Mui Foon and Another v. Land Development Corporation

HCMP006219/1998

HCMP 6219/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 6219 OF 1998

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Coram: The Hon Madam Justice Yuen in Court

Date of Hearing and Decision: 11 June 1999

Date of Handing Down of Reasons for Decision: 16 June 1999

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REASONS FOR DECISION

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1. On 23 November 1998 the Plaintiffs issued this Originating Summons under s. 12 of the Conveyancing and Property Ordinance Cap. 219 for the reliefs usually sought in a Vendor and Purchaser Summons, i.e. for a declaration that certain requisitions or objections of the Defendant in respect of the title of the Plaintiffs' property had been sufficiently and satisfactorily answered, and for a declaration that good title to the property had been shown by the Plaintiffs.

2. The Defendant has however challenged the validity of the agreement alleged by the Plaintiffs, because the parties' dealings were expressly made "subject to contract" and were thus not legally binding.

Parties' position

3. Mr H.Y. Wong, counsel for the Plaintiffs, has asked the Court to decide this question (whether there was a legally binding agreement) as a preliminary issue. He concedes that if this Court finds that there was no binding agreement, the Summons must be dismissed.

4. Mr. Paul Lam, counsel for the Defendant, did not dispute that the question is a proper preliminary issue, but he said his client in any event wished the Court to rule on the requisitions.

Finding

5. At the conclusion of the hearing on 11 June 1999, I announced my finding that there was no legally binding agreement between the parties. Thus the proceedings under s.12 of the Conveyancing and Property Ordinance were not properly constituted, as there was no "vendor" and no "purchaser" within the meaning of that section, and the section expressly stipulates that the existence and validity of an agreement were not to be determined thereunder.

6. Since there was no legally binding agreement, the question whether the Plaintiffs had good title to give to the Defendant and whether they had answered "requisitions" satisfactorily were hypothetical only, and it is well-established that the Court does not decide hypothetical questions when there is no res between the parties.

7. Accordingly, I dismissed the Originating Summons with costs to the Defendant. I said I would hand down written reasons for my decision, and I do so now.

"Subject to contract" - meaning

8. The term "subject to contract" has acquired a definite ascertained legal meaning. Its clear prima facie meaning is that until there was an exchange of signed agreements between the parties, neither party was legally bound to buy or sell (as the case may be) - either party was at liberty to withdraw.

9. This clear prima facie meaning could be displaced, but a very strong and exceptional case would be required before the Court would reject the accepted understanding of this commercially familiar term. That principle has been recognised since Chillingsworth v Esche [1924] 1 Ch 97, 114 and applied in Hong Kong for decades.

10. Further, the Plaintiffs here have not sought to dispute the observation of the Privy Council in Attorney General and anor v Humphreys Estate (Queen's Gardens) Ltd. [1987] HKLR 427, 435 that it was possible, but unlikely, that in circumstances the Privy Council could not foresee, a party to negotiations set out in a document expressed to be "subject to contract" would be able to satisfy a court that the parties had subsequently agreed to convert the document into a contract, or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transaction envisaged by the document. In any event, no case of estoppel has been pressed on behalf of the Plaintiffs.

11. With those principles in mind, I have considered the submissions made on behalf of the Plaintiffs in this case.

Prima facie meaning not displaced

12. The Plaintiffs' argument was that notwithstanding the use of the term "subject to contract", the parties here did intend to have a legally binding agreement, so as to displace the prima facie meaning of the term. Mr Wong relied on Alpenstow Ltd v Regalian Properties plc [1985] 2 All ER 545, where in the peculiar circumstances of that case, not applicable to the present case, the judge found such a strong and exceptional context that he did not give the term "subject to contract" their usual prima facie meaning.

13. I found however that the Plaintiffs have failed to prove such an exception here.

The letters

14. According to the Plaintiffs, the agreement was made in the Defendant's letter to them of 9 July 1997 and their reply dated 3 September 1997. However, when one examines these letters, one can see clearly from the language used that both parties intended the usual meaning of the term "subject to contract" to apply.

15. The Defendant's letter of offer dated 9 July 1997 used the term "subject to contract" several times, and expressly emphasised the non-binding nature of the offer and any acceptance thereof. The letter was expressly marked "subject to contract". The 3rd paragraph repeated that "this letter is an offer by the [Defendant] to purchase your above property subject to contract". The 5th paragraph also stated that "... subject to contract and compliance with the [Defendant's] policy for the payment of a full Home Purchase Allowance the Defendant is prepared to purchase your above property free from encumbrances and with vacant possession for the sum of $8,003,000".

16. The penultimate paragraph stated clearly:- "Please note that nothing herein shall be binding on the [Defendant] unless and until a formal Agreement for Sale and Purchase in respect of the above property has been duly executed and exchanged".

17. Annex I to this letter which the Plaintiffs were invited to sign stated:- "I/We confirm that I am /we are in a position to sell the above property with vacant possession. Subject to contract I/we accept the monetary offer contained in you letter dated 9th July 1997 ...".

18. In the event, the Plaintiffs did not sign Annex I. They instructed solicitors to write to the Defendant on 3 September 1997. This letter from the Plaintiffs' Solicitors shows that the Plaintiffs themselves did not intend to be bound until the formal agreement was signed and exchanged. The letter was marked "subject to contract". The last paragraph stated:- "Please note that nothing herein shall bind our client until and unless a formal agreement has been duly signed by our client and your goodselves". The Plaintiffs were thus obviously aware of the non-binding nature of the dealing by virtue of the term "subject to contract".

19. Mr Wong for the Plaintiffs emphasised that the supposed "purchaser" was the Land Development Corporation, a statutory body which was under an obligation in law to acquire property for redevelopment, and the Defendant's letter of 9 July 1997 stated that the approval of the development proposal had been announced by Government, that planning requirements had been fulfilled, and that it was necessary for the property to be acquired in order to implement the project.

20. That may be so, but the law remains the same whatever the identity of the party involved. The identity of the parties is just one factor in the factual context. The Court still has to construe the documents passing between the parties, and when the Defendant's letter is construed as a whole, taking into account in particular the clarity of the penultimate paragraph, together with the letter dated 3 September 1997 from the Plaintiffs' solicitors, it is clear that both parties were aware of the effect of the term "subject to contract", and neither party intended to deviate from the usual prima facie meaning.

21. This understanding was repeated in the letter from the Plaintiff's Solicitors dated 19 September 1997 enclosing the draft formal agreement, where the penultimate paragraph stated :- "Please note that nothing herein contained shall be binding on our client(s) unless and until the formal Agreement has been signed by our client(s) and returned to you".

22. Accordingly, I find that taking all the circumstances into account, and reading the parties' correspondence as a whole, this is not a case where the usual prima facie meaning did not apply.

Agreement of terms

23. The Plaintiffs' further submission was that since all the terms of the formal agreement were agreed, there was no reason why the parties should not be bound. Mr Wong relied on the cases of Branca v Cobarro [1947] 1 KB 854 and Yiu Yau Ping v Fong Yee Lan [1992] 2 HKLR 167.

24. However it is clear that in both these cases, there was a pre-existing binding provisional agreement. This agreement remained effective until the full agreement was drawn up and signed.

25. In our case, the understanding of both parties, expressly stipulated in the Defendant's letter dated 9 July 1997 and reiterated in the Plaintiffs' Solicitors' letter dated 3 September 1997, was that neither party was to be bound until the Formal Agreement was signed and exchanged. That was the basis on which the parties dealt with each other. It is not for the Court to re-write that understanding.

Order

26. In the circumstances, I found as a preliminary point that there was no legally binding agreement between the parties, and as such, there was no subject-matter for the Court's determination under the Vendor and Purchaser Summons. The Originating Summons was dismissed with costs.

Representation:

Mr H.Y. Wong (instructed by Thomas Li & Yu) for the Plaintiffs

Mr Paul Lam (instructed by Johnson Stokes & Master) for the Defendant