Shun Lin Weaving Factory Ltd v. Eva Siu Cheng Yee Wah and Another

HCA004950/1979

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Coram: Zimmern, J.

Date of Judgment: 17th January, 1980.

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JUDGMENT

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1. At the hearing of this action after the close of the opening of Mr. Li, counsel for the Plaintiff, Mr. Bernacchi leading counsel for the Defendants applied under Order 18 rule 19 and the inherent jurisdiction of the court to strike out the statement of claim on the ground that it discloses no cause of action. This was fully argued and I adjourned to consider my decision.

2. The Plaintiff was most anxious to buy a flatted factory owned jointly by the Defendants which was in the market for sale subject to an existing tenancy. Mr. H.K. Lee a director of the Plaintiff company contacted a broker representing himself to be the agent of the Defendants. On 13th October 1979 they inspected the factory. On 15th October 1979, Lee made an offer of $150 per square foot and 10% deposit upon agreement and he to collect the rent of the subsisting tenant from date of agreement. The broker later replied that the owners were prepared to sell at $148 per square foot and the $2.00 per square foot would be His commission. They agreed to meet the next day at the offices of Hon & Co. solicitors which they did and Lee was told that the owners would not allow him to collect rent from the date of agreement. There was no agreement on that day. Lee then looked for an introduction to the owners. On 18th October 1979 Lee's solicitors wrote a letter to Hon & Co. reading as follows:

"Dear Sirs,

3. Towards end of October 1979 Lee was told by Hon & Co. that if he wanted to buy he would have to work fast as there was another buyer in the market as indeed there was for on 31st October 1979 Woo, Kwan Lee & Lo sent to Hon & Co. a sale and purchase agreement executed by the intending purchaser with a cheque for $238,400 being 10% of the purchase price subject to the vendors executing the agreement. On 1st November 1979 Hon & Co. returned the cheque with the news that the transaction was off.

4. I have set out the above in some length in deference to Mr. Li's reliance on what he calls the background and surrounding circumstances leading up to the Plaintiff's claim to which I now refer to the extent relevant to the issue.

5. The Statement of Claim

6. All I need say about the defence is that the Defendants deny that there was any agreement on the 1st November 1979 or any date as alleged or at all. The Plaintiff served a reply part of which reads:

"the Plaintiff will rely on the following matters as constituting part performance of the said agreement and/or the said agreement as varied:-

7. Mr. Li in his opening said he relies on seven acts of part performance namely

8. Mr. Bernacchi told the Court that the Claim is based on an oral contract for the sale and purchase of land therefore the contract is unenforceable unless there were a note or memorandum of the agreement sufficient to satisfy section 5 of Cap. 23 or sufficient acts of part performance to exclude the operation of the section in equity. As the Plaintiff has abandoned its claim of a note or memorandum there is only left the equitable relief. There is no dispute about this.

9. Mr. Bernacchi then went through the seven acts on which the Plaintiff relies and said they collectively or severally cannot possibly amount to acts to bring into play the doctrine of part-performance. He mounted his attack in particular on the 1st act on which the Plaintiff relies and I think it is necessary to set out the letter of 1st November 1979 in full.

"Dear Sirs,

10. He says in essence that on any construction of the letter written by the solicitors for the Plaintiff it cannot be referable to any contract other possibly than a contract to enter into a contract which is no contract at all. He relies on Daulia Ltd. v. Four Millbank⁽¹⁾. There the plaintiff wished to buy certain properties which the first defendants were in a position to sell as mortgagees. The plaintiffs claimed that there was an oral agreement that the first defendants would exchange contracts for the sale of the properties if the plaintiffs attended at the first defendants' offices with a draft contract in the terms already agreed and a banker's draft for the amount of the deposit. The plaintiffs duly attended at the first defendants' offices but the first defendants refused to exchange contracts. The plaintiffs claimed damages for breach of the oral agreement. Brightman J. struck out the statement of claim as against the first defendants, under R.S.C., Ord. 18, r.19, as disclosing no cause of action.

11. On appeal the Court of Appeal held that the plaintiffs having performed or satisfied the conditions on which the defendants had agreed to enter into a contract for the sale of land there was a valid unilateral contract and the defendants in failing to enter into a contract for sale were in breach of the unilateral contract. As the unilateral contract was one concerning the disposition of an interest in land and since there was no memorandum in writing there had to be an act of part performance before the contract could be enforced. The contention on behalf of the Plaintiff that the preparation and presentation of the draft contract in terms already agreed and a banker's draft for the amount of the deposit were sufficient acts of part performance to exclude the statute. Goff L.J. rejected this contention and said at page 243:

"In my judgment the case fails because none of the alleged acts of part performance of themselves suggests that there was any contract between the parties. Indeed they point to the exact opposite and suggest that the parties were about to make or contemplating making a contract. It is only if one first looks to see what the oral contract is and finds that it is a unilateral contract such as pleaded in this case that the acts can begin to be regarded as part performance but that is an inquiry which one is not permitted to make: see per Lord Reid in Steadman v. Steadman [1976] A.C. 536, 541-542."

Buckley L.J. in agreeing said at p.250 said:

"The acts relied on as constituting part performance are those alleged in paragraph 9 of the re-amended statement of claim. Having regard to the surrounding circumstances other than the unwritten contract, were these acts such as to suggest that it is more likely than not that they were done in pursuance of some contract? (Steadman v. Steadman [1976] A.C. 536.) In my judgment they were not. I agree with Goff L.J. in thinking that, if one ignores the unwritten contract, the natural conclusion to draw from the acts must be that they were done not in pursuance of a contract but in contemplation of making a contract".

Accordingly they decided the judge at first instance had rightly held that the statement of claim disclosed no cause of action.

12. Mr. Li said the Court will only exercise its powers to strike out in plain and obvious cases under this summary process with which observation I agree. He then went into Steadman v. Steadman⁽²⁾ and said if the principles laid down by their Lordships were applied it would not be possible to say that the acts of part performance relied on could not take the case out of statute and the matter ought to go to trial.

13. I do not have to go into the facts of Steadman v. Steadman⁽²⁾ but need only confine myself to two issues pertinent to the matter before me.

As the matter before me is one of striking out I shall give the widest interpretation to what any of their Lordships had to say on those issues which could support the Plaintiff's contentions.

14. First: as to payment of money as an act of part performance. There can be no doubt that the House had overruled previous statements of high authority that payment of money can never be a sufficient act of part performance to raise the equity in favour of the Plaintiff. Lord Salmon at p.565 puts it thus:

"Oral testimony may not be given to connect the payment with a contract but circumstances established by admissible evidence (other acts of part performance for example) may make a nexus with a contract the probable hypothesis."

This suffices for the money issue. Second as to the type of contract, this was summarised by Walton J. In re Gonin, decd.⁽³⁾. Purely for the purpose of this matter I shall go on the basis that the acts of performance did not in themselves have to be referable to any specific contract or some contract concerning land. Lord Reid in Steadman v. Steadman⁽²⁾ said:

"In my view, unless the case is to be divorced from reason and principle the rule must be that you take the whole circumstances leaving aside evidence about the oral contract, to see whether it is proved that the acts relied on were done in reliance on a contract: that will be proved if it is shown to be more probable than not".

15. My task is then to take into consideration the background and whole circumstances and decide whether on a balance of probability the acts of part performance relied on severally and collectively could be referable to or were done in reliance on a contract. This calls for an inspection of the acts.

16. First the letter of 1st November 1979 which I have set out in full and the cheque for $243,000. The language of this letter speaks for itself and I agree with Mr. Bernacchi's submissions thereon. I cannot see how that letter with the cheque which accompanied it can be referable to or said to be despatched pursuant to a contract. The overwhelming probability is that the cheque was sent to a stakeholder in anticipation of a contract to be entered in the near future. It is unequivocal to the extent of no contract no deposit.

17. Second and third acts are another cheque, a receipt therefor and the alteration thereon. The cheque is alleged to have been drawn by H.K. Lee payable to the 1st Defendant or bearer in the sum of $16,200. It was delivered to the offices of the 1st Defendants company Carlton Knit Wear Co. Ltd. and a Amy Siu gave a receipt therefor. It is then alleged that the 1st Defendant, by herself or someone on her behalf had altered it first by crossing and second by crossing out the word "bearer" and writing "order" thereon. It is said that this cheque was sent pursuant to an agreement to vary the contract by adding $1 per square foot. This evidence is of course inadmissible and I find it impossible to say that this payment, receipts and alteration is on balance referable to anything in particular.

18. Fourth and fifth the alleged telephone conversation on 1st November 1979 between Mr. Arthur Chan of the Plaintiff's solicitors and Mr. Walter Hon of the Defendants' then solicitors. The latter is alleged to have said:

That there was a telephone conversation between Mr. Chan and Mr. Hon is confirmed by M.K. Lam & Co.'s letter to Hon & Co. dated 2nd November 1979 reading as follows:

"Dear Sirs,

With reference to our letter to you of the 1st instant and the telephone conversation between your Mr. Walter Hon and our Mr. Arthur Chan, we shall be very obliged if you will kindly send us the draft Agreement for Sale and Purchase together with the title deeds and documents in respect of the above property for our approval on behalf of our client, the Purchaser herein at an early possible date.

19. That letter follows the letter of 1st November 1979 and is no more than a natural consequency thereof. The position had not changed. I find the pleading of the telephone conversation offensive in that it offends against the provisions of G.18 r.7 The primary material fact relied on by the Plaintiff for its claim is the oral contract pleaded in paragraph 3. The conversation alleges no more than a set of sub-ordinate facts to sustain the oral contract and as such ought not to be pleaded. "It is an elementary rule in pleading that when a state of facts is relied on, it is enough to allege it simply without setting out the subordinate facts which are the means of proving it or the evidence sustaining the allegation" (per Lord Dinman C.J. in Williams v. Wilcox 8 A & E p331.) Of course the Plaintiff argues this pleading is relied on as an act of performance. What then is that act? The only possible inference is that the Defendants are alleged to have gone to their solicitors and instructed them on the sale and to prepare the necessary documentation whereupon Mr. Hon telephoned Mr. Chan to express an opinion on the Plaintiff's good fortune and to inform him that he Mr. Hon would not act for both parties and was preparing a draft sale and purchase agreement.

20. Viscount Dilhorne in his speech in Steadman v. Steadman⁽²⁾ at p.554 said:

"While an oral statement made by a party or his solicitor will not ordinarily be an act of part performance, in this case the making of the statement to the magistrates was an essential part of the performance of the contract. Without it and the magistrates' co-operation the agreement could not have been implemented".

and further

"It is well established that preparatory acts such as instructing a solicitor to prepare a lease or conveyance do not constitute sufficient part performance. But here it went beyond mere preparation. In the absence of conditions it was the respondent's duty to send the transfer for execution by the appellant. The transfer was thus sent in discharge of an obligation that rested on the respondent by virtue of the contract".

21. In the present case there is not even an allegation of preparation but merely instructions to prepare. The document is neither a lease or a conveyance but a sale and purchase agreement. In my views that is sufficient to dispose of this so called act and I need only to add that it constitutes an attempt to bring in inadmissible evidence of the alleged contract by a side door.

22. The last two acts relied on as pleaded in the reply paragraphs 2(5) and (6) are not sustainable. Once the allegations are analysed in some particularity any argument that they could be acts border on to the absurd.

23. There is nothing in this matter which suggests to me that the Defendants by their conduct have created an equity against themselves. There was a willing buyer and a willing seller but it all points to only a contemplated transaction. Accordingly the statement of claim does not show a cause of action and must be struck out with costs to the defendants.

24. I have not referred to the return of both cheques by the Defendants' solicitors to the Plaintiff's solicitors as this is of no assistance to the Plaintiff's arguments so I do not have to deal with Mr. Bernacchi's interesting argument that on the authority of Steadman v. Steadman⁽²⁾ payment cannot be relied on as an act if it has been returned.

Representation:

Andrew Li and Audrey Eu (Shea & Co.) for Plaintiff

B. Bernacchi, Q.C. & J. Chan (S.H. Leung & Co.) for Defendants

(1) [1978] 1 Ch. 231

(2) [1976] A.C. 536

(3) [1979] 1 Ch. 16 @ 30-31