuen, not Mrs Ng.  The rent was paid to Kuen, not to Mrs Ng[5].

14.Whilst Kuen had been quite well off in the 1970s, he encountered cash-flow problem in 1985 due to some losses in the investment in three houses in Fairview Park.  The losses added up to $948,200 plus stamp duty, legal and other costs and interests[6]. Though he was able to discharge the mortgages regarding those properties in 1983 and 1984 respectively, he had difficulty in meeting the obligations in respect of a $2 million banking facilities granted by United Chinese Bank Limited[7] which were secured over two other properties: one at Robinson Garden and another one at Conway Mansion (which was the residence of his family).

15.Kuen therefore placed advertisements in August 1985 through Kelly for the sale of the Flats at $650,000 each.  When there was no response after the first round of advertisements, the price was lowered to $600,000 each in the second round of advertisements.  When there was still no response from the market, Kuen suggested in mid-September 1985 to Kelly to sell the Flats to him at $1 million.  Kelly agreed to purchase the Flats and drew a personal cheque of $1 million to Kuen on 13 September 1985 to pay for the same[8].  Due to the close relationship between the two brothers and that Kelly was in actual occupation of the Flats, there was no written record of the sale.  Kuen was then able to discharge the United Chinese Bank mortgage on 4 October 1985.

16.Mrs Ng was aware of the sale of the Flats to Kelly and she benefited from it by way of the discharge of the United Chinese Bank mortgage[9].  Upon the sale, Kelly stopped payment of rent to Kuen for the use of the Flats.

17.Further, though Kelly subsequently asked Kuen in 1987 to procure the transfer of the legal title of the Flats to him to obtain mortgage finance for his business in the Mainland, Kuen was concerned about upsetting Mrs Ng (who had been suffering from mental conditions since early 1980’s[10]) and proposed instead that the Flats be mortgaged to United Chinese Bank for a loan of $500,000 to Kelly with Mrs Ng signing the same[11].  Kelly agreed to such a course and the mortgage was executed with Mrs Ng as mortgagor and Kelly as the borrower in the 1987 Mortgage.

18.A similar arrangement was made in 1990 in respect of a further loan facility of $300,000.

19.These mortgage facilities were subsequently renewed and continued to be used by Kelly until the cancellation of the same by Mrs Ng in March 2011 when the present dispute on the Flats led to litigation.

20.Over the years, Kelly had made repeated requests for transfer of title of the Flats and Kuen had responded by reference to the mental conditions of Mrs Ng[12]. That aside, Kuen had always acknowledged Kelly’s beneficial ownership of the Flats and conducted himself with regard to the Flats accordingly.  He did not demand Kelly for rent after the sale.  Kelly also started to pay the management fees and rates for the Flats.  Around 1990 or 1991, Kuen requested Kelly to allow Kuen’s eldest son Vincent to use Flat B for his own business.  Kelly acceded to the request.  Later, when Kuen’s second son James came back to Hong Kong and operated a LED light business, Kuen requested Kelly to allow James to keep an administrative office at Flat C[13].

21.In July 2009, after he had been diagnosed with lung cancer, Kuen visited Jennifer at her chambers and told her that the Flats had been sold to Kelly.  He felt sorry for not being able to procure Mrs Ng to transfer the legal title and he asked Jennifer if there was any way to transfer the Flats to Kelly[14]. Though eventually nothing came out of it, it was an acknowledgment by Kuen of his obligation towards Kelly regarding the Flats.

22.Jennifer knew that the Flats had been sold to Kelly as she had been told so by Kelly and her mother. She had tried to achieve the resolution of the matter in 2005 and 2008 by approaching her cousins (viz James and Winnie) through emails[15]. The contents of the emails and the responses of the cousins showed that they were also aware of the sale.  But they felt that it would be difficult to resolve because of Mrs Ng’s conditions.

23.Kuen passed away on 18 February 2010.  

24.On 4 December 2010, Mrs Ng through her solicitors offered Kelly $2 million for delivering vacant possession of Flat B to her.  In a letter of 21 March 2011, Kelly through his solicitors stated that the Flats had been sold by Kuen to Kelly for $1 million in 1985 and he was the real and/or beneficial owner.

25.On 10 October 2011, Mrs Ng signed a preliminary sale and purchase agreement to sell Flat B at $7.2 million.  The writ in this action was issued on 26 October 2011 and it was registered against the Flats at the Land Registry.  By virtue of this litigation, the sale and purchase could not be completed.

26.Against these findings of fact, the judge considered the claims of Kelly with reference to the legal concepts of:

(a)  Part performance;

(b)  Proprietary estoppel;

(c)  Constructive trust; and

(d)  Adverse possession.

27.The judge found against Kelly on part performance but ruled in his favour on the other heads.  As observed in the judgment of this Court on 29 January 2021, the claim of adverse possession was advanced by way of alternative.  Whilst it is prudent and proper for a first instance judge to indicate his conclusions on an alternative claim in his judgment (in case the appellate court may come to a different view on the primary case), we do not think it is necessary for actual “alternative declaratory relief” to be granted when relief is already granted on the primary claim which is inconsistent with such declaratory relief.  The better course is to confine the relief to the primary claim and leave it to the appellate court to decide on the relief based on the conclusions expressed in the judgment on the alternative claim.

The appeal

28.As we shall see below, in the present appeal, it is not necessary to address the claim based on adverse possession.

29.Though there was no cross-appeal by Kelly against the holding of the judge on part performance, this Court had invited submissions from counsel on the same.  Directions to that effect were given on 12 April 2021 and we are grateful for counsel’s supplementary submissions of 16 April 2021.

30.We took the view that it is necessary to reconsider the judge’s holding on part performance because one of the challenges by Mr Lam against the judge’s conclusions on proprietary estoppel (and constructive trust) is that such conclusions do not sit well with the holding against part performance.

31.Counsel’s main argument in this regard is that by virtue of the legislative policy as enshrined in sections 3 and 5 of the Conveyancing and Property Ordinance (“CPO”) Cap 219, the court should not apply the equitable principles under proprietary estoppel (or constructive trust) to grant relief to Kelly when he could not meet the statutory exception of part performance in section 3(2) of CPO.  It is said that permitting the doctrine of proprietary estoppel (or constructive trust) to operate in the present circumstances is tantamount to the enforcement of an unenforceable contract because of section 3(1) for which the statutory exception of part performance is set out in section 3(2).  Mr Lam cited the judgment of the House of Lords in Actionstrength Ltd v International Glass Engineering SpA [2003] 2 AC 541 to support his argument.

32.Since part performance was part of Kelly’s case at the trial, the evidence and submissions on part performance had been advanced in the court below.  As this Court had given sufficient advance notice to counsel for the issue to be addressed, we cannot see any injustice for us to examine the correctness of the judge’s holding on part performance.  On the other hand, injustice would be occasioned if we were to decide the claim of proprietary estoppel or constructive trust on the basis of the argument of unenforceable contract for want of part performance when that premise is demonstrably flawed.

Part performance

33.The judge’s reasons at [458] to [460] of the judgment for rejecting the case on part performance were brief.  In essence, he did not regard the payment of $1 million by Kelly as sufficiently referable to the 1985 Agreement. 

34.Before us, Mr Lam submitted that though there is no absolute rule that payment can never constitute an act of part performance, “what the payment proves in the light of its surrounding circumstances is not a matter of law but a matter of fact”, citing the judgment of Lord Salmon in Steadman v Steadman [1976] AC 536 at p.570G.  Counsel further submitted that since the judge had made a finding of fact in this regard against Kelly, and it is not plainly wrong, this Court cannot disturb the same.

35.The relevant part of the judgment of Lord Salmon is at p.570 E to H:

“ … Although I accept the authorities which show that acts of part performance, if they are to take a parol contract out of the statute, must be acts from which the nature of the contract can be deduced, I do not accept … that payment can never constitute such an act because it is impossible to deduce from payment the nature of the contract in respect of which the payment is made. It is no doubt true that often it is impossible to deduce even the existence of any contract from payment…. Nevertheless the circumstances surrounding a payment may be such that the payment becomes evidence not only of the existence of the contract under which it was made but also of the nature of that contract. What the payment proves in the light of its surrounding circumstances is not a matter of law but a matter of fact. There is no rule of law which excludes evidence of the relevant circumstances surrounding the payment --- save parol evidence of the contract on behalf of the person seeking to enforce the contract under which the payment is alleged to have been made.”

36.It is clear from the citation above that a payment is to be considered in light of its surrounding circumstances and evidence of such circumstances (excluding the evidence on the parol contract) is admissible.  To similar effect is the judgment of Lord Simon at p.561B to C (referring to attendant circumstances) and that of Lord Reid at pp.541H to 542A (referring to the whole circumstances).

37.At [458] to [460], after reciting the contentions of the parties, the judge dismissed the claim based on part performance in one sentence at [460]:

“ But apart from framing the context, Mr Ismail did not refer to any particular act as referable to performance of the 1985 Agreement or why the payment of HK$1 million by Kelly to Kuen was such an act.”

38.With respect, in so holding the judge seems to have regarded that the only act relied upon by Kelly was the payment of the $1 million.  Further, the judge failed to examine the relevant acts in the whole surrounding circumstances as depicted in his findings of fact.  

39.As we shall explain below, the approach of the judge failed to apply the law correctly as he did not examine all the relevant acts and consider the same in the whole surrounding circumstances. 

40.Firstly, the payment of the $1 million was not the only relevant act of performance.  Though Kelly already had possession of the Flats, he occupied the same on payment of rent to Kuen prior to the sale.  After the sale, the payment of rent ceased.  This fact is a strong indication that there had been an agreement referable to the interest in the Flats between Kelly and Kuen.  When the payment of $1 million was considered together with the coterminous cessation of payment of rent, the act could only have been undertaken pursuant to such an agreement.

41.Moreover, the course of conduct of Kuen and Kelly since the 1985 Agreement regarding the Flats should be taken into account as part of the surrounding circumstances even assuming they may not themselves be regarded as acts of performance[16]. Importantly, the demand for the transfer of title by Kelly in 1987 (such demand would not be explicable unless there had been a sale) and the response of Kuen acknowledging the beneficial interest of Kelly in the Flats with the procurement of Mrs Ng to execute the 1987 Mortgage and the Further Charge of 1990 to provide banking facilities to Kelly are relevant acts pursuant to the agreement.  These acts show that the payment of $1 million was not a loan from Kelly to Kuen and Kelly had acquired the beneficial interest in the Flats.

42.In Steadman v Steadman, supra at p.561F, Lord Simon said:

“ … Again, I do not think that Lord Selborne’s description of acts of part performance as res gestae under the contract imports from the law of evidence into this branch of the law the requirement of substantial contemporaneity: Equity’s doctrine of laches and the requirement of referability provide superior and less technical safeguards against injustice.”

43.The rationale for the doctrine of part performance was explained by Earl of Selborne LC in Maddison v Alderson (1883) 8 App Cas 467 at pp.475 to 479.  After pinpointing that the equity founded on part performance results from the acts done in execution of the contract instead of the contract itself, the Lord Chancellor elaborated as follows at pp.475-6:

“ 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 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. If, therefore in such a case a conveyance were refused, and an action of ejectment brought by the vendor or his heir against the purchaser, nothing could be done towards ascertaining and adjusting the equitable rights and liabilities of the parties, without taking the contract into account. The matter has advanced beyond the stage of contract; and the equities which arise out of the stage which it has reached cannot be administered unless the contract is regarded. The choice is between undoing what has been done (which is not always possible, or, if possible, just) and completing what has been left undone.”

44.To reconcile the statute with the equitable doctrine, Lord Selborne said:

“ …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… (p.476)

…

It is not enough that an act done should be a condition of, or good consideration for, a contract, unless it is, as between the parties, such a part execution as to change their relative positions as to the subject-matter of the contract. (p.478)

…

All the authorities shew that the acts relied upon as part performance must be unequivocally, and in their own nature, referable to some such agreement as that alleged. (p.479)”

45.The requirement of referability was liberalised in Steadman v Steadman, supra (see in particular Lord Reid at pp.541H to 542A; Viscount Dilhorne at pp.554C and 556E; Lord Simon at p.564B to C).  On the other hand, Lord Salmon at pp.569G to 570E adopted a narrower test.  So did Lord Morris (who dissented in relation to the actual outcome) at p.546F to G.

46.In the present appeal, Mr Lam (as he did before the judge) agreed that the appropriate test was set out by Viscount Dilhorne at p.556E:

“ … In the course of the argument some discussion took place as to the interpretation of the word ‘unequivoval’ as used by Lord Selborne. I think it does not mean any more than that the acts of part performance which are alleged to have taken place must point to the existence of some such contract as alleged.”

47.Using the test of unequivocal referability as explained by Viscount Dilhorne, we are of the firm view that when the acts we alluded to at [40] are considered against the surrounding circumstances (including those at [41] above) they do refer unequivocally to an agreement for the sale of the Flats by Kuen to Kelly.  As accepted by Mr Lam, it is not necessary for the acts to refer to the particular agreement with all the terms in the 1985 Agreement.  It is sufficient if the acts of part performance were referable to a contract of sale from Kuen to Kelly. 

48.Kelly was therefore entitled to demand Kuen, and after his death demand his estate, to perform the outstanding obligation to transfer the legal title of the Flats to him by virtue of the 1985 Agreement.  The lack of writing under Section 3 of the CPO cannot be a valid objection.  According to the well-established principle in Saunders v Vautier (1841) 4 Beav 115, Mrs Ng, as a bare trustee, could not refuse to execute such transfer.

Other bases of claim

49.Having arrived at this conclusion, it is not necessary to consider the other equitable basis of Kelly’s claims arising from the same facts at great length.  Nor is it necessary for us to consider the question of adverse possession.

50.We shall briefly comment upon Mr Lam’s reliance in his submission on the obiter judgment of Lord Scott in Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752 at paragraph 29 that proprietary estoppel cannot succeed when it is based on an agreement which is rendered unenforceable by Section 3 of the CPO.  The obiter of Lord Scott may not represent the law as there are subsequent authorities pointing to the other direction: see the judgment of Kitchen LJ (as he then was) in Farrar v Miller [2018] EWCA Civ 172 at paragraphs 53 to 63; Snell’s Equity 34^th Edn paragraph 12-046 and Megarry & Wade, The Law of Real Property 9^th Edn paragraphs 15-003, 15-028 footnote 244, and 15-038.  Since it is not necessary for us to decide the point (because there is in any event no inconsistency of proprietary estoppel in the present case with Section 3 in view of our above analysis on part performance), we have not invited submissions on the point and shall leave it open for future occasion. 

51.The conclusion of the judge on proprietary estoppel is therefore not disturbed.

52.In respect of constructive trust, Mr Lam’s point is that as a matter of law there cannot be any constructive trust based on a common intention to which the legal owner is not privy.  Counsel cited the judgment of the Court of Final Appeal in Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1 at [37] to [39] to support his argument.  Since the common intention in the present case was that of Kuen and Kelly, it could not bind the conscience of Mrs Ng.

53.However, as discussed at the hearing of this appeal, there is nothing to prevent a constructive trust being imposed on Kuen in respect of his beneficial interest over the Flats.  Mr Lam properly accepted that this is permissible as a matter of law.  If any authority is needed, one can refer to Snell’s Equity 34^th Edn paragraph 21-006 and Nelson v Greening & Skyes (Builders) Ltd [2007] EWCA Civ 1358 at [53] to [57].    

54.Thus, it seems to us that the more accurate analysis based on the facts as found by the judge is that Kuen held his beneficial interest on constructive trust for Kelly after the sale in 1985 whilst Mrs Ng held the legal title as a bare trustee.  Again by reason of the principle of Saunders v Vautier, supra, Mrs Ng was obliged to transfer the legal title to Kelly as the ultimate beneficial owner.

55.Mr Lam submitted that this was not how the judge proceeded in coming to his conclusion of constructive trust.  Be that as it may, in light of our analysis, even assuming Mr Lam can successfully challenge the judge’s analysis, it would not provide any comfort to the Defendants. 

Contractual estoppel

56.We shall now address Mr Lam’s contention based on contractual estoppel. 

57.The clauses which Mr Lam relied upon are contained in the 1987 Mortgage and the 1990 Further Charge.  The parties to the mortgage and the charge are the same: Mrs Ng as mortgagor, Kelly as borrower and United Chinese Bank Limited as lender.  The 1987 Mortgage was to secure banking facilities up to $500,000 whilst the Further Charge was to secure further banking facilities up to $300,000.  The Flats were the security.

58.As set out in the recital of the 1987 Mortgage, the instrument was executed to create the charge over the Flats as security over the money payable or become payable, and it set out the covenants and obligations of the borrower and the mortgagor.  Similar purposes regarding the further security were alluded to in the recital in the 1990 Further Charge. 

59.Clause 3 of the 1987 Mortgage provided:

“ 3. CHARGE OF PROPERTY

3.01 In consideration of the premises and with the object and intention of affording to the Lender a security for the Secured Indebtedness and the due fulfilment by the Mortgagor and the Borrower of the agreements covenants and conditions contained in this Charge:

(a) the Mortgagor as Beneficial Owner HEREBY CHARGE the Property to the Lender SUBJECT as is more particularly specified in the schedule hereto and to and with the benefit of all leases, tenancies, rights, licences, covenants, conditions and other incidents of tenure affecting the Property; and

(b) the Mortgagor HEREBY ASSIGNS or agrees to assign unto the Lender the full benefit and all rights of all the terms and conditions more particularly specified in the said Schedule and of any payment, covenant, agreement, undertaking or indemnity contained in any sale and purchase agreement, lease or other document, agreement or undertaking whatsoever in respect of or relating to the Property now subsisting or to be created hereafter TO HOLD the same onto the Leader.

SUBJECT nevertheless to the proviso for redemption hereinafter contained.

3.02  The charge herein contained shall be a legal charge in so far as the Property is a legal estate.”

60.Mr Lam also relied upon Clause 7.01 in particular sub-clause (ii), of the 1987 Mortgage which read:

“ 7.01 …

(ii)  the Mortgator has good right and title in charge the Property in manner aforesaid free from all incumbrances save as may be specified herein;”

61.Clause 2(a) of the 1990 Further Charge operated in the same way as Clause 3 of the 1987 Mortgage.  It read:

“ 2. (a) In further pursuance of the agreement and for the consideration aforesaid the Mortgagor as beneficial owner hereby declares that ALL THOSE the said premises more particularly described in Part II of the Second Schedule hereto shall stand charged as security for (i) due payment to the Lender of all sums of money payable by the Mortgagor and/or the Borrower hereunder and/or under the said Indentures; and (ii) the discharge of and satisfaction of all obligations and/or liabilities absolute or contingent of the Mortgagor and/or the Borrower hereunder and/or under the said Indenture.”

62.Lastly, Mr Lam also referred to Clause 6 of the 1990 Further Charge which provided that the covenants and agreements in the 1987 Mortgage were deemed to be incorporated into the 1990 Further Charge.  Such incorporation, Mr Lam said, included Clause 7.01(ii) in the 1987 Mortgage.

63.Mr Lam cited the judgment of Lewison LJ in First Tower Trustees Ltd v CDS (Superstores International) Ltd [2019] 1 WLR 637 at [47] for the legal principle of contractual estoppel,

“ … 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.”

64.Counsel submitted that the clauses in the 1987 Mortgage and the 1990 Further Charge referred above constituted an agreement by Kelly to the following state of affairs: that Mrs Ng was the beneficial owner of the Flat.  By virtue of the principle of contractual estoppel, counsel said Kelly is precluded from disputing such state of affairs in all litigations between him and Mrs Ng.

65.We cannot accept these submissions.

66.Conceptually, it has been observed that contractual estoppel may be a confusing misnomer in circumstances where the parties can simply be regarded as having committed themselves by contractual term to a particular proposition, see the judgment of Lord Neuberger and Lord Mance in Chen v Ng [2017] UKPC 27 at [30]; Mark Leeming, Receipt Clauses and “Contractual Estoppel” Revisited (2018) 134 LQR 171. 

67.Be that as it may, it is now recognised that contractual estoppel as a legal doctrine is established in English law, see First Tower Trustees Ltd v CDS (Superstores International) Ltd, supra and Uber BV v Aslam [2021] UKSC 5 at [82].  In Hong Kong, this Court accepted contractual estoppel as part of the common law here in Nokia Corporation v TCT Mobile Ltd [2017] 3 HKC 102.

68.The doctrine was discussed in the two leading English Court of Appeal cases Peekay Intermark v Australia and New Zealand Banking Group [2006] 1 CLC 582 and Springwell Navigation Corp v JP Morgan Chase Bank [2010] 2 CLC 705.  The claimants in these cases were investors in structured financial products suing the banks for breach of duties and misrepresentations concerning the investments.  The banks relied on contractual documents signed by the claimants which contained provisions to the effect that the claimants understood the nature and risks associated with the investments.  In the former case, Moore-Bick LJ explained the rationale of contractual estoppel as follows at [56]:

“ 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 ... 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 concern those aspects of their relationship to which the agreement was directed. The contract itself gives rise to an estoppel …” (our emphasis)

69.Thus, the rationale stems from the adoption by the parties to a transaction of a specific basis for conducting their relationship arising from the agreement.

70.It is noteworthy that Moore-Bick LJ cited the case of Colchester Borough Council v Smith [1992] Ch 421 as authority for this principle.  In that case, it was held that an occupier of land was estopped from asserting that he had acquired an adverse possessory title in subsequent proceedings after he had entered into a compromise in an earlier set of proceedings with an acknowledgment that his occupation was not adverse possession.  Hence, the estoppel operated to preclude the adoption of a different position in respect of the same set of relationship between the same parties in subsequent proceedings.

71.In Springwell Navigation Corp v JP Morgan Chase Bank, supra, Aiken LJ analysed the concept of contractual estoppel from principle at [143] to [144].  The underlying foundation is freedom of contract.  Thus, His Lordship set out the principle at [143]:

“ 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[17], there is no legal principle that states that parties cannot agree to assume that a 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.” (our emphasis)

72.Since the estoppel arises from the agreed basis upon which the contract was made, its scope of operation should also be determined by the contract.  The limitation in scope of operation is also implicit in the examples Aiken LJ gave of the agreed basis of contracts in some commercial contracts at [143]: in marine insurance contracts, “the parties agree that for the purposes of the insurance contract, the facts as warranted by the assured are as he has stated them to be”; conclusive evidence clause in a sale contract: “the parties are agreeing that the statements in the report shall be the case for the purposes of the contract of sale and the parties cannot go behind that agreement”. 

73.At the end of [144], Aiken LJ commented on the commercial utility of contractual estoppel by reference to the basis upon which the contractual parties dealt with each other:

“ 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.”

74.His Lordship further decided at [177] to [178] that contractual estoppel is a separate and distinct doctrine from estoppel by convention.  For the former, it is not necessary to demonstrate that it would be unconscionable or unjust for the other party to resile from the agreed basis.  For the latter, such element is necessary because there was no contract.  Such distinction underscores the contract and the agreement of the parties as the foundation for contractual estoppel.

75.In Nokia Corporation v TCT Mobile Ltd, supra, at [20] to [24] Barma JA accepted the submission of counsel that contractual estoppel is part of the law in Hong Kong.  Where the terms of the agreement assume or stipulate a certain state of affairs to be the case, the parties will be bound to proceed on the basis that this is the position for the purposes of the agreement, whatever the true state of affairs may be as a matter of actual fact.  At [24], Barma JA alluded to the utility of the doctrine “as it would promote certainty in contractual relationships, and reduce the scope for disagreement and disputes in the working out of the contract.” (emphasis added) 

76.In principle, given that the rationale of contractual estoppel lies in the agreed basis for the contractual parties to conduct their relationship arising from the contract, the scope of the estoppel should be confined to that as agreed between the parties which would usually be confined to the dealings arising from the contract.  In the absence of clear agreement between the parties, there is no reason why the estoppel should extend to other aspects of their relationship which have nothing to do with the contract in question.

77.In the instant appeal, the clauses Mr Lam relied upon were contained in the 1987 Mortgage and the 1990 Further Charge.  We are not concerned with any litigations arising from the transactions embodied in the 1987 Mortgage or the 1990 Further Charge.  The bank loans had been discharged in 2011.  Whilst one can readily see the operation of contractual estoppel in favour of the lender to preclude Kelly from disputing the enforcement of security interest under those documents in respect of the Flats on the basis that Mrs Ng was not the beneficial owner, we cannot see the basis for extending the scope of the estoppel beyond any dealings concerning these loan transactions.

78.Mr Lam submitted that the scope of the estoppel is wider than the dealings between the parties over the loan transactions.  He said that the authorities did not confine the application of the estoppel to the transactions arising from the contract. Counsel cited a paragraph in the judgment of Lord Leggatt in Uber BV v Aslam, supra as supporting the unlimited scope of the estoppel.  He further submitted that it would be absurd for a person to agree to a certain state of affairs for one purpose but not for other purposes.  In the end, he agreed that it is a matter of construction of the contract.

79.Since Kuen was not a party to the 1987 Mortgage and 1990 Further Charge, Mr Lam agreed that the contractual estoppel could not preclude Kelly from asserting his claims against Kuen (and his estate).  However, counsel said Kelly was precluded from doing so vis-à-vis Mrs Ng in all proceedings, including the instant case.

80.With respect, we do not read the judgment of Lord Leggatt in Uber BV v Aslam, supra, as supporting Mr Lam’s proposition about the unlimited scope of contractual estoppel.  In our view, the authorities cited above and the jurisprudential basis for contractual estoppel as discussed above clearly point to the conclusion that such estoppel can only operate within the scope that the parties have agreed upon in the contract.  We cannot see any absurdity in placing such limitation on the scope of a contractual estoppel.  After all, as its foundation lies in the contract between the parties and freedom of contract, it should be up to the parties to delimit the scope they are prepared to deal with each other on such agreed basis.  It is common experience that people can agree to conduct some aspects of their affairs on one basis but cannot or will not agree to do so regarding other aspects.

81.There is thus a clear distinction between the parties adopting an agreed basis for dealing with each other in the context of a particular contractual transaction and an agreement to be permanently barred from disputing a stipulated basis for all intents and purposes in all future dealings between the parties.  When one agrees to be bound by a provision in a contract, it is usually for the purposes relating to the rights and the performance of the primary and secondary obligations under the contract and perhaps tortious liabilities arising from the same transaction (like misrepresentation or negligence).  With the discharge of the contract and the conclusion of the dealings out of that transaction, the agreement in the contractual provisions (including those giving rise to contractual estoppel) is spent.

82.Whilst we would not rule out the possibility of a suitably worded contractual provision that shall continue to apply after the discharge of the contractual obligations, it would require a clearly worded provision to give rise to a contractual estoppel having effects for all intents and purposes covering all dealings between the parties in the future.

83.Leggatt LJ (as Lord Leggatt then was) referred to the agreed basis of a transaction as the rationale for contractual estoppel in First Tower Trustees Ltd v CDS (Superstores International) Ltd, supra at [91] to [94].  At [97], His Lordship explained how a contractual provision which gave rise to contractual estoppel could affect tortious liability.  It was held that the provision should be considered as a clause excluding such liability and it made no difference that the contention was put forward by way of contractual estoppel,

“ The position is different where a contracting party relies on a term of the contract to argue that, because the term precludes the assertion of facts inconsistent with those that have been agreed, it has no liability to the other party in tort ...Where a duty is imposed by law and not because it is a term of a contract agreed between the parties, the distinction between a contract term which excludes liability and one which prevents liability from arising by giving rise to a contractual estoppel is a distinction without a difference. In such circumstances it cannot be said that the contract term is merely creating and defining the extent of the parties’ obligations. The term is seeking to exclude a liability which would otherwise be there.”

84.It is clear from such analysis that, in his Lordship’s view, contractual estoppel does not operate as an evidential estoppel (as in some other kinds of estoppel) for all intents and purposes.  Its scope is limited in the same way as other contractual provisions.

85.Thus, it is not possible to read Lord Leggatt’s judgment in Uber BV v Aslam, supra at [82] as laying down that contractual estoppel would operate generally without any limits on its scope under the contract itself.  The case concerned claims by Uber drivers claiming against Uber that they worked for Uber under workers’ contracts and thus qualified for minimum wage, annual leave and other workers’ rights.  There were provisions in the contracts between Uber and these drivers which acknowledged that the transportation services were provided to the end-users by direct business relationship between the drivers and the end-users to which Uber is not a party.  Another provisions stipulated that Uber did not and shall not be deemed to direct or control the drivers in the provision of transportation services.

86.The issue addressed by His Lordship at [79] to [82] was whether such provisions were void by reason of section 203(1) of the Employment Rights Act 1996 (for excluding or limiting the operation of the Act).  At [82], Lord Leggatt accepted that these provisions could give rise to contractual estoppel but they would be void.  The relevant part of [82] relied upon by Mr Lam is as follows:

“ [The principle of contractual estoppel] would preclude a driver from asserting in any legal proceedings that he is performing transportation services for or under a contract with any Uber company.” (Mr Lam’s emphasis)

87.Reading the passage in context, Lord Leggatt was referring to “any legal proceedings” arising from the relationship between Uber and the drivers pursuant to the performance of transportation services which were governed by their contracts.  We do not find this dictum to be supportive of Mr Lam’s proposition of unlimited scope of operation of contractual estoppel.  

88.Coming back to the present case, there is nothing in the clauses relied upon by Mr Lam that Kelly had agreed with Mrs Ng that in all future dealings between the two of them (as opposed to their dealings with the bank as lender in respect of the loans secured by the 1987 Mortgage and the 1990 Further Charge) over the Flats that Mrs Ng was to be regarded as the beneficial owner of the same.  Contractual provisions have to be construed in light of the factual matrix.  Bearing in mind the circumstances under which the 1987 Mortgage and the 1990 Further Charge came to be executed as found by the judge, it would be perverse to put such construction on those clauses.  In this respect, the judge’s finding at [432] cannot be faulted.

89.For these reasons, the Defendants cannot rely on contractual estoppel to resist the Plaintiff’s claims in this appeal.  Having reached such conclusion, it is not necessary for us to address Mr Ismail’s arguments based on Lowe v Lombank Ltd [1960] 1 WLR 196 and Hui Cheung Fai v Daiwa Development Ltd HCA 1734/2009, 8 April 2014. We would simply note that Lowe v Lombank Ltd, supra had been duly considered by Aiken LJ in Springwell Navigation Corp v JP Morgan Chase Bank, supra. 

Appeal on the facts

90.Having addressed all the legal arguments which are necessary to be addressed in this appeal, we can come back to the challenge on the factual findings by Mr Lam.

91.Mr Lam properly accepted that this Court would not disturb findings of fact by a trial judge unless such findings are plainly wrong and in the absence of palpable errors we would not interfere with the assessment of evidence and the weight a trial judge attached to a piece of evidence.

92.The following matters were alluded to under Ground 4 in the Amended Notice of Appeal to challenge the finding that Kuen had sold the Flats to Kelly for $1 million:

(a)  The judge failed to place proper reliance on the fact that there is a complete absence of documentary evidence, particularly in light of the value of the Flats.  The judge erred in holding that the special relationship between Kuen and Kelly would explain such lack of written records;

(b)  The judge erred in finding that Kuen had the motive to sell when Kuen and Mrs Ng were not in financial difficulties;

(c)  The judge erred in failing to take proper account of significant discrepancy between the agreed market value of the Flats ($750,000) and the alleged purchase price at $1 million; and

(d)  The judge placed undue reliance on the email correspondence between Jennifer and the children of Mrs Ng.

93.In addition, Mr Lam also submitted that the judge failed to appreciate the significance of the clauses in the 1987 Mortgage and the 1990 Further Charge in terms of their incompatibility with the existence of the 1985 Agreement.

94.With respect, we are of the view that none of these points (whether taken individually or collectively) can demonstrate any palpable error on the part of the judge or that his findings of fact were plainly wrong.  The judge was plainly aware of these matters and had duly taken them into account in his judgment.  His finding was that Kuen and Mrs Ng had cash-flow difficulties in 1985 and Kuen used the $1 million purchase price paid by Kelly to discharge the mortgage over two properties including their matrimonial home.  The judge was entitled to take account of the close relationship of Kuen and Kelly in assessing if he could accept the evidence of Kelly on the 1985 Agreement even though it was not recorded in writing and the so-called discrepancy in purchase price is only based on a valuation done for the present trial and there is no suggestion that such valuation had been obtained in 1985.  The judge was equally entitled to place weight on the email correspondence as he did.  This is particularly so in light of the oral testimonies of Jennifer and the children of Mrs Ng.

95.We therefore reject the appeal against the findings of fact of the judge.

96.For all the above reasons, we had dismissed the appeal on 20 April 2021 with costs to the Plaintiff against the 1^st and 2^nd Defendants together with a certificate for two counsel.

Mr Anthony Ismail and Mr Justin Ismail, instructed by Ernest Li & Co, for plaintiff

Mr Paul Lam SC and Mr Chase Pun, instructed by Li & Partners, for the 1^st and 2^nd defendants