To Hon Chung and Another v. Hong Kong Telephone Co Ltd

HCA002851/1980

Tenancy agreement - Whether dependent on execution of formal document - rent increase unenforceable if agreement concluded before 18th December 1979.

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Coram: Bewley, J.

Date of Judgment: 1st April 1981

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JUDGMENT

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1. The plaintiffs seek a declaration that the rental recoverable in respect of premises let to the defendant shall be $38,000.

2. The facts are not in dispute. The plaintiffs own a block of 4 flats in La Salle Road, Kowloon, which, for many years, have been rented to the defendant for residential purposes. A good relationship between landlord and tenant has always existed.

3. In March, 1978, the parties entered into a tenancy agreement for 2 years at a rental of $19,000 per month. In November, 1979, negotiations took place in anticipation of a new agreement.

4. On 12th November, the plaintiff's then solicitors, Yung, Yu, Yuen & Co. wrote to the defendant proposing a new agreement in similar terms, except that the rent was to be $38,000. The maintenance fee was also to be raised. They pointed out that their clients had been approached by many prospective tenants and that $38,000 was the highest offer to date.

5. The defendant, in the person of Mrs. Lillian Wong, replied on 19th November with a counter offer of $34,000. There followed a telephone conversation between Mrs. Wong and the 2nd plaintiff, in which it was agreed that, on the plaintiff's undertaking to replace the baths in the second bathrooms, the new rental should be $38,000. Each promised to notify the solicitors accordingly.

6. On 23rd November, Mrs. Wong wrote to Yung, Yu & Yuen, formally accepting their offer of renewal and referring to the terms agreed on the telephone with Mrs. To. She concluded by asking the solicitors to prepare the necesssry agreements for signature in due course.

7. The draft agreement was sent to the defendant on 29th November with a request that, if it was acceptable, the defendant should treat it as the engrossment, sign it and return it to the solicitors. A bill of costs and disbursements was enclosed. It should be noted that, in the drawing up of the agreement, the solicitors were acting for both parties; the costs were to be shared.

8. Mrs. Wong had only one query and that concerned the period of notice of termination. She telephoned Mr. P.K. Chan of Yung, Yu & Yuen and asked if this could be extended from one month to three months. He agreed and suggested she make the alteration herself and initial it before returning the signed agreement.

9. Mrs. Wong did so under cover of her letter of 3rd December, in which she asked that a copy of the agreement be returned to her after stamping and ratification. She advised that a cheque in settlement of costs and stamp duty would be forwarded by the Accounts Division.

10. This letter was received on 5th December, but the cheque did not arrive until 10th December. Mr. Chan decided to wait until the cheque had been cleared before asking the plaintiffs to come to his office and sign the agreement. There was, after all, no apparent urgency in the matter, since the existing tenancy did not expire until 31st March.

11. The cheque was cleared on 17th December and arrangements were made for the agreement to be signed by the plaintiffs next morning. This was duly done.

12. On the afternoon of 18th December - after the agreement had been signed - the Government announced that new rent control measures were to be introduced and sitting tenants were advised not to enter into any agreements with their landlords, pending publication of the proposed legislation.

13. On 27th December, the agreement was sent for ratification and a copy was not returned to the defendant until 3rd March. There had been no communication between the parties since 3rd December.

14. Finally, on 7th March, Mrs. Wong wrote to Yung, Yu & Yuen claiming that, as the agreement was concluded prior to 18th December, the defendant was within the new legislation and not bound to pay the increased rent from 1st April.

15. The relevant section is 74C of the Landlord and Tenant (Consolidation) Ordinance, which is in these terms:

"74C(1) For the avoidance of doubt it is hereby declared that-

16. Before the new legislation, the defendant was not a protected tenant, but Section 49 has been amended to include tenancies held by corporations.

17. Counsel have addressed me on estoppel, acceptance by silence and other matters, but it is agreed that the main point for determination is whether the agreement was made on 18th December - when the plaintiffs signed - or at an earlier date, either on the telephone, or by the subsequent exchange of letters.

18. If the latter is the case, S.74C(1)(a) applies and the agreement is of no effect: the defendant is protected by S.50 and S.55. If not, it will be necessary to consider the subsidiary arguments of counsel.

19. The question is whether the agreement reached on the telephone, and later embodied in correspondence, was dependent on the execution of a further, formal contract, namely the tenancy agreement that was eventually signed by both parties.

20. The test in such a case was laid down by Parker J. in Von Hatzfeldt-Wildenburg v. Alexander.⁽¹⁾ He said at page 288:

"It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored. The fact that the reference to the more formal document is in words which according to their natural construction import a condition is generally if not invariably conclusive against the reference being treated as the expression of a mere desire."

21. The principle was applied by the Court of Appeal in Coope v. Ridout⁽²⁾ and appears to be settled law.

22. The parties may reach agreement on broad matters of principle, but leave important points unsettled so that their agreement is incomplete. There is, for example, no contract where an agreement for a lease fails to specify the date on which the term is to commence. On the other hand, an agreement may be complete although it is not worked out in meticulous detail. Thus an agreement for the sale of goods may be complete as soon as the parties have agreed to buy and sell, the remaining details being determined by the standard of reasonableness or by law. Even an agreement for the sale of land dealing only with the barest essentials may be regarded as complete if that was the clear intention of the parties.Thus in Perry v. Suffields Ltd.⁽³⁾ an offer to sell a public-house with vacant possession for £7,000 was accepted without qualification. It was held that there was a complete contract even though many important points, e.g. the date for completion and the question of paying a deposit, were left open. See Chitty on Contracts 24th Ed., para. 99.

23. Mr. Chan and Mrs. Wong gave evidence, but not Mrs. To. Mrs. Wong does not recall if there was any mention of a formal tenancy agreement in the course of her telephone conversation with Mrs. To, but it was undoubtedly in the contemplation of both Mrs. To and Mrs. Wong that such a document should be executed in due course.

24. There were only 2 matters that needed to be resolved between the parties, namely the rental and the replacement of the bathtubs. As it happens, the latter was not included in the formal agreement, but nothing turns on this. Both ladies assumed that the other terms would remain the same. The only other differences in the new agreement, compared to its predecessor, are the higher maintenance fee and the longer period of notice. Both are trivial matters.

25. Mr. Chan concedes that, when he wrote the letter of 29th November, he had instructions that final agreement had been reached. If he had though further negotiations were pending, he would have inserted the words 'subject to contract'.

26. Mr. Tang, in his cross-examination of Mrs. Wong, extracted the admission that, in her view, an oral tenancy agreement was binding only if the tenant occupied the premises and the landlord accepted rent. He submitted, therefore, that she could not have regarded as binding anything agreed on the telephone with Mrs. To.

27. Mrs. Wong was uncertain as to the legal implications of the telephone conversation, but she was adamant that, so far as she was concerned, it represented final agreement on the matter. It was her view that, once these terms became embodied in correspondence between the parties, they were clothed with legal effect.

28. Mrs. Wong had been dealing with Mrs. To for some years and had found that she was a woman of her word. On this occasion she had said nothing to indicate that they had not reached final agreement, or that their agreement was dependant on the execution of a formal document. By 3rd December nothing had changed.

29. It seems to me, bearing Mr. Chan's evidence also in mind, that the parties had reached final agreement on all essential aspects of the new tenancy agreement during the telephone conversation. The subsequent execution of a formal document was only a necessary legal formality, customary when letting property, necessary in the event of future disputes and for the parties' records. The solicitors were to be informed that the parties had come to terms and this was done. I do not think that the parties contemplated that their agreement was conditional upon the signing of the formal tenancy agreement. There is nothing to indicate that either thought this was critical. Nor, to my mind do the words used by Mrs. Wong in the final paragraph of her letter of 23rd November import a condition.

30. I find that the parties entered into a binding legal agreement for a new tenancy before 18th December, 1979. This agreement is caught by S.74C(1) (a) of the Ordinance and the defendant is protected by Part II as if the agreement had not been made.

31. The declaration sought by the plaintiffs is refused and judgment is entered for the defendant with costs.

Representation:

Mr. Robert Tang and Mr. Warren Chan (Woo & Woo) for plaintiffs

Mr. Andrew Li (Deacons) for defendant

(1) (1912) 1 Ch. 284.

(2) (1921) 1 Ch. 291.

(3) (1916) 2 Ch. 187.