Anstalt Nybro v. Hong Kong Resort Co Ltd
Read the full judgment text of CACV 45/1978 on BabelCite. This Court of Appeal judgment.
1. This appeal relates to an agreement in writing for an option to share in the development and management of land and is against orders of a judge in chambers the vital parts of which direct the vacation of two entries in the Land Register, one of an estate contract and one of a lis pendens.
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CACV000045/1978
----------------- Coram: Huggins and Pickering, JJ.A., and McMullin, J. Date of Judgment: 16th August 1978. ----------------- JUDGMENT ----------------- Huggins, J.A.: 1. This appeal relates to an agreement in writing for an option to share in the development and management of land and is against orders of a judge in chambers the vital parts of which direct the vacation of two entries in the Land Register, one of an estate contract and one of a lis pendens. 2. The Hong Kong Resort Co. Ltd. (HKR) are the lessees of a large area of land in the New Territories under what, for the purpose of clarity, I prefer to call the Crown Agreement. That Agreement requires them to develop the land at a cost of not less than $600,000,000 in accordance with a "Master Layout Plan" which was to be prepared by HKR and approved by the Secretary for the New Territories. Such a plan was duly prepared and approved but was confusingly headed "Master Plan". HKR then entered into the option agreement in writing with Anstalt Soro, who subsequently changed their name to Anstalt Nybro (Nybro). The Option Agreement was concerned with specified sections of HKR's land. The consideration for the option was $50,000, which has been paid. The option itself was in these terms:
The option was originally to be exercised on or before 31st January 1977 but was extended by mutual consent to 1st March 1977. Nybro claim to have exercised the option by a letter dated 24th January 1977, which reads:
HKR ran into financial difficulties and eventually new directors took over. These new directors, believing (so they say) that the option had not been exercised and had lapsed, agreed with the Secretary for the New Territories a new Master Layout Plan which was substantially different from the first one. Some months later Nybro registered the Option Agreement and the letter purporting to exercise the option as an estate contract. Immediately thereafter HKR issued a writ claiming declarations that the Option Agreement was so vague as to be unenforceable and that the option had not been validly exercised. A month after that Nybro instituted an action against HKR for declarations that the Option Agreement was enforceable and that the option had been validly exercised and for specific performance. On the same day the action was registered as a lis pendens. There were before the judge two summonses, one by Nybro for declarations in the terms of their writ and one by HKR for vacation of the entries in the Land Register. 3. If these actions come to trial there will be one main issue of fact and two main issues of law: (1) whether the option was validly exercised: (2) whether the Option Agreement was void for uncertainty: and (3) whether the contract between the parties was a contract affecting land within the meaning of the Land Registration Ordinance. 4. The first of those issues includes three subordinate issues, (a) whether the letter of 24th January 1977 was ever delivered at all; (b) if it was, whether it amounted to an exercise of the option; and (c) if it did, whether such exercise was subsequently cancelled by agreement of the parties. As to (a) it will be contended that the letter was not delivered and that the copy which has been produced by Nybro is a sham. Before the judge it was conceded that this could not be decided until all the evidence had been adduced at the trial but he appears to have misunderstood and to have thought that he was being asked to decide that issue of fact on the affidavits. He rightly declined so to do. What in fact was submitted, and was submitted again before us on a Respondent's Notice, related to issues (b) and (c), which are to some extent based on the same evidence. The letter itself does not take the form one would expect of an immediate, unconditional and irrevocable exercise of the option but purports to exercise the option with effect from 1st March. It is suggested that this was no more than a notice that Nybro intended, by a further notice to be dated 1st March, to exercise the option. HKR put this forward as one of two possible explanations of subsequent events. There is evidence that on 25th February 1977 there was a board meeting of HKR at which it was reported that Nybro was seeking an extension of time within which to exercise the option and that it was thereupon resolved to grant an extension until 30th June 1977. Although it is common ground that minutes of that meeting were sent to Nybro as soon as they wrote indicating that they regarded the option as having been exercised, Nybro neve wrote a formal protest, but it is said that the Chairman of Nybro (Mr. Burgess) spoke to the Chairman of HKR (Mr. Edward Wong) in London and that Mr. Wong promised to sort out the muddle. Mr. Wong appears never to have mentioned the matter to anyone else and Mr. Burgess did nothing more. Therefore, assuming in Nybro's favour that the letter was delivered, HKR contend that it is apparent that in February 1977 neither side regarded itself as bound to proceed with the suggested joint venture, whether because the option had never been validly exercised at all or because of an agreement to reopen the option, which no one says has been exercised again. Mr. Hunter did ask us to consider whether this argument was open to HKR on the pleadings. It is enough to say that it was addressed to the judge without objection and that if necessary I would give leave to amend. We were invited by Mr. Nourse to adopt "a certain robustness of approach" to the evidence and he suggested that, even in the light of the further evidence which has been admitted before us, Nybro was left with no arguable case that the option was, in the end, validly exercised. The alleged board meeting of 25th February 1977 will itself have to be the subject of careful scrutiny. There is now direct evidence that no extension beyond 1st March was asked for and that the purported exercise of the option on 24th January 1977 was not cancelled. No useful purpose will be served by reviewing the evidence in detail. There is much that will require explanation in due course on both sides and I am not prepared to hold that on the whole of the evidence Nybro does not have an arguable case. 5. So far, of course, I have assumed that a valid exercise of the option was possible. The main argument which found favour with the learned judge was that the option could not be validly exercised because the Option Agreement was void for uncertainty. The uncertainty contended for related to three matters: (1) uncertainty as to Articles of Association of the three companies to be formed; (2) uncertainty as to the manner in which the land was to be developed; and (3) uncertainty as to (a) the payments (if any) to be made to Nybro for managing the estate and (b) the nature of the management services to be rendered. 6. The learned judge was persuaded that the absence of draft Articles of Association was not fatal, because, if no Articles were registered, the regulations contained in Table A would be the Articles of the companies by virtue of s. 11(2) of the Companies Ordinance. HKR has challenged that conclusion. It is true that the promoters might adopt part or the whole of Table A and that if no Articles were registered at all the company would not be left without Articles, but there is no immediate certainty as to what the Articles would be. It is as if the parties had expressly said that the Articles were to be agreed or, in default of agreement, were to be the regulations contained in Table A, for we should assume that the parties realized the necessity for Articles of some kind. Would that be sufficient? In a sense there would be uncertainty as to what the Articles would eventually be, but in my judgment there would be that degree of certainty which is required for the formation of a contract. Id certum est quod certum reddi potest. The case is analogous to Foley v. Classique Coaches Ltd. 1934 2 K.B. 1 save that the part performance in the present case as yet consists in nothing more than the payment of the price of the option. On this point I would respectfully agree with the learned judge and if the participation in the "ownership" were the only matter upon which uncertainty was alleged, would hold that the option Agreement was not void for uncertainty. 7. In the view of the learned judge, however, HKR was bound to succeed on the basis that the nature of the option was uncertain in relation to both the development and the management: as the put it, "the terms of development and management are left in a vacuum". He was concerned that this was a complicated venture and that before it was complete many details would have to be decided for which there was no provision in the Agreement. There is a dispute as to the degree of detail for which provision has been made, since Nybro contend for a liberal construction of the Option Agreement: they submit that the development agreed upon is development not only in accordance with the Master [Layout] Plan No. 3.5, which is all that is mentioned in Clause (3), but also with the Crown Agreement. For my part I am not at all sure that it is necessary for us at this stage to decide what is the true construction of the Option Agreement: an agreement is not void simply because the parties have not set out all the possible details or even all the details which it would have been sensible to include. If A and B agree for consideration to develop land by erecting a house in accordance with such plans and at such a cost as Cmay dictate, I do not see why they should not be bound. Whichever construction of the Option Agreement is correct there are details still to be decided and the parties have seen fit to leave it to the companies to make the decisions. That was not as rash of them as of the parties in the example I predicated, because the parties jointly are in fact the companies. The companies would have to decide what development was to be done and what it was to cost. Nybro, as development managers, would then carry out the development under the directions of the companies. If the development so decided upon was not in accordance with the Crown Agreement and the current Master Layout Plan, the Secretary for the New Territories might object: so, if the Crown Agreement is not, upon the true construction of the Option Agreement, incorporated into the Option Agreement, the companies might find themselves unable to carry out what they have agreed to do. That does not mean that what they have agreed is uncertain but only that it would have been wise to include and express reference to the Crown Agreement. On the other hand, if that document is incorporated into the Option Agreement, the difficulty would not arise, because the parties would be bound to see that the companies developed in accordance with it also. The Option Agreement would be uncertain only if it were not possible to say whether a particular proposed development was within the Master Layout Plan, and there could be no doubt what that plan required. In theory no difficulty would be likely to arise upon either construction of the Agreement, because HKR would (as required by the Crown Agreement) have a controlling interest in each of the companies and could ensure development in accordance with the Crown Agreement whether Nybro are bound to comply with it or not. One thing which has never been doubted was the intention of the parties to enter into a binding legal relationship. We should be slow to hold that their agreement is void for uncertainty because they could have used words which were more precise: Brown v Gould 1972 1 Ch. 53. The fact that one can conceive of circumstances in which Nybro might regret having committed themselves to a development which threatened to lead them into bankruptcy is no reason for holding that the Option Agreement is uncertain. 8. I must briefly express my opinion on the construction point. Mr. Hunter relies upon Prenn v Simmonds 1971 1 W.L.R. 1381 as authority for the general proposition that "in order for the Agreement ... to be understood, it must be placed in its context": per Lord Wilberforce at p. 1383H. Counsel submits that the relevant matrix of facts includes the Crown Agreement and even, as I understand him, all the mass of information collected for the preparation of the Master Layout Plan. Mr. Nourse protests that Prenn v Simmonds goes nowhere near as far as that and that it permits of parol evidence only where a particular word or phrase is ambiguous. There is no doubt, alas, that we have passed the days when parties to a written agreement were expected to say what they meant and to mean what they said and the pendulum is fast swinging towards the point where the written word will represent nothing more than a peg on which to hang evidence of the parties' alleged intentions (real or imagined). It is to be hoped that the swing will be stopped before it goes any further. We have been referred to a great number of cases from River Wear Commissioners v Adamson 1877 2 A.C. 742 to Thoresen v Weymouth Public Borough Council 1977 2 Lloyd's Rep. 614, but I think the present limit of the rule is still that stated by Lord Watson in Orr v Mitchell 1893 A.C. 238, 294, where, the issue being whether a recital could be called in aid to construe the operative part, he said:
Provided that limit is not exceeded I think the cases do show that
That seems to me to apply directly to the present case. The representatives of Nybro may not have had the Crown Agreement in the forefront of their minds, but clearly they were aware of its terms and could not have intended that the land should be developed otherwise than in accordance with its terms. However, that does not make the Crown Agreement "a contract document" if by that is meant, inter alia, that Nybro has agreed to the right of HKR unilaterally to replace Master Layout Plan 3.5 with Master Layout Plan 4.0. 9. I come now to the alleged uncertainty as to the terms of management and of the remuneration for the services which Nybro is to agree to render to the companies. There is no apparent definition of the services to be rendered and there is no express provision for payment for the management services and expenses. The former omission is not altogether surprising: when one appoints a manager one does not normally set out in detail the services that are to be rendered and, if necessary, the court will decide whether, in all the circumstances, a particular service is or is not included within the term "management". The difficulty as I see it here lies in the second omission and in the fact that no provision is made for the removal of Nybro as manager if the services are not performed efficiently. Nybro as manager if the services are not performed efficiently. Nybro, in seeking to uphold the contract, is forced to argue that no provision was made as to remuneration because there was to be no remuneration: the expense of management was, along with a cash payment to each of the companies, to constitute Nybro's contribution to the project. The question is whether that is a fair construction of the contract or merely a device to prevent avoidance of the contract so that it may be used as a bargaining weapon against HKR, who have now changed their plans. In so saying I appreciate that Nybro's submission is that it is the reconstructed HKR which is using the uncertainty argument as a device to avoid liability under a contract inherited from the previous Board of Directors. 10. An agreement to render services requires a consideration, but the court will often imply a promise to pay a reasonable reward for the services: if no reward can be implied there is no consideration and the agreement is not legally enforceable. There can be no legally enforceable agreement to do something for nothing, except by deed. At first sight the Option Agreement might appear to contemplate just that - a rendering of managerial services without remuneration. However, it is contended that this is not simply an agreement for services, or even for an option to undertake services, with no remuneration stated: here the rendering of the services is part of a much wider agreement involving also the setting up of companies to carry out the development. Mr. Hunter submits that when the contract is construed in the light of the surrounding matrix of facts it is clear, or at least arguable, that nothing is left uncertain because the machinery of ascertainment is provided. Thus, he says, Clause (4) requires no more than that the parties should secure the appointment, by the companies, of Nybro as managers: it will be for the companies to arrange the details. As I understand it, he asks us to read Clause (4) as defining (and sufficiently defining) the degree of participation in the management for which Clause (1) gives an option. At least, as it seems to me, that is an arguably tenable position. I can see that HKR may be reluctant now to have Nybro appointed as managers in the light of all that has happened, but the parties are bound to use their best endeavours to secure the appointment. It is not an agreement to agree although at a casual glance it may have the appearance of such. As for the remuneration there can be no quantum meruit unless it is first clear that the work is not to be done gratuitously. Bearing in mind that the employer would be not HKR but the companies, I see no ground for Nybro's suggestion that the work is to be done gratuitously and the fact that they have made that suggestion has caused me great anxiety: it is a reasonable implication that Nybro were to agree their remuneration with the companies and that in default of agreement the court would be asked to fix a reasonable remuneration for the services rendered. It may be asked Would the court be able to fix the remuneration for services which are not yet defined? However, that is not a relevant question, because on the view I take of the contract the services will be defined before the remuneration falls to be fixed. 11. Do the contract and lis pendens "affect" the land within the meaning of the Land Registration Ordinance? Unless, beyond argument, they do not, we ought not to vacate the entries in the Register at this stage. The Option Agreement does not create an interest in the land itself, present or future, but it does contemplate that the title to the specified sections of land shall pass to the companies once they have been formed: the contract merely gives "a commercial interest" to Nybro in having the land assigned to the companies. HKR contends that that is not enough and that the Option Agreement cannot "affect" land unless by that Agreement the title to the land is transferred and the Agreement can be, and might be, enforced by an order for specific performance. The learned judge was mistaken when he said that it was agreed that the court might properly vacate the registration of a contract which was not specifically enforceable. Mr. Hunter argues that the contract with which we are concerned is capable of enforcement by an order of specific performance and that, even if it is not, it can be enforced in other ways which show that the land is affected despite the fact that those ways involve remedies of a personal nature. Thus he says that the promise by HKR to assign the land to the companies could be enforced indirectly by an injunction which prohibited an assignment to anyone else and that it is therefore in the class of contracts which it was intended could be protected by registration. The statute provides that the instrument in writing or the judgment must be one by which the land "may be affected". "Affected" is not a word of art but an ordinary English word, which may have a very large meaning. In the context of the Land Registration Ordinance it is the title to the land which must be affected and anything which either calls for a change of title or which may prevent or limit changes of title affects the land. In Thian's Plastics Co. Ltd. v Tin's Chemical Industrial Co. Ltd. (No.2) 1971 H.K.L.R. 249 the lis which had been registered concerned "the inner working and relationship of the first and second plaintiffs and the conduct of the second defendant" and if it succeeded it would "affect the persons who [were] entitled to deal with the properties on behalf of the companies but it [would] not affect the properties themselves". Whatever may be the position as regards the development of the land and the management of the project the promise to assign the land to the three companies would clearly be capable of enforcement by injunction even if specific performance were refused. 12. As for the question whether specific performance could be granted of the clauses relating to development and management, Mr. Hunter argues that one has to look at this contract in stages. As I understand him, he means by this that, first, specific performance could be ordered of the first part of Clause (2) of the Option Agreement to compel the formation of the companies; after that, secondly, specific performance can be ordered of the second part of Clause (2) to compel the assignment of the land to the companies; after that, thirdly, specific performance can be ordered of Clause (3) to compel the parties, as shareholders, to ensure that the companies develop the land assigned to them; and after that, fourthly, specific performance can be ordered of Clause (4) to compel both parties to exercise their powers as the sole shareholders in the companies to appoint Nybro as manager and to compel Nybro to accept the appointment. Mr. Nourse submits that one may not approach the matter in this way and that the argument is analogous to one to enter into a partnership. He rightly says that the court will not as a general rule order specific performance of an agreement to form or carry on a partnership, although it will order specific performance of an agreement to execute a partnership deed where the parties have already started carrying on the partnership business. I agree with Mr. Nourse that Lisle v Reeve 1902 1 Ch. 53 is not in point. Where I part company with him is where he says that the Option Agreement involves the rendering of continual services by one person to another and requires continual supervision. He relies upon Page One Records Ltd. v Britton 1968 1 W.L.R. 157, which distinguished the well-known case of Lumley v Wagner (1852) 1 de G., M. & G. 604, but I do not think it assists us here. This is not a contract to manage but to procure the appointment of Nybro as managers by the companies. The management contracts between the companies and Nybro will involve the rendering of such continual services and I apprehend that those contracts could not be specifically enforceable. In this connection I am attracted by the dictum of Megarry, V.C., in Tito v Waddell (No. 2) 1977 1 Ch. 106, 322;
But even the third stage of the Option Agreement will require no constant supervision by the court. I am not persuaded that this contract is not capable of enforcement by orders for specific performance. 13. What is then argued on behalf of HKR is that in all the circumstances of this case no court would in fact grant specific performance. Although for a long time I was doubtful whether it would be right for us to go to the length of so holding, in the event I am now persuaded that the learned judge had good cause for saying:
Whatever the strict limits of the Option Agreement, and although we should not too readily assume that the parties could not make it work, it seems to me that it clearly cannot be made to work. All the machinery may be there but one cannot close one's eyes to the fact that the companies will never in reality be independent entities, entirely distinct from the parties to the Option Agreement, who are the only shareholders. If HKR is reluctant to accept development in accordance with Master [Layout] Plan 3.5 and if Nybro are unwilling to accept development in accordance with Master [Layout] Plan 4.0, the whole project is doomed to failure, for the position of both parties would be intolerable. That being so, it would be wrong in effect to sterilize the land until the action can be brought to trial. I have had the advantage of reading the judgment of McMullin, J. in draft and I agree that when one looks at the case as a whole it is inconceivable that any remedy other than damages will be granted at the trial. I think that a contract for which the only remedy can be, or clearly will be, an award of damages does not affect the land within the meaning of the Land Registration Ordinance. That does not mean that the Registry was to be criticised for registering an Agreement and a lis pendens which had all the appearance of registrable documents, but it does mean that the learned judge was right to order that the entries be vacated, and I would dismiss the appeal. 16th August 1978. Representation:
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----------------- Coram: Huggins and Pickering, JJ.A. and McMullin, J. Date of Judgment: 16th August, 1978. ----------------- JUDGMENT ----------------- Pickering, J.A.: By their Respondents' Notices in the two appeals Hong Kong Resorts (HKR) claimed that the order of the learned judge should be affirmed on a ground additional to those relied on in the Court below namely that the evidence disclosed that the Option purportedly granted by the Agreement of the 11th October 1976 between the parties was never effectively exercised and that there was no triable issue on that point. The learned judge had found that there was such a triable issue. Mr. Nourse concedes that in advancing this particular argument before this Court he has a heavy burden and the more so since new evidence by way of affidavit has been allowed in by this Court. I propose to say no more on this issue than that it does not appear to me to be possible for this Court, on the evidence before it, to say that the exercise of the Option sworn to by Mr. Burgess, the Chairman of Nybro, and by Mr. Wong, the then Chairman of HKR, was either provisional or subsequently cancelled. In my view that is a distinctly triable issue and is quite impossible for this Court to short-circuit the proceedings by holding otherwise. Indeed if the mater came to trial it would be a matter for the trial judge as to whether HKR's arguments based upon provisional exercise of the Option or cancellation thereof was open to them upon the pleadings. I turn to the issue which appears to me to be crucial to this appeal. The learned judge's finding that the Parties' Agreement of the 11th October 1976 was void for uncertainty was the subject of spirited attack by Mr. Hunter who said that the judge had failed to relate that Agreement to the Master Agreement and had failed to consider the impact of the Master Plan and whether the Agreement between the parties, the Master Agreement and Master Plan were together sufficient to establish certainty in law. The learned judge, the argument continued, had not applied the correct principle of construction upon the issue of voidness which principle was that where the Court is faced with an agreement which the parties plainly intended to be binding and which had been partly performed, the Court should reject it only as a last resort. Moreover the judge had failed to understand the corporate structure set up by Clause 2 of the Agreement whereby fifty-one per cent of the control of each of the three companies to be formed would vest in HKR and forty-nine per cent in Nybro with the result that control would vest in the majority shareholder which could dictate the policy and activities of each company within the terms of the Master Agreement and the Agreement of the 11th October 1976 made between the parties. Developing the theme that the Agreement between the parties, the Master Agreement and the Master Plan should be construed together Mr. Hunter cited the case of Prenn and Simmonds (1) where Lord Wilberforce said:-
That principle had since been applied in Lep Air Services v. Rolloswin Investments Ltd.(2), Reardon Smith Line Ltd. v. Hansen-Tangen(3), Bunge v. Kruse(4), Thoresen v. Weymouth P.B.C.(5) and Mottram v. Sunley(6). Applying this principle, the argument continued, it was possible to relate Special Condition 8 of the Master Agreement to Clause 2 of the Agreement between the parties, the former authorizing HKR to assign the whole or any part of the land demised to its subsidiary company or companies, - defined as a company or companies of which HKR had effective control and not less than fifty-one per cent of the issued shares at the time of the assignment or assignments to the companies - whilst Clause 2 of the Agreement between the parties provided that the shares in the companies when formed should belong as to fifty-one per cent to HKR and forty-nine per cent to Nybro thus according with the terms of Special Condition 8. Likewise, it was said, Special Conditions 5 and 6, relating to the development by HKR of the land demised in the manner therein set out and to the satisfaction of the Secretary of the New Territories, could be allied to Clause 3 of the Agreement between the parties which provided for development by each of the three companies of the section of land assigned to it. Thus the Agreement between the parties was not a mere contract to contract they having used language appropriate and sufficient for the transaction into which they were entering and intending to be bound by their contract. The effect of the cases, counsel urged, in the words of Roskill L.J. in Bunge v. Kruse(4) was that one "must not give a legalistic construction with total disregard of the commercial background against which the parties were contracting". Placing oneself in the same factual matrix as that in which the parties were at the time of the Agreement, the relationship of the parties was adequately spelt out and the Court should be reluctant to hold void for uncertainty a provision intended to have legal effect (Brown v. Gould(7)). In summary it was Mr. Hunter's contention that, putting the Agreement between the parties in its context, the object of the parties was plain, namely to create a joint venture between them through the medium of three limited companies for the development of the named section of land in respect of which HKR had obtained from the Government the rights afforded them under the Master Agreement. That Agreement, together with the Master Plan, constituted the essential background circumstances of the Agreement between the parties the draftsmanship of which was not so inept that it was impossible to give effect to it. To this Mr. Nourse replied that the Option was to participate in the exploitation of the land "in the manner hereinafter set forth" and although in Clause 3 of the Option there was reference to the Master Plan there was no reference to the Agreement and Conditions for Exchange entered into between the Crown and HKR beyond a mere recital. It was not open to the Court to introduce a contractual document which the parties had not themselves introduced by their writing. It was to the Master Plan alone that one had to look to decide the method of development and that Plan did no more than set out in very general terms the areas and nature of the development on each part of the land: it did not specify whether the residential accommodation was to consist of houses or flats or where in the areas marked orange the hotels were to be situated nor was there nay mention of the design and construction of any of the buildings to be erected. There was, counsel argued, no specification at all - a fact which was appreciated by Nybro whose contention it was that the contract impliedly gave the resolution of any difficulties to HKR as the dominant shareholder in each of the companies: the contract into which the parties had entered was to develop in accordance with the Master Plan not to develop in accordance with that Plan until doubts or difficulties arose which were then to be resolved by the companies. That, it was said, was a contract into which the parties could have entered but not that into which they did enter and it was not permissible to say that because HKR controls the companies the Agreement gives the companies the right to fill in gaps where the contract does not give any such right. The matters left open on the Master Plan were so various and fundamental that it was inconceivable that Nybro had to sit back and watch HKR, by virtue of its fifty-one per cent shareholdings, develop in whatever way it liked within the Master Plan: under the Agreement between the parties it was Nybro which had to undertake and complete the project and if Nybro had no control at all, it involved attributing to the parties an intention they could never have entertained. Moreover although the Agreement between the parties provided that Nybro should be appointed Manager by each of the three companies there was no provision for the remuneration of Nybro - a fact which had led Mr. Hunter for Nybro to say that the Agreement was that the work should be performed without remuneration; it was a very big step indeed to imply a term that there was to be no remuneration; in addition there was no mention of how much time Nybro was to devote to the project, no provision for early determination of the Agreement and it was not stated whither and in what circumstances Nybro could delegate. Again, it was common ground that there were no draft Articles of Association of the three companies to be formed. The learned judge had held that that was immaterial since under section 11(2) of the Companies Ordinance if no Articles were registered then the Regulations contained in Table A should be applicable. The Agreement however was simply to form three companies "under the Companies Ordinance" and the question of what were to be the Articles of Association had been left open; what the judge had accepted was that if you agree to form a company and to say nothing about the Articles you must be deemed, when you come to register the company not to have register Articles and in that case section 11(2) would apply: but it was quite a different thing to say that that sub-section was automatically brought into the Agreement under consideration; at the time of the Agreement the parties had simply not directed their minds to what the Articles were to be and it could not be presupposed that no Articles were to be registered so that Table A would be brought into play. In meeting further the argument that the Agreement between the parties, the Master Agreement and the Master Plan should be construed together, Mr. Nourse contended that it was permissible to have regard to the surrounding matrix of facts upon the Prenn and Simmonds principle(1) only where the document under construction contained a word the meaning of which was doubtful. Some of the cases appear to support that view but others do not. Thus in Prenn and Simmonds itself the surrounding circumstances were called in aid to assist in establishing what was meant by the word "profit" in the document under construction. Again, in Lep Air Services v. Rolloswin Ltd.(2) Lord Simon, citing Prenn v. Simmonds, held it permissible to examine surrounding circumstances in order to explain a figure mentioned in a letter which figure rerpresented a sum of money said to have been paid and which sum differed from the sum which, on the face of he contract between the parties, one would have expected to have been quoted. Thus in both those cases resort was had to the surrounding circumstances for only a very circumscribed purpose. However in Bunge v. Kruse(4) similar resort was had for the purposing of deciding whether or not there had been an accord and satisfaction - a very much wider concept. Again, in Reardon Smith Line Ltd. v. Hansen-Tangen(3) Lord Wilberforce said:-
In Charrington & Co. Ltd. v. Wooder(8) Lord Kinnear at p.80 said:
And Lord Dunedin at p.82:
It is true that in both Reardon Smith and Charrington what was under review was the construction of a particular term but the speeches of their Lordships go far to suggest that, as happened in the case of Bunge v. Kruse(4), surrounding circumstances may be examined for far wider purposes. As it seems to me the principle of Prenn v. Simmonds(1) does not stop at the point for which Mr. Nourse contends but rather that it is permissible in the present case to construe the Agreement between the parties in the light of the Master Agreement and, as conceded by Mr. Nourse, the Master Plan - though of course it is his contention that the latter document does no more than to set out in very general terms the areas and nature of development of each part of the land. A careful perusal of that Plan and its Key does not persuade me that that is so. The Plan divides the area, designating to every square inch the type of development which is to take place upon it, specifies the number of units of residential accommodation and hotels with gross site areas, gross building space and plot ratios and defines the community facilities, services and recreational amenities to be provided. At that stage of the scheme it is doubtful if much more could have been done. Certainly it was not to be expected that detailed plans of the numerous buildings and installations to be erected could have been provided. As to what Mr. Hunter termed the corporate structure, I agree that the learned judge did not fully appreciate its effect. He posed certain rhetorical questions which led him to the view that the terms of development and management had been left in a vacuum. But as it seems to me the answers to those questions are really inherent in the corporate structure. Thus policy decisions would be made by the Boards of the respective companies which would likewise be responsible for the provision of financial backing on such terms and by such methods as seemed to them the most commercially desirable. In short I would not hold the Agreement of 11th October 1976 void for uncertainty on the basis of Mr. Nourse's reluctance to accept, in the present circumstances, what I conceive to be the effect of the Prenn and Simmonds line of cases. However that may be what does, in my opinion, wreck the Appellant's case on the rock of voidness for uncertainty is the failure of the parties to provide, or even to providen for, Articles of Association of the three companies to be formed. The learned judge said that this did not matter. Mr. Nourse says it does and I think that Mr. Nourse is plainly right. The judge considered that in the absence of Articles of Association section 11(2) of the Companies Ordinance (Cap. 32) would operate to bring Table A into operation. That sub-section provides that:-
The facile argument appears to have been put to the judge that because no draft Articles had been agreed Table A would automatically come into operation - and the judge accepted that argument. But the situation he accepted was premature. What the sub-section says is that upon a company being registered without Articles Table A shall apply: but that provision does not operate unless and until the company is registered. It cannot operate in futuro. Thus it cannot relate to the Agreement between the parties that three companies should be formed. At the time of that Agreement no thought had been given by either side to the contents of the Agreement no thought had been given by either side to the contents of the Articles of Association, no draft Articles were in being, no outline of those Articles existed and there was no agreement that Table A should apply. Mr. Hunter argues that the capital of the companies having been determined, the manner in which it should be subscribed having been laid down and consequently the proportions in which profits should be shared agreed, that was sufficient. That is a view to which I cannot subscribe for Articles of Association can be expected to contain a hundred matters unconsidered by the parties and the skeleton points referred to by Mr. Hunter as being in fact agreed did not contain the flesh and blood of an enforceable agreement. Articles of Association are the very regulations under which a company is to operate and they were neither provided, provided for, nor encompassed by a reference to Table A. That fact left open the widest field of potential disagreement when the companies came to be formed and contains within it uncertainty of a high degree. I would hold that for such uncertainty the Agreement between the parties is void. If it be said that when the parties did eventually turn their thoughts to Articles of Association, then in the event of disagreement as to the contents of the Articles Table A must apply, it must be remembered that Table A could not apply unless and until the companies were at registered without Articles of Association - and if the companies were at loggerheads as to the Tables neither would be likely to apply for registration nor indeed, under the Agreement, was either entitled to so apply unilaterally. Nonetheless we are told that Nybro has in fact registered three companies on the basis of Table A. That can only be a futile gesture since the Agreement was that both parties should procure the registration. Unilateral action can count for nothing. Again, if it be argued that in the event of disagreement as to the terms of the Articles either party could obtain specific performance of the agreement to register the three companies, invoking Table A, and that this expectation conferred certainty upon the agreement to register the companies, it must be remembered that neither party could possibly be sure that the Court would grant a decree of specific performance. Uncertainty as to the Articles was rife and is fatal to the Agreement between the parties. Mr. Hunter conceded that if the Agreement between the parties were to be found void for uncertainty he was, in his own word, "dead". I have found the Agreement to be so void and, if that view be right, that is the end of the matter. Lest however the case go further and my view be considered to be wrong, I must state briefly my opinion as to specific performance and the question of whether or not the Agreement "affects" the land so as to be capable of registration under the Land Registration Ordinance. In this connection I have had the considerable advantage of reading the judgment prepared by McMullin, J. It is wholly unnecessary and would make for tedious reading were I to repeat here the history of the relations between the parties which he has so clearly outlined nor do I think that I could more tellingly etch the present relationship between the parties whose interests are now almost totally divergent. I have considered with care my brother's analysis of many of the cases cited to us in argument. In the result I am not persuaded that the learned judge was wrong when he said "No court is likely to decree the specific performance of the Agreement now in dispute". Like Wilson v. Northampton and Banbury Junction Railway Co.(9) this appears to me to be eminently a case in which substantial justice may be done by an inquiry as to damages: but I do not see how it could possibly be done by way of specific performance or other equitable remedy. Thus in the special circumstances of this case the option Agreement cannot affect the land and the learned judge was right to order the vacation of the two entries in the Land Register. I would dismiss the appeal. Representation: D. Hunter, Q.C. and R. Mills-Owens (K.K. Chu & Co.) for Appellant. M. Nourse, Q.C., C. Ching, Q.C. and K. Bokhary (Woo, Kwan, Lee & Lo) for Respondent. (1) 1971 1 W.L.R. 1381, 1383. (2) 1972 2 W.L.R. 1175. (3) 1976 1 W.L.R. 989. (4) 1977 1 Lloyd's Rep. 492. (5) 1977 2 Lloyd's Rep. 614. (6) 1972 2 Lloyd's Rep. 197 at 209. (7) 1972 1 Ch. 53. (1) 1971 1 W.L.R. 1381. (8) 1914 A.C. 71. (9) (1874) 9 Ch. App. 279.
----------------- Coram: Huggins & Pickering JJ.A. & McMullin, J. Date of Judgment: 16th August, 1978. ----------------- JUDGMENT ----------------- McMullin, J.: The general history of this dispute has been dealt with in the judgment of the learned president and I do not propose, therefore, to recapitulate more of it than the especial features which bear upon the issues of specific performance and registration - the particular issues which have principally engaged my attention. I agree with the other members of this court that a clearly triable issue arises in relation to the authenticity of the exercise of the option. I also agree that the option agreement is not void for uncertainty inasmuch as it contains terms which are in themselves simple and unambigious and are capable of implementation via the machinery of the corporate structure if it be conceded that that machinery is itself complete and ready to operate. I differ, however, from the learned president in adhering to the opinion of Pickering, J.A., and for the reasons which he gives, that it is in precisely that vital area that the agreement is crippled. I would add to that only one further consideration. Under the agreement the three companies are to be set up as the essential engines of development and it is subject to them that Nybro is to carry out its task of management, and ultimately, it is said, in case of difficulty, subject to the final control of HKR. It is conceded that there is an enormous area of specific detail relative to the development which the option agreement does not expressly cover. This area would include such practical matters as the separate spheres of competance of the three companies, their relationships inter se and their relationship with the manager, Nybro. Again, it is not enough to say that the appointment of Nybro as manager is a simple matter and that the role of a manager is something readily understood. What we are here considering is an extra-territorial body the composition of which, and even the nature of which, remains somewhat mysterious. How this body will actually carry out the duties of management - through what agency, by delegation in what form and to whom - is something upon which there is at present no visible consensus. These are all things which the parties may well wish to see reflected in the contents both of the Articles and Memoranda of Association of the companies. This is, to my mind, an additional reason for concluding that the part of the option agreement relating to the formation of the companies is stranded at the level of an agreement further to agree. But if I am wrong in my view that the want of articles is fatal to the agreement there yet remains the question of enforcement out of which arises what is, to me, the most visibly practical of the difficulties in the way of the appellant company. When we turn to consider Mr. Nourse's alternative submissions the argument takes a sharply different course. It must now be assumed that the terms of the option agreement were not so wanting in certainty as to be unenforceable as they stand. Nevertheless it must be said that those terms are to be construed precisely as they stand and not as though they embodied, as implied or express terms, the various conditions of the "master agreement" (i.e. the conditions of exchange agreement between HKR and the Hong Kong Government) to which Mr. Hunter has referred, still less the enormous volume of background research material referred to in the latest affidavit of Mr. Michael Wong (14/7/78). I did not understand Mr. Hunter - following Prenn v. Simmonds(1) and the several subsequent cases in which the "matrix of the circumstances" approach to interpretation of contract documents was approved - to argue for more than the right of the court to scrutinize that material for any illumination it might throw upon the intentions of the contracting parties in order to determine whether the language they had employed amounted to a viable consensus from which neither party should be permitted to resile. I find nothing in the decided cases which would justify us in regarding anything as a "contract document" which was not actually adopted for that purpose by express words in the option agreement itself. The only such document with which we are thus directly concerned is the master plan 3.5 which is, by common assent, the particular plan to which the option agreement refers (Clause 3). If it be assumed that no insuperable difficulty, deriving solely from the wording of the option agreement, stands in the way of implementing it, whether by stages, as Mr. Hunter suggests, or otherwise, is there any other reason deriving from the circumstances generally which would oblige this court to sustain the opinion of Li, J. that the option contract is not enforceable as to its terms or in any manner otherwise than by damages for its breach? Mr. Nourse puts his alternative argument under two heads as follows:
These points correspond respectively to third and second issues proposed by Mr. Hunter. It appears to me that in order fully to appreciate the scope of these objections it is necessary to keep clearly in mind the history of this large venture and the present attitudes and relationships of the parties at suit insofar as these are unmistakably shown upon the affidavits and their related documents. One might indeed very usefully enlist the notion of the "factual matrix" in testing the worth of this particular part of the argument. What is evident at once is that the appellant company and the respondent company are involved in a total collision of opposing views as to what constitutes the proper development of the Ta Yue Shan project. The appellants' whole claim to have rights exercisable in respect of that project rests upon master plan 3.5. It is common ground that - as counsel put it - that plan cannot "live together with" master plan 4 which is the scheme towards the implementation of which the management of HKR was moving when its progress was suddenly arrested by the registration of the option agreement and the lis pendens founded on the appellant's claim in Action 1006 of 1978 which itself is founded on that agreement. Indeed, even a cursory scrutiny of the two plans side by side will make it clear how radically the two proposals for development differ from each other. We were told that the overall difference is in the shift from a development calculated primarily to attract tourist custom to one aimed primarily at providing recreation and holiday accommodation for local people. The lots allocated to the appellants under the option agreement are, in common with other lots in the area generally, greatly affected by this alteration. The Ta Yue Shan project is avery ambitious scheme of development. Mr. Edwoard Wong, the second defendant in Action 785 of 1978, would seem to have been its originator and its guiding spirit during the many years of its gestation which culminated in the acquisition by HKR - a privately owned company of which he was managing director - of the large area on Lantao Island known as Lot 385. This land passed to the company in exchange for some 800 individual lots which had been acquired over many years and which were surrendered to the Hong Kong Government under the exchange agreement (referred to in this case as the master agreement) executed on the 10th September 1976. The master plan which is referred to in the option agreement (plan 3.5) was approved by the Hong Kong Government in December 1975. The agreement itself was signed by the representatives of Nybro and HKR on the 25th of November 1976. The way was thus finally clear to setting the project in motion. There after the search for financing from external sources commenced, it being considered that the scheme was too big to rest wholly on local resources. After some apparent initial success the company found itself in deep financial difficulty the exact origin of which has not been disclosed but which would seem to have been precipitated by, or at least to have followed upon, the withdrawal of a substantial financial backer, the Moscow Narodny Bank, some time in 1976. At this time the board of the company consisted of Mr. Edward Wong, his son Michael Wong, Mr. John Ault, a Mr. Thomas Beesley and a Mr. FAN Meng-yan. The company went into provisional liquidation on the 31st of March 1977 following the presentation of a winding up petition. A large consortium came to its rescue. Creditors to the extent of some 37 million dollars were paid off and the petition was dismissed on the 13th of December 1977. By that date none of the original five directors was any longer actually concerned with the affairs of the company. Messrs. Ault, Beesley and Fan had resigned from the board in June 1977 and Mr. Michael Wong at some unspecified date about the same time. As to Mr. Edward Wong, the managing director and chief architect of the whole scheme, although we do not know whether he has actually resigned from the company, he would seem at any rate to have abandoned it for he is no longer a shareholder and, on his own admission, he was last in Hong Kong in January 1977 and has since never returned here and has given no further indication of his intention to resume involvement with the company's fortunes. The third defendant in Action 785, Mr. A.J. Burgess who, as Chairman of Nybro, was also a member of the HKR board for a brief period between 1976 and 1977 is likewise no longer a member. A wholly new board of directors now occupies the place of the former board and one of the new directors, Mr. John Wu, has been the principal deponent for HKR in these proceedings. He and his fellow directors assumed office some time in June 1977. Between then and the end of the year when the petition was dismissed they had caused a new master plan (plan 4) to be produced. According to Mr. John Wu this plan was given final approval by the Secretary for the New Territories in late January 1978 although in the course of argument counsel for the appellant company expressed some doubt as to whether this was so. It is true, as Mr. Hunter says, that plan 4 does not bear the signature of the secretary as does plan 3.5 and that special condition 60 of the master agreement provides that any such plan and any amendment thereto should be signed on behalf of the grantee and of the Government. On the other hand we have, in addition to the affirmation of Mr. Wu the opinions of Mr. O'Neil the respondent's project manager and Mr. Reynolds (formerly a senior surveyor in the New Territories Administration) as to the advantages of the new scheme over the old and we have no countervailing evidence even in the new affidavits introduced in the course of the hearing of the appeal. On what was before Li, J., still more on what has been put before this court, it would, I think, be impossible to conclude that the new scheme was anything other than a carefully considered alternative which the new management has every intention of prosecuting and which either has the Hong Kong Government's blessing or is very unlikely to be refused it. I stress these features in the background events leading up to the present dispute not because I wish to suggest that we are entitled to form any concluded opinion on the relative attractions of these two schemes but because I wish to emphasize the practical realities of the situation with which we are confronted in coming to a determination of the particular issues with which I am now concerned. It is beyond question that HKR as it now exists stands charged with any obligations lawfully incurred by the previous board of directors. The law governing corporations which does not permit the corporate persona to die despite the most radical alteration in its constituents is directed to securing, among other benefits, the stability of contractual arrangements. But that is not to say that a court which is asked to give equitable relief to a party who claims to be aggrieved in contract should be blind to any features in the evidence which may suggest a disastrous disadvantage to either party in the granting of the specific relief which is sought. It would be wholly unrealistic in the present case to overlook the radical transformation which has taken place in the respondent company and in the orientation of its project. In a real if not a legal sense the company has died and has been re-born. In its new manifestation it has set its foot upon a wholly different path. If Nybro succeeds in establishing the validity of its claim to have exercised its option and if it is then given the full range of the relief which it presently seeks the result will plainly be that HKR will be wrenched from its present purpose and forced to co-operate in a form of development which it has abandoned for want of confidence in its commercial viability. There is a great deal in the evidence already to support the view that the new HKR directors were taken by surprise by the letter of the 6th of January 1978 and that it was, as Mr. Nourse put it, "a bombshell" apprising them for the first time of Nybro's claim. Correspondingly there is nothing on the other side to affirm the contrary. Indeed, there is much that is questionable in the evidence and the conduct of Mr. Edward Wong. He confirms Mr. Burgess's statement that the option was accepted on the 24th of January 1976 but he appears to have done nothing, after that date, to secure and safeguard the custody of such an important document in the company's records and his evidence as to the manner in which he dealt with this vital letter is distinctly unsatisfactory. There is no positive evidence to show that it ever was included in the company's records. Again his denial that Nybro had applied for a further extension of the option in February 1976 was contradicted by two of his own former co-directors. These are no doubt ultimately questions for the trial judge, but in considering the present issues we are entitled - indeed obliged - to take the evidence as we find it and it is noteworthy that Mr. Edward Wong does not even claim to have informed any member of the new board (or indeed any member of the old board) of the exercise of the option by Mr. Burgess. In addition there was the evidence of Mr. Duckworth of the Official Receivers Office who had custody of all the company's files during the provisional liquidation period and he is positive that there was no record, among the papers then in his custody, of the option having been exercised. These, we must assume, in the absence of evidence to the contrary, were the only records to come into the hands of the new directors after their successful rescue operation. It is common ground that the option agreement reflects something in the nature of a joint venture between Nybro and HKR. It is also, I think, accepted by Mr. Hunter that the contract is of its nature indivisible. To that extent he is not at odds with the finding of Li J. who held that its terms were not severable. What counsel says, however, is that the learned judge overlcoked the importance of the corporate strueture, or machinery, created by the agreement and that had he appreciated its importance he would have held that Clause 2 (which provides for the setting up of three companies to which the land is to be assigned) could be enforced as it stood leaving the successive stages provided for in Clauses 3 and 4 to be enforced, should needarise by subsequent orders. Clause 2 was indeed the only clause, in counsel's view, with which any court could be concerned at present since until these companies had been established it would not be possible to order the assignment of the land or to appoint Nybro as manager within the terms of Clause 4. The corporate structure was of course also invoked to answer the objection of uncertainty in the terms. These are however matters concerning primarily the first issue which was whether the agreement was void for uncertanity. The fact remains that the contract is indeed to be considered as a whole and the effect of it, so considered, is to involve the parties in an enormous and costly venture which of its nature will demand, to a high degree, a spirit of co-operative harmony if it is to succeed. At this juncture it may be useful to recount the sequence of stages which Mr. Hunter, basing himself on the principles which he extracts from Giles v. Morris(2) and British Murac Syndicate, Ltd. v. Alperton Rubber Co. Ltd.(3) sees as open to his clients and to the court in securing compliance with the contractual terms. Firstly, he says, there could be declarations in the terms sought in Paragraphs 2 and 3 of the writ in Action 1006 viz: that the contract is a binding contract and that the option was validly exercised. The second stage would be an interval to permit "tempers to cool". If no accommodation was thereby reached the third stage would be to solicit an order of the court to compel the formation of the three companies and the transfer to them of the parcels of land in accordance with Clause 2. The fourth stage would be a further pause to see if this degree of part performance, albeit exacted through the court would, as counsel put it, carry its momentum forward into spontaneous co-operation in the implementation of Clause 4. If it did not then the fifth stage would be to secure the enforcement by order of the court of the obligation to appoint Nybro as manager of the development companies. At this point the situation as counsel saw it, would be that the newly appointed manager, subordinated to the views of HKR through its majority holdings in the three companies, would carry out its duty of management under the direct orders of HKR should any divergence of views arise between the manager and the company as to the development. A sixth stage would then arrive in the event of HKR standing - as Mr. Hunter put it - mute of malice and refusing to give any orders to Nybro. In that event, counsel suggested, it would be incumbent upon Nybro to produce a detailed scheme of development and to present it to the board of HKR for its consideration. Should HKR refused to consider it then, as a seventh and final stage, Nybro could once more enlist the court's assistance to enforce that scheme since, at this point in the sequence, all difficulties arising from uncertainty of terms would have been eliminated. Thus, upon the slender spindle of the one form of relief to which Nyrbo might be said to be unequivocally entitled at the present - the declaratory orders - the argument winds inexorably forward growing steadily more robust as it advances and ending with the invocation of the most powerful orders with which the court can control the behaviour of reluctant subjects. We must ask whether that is something which any court of trial would be likely to do in this case. For a start it may be said that both both sides agree that Clause 2 of the option agreement constitutes something in the nature of an agreement to enter into a partnership. This relationship is the first of the five factors which Mr. Nourse advances under his second submission in derogation of any possibility that a court of trial would decree specific performance. He cites in this regard Scott v. Rayment(4) which is used at paragraph 387 of the 3rd Edition of Halbsury to support a principle stated in this way:
Mr. Hunter does not dispute the relevance or force of that principle but retorts with Lisle v. Reeve(5) a case cited in the same place as the sole authority for the proposition that a court will nevertheless enforce an agreement for an option to enter into a partnership. This he regards as a more relevant authority in view of his progress-by-stages argument and the contention that at the moment the court will do no more (indeed cannot do more) than decree specific performance of the clear terms of Clause 2. Then there followed the arguments in relation to the three further factors said to disable the plea for specific performance viz.: (2) that the contract involves the performance of personal services; (3) that it would require constant supervision by the court; and (4) that it is wanting in mutuality. I do not propose to examine these arguments in detail nor to enter into any discursive consideration of the passages cited from the fairly considerable number of authorities which figure in that part of the debate. I think Mr. Hunter was right to say, as regards the particular circumstances of this present case, that the support afforded by these authorities was often more by way of an analogy than by direct application. I think he was right also when he observed that, on these two issues, we find ourselves in an area wherein recent growth and development of the law has to some extent undermined old principles so that, as he aptly put it, yesterday's heresies were in process of becoming today's accepted doctrine. A good illustration of that trend is to be found in the judgment; of the Court of Appeal in Price v. Strange(6) especially in relation to the question of mutuality. As to personal services Mr. Nourse does not deny that a contract which involves in some measure, as one obligation among others, the performance of personal services may properly be made the subject of a decree for specific performance. But, in his contention, that can only be in cases in which the element of continuous personal service is slight and the nature of the services themselves is simple enough to admit of enforcement or where there has been something substantial in the way of part performance. In this regard he pointed to the decision in Fortescue v. Lostwithiel & Fowey Rail Co. Ltd.(7) He would however place the services to be peformed for HKR by Nybro as manager in an altogether different category. Mr. Hunter, on the other hand relies on certain dicta in recent decisions especially those of Megarry J. in Giles v. Morris(2) and in Tito v. Waddell(8) in support of his contention that there are no longer any hard and fast rules against: (a) specifically enforcing part of a contract; (b) specifically enforcing a contract involving personal services; and (c) specifically enforcing a contract even where the order may demand a considerable degree of supervision by the court. All these things counsel says go to the question of discretion not of jurisdiction and the relevant discretion is that of the trial judge. In this regard he relies also, of course, on the corporate structure and progress-by-stages argument and he says if that approach were adopted the difficulties deriving from constant supervision and personal services would be reduced comfortably within the effective reach of the court's control. Now all of these matters are distinctly debatable and although these four factors together may be said to weigh against the likelihood of Nybro obtaining a decree to enforce the terms of the contract in the manner suggested I would hesitate, on the strength of them alone, to say that it is so plain that these objections must succeed that this court should hold that they go to jurisdiction and not discretion and that the appellant company must therefore be deprived of the right to pursue its claim for specific relief. What seems to me to constitute the decisive factor when taken together with the other four and when all are together held against the background of the case, as it has been described earlier, is the factor of damages as a just and adequate alternative. Indeed, my note of the arguments of counsel on both sides discloses that this was regarded by Mr. Nourse as the strongest of his points in favour of the course taken by Li J. at least in relation to issues 2 and 3. The principle which is most directly relevant here is that which I have already referred in the quotation in Halsbury above where Scott v. Rayment(4) is cited. It is a principle which receives strong endorsement, if, again, somewhat analogical in nature from the decision in Page One Records Ltd.(9) a case on which Mr. Nourse himself greatly relies. In that case a group of pop musicians who were in breach of a contract with the plaintiff, which was their manager, successfully resisted an attempt by the plaintiff to obtain an injunction the effect of which would have been to cause the musicians to retain the plaintiff as their manager. The contract contained negative stipulations forbidding the defendants from engaging any other person as their manager for a certain period. At page 165 Stamp J. says:
He went on to consider a passage in the judgment of Knight Bruce L.J. in Johnson v. Shrewsbury and Birmingham Railway Co.(10) in which that Lord Justice distinguished the case of Lumley v. Wagner(11) from cases in which the enforcement by injunction of a negative covenant would effectively cause the specific enforcement of the positive covenant involving personal services. In the passage quoted by Stamp J., Knight Bruce L.J., having considered Lumley v. Wagner, the case of the opera singer who broke her contract, and was prevented by injunction from singing elsewhere, went on to say:
Refusing the injunction in the case before him Stamp J. went on to say (p.166)
When one faces the realities of the present situation it can, I think, readily be seen that all those observations apply with re-doubled force in the present case. If the parties here had been mutually agreed, in fact as well as in law, upon the scheme of development to be adopted there might yet be grave objections in the way of forcing HKR to accept the services of Nybro, even by the method proposed by Mr. Hunter. But, as I see it, the evidence tendered before us so strongly favours the view that the new directors were unaware of the exercise of the option by Nybro that we are entitled to approach the matter on the footing of their having been taken by surprise. If the new directors are serious in their intention to pursue the new scheme - and I have no reason to assume that they are not - it does not need much in the way of imagination to foresee abundant discord on the path of management if HKR, unwillingly yoked to its partner, is to be held to the old scheme under the ultimate curb of the court. In those circumstances the whole question of mutual confidence becomes, in a sense, irrelevant and, indeed, approaches the nature of an absurdity when one realises that the control allegedly to be retained by HKR over the performance of its manager would be a control restricted to giving Nybro such directions as HKR might see fit to give in the development of a scheme in which HKR has no interest and which runs more or less directly counter to the nature of the scheme which it has itself proposed. Here one has not only a question of want of confidence in the manager but of want of confidence in the only scheme which that manager is prepared to promote. Although he did not put it quite as I have done, it was, I think, this aspect of the case which counsel had in mind when he said that damages was the perfect remedy because the alternative of specific performance would be intolerable to HKR and to Nybro. In Hounslow L.B.C. v. Twickenham G.D. Ltd.(12) Megarry J. dealing with an application by a council, which owned a building site, to exclude from the site, by means of an injunction, a contractor when there was a dispute between the parties as to whether the contractor had or had not properly conducted the works confided to his care. The judge was primarily concerned with questions relating to the revocability of licences. In the end he refused to grant the relief sought by the council. In the course of his judgment he cites without dissent, as part of his survey of the law generally, a passage from another judgment of Knight Bruce L.J. which is pertinent to the present issue. That passage appears in the Report of Garett v. Banstead & Epsom Downs Railway Co.(13) and it is as follows:
I appreciate that in the passages cited from these cases the courts were concerned with want of mutuality in refusing specific relief and that on the newer principles which Mr. Hunter would enlist that factor may no longer disable as it formerly did. But in Price v. Strange (cited supra) the very case in which the Court of Appeal held that lack of mutuality does not disable as to jurisdiction but is a factor for the exercise of the judge's discretion, I find, in the judgment of Buckley L.J., on p. 959 a passage which admirably summarizes the several considerations relevant to the exercise of that discretion. He says this:
It follows that if the second of those questions is answered affirmatively none of the rest will arise. The question remains, of course, whether this court would be justified in concluding that the discretion of the trial judge must necessarily be exercised in favour of damages. As Mr. Nourse has said, this point as to damages is a short and simple one - a question of first impression. It is implicit in the judgment of Li J. that the regarded it as a matter of fundamental importance. On the penultimate page of his judgment, having considered the inadequacy, as he saw it, of the terms of the option contract, he said:
Although he did not deal explicitly with the question of damages as an alternative, the possibility of that alternative must clearly have been in his mind and that is perhaps the explanation of the contradiction which Mr. Hunter discerned in the fact that, having found the agreement void for uncertainty, alternatively unenforceable by specific relief, the learned judge went on to point out that the proceedings before him were interlocutory in nature and that as he said: "the formal solution of the dispute can only be found at the trial." That remark occurs immediately after his consideration of the issue as to unenforceability and should, I think, be regarded as referable to his finding on that issue solely. He had need to have regard to the fact that the matter was likely to go further and that his finding as to the voidness of the contract might be upset and yet the finding as to unenforceability sustained. Mr. Hunter rightly puts this issue (his third issue relating to the second submission of Mr. Nourse) in this strong form:
His opponent frankly conceded that it was at that level he must meet the challenge. For my own part I am satisfied that he has succeeded. If this had been a case such as Wilson v. Northampton & Banbury Junction Railway Co.(14) (a case upon which Mr. Nourse relies) and had there been a realistic possibility that a trial would reveal HKR to be guilty of the unblushing dishonesty which Bacon V-C attributed to the defendants in that case, I might have felt compelled to say, despite misgivings, that the remedy they seek would be available. It is indeed of great interest that, notwithstanding the patent delinquency of the defendants in Wilson's case specific performance was nevertheless refused and although one of the reasons advanced for that seems to have been want of certainty in the terms, the other, advanced as the primary reason, is that damages would be the plaintiff's best remedy. For the reasons declared in my survey of the history of the matter I think it is clear that this is, on its facts, very far from being a case such as Wilson. It is of course not beyond the bounds of possibility that something might come to light, and be available at the trial, to show that the new directors of HKR in full knowledge of their responsibilities under the option agreement in effect tore it up by launching out in an entirely new direction. But I think I am justified in saying that the prospect of their being fixed with anything more than constructive notice of the exercise of the option is, on what has been placed before us, simply too remote to be realistic. In other words, assuming everything which I think can reasonably be assumed in favour of Nybro, the worst that HKR can expect from a trial court is a finding that there was a valid exercise of the option and that HKR is fixed with liability for the results thereof albeit that the post-June 1977 directors acted in good faith in overhauling and transforming the nature of the enterprise. In such circumstances I am confident that the only remedy which can reasonably be anticipated at the trial, should Nybro succeed in its claim, will be damages for breach. As to the $50,000 already paid by Nybro to HKR, I do not think that that can be said to alter the situation materially. Either it should be regarded as something collateral to the contract proper - the price of the option solely, or else, if not so regarded, then as an item in itself incapable of amounting to part performance being a mere money payment (Frame v. Dawson(15)) at any rate in respect of an engagement involving acts of such varied and extensive character. That leaves only for consideration the question of registration (Mr. Nourse's third submission and Mr. Hunter's issue 2). Mr. Nourse's contention was that since section 2 of the Land Registration Ordinance, under which the option agreement was registered applies only to instruments which, in the language of the section insofar as it is relevant, are "instruments in writing by which any parcels of ground may be affected" the option agreement had been improperly registered because it was not such an instrument. An instrument to come within the section must, in his view, be one capable of creating an interest in land. Thus far, as I understood him, Mr. Hunter was in agreement with his opponent. But then Mr. Nourse went on to say that an agreement could only create such an interest if the terms of it were capable of enforcement by a decree of specific performance. If for any of the reasons he had given, or any combination of those reasons, the court would not so enforce the option agreement then it could not, he said, affect the land and so could not be lawfully registered. I understood him to concede, however, that, in itself, the agreement was inherently of such a nature as to be capable of affecting the land but, he said, because of the circumstances surrounding it, it was incapable of attracting this particular equitable remedy and therefore could not affect the land. Here once again Mr. Hunter argued for a broader view and said that if the agreement was enforceable by any form of equitable relief it was capable of affecting the land and therefore was registrable. He conceded, however, that if it was to be regarded as creating a purely personal right enforceable only in damages it would not be registrable. Both counsel relied upon the judgment of Goulding J. in First National Securities Ltd. v. Chiltern District Council(16) although it seems to me to favour the argument of Mr. Hunter considerably more than that of Mr. Nourse, for insofar as it establishes a general principle relevant to our present concerns, and apart from considerations relating to the special legislation there being dealt with (the Land Charges Acts of 1925 and 1972), that general principle is to be found on p.1079 where the learned judge said:
In the circumstances as I find them here, these two issues which counsel have argued separately as though they stood each upon a quite different footing tend, as it seems to me, to converge towards a single point of resolution. At root the real reason why this contract may be said not to be specifically enforceable is that, in the special circumstances of the case the only reasonable and adequate recourse open to the appellant is in damages; the reason why the entries in the register should be vacated is that, although the agreement was inherently capable of creating an interest in land it cannot do so in this case because the circumstances here are such that only damages and not any form of equitable relief will be available to enforce it. As for the lis pendens, like the judge in chambers I do not see that that merits any right to survival higher than that of the contract on which it rests. For these reasons I would dismiss the appeal. Representation: D. Hunter, Q.C. & R. Mills-Owens(K.K. Chu & Co.) for Appellant. M. Nourse, Q.C. & C. Ching, Q.C. & Bokhary(Woo, Kwan, Lee & Lo) for Respondent. (1) (1971) 1 W.L.R. 1381 (2) (1972) 1 W.L.R. 307; (3) (1915) 2 Ch. 186; (4) (1868) L.R. 7 Eq. 112; (5) (1902) 1 Ch. 53 (6) (1977) 3 W.L.R. 943; (7) (1874) 3 Ch. D. 621; (8) (1977) 1 Ch. 106; (9) (1968) 1 W.L.R. 157. (10) (1853) 3 De G.M. & G. 914. (11) (1 De G.M. & G. 604). (12) (1971) Ch. D. 233 (13) (1864) 4 De G.J. & S. 462 at 465 (14) (1874) 9 Ch. Appeals (15) (1807) 14 Vesey (16) (1975) 1 W.L.R. 1075 |