Humphreys Estate (Queen's Gardens) Limited v. Attorney General and Another
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1. This is an appeal from the decision of Jackson-Lipkin J. who, on 10 May 1985, entered judgment for the Plaintiff, Humphrey's Estate (Queen's Gardens) Limited on their claim against the Defendants, the Attorney - General and the Colonial Treasurer Incorporated, and dismissed the Defendants' Counter-claim in the action. I will refer hereafter t0 the parties as "H. K. Land " and "the Government"; Hong Kong Land is the parent company of the Plaintiff.
Equity - land transaction always "subject to contract" - estoppel by encouragement and acquiescence - whether unconscionable to resile from agreement in principle. Negotiations for proposed Conditions for Exchange relating principally to the grant of a long Crown lease of the Queen's Gardens site to H. K. Land at a premium, in return for which the Government would be allowed to occupy 83 flats in Tregunter Mansions, rent free, reached a satisfactory conclusion on all essential terms, but when the property market fell, and H. K. Land got into financial difficulties, they withdrew from the deal, relying on their rights under the "subject to contract" rule, a condition which the parties agreed had never been waived or expunged, expressly or implicitly. The Government invoked the equitable jurisdiction of the Court. The essence of their case on the main issue was that H. K. Land, by permitting the Government to re-house many Crown servants by moving them from their previous accommodation into the 83 flats in Tregunter Mansions, had encouraged the Government to expect that thereafter H. K. Land would not withdraw from the transaction. In reliance on that expectation, the Government had permitted H. K. Land to enter upon the Queen's Gardens site and to demolish the buildings standing there. The subsequent attempt by H. K. Land to withdraw from the transaction, despite the fact that the essential elements of the agreement in principle between the parties had been wholly performed, should be regarded as unconscionable. Held: [On the facts] that the equity relied upon by the Government had not been established and, on the subsidiary issue, that H. K. Land was entitled to revoke the licence under which possession was taken of the Tregunter flats. Decision of High Court affirmed.
BETWEEN
_______ Coram: Li, V.-P., Yang & Fuad, JJ.A. Dates of Hearing: 7th, 8th, 9th, 10th, 13th, 14th and 15th January 1986 Date of Judgment: 31st January 1986 ___________ JUDGMENT ___________ Fuad, J.A.: 1. This is an appeal from the decision of Jackson-Lipkin J. who, on 10 May 1985, entered judgment for the Plaintiff, Humphrey's Estate (Queen's Gardens) Limited on their claim against the Defendants, the Attorney - General and the Colonial Treasurer Incorporated, and dismissed the Defendants' Counter-claim in the action. I will refer hereafter t0 the parties as "H. K. Land " and "the Government"; Hong Kong Land is the parent company of the Plaintiff. 2. The dispute that led to the action arises out of certain Conditions for Exchange which were negotiated over a long period of time but which were never formally executed. The proposed Conditions related principally to the granting of a long Crown lease (of "the Queen's Gardens" site) to H. K. Land, in return for which the Government would be allowed to occupy 83 flats in Tregunter Mansions for the duration of H. K. Land's Crown lease to the land upon which they were to stand, rent free. H. K. Land was to pay a substantial premium since the value of the Queen's Gardens site was more than the value of the right to occupy the Tregunter flats. 3. The main issues that fell for determination at the trial concerned the doctrine of equity contended for by the Government in resisting H. K. Land's claim for possession of the Tregunter flats and the return of the premium they had paid, the nature of the licence under which the Government occupied the flats, and the Government's right to insist upon the execution of the Conditions of Exchange or to claim some lesser relief. 4. Negotiations began in 1979 between H. K. Land and the Government over the redevelopment of a site at Queen's Gardens. After discussions and considerable correspondence, the Public Works Department wrote to H. K. Land on 8 April 1980 outlining "provisional basic terms" for an agreement. Basically, this envisaged (a) the surrender of H. K. Land's interest in Inland Lot No. 1218 and the extension thereto (Balmacara and Glenealy Junior School); the remaining portion of Inland Lot No. 1093 (Friston) and Section A of Inland Lot No. 1093 (Victoria Lodge), (b) the as to the Government of 90 flats at a "nil" premium in Block A of the Tregunter development and (c) free occupation by the Government of 30 flats in Block C of the Tregunter development. The Queen's Gardens site would be permitted to be redeveloped "together with the adjoining, private land in your ownership" by way of "contemporaneous exchange". These terms were said to tie granted "on the assumption that the Tregunter flats will be ready for occupation by the end of [1980]". 5. This letter of 8 April 1980 was signed by Mr. Ward, the Principal Government Land Agent and its final paragraph was in these terms:-
6. After further discussions and correspondence, on 30 August 1980, Mr. Ward wrote again to H. K. Land setting out the revised basic terms which he would be "prepared to recommend to Government for consideration." Paragraph 3 of this letter was virtually in idential terms to the corresponding paragraph in the April letter. 7. On 9 September 1980 H. K. Land responded by raising a number of points for further discussion and resolution, saying that "in all respects the basic terms contained in your letter of 30th August are in principle acceptable to us. 8. Mr. Tam, "for the Principal Government Land Agent" sent a letter dated 17 September 1980 to H. K. Land, announcing the premium that would have to be paid. The letter said, inter alia, -
9. This passage ended with the sentence: "[the] premium will be payable by you in this transaction if, subsequently approved by Government". And later the writer says: "Once again, I have to reiterate that I have no authority to commit Government as to the proposed transaction at this stage and any agreement reached in this matter will be subject to Government's formal approval." 10. On 21 November 1980 a meeting was held at the Crown Lands & Survey Office at which H. K. Land was represented. There is a detailed "file note" recording what was discussed. All it is necessary to say here is that the Government decided that the premium to be paid by H.K. Land should be increased to $77,377,119, a sum which would be reduced "if Glenealy Junior School is to remain where it is until the new school is built and Queen's Gardens is completed" to $13.8 million. 11. The Government followed this meeting by writing a letter dated 12 January 1981 to H. K. Land, headed "WITHOUT PREJUDICE". It began "...... I am pleased to inform you that subject to contract, Government has agreed in principle to grant the site [Queen's Gardens].....by private treaty on the following basic terms and conditions." 12. The letter is long and detailed. In summary, the lease term was to be 75 years; development conditions were set out; the premium was specified to be satisfied partly in cash and partly by the assignment to the Government of a number of penthouses, flats and car parking spaces in the Tregunter development - which assignment would be subject to a Deed of Mutual Covenant; provision was made for H. K. Land to pay Government $8.3 million more each month if the Government were not granted possession of the Tregunter flats etc. by 28 July 1981; there were a number of special conditions regarding road works, the Glenealy Junior School, Friston and Balmacara and the Victoria Lodge site. Paragraph 2 of this letter was as follows:-
13. H. K. Land was prompt to reply. They did so on the following day, 13 January 1981. They said "We take pleasure in now formally confirming that the said basic terms are acceptable to this Company subject to the resolution of the following matters" and then follow suggestions regarding the Glenealy Junior School and Victoria Lodge sites, and the form of "the proposed documentation to effect the agreement between the parties". The letter ended by saying that H. K. Land "[looked] forward to finalising this transaction in the very near future." This letter, like the letter to which it was a reply, was also marked "WITHOUT PREJUDICE 14. Further correspondence and meetings ensued. These mainly concerned the form of the Deed of Mutual Covenant. Then, on 1 June 1981 the Government sent H. K. Land a copy of the draft Conditions of Exchange in respect of the transaction. Paragraph 2 of this letter said: -
15. The next important development was that on 29 June 1981, the first Tregunter penthouse was handed over to the Government; the other flats and penthouses were handed over between that date and 11 August 1981. The learned Judge accepted that the parties had agreed that the occupation of the flats etc. would be on licence. The original draft could not be found, but the Judge was shown later drafts, and he concluded that up to November 1981 the parties were still not ad idem as to the period within which H. K. Land would be entitled to terminate the licence, if the proposed grant fell through. 16. The Judge noted that despite the fact that no form of licence was finally executed, the Government's occupation of the Tregunter flats etc. was "in all respects material to this action" on the terms of the draft licence, of which paragraph 1(b) and 2 were in these terms: -
17. To return to the chronology of events, on 9 September 1981, H. K. Land submitted the prescribed form to the Government giving notice of the appointment of their "authorised person" for the purpose of the Building (Administration) Regulations, and certifying that the plans for the Queen's Gardens development had been checked by the authorised person. 18. Meanwhile, the Government had set up an informal committee to meet on a regular basis and "co-ordinate quarters redevelopment projects particularly where there was a need for re-housing the existing occupants of quarters to be redeveloped." The minutes of their first meeting (held on 24 August 1981) and dated 10 September 1981 stated the problems that had arisen due to the lack of co ordination in the past between the relevant departments of Government, and paragraph 6 of the minutes was as follows:-
19. Then there is what I might call an "internal" memorandum written by Mr. Ward, and dated 18 September 1981, which I feel should be read out in full, for it contains important insights into the circumstances in which H. K. Land was allowed on to the Queen's Gardens site: -
20. There is then a letter dated 3 November 1981 which shows that H. K. Land sent the Government a cheque for HK$3,463,000 on account of the premium about which the writer said "We agree to place with you [the sum] on 24-hour call deposit at the rate of 161/2% p. a. for value today." Further amounts were paid between that date, and 23 August 1982, amounting in all to $103,865,608. 21. The licence envisaged by Mr. Ward in the internal memo. I have mentioned was issued to H. K. Land on 17 November 1981. I will read out those parts of the licence which seemed to the Judge (as I respectfully agree with his view) to be important:-
22. The Glenealy School was vacated on 7 January 1982 and the Deed of Surrender is dated 11 March 1982. The school was demolished by 16 April 1982. 23. On 17 February 1982 the Government sent H. K. Land a draft of the proposed Conditions of Exchange. 24. The tenancy and surrender agreements in relation to the land owned by the Ladies Recreation Club was executed on 30 June 1982. 25. Meanwhile the correspondence and discussions had continued, covering, inter alia, amendments to the draft Conditions. The final payment of the premium was made on 23 August 1982 and by the end of 1982 H. K. Land seemed content with the draft save for some minor amendments. On 4 February 1983 the Government enquired what amendments were proposed, and had to write again for a response on 18 February 1983. On 23 February 1983 H. K. Land wrote to Government saying in effect that the Conditions would not be executed until an outstanding item about water heaters had been resolved. By letter of 9 March 1983, H. K. Land proposed further minor amendments to the Conditions of Exchange. The Government replied that these proposals were being considered, suggesting that all but one of them could be made in manuscript to the final engrossments of the Conditions. 26. H. K. Land accepted that by "early 1983" the company had got into serious financial difficulties. 27. In the meantime the Queen's Gardens site had been cleared and at the end of July 1983 H. K. Land were told that the Building Authority had approved their plans for the development of the site. 28. On 24 August 1983 H. K. Land told the Government that after obtaining Counsel's advice, further amendments to the Conditions were to be proposed. 29. On the following day, the Government wrote urgently to the Managing Director of H. K. L and in forceful terms, calling upon the company to execute the Conditions of Exchange by 30 August 1983. Other high level and "without prejudice" meetings were held to no avail and on 14 November 1983 the Government sent "a complete set of conveyancing documents" to H. K. Land, the writer ending his letter, rather plaintively, with the words "I look forward to hearing from you at an early date with arrangements for the completion of this long outstanding matter." 30. The next letter from H. K. Land was dated 15 November 1983 and was in these terms:-
31. On 26 February 1984, H. K. Land's solicitors wrote to the Crown solicitor saying that their clients would be prepared to finalise the agreement: "...... if, but only if, the financial aspects can be re-negotiated to reflect present day relative valuation of the Tregunter flats and the Queen's Gardens sites and certain other related concerns of our clients can be met." Further letters followed, and in his letter of 23 March 1984, the Crown solicitor wrote "As you say, at least we are agreed that there was no legally binding contract between the parties." This phrase was seized upon by H. K. Land's solicitors in their letter of 29 March 1984. H. K. Land's stand was fully set out and explained in their further letter of 9 April 1984, and by this letter, re-payment of the $103,865, 608 was demanded. The letter also contained a notice to terminate the Government's licence to occupy the Tregunter flats, within 28 days. 32. These demands were not met and H. K. Land issued their writ, with a Statement of Claim, on 15 May 1984. 33. The Statement of Claim averred that the sum of $103.8 million had been paid as advance payment on account of the premium which would have became payable in respect of the proposed grant, during negotiations. These negotiations had broken down and the total sum paid over was therefore recoverable, with appropriate interest. The Statement of Claim went on to plead the circumstances in which the Government entered into possession of the Tregunter flats, in pursuance of a revocable licence. Due notice of termination had been given and ignored. The loss and damage suffered by reason of all this was the current market rental value of the flats, assessed at $2.4 million, with interest. The Plaintiff claimed declarations and orders and damages for trespass and/or mesne profits for the wrongful use and occupation of the flats. 34. The Government, by its Defence, explained that circumstances n which the cash premium had been paid, and pleaded that the negotiations had not broken down as alleged by the Plaintiff. Agreement had been reached, subject only to the execution of the formal documents required to give effect thereto. The Crown was willing to execute the documents which had been tendered to the Plaintiff for execution in November 1983. 35. The Defence went on to claim a beneficial interest in the Tregunter flats by reason of the matters pleaded and that it had a licence to occupy them pending execution of the document to give effect to the arrangement by virtue of this equitable interest. It went on to aver the matters relied upon as giving rise, by implication, to the licence claimed. Alternatively, it is pleaded, the licence was an express licence in the form agreed in the draft Exchange although not executed, and was effective pending execution of the licence and of the Conditions of Exchange. The licence was not revocable because: -
36. It is further pleaded, in the alternative, that by their words and conduct, the Plaintiff had led the Crown to believe that they would not insist on their strict legal rights. As a result of the Plaintiff's words and conduct, the Crown had suffered prejudice or detriment, and could not now be restored to the position in which it had been before the right to revoke had arisen. The Plaintiff was thus estopped from revoking the licence, on the terms advanced, or at all. Detailed particulars are then given " of the Plaintiff's "words and conduct" and of the way the Crown had been prejudiced or had suffered detriment. 37. There is then a Counterclaim based on averments that the Government had acted to its prejudice by reason of the agreement reached between the parties or, alternatively, as a result of relying on the expectation and understanding created and encouraged by the words and conduct of the Plaintiff as pleaded - particulars are given. For the purpose of the Counterclaim, additional particulars are given of the words and conduct of the Plaintiff which induced the Government to think and act as it did. It is averred that it would be unconscionable and inequitable to permit the Plaintiff to decline to complete the "arrangements and agreement" pleaded by executing the Conditions of Exchange or otherwise to resile from their apparent intention to do so, evidenced by their words and conduct. 38. The Government sought a declaration that the Plaintiff was estopped from requiring the Crown to deliver up possession of the Tregunter flats in terms of the notice of termination of 9 April 1984 or at all. The order sought is for -
39. I will conclude my account of the background and" pleadings by quoting a passage from the transcript which explains the position regarding the re-negotiations in 1983 and 1984 over the premium. It is a statement from the Bar made by Mr. Alexander, and agreed to by Mr. Godfrey:-
40. I turn now to the oral evidence. The parties called only one witness each before the Judge. The Government's witness was Mr. Ward who is now the Deputy Director of Lands. In 1980 and 1981 he had held the post of Principal Land Agent. He told the Court that he would not have recommended that the Government should take possession of the Tregunter flats or that H. K. Land should be allowed to enter the Queen's Gardens site if he had thought that H. K. Land was reserving the right to go back on the transaction. After all the flats had been handed over he thought that the parties" had got to a point where we would soon be going to complete the transaction," and that this hand over "was a very important part of the transaction going through to a successful conclusion." 41. He made the same point a number of times in different words, one example is: -
42. He said that when he had taken the decision that H. K. Land's entry into Queen's Gardens should be on licence, it had never been suggested that they were reserving the right to resale - "I was totally of the view that they were going to continue with the transaction." He had earlier said that he knew H. K. Land well, and Mr. McFadzean was "an honourable gentleman." 43. Mr. Ward also told the Court that the effect of all that had been done under the contemplated arrangements, including the payment of the $103 million premium, upon his expectations as to H. K. Land's intentions was that "they were going to complete the deal." He added:
44. In cross-examination, Mr. Ward was asked about the "subject to contract" point, and what he had to say in view of the fact that the Government had conceded that that stipulation had never ceased to have effect. Mr. Ward replied:
45. Mr. Ward accepted that he was not a party to the negotiations between the Government and H. K. Land under which possession was taken of the Tregunter flats, and had not been aware of the provision in the licence for determination until he had come to Court. 46. As regards the form of the Queen's Gardens licence, for which he was responsible, and paragraph 6 of his memorandum of 18 September 1981, the following exchange occurred - I am reading from the transcript - during his cross-examination by Mr. Alexander:
47. I have gone into Mr. Ward's evidence in some detail because it was upon his "expectation", if I may use that shorthand expression, that the Government relies. 48. Mr. McFadzean's evidence need not detain us long. He maintained that he always considered that the transaction, even when negotiations had reached a successful conclusion, was "subject to contract", and had maintained this view despite all that had happened. I will now read one exchange during his cross-examination by Mr. Godfrey:
49. I do not propose to review the rest of his evidence and recount the reasons why H. K. Land decided to withdraw before completion. But I will say that the position in equity apart, I do not find anything reprehensible about Mr. McFadzean's conduct in the matter. If H. K. Land felt that the transaction was "subject to contract" despite all that had happened, they withdrew upon the most understandable of grounds. Had the bottom not fallen out of the property market, it is difficult to imagine that the deal would not have been completed. 50. Before I turn to the learned Judge's judgment, I will read what he said about the witnesses:
51. I will now relate how the Judge saw the case in the light of the evidence, and the submissions addressed to him, indicating his main conclusions- without comment at this stage. 52. After reviewing the facts in considerable detail, the Judge summarised the original stand taken by H. K. Land, as follows: where there was an arrangement subject to contract, and where one or more of the parties had averred that there was no intention to create legal obligations, then, unless there was an express resilition, equity could not interfere. He then noted Mr. Alexander's concession that conduct could amount to an implied promise or representation that the "subject to contract" position would be abandoned subject, however, to the submission that there would have to be representations which were in the highest degree clear and unambiguous before such a situation could arise. 53. The Judge recorded that Mr. Godfrey had acknowledged the force and importance of the "subject to contract" principle, but had advanced an equity which could arise from words and conduct leading to a belief, expectation or understanding that the other party would not stand on its strict legal rights. A situation could thus arise where words and conduct cumulatively had reached a point where it would be "unconscionable" or "unjust" for the other party not to go ahead with what had been agreed in principle. 54. The judge then discussed, with reference to the authorities, the "subject to contract" rule and accepted the correctness of the summary of that rule in Megarry and Wade's: Law of Real Property (5th Edition) at pp. 568-570. He expressed the view that, particularly in Hong Kong, it was of cardinal importance that the rule be preserved, for without the umbrella of the "subject to contract" formula, conveyancing here could become a dangerous trap for the innocent and unwary. 55. He said that he had reached the conclusion that -
56. The Judge remarked that early in the trial, it had been conceded by the parties that he would not have to decide an issue between them as to whether or not the words "subject to contract" had been expunged, for the Government would not be submitting that they had. 57. In expressing his view that the equity pleaded and contended for by the Government undoubtedly existed, the Judge reviewed a number of authorities, from Ramsden v. Dyson (1866) L.R.1 E. & I. 129 to Taylors Fashions [1982] Q.B. 133 and said that it was now too late to argue (such an argument had not been advanced) that a court could not grant discretionary relief to prevent a party from resiling from an agreement which, by his words and conduct, he had led the other party to believe he would complete, in circumstances where his conduct was unconscionable (within the sense of the authorities to which he had referred). But, he added, that in itself was not enough. The words and conduct must have led to a belief that the other party would not so resile. And that belief must be bon fide and genuine and must be reasonable on any objective view. 58. In dismissing the contention that the effect of what the family in Greasley & Others v. Cooke [1980] 1 W.L.R. 1306 said to the housemaid who succeeded in her action, should be equated to what H. K. Land was said to have represented to the Government, the Judge said-
59. He went on to say that if the criteria established by the cases had been met, he would have had no difficulty in granting the Government appropriate relief despite the fact that there still remained terms to be agreed between the parties. After discussing examples found in the cases, he said: "Quite clearly the Court can and will, where equity and justice require it, spell out, write in or complete terms necessary to give effect to its judgment." 60. When rejecting the submission advanced on behalf of the Government that an "independent and parallel" equity existed which arose but of words and conduct in such a way that the "subject to contract" formula and the disavowal of an intention to enter into legal relationships became irrelevant, the learned Judge had this to say -
61. The Judge then went on to consider what would need to be established if he were wrong and the "independent and parallel" equity advanced on behalf of the Government existed. His view was that "the requirements therefor would be the same as the equity I have found to exist....." and he summarised and discussed them in some detail. He then expressed the opinion that the Government, if that equity availed then, would have to show that it had acted to its prejudice or detriment. 62. After reviewing the evidence before him, against the background of the facts set out in the opening part of his judgment, the learned Judge said -
63. As regards the requirement of "belief" by the Government, he expressed himself as wholly unable to accept that any reasonable person, sufficiently informed, and aware of the contents of the Government's formal offer, H. K. Land's "without prejudice" acceptance, the Government's letter endorsing the proposed "conditions of exchange", the terms of the licence under which the Government occupied some of the Tregunter flats, and the terms of the Queen's Gardens licence (and bearing in mind H. K. Land's duty to its shareholders) could have formed an honest and objectively-reasoned belief that H. K. Land would not insist upon their strict legal rights, should the circumstances so require. 64. In relation to the nature and length of the licence granted to the Government to occupy the Tregunter flats, the Judge came to the conclusion that, there had been nothing unconscionable or dishonest in H. K. Land's delay in determining the licence on the facts before him; indeed an earlier determination might have been inequitable or unjust for, up to March 1984, H. K. Land was seeking a re-negotiation so that the transaction could go through. 65. The learned Judge's formal order directs the Government to repay H. K. Land the sum of $103,865,608 and grants H. K. Land declarations that the Government's occupation of the Tregunter flats etc, was as licensee only; that the licance had been determined; and that H. K. Land is entitled to possession of the flats. The order for possession was stayed, in effect, until the determination of this appeal. 66. There was then an order that the Government pay mesne profits for the period of wrongful use and occupation of the flats until possession is delivered up, at a rate or rates assessed by the Master. 67. Interest was awarded in favour of H. K. Land in the sum of $103.8 million and on the mesne profits. 68. The Notice of Appeal filed by the Government contained grounds of appeal in these terms: -
69. From the outset of the hearing of this appeal, (as, indeed, all along) Mr. Godfrey, on behalf of the Government, accepted that the use of the words "subject to contract" was apt to preclude the creation of a binding contract until the contract was finally concluded, or until the words had been expunged, and accepted that in this case no contract had been finally concluded. It was for this reason, he said, that the Governments claim had not been based on contract. Its claim for relief was founded in equity. 70. Mr. Godfrey formulated the equity for which he contended in this way: equity will intervene to preclude a party resiling from any arrangement for the sale or exchange of lands (whether concluded or not, or whether concluded subject to contract or not), where because of his subsequent dealings with the other party it would be inequitable to allow him to do so. The very case in which the intervention of equity was required, he contended, was where the party claiming equitable relief had no remedy in contract. Any understanding of any sort concerning the non-formation of a contract was immaterial to the claim for equitable relief based on such dealings. 71. He referred us to a number of authorities establishing or recognizing this equity. I turn to review some of them, some more fully than others, leaving discussion for later. 72. In Gregory v. Mighell (1811) 18 Ves. Jun. 328, the Plaintiff alleged that the Defendant had agreed to let to the Plaintiff certain premises and land for a term of 21 years on 29 September 1799 at a fair rent to be ascertained by two impartial persons. The Plaintiff entered on the land at Christmas the same year and had continued in possession for some 8 years upon the faith that the lease would be made. He had cultivated the land, spent money on it, and paid taxes since his occupation. In his judgment, the Master of the Rolls (Sir William Grant) dealt with the grounds upon which the Defendant had resisted the formal execution of the lease on the evidence before him. At pp. 333 - 334 the Master of the Rolls said: -
Specific performance of the agreement was decreed. 73. This case has been consistently followed, and was applied by Oliver J. (as he then was) in Taylors Fashions Ltd. v. Liverpool Trustees Co. [1982] 1 Q.B. 133. It had been relied upon by Lord Kingsdown in formulating the proposition, which has long been accepted as correct, to be found at page 170 of the report of Ramsden v. Dyson (1866) L.R. 1 H.L. 129: -
74. The Ramsden v. Dyson equity was approved and applied by the Privy Council in Plimmer v. Wellington Corporation (1884) L.R. 1 H.L. 129. The equity was also recognised in Inwards v. Baker [1965] 2 Q.B. 29, where a son's expenditure of money on the land of his father, in the expectation induced and encouraged by his father, that he would be allowed to remain in occupation as long as he wished, created the equity and on the facts, the equity should be satisfied by allowing the son to remain in occupation of the bungalow he had built on the land for so long as he desired. 75. In Laird v. The Birkenhead Railway Company (1859) Johns. 500 the Plaintiff submitted a project to the directors of the railway company for a branch line to be constructed at his owe cost and for his own purposes. The directors expressed their assent and general agreement but details of the agreement were left for future arrangement. The Plaintiff carried out the work during the following year at considerable expense. The company then stopped him using the branch line until a definite agreement could be reached. Negotiations, ensued and the Plaintiff made proposals in a memorandum but no agreement was ever signed. In the intervening two and a half years, the Plaintiff used the line and paid tolls etc to the company on the terms he had put forward. The directors then insisted on the terms originally suggested by them before the user began and the Plaintiff, in turn, refused to make an agreement otherwise than in terms of the user he had actually enjoyed. At pp. 513-514, Wood V. - C. had this to say: -
76. The Ramsden v. Dyson equity was also applied by Goff J. (as he then was) in Holiday Inns Inc. v. Broadhead [1974] E.Q. 951, and Mr. Godfrey relies on the following passage from Goff J.' s judgment (at p.1087) as being a modern re-statement of the Government's case: -
77. Other cases, which Mr. Godfrey submits, demonstrate the modern, broader, approach (concentrated on ascertaining whether, in any given circumstances, it would be unconscionable for a party to deny that which, whether knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment), were Habib Bank Ltd. v. Habib Bank A.G. Zurich [1981] 1 W.L.R. 1265 and Amalgamated Investment and Property co. Ltd. V. Texas Commerce International Bank Ltd. [1982] 1 Q.B. 84. 78. One of the leading cases in this field of the law is Crabb v.Arun District council [1976] Ch. 179. I take the facts from the headnote. There the parties were adjoining landowners. The Plaintiff's land had access at point A on to a road owned by the Defendants and a right of way from A along the road. In order to sell his land in two parts, the Plaintiff sought from the Defendants a second point of access, at point B, and a further right of way along the road. 79. At a meeting on the site in July 1967, the additional access point, B, was agreed. Later the Defendants erected fencing on the boundary between the road and the Plaintiff's land, with gates at access points A and B. The Plaintiff sold part of his land in October 1968, together with the right of access at point A and his easement over the road, but without reserving any right in favour of the land he retained. After the sale, the Defendants removed the gate at point B and closed the gap by a fence so that the retained part of the Plaintiff's land became landlocked. 80. Pennycuick V. -C. refused to grant the Plaintiff the declaration and injunction he sought based on estoppel by conduct, holding that in the absence of a definite assurance by the Defendants, no question of estoppel could arise. 81. The court of Appeal unanimously allowed the Plaintiff's appeal. Lord Denning M. R. pointed out that there were "estoppels and estoppels" and "the species of estoppel called proprietary estoppel, therefore, does give rise to a cause of action." At p.189, in concluding his judgment, Lord Denning said: -
82. Lawton L.J. was also satisfied that a firm agreement had been reached. He said at p. 191: -
He then reviewed the Defendants' conduct after this agreement and ended his judgment, at p.192, in these words: -
83. Scarman L.J. (as he then was) put the Plaintiff's case and summarised the issues (at p.192) in this way: -
84. Scarman L.J. said that in his view the law had developed so that it was now to be considered as correctly stated by Lord Kingsdown in his dissenting speech in Ramsden v. Dyson, L.R. 1 H.L. 129, which could properly be regarded as the starting--point of the law of equitable estoppel. He found the passage he cited (at pp. 105-106) from the judgment of Fry J. in Willmott v. Barber (1880) 15 Ch. D. 96 to be a valuable guide as to the matters of fact which have to be established if a plaintiff seeks to rely on this particular equity. I should mention that Scarman L. J had earlier stated that he did not think it helpful to pursue the distinction between promissory and proprietary estoppel. 85. In dealing with the fifth and last of Fry J.' s propositions, (that the Defendant, as the possessor of the legal title, must have encouraged the Plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal rights) at p.195, Scarman L.J. said:-
86. Scarman L.J. had no doubt that on the facts of the case, the first four elements referred to by Fry J. existed. He then said: -
After reviewing the evidence, he concluded that the equity sought by the plaintiff had been established, and then turned to consider the extent of the equity and the relief needed to satisfy it. 87. Before us, Mr. Godfrey placed great reliance on he decision of Woolf J. (as he then was) in Salvation Army Trustee Co. Ltd. v. West Yorkshire Metropolitan County Council (1981) 41 P. & C.R. 179. There the Plaintiffs ("the S.A.") had been using a meeting hall on "the old site" for many years. At the beginning of the year 1965, they were told by the highway authority( "the City Council") that their site was "totally affected" by a road-widening scheme. The S.A. immediately responded by asking the City Council to let them know as soon as possible what proposals they had for an alternative site, saying that it was essential for the continuity of their services in the same locality for an agreement to be reached so that the alternative site could be ready for occupation before the old site was vacated. Correspondence ensued, and in October 1969, the City Council informed the S.A. that it had been resolved that negotiations be opened for the acquisition of the old site and that a particular alternative site ("the new site") be made available to the S.A. The S.A. was also told that the district valuer was being instructed to negotiate with them as regards their claim for compensation for the compulsory purchase of the old site, and that details of the new site were being sent to him. 88. There were further negotiations between the respective valuers, and agreement was reached by July 1971 as to the appropriate sum for compensation. These negotiations were "without prejudice" and subject to the approval of the acquiring authority. In January 1972 the S. A. 's solicitors wrote to the City Council setting out their understanding of the then position, adding that they would let the City Council have a draft contract for sale of the old site, and asking for a contract for the new site. The letter ended "The above is subject to contract." 89. In August 1972, planning permission was obtained and tenders were sought for the construction of a meeting hall on the new site. In March 1973 the tenders were received, the lowest being so much higher than the compensation payment originally contemplated as to make that sum wholly unrealistic. And so the position was renegotiated and "without prejudice" figures (accepted by the parties as being equivalent to "subject to contract") were agreed on 9 November 1973. 90. Then, three days later, came an important letter from the solicitors of the S.A.: -
91. No reply was sent to this letter. In December 1973 the S.A. accepted a tender; and at the beginning of February 1974 a contract was signed for the construction of the new hall. The S.A. took possession of the site later that month, construction work began at the end of April and was completed in February of the following year. 92. Under a statute of 1972, on 1 April 1974, the City Council ceased to exist and its powers and duties in respect of highways were transferred to the West Yorkshire M.C.C., and its housing functions to the district council. The sale of the old site went on and was completed. 93. On 13 March 1975 the M.C.C. informed the S.A.'s solicitors that the road improvement scheme originally envisaged was under review, and in the following month, that since the improvement works were not to be carried out for some years, they no longer wished to purchase the old site. 94. The S.A. originally sought specific performance of the agreement they alleged to be a contract for the sale of the old site, but at the start of the hearing before Woolf J. they conceded that they could not establish a contract and relied, instead, on the doctrine of proprietary estoppel (by a suitable amendment to their Statement of Claim), submitting that it created an equitable obligation entitling them to an order equivalent to an order for specific performance for the sale of the old site to the M.C.C. 95. Interestingly, it was Mr. Godfrey who had contended on behalf of the M.C.C., that as a matter of law, the principle of proprietary estoppel had no application and should not be extended, for it only benefited a plaintiff when the defendant is estopped by his own conduct from denying that the plaintiff has acquired an interest in the defendant's land. The doctrine did not apply, he submitted, so as to estop a defendant from denying that the plaintiff had disposed of an interest in his, the plaintiff's land. 96. After referring to Western Fish Products Ltd. v. Penwith District Council (1978) 38 P. & C.P. 70, Woolf J. said that had this case involved only the sale of the old site he would have regarded it as inappropriate to extend the application of the principles of proprietary estoppel so as to enforce the purchase of the old site. He then said, at p.191: -
He added', at p. 192: -
97. Woolf J then considered what the position was in the light of the reorganisation of the local authorities on 1 April 1974. He took the view that the present Defendants were not to be saddled with responsibility as a result of the conduct of the District Council after the date of the reorganisation. But in relation to what occurred before that date (as was common ground) the Defendants could not be in any better position than the City Council would have been in relation to what occurred up to that date. What was more, the conduct of the Defendants since that date had to be considered in the light of the activity of their predecessor. He concluded that, on the evidence, the City Council had, by its conduct, encouraged the S.A. to believe that the arrangement was one from which they (the City Council) could not lawfully resile, and a representation by them that they were committed to entering into the arrangement involving both the purchase of the old site and the sale of the new site. By the end of March 1984, therefore, they had been under an equitable obligation to go on with the whole arrangement, and in consequence, the Defendants, as their successors, had equally been under an obligation to perform that part of the arrangement that they had been in a position to complete on assuming the City Council's highway functions. 98. In addition, the conduct of the Defendants had to be judged on the basis that they were possessed of the same knowledge as that of the City Council as to what had happened before the reorganisation, and their silence had been "conscious silence" which was capable of creating a proprietary estoppel, at the very least, as having endorsed the intentions that the City Council had expressed. They actually knew, or ought to have known, that the S.A. were continuing to incur expenditure in the mistaken belief that they were under an obligation to vacate the old site and had a right to purchase the new site, and although they could not have stopped the building work on the new site, they could have indicated that they did not regard themselves as committed to the purchase of the old site. 99. Their conduct after the reorganisation therefore strengthened the S.A.'s case for the acquisition of an equity preventing the M.C.C. from resiling from the part of the arrangement made with their predecessors under which the old site was to be acquired. 100. I will now read the final part of his judgment:-
101. In my judgment, the principles upon which the equity for which the Government contends for the main part of its case (I will not, here, fall into the trap of trying to attach an appropriate label to it) appear clearly enough from these and the other cases cited to us. The equity has been differently expressed from time to time; this is not surprising since it has been applied in greatly varying conditions and circumstances. It is not easy to put forward a formulation that will suit every case, and it would not be right to approach the authorities to which our attention has been drawn without a close scrutiny of the facts which governed the particular decision. The equity is easier, perhaps, to recognise than to define. 102. I think, too, that it is necessary to apply these equitable principles with care and not allow vague and unruly notions of what seem to be "fair" and "unfair" to prevail. In this context, Lawton L. J.' s reminder in Crabb v. Arun [1976] 1 Ch. 179 (at p.191) of the following passage from a judgment of Harman L.J. in another case is timely:-
103. And Ormrod L.J. is making the same point in E. & L. Berg Homes v. Grey [1979] 253 E.G. 473, at p.481, when he said, of the expectation "created or encouraged by the other side": -
104. However, if I may be permitted to say so, I regard Mr. Godfrey's formulation to be a valiant effort, which is justified by the authorities upon which he relies. Indeed, Mr. Alexander had no quarrel with the way he put the equity which he asked the Court to recognise, as a matter of principle, but submitted that it was a step too far to seek to maintain that because the equity did not need to be founded on contract, the Court was not required to give full weight to words which expressly negative the intention to create legal liability, and deny the suggestion that a party is not promising to be bound. 105. It was after discussing Salvation Army v. West Yorkshire M. C. C. (1981) 41 P. & C.R. 179 that Mr. Godfrey said he would "grasp the nettle". He described the central feature of the case against the Government as being that because of the contents of various documents, signed or, accepted with their eyes open, they were precluded from relying on the equity upon which they could otherwise rely. He conceded that the Court was entitled to take these factors into account, but rejected the contention chat they were in any way conclusive. He submitted that when they were properly analysed, and set against all the other factors and circumstances, it would be seen that they were, at best, only of minor significance. In any event, he would go further and suggest that on a proper analysis of the documents (here he was referring particularly to the Tregunter and the Queen's Gardens licences) not only did they not detract from the Government's case but they served to buttress it. If that argument were right, then, again at best, they should be regarded as of neutral effect. 106. Mr. Godfrey drew our attention to various parts of the Tregunter licence to indicate that the parties saw the whole transaction as finally concluded, for example, there was a reference in the Preamble to the fact that the "Licensor has agreed to assign [the flats]". This showed that H. K. Land treated themselves as having agreed. 107. As regards paragraph 1(b) of the licence, the Court, he contended, had to bear in mind that when looking at the position in 1984 (when H. K Land had withdrawn from the transaction) that paragraph was only one of the many factors that had to be taken into consideration; it was not the conclusive factor. 108. Mr. Godfrey then took us through the Queen's Gardens licence, and in referring to para. (22) he contended that although the paragraph envisaged the execution of a formal document, the cases showed that when there had been "further processes", as in Crabb v. Arun [1976] Ch. 179, the words employed could not preclude the recognition of the equity relied upon. He agreed that the "warning notes" struck by the wording of both licensees were relevant, but suggested that they did no more than create a factor which had to be weighed in the balance in reaching a conclusion whether, in the light of all that had been said and done, it would be unconscionable to permit H. K. Land to resile from the transaction. 109. In summary, Mr. Godfrey put the true effect of the licences in this way - the fact that the flats were occupied, and the Queen's Gardens site taken over, under licences, supported the Government's case. As was apparent from their terms, each licence was drawn up because of the agreement in principle, not independently of it, and they were entered into in anticipation of its performance. But for this anticipation, neither licence would have been featured in the case at all. Their grant were further acts encouraging the Government to expect that H. K. Land would complete the transaction and not withdraw from it. 110. In his helpful "outline",Mr. Godfrey put the gravamen of the Government's main case, in this way: -
111. Mr. Godfrey drew attention to the events that had occurred after the agreement in principle had been reached in July 1981. Between gon and April 1981 she basic documents had been "more or less" agreed; then there was the entering into possession respectively of the Tregunter flats and the Queen's Gardens site, permission being given to demolish the flats on the Queen's Gardens site in November 1981; the demolition had been completed by May 1982; in March 1982 the Government had surrendered the site of the Glenealy School and had received an additional premium as envisaged by the agreement in principle; the school building had then been demolished. 112. A further matter, material to the Court's decision, Mr. Godfrey submitted, was that Land was anxious to get, early possession of the whole of the future site so they could develop it as soon as possible, and this was why they had asked for the surrender of the lease of the Glenealy School site. The additional sum due to the Government for this surrender ($63 million) had in effect been paid by increasing the premium for the overall deal. All this was additional encouragement that the deal would go through. What happened on the French Consulate (Victoria Lodge) site added fuel to the Government's legitimate expectations. Whatever might be the position at law, Mr. Godfrey submitted, after all this, H. K. Land could not, in equity, be allowed to resile. The licences should not be allowed to defeat the equity raised by the Government's expectation, encouraged by H. K. Land's words and deeds. 113. Mr. Alexander, on behalf of H. K. Land, began his submissions by stressing the stark reality of the stand the Government had taken. Everyone agreed that the negotiations with H. K. Land had all along been "subject to contract" and had not come to fruition, and yet the Government was asking the Court to require H. K. Land to enter into the unexecuted contract. This was in the forefront of his case, and he later amplied the point he was making. 114. Mr. Alexander emphasised that it was common ground that the express basis upon which the parties had dealt throughout with each other was that each contemplated that there should be no legal liability on either party until formal execution of the documents. It must therefore follow that either party was free to withdraw from the proposed contract. It was also common ground that the parties had never agreed either expressly or impldedly to expunge the clearly stated stipulation that there should be no legal liability on either side, and there should be freedom to withdraw before the final documents were executed. This right, therefore, must be regarded as having remained alive and available to either party throughout the dealings which followed the agreement in principle in mid-January 1981. 115. Mr. Alexander readily acknowledged that both parties had all along acted in the expectation that a legally binding agreement would eventually be reached, and it was perfectly clear that the Tregunter and the Queen's Gardens, licences were granted only because the parties were working towards a final binding agreement. But it was wrong to ignore the basis upon which the licences were issued, for their very terms showed that the parties were well aware that a legally binding agreement might not be reached. The equity for which the Government strived had to be based upon the contention that the parties had promised (or, by their conduct, shown) that in no circumstances would they rely on their legal rights. Here the basis upon which the parties were dealing with each other h ad never changed. 116. He said that all the "subject to contract" authorities showed the great importance of this reservation, which enabled attempts to be made to reach final agreement on the basis of the certainty that neither party is committed until he agrees to be legally bound by executing the appropriate documents. After making an agreement in principle, "subject to contract", parties often conducted further negotiations in language which assumed that the deal would go through. This was because they would be expecting, hoping and working towards such a result. But subsequent negotiations could not prevent either party exercising his freedom to withdraw. 117. Mr. Alexander cited a number of the "subject to, contract" cases, both to show the basis of the principle, and to illustrate that parties, not legally bound, often do a great deal in contemplation that a legally binding agreement will be reached. In Rose and Frank Co. v. J.B. Crompton and Bros. Ltd. [1923] 2 K.B. 261 the principles are stated by Bankes L.J. at p.282, by Scrutton L.J. at p.288, and Atkin L.J. at p.294. I will not read these passages, but I will read the concluding passage of the judgment of Lord Greene M.R. in Eccles v. Bryant and Pollock [1948] 1 Ch. 93, at p.104:-
118. I will also read a passage from the judgment of Templeman L.J. (as he then was) in Sherbrooke and Another v. Dipple and Another [1980] 255 E.G. to 1203, at p.1205:-
119. Mr. Alexander summed up what the Government was really asking the Court to do in this way: to force upon H. K. Land a contract despite the express agreement of the parties that neither should be obliged to accept legal liability, and that each should be free to withdraw. The Government, one party to the transaction, was thus seeking an order which would controvert the basis on which both parties had continued to deal. He contended that to grant relief which required a party to implement or in any way give effect to arrangements made "subject to contract" by means of an estoppel or other equity, would deprive that party of the protection of the express understanding that there was to be no obligation placed upon him unless and until the parties entered into the necessary agreement. Such an equity could not be recognised because it would:-
120. Mr. Alexander pointed out that the Government was not saying that H. K. Land should be required to buy the Queen's Gardens site upon reasonable terms, but that they wanted the "price" for the site which would have been the price stipulated in the contract if one had been made. This submission led to a spirited exchange between Counsel during Mr. Godfrey's reply. I do not think it would be productive to go into the matter very fully. Suffice it to say that Mr. Godfrey took us through the pleadings again and drew our attention to the alternative reliefs that had been asked for by the Counterclaim. An order for the execution of the Conditions of Exchange was the principal relief sought, but the alternative reliefs prayed for were drawn in very wide terms. He asked us to note, once again, Scarman L. J.' s judgment in Crabb v. Arun [1976] Ch. 179, at p.192, where he said that the first task of the Court was to decide if an equity has been established; then to determine what was the extent of the equity; and finally to resolve what relief was most appropriate to satisfy the equity. I would mention here that I find it difficult, conceptually, to see how the first two of the questions that the Court has to answer can be divorced from each other. 121. But Mr. Alexander is surely on firm ground when he says that the main issue in the case was fought out on the basis that the equity which the Government asked the Court to recognise was the right in equity to insist upon the execution of the agreement reached in principle, in the form of the final draft. This is how I understand the case was argued in the lower court. Mr. Godfrey is quite right about the effect of the wording of the prayer in the Counterclaim which seeks alternative reliefs. But this concerns the way the equity should be satisfied. The equity sought to be recognised is in paragraph 18 of the Government's Defence and Counterclaim:-
And I note the form of the orders sought in the Notice of Appeal. 122. In practical terms, if the Court were being asked to order something less (in the light of the nature and extent of the equity pleaded and put forward for acceptance) say, by altering the amount of the premium, or by making an allowance in H. K. Land's favour for the occupation of the Tregunter flats, H. K. Land could, I feel, riposte that a re-negotiation of the basic terms of the "subject to contract" agreement in principle was what they were seeking all along, once they had decided not to complete on the previously agreed terms. In these circumstances, apart from the question of the revocability or otherwise of the Tregunter licence, this action might never have been brought. 123. I need say no more than that, speaking for myself, if the Government's appeal were to succeed, and if I considered that the equity sought to be recognised did not extend to enforcing the execution of the Conditions of Exchange, I would invite further argument about the entire basis of the Government's Counterclaim - and that is all Mr. Alexander was asking for. 124. During the course of his argument, Mr. Alexander referred us to the Government's pleadings and asked us to note that what Mr. Godfrey called the "essence" of his case was wholly unpleaded. He pointed out that the words and conduct relied upon in the Defence and Counterclaim to raise the equity were dealings from January 1982 onwards. Mr. Alexander said that while the Judge had been right to hold, in the absence of any application to amend, that only the pleaded case should be looked at, he had, in fact, gone on to consider the unpleaded case. Mr. Alexander submitted that since the basis upon which an estoppel is claimed must be clear, it was incumbent on the Government to specify the particular words and conduct relied upon, and it could be seen that the Government's case had radically altered. This is the principal matter raised by H. K. Land in their Respondent's Notice. 125. Moreover, Mr. Alexander submitted, this "pleading point" was especially significant in this case, because it showed that no one regarded the occupation of the Tregunter flats and the handing over of the Queen's Gardens site as a commitment by H. K. Land that the deal would go through to completion. Had this really been the foundation of the Government's case, it would have been earlier identified, and clearly pleaded. 126. I must confess that in my view there is considerable force in Mr. Alexander's submissions, as I read the pleadings, despite Mr. Godfrey's helpful explanations. But Mr. Alexander very fairly conceded that the evidence that he led; his cross-examination of Mr. Ward; and his submissions to the Judge, were not affected by the defects of which he complained, and he did not wish to submit that the H .K. Land's presentation of their case had thereby been prejudiced. 127. But I will say that I do not feel able to draw the inferences from all this that we were invited to draw, which would have the effect of weakening the Government's case. 128. Mr. Godfrey invited us to hold that Mr. Ward's evidence was enough to establish the Government's expectation encouraged by, or acquiesced in, by H. K. Land, which was the basis of their case, because he had been accepted by the Judge as an honest witness, and he was the person mainly responsible for the Government's side of the negotiations. 129. Mr. Alexander, in referring to Mr. Ward's evidence, argued that the words and conduct of H. K. Land in relation to these matters included the going into possession of the property and must embrace the terms under which possession was taken. The Government could not maintain that Mr. Ward's belief was reasonable when he did not know the full facts. It must be inferred, he suggested, from the circumstances, that all the lawyers and other people involved fully appreciated the true legal position: that there was freedom to withdraw by either party. It was wrong to seek to rely on the evidence of the one person who did not know. 130. Mr. Alexander laid stress on the fact that although Mr. Ward had not been involved in the drawing up of the licence for the Tregunter flats, and Mr. Picken had been directly responsible, Mr. Picken had not been called - this, he suggested, was because "no self-respecting lawyer" could possibly have stated to the Court, is the light of the continuing "subject to contract" arrangement, and the wording of the two licences, that these events had led the Government to believe that H. K. Land had abandoned their right to withdraw from the deal, on ordinary principles. 131. Of course, the Government's servants and agents are the only medium through which their expectations can arise. There may be cases, I do not know, where all the circumstances point with such blinding clarity to the expection sought to be relied upon, that a witness need not be called to explain his understanding of the position. But such cases will be rare, and it is not suggested that this is one of them. But where more than one official is involved in the essentials of a transaction, and take different parts in the negotiations as they develop, the Government's expectations, if they are to be legitimate, must arise from their joint appreciation of the effect of the words and conduct said to give rise to an equity in the Government's favour. Their combined states of mind will be the state of mind of the Government. 132. I permit myself to ask the question whether, had Mr. Ward realised the true position, his evidence, which explained the expectation advanced, would necessarily have been the same. It is idle to speculate, but not, I think, improper to acknowledge, that someone who appreciated that, all along, the transaction had been "subject to contract", and that this position had never changed, and who had known the terms of the Tregunter licence, might have answered the questions on the point put by Mr. Alexander in more than one way. He might possibly have answered: -
But he might have responded:-
133. However, having said this, I do not consider that this is one of those exceptional cases where it would be proper to draw inferences unfavourable to the Government from its failure, without explanation, to call, for example, Mr. Picken (whom they might reasonably have been expected to call). But, where Mr. Ward's evidence is relevant, there is no doubt in my mind that his lack of appreciation of the central position, and his ignorance of some of the facts important to the issues in this case, must be weighed in the scales - here, I am referring particularly to the conditions under which possession was given of the Tregunter flats. 134. In taking us through the authorities upon which Mr. Godfrey mainly relies, Mr. Alexander has asked us to note certain features which he submits are not present in the case before us. He suggests that one common factor is that in all the cases the party against whom the equity was raised had given a firm assurance by his words and conduct, from which he was not permitted to resile. He contended that the cases showed that for the equity to arise, an irrevocable commitment had to be established. With respect, I think this is putting the matter too high. The burden on the party seeking to have the equity recognised is no more than to show that the other party, by his words and conduct, which might include silence or acquiescence, has encouraged him to have a reasonable expectation or belief that a certain course will be followed or maintained. 135. Mr. Alexander also contended that for the Government's equity to arise, it is necessary for the Court to be satisfied that H.R. Land's words and conduct (including acquiescence) were clear and unequivocal. He sought to rely upon a number of authorities to support his submission. When examining these cases, valuable though they are, I think it is important to recognise that despite the assistance they afford, the equity relied upon here (for the main part of the Government's case) and promissory estoppel have their differences - upon this, at least, the text-book writers are agreed. Woodhouse Ltd. v. Nigeria Produce Ltd. [1972] A. C. 741 and Spence v. Shell [1980] 256 E.G. 55 were promissory estoppel cases, and they certainly emphasise that to found such an estoppel, the representation, promise or assurance prayed in aid must be clear and unambiguous. But is this rule limited to the application of the promissory estoppel doctrine? 136. E. & L. Berg Homes Ltd. v. Grey and Another [1979] 253 E.G. 473, I think it can be said, was a proprietary estoppel case, and Brandon L.J. (as he then was) said at p.479 in general terms: "A statement by way of representation or promise in order to found an estoppel must be clear, and unambiguous." 137. It seems to me that the distinction to be addressed is not so much any difference there might be between the two doctrines, but rather the nature of the "representation" relied upon. Where a representation is made by words (which may or may, not be contained in a letter or other document) the principal issue before the Court will be the true construction of the representation in the light of the surrounding circumstances (see the Woodhouse case), which is strictly a matter of law. But where words, conduct (and acquiescence) are in issue, I doubt if the same degree of unambiguity can be insisted upon; and it will be a question of mixed law and fact. 138. While I find it difficult to imagine circumstances in which the equity urged upon us could arise from wholly equivocal words or conduct, I propose to approach the issues in the present case by considering whether the conduct etc of H.K. Land was such that it was reasonably understood by the Government that H. K. Land would not insist upon their legal rights. I do not think that Counsel are divided on this general proposition. 139. I have no doubt that great importance must be attached to the "subject to contract" principle. I agree with the learned Judge's views on the matter - they are entirely consistent with authority. It is, perhaps, as well to remind oneself what is involved. By the use of this reservation, the parties have expressly stipulated that the execution of a further contract is a condition of the bargain they have reached, and there will be no enforceable contract while that condition remains unfulfilled - and the Court will not recognise a contract to make a contract. 140. As we know, the parties here recognise that the transaction was always "subject to contract" and this stipulation was never waived or expunged. I must say that, speaking for myself, I would have found it difficult to imagine circumstances in which the Court would be entitled to disregard the clear understanding between the parties that neither shall be bound until the condition they have stipulated has been fulfilled, in the exercise of its equitable jurisdiction. But the Salvation Army case (1981) 41 P. & C.R. 179 shows that in very unusual circumstances this can happen. 141. The "subject to contract" formula can, of course, be expressly or impliedly waived, and depending upon the stage the bargain has reached, and its nature, the contract will normally be specifically enforced, or its breach will sound in damages. There would be no need to have resort to equitable principles. If the "subject to contract" formula has never been impliedly waived, can one party be heard to say that he reasonably understood, in the light of the other party's words and conduct, or acquiescence, that the formula had been rendered meaningless? I am bound to say that I find it conceptually very difficult to accept such a proposition. 142. However that may be, I will approach the facts of this case upon the assumption that the equity upon which the Government relies can arise in very exceptional circumstances; even where the "subject to contract" doctrine applies. Are they present here? 143. In my view Mr. Alexander was right to draw attention to the fact that in this controversy, the "subject to contract" reservation was not a mere incantation in the documents and in the letters exchanged, as is often the case. As we have seen, right from the start, when, on 8 April 1980, the Government forwarded the basic terms to H. K. Land for consideration, the letter stated that it was "not the intention to create any legal obligation either of your Company or of the Government" adding "regardless of whether correspondence may be entered into on the subject." And precisely the same caveat was entered in the letter of 30 April 1980. The point was made, again in plain and forceful language, in the Government's letter of 17 September 1980. Then, in their letter of 12 January 1981, the Government emphasised, once again, that the "basic terms may be varied or withdrawn prior to formal execution" and that they would not be bound "until the documents ..... necessary to give legal effect to this transaction are executed and registered." The point was reiterated in clear language in the Government's letter of 1 June 1981. And so it cannot possibly be contended that "the Government" did not understand or mean what was being said. 144. It is common ground that the crucial events upon which the Government relies in the effort to persuade the court to recognise their principal equity, is the granting and taking possession, respectively, of the Tregunter flats and the Queen's Gardens site. Obviously this would not have happened but for the fact that both parties, at that time, confidently expected the whole transaction to proceed to completion. But the circumstances in which possession was taken and given of these two properties seem to me to be of the highest significance to the outcome of this appeal. 145. In relation to the Treguater licence (in the second half of 1981) it is not irrelevant to note that it was the Government's own draft of paragraph 1(b) that was accepted by H. K. Land - and the words are, once again, plain and unambiguous. The occupation "shall be that of licence only and shall not create any transfer or assignment of legal or other right or title to the Land" [The emphasis is mine]. And paragraph 2 must be taken as a clear recognition that the grant of the Queen's Gardens site might never be made. There was provision for the licence to be terminated and what should be done about, inter alia, fixtures and fittings. 146. When one looks at the Queen's Gardens licence (November 1981) one sees that the Government are reserving their right to revoke it "at any rime ..... without notice," (paragraph (1)). Paragraph (21) expressly recognises that the "permanent grant" of the site might not be "proceeded with" ..... "for any reason whatsoever" and we have, in paragraph (22) the express stipulation that the Government is not, by having granted the limited licence, to be regard as having been committed "to the permanent grant of the ..... area." 147. As has been noted, Mr. Ward did not know of the terms of the Tregunter licence. It cannot, I think, fairly be maintained that his expectation was not coloured by his ignorance. If the Tregunter flats had been handed over without conditions, Mr. Ward's view that the "point of no return" had been reached, despite the "subject to contract" reservation that had prevailed until then might well have been valid. And the conduct of H. K. Land in so granting possession of the flats (even without a formal assignment might have given rise to a reasonable expectation that H. K. Land would not resile from the agreement in principle, giving rise to the equity for which the Government seeks. 148. It seems to me that when possession or occupation of property is a fact in issue in this kind of case, if any conditions or limitations are placed upon that possession or occupation, then unless something happens afterwards to indicate that the conditions have been waived or removed, or that the owner's words or conduct have led the occupant reasonably to believe so, they must prevail. 149. To illustrate what I mean, had the housemaid in Greasley and Others v. Cooke [1980] 1 W.L.R. 1 306 not been given to believe that she could regard the property as her home for the rest of her life, but had gone into the house under an express licence, it seems hardly likely that she would have succeeded. The same can be said about the son in Inwards v. Baker [1965] 2 Q.B. 29, if his father had not encouraged him to believe that he would be allowed to stay on the land as long as he wished. It is not, I think, necessary to give other examples from the cases to indicate how essential it is to know all the surrounding circumstances in which occupation of property is permitted. 150. Mr. Ward did, however, know the terms of the Queen's Gardens licence; he was responsible for the very idea. The Judge accepted Mr. Ward's explanation, in referring to the licence, that he was following a "standard form". I do not question this finding, but standard form or not, the meaning of the licence is clear, and it will simply not go away. I do not consider one can escape the true import of the licence: that either party was free to withdraw and that a binding contract might never come to fruition. There can be no doubt about the honesty of Mr. Ward's opinion (in effect, that being in "standard form", the licence did not mean very much) but in my view "the Government" cannot be heard to say that they were encouraged by H. K. Land's conduct, in taking possession of the site, to believe that if circumstances so dictated, H. K. Land would not insist on their right to withdraw. It would be an extraordinary situation, indeed, if a party insisting on preserving his own legal rights to withdraw, could, by the same breath, assert that he did not realise that the other party might exercise the same right. 151. It seems to me that Mr. Ward's memorandum of 18 September 1981 is also important. Again, his integrity is not in question, but the words of his paragraph 6 speak for themselves. He, himself, acknowledged that "the exchange may never be completed", and it is no answer to say that he was only worried about the disagreement over road costs. He did not expect it to happen, no doubt, (no one did) but this paragraph is the plainest recognition of the very real possibility. 152. Then, there is the minute of the "quarters committee" meeting which took place on 24 August 1981 (between the taking over of the Tregunter flats and the handing over of the Queen's Gardens site) which shows that "the Government", through others of its servants, fully appreciated the position: "Government would be in a very embarrassing situation if the deal fell through and all the occupants (of Tregunter) had to be moved out." 153. It must also be borne in mind that provided parties to an agreement in principle are aware of the significance of the "subject to contract" doctrine in property deals (and who is not?) each must realise that either party might withdraw, even without good cause, and certainly if the "buyer" gets into financial difficulties before the transaction can be finalised. To "expect" otherwise will, normally, be fanciful. 154. In my view, apart from the principles which they establish, or re - state, none of the cases cited to us by Mr. Godfrey advance the Government's case. I will only refer again to the Salvation Army case (1981) 41 P. & C.R.179, which was, indeed, a "subject to contract" case in broad terms. As Woolf J. was at pains to emphasise, in the passage at the end of his judgment which I have already read, it was an entirely novel case. Despite the "subject to contract" umbrella, the new site had been handed over after the S.A.'s solicitors had said that they regarded this as "part performance", and the transfer of the new site had proceeded to completion. I will not repeat the salient facts of the case, but one has only to read them to see how different are those of our case. 155. I will be bold enough to state my opinion that despite the concession that the "subject to contract" umbrella had never been taken down, the Government would have had a fair chance of success in this action, accepting Woolf J.' s reasoning in the Salvation Army case, if the Queen's Gardens site had been handed over without conditions, or even if there had been a licence, if the Tregunter flats had been taken over without the licence - or vice versa. The facts would then have come within measuring distance of the facts in the authority cited to us H. K. Land's conduct in accepting the Queen's Gardens site, without restrictions, or handing over the Tregunter flats, without conditions, might have entitled the Court to enforce the equity in relation to the entire transaction. But this did not happen. 156. I have reached the conclusion, greatly assisted by the very complete and helpful submissions addressed to us both by Mr. Godfrey and by Mr. Alexander, that if "the Government" entertained the expectation, or held the belief, that by the taking of possession of the Queen's Gardens site, or the handing over of the Tregunter flats, or both, H.K. Land would in no circumstances insist upon their legal right to withdraw from the transaction before formal completion, that expectation or belief was unreasonable and unjustified. 157. As regards the events that took place after the "exchange" of property, I mean no disrespect to Mr. Godfrey's submissions when I say that I am quite unable to find words or conduct on the part of H. K. Land which would avail the Government. In this context the following exchange in the transcript is instructive - when Mr. Alexander was cross-examining Mr. Ward:-
158. There was, therefore, no evidence from anyone in full possession of all the relevant facts to establish that "the Government" was encouraged to believe, from 1982 onwards, that H.K Land would not rely on their right to withdraw from the contract, if they felt it necessary to do so. 159. On the main issue, I find it impossible to strike off the fetters that the Government put upon themselves - and tightened from time to time. The Government must, therefore, fail on this issue. 160. I now turn to consider the subsidiary issue. Mr. Godfrey formulated the issue in this way: whether H. K. Land is entitled to revoke the licence under which they let (or are to be treated as having let) the Government into possession of the Tregunter flats, still occupied by them, notwithstanding the dealings between the parties after the grant of the licence. He said that this issue could conveniently be described as the "promissory estoppel issue, and contended that it would be inequitable in the light of all the dealings between the parties, after the grant of the Tregunter licence, to permit H.K Land to revoke the licence. I should mention here, that H. K. Land has made it clear that if the Judge's decision is upheld, they would be happy to allow the Government to remain in occupation of the flats provided suitable arrangements to reflect the parties' rights can be agreed. 161. The principle Mr. Godfrey relies upon is stated by Lindley L.J. in Birmingham District Land Co. v. London and North Western Railway Co. (1888) 40 Ch. D. 268, at p.281:-
And Bowen L.J., at p.286 had this to say:-
162. Mr. Godfrey contends that, on the basis that H. K. Land had power to determine the licence if the grant had not been made "within 6 months of the date hereof", this period would have ended on 10 February 1982. But, instead of determining the licence, H. K. Land had accepted the surrender of the Glenealy School site; demolished the school; and encouraged the Government to deal with the Ladies Recreation Club over land belonging to the Club and needed by H. K. Land to help the development of the Queen's Gardens site. 163. This conduct, submitted Mr. Godfrey, was calculated to encourage the Government to expect that H. K. Land would not seek to assert against the Government their right to revoke the licence. And so their attempt to revoke it, because of their own refusal to complete the whole transaction (in particular since it had become impossible to put the Government back in the position it was in when the right to revoke the licence had first arisen) was inequitable and, under the promissory estoppel rule, the Court should disallow any claim that H. K. Land had validly revoked the licence. 164. Mr. Godfreyi referred us back to Ramsden v. Dyson (1866) L.R. 1 H.L. .129 and submitted that the position was precisely that which Lord Kingsdown had in mind in paragraph of his speech on p.171 which begins: "If, on the other hand...". Mr. Godfrey paraphrased that paragraph to suit the positive case dictated by the facts before us, in this way:-
165. A long line of cases has established the "promissory estoppel (here it is safe to attach a label to the equity which the Court will recognise and give effect to) upon which Mr. Godfrey relies. Mr. Alexander, however, submits that on the facts of this case, the doctrine does not help the Government. I entertain no doubt that, as Mr. Alexander suggests, the Court must have regard to the following features present here:-
166. So, too, I do not think that it can be doubted that for this type of estoppel to succeed, the conduct, promise or encouragement (to indicate that the licence will not be revoked) must be clear and unambiguous: Woodhouse Ltd. v. Nigeria Produce Ltd. [1972] A. C. 742; E. & L. Berg Homes v. Grey and Another [1979] 253 E.G. 473 and Spence v. Shell [1980] 256 E.G. 55. 167. Moreover, silence or inaction cannot be regarded as a "representation" unless a legal duty (a moral duty is not enough) was owed by the representor to the representee to take the steps, the failure take which is relied upon as the creation of the estoppel. As Robert Goff L. J. (as he then was) said in Allied Marine Ltd. v. Vale de Rio Doce Navegacao S. A. [1985] 1 W. L. R. 925, at p.937: -
168. And I agree with Mr. Alexander, too, that apart from all this, the Court in examining the conduct relied upon as creating the estoppel has to bear in mind the practicalities of the situation. At the material time, H. K. Land was seeking to re-negotiate the terms of the Conditions of Exchange, and it cannot be held against them that they did not demand possession of the Tregunter flats (and in this way assert their legal rights) until it became plain that they had to take the Conditions of Exchange as they stood, or not at all. Although the situation here is rather different, I think that Buckley L. J.' s conclusion in Shaw v. Applegate [1977] 1 W.L.R. 970, at p.978, on the submission that the plaintiffs' acquiescence and failure to sue earlier deprived them of their legal rights, is helpful:-
169. The same note of caution was struck by Ormrod L.J. in E. & L. Berg Homes v. Grey [1979] 253 E.G. 473, at p.481:-
170. Furthermore, the Government called no evidence (I do not consider that the facts sufficiently spoke for themselves) to suggest that anyone who could represent their state of mind thought that H.K Land made any promise or representation during the relevant period, upon which they acted. 171. I am unable to find any ground upon which the Government could succeed on this subsidiary issue. 172. It will have been seen that I have agreed with the learned Judge's main conclusions, although I have not reached them all by precisely the same route. The Government is highly experienced in property dealing, and had access at all times to competent legal advice. Their eyes were wide open, and everything was said and done deliberately. Despite Mr. Godfrey's attractive and forceful submissions on the Government's behalf, once it was conceded that the fact and terms of the two licences were relevant considerations, their stand was based, if I may be permitted to say so, on the most fragile of foundations - and these gave way. I am unable to hold that equity, even "at its most flexible" can assist the Government when all the circumstances of this transaction are taken into account. 173. For the reasons I have attempted to give, 1 would dismiss this appeal. Li, V.-P.: 174. I have the benefit of reading my brother Fuad J. A.' s draft judgment with which I entirely agree. He made such a thorough analysis of the relevant facts and gave such careful consideration to the law and authorities cited that leaves nothing useful I can add. At the risk of repetition, however, I would like to make the following observations. 175. It is common ground that even though the parties had come to terms in principle for the whole arrangement none of the terms were legally binding. However, from the beginning of the negotiations, up to and including the granting of licences, the parties were ad idem on one term and one term only and that was: all the other terms for the transaction were "subject to contract" and that either party could alter the terms or withdraw from the transaction at any stage prior to the execution, exchange and registration of the formal documents. It is also common ground that neither party had executed any formal document. 176. Thus the Government's claim is for equitable relief. It is contended that where one party has performed practically ail the obligations on its part in expectation that Hong Kong Land will also honour their obligations, such performance haying been encouraged and/or induced by Hong Kong Land, a Court of Equity will not permit Hong Kong Land to resile from performing their part of the obligations. 177. A series of authorities were cited to us in support of this proposition. Howevev, in Willmott v. Barber (1880) 15 Ch. D. 96, Fry J. at p.105 said:
Relying on the judgment of Lord Denning in Inwards v. Baker [1965] 2 Q.B. 29, where the Master of the Rolls said at p.36:
learned counsel for Hong Kong Government contends, if I understand him correctly, that: where one party in any bargain or arrangement spent money or acted to his detriment which has been induced or encouraged by the other party or acquiesced in by the other party, with full knowledge of his expenditure or act, coupled with an expectation that the other party would also act in accordance with the bargain or arrangement, then the Court will grant him relief if the other party attempts to resile from the bargain. It is further contended that by their conduct and correspondence since February 1982 Hong Kong Land had encouraged the Government to act to its detriment with an expectation that Hong Kong Land would carry out their part of the bargain. 178. As to the principle upon which equitable relief will be granted in such circumstances, I do not think there is any serious dispute. The dispute lies in the interpretation of the facts and the conduct of each party. 179. In this connection I have to observe that the arrangement between the father and son in Inwards v. Baker was not "subject to contract". There was no such mutual understanding in that case. Indeed practically all the cases cited in support revealed no such understanding: Habib Bank Ltd. v. Habib Bank A.G. Zurich [1981] 1 W.L.R. 1265; Taylors Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd. [1982] 1 Q.B. 133; Amalgamated Investment & Property Co. Ltd. v. Texas Commerce International Bank Ltd. [1982] 1 Q. B. 84. 180. It is further contended for the Government that where the claim is founded on equity, the "subject to contract" formula is irrelevant. The case of Salvation Army Trustee Co. Ltd. v. West Yorkshire Metropolitan County Council (1981) 41 P. & C.R. 179 was cited in support of this proposition. 181. In that case both plaintiff and defendant's predecessor started negotiations "without prejudice" and "subject to contract" for the defendant's predecessor to acquire the old building and site belonging to the plaintiff on payment of compensation at a rate much higher than its market value and at the same time for the plaintiff to be granted a new site to build a new hall. When terms in principle were all agreed the plaintiff's solicitor on 12/11/73 wrote to defendant's predecessor to the effect that the plaintiff was ready to proceed and stated that it would be no doubt be appreciated that the plaintiff's act of taking possession would be part performance of the agreed terms. The plaintiff was granted possession of the new site by formal documents. To the knowledge of the defendant's predecessor, the plaintiff expended money to build on the new site without being disabused of their mistaken belief by the defendant's predecessor or the defendant. In the meantime the area where the old site was situated was taken over by the defendant owing to a reorganisation. The defendant declined to acquire the old site. In an action by the plaintiff claiming for proprietary estoppel Woolf J. having reviewed the authorities and the facts in that case said at p.194:
Taken also as an act of encouragement the judge said at p.195:
He came to the conclusion that (at p.196):
182. Having regard to the facts of the case I am of the opinion that when the formula "subject to contract" was employed by the parties such formula must be expunged clearly and unambiguously by the words or conduct of the same parties before equitable relief can be claimed. Where only one party sought to expunge it, such expunction must be known to and acquiesced in by the other party so as to make it unconscionable for the other party to insist on its legal rights. 183. Applying these principles to the appeal I am further of the opinion that the Government had never evinced an intention - let alone in clear words - to expunge that formula. Nor can it be said that Hong Kong Land knew of such intention even up to the time the licences in respect of the Tregunter flats and Queen's Garden site were granted. Each party made clear that such licences could be revoked, and the terms of the re-arrangement, amended. All the subsequent acts and conduct of the parties as from 1982/3 were referrable to the terms agreed in principle but subject to contract. Such has been subject to careful analysis by my brother Fuad and I shall not repeat the same. Perhaps I may seek support of my opinion by referring to the last paragraph of Woolf J.' s judgment at p.198 when he said:
184. For the aforesaid reasons I agree chat the appeal should be dismissed. Yang, J. A.: 185. I agree. 186. I have had the advantage of reading my brother Fuad J. A.' s judgment, which, if I may say so with the utmost respect, deals with the facts and law clearly and fully. There is nothing that I can usefully add. Representation: Gerald Godfrey Q.C. and David Fleming (Crown Solicitor) for the Appellants. Robert Alexander Q.C. and Robert Ribeiro (Deacons) for the Respondent. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||