Yau Fook Hong Co Ltd v. Attorney General
Read the full judgment text of HCMP 2890/1985 on BabelCite. This High Court CFI judgment was delivered on 19 February 1986.
1. In recent times, much private land in the New Territories has been acquired by the Government of Hong Kong for urban development under a non-statutory scheme of land exchange entitlements, commonly but loosely known as Letters A/B. Instead of paying compensation for land resumed compulsorily under the Crown Lands Resumption Ordinance (Cap 124), the Government issued a letter A or B to the landowner, offering him cash or other land in exchange on certain terms. These choses in action are freel
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HCMP002890/1985 IN THE SUPREME COURT OF HONG KONG HIGH COURT MISCELLANEOUS PROCEEDINGS NO. 2890 OF 1985 ____________ BETWEEN
______________ Coram: His Honour Judge Downey, sitting as a Deputy Judge of the High Court Date of Hearing: 22 and 23 January 1986 Delivery date: 19 February 1986 ___________ JUDGMENT ___________ 1. In recent times, much private land in the New Territories has been acquired by the Government of Hong Kong for urban development under a non-statutory scheme of land exchange entitlements, commonly but loosely known as Letters A/B. Instead of paying compensation for land resumed compulsorily under the Crown Lands Resumption Ordinance (Cap 124), the Government issued a letter A or B to the landowner, offering him cash or other land in exchange on certain terms. These choses in action are freely transferable, and are often sold to speculators and developers. As part of its policy of redeeming Letters A and B, the Government announced that, with effect from the 1st April 1984, they would be given currency values and their surrender would be accepted in lieu of cash payments in certain land-related transactions. (Cf. G.N.637 and G.N. 720; 2nd and 9th March 1984). Circulars to that effect were sent to developers who were paying premia for grants of land, setting out the procedures to be followed if they should decide to take advantage of this alternative to cash payments. 2. In May 1984, the plaintiff company was minded to make use of this facility to discharge a debt of $10,744,667.68, due from Shui Hing Investment Co. Ltd. and Yick Fung Estates Ltd. ("the developers"), which are companies in the same group ("Chinachem") as the plaintiff company. Certain correspondence was exchanged between the plaintiff company and its solicitors on the one hand and the District Lands Office and Registrar General's Department on the other from the 18th May 1984 until the 14th October 1985. By an originating summons dated the 23rd December 1985, the plaintiff company seeks a declaration that there is no contractual obligation resting upon it to surrender the Letters B dealt with in that correspondence, having regard to the true construction of that correspondence, and the events which it chronicles. 3. In due course I will refer to the full terms of some of these documents, and counsel's submissions as to how they should be construed or analysed. At this stage I would merely mention that it is common ground between the parties that there was a contractual relationship between the plaintiff company and the Government regarding the surrender of Letters B in this case, although they differ as to the precise conceptual nature of that contractual relationship. It is not suggested that these documents, or the conduct of the parties, merely constituted a set of administrative arrangements for implementing the policy of redeeming land exchange entitlements. To put it very briefly, Mr. Millett's principal submission on behalf of the plaintiff company was that there was a unilateral contract, imposing on the Government a binding obligation to discharge the debt due from the developers, if and when the plaintiff company completed a surrender of its land exchange entitlements; but, there was no binding obligation on the plaintiff company to actually surrender its entitlements. Mr Hinchen however, contended that there was a bilateral contract between the parties under which the plaintiff company was obliged to surrender its entitlements to the Government. 4. Mr. Millett's secondary submission was that the contract, if bilateral, was brought to an end by, inter alia, a repudiatory breach on the part of the plaintiff company which the Government was obliged to accept and for which the only remedy would be damages for failure to surrender the Letters B. 5. Before I refer to these events and the documentation, I think that I should deal with two general propositions advanced by Mr. Millett. Firstly be submitted that I should not be distracted by the fact that some of the relevant documents are sprinkled with contractual language, such as "We hereby offer to surrender", we "agree to abide by" the terms in some other document, and "we further undertake to surrender", and similar expressions. Instead, I should concentrate upon the structure of the transaction. Although Mr Hinchen has relied upon the use or presence of these expressions to support his submissions in favour of the creation of a bilateral contract between the plaintiff company and the Government, I do not think that he dissented from Mr Millett's general proposition. For my part, I accept it as an axiomatic feature of the law of contract. What may be expressed to be an "offer" may only be what contract lawyers describe as an "invitation to beat", incapable of being turned into a binding contract by an "acceptance" in the literal or the legal sense. Equally, in my view, failure to utter the usual contractual language of "I agree"' "I accept" or "I reject", in response to what is, in law, an offer to enter into a legally binding contract, is obviously not decisive. The structure of the transaction must be analysed in terms of the intentions of the parties. 6. Mr Millett's other general submission was to the effect that I should lean in favour of the existence of a unilateral contract because it fitted in more neatly and more tidily with what the Government envisaged when it announced its new policy in April 1984, and because it avoided certain difficulties which might arise from concluding that a bilateral contract had been made between the Government and the plaintiff company. With respect, I do not think I should be led astray by this argument, however attractive it may seem. My duty is to ascertain what the parties intended by their words and conduct during their dealings. It is not my function to force the parties into any form of legal strait - jacket because that might avoid various practical difficulties, which have subsequently arisen but may never have been foreseen. Nor is it my function to select a better, or the best, form or type of contract for the parties; but, to ascertain what, if any, contract they have made for themselves. 7. I will now turn to the documents. On the 3rd April 1984, the Government sent a standard form of circular (Exh.THW-2) to the developers. Indeed, with appropriate individual captions, it would seem that it was sent to all persons who were then paying premia by instalments. This letter was in the following terms: "Dear Sir/Madam, Resumption of Outstanding New Territories Land Exchange Entitlement Letters (Letter A/B) STTL00011
8. The attached Appendices A, B and C are accurately described in the letter but it will be necessary to set out two of them in full later in this judgment. At this stage, I would merely comment that it was common ground that this document was not an offer capable of being turned into a bilateral contract by any form of acceptance on the part of the addressees. It was, as Mr Millett described it, advice in the form of information as to the procedures or administrative "hoops" to be gone through by the debtor in order to take advantage of this alternative to payment in cash. Whether it can properly be analysed as an offer to enter into a unilateral contract is a question I will return to later. 9. On the 5th May 1984, the Government rendered to the developers a demand note for the 8th instalment of premium for Sha Tin Town Lot 11, in the sum of $5,372,333.84, under cover of a letter in the form of Appendix A. Neither the letter nor the demand note was exhibited. However there is a reference to the letter in Exh. THW-10 and by consent of both parties, photocopies of the letter and demand note were provided for me at the hearing. Both documents are addressed tothe developers. The covering letter is in the following terms:-
Sha Tin Town Lot No. 11
10. Payment of the 7th instalment, due in May 1983, had been deferred by consent, so that both instalments, amounting to $10,74,667.68, were due and payable on the 19th May 1984. 11. This communication might be described as a more specific and firmer indication of the Governments intention (or commitment) to accept Letters B in lieu of a cash payment. Counsel appeared to be in agreement that it was not an offer capable of being turned into a bilateral contract by an acceptance. However, Mr Hinchen submitted that it was merely an invitation to treat, but one which contemplated an agreement to surrender and not merely an act of surrender. 12. The next event occurred on the 18th May 1984 and is, in my view, a significant and crucial event. On that date, which was the day before the two instalments were payable by the developers, a letter (Exh THW-3) on the printed notepaper of the Chinachem Group was sent to the Government. It was in the following terms:-
13. Mr Edwin Cheung did not indicate expressly the particular member of the Chinachem Group on whose behalf he was writing. However, it is apparent from the enclosed application form (and now common ground) that he was writing primarily on behalf of the plaintiff company, rather than on behalf of the developers. Whether anything turns upon the identity of these legally separate members of that group will be considered later. At this point, I would merely observe that it appears to be common ground that the plaintiff company was not a debtor of the Government (at least in respect of land-related transactions in the New Territories), although it owned some 85,000 square feet of land exchange entitlements (Letters B) registered in Tai Po, having a currency value in excess of $10,000,000, whereas the developers were due to discharge a debt to the Government in that amount, but held no land exchange entitlements which they could use for that purpose. There may be all sorts of reasons why the plaintiff company did not simply assign or transfer its land exchange entitlements to the developers so that they could take advantage of the alternative mode of payment mentioned in the earlier correspondence. Unfortunately, the evidence before me does not disclose the real reasons or the entire background to this matter. That may limit the scope of the factual background to which I can have regard in construing the contents of the documents of the parties. 14. The relevant application form mentioned in that letter was in the form of Appendix B. The material part thereof is in the following terms:-
15. There then follow details of the land exchange entitlements offered for surrender and the document is signed on behalf of the the plaintiff company. Below the signatures etc. there is a printed note (2) which reads:
16. On the evidence before me, that letter was not acknowledged until the 26th May 1984, when the plaintiff company was asked to forward all relevant title deeds to the land exchange entitlements for the purpose of verifying or checking title, and forewarned that it might be required to make a statutory declaration. I do not consider that it is necessary to set out in full the terms of that letter or the subsequent correspondence. The plaintiff instructed solicitors to act on its behalf after it had experienced some difficulty in locating its title deeds. Various suggestions were made and steps taken to deal with this difficulty, but after the Government asked for or suggested that an indemnity from a bank or insurance company be provided, the plaintiff company's solicitors wrote on the 3rd April 1985 to inform the Government that the plaintiff company was withdrawing its application to surrender the land exchange entitlements and to pay cash for their monetised value. The Government refused to accept the purported withdrawal, which was repeated or confirmed by a letter dated 23rd July 1985. Thereafter, both sides adopted positions, some of which are difficult or impossible to defend and were later abandoned. Eventually, on the 14th October 1985, the Government gave notice that it would waive production of the title deeds and accept the surrender of the entitlements in question. 17. From this summary of events, the crucial question is whether the plaintiff company was entitled in April 1985 to withdraw its application to surrender the land exchange entitlements. The Government contends that it cannot do so because it was bound by a bilateral executory contract made before April 1985. The plaintiff company contends that it was free to withdraw its "undertaking to surrender" at any time, since it had merely entered into a unilateral contract. Alternatively, if it made an offer to enter into a bilateral contract to surrender its entitlements, its offer was never accepted by the Government prior to the revocation of that offer in April 1985. 18. In the course of their submissions, counsel have sought to analyse the various documents and events in accordance with the usual process of "offer and acceptance", but with the choice between a unilateral and a bilateral contract constantly in mind. Their analysis has been most helpful, even if it has left me with a test paper composed of multiple-choice questions. In my endeavour to answer the main questions, I have adopted a slightly different approach, but one which subsumes much of the detail of counsel's submissions. 19. It seems to me that I should firstly decide which events or documents are "contractual" events in the sense that they can reasonably be construed as expressions of a willingness to enter into legally binding obligations, as distinct from a mere receipt or acknowledgement of a neutral fact. If the event or document is "contractual" in that sense, the next step is to determine the real nature and extent of the obligations which arise from a fair and reasonable construction of the events or words of the document, having regard to the factual background or matrix in which they occur. It is only when this stage of the exercise has been completed that it may be useful or convenient to attach one or other of the conventional labels marked "invitation to treat", "offer" or "acceptance". 20. I do not think that the circular letter of the 3rd April 1984 (Exh. TWH-2) can fairly be regarded as a contractual document. Although it says in effect that the Government will accept redemption of land exchange entitlements in lieu of cash, the document is merely general advisory information regarding the practical implementation of the new policy. Until a demand note was issued, the Government was, in my view, clearly entitled to abandon the new policy or to alter the terms upon which this form of settlement would be accepted. Even if it can be construed as an offer by the Government to enter into a unilateral contract with the developers, it is difficult to see how they could accept such offer before receipt of the demand note. At best, this document is, in my view, no more than a circumstance forming part of the factual background to subsequent events. 21. On the other hand, the letter of the 5th May 1984, enclosing the demand note, was, in my view, clearly a contractual document. The language suggests a final or binding commitment by the Government to grant an option to the developers, with specific indications as to how that option could be exercised. By its terms, and having regard to the Government's declared policy to redeem land exchange entitlements in this manner, I do not think that it can be treated merely as an "invitation to treat", as Mr Hinchen contended. With respect, his suggested analogy of a prospectus for shares or a catalogue of goods is inappropriate. It leads him inevitably to analyse the application form, sent in by the plaintiff on the 18th May 1984, as an offer by the plaintiff to surrender its entitlements to the Government. That necessarily implies that the Government was free to reject that offer. If the developers had signed the application form, it would have been wholly unrealistic to suppose that the Government would have been entitled to reject the offer to surrender entitlements and insist upon the whole sum being paid in cash. The letter of the 5th May 1984 was, in my view, clearly an offer by the Government to accept settlement of the debt otherwise than by cash. Its essential legal character cannot be altered simply because it was answered by the plaintiff company, instead of the developers. 22. Mr Millett submitted that the letter of the 5th May 1984 (read in the light of the circular of the 3rd April 1984) was an offer by the Government to enter into a unilateral contract with the developers. Submitting the application form was the first of several steps to be taken to fulfil the conditions laid down by the Government for securing settlement of the debt. The other steps included, or might include, submitting documents of title for inspection or executing a memorandum of release, a statutory declaration or bank indemnity, as was subsequently required or suggested by the Government. Looked at in this light, completing the application form was no more than going through the first hoop towards performing the conditions stipulated by the Government. It constituted acceptance of the offer of a unilateral contract, obliging the Government to accept payment of the debt in the alternative manner, without obliging the plaintiff company to complete the other conditions. 23. This argument is attractive because of its neatness and simplicity, but I am unable to accept it because I do not think that it fairly or accurately reflects the intention of the parties, and because it tends to assume that a unilateral contract always or invariably consists of a promise by the promisor in return for an act, but no binding promise on the part of the promisee. This absence of mutuality of obligations is the usual characteristic of a unilateral contract, but it is not an essential characteristic. This is made clear, in my respectful view, by the latter part of the extract from the judgment of Diplock L.J. in United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968]1 WLR 74, 82-84, which reads:-
24. For the sake of convenience, and to avoid any accusation of philogical exhibitionism, I will substitute "bilateral" for the qualifying adjective used in this passage. The significance of the passage I have just cited is that it recognises that what may appear to be an offer to enter into a unilateral contract, may in fact require the offeree to enter into a bilateral contract, and not merely performance of certain acts. In the present case, the question is whether the Government's offer merely gave an option to the offeree to embark upon a series of steps, culminating in an eventual surrender of its land exchange entitlements, or required the offeree to communicate its willingness to accept obligations to the offeror on the terms put forward by the promisor. 25. In the present case the Government's offer called for an acceptance in a particular way, viz. completion of the application form (Appendix B). The offeree could not simply send in a list of his letters B, or even the original letters. He would have to complete a form devised by the Government and expressed in language pointing clearly to its being intended as a contractual document. The application form was not, in my view, a mere declaration of intention nor a mere acknowledgement of what the plaintiff company would have to do to hold the Government to its unilateral promise to discharge the developers' debts. On its true construction, it required the plaintiff company to assume immediately binding obligations to surrender its land exchange entitlements although the actual surrender would take place at a later date. If, as Mr Millett contended, the plaintiff company was never under any obligation to the Government, and was free to change its mind at any time before actually surrendering its entitlements, its expressed agreement "to abide by the terms contained in the final paragraph" of the letter of the 5th May 1984 would be utterly meaningless. On the construction put forward by the plaintiff company, the situation envisaged in the final paragraph in question could never arise. In a transaction of this magnitude and importance, I do not think that it would be correct to conclude that the plaintiff company was putting its name to a document containing meaningless expressions. In my view, by completing and submitting the application form the plaintiff company was indicating its willingness to enter into a bilateral contract to surrender its entitlements to the Government on the terms proposed by the Government. 26. Furthermore, it seems to me that the alternative contention advanced by the plaintiff company would not give effect to the apparent intention of both parties at the relevant time. The Government's intention was clearly to redeem outstanding land exchange entitlements by accepting them in settlement of debts falling due after the 1st April 1984. On the 18th May 1984, the intention of the plaintiff company was to secure the discharge of the substantial debt which would be due and payable by the developers on the following day. Approximately half of that debt had been outstanding for a year. It sent a cheque for the difference between the total debt and the monetised value of the Letters B. The only way in which the plaintiff company could achieve its intention by the 19th May 1984 was by there and then entering into a binding bilateral contract to exchange its entitlements. The option granted by the Government to the developers clearly had to be exercised on or before the due date for payment, although completion would or might take place subsequently. If the plaintiff company's contention that it was under no binding obligation to surrender its entitlements is correct, it would follow that the developers would be in default and exposed to the risk of being sued for a substantial sum of money or suffering a re-entry by the Crown under clause 11(a) of the General Conditions of Sale (Exh. THW-1), with effect from the 20th May 1984, or at any rate when the plaintiff purported to withdraw its application in April 1985. I cannot believe that the plaintiff company intended, in May 1984, to place its associated companies in so precarious and uncertain a position for an indefinite period of time. 27. For the aforesaid reasons, I am satisfied that the plaintiff company did become contractually bound to surrender its entitlements when it submitted the application form under cover of its letter of the 18th May 1984, and its purported withdrawal in April 1985 was of no effect. I do not think that the position is altered by the fact that the Government's offer was addressed to the developers and not to the plaintiff company. The obligations which I find it assumed by submitting the completed application form would remain the same. It would merely require a different label to be attached. Instead of being an acceptance of the Government's offer, it would itself become an offer by the plaintiff company which the Government could accept or reject. I find that the Government never rejected such offer either expressly or by making any counter-offer. Its subsequent requests for a statutory declaration or indemnity were, in my view, no more than reasonable attempts to find a solution to the problem of the lost "title deeds". They were not attempts to introduce new terms and were not so regarded by the plaintiff company, at least until the letter from its solicitors dated the 5th August 1985. More to the point, I am satisfied that the offer was accepted by the letter dated the 26th May 1984. There would be no point in asking for "title deeds" and preparing a Memorandum of Release if the Government was still considering whether to accept or reject the plaintiff company's offer. 28. Mr Millett's secondary submission that the contract, if bilateral, was brought to an end by the plaintiff company's breach is one which I am unable to accept. If I have understood his argument correctly, the Government really had no option but to accept the plaintiff company's repudiatory breach once it was clear that it could not perform the contract, due to its inability to deliver up the original letters B. With respect, failure to produce the original letters (loosely called the "title deeds") did not mean that the contract could not be performed. Assuming that failure was a breach on the part of the plaintiff company, it could be waived by the Government as being a term inserted entirely for its benefit. But whether waived or not, it did not prevent the plaintiff company from surrendering its land exchange entitlements. That a could be done without production of the original letters. The plaintiff company certainly knew that, as its solicitors continued to explore the alternative solutions of statutory declaration and indemnity between August and December 1984. The nature and extent of the plaintiff company's inability to perform its contract did not change between then and the 3rd April 1985, when it purported to withdraw its application to surrender its entitlements, or after that date. The plaintiff company was simply unwilling to give the bank or insurance indemnity suggested in the letter of the 25th January 1985 (Exh. THW-5). There was, in my view, nothing in the nature of the contract or the circumstances following the repudiatory breach in April 1985 to alter the general principles that repudiation does not automatically terminate the contract, and that the innocent party has an option to rescind the contract or to keep it alive. In some instances, other duties (e.g. to mitigate loss) may curtail the exercise of this choice, but no such practical considerations arose in the present case. 29. Finally, I turn to consider the third paragraph of the letter of the 5th May 1984. Initially, it seemed that this was a condition subsequent which covered the problem which arose in this case. But, upon further consideration, I do not think that it was intended to apply to failure or inability to deliver up the original letters, but to a deficiency in title to the entitlements. Mr Millett contended that it was another indication of giving a choice to the developers (and the plaintiff company) to surrender Letters B or to pay cash, and was more consistent with the creation of a unilateral contract. Apart from making clear to the offeree that there would not be a second opportunity to offer to surrender substitute entitlements in the event of a deficiency or discrepancy, I consider that it tends to reinforce the view that the offer by the Government did call for a return or reciprocal promise to surrender land exchange entitlements in the form of an immediate binding obligation on or before the due date for payment. It is implicit in that letter that the Government would waive interest, which might otherwise be payable between the due date of payment and the completion of the surrender of the entitlements, if all went as planned. But that waiver or forbearance was not to apply if it eventually emerged that the debtor did not own the entitlements mentioned in its application form. It is in my respectful view, extremely unlikely that it would waive interest in return merely for an undertaking by the owner of such entitlements which could be withdrawn at any time, because it gave rise to no binding obligation on his part. It confirms my conclusion that the plaintiff company entered into a bilateral contract when it sent in the application form. The undertaking to deliver up the original letters, if so required, as well as the provisions of the final paragraph of the letter of the 5th May 1984, were conditions inserted for the benefit of the Government alone. Both could be waived by the Government. By the letter of the 14th October 1985, it waived its right to call for production of the original letters, and indicated that it accepted that the plaintiff company had title to the entitlements, Having regard to the conclusions I have reached in this case, that course was open to it notwithstanding the letters of the 3rd April and 23rd July 1985. 30. For these reasons, the present originating summons must be dismissed.
Representation: Mr Peter Millett, Q.C. and Mr Ramesh K. Sujanani, Junior Counsel (Messrs Ip, Ku & Stoppa) for plaintiff Mr David Hinchen (Crown Counsel) for Defendant |