Yangtzekiang Garment Manufacturing Co Ltd v. J.N. Roland Deneault and Scott Ltd and Another

HCA002389/1975

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 1923 OF 1975

-----------------

-----------------

ACTION NO. 2389 OF 1975

-----------------

-----------------

Coram: Trainor, J.

Date of Judgment: 30th July, 1976.

-----------------

JUDGMENT

-----------------

1. The plaintiffs carry on business at 22 Tai Yau Street and, it would appear, its business operations are under the control of an executive director, a Mr. Chan, and its financial director, a Mr. Leung.

2. The defendants are co-owners of the adjoining property No. 20 Tai Yau Street. The 1st defendant is the nominal holder of a share in the 2nd defendant, and a Mr. Young of the firm of accountants Lowe, Bingham & Matthews is the nominal holder of another share. The other shareholders, it would appear from the evidence presented before me, are three brothers called Dinsman who live in America, but the every day working of Scott Limited is controlled by the 1st defendant.

3. The plaintiffs being interested in expanding their business entered into negotiations with the defendants some time in 1975 for the purchase of No. 20 Tai Yau Street. By reason of conditions that were imposed on the sale, the negotiations fell through. Later, in the month of July 1975, the plaintiffs, being of the impression that operations had ceased in No. 20 Tai Yau Street, contacted Mr. Young with the purpose of negotiating a purchase.

4. The premises comprise a 5-storey building but there are in existence plans to raise it by a further four stories. The plaintiffs asked Mr. Young to forward to them the plans as they wished to study them, in particular as to the feasibility of connecting No. 22 with No. 20. Having ascertained that this was feasible and that there was in existence approval by the Public Works Department for the raising of the height of No. 20 they again contacted Mr. Young and an appointment was made to meet the 1st defendant, Mr. Deneault.

5. On the 22nd July, 1975 Mr. Deneault and Mr. Young met Mr. Chan and Mr. Leung. After an examination of the premises No. 20, or at least part of it, they all repaired to Mr. Deneault's office where, after what, I think, was a relatively brief negotiation, it was agreed by Mr. Deneault on his own behalf, and he and Mr. Young on behalf of the 2nd defendants to sell No. 20 Tai Yau Street for the sum of $2,200,000, and Mr. Chan and Mr. Leung accepted this on behalf of the plaintiffs.

6. There was a further discussion which resulted in an agreement between the parties that a deposit of a $300,000 would be paid; and it was further agreed that vacant possession would be yielded up within four months. It was also agreed that should the plaintiffs proceed with the development of No. 20 and engage the architect who had drawn the plans and had had them approved by the Public Works Department, the plaintiffs would be responsible for any fees due to him for supervising the work to be done. If, however, the architect was not engaged by the plaintiffs to that end then the fees due to the architect for obtaining the approval of the Public Works Department would be paid by the plaintiffs.

7. On the 23rd July, that is the day following the meeting, the following letter was sent on behalf of the 2nd defendants. It is addressed to the Directors of the plaintiffs:

8. An identical letter was sent by Messrs. Lowe, Bingham & Matthews on behalf of the 1st defendant. It would appear, in fact, that both letters emanated from Mr. Young. The duplicate copies which accompanied these letters had endorsed on them the words: "We Agree and Confirm the above purchase". These letters were brought to the plaintiffs' premises where Mr. Chan signed the endorsement on the duplicates and they were duly returned to the defendants.

9. On the 24th July, 1975 Messrs. Yung, Yu, Yuen & Co. solicitors for the plaintiffs, wrote to the two defendants, but marked the letters for the attention of Mr. J.N. Roland Deneault, the 1st defendant, as follows:

We have instructions from our clients, Yangtzekiang Garment Manufacturing Company Limited, that you have agreed to sell the above property to our clients on the following terms and conditions:-

10. Before a reply was received the solicitors telephoned to the 1st defendant and ascertained the name of his and the 2nd defendants' solicitors, Messrs. Zimmern & Co., and having spoken to Mr. Frank Cheung of that firm wrote to them on Friday, 25th July, the following letter:

We have instructions from our clients, Yangtzekiang Garment Manufacturing Company Limited, that your clients, Scott Limited and Mr. J.N. Roland Deneault, have agreed to sell the above property to our clients subject to contract on the following terms and conditions:-

Please take instructions from your clients and forward us the draft Agreement for sale and purchase in respect of the above property for our approval on behalf of our clients together with the relevant title deeds and documents for our perusal at your convenience.

11. That letter was received by Messrs. Zimmern in the afternoon of the same date and on 29th July they replied as follows:-

We thank you for your letter dated 25th inst. We enclose herewith Agreement for sale and purchase in respect of the above property for your approval. We also send herewith a set of approved plans under Building Authority reference No. B.O.O. 2/4482 of 1973.

12. On 1st August the solicitors for the plaintiffs returned the agreement signed by their clients with the following covering letter:

13. The letter was received by the defendants' solicitors at 12.45 p.m. on the same date. Some time after 3.30 p.m. on that day Mr. Frank Cheung who was handling the transaction for the defendants wrote or caused to be written the following letter:

We thank you for your letter of the 1st August, 1975, we have been instructed by our clients to inform you that the proposed sale and purchase has fallen through and we return herewith your cheque No. HK330111 for the sum of $300,000. Kindly forthwith return to us the title deeds and documents we sent you.

In fact the defendants had entered into an agreement with a Mr. Ngau to sell the premises to him. To that letter the solicitors for the plaintiffs wrote:

14. On the 7th August the plaintiffs caused a writ to be issued citing Mr. Deneault and Scott Limited as the 1st defendant, and Messrs. Lowe, Bingham & Matthews as the 2nd defendants. In it they claimed as against the 1st defendants:

15. The defendants delivered a defence and counterclaim in which they denied that the letters of the 23rd July constituted the agreement pleaded by the plaintiffs or any agreement.

16. The plaintiffs in their statement of claim had referred to the letter of the 1st August, 1975 whereby the solicitors for the defendant informed the solicitors for the plaintiffs that the 1st defendants would not proceed with the sale. In the defence the defendants having admitted in paragraph 3 that that letter had been written continued "and the 1st defendants aver that the sale referred to by their solicitors was the sale described in para. 5 below".

17. Para. 5 of the defence is as follows:

"On or about 22nd July, 1975, the first-named first defendants on behalf of himself and the second-named first defendants orally agreed with Mr. Chan and Mr. Leung, servants and/or agents of the plaintiffs, to sell to the plaintiffs the property situated at San Po Kong registered in the Land Office as New Kowloon Inland Lot No. 4735 together with the building thereon known as No. 20 Tai Yau Street, San Po Kong, Kowloon and the plaintiffs, through their said servants and/or agents orally agreed to purchase the same from the first defendants. The terms of the agreement were as follows:-

18. The defence then proceeded to plead that there was no note or memorandum of the oral agreement in writing and therefore the agreement was unenforceable by virtue of section 5 of the Law Amendment and Reform (Consolidation) Ordinance. There were other matters pleaded by the defendants but so far as the case with which I am dealing is concerned they are not relevant.

19. I do not know when the defence was delivered but it was filed in the Registry of this Court on the 18th September, and on 25th September the plaintiffs discontinued the action. The plaintiffs at the time of serving the notice of discontinuance delivered a defence to the counter-claim.

20. On the same day the plaintiffs caused the writ in the present action to be issued against the first and second defendants (together, the first defendants in the discontinued action) but omitting Lowe, Bingham & Matthews as defendants. In it the plaintiffs framed the claim in the alternative. They first claimed that on the 22nd July, 1975 the 1st defendant on behalf of himself and the 2nd defendant orally agreed with Mr. Chan and Mr. Leung acting on behalf of the plaintiffs to sell to the plaintiffs the property No. 20 Tai Yau Street on which occasion the plaintiffs, through their agents, orally agreed to purchase those premises. The terms of the oral agreement were then set out:

21. This, in fact, was what was in para. 5 of the defence with the omission of the word "forthwith" from sub-para. (b).

22. The plaintiffs further alleged that it was another term of the agreement that a formal agreement of sale would be drawn to be signed by both parties. It was pleaded that the two letters of the 23rd July, 1975, which I have already quoted, and the defence in the discontinued action constituted a memorandum of the oral agreement sufficient to satisfy the Ordinance.

23. The plaintiffs then referred to the correspondence, and in particular the letter of the 1st August, 1975 from the defendants' solicitors returning the cheque for $300,000, and said that "the Defendants have evinced an intention to repudiate and did wrongfully repudiate the agreement" made between the parties which the plaintiffs were at all times able and willing to carry out.

24. The plea of the plaintiffs in the alternative was that the letters of the 23rd July, 1975 constituted an agreement between the parties.

25. The plaintiffs claimed specific performance of the oral agreement. Alternatively they claimed specific performance of an agreement alleged to be contained in the two letters. They also claimed damages in lieu of or in addition to specific performance, and there were the other usual claims for relief.

26. The defendants delivered a defence and counterclaim. In it they admitted the oral agreement pleaded by the plaintiffs but pleaded that it was a condition of the agreement that the deposit of $300,000 was to be remitted to the defendants' solicitors forthwith; and that the agreement was subject to a formal agreement being drawn up by the solicitors for the parties. They admitted the letters of the 23rd July, 1975 and the delivery of the defence and counterclaim in the discontined action, but denied that they constituted any, or any sufficient memorandum of the oral agreement and pleaded in paragraph 3(f):

"in the premises if which is not admitted the said oral agreement was otherwise enforceable by the plaintiffs the said oral agreement was not enforceable by the plaintiffs by reason of Section 5 of the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23)."

27. The defendants also admitted receiving the letter of 1st August 1975 which "purported to send a cheque of $300,000 as deposit to the defendants' solicitors, who had not demanded or solicited for the same", and alleged that the plaintiffs' solicitors by that letter "imposed or purported to impose an express condition that the cheque of $300,000 was sent against the strict undertaking of the defendants' solicitors that they would not release the cheque or the money to the defendants until the defendants' solicitors had forwarded all the title deeds and documents relating to the said property and had received the confirmation from the plaintiffs' solicitors that the defendants' title to the said property was in the good order" and pleaded:

"In the premises if which is not admitted, the said oral agreement is otherwise enforceable by the Plaintiffs, the said oral agreement was not enforceable by the Plaintiffs by reason of the Plaintiffs' breaches of its terms."

28. They alleged that it was a condition of the oral agreement that a deposit of $300,000 should be remitted to the defendants' solicitors forthwith who were to release the money to the defendants when the agreement of sale and purchase had been signed by the plaintiffs and the defendants and said that the plaintiffs did not send the deposit forthwith "or any deposit in pursuance of the said agreement or at all". They pleaded that they were entitled to treat the oral agreement as being repudiated by the plaintiffs, and to terminate the agreement and did so by their solicitors' letter of the 1st August, 1975. They pleaded alternatively that if the oral agreement is otherwise enforceable, the plaintiffs are not entitled to enforce it as it was a condition precedent that the deposit of $300,000 be paid forthwith and that was not done.

29. The defendants denied that the letters of the 23rd July 1975 constituted or contained any agreement between the parties, or if they did, the agreement was void as the parties were not ad idem. They further pleaded that the two letters were not a sufficient memorandum of the oral agreement to satisfy section 5 of the Law Amendment and Reform (Consolidation) Ordinance in that it did not contain all the terms.

The Issues

30. The issues, then, in this case as I see them and propose to deal with them are:

Facts

31. There is a good deal of common ground in this case: it was agreed on the 22nd July, 1975 that the defendants would sell and the plaintiffs would buy the property for $2,200,000; that $300,000 would be remitted to defendants' solicitors as a deposit to be released to the defendants on the execution of a formal agreement by the parties; that vacant possession would be given up within 4 months; and that the plaintiffs would pay the unpaid fees due to the architect for having the plans approved of by the Public Works Department should they not employ him to supervise the work outlined in the plans.

32. The field of difference was not very wide but its effect was considerable. The defendants contend:

Evidence

33. The resolution of some of the conflicting contentions of the parties is helped, I think, by a consideration of the evidence of the various witnesses against the background of the atmosphere in which the meeting of the 22nd July was held.

34. Mr. Benedict Young was a witness called by the defendants. It was he, in fact, who arranged for the plans for the extension of the building to be forwarded to the plaintiffs in the first instance and later arranged the meeting of the 22nd July. He described the atmosphere of the meeting as amicable; a description with which I do not think the plaintiffs would cavil. He outlined how he brought the representatives of the parties together on the 22nd July. He said that after the premises were inspected all repaired to the office of Mr. Deneault where Mr. Chan, speaking in English, said he would like to buy the premises, adding that he would like to do it "in the Chinese way". Later in his evidence before the resumption of his cross-examination after an overnight adjournment, he interposed to explain what was meant by doing it "the Chinese way". He said: "It is to fix up the terms, and it does not require any writing or agreement. All is done verbally; no writing. They simply agree and their word is gold."

35. The negotiations do not seem to have been protracted. When the parties met, Mr. Deneault was already aware from Mr. Young that the plaintiffs were prepared to pay $2,100,000 and his co-owners had left it to him to decided the price. He had already decided to accept that price but asked for $2.25 million. He was offered $2.2 million and this he accepted.

36. There was a difference between the witness as to the approach to fixing the deposit. Mr. Chan, the first witness for the plaintiffs, said that when the price was agreed Mr. Deneault right away said the plaintiffs had to pay a deposit of $300,000 and that he, Mr. Deneault, would deliver the title deeds to the plaintiffs' solicitors. Mr. Leung said that Mr. Deneault, after the price was agreed, said that at a later date the plaintiffs were to pay $300,000 to his solicitors. Nothing was said as to how or when the deposit was to be paid but, Mr. Leung said, as it was to be paid to Mr. Deneault's solicitors he considered it would be by cheque. This witness said Mr. Deneault was told the deposit would be paid by the plaintiffs' solicitors to the defendants' solicitors. He said there was no bargaining as to the amount of the deposit.

37. Mr. Deneault said that when the price was settled the question of a deposit was raised by him. He said Mr. Young suggested 25% - 30% but Mr. Chan and Mr. Leung thought this was too much money to have tied up. He said they then compromised $300,000 and when that was done he stipulated the form in which the deposit was to be paid.

38. Mr. Young's evidence was that Mr. Deneault raised the matter of the deposit, asked him what was the usual amount to which he answered 25% - 30%, whereupon Mr. Chan said, in English: "That's too much. We are definitely going to buy" and offered $300,000. The witness said Mr. Deneault agreed, adding certain stipulations as to the form in which the payment would be made. That vacant possession was not to be demanded for four months seems to have been quickly settled, and there does not appear to have been any difficulty coming to an agreement as to architects' fees.

39. It was common case that it was agreed something would be put in writing but the witnesses differed as to the reason for it. Mr. Chan and, I think, Mr. Leung said they considered it was merely to confirm what had been agreed, whereas Mr. Deneault and Mr. Young maintained that the plaintiffs' representatives asked for something in writing to enable the plaintiffs, because it is a public company, to issue a cheque for the deposit. Mr. Deneault in cross examination volunteered another reason: he said it was to prevent the plaintiffs from slipping out of their bargain. Suffice it for the moment to say that it was agreed something was to be put in writing.

The Letters Of the 23rd July As Forming A Contract

40. Mr. Balcombe who appeared for the plaintiffs in his closing address conceded that on 22nd July, 1975 a binding oral agreement was reached between the parties. Despite his concession, however, he maintained that the letters of the 23rd July constitute a binding and enforceable contract as if there never had been a meeting on the 22nd. He submitted that there is to be found in them a complete unambiguous contract, and therefore oral evidence is not admissible to explain or differ from what is clearly expressed in those documents. He said that on the evidence the whole purpose of the letters was that they should represent the agreement and be binding, and hold the position until a formal agreement was produced.

41. He cited: Harris and Bros. v. Rickett (1859) 4 Hurl. & Nor. 1: Mercantile Bank of Sydney v. Taylor (1893) A.C. 317; and Bell v. Hobbs (1956) N.Z.L.R. 1005.

42. Where parties are in agreement and record their agreement in writing in ordinary language and unambiguous terms it is to what is recorded that a court will have recourse in interpreting it, and to that alone. Extrinsic evidence to explain it, or to suggest a meaning different to the ordinary meaning of the words is inadmissible. But when what is reduced to writing is ambiguous or where it does not properly or fully record what was agreed then evidence may be admissible to explain the ambiguity or furnish details of the terms not recorded. Indeed, the cases referred to by Mr. Balcombe support this. The headnote Harris v. Rickett reads:

"A trader being indebted to various persons procured from A an advance of £200 for which he verbally agreed to give a bill of sale of all his property if called upon to do so. On securing the money he gave A a promisory note for £200, a memorandum of agreement to assign some property expectant on the death of his wife's father, together with a policy of insurance, and also another memorandum of agreement to pay £10 yearly as bonus. At a later period, on being requested he executed a bill of sale of all his property to A.

43. In that case Pollock, C.B. said:

"..... nor does it appear to us that the writing was intended to contain the whole agreement, and we are of the opinion that the rule (excluding extrinsic evidence) relied on by the plaintiff only applied where the parties to an agreement reduce it to writing and agree or intend that that writing shall be their agreement".

44. The principle is referred to at P.321 in the Privy Council case of the Mercantile Bank of Sydney v. Taylor by Lord Watson thus:

45. In Bell v. Hobbs, Sir Francis Adams, said:

"On the evidence, I hold that the document was intended as the sole and exclusive record of the arrangement made; and, in such cases, the general rule is clear that extrinsic evidence is not admissible either to ascertain the intention of the parties, or to contradict, vary or add to the terms of the document."

46. Beckett v. Muse (1948) 1 K.B. 535 is another case in point. In those cases the question of when oral evidence is admissible and when it is not is fully covered. It is inadmissible when the document discloses unambiguously what was agreed between the parties. It is admissible when the document is ambiguous or does not fully disclose what was agreed.

47. From the evidence of the witnesses in the present case it is clear that it was never the intention of either party that the letters of the 23rd July were intended to reflect the whole agreement reached between them. At the most, on the evidence of the plaintiffs' witnesses, the letters were merely to put on record that an accord had been reached between the parties as to the sale and purchase of the premises; on the evidence of the defendants' witnesses the letters were written to facilitate the plaintiffs in arranging for the deposit of $300,000, and, according to the first defendant, to prevent the plaintiffs from slipping out of their agreement.

48. They do not and were never intended to represent the agreement between the parties. No action is sustainable on them.

The oral agreement of the 22nd July.

49. There is no doubt on the evidence, indeed it is not, and could not be contested that on the 22nd July, 1975, a valid contract was entered into by the parties. It was, however, an oral contract and subject to the privisions of Section 5 of the Law Amendment and Reform (Consolidation) Ordinance which reads:

"No action shall be brought upon any action for the sale or other disposition of land or any interest in land, unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto by him lawfully authorised."

The Memorandum or Note

50. There are no special requisites as to the form of the memorandum or note, and it need not have been signed with the intention that it be a memorandum or note of an agreement. It may be found in a letter or any document or series of associated documents; in a will; or even in a letter repudiating liability: Buxton v. Rust (1872) L.R. 7 Exch. 279; and Thirkell v. Cambi (1919) 2 K.B. 590. What is required is that there be in existence when proceedings are commenced (Lucas v. Dixon (1889) 22 Q.B.D. 357) a document or a series of associated documents signed by the person against whom it is sought to enforce the contract, or by some one authorised by him to sign, from which can be ascertained the agreement of the parties and the acknowledgement of all the material terms agreed. That the letters of the 23rd July fall short of disclosing all the material terms, e.g. that possession of the property may not be demanded for four months, is obvious and as such they are quite inadequate to constitute a memorandum or note as required by the Ordinance: Bellamy v. Debenham (1890) 45 Ch. 481, and Tweddell v. Henderson (1975) 2 A.E.R. 1096.

51. It was not suggested that the exchange of letters between the solicitors constituted a memorandum or note but it was the plaintiffs' case that there was in the defence and counterclaim in the discontinued action a sufficient memorandum of the agreement to satisfy the requirement of the Ordinance, and that it was signed by a person lawfully authorised.

52. Before proceeding to consider whether or not para. 5 of the Defence constitutes a memorandum or note, there are three matters to be disposed of. The first is was what was agreed on the 22nd July subject to a contract to be subsequently prepared and executed; the second is was it a condition precedent that a deposit be paid forthwith; and the third is did the letter of the 1st August amount to a repudiation of the contract.

53. Was the oral agreement subject to contract?

54. This, in my opinion, presents no difficulty. When the parties meet on the 22nd July in the atmosphere which I have earlier described they negotiated and completed their transaction. An agreement was made between them, in the Chinese way, as, according to Mr. Young, Mr. Chan would have it. There was nothing more to negotiate. It was agreed that what had been decided would be reduced to writing in a formal way though, according to Mr. Young, no time was stipulated as to when. (Branco v. Cobarro (1947) K.B. 854). But that was never intended to be a condition precedent to the coming into existence of an agreement. Neither party considered that he was not bound by the contract. The plaintiffs certainly considered they were bound; and Mr. Deneault's evidence, as I understood him, was that had the deposit been paid forthwith he would have considered himself and his co-defendant bound to complete the assignment. That it was agreed that a formal document should be prepared is not disputed, and I am satisfied that by that the parties meant no more than that what already had been agreed would be reduced to writing in formal language. Mr. Chan in his evidence said that it was never suggested that the agreement was subject to contract. He said that he considered that what was to be done subsequently was to be done by the solicitors and was "routine work and a formality". Mr. Deneault could not have considered the matter of much importance as he made no reference whatsoever in his evidence to a document, formal or otherwise, except en passant: that possession was to be delivered up four months after signing an agreement. Mr. Young did not make any reference either.

55. I am satisfied that when the parties shook hands at the end of their amicable negotiations they were ad idem, and considered that a satisfactory deal had been completed except for routine legal work, as Mr. Chan described it, and none of them considered that a binding agreement would not come into existence until a formal contract was signed. As Plowman V.-C. put it in Tweddell v. Henderson at 1100: (1975) 2 A.E.R. 1096.

"Judged objectively, the parties .... were ad idem and a contract was concluded on the terms that I have mentioned."

What was agreed was not subject to any condition as to the execution of a later document and what transpired after that by reason of the exchange of letters between the solicitors did not affect the position. The contents of paragraph 5 of the defence in my opinion represents what was agreed between the parties on this.

56. Was it a condition that the deposit should be paid forthwith, a condition, the failure to comply with which would entitle the defendants to consider the contract to have been repudiated by the plaintiff?

57. What does the word forthwith mean? The meaning given to it in the Concise Oxford Dictionary is: "Immediately, without delay". Clearly, this is a meaning that seldom, if ever, can be attributed to the word when used in the context of performing such a condition as paying a deposit for the purchase of premises. If a deposit were to be paid "immediately" it would imply being paid on the spot and if this were done it would be unnecessary to include it as the condition of a sale. The use of the word in an agreement must, I think, usually connote some degree of delay which must be measured by the circumstances of the case. In Ex parte Lamb. In re Southam (...(illegible)) 19 Ch. 169, Jessel, M.R. at 173 said: "I think that the word 'forthwith' must be construed according to the circumstances in which it is used." going on to say: "But where an act which is required to be done 'forthwith' can be done without delay, it ought to be so done". Lush L.J. in the same case at 173 said: "The word 'forthwith' has not a fixed and absolute meaning; it must be construed with reference to the objects of the rule and the circumstances of the case." Bagally L.J. was of the same opinion. Harman L.J. in Hillingdon London Borough Council v. Cutler (1968) 1 Q.B.124 at 135 thought that "'forthwith' is not a precise time and, provided that no harm is done, 'forthwith' means any reasonable time thereafter." In that case six months were held to fall within the meaning. Having regard to: the evidence of Mr. Deneault and Mr. Young, that a deposit could not be paid until a letter confirming sale was received from defendants because the plaintiffs were a public company, hence the letters of the 23rd July; the evidence of Mr. Deneault that the deposit was to be paid within "the next 24 hours or the next few days"; the evidence of Mr. Young that it was to be paid to the defendants' solicitors; the evidence of the plaintiffs' witnesses that a cheque was paid to the plaintiffs' solicitors on the 23rd July; the evidence to be derived from the letter of the plaintiffs' solicitors to Mr. Deneault and Messrs. Scott marked for the attention of Mr. Deneault saying they held the deposit; the subsequent phone call by the plaintiffs' solicitors to Mr. Deneault to ascertain the name of his and his co-defendants' solicitors; and finally the telephone conversation between the respective solicitors as to their instruction and the subsequent exchange of correspondence dealing with inter alia, the deposit; I consider that when the deposit was in fact paid on the 1st August it was well within the meaning of "forthwith". It was paid precisely ten days with an intervening week-end. That no harm was done to the defendants is quite obvious from the fact that the deposit was not expected to be released to them until after the agreement in its formal form was signed; no date for the execution of which, according to Mr. Young, had been fixed. Thus in my opinion if there was such a condition as to the payment of the deposit it was in the circumstances well within the ambit of the word "forthwith".

58. But was there such a condition at all? Again I feel this must be considered against the background of the atmosphere prevailing during the negotiations on the 22nd July; amicable and friendly. So far as Mr. Chan was concerned he considered the deal was made when the price was agreed and the payment of the deposit was part of the procedure of completing the transfer. It had been mentioned by Mr. Deneault that $300,000 deposit was to be paid and that his solicitors would deliver the title deeds, but when the letters of the 23rd July arrived Mr. Chan was so unconcerned about it that he did not even notice that no reference was made to the deposit. When he signed the acknowledgement on the copy letters he considered all he had to do "was wait", although when he did sign he instructed Mr. Leung to prepare a cheque for the deposit, payable to the plaintiff's. solicitors. That was done and the cheque was given to the solicitors. He denied that Mr. Deneault said the cheque was to be paid immediately.

59. He said he did not consider the payment of the deposit was so important that it had to be paid immediately. He denied that Mr. Deneault had asked that payment be by a cashiers order; he said there was no discussion as to how it was to be paid. He told Mr. Cheung, counsel for the defendants, that he did not remember to whom the deposit was to be paid. All that he could remember, he said, was that $300,000 was to be paid and the title deeds or documents would be sent by the defendants' solicitors to those of the plaintiffs'; but when it was to be paid was not mentioned. He said he knew it was his duty "to pay a deposit into my solicitors' office and the rest would be carried out by the two solicitors firms concerned."

60. In reply to a question of mine he said that the name of the defendants' solicitors was not mentioned on the 22nd July. There is some corroboration of his answer by the fact that the plaintiffs' solicitors addressed their letter of the 24th July, in which it was mentioned (inter alia) that they held a deposit of $300,000, to each of the defendants, and by the evidence of Mr. Yuen of plaintiffs' solicitors that he had to telephone Mr. Deneault to ascertain the name of his solicitors.

61. Mr. Leung said that nothing was said as to how or when the deposit was to be paid except that it was to be paid to the defendants' solicitors by the plaintiffs' solicitors. He presumed that as it was to be so paid it would be paid by cheque. He said he brought the cheque to the plaintiffs' solicitors and suggested they contact the vendors. It was as a result of that that Mr. Yuen wrote to the vendors. Next day, he said, he spoke to Mr. Yuen and as he had not heard from the vendors he suggested that Mr. Yuen telephone Mr. Deneault and ascertain who were the vendors' solicitors. Mr. Yuen did this in Mr. Leung's presence; a fact confirmed by Mr. Yuen and not denied by Mr. Deneault.

62. Mr. Deneault's evidence was very different. He said that after fixing the amount of the deposit he said it should be paid immediately to the defendants' solicitors, and named them. He said he stipulated that it should be by a cashiers order or certified cheque made payable to both Scott Ltd. and himself (something never suggested to Mr. Chan or Mr. Leung). He said, Mr. Young told Mr. Chan the name of the defendants' solicitors.

63. Mr. Deneault said that he saw Mr. Frank Cheung, his solicitor, on the 23rd July and told him about the transaction and that he would receive a deposit "within the next 24 hours"; that the plaintiffs had promised to send it "within the next 24 hours or the next few days", and that he, Mr. Cheung, was to hold it until the Sale and Purchase Agreement was signed. He said he told him that he would receive a cashiers order or a certified cheque payable to both Scott Ltd. and the witness. He said he telephoned Mr. Cheung on a number of occasions to enquire if the deposit had been received and was told it had not. He said he first heard at 4 p.m. on the 1st August that the deposit had been received and learned that it had been sent on the strict undertaking of his solicitors that it would not be released until the title deeds were sent and plaintiff's solicitors had confirmed the title.

64. I am not going to refer to the cross examination of Mr. Deneault. I think the evidence and particularly the cross-examination of Mr. Cheung, his solicitor, deals sufficiently with it.

65. Mr. Cheung said that when Mr. Deneault consulted him about the sale he told him that the deposit would be sent to him. He said that Mr. Deneault told him: "I think you will be getting a deposit right away or something to that effect". He said: "The impression I had was that I would be getting a cheque fairly immediately". He said that later Mr. Yuen rang him and asked him if he acted for Scott Ltd. and Mr. Deneault, and they then checked their instructions: purchase price, deposit, delivery of possession and the architect's fees. He said he asked Mr. Yuen to write to him, hence the letter of the 25th July He said he did not tell Mr. Yuen when the deposit was to be sent. He said that he did not see Mr. Deneault between 23/29th but Mr. Deneault telephoned to enquire about the deposit. He said that he sent a draft contract stating in the covering letter that the deposit was to be paid on the signing of it, but that he did not know when he sent it that Mr. Deneault had stipulated that the deposit was to be paid forthwith. He said that sometime after he sent the draft he saw Mr. Deneault who asked if he could show the premises to another person; that he said was the only thing of importance that was then discussed. Mr. Cheung said that about 3.30 p.m. on the 1st August he saw the letter of that date from the plaintiffs' solicitors with the cheque for the deposit. He said he showed the cheque to Mr. Deneault but he did not seem to be interested; the discussion turned to returning the cheque and calling off the sale.

66. In cross examination Mr. Cheung said he could not remember if Mr. Deneault said if the deposit was to be by certified cheque or bankers' order or if it was to be made payable to Scott Ltd. and Mr. Deneault, but he agreed that had that been said it was likely he would remember as he had never come across a case where the deposit was made payable to the client. He said further that he was not under the impression that the payment of the deposit was "the most vital thing" to Mr. Deneault. In fact, he said, nothing was said to him by Mr. Deneault that would lead him to think the transaction was anything out of ordinary. Mr. Deneault in his cross examination had said that when he gave the letter of the 24th July to Mr. Cheung he had pointed out to him that it was an error for the $300,000 to have been deposited with the plaintiffs' solicitors: Mr. Cheung had no recollection of that. He said that had that been said he certainly would have remembered it.

67. I am not going to dwell on the evidence of Mr. Young with regard to the deposit. He said that not only did Mr. Deneault say that the deposit was to be paid immediately and by way of two cheques, one payable to Scott Ltd. and the other to Mr. Deneault, but he, Mr. Deneault, also told Mr. Chan and Mr. Leung that "time was of the essence". He said that Mr. Deneault actually used those words.

68. I do not, and did not at the hearing, believe Mr. Deneault or Mr. Young when they said the deposit was to be paid immediately or forthwith, or that time was of the essence in paying the deposit. I would be more specific on the point were it not for the charitable suggestion of Mr. Balcombe that perhaps the witnesses had ultimately come to believe as being so what they wished the position to be. In any event where the evidence of Messrs. Chan and Leung differed from that of Messrs. Deneault and Young I much preferred the former.

69. On the 22nd July, Mr. Deneault and Mr. Young considered they had made a good deal - the vendors were getting more than they were prepared to accept - and the purchasers had got what they wanted. Everyone was pleased and satisfied, even on the point that four months was to be allowed for giving up vacant possession. The nearest thing to urgency was the fond hope of the purchasers that they might get earlier possession. There was no pressing need for money on the part of the defendants; indeed the deposit was to be handed over to them only after the signing of the formal document.

70. I am completely satisfied that when the parties separated on that day each considered a good day's work had been done in agreeing the sale, the amount of the deposit, the architect's fees and the time for possession and that, apart from the informal letters to be written, which were on the 23rd, everything else was to be left to their respective solicitors to be carried out in the usual procedure of conveyancing in Hong Kong.

Repudiation

71. It was alleged by the defendants that the condition contained in the letter of the 1st August, 1975 to the defendants' solicitors enclosing the deposit that the cheque was sent "against your strict undertaking not to release the same to your clients until you have forwarded us all the title deeds and documents relating to the above property and have our confirmation that your clients' titles are in good order", was such a breach of the agreement as to justify the defendants concluding that the plaintiffs had repudiated the contract. Assuming that the solicitors had the authority to write what they did were the plaintiffs entitled in law to deem the contract to have been repudiated?

72. Mr. Cheung quoted 8 Halsbury, 3rd Ed. Para. 344:

"Where a contract is to be performed on a future day, or the performance is dependent on a contingency, and one of the parties repudiates it by showing that he does not intend to perform it, the other party is entitled to sue him for breach of the contract without waiting for the time fixed for performance and is absolved from further performance of his part of the contract, and if he elects to do this the party in default is not entitled to an opportunity of changing his mind. In such a case the contract is completely determined .... "

I accept that as a concise and correct statement of the law, but the overall requirement is that the party alleged to have repudiated must show that "he does not intend to perform" his contract.

73. What intention is to be deduced from that letter? It enclosed a formal agreement signed by the purchasers; it enclosed the solicitors' cheque for $300,000, the agreed deposit. It did attempt to impose a restriction as to when the deposit was to be released, not until the vendors established good title but the solicitors were being over zealous in their clients' interest and such a condition in the circumstances was unenforceable, even if they had their clients' authority to attempt to impose it. But there is nothing whatever in the letter to suggest an intention of the plaintiffs to repudiate their contract; on the contrary, the plaintiffs clearly indicated their intention to fulfil their obligation.

74. I hold that nothing done by the plaintiffs justified the defendants in concluding that the plaintiffs had any intention of repudiating the contract. There was nothing to suggest "an absolute refusal to perform the contract, such as would amount to a rescission if he had the power to rescind ...." as the Earl of Selborne said in Mersey Steel and Iron Co v. Naylor, Benson & Co. 9 A.C. 434 at 438 as long ago as 1884.

Paragraph 5 of the defence as a memorandum

75. Is what is contained in paragraph 5 of the defence capable of constituting a memorandum? The answer to that is yes. Paragraph 5 indicates the admission of the defendants to the existence of an agreement between the parties. It contains all the material terms and, as I shall show later, was in existence before these proceedings were commenced. Mr. Cheung has argued that there are two terms: the payment of the deposit forthwith, and that the agreement was subject to contract; which the plaintiffs have not included in what they say their statement of claim is the memorandum. But I have held that if it were agreed that the deposit was to be paid forthwith (and I am not satisfied it was) the plaintiffs complied, and that so far as a formal contract, as referred to in the paragraph, is concerned the paragraph represents the agreement of the parties i.e. that there was an agreement in existence which would at a later date he recorded in formal terms as was the position in Brance v. Cobarro (1947) K.B.854.

Para. 5 of original defence but pleading the ordinance.

76. I now come to the final question to be answered, can a defence which sets out the terms of an oral agreement but pleads the Ordinance be relied upon as a memorandum or note of that oral agreement in a subsequent action concerning the same property. On this point Mr. Balcombe in opening referred to the case of Hardy v. Elphick (1974) Ch. 65. That was a case in which the plaintiff brought an action for specific performance of an oral agreement for the sale of land and pleaded a letter written by the defendant as a memorandum in writing sufficient to satisfy section 40 of the Law of Property Act 1925. (Section 40 of the Act is similar to section 5 of the Law, Amendment and Reform (Consolidation) Ordinance). The defendant denied that he had entered into a contract to sell the land, and further pleaded that the letter did not contain all the terms agreed and, therefore, was not a sufficient memorandum to satisfy the section. The plaintiff requested further and better particulars of the other terms and the defendant furnished the particulars, signed by counsel, containing two further terms. The plaintiff brought a second action for specific performance and pleaded both the letter and the further particulars furnished in the original action as constituting a memorandum in writing. The defendant applied for the second action to be dismissed on the ground that it was an abuse of process of the court. The application was heard before Foster, J. who refused to make an order on the summons save as to costs, and gave the plaintiff leave to discontinue the original action. The plaintiff appealed and the appeal was dismissed. The decision in that case is not relevant in so far as this part of the plaintiff's case in the instant action is concerned, but the observations of the learned lord justices on the availability of what is contained in a pleading to establish a memorandum or note to meet the requirements of section 40 of the Law of Property Act is, even though it is only obiter. In his judgment, Buckley, L.J. said (73/74):

"If after the issue of the (first writ) the defendant had inadvertently and for the first time provided a complete written memorandum of the alleged oral agreement by some document outside the action, such for instance as a letter to a third party, I can see no reason why the plaintiff should not have been permitted unconditionally to discontinue the (first action) to make way for a later action in which that document could be relied on. If the defendant has inadvertently provided a complete memorandum by his pleading in the (first action), why should the plaintiff not equally be permitted unconditionally to discontinue the (first action), to make way for the (second action)? If the defendant had been compelled to plead material in the (first action) constituting a memorandum, there might be substantial grounds for arguing that it would be oppressive to allow the plaintiff to take advantage of this in a later action, but I am far from satisfied that this was the case. Assuming for the present purpose that in giving the particulars in the (first action) the defendant has afforded the plaintiff a sufficient written memorandum of the oral agreement alleged in the (second action) was he bound to do so? It would, I think, have been by no means impossible for the defendant to have pleaded his case in the (first action) without putting himself in a position in which he could be called on to give those particulars. He could, for instance, have denied the alleged oral agreement (as in fact he did) and have gone on merely to plead that, if (which he denied) any oral agreement had been concluded between the plaintiff and himself, he would rely upon section 40 in respect of such agreement. All that he need have pleaded in answer to paragraph 2 of the (first action) statement of claim, in which the plaintiff alleges that the letter of March 15, 1971, evidenced the oral agreement alleged in that action, was to the effect that he did not admit that paragraph, or possibly that he did not admit that the letter constituted a sufficient memorandum for the purposes of section 40 of any oral agreement between the plaintiff and himself. Upon such a pleading I do not think that the defendant could have been required to give any particulars of the kind which in fact he gave, or indeed any particulars at all, and the pleading would have been incapable of being relied upon as constituting any memorandum or part of a memorandum for the purposes of the section. If this is right, the defendant may have inadvertently pleaded a memorandum, but, since he could properly and successfully have avoided doing so, there seems to be no more reason why the plaintiff should be prevented from taking advantage of the defendant's inadvertence than there would be if the defendant had inadvertently provided a memorandum by writing to a friend."

77. The view of Russell L.J. (75) was:-

"We were not invited to decide whether the plaintiff would succeed in using the defence and its particulars in the first action as constituting or contributing to a sufficient memorandum. I doubt that he would. If an oral contract is made and is alleged in a statement of claim, and no more, and the defendant, contrary to the truth, denies the contract and pleads section 40, it is clear that the pleading cannot constitute a sufficient memorandum in a subsequent action brought by the plaintiff on exactly the same contract after discontinuing the first without leave being necessary within 14 days of the defence. If the same defendant very properly admits, either expressly or implicitly, in his defence the oral contract and pleads section 40, is the situation otherwise? If it were otherwise a defendant, pleading with the utmost properiety so as to limit the area of action dispute would find that the umbrella afforded by the statute immediately blows inside out. In Jackson v. Oglander (1865) 2 H. & M. 465, 473, Page Wood V.-C. said that an answer in which the statute was relied upon could not be looked at: true that was the answer to the bill in the actual proceedings and therefore could not be relied upon in any event in those proceedings. But he said:

I would say in the case instanced by me, to allow reliance in a later action upon the first pleading which pleaded the statute would go far to repeal the statute. And in the first action in the present case the defendant did plead the statute, quite apart from the question whether the paragraph denying the existence of the contract alleged is by itself a sufficient denial of any contract for the sale and purchase of the land."

78. Orr, L.J. said:

"I agree. If the second action is permitted to proceed, questions will arise at the trial as to whether the particulars delivered on behalf of the defendant in the first action are capable in law of constituting, for the purposes of the second action, a memorandum, or part of a memorandum, under section 40 of the Law of Property Act 1925 and, if capable, whether in their terms they do so. In my judgment, it is not for this court on the present appeal to decide these questions, and all I would say about them is, first that I consider there are solid arguments which can be advanced on both these issues for the defendant, and secondly that I agree with Russell L.J., that it would be unfortunate if a distinction were to be drawn in this context between a defence, pleading section 40, which denies or does not admit an oral contract, and a defence, also pleading section 40, which admits such a contract. One of the consequences of such a distinction would, in my judgment, be to produce a trap for a defendant who is not legally represented."

79. Having regard to the divergent views expressed by the lord justices Mr. Balcombe said one had to go back to first principles. What is required is that there be a document, or series of associated documents, signed by the defendant or by someone authorised by him to sign which sets out the material terms of an oral contract. (Tiverton Ltd. v. Wearwell Ltd. (1974) 2 W.L.R. 176) and that it be in existence before the action in which it is relied has commenced. If those conditions are fulfilled then there exists a memorandum or note sufficient to satisfy the requirements of the ordinance. He cited the case of Lucas v. Dixon (1889) 22 Q.B.D. 357. That case is a long standing authority on the last requirement, that the memorandum or note must be in existence before action brought. But it is also of interest for the observations of Bowen and Fry, L.JJ. to which I will later refer. It was an action brought for the non-acceptance of goods on a contract coming within sec. 17 of the Statute of Frauds. (Although it is under that section and not under section 4, which is reflected in section 40 of the Law of Property Act 1925, nevertheless it is, I think, well settled now that the same principles apply.) In it the plaintiff made an application under Order 14 and the defendant filed an affidavit in reply. At the trial the plaintiff relied on the affidavit as constituting a note or memorandum of the contract sufficient to satisfy the statute, but the learned judge who heard the application, although satisfied that the terms of the contract did sufficiently appear in the affidavit so as to make it a note or memorandum, held that it was not available to the plaintiff as it was not in existence when the action was brought. He gave judgment for the defendant. On appeal his decision was upheld. In his judgment, however, Bowen, L.J. at 360 had this to say:

"If this affidavit, which I will assume for the purpose of the argument contains sufficient evidence of the contract, had been sworn in some previous action and had been used in this, Good v. Job (28) L.J. (Q.B.) 1 and Barkworth v. Young 4 Drew 1 shew that the document is not necessarily the less a sufficient memorandum because it is sworn in an action."

80. Fry, L.J. said at 363:

"I will only add this observation, that the conclusion at which we have arrived is a somewhat singular one. The statute requires the memorandum as evidence, but requires that evidence to be in existence at the commencement of the action which is brought to enforce the contract. If, then, it only comes into existence after the commencement of such an action, and the plaintiff desires to avail himself of it, he can only do so by discontinuing the action and commencing another."

81. Mr. Balcombe would say that in the instant case the three basic requisites exist: (a) a memorandum signed by an authorised agent which (b) sets out the material terms of a parol agreement and (c) which was in existence before action brought. He cited Grindell v. Bass (1920) 2 Ch.487. In that case Grindell sued Bass for specific performance of a contract to sell a house. In her defence, signed by counsel, Bass pleaded that she had already contracted to sell the house to one, Earle. The plaintiff joined Earle as a defendant, and Earle relied on his contract with Bass and counterclaimed for a declaration that he was entitled to the house free from Grindell's claim. Grindell in reply relied on the Statute of Frauds. It was held that Bass's defence, which contained all the terms of Earle's agreement, was a sufficient memorandum to satisfy the statute.

82. Mr. Balcombe relied on this case for two things: (a) to establish that if a defence contains what amounts to a memorandum of a parol agreement it is available as such to another party if it was in existence when action brought; and, (b) that counsel signing such a defence is an authorised agent. He quoted Russell J. at 492:

"To apply the principle of these authorities (John Griffiths Cycle Corporation v. Humber & Co. (1899) 2 Q.B.414; Daniels v. Trefusis (1914) 1 Ch. 788; North v. Loomes (1919) 1 Ch.378) to the present case, no one can doubt that Mrs. Bass's counsel was authorised by her to sign the defence and to allege in the defence the existence and terms of her contract with Earle as an answer to the claim on the plaintiff. It matters not that the fact that a memorandum within the Statute of Frauds would thereby be brought into existence was not present to the minds of either counsel or client. I am of the opinion that counsel being the authorised agent to sign the particular document is an agent 'Thereunto lawfully authorised' within the meaning of the statute, and that the document, containing as it does all the necessary terms, is a proper memorandum within the statute."

83. It might perhaps be helpful if I were to summarise the head-note in the Griffiths Cycle case.

"A letter written by an agent within the scope of his authority ... is a sufficient memorandum of the contract within the Statute of Frauds, and it is not necessary, in order to satisfy the statute, that the principal should have authorised the agent to sign the letter as a record of the contract".

In Daniels v. Trefusis it was held that the solicitors of Trefusis were his agents and had authority to sign the particular memorandum, (which, in fact, was comprised in an unsigned proof of evidence that might be given by Trefusis in an action against Daniels, obtained by Daniels' solicitors when preparing his defence, and replies to certain queries raised by Daniels' solicitors which Trefusis' solicitors in a covering letter said were his) and although they were not authorised and did not intend, to bind Trefusis by any contract there was a sufficient memorandum to satisfy the Statute of Frauds.

84. Mr. Balcombe also referred to the case of Farr, Smith and Co. v. Messers. Ltd. (1928) 1 K.B.397. In that case the defendants entered into a contract on the 9th January, 1924 with a firm for the supply of timber. The firm, being in financial difficulties, formed a limited company. On the 9th July, 1924, the directors of the company had a discussion with the defendants at which it was orally agreed that the company would arrange for the discharge of the firm's indebtedness to the defendants, and the defendants would supply to the new company the timber the subject of the contract of the 9th January, and accept the company as the buyers of the goods. The new company fulfilled its obligations with regard to the indebtedness of the firm but the defendants did not supply the timber provided for in the contract of the 9th January. The two partners of the old firm brought an action against the defendants for breach of the contract of the 9th January. The defendants delivered a defence signed by counsel in paragraph 3 of which they pleaded that it had been agreed by the oral contract of the 9th July that the defendants would supply the goods sold under the contract of the 9th January to the company and accept the company as the buyers in consideration of the company discharging the firm's indebtedness. The proceedings were then amended and the action was reconstituted by striking out the partners of the firm and substituting the company as plaintiffs. The defendants then amended their defence and pleaded section 4 of the Sale of Goods Act as a defence. It was held:

"that paragraph 3 of the original unamended defence which was signed by counsel constituted a sufficient memorandum in writing of the contract signed by an agency of the party to be charged .... to satisfy section 4 of the Sale of Goods Act, 1893, inasmuch as the new departure with regard to the parties and the cause of action when the action was reconstituted must be treated as the commencement of the action within the meaning of the rule in Lucas v. Dixon."

85. It is to be noted that counsel for the defendants argued two points that are not dissimilar to what was argued by counsel for the defendants in the instant case:

86. In his judgment Wright J. having said (405) that Lucas v. Dixon had been followed in subsequent cases and was binding on him went on to quote the judgment of Fry L.J. which I quoted earlier. He then said (406):

"I think the memorandum relied on - namely para. 3 of the original unamended defence - ought to be held to be in existence at the commencement of the action which was brought to enforce the contract of the 9th July, 1924. I come to this conclusion because until the proceedings were reconstituted there was on foot no action to enforce the contract now in suit ...."

He later referred to the Grindell v. Bass and went on to say (407):

"I ought in referring to Grindell v. Bass to add that I rely upon it in support of the conclusion at which I have arrived that a note or memorandum signed by counsel in a defence is a note or memorandum in writing of the contract 'signed by the person to be charged or his agent in that behalf' within the meaning of s.4, sub.s.l, of the Sale of Goods Act, 1893."

87. Having regard to what I shall later have to say when dealing with Hardy v. Elphick I might mention here that the defendants when they delivered their original defence would appear to have had little choice but to plead as they did. They were "compelled" so to plead.

88. Mr. Balcombe referred to the case of Jackson v. Oglander (1864 - 65) H. & M. 465, mentioned by Russell L.J. in that part of his judgment in Hardy v. Elphick which I have quoted. That was a suit for specific performance of a parol agreement for a lease. In the bill filed the plaintiff set out all the facts necessary to establish a parol contract and relied on a draft lease and letters as constituting the note or memorandum. In his answer, sworn, as it had to be, the defendant conceded the truth of all the relevant facts but claimed "the benefit of the Statute passed in the 29th year of King Charles II, for the prevention of frauds and perjuries ...." Page Wood, V.-C. found that the documents relied on as constituting a note or memorandum did not do so but went on (473):

"When it is said 'the fact of an agreement is admitted as a fact by the answer; and then the letters and documents show sufficiently what the agreement was to take the case out of the statute'; but I do not think that I can look at that portion of the answer which admits the agreement, seeing the Defendant insists on the Statute of Frauds. The Defendant must answer, must swear to the truth of his answer and must sign it: if I were to make use of an admission so extorted, I should in effect repeal the statute."

But that was a case where the memorandum came into existence in the course of the proceeding.

89. In concluding on this point Mr. Balcombe stressed that the purpose of the Statute of Frauds and the later legislation in England, as well as the Ordinance in Hong Kong is to prevent, not assist fraud. He said neither reason nor justice can entitle a defendant to say there is an agreement and set out its terms and then avoid his agreement in the circumstances of this case by pleading the Ordinance.

90. Mr. Cheung who appeared for the defendant also relied on Lucas v. Dixon and argued that what was claimed by the plaintiffs to be a note or memorandum, para. 5 of the Defence, was not in existence when the instant proceedings were commenced. It was his case that the second action seeks to enforce an oral agreement made on the 22nd July or alternatively an agreement constituted by the two letters of the 23rd July. He said the statement of claim in the second action shows that what is being sought is to enforce an agreement for the sale of the same property as was claimed in the first action. In other words, as I understand him, he is saying that the two proceedings, because the property claimed is exactly the same, are really one and the same, and, he argues, that what is contained in the defence in the first action only came into existence after proceedings had been commenced to enforce the sale of the property. This was a bold effort to come within the observation of Russell L.J. (supra) where he said:

".... it is clear that the pleadings cannot constitute a sufficient memorandum in a subsequent action brought by the plaintiff on exactly the same contract .... ";

and also within Jackson v. Oglander Mr. Cheung continued his argument by saying that it is the realities that count and that the note or memorandum must be in existence before any action pertaining to the sale of the same property be commenced. He referred to the case of Grindell v. Bass (1920) 2 Ch. 487, cited by Mr. Balcombe in support of the plaintiffs' case, and argued that that case was to no avail for the plaintiffs' purpose; it only set out the accepted and established principle that the note or memorandum must be in existence when act on is brought. Mr. Cheung contended that when the first action was brought the defendants found themselves in the position envisaged by Russell in the passage I have quoted from Hardy v. Elphick. He said the defendants in the first action were faced with a claim based on the two letters of the 23rd July 1975 as they are in the present case. He said they had no choice then but to plead the parol agreement of the 22nd July and set out the terms that they might be in a psoition to call evidence to establish that the letters did not contain all the terms. They did this he said and then pleaded the Ordinance. If they merely denied the contract they would not be entitled to rely on the absence of some of the terms from the letters. He relied heavily on what Russell and Orr L.JJ. said in the passages I have quoted and submitted that what was there said correctly reflects the true position.

91. Mr. Cheung further contended that para. 5 of the defence in the first action could not constitute a memorandum as the defendants solicitors who signed the defence did not fall within "some other person thereupon by him lawfully authorised. He cited Thirkell v. Cambi (1919) 2 K.B. 590. The head-note to that case, after referring to section 4(1) of the Statute of Frauds reads:

92. It was in the judgment of Eve J. that Mr. Cheung mostly sought support. In his judgment Eve J. (599) said:

"He (the plaintiff) relied therefore on a memorandum made and signed by an agent. In such a case I take it to be the law that the person who signs as an agent must be authorised to sign a memorandum of a contract of the nature of that on which the plaintiff relies, and that it is for the plaintiff to prove that the signatory was an agent so authorised."

Eve J. then quoted Lord Wensleydale in Ridgway v. Wharton (1857) 6 H.L.C. 238 at 296 to the effect that a plaintiff must establish that the signatory was an agent, and continued:

"This being an action founded upon a memorandum signed by an agent the plaintiff cannot succeed unless he has affirmatively proved that the agent was authorised to sign a memorandum of the particular contract on which the appellant claimed."

93. Mr. Cheung also referred to the judgment of James L.J. in Smith v. Webster (1876) 3 Ch 49 at 56 and Danckwerts L.J. in Gavaghan v. Edwards (1961) 2 Q.B.D. at 226.

Agency of the Solicitor

94. I propose to deal first with the question as to whether or not the solicitors acting for the defendants had authority to sign a memorandum to satisfy the Ordinance when they signed the defence in the first action. In this respect I have to consider the evidence of Mr. Cheung a partner in the firm of solicitors acting for the defendants and the nature and purpose of the defence.

95. Mr. Cheung's evidence as to his authority was that after his firm received the letter of the 5th August asking if he had instructions to accept service on behalf of his clients he received written instructions to act from Scott Limited and was instructed by Mr. Deneault to act for him. I assume that that authorised him to draft and deliver a defence. He did not say what was in the written instructions, or if any limit was put on his authority in them or in the authority given to him by Mr. Deneault but he did say he was not given any authority to sign a memorandum of the agreement reached.

96. Having regard to the long line of authorities: Jones v. The Victoria Graving Dock Co. (1876-7) 2 Q.B.D. 314 (The signature of the Chairman of a company verifying the accuracy of an entry in a minute book for the purposes of section 67 of the Companies Act, 1862 held to be an admission of a contract contained in a draft agreement and sufficient to constitute a memorandum and satisfy the Statute of Frauds): Daniels v. Trefusis; Grindell v. Bass; Farr, Smith v. Messers. Ltd.; I would have disposed of the question of Messrs. Zimmerns' authority very quickly. To the list may be added the case of Gavaghan v. Edwards (1961) 2 Q.B.D. 221 referred to by Mr. Cheung. In that case the plaintiff agreed to sell a house to the defendant. A standard form of contract was signed by the parties but it was stated in it that the date for completion was to be agreed at a later date. The vendor's solicitor also acted for the purchaser. Subsequently the parties orally agreed on the date for completion and the vendor informed the solicitor who wrote to the purchaser asking for confirmation. The purchaser telephoned the solicitor confirming the date and the solicitor endorsed a note to that effect on the copy of the letter he had sent to the purchaser. It was held that as the solicitor had received specific confirmation from the purchaser of the sole matter not originally agreed between the parties his copy letter and endorsement constituted a memorandum within section 40 of the Law of Property Act, 1925.

97. I do not think Mr. Cheung can get much support from what Danckwerts L.J. said in Gavaghan's case at 226:

"Now it is no doubt correct (there are cases which so hold) that the mere fact of the relationship of solicitor and client being constituted in regard to a particular purchase does not by implication give a solicitor any authority to make a contract or to sign a memorandum, and I may refer to Forster v. Rowland (1861) 7 H. & M. 103 and Smith v. Webster (supra)";

because he goes on to say:

"But that is not a hard and fast rule which is not capable of alteration. On the facts of the case, as it seems to me, from the way in which the instruction are given to the solicitor, he may by implication be entitled to sign a memorandum which will bind his client."

98. He said later (227):

"To my mind the inference from what happened in the present case is plainly that the solicitors had such authority. He may not have had authority before he wrote the letter of the 15th May, 1958, but as a result of the conversation which took place with his client, the purchaser, when his client confirmed that the position was as stated in the letter, that seems to me to authorise the signing of the memorandum ...."

99. The circumstances in the case of Smith v. Webster (1876) 3 Ch. 49 on which Mr. Cheung relied are very different from the instant case and I do not think they take the case of the defendants very far. There the solicitor wrote:

"Mr. Webster ... has been with us today and stated that he had arranged with your client .... for the sale to the latter of the Lion Inn for £950. We therefore send herewith draft contract for your approval."

100. This was held not to be a memorandum within the Statute. The reason why it was so held is obvious from the judgments but that the letter was incapable of constituting a memorandum. But some of the language used in the judgments might suggest that the signature of an agent must be affixed with the intention of ...(illegible) a binding memorandum but, with respect, I agree with what Smith L.J. said when he delivered the judgment of the Court (Smith L.J., Rigby L.J., and Vaughan Williams L.J.) in the case of John Griffiths Cycle Corporation Ltd. v. Humber & Co. Ltd. (1899) 2 Q.B. 414 at 417:

That explanation of the Smith v. Webster case was noted by Russell J. in Grindell v. Bass (1920) 2 Ch.487.

101. What is the strength of the support for the defendant's case in Thirkell v. Cambi (1919) 2 K.B. 590. In my opinion very little. It firstly must be realised what was decided in that case: that although a letter referring to other letters as containing the terms of a contract repudiates liability it may still be a sufficient memorandum, but if while referring to other letters it refuses to admit that they contain the terms of the contract, it is not a sufficient note or memorandum.

102. There is little if anything in the judgment of Bankes, L.J. or Scrutton L.J. from which Mr. Cheung can derive any benefit. Indeed Bankes, L.J. referred (595) with apparent approval to John Griffiths Cycle Corporation Ltd. v. Humber & Co. Ltd. (1899) 2 Q.B.414, Daniel v. Trefusis (1914) 1 Ch.788 and North v. Loomes (1919) 1 Ch.378 adding:

"In each of those cases ......... the person who put his name to the memorandum had authority to do what he did, even though it might have an effect which was not anticipated."

Earlier on the same page he said:

"If Mr. Bevan could have established that the letter of January 2 recognised that a contract had been made and that its terms were correctly stated in the appellant's letters, I agree it would be immaterial that it also contained a refusal to perform the contract so recognized. But it is impossible to extract any sufficient recognition from the letter of January 2. On its face it shows a refusal to recognise that the appellant's letters contain the terms of the contract and an assertion that in those letters the appellant is insisting on a term which never was part of the contract."

Scrutton L.J. referred to Daniel v. Trefusis and North v. Loomes and reserved to himself liberty to consider more closely their effect.

103. I am not convinced that the interpretation of the judgment of Eve J. suggested by Mr. Cheung, i.e., that a plaintiff cannot succeed unless he proves that the agent of the defendant was authorised to commit his principal to the contract sought to be enforced, is necessarily correct. Indeed, I think it is open to the interpretation that what the plaintiff must prove is that the agent was authorised to sign the document (or note or memorandum of the contract) on which the plaintiff relies. But even ...(illegible) he were correct I would not, with respect to Eve J., accept it as correctly stating the general principle. I have always accepted, and I consider it to be so, that when an agent is authorised to sign a particular document the contents of which are capable of constituting a memorandum he is "a person thereunto lawfully authorised" within the meaning of the now defunct Statute of Frauds, and the Hong Kong Ordinance. That is certainly the opinion of Russell, J. in Grindell v. Bass. It was also the principle stated in Griffiths Cycle Corporation v. Humber (the decision in which I understand from the judgment of Sargant, J. in Daniels v. Trefusis (798) was reversed in the House of Lords but not on that point). It is to be, at the least, inferred from what Bankes, L.J. said in Thirkell v. Cambi.

104. In the instant case there is a specific piece of evidence that Messrs. Zimmern were authorised to sign the defence; that follows from the evidence of Mr. Cheung when he says his firm was instructed to act in the proceedings. Moreover, a defence is more than a mere matter of procedure, it sets out in a formal manner the instructions given by the defendant to the draftsman. It is analogous to the letter which says "my client instructs me that he has agreed to buy Blackacre" and sets out the terms. It could not be disputed that that would constitute a memorandum. Indeed Bankes, L.J. says as much in the Thirkell case at 595.

105. I hold the defence in the first action constitutes a memorandum signed by "a person thereunto by him lawfully authorised".

Effect of pleading the Ordinance.

106. The Ordinance having been pleaded is the defence admissible as constituting a memorandum.

107. On first reading Hardy v. Elphick I thought there was a formidable, if not an invincible defence to allowing para. 5 of the first defence to be relied on as a memorandum of the agreement of the 22nd July.

108. It seemed to me as it did to Buckley and Orr L.JJ., initially, that to admit what was pleaded for the purpose of setting up the Ordinance as a means of overcoming that very Ordinance was unconscionable and must be contrary to the intention of the legislation and totally unacceptable. To hold otherwise was to accept that what the legislation granted with one hand it took away with the other. To avoid the alleged contract the defendant must plead the statute, and if to show the alleged contract is not the real contract as it does not contain the material terms the defence sets them out, the defendant is caught. But further consideration of the raison d'etre of the earlier legislation and the authorities raised some doubts as to my first impressions. The raison d'etre of the Statute of Frauds was to end "frauds and perjuries". To that end it would not permit particular parol contracts, otherwise perfectly valid, to be enforced unless there was a note or memorandum in writing setting out the terms. The contracts were perfectly valid and subsisting, but unenforceable. Courts interpreting that statute down the years have held that any document, or series of associated documents, which admits the existence of the parol agreement and is signed by the person against whom it is sought to enforce the contract, or his authorised agent, is a sufficient memorandum. The weight of the decisions, and with them I respectfully agree, is to the effect that if the agent has authority to sign the particular document and the contents fulfil the requirements of a memorandum then that document is a memorandum. It was not the intention of the statute to extinguish the contract; neither was it the intention that the Statute of Frauds should become the instrument of fraud. It was not its intention to provide a person who had committed himself to another with an easy escape. It simply intended that if proceedings were brought on foot of a parol agreement the possibility of fraud and perjury would be obviated by the existence of a memorandum in writing. Once the memorandum existed signed by the party or his authorised agent acknowledging the agreement and its terms, (Tiverton Ltd. v. Wearwell Ltd. (1974) 2 W.L.R. 176), it mattered not how it came into existence, even if it repudiated liability (Thirkell v. Cambi (1919) 2 K.B. 590), or that the thought that a memorandum would come into existence was absent from the mind of the signatory (Barkworth v. Young, 4 Drew 1; Grindell v. Bass (1920) 2 Ch. 487; Daniels v. Trefusis (1914) 1 Ch. 788). That being so why should the memorandum existing in the defence in the discontinued proceedings not be available in the instant case?

109. Mr. Cheung would say firstly that Jackson v. Oglander (1864-65) II H. & M. 468 is an authority to the contrary. But is it? In that case, (the only action), the defendant while admitting in his sworn answer, the whole of a parol agreement pleaded the statute. Page Wood V.-C. decided "(but) I do not think that I can look at that portion of the answer which admits the agreement seeing that the Defendant insists on the Statute of Frauds. The Defendant must swear to the truth of his answer, and sign it: if I were to make any use of the admission so extorted, I should in effect repeal the statute."

110. That decision was in 1865, before Lucas v. Dixon (1889) 22 Q.B.D., 357, and the point that the memorandum was not in existence before action brought does not appear to have been taken. The defendant was in the position of having to swear to the truth of his answer in which he set up the statute. It would be quite unconscionable if therefore, having availed of a defence which was afforded to him by legislation he found himself thrown by that very legislation. It would certainly deprive the defendant of any assistance from the statute, and indeed denude the statute of its effectiveness.

111. Jackson v. Oglander however is no authority for saying that the answer or, nowadays, the defence, in an action in which may be found a memorandum sufficient to meet the requirements of the 1925 Act or the Ordinance is incapable of supplying a memorandum in another action. Two subsequent cases say it is capable. (Grindell v. Bass (1920) 2 Ch. 487 and Farr, Smith v. Messers (1928) 1 K.B. 397. It is interesting to note that none of the L.JJ. in Lucas v. Dixon (1889) 22 Q.B.D. 357 ever considered the affidavit filed in that case, which perforce had to be filed to defeat the Order XIV application, was inadequate as a memorandum because filed in the proceedings; only that it did not exist before action brought. Indeed, the observation of Fry, L.J. appears to be to the contrary:

"If, then, it only comes into existence after the commencement of such an action, and the plaintiff desires to avail himself of it, he can only do so by discontinuing the action and commencing another".

112. I revert to the case of Hardy v. Elphick (1974) 1 Ch.65, and the judgments of Russell and Orr L.JJ. upon which the defendants so strongly rely. I refer to what I earlier quoted from Russell L.J. at 75. He referred to Jackson v. Oglander, and having referred to what Page-Wood, V.-C. had to say about the obligation of the defendant to swear to the truth of his answer, and that to use "such an extorted admission" would repeal the statute, said he considered that the same result would be produced were the defence which admitted the agreement but pleaded section 40 to be used in a subsequent action based on exactly the same contract: "(It) would go far to repeal the statute".

There are two facets to what Russell L.J. said as I see it:

In such circumstances, he says, to admit the first defence as a memorandum would "go far to repeal the statute".

113. With the greatest respect to the learned Lord Justice, is the defendant who admits a contract in a defence and pleads the statute in any different position to the man who instructs his solicitor to write a letter, or a series of letters which in association contain an admission of the parol agreement but in an ensuing action pleads the statute?

114. I do not consider, with great respect to Russell, L.J., it would be improper for a defendant through his counsel to put his opponent on proof by not admitting a contract. He might in my opinion very properly plead, for example:

"If, which is not admitted, any agreement was made between the parties the same was oral and the contract alleged in the statement of claim does not contain the full terms thereof";

and then rely on the statute. That is exactly what Buckley L.J. thought should have done. That is what easily might have been done in the present case.

115. It was the view of Buckley L.J. that there "might" be substantial grounds for considering it oppressive to allow a pleading which a defendant was "compelled" to make in an action and which embodied a memorandum to be used in a subsequent action. He considered, however, that the defendant had not been compelled to plead as he did, but having done so he had inadvertently provided a memorandum, and he could see no difference between that and a case where the memorandum was to be found in a letter to a friend.

116. In my opinion the defendants in the present case were under no obligation or compulsion, morally or otherwise, to plead as they did.

117. In Hardy v. Elphick the second action was based on the same oral contract as in the first with the addition of the terms provided by the answer to the request for further particulars.

118. As to the observations of Russell L.J. about exactly the same contract this was done in a general way but it may well be that speaking obiter, as he was, he considered that the second action was based on exactly the same contract. On that Buckley L.J. had this to say "It is ture. of course, that both actions relate to the same events, but it is not strictly accurate to say that they relate to the same subject matter or transaction". With respect I think Buckley L.J. was correct; the contract pleaded in the second action was not the same as in the first; there were two extra terms.

119. It is my conclusion on Hardy v. Elphick that the observations of Buckley L.J. strongly support the present plaintiffs whereas those of Russell L.J. are at the most negative. They would be strong support for the defendants were the plaintiffs' case based on exactly the same contract. Thus Buckley L.J. would accept the first pleading as a memorandum in any event whereas Russell L.J. would appear to confine himself to excluding it in a second action based on exactly the same contract but does not say he would exclude it if the proceedings were based on a different contract.

120. As to the judgment of Orr L.J. I do not think he expressed any firm conclusion. He considered that there were solid arguments that could be advanced on behalf of the defendant and that it would be unfortunate if a distinction were to be drawn between a defence, pleading section 40, which denies or does not admit an oral contract and a defence also, pleading section 40, which admits such a contract.

121. The ordinance was never intended to be a means whereby a man might avoid his obligations. If he falls into a trap of his own making, however inadvertently, he must pay the penalty - fulfil his obligation.

122. What is the position in the instant case?

123. Despite the valiant and persuasive argument of Mr. Cheung I must hold that the basis of these proceedings is very different to that of the first. The basis of the first action was the two letters of the 23rd July which, in isolation would have established an open contract. The basis of the second action is the parol agreement of the 22nd. It is true, as Mr. Cheung has said, that both actions pertain to the same object, the premises, but the basis of the claim is different. It is, of course, true that in the second action the plaintiffs base a claim on the letters, but that claim is a separate disjunctive claim in the alternative.

124. I consider para. 5 of the defence in the first action sufficient to constitute a memorandum to satisfy the requirements of the ordinance and to be available to the plaintiffs as such to make enforceable the parol agreement of the 22nd July. I find for the plaintiffs and order specific performance of that agreement. It follows from my decision that the defendants' counterclaim must fail.

125. When the plaintiffs commenced the first action based on the letters of the 23rd July, they registered it as a lis pendens. Those proceedings were based on the two letters of the 23rd July. The defendants counterclaimed for a declaration:

The plaintiffs delivered a defence to the counterclaim in which they set up the statement of claim in the present action as part of it. Having found as I have on that statement of claim that there was a binding agreement enforceable against the defendants with regard to the property in suit, it follows that the counterclaim in the discontinued action must also be dismissed. The plaintiffs are entitled to their costs on their claim and their defence to both counterclaims.

126. I have already announced my decision in this case and on doing so I ordered a stay of execution for 14 days. I further ordered that should an appeal be filed within that period the stay should continue and abide the decision of the Court of Appeal.

Representation:

Mr. A.J. Balcombe Q.C. & Mr. D. Chang (Yung, Yu, Yuen & Co.) for Plaintiffs.

Mr. Oswald Cheung, Q.C. & Mr. E. Chan (F. Zimmern & Co.) for Defendants.