The World Food Fair Ltd and Another v. Hong Kong Island Development Ltd

FACV No 6 of 2006

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO 6 OF 2006 (Civil)

(ON APPEAL FROM CACV No 398 of 2003)

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Between:

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Court:  Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Mr Justice Nazareth NPJ and Lord Millett NPJ

Dates of Hearing:  21, 22 and 29 November 2006

Date of Judgment:  8 December 2006

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J U D G M E N T

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Mr Justice Bokhary PJ:

1.I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Chan PJ:

2.I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ:

3.The plaintiffs brought an action against the defendant for breach of an agreement to grant them a tenancy at the defendant’s shopping mall.  After trial, Deputy High Court Judge Carlson dismissed the action (11 November 2003, HCA 4602/2000), finding that the parties had not proceeded beyond the stage of negotiation so that there was no concluded contract.   His judgment was reversed by the Court of Appeal (Ma CJHC, Cheung JA and Burrell J [2005] 1 HKLRD 665) which held that a contract for a tenancy had orally been concluded, that the absence of formality was met by part performance and that the plaintiffs were entitled to damages in the sum of $3,114,492.00 with costs.

4.This appeal is brought by leave of the Appeal Committee on the sole issue of whether the Court of Appeal was correct to conclude that there was a binding contract and to overturn the Judge’s conclusion to the contrary.

A. The course of events

5.The defendant is a subsidiary of New World Development Limited, a listed property company.  It is the owner of an underground shopping mall known as “The Palace Mall” in Tsim Sha Tsui (“the Mall”).  In 1996,  the Mall’s construction was nearing completion.  Mr Lawrence Mak Chi Wing (“Mr Mak”) was then the defendant’s General Manager in charge of its Letting Department. 

6.The 2nd plaintiff is and was then the principal company of a group operating optical, fashion and jewellery retail shops, including three shops rented in the nearby Regent Shopping Arcade, which is also owned by the New World group.  Mr Steve Siu Chi Lim (“Mr Siu”) was the 2nd plaintiff’s managing director (and when the 1st plaintiff was subsequently acquired, also became its managing director).

7.Mr Mak and Mr Siu had dealt with each other in relation to the earlier lettings.  They had formed a good business relationship and regarded one another as reliable and accommodating in matters touching on the tenancies.  In 1996, they were in discussions with a view to Mr Siu’s companies renting four retail shops in the Mall.  Mr Mak proposed that Mr Siu should additionally take on two shop spaces (known as Shops P215-P216 with an area of 7,295 sq ft) for the purpose of operating a food and beverage outlet at the Mall.

8.As none of Mr Siu’s companies had any experience in that line of business, he at first rejected the suggestion.  However, he was eventually persuaded to take the project on.  The idea, developed with the encouragement of Mr Mak, involved using part of the space for a full service restaurant to be operated by the plaintiffs (with investors experienced in the trade invited to participate) and the rest of the space as a food court offering a choice of cuisines to be provided by independent caterers to whom kitchen and service counter space would be sub-let or licensed.  

9.It is common ground that after a series of meetings beginning in September 1996, the parties orally reached agreement on certain aspects of the proposed tenancy, such as the monthly rent, management fees and air-conditioning charges.  The plaintiffs’ case is that all material conditions had been agreed and that an oral contract intended to be immediately binding came into existence no later than 27 January 1997 when the 2nd plaintiff issued a cheque for $200,000.00 in favour of the defendant, describing it as “an initial deposit”. 

10.The defendant’s case is that important terms remained to be negotiated as at that date.  These are said to include the date of commencement of the lease, the length of the rent free period, the term and the rent payable on exercise of the option to renew, the right to sublet and the extent and cost of the kitchen facilities to be provided by the defendant.   The defendant also contends that the parties always understood that any eventual tenancy would be the subject of a formal tenancy agreement and that until signed, the negotiations and any agreements reached were subject to contract.

11.In the period between 1 February and 4July 1997, communications concerning the terms of the tenancy, including a draft letter of intent and a draft tenancy agreement, passed between the parties. Neither of those two documents was executed.

12.During this period, the 2nd plaintiff commissioned an associated company, The World Franck Siu Contracting Limited (“Franck Siu”), to design the intended restaurant and food court.  As none of the utilities or basic facilities required for setting up a kitchen had been included in the lay out of the Mall, much of the discussion between the parties concerned the defendant’s provision of such facilities.

13.On 5 July 1997, the defendant gave the 2nd plaintiff access to or possession of the shop spaces to enable its contractors to commence fitting out works.   Such works proceeded in the course of July, with the 2nd plaintiff also taking steps to prepare for operation of the restaurant and food court.  It advertised for caterers to take up space in the food court, hired staff to run the restaurant, ordered crockery and cutlery, and so forth.  At a meeting on 9 July 1997, agreement was reached on the kitchen facilities to be provided at the defendant’s cost, but no tenancy agreement was signed.

14.In late July, Mr Mak resigned from the defendant’s employment to be replaced by Mr Kays Wong (“Mr Wong”).  On about 29 July 1997, Mr Wong told Mr Siu that the defendant was now against having a food court in the Mall as opposed to a “middle to high end full service restaurant”.  The fitting out works were suspended and the keys to the premises were returned to the defendant.  By then, the 2nd plaintiff had incurred substantial expenses in anticipation of commencing operations, recovery of such expenses being the subject-matter of the plaintiffs’ claim.

15.There followed, between August 1997 and January 1998, attempts at negotiating a fresh agreement with a view to the plaintiffs taking a tenancy to operate the suggested restaurant.  However, no agreement eventuated and the defendant purported to forfeit the “initial deposit”.  The present proceedings ensued, with the plaintiffs contending that refusal to permit operation of a food court and failure to provide the promised kitchen facilities constituted a repudiatory breach which was accepted by the plaintiffs returning the keys and vacating the premises.  They claimed damages for losses incurred in reliance on the alleged contract, later quantified by the Court of Appeal in the sum of $3,114,492.00.  They also claimed the return of the deposit.

B. The proceedings  before the trial Judge

16.At the trial, there was considerable discussion as to whether the parties had agreed the “essential terms”.  Used in a technical sense, that expression is usually understood to refer to the minimum terms which must be agreed before there can be a concluded agreement for any lease, in other words, terms which are essential to leases in general.  These are the terms dealing with (i) the identity of the parties; (ii) the premises to be leased; (iii) the commencement and duration of the term; and (iv) the rent or other consideration to be paid.[1]  Additionally, for there to be a concluded contract for the grant of a particular lease, the parties must reach unconditional agreement on all the terms that they intend to have in the particular lease.  In Rossiter v Miller (1878) 3 App Cas 1124 at 1151, Lord Blackburn recognized this distinction, referring to the minimum essential terms as the “cardinal points of the contract” and to those required by the parties to be included as the “essential terms” :

“...it is a necessary part of the Plaintiff's case to shew that the two parties had come to a final and complete agreement, for, if not, there was no contract. So long as they are only in negotiation either party may retract; and though the parties may have agreed on all the cardinal points of the intended contract, yet, if some particulars essential to the agreement still remain to be settled afterwards, there is no contract. The parties, in such a case, are still only in negotiation.”

17.The Judge correctly noted the applicable principles and accurately focused on the plaintiffs’ contention that a contract intended to be immediately binding was orally concluded prior to payment of the $200,000.00 deposit, with subsequent negotiations merely confirming or fine-tuning the agreement or, at any rate, not affecting the concluded contract.[2] 

18.The two main witnesses, Mr Siu and Mr Mak, were both called by the plaintiffs.  No substantive witnesses were called by the defendant.  The Judge recognized that his decision was “to be arrived at on the whole of the evidence, particularly that of Mr Siu and Mr Mak, as to what they say had been agreed” but considered the contemporaneous correspondence “of prime importance” especially since “both men cannot point to any particular moment in their conversations as to when ‘the deal was done’ nor can they say what words were used”.[3]

19.His Lordship concluded that the evidence :

“... can only admit of one answer which is that the parties had never got beyond the stage of negotiation.  Whilst Mr Mak and Mr Siu had come to a broad consensus as to what was to be let and for what purposes as well as the rent and a hoped for starting date for the tenancy these matters were always going to be subject to a formal lease being agreed between the parties.”[4]

20.He considered the willingness of the plaintiffs to incur significant expenses before signing any agreement explicable as follows:

“The truth of the matter was that Mr Mak and Mr Siu, who in the past had always managed to iron out difficulties over leases and who trusted each other to be able to do so fully expected, once the principle had been agreed, that they would be able to conclude a mutually acceptable tenancy agreement.  ... [This] expectation was not realised.”[5]

C. The Court of Appeal’s decision

21.Separate judgments were given by Ma CJHC and Cheung JA.  Burrell J concurred.   Their decision to reverse the Judge rests primarily upon the view that proof of the concluded contract is provided by evidence of its performance.  Thus, Ma CJHC stated:

“Another indication that the parties intended to contract with one another is if there has been some performance, even partially, of the contract or in furtherance of it.  In many ways, this is often the clearest indication of an intention to contract.  And, in the present case, this factor is in my view decisive.”[6]

22.Both of their Lordships identified the conduct constituting such performance as payment of the initial deposit on 27 January 1997 and being let into possession for the fitting out works on 5 July of that year.  Ma CJHC considered the deposit to be “of great significance”[7] and entry into possession as “conclusive”.[8]  Similarly, Cheung JA asked rhetorically what stronger evidence there could be to show the existence of a concluded contract than payment of the deposit at Mr Mak’s request.[9]  He also stated that letting the plaintiffs into possession in July “must be one of the strongest evidence that by then the essential terms of the agreement had been agreed upon”.[10]

23.Given the decisive importance accorded by their Lordships to the deposit and entry into possession, the evidence as to whether all the terms which the parties desired to be regulated by the lease were ever agreed received less detailed examination.  Ma CJHC was content to accept the plaintiffs’ assertion that:

“... over the course of negotiations between September 1996 and January 1997, agreement was reached orally as to the identity of the relevant premises (Shops P215 and P216), user (restaurant and food court), rent, rent-free period, deposit, duration of tenancy, commencement date and the identity of the tenant (the 2nd Plaintiff would nominate the 1st Plaintiff to be the tenant of the premises).  Mr Siu and Mr Mak also reached broad agreement over the provision of kitchen equipment for the premises.”[11]

24.Cheung JA was much impressed by the fact that both Mr Siu and Mr Mak were called by the plaintiffs and had, in his view, testified that all relevant terms had been agreed.  He states:

“One has this unusual situation of the two protagonists to the negotiation agreeing that all the essential terms had been reached by the parties.  This evidence is so strong that one would have thought that this is the inevitable conclusion that any tribunal of fact would have reached.”[12]

25.Near the beginning of his judgment, Cheung JA indicates his acceptance of the existence of an oral agreement in the terms set out in Mr Siu’s witness statement[13] :

“By late January 1997 Mr Siu and Mr Mak reached an understanding on the terms of the tenancy on the restaurant and food court :

(1) Rent & outgoings :  HK$236,790 for monthly rent

HK$40,122.50 for monthly management fees

HK$32,827.50 for monthly air-conditioning charges

HK$40,000 for monthly additional operation charges (from 12 am to 2:30 am)

HK$39,070.35 for quarterly rates

(2) Term :  3 years with an option to renew for 3 years at prevailing market rental but not exceeding 15% of the previous rent

(3) Commencement :  8 March 1997 subject to issuance of occupation permit

(4) Rent-fee Period :  90 days from the date of delivery of vacant possession

(5) Initial Deposit :  HK$200,000

(6) Further Security Deposit :  HK$768,290.35.”

I shall refer to this as “the asserted understanding”.  Many aspects of this “understanding” are at the centre of the dispute and will require further examination below.

26.Cheung JA finds that the Judge “erred in the inference he drew from the primary facts that there was no concluded agreement” because he had apparently “relied on the correspondence to the extent that he had ignored the oral testimony of the witnesses and other objective evidence”.[14]  In his Lordship’s view:

“The overall picture that emerged from their evidence when considered against the objective evidence of the plaintiffs paying the deposit and entering into possession of the premises and the preparatory works they had carried out for the opening of the restaurant, pointed to one conclusion only, namely, a concluded agreement on the essential terms of the tenancy had indeed been reached.”[15]

D. Difficulties in the approach of the Court of Appeal

D.(i) Pre-eminence given to deposit and possession

27.In my view, there is a circularity inherent in the Court of Appeal’s approach.  In regarding payment of the deposit and the giving of possession for fitting out works as “performance” which decisively proved the existence of a concluded contract, the Court of Appeal implicitly assumes that there existed a concluded contract of which such acts constituted “performance”, which “performance” is then relied on to prove the existence of that very contract.

28.Such acts are no doubt consistent with the existence of a concluded contract but they do not prove its existence.  They are no less consistent with being acts done in anticipation of a legally binding agreement which the parties confidently expected to enter into but which never materialised – which is what the Judge found was the position in the present case. 

29.It is not uncommon for parties in the course of negotiations which are still incomplete or subject to contract to pay deposits or to allow builders access to the premises.  Such acts are no doubt done with a view to commercial advantage but they involve the risk that the other party may decide to withdraw from the deal without any contract coming into being.  Many examples of such conduct can be found, for instance, in textbooks on the law of restitution regarding claims for recovery of expenses incurred or in respect of benefits conferred where anticipated contracts do not materialise.[16] 

30.Chillingworth v Esche [1924] 1 Ch 97, is an example involving a contract for the sale and purchase of land.  A deposit was paid “subject to a proper contract to be prepared by the vendor's solicitors”, that is, before there was any binding contract.  The question for the court was whether the deposit was recoverable after the purchasers decided to withdraw and declined to sign the contract tendered by the vendors.  In providing his answer, Pollock MR cited Howe v Smith (1884) 27 Ch D 89 at 97, where Bowen LJ said:

“The question as to the right of the purchaser to the return of the deposit money must, in each case, be a question of the conditions of the contract. In principle it ought to be so, because of course persons may make exactly what bargain they please as to what is to be done with the money deposited. We have to look to the documents to see what bargain was made.” (cited at 108)

31.It was held by the court in Chillingworth v Esche that there was nothing to indicate in the case at hand that the deposit was intended to pass irrevocably to the vendor if the purchasers did not complete the transaction and that it was accordingly recoverable.  Sargant LJ viewed the object of the deposit paid subject to contract as follows:

“One obvious object of such payment was that it should form a deposit in the ordinary way if and when the contemplated definite contract was subsequently signed and exchanged. ... I look on the whole payment as being sufficiently explained as being an anticipatory payment intended only to fulfil the ordinary purpose of a deposit if and when the contemplated agreement should be arrived at.” (at 114-115)

32.A deposit paid pursuant to a concluded contract will generally be intended to secure performance of the contract and be subject to forfeiture (as discussed in Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234 at 260-263).   But, as the authorities show, the parties may intend a different role for a deposit.  If pre-contractual negotiations are lengthy, a deposit may be sought, not as an earnest of completion and performance, but as signifying serious intent on the part of the potential tenant or purchaser.   Indeed, the request for an “initial deposit” rather than demanding execution of a tenancy agreement and the full deposit in the present case may suggest that the parties had not yet reached final agreement, since there would have been no need for the landlord to seek the comfort of an initial deposit if the parties were already legally bound. 

33.A dramatic example involving handing over possession and effecting works on the site pursuant to an agreement subject to contract can be found in Attorney General v Humphreys Estate (Queen’s Gardens) Limited [1987] AC 114 (PC).  Lord Templeman described the steps taken as follows:

“A major part of this agreement, as subsequently modified and expanded, was carried out.  In particular the government took possession of the Tregunter flats and fitted them out, and moved in senior civil servants to that accommodation by August 1981.  The government disposed of the residences formerly occupied by those servants.  HKL [Hongkong Land] took possession of Queen's Gardens by November 1981 and demolished the existing buildings on the Queen's Gardens and adjoining sites by May 1982 with a view to redevelopment. HKL paid to the government by August 1982 the full sum of $103,865,608, the agreed difference between the value of the Tregunter premises and the value of Queen's Gardens.” (at 120)

Yet it was not in doubt that there was no concluded contract and that those drastic steps had been taken merely in the confident hope and expectation of a final agreement being executed, which in the event never materialised.  The government’s arguments based on proprietary estoppel having failed, it was held that Hongkong Land were entitled to withdraw.

34.The payment of a deposit and the giving of access for fitting out works are therefore generally equivocal acts.  Contrary to what the Court of Appeal held, such conduct does not establish the existence of any concluded contract.  Moreover, in the present case, the evidence of Mr Mak substantially undermines the Court of Appeal’s approach.  A passage in his cross-examination runs as follows:

“Q. And when the tenant took over the possession of the two shops, we know for sure that the tenancy agreement had not been signed.

A. Yes.

Q. And the reason why you give the vacant possession to the tenant, because at that time you were confident you should be able to reach a final agreement with the tenant.

A. Yes.

Q.    So you can hand over the possession of the property while you’re still negotiating on the final -- the formal tenancy agreement.

A. Yes.

Q.    So the vacant possession was given in anticipation that you are able to have a formal tenancy agreement.

A. Yes.”[17]

D.(ii) Approach to the evidence

35.It is plain (and everyone accepts) that whether the parties intended to enter into a concluded contract is a matter to be looked at objectively (as noted, for instance, in Kwan Siu Man v Yaacov Ozer (1997-98) 1 HKCFAR 343 at 354).  However, due to the unusual circumstance of both protagonists in the negotiations having been called by the plaintiff, the Court of Appeal may have given undue weight to what they said were their subjective intentions as telling against the defendant’s case.  Thus Cheung JA states:

“The evidence of Mr Siu and Mr Mak showed that they had never proceeded on the basis that their agreement was ‘subject to contract’.  It was a unilateral addition imposed by the leasing department of the defendant in a standard document.  In fact Mr Mak expressly disowned any notion that the agreement was subject to contract.”[18]

36.Ma CJHC appears to suggest that Mr Mak’s denial that the negotiations were intended to be subject to contract prevented the Judge from making a primary finding to the contrary:

“The Judge stated in paragraph 42 of his judgment that the consensus reached between the parties on various matters was ‘always going to be subject to a formal lease being agreed between the parties’.  This was not a finding of primary fact since this very point was put to Mr Mak in examination in chief and denied by him.  Instead, Mr Mak went on to say that by the payment of $200,000 deposit, he believed that the Defendant had secured a tenancy agreement.”[19] 

37.With respect, such an approach cannot be accepted since the role of a Judge is precisely to decide, as a matter of primary fact, whether to accept or reject the evidence of a witness.  In the present case, the Judge would have been entitled to reject the evidence given by Mr Mak or Mr Siu if, for instance, the testimony was incoherent or self-contradictory or contradicted by the other witness or inconsistent with the contemporaneous documents.  Thus, the Judge considered the contemporaneous documents a preferable guide to the objective intentions of the parties on certain issues.  If a proper evidential basis for such a conclusion existed, such a finding would constitute a primary finding which the Judge was entitled to make.

38.What was necessary was for all the evidence to be examined to see whether the parties had arrived at a contract intended to be immediately binding prior to payment of the deposit on 27 January 1997.  The evidence of the witnesses had to be assessed against the contemporaneous documents to decide whether objectively the parties had unconditionally reached final agreement on all the intended terms of the contract by that date. 

E. The key documents

39.The 2nd plaintiff’s cheque for $200,000.00 by way of “initial deposit” was received by the defendant on 30 January 1997.  In response, on 1 February 1997, the defendant sent the 2nd plaintiff a draft letter of intent (“the Letter of Intent”).  Mr Mak accepted[20] that he would have instructed a subordinate named Neil Chan to dispatch that document, explaining that it was standard procedure to ask for such letters to be signed by the prospective tenant.[21]

40.The Letter of Intent identified the shop spaces, specified a food and beverage user, stated the monthly rent, management fees and air-conditioning charges and then, more controversially, proposed the following terms:

(a) a term of 3 years “commencing 8 March 1997 tentatively (subject to issuance of occupation permit) and a prior 7 days written notice will be served by the Lessor to the Intended Lessee for the actual date of commencement of Lease” (clause 5);

(b) a right to renew “for a further term of Two years at the then prevailing market rental” (clause 5);

(c) a “rent free period equivalent to 30 days rental commencing from the date of handover of the said premises ...” (clause 6);

(d) that “all the above mentioned conditions are subject to the formal Lease Agreement ...” (clause 7);

(e) that “to secure the due performance and observance of the terms and conditions herein contained, the Intended Lessee shall on the signing hereof pay to the Lessor by way of initial deposit the sum of HK$200,000.00 which will be forfeited should the Intended Lessee fail to enter into a tenancy agreement with the Lessor due to no fault on the part of the Lessor”; (clause 8) and,

(f) that upon signing of the formal tenancy agreement, the sum of HK$768,290.35 should be paid “as balance of the full rental deposit” (clause 9).

41.Since Mr Mak had given instructions for this document to be prepared, it is reasonable to infer that it conveys his understanding of what had recently been agreed with Mr Siu or, alternatively, represented his negotiating position to the extent that agreement had not been reached.[22]  However, Mr Siu refused to sign it because it did not mention subletting or the provision of kitchen facilities and because a rent free period of 30 days was not enough.  He complained that it was “absolutely different from what we had agreed before”.[23]  This obviously raises questions as to whether Mr Siu and Mr Mak were in fact at that stage ad idem as to the proposed terms of the tenancy.  Mr Siu said that he had complained to Mr Mak who had told him that it was “just a standard form” and that he did not have to sign the letter yet.[24]  However, Mr Mak had no recollection of such a complaint or of his alleged response.  His evidence in chief went as follows:

“Q. How about Mr Siu?  Was there any discussion between you and Mr Siu about this letter or about whether Mr Siu need to sign this letter back?

A.   We would not discuss so details as this -- such details.  Usually we would just leave these matters to our subordinates.

Q. Now, this letter of intent was never signed by Mr Siu’s company.  Did your subordinate, for example, report to you that Mr Siu’s company did not sign this letter?

A.    As far as I can remember, no.”[25]

42.Between 11 February 1997 and late June 1997, Franck Siu and the 2nd plaintiff sent drawings and plans for the proposed restaurant and food court to the defendant and discussions took place concerning the kitchen facilities the latter was to provide.  Despite earlier indications that a more generous provision would be made, on 12 June 1997, the defendant wrote stating:

“In regard to the kitchens, please note that the Landlord only provide basic standard E&M facilities and any requirements beyond that will be at the entire cost of the tenant.”

It was only after further negotiations that, at a meeting held on 9 July 1997, agreement was reached as to the range of costed kitchen facilities to be provided by the defendant.

43.In the meantime, on 23 June 1997, the Mall’s soft opening took place, as had been announced in a notice dated 23 May 1997 addressed to “all tenants” and sent to the 2nd plaintiff.

44.On 4 July 1997, the defendant sent a draft tenancy agreement (“the Draft Agreement”) to the 2nd plaintiff for signature, asking in the covering letter for payment of the balance of the deposit and stating: “We hereby formally notify you that the date of commencement of lease shall be 1^st August 1997.” 

45.Apart from terms which are not controversial, the Draft Agreement contained terms in standard form which were obviously inappropriate for the intended user, as well as other terms which, the plaintiffs contend, failed to reflect what had been agreed.  It provided for:

(a) a lease term of three years commencing on 1 August 1997;[26]

(b) an option to renew for a further two years at market rent to be determined by arbitration if necessary;[27]

(c) a rent free period of 61 days;[28]

(d) a requirement in standard form that the tenant furnish E&M installations, etc;[29]

(e) normal business hours to be between 10.00 am and 8.00 pm and a prohibition against trading “between the hours of midnight and 8.00 am on any day” unless with landlord’s consent which could be withheld at its absolute discretion;[30]

(f) the premises to be used for “carrying on the business of Food & Beverages only and for no other purpose whatsoever”;[31] without deleting a standard form term requiring the tenant “Not to allow cooking or preparation or delivery of food to the said premises”;[32] and,

(g) a prohibition in standard form against subletting or otherwise parting with possession of any part of the premises.[33]

46.On the next day, 5 July 1997, the 2nd plaintiff took over the premises to begin fitting out works.  And on 9 July 1997, the 2nd plaintiff wrote to Mr Mak pointing to difficulties posed by the Draft Agreement regarding business hours (the plaintiffs’ intention being for the outlet to operate from 8.00 am to 3.00 am); the obviously erroneous prohibition on cooking; and the prohibition on subletting.  The letter added:

(a) “The Tenant should be [the 1st plaintiff, referred to by its then name Wealth State Investments Limited]...”; and,

(b) “As for our security of tenure and investment return, we want to seek a lease of 3 years fixed with an option to renew for a further term of 3 years.”

47.As recorded in minutes dated 11 July 1997, agreement was reached on 9 July as to the cost and extent of the kitchen facilities to be provided by the defendant.

48.Throughout this time, negotiations were proceeding in parallel in relation to tenancies of four other shops in the Mall.  On 15 July 1997, in a letter from the 2nd plaintiff which is marked “subject to contract”, a summary of “details for the respective tenancies” was set out.  In relation to the relevant shop spaces, the 1st plaintiff is named as tenant, the commencement date is given as 1 August 1997 and the rent free period is stated to be 61 days.

49.As previously noted, fitting out works and other preparatory steps proceeded in the remainder of July until Mr Wong requested works to cease on 29 July 1997. 

50.In a letter dated 31 July 1997 marked “without prejudice”[34] and signed by the 1st plaintiff (as well as two other companies which were also proposed tenants), the plaintiffs:

(a) stated that they were considering the defendant’s request “to modify the food and beverage operation ... to a middle high end full service restaurant instead of an international food fair” but pointed out that they had already spent more than HK$1 million on the design and preliminary works; 

(b) pressed the defendant to proceed with the kitchen facilities agreed to be provided;

(c) expressed bewilderment and “a feeling that all the verbal agreement regarding the detailed terms and conditions reached through the lengthy negotiations are now quashed”;

(d) complained about the defendant’s stance on the option to renew; and,

(e) threatened not to proceed with three of the other shops in the Mall “until all the terms and conditions for all our shops P215-P216, P112, P126 and P123B ... are concluded and finalized.”

51.As mentioned above, there followed further correspondence exploring the possibility of a fresh agreement which came to nothing.

F. The contractual terms in controversy

F.(i) Commencement of the lease

52.The plaintiffs’ pleaded case is that “subject to the issuance of the occupation permit, the term of the lease was to commence in or about March 1997.”  Mr Siu stated in chief that 8 March 1997 was the agreed commencement date subject to the issuance of the occupation permit.  As already noted, Ma CJHC was content to accept the plaintiffs’ assertion that agreement had been reached on that commencement date and Cheung JA similarly included it as part of the asserted understanding.

53.However, the Judge had found[35] that what had been agreed as at 27 January 1997 was “a hoped for starting date for the tenancy” and that it was one of the matters that was “always going to be subject to a formal lease being agreed between the parties”.  Mr Edward Chan SC, appearing with Mr Kenny Lin for the defendant, submits that the Judge was right and the Court of Appeal was unjustified in overturning his finding.

54.While Mr Siu’s evidence supported the pleaded case, Mr Mak’s evidence did not.  Despite the efforts of counsel then instructed for the plaintiffs (Ms Lisa Wong), Mr Mak was wholly non-committal as to whether any, and if so what, start date, had been agreed.  His evidence in chief went as follows:

“Q.  Did you discuss with Mr Siu when the tenancy should commence?

A. As I would say to each tenant, I would like to have the tenancy period commence as soon as possible and usually I myself would push the tenant for that.

Q.  But did you set a date, a tentative one maybe?

A.  I personally would prefer that all the tenants would move in and open their business before 30 June.

...

Q.  What I’m interested in is, did Mr Siu and you discuss roughly when Mr Siu’s company could take over the premises to start decorating?

A.  We did have a discussion on that and for my own position, of course I would prefer that he would move in as soon as possible.

Q. Is it right to say that you would like Mr Siu to move in as soon as you could make available the premises?

A. Right, but not only Mr Siu, but also all the other tenants would like to move in at a later date.  The reason being that they did not want to be a pioneer there and they would like to open their shops at a later date.”[36]

And in cross-examination:

“Q. And also at that stage you have reach at least a date tentatively, the commencement date for the tenancy agreement between you and Mr Siu.

A.  I don’t remember now, but as I said before, it was my principle to want the tenant to move in as soon as possible, but I could not tell what date was fixed.

...

MISS L WONG:  My Lord, the answer was, “But I cannot now remember when we fixed the date and what was the date fixed.”

MR LIN:  Yes.”

55.The two witnesses called by the plaintiffs therefore differed as to what, if anything, had been agreed regarding commencement of the lease.  It was for the Judge to decide whether he accepted or rejected Mr Siu’s version.  It was obviously necessary for him to assess the testimony against the documentary evidence. 

56.The first relevant document is the Letter of Intent which, as we have seen, provided in clause 5 for a lease term “commencing 8 March 1997 tentatively (subject to issuance of occupation permit) and a prior 7 days written notice will be served by the Lessor to the Intended Lessee for the actual date of the commencement of Lease”.  While this document was never signed and is “subject to the formal Lease Agreement”, the inference is, as I have mentioned, that it mirrors Mr Mak’s understanding of what had been agreed at that stage or reflects his negotiating stance.  Its most notable feature for present purposes is that the commencement date is not firm, but “tentative”.  Given the uncertainty, it goes on to provide for seven days’ notice to be given of the actual commencement date.  This militates against any finding that a firm commencement date had by then been agreed.  The occupation permit condition was not explored at the trial and I propose to say no more about it.

57.The other relevant documents also weigh against a March 1997 commencement date having been agreed.  Thus, on 4 July 1997, the defendant tendered the Draft Agreement which proposed commencing the lease on 1 August 1997.  And the minutes of the 9 July meeting noted that the defendant’s agreement to provide the kitchen facilities was conditional on the plaintiffs taking over the premises on 1 August, a condition which Mr Mak confirmed[37] had been agreed at the meeting.  Similarly, in their subject to contract letter of 15 July 1997, the plaintiffs themselves named 1 August 1997 as the commencement date.  None of these documents suggests that 1 August was a delayed commencement date.

58.The evidence therefore indicates that the parties agreed a tentative start date which was quickly overtaken.  It was not until 4 July 1997 that a firm date (1 August) could be proposed as the intended commencement date.  It is inherently unlikely that the parties would have felt ready to go firm on a March start date at the end of January.  No design work had been done and they had not yet begun discussing the extent of the landlord’s provision of the kitchen facilities.  The 2nd plaintiff, who did not have experience in the food and beverage business, had not yet started advertising for sub-tenants or licensees to take space in the food court and had not yet brought in investors as partners in the venture.  The 1st plaintiff had not yet been acquired.  No steps had yet been taken towards hiring staff, provisioning the restaurant, and so forth.  It is therefore most unlikely that by 27 January 1997 the parties would have agreed to anything more than a tentative start date.

59.Ms Audrey Eu SC, appearing with Mr Benjamin Chain for the plaintiffs, advanced two arguments in support of a finding that a firm commencement date had been agreed. 

60.First, she stressed that the Letter of Intent provided for “a prior 7 days written notice (to be) served on the Defendant ...”[38]  Such a provision, she contended, was in law sufficient: In re Lander and Bagley’s Contract [1892] 3 Ch 41.  The defendant’s letter of 4 July 1997 giving formal notice that the lease was to commence on 1 August 1997 was said to constitute the relevant notice. 

61.With respect, that argument is untenable.  Such notice may indeed be sufficient in law, but it is not the plaintiffs’ pleaded case.  Nor is it supported by the evidence of Mr Siu or Mr Mak.  They never suggested that the parties had agreed that the lease should start on a date to be notified by the defendant.  The notice given on 4 July 1997 was contained in the letter covering the Draft Agreement which provided for commencement on 1 August 1997.  It was obviously premised on the parties signing that agreement.  Moreover, the argument relies on the Letter of Intent which is, in any event, expressly subject to lease.

62.Ms Eu’s alternative argument is that there was firm agreement that the lease should commence on 8 March 1997 but that, the defendant having delayed in giving possession, the plaintiffs had waived any breach and acquiesced in the delay, the parties’ subsequent conduct being consistent with such agreement.[39]  But this argument is, at best, an attempt to explain away the fact that after 8 March, the parties took no steps (until 5 July – the day after the Draft Agreement was tendered for signature) towards taking possession or towards accounting for rent.  It does not help to establish the existence of a concluded contract.  No question of waiver or acquiescence (which are, incidentally, unpleaded) arises unless the plaintiffs first succeed in establishing that there was a firm agreement for a March start date, which is where the plaintiffs’ difficulties lie.   

63.It is therefore my view that the Judge was fully entitled to conclude that the only commencement date agreed to as at 27 January 1997 was merely a tentative, “hoped for”, date and not a binding commencement date stipulated in a concluded contract.

F.(ii) Rent free period

64.There is no doubt that the parties intended that their contract should provide for a rent free period.  The question is whether they ever reached agreement on what that period should be.  It was, to them, an important matter.  One of the reasons given by Mr Siu for not signing the Letter of Intent was that the proffered rent free period of 30 days was incorrect and insufficient.[40]  Allowing a tenant possession of the premises for a certain period rent-free is a matter that affects the overall consideration for the lease.  In practical terms, it determines when rent must begin to be paid.

65.The plaintiffs’ pleaded case is that an essential term was that there should be a rent free period  “of 3 months or alternatively of up to a maximum of 3 months”.[41]  This is an equivocal plea which tends to suggest uncertainty as to what, if any, period was agreed.  The term so formulated is possibly legally uncertain.  However, Mr Siu was rather firmer in his evidence.  He testified that a 90 day rent free period had been agreed[42] and that it had remained 90 days throughout.[43]

66.After examining the material documents, the Judge’s view (when commenting on the plaintiffs’ subject to contract letter of 15 July 1997) was that the rent free period was:

“... something of a movable feast from the 2nd Plaintiff’s wish to have 90 days, which had gone down to 30 days, as proposed by the Defendants, and now out again to 61 days.”[44]

This supported his overall conclusion that  the parties had never got beyond the stage of negotiation.

67.As we have seen, Ma CJHC was prepared to accept the plaintiffs’ assertion that agreement had been reached on the rent free period.[45]  Cheung JA, on the other hand, drew attention to Mr Mak’s evidence (to which we will come) which contradicted that of Mr Siu and suggested that agreement had not been reached.  Nevertheless, his Lordship dismissed that difficulty in the following terms:

“This is not a case where the parties had not even agreed whether the tenant should be entitled to a rent free period at all.  Even if the parties had not agreed on the exact rent free period in February 1997, I would not regard it as being so fundamental as to vitiate the agreement that had by then been reached.  Mr Mak was of the view that he could not envisage any difficulties in reaching an agreement on the rent free period with Mr Siu.  Mr Siu shared the same view.  I agree with the submission of Ms Eu SC, counsel for the plaintiffs, that even assuming that was no agreement on the length of the rent free period, this was ultimately a matter of concession by the defendant and the plaintiffs would have to accept the maximum which the defendant was prepared to offer.  The evidence showed that later on the defendant was even prepared to offer a period as long as 126 days to induce the plaintiffs to sign the tenancy agreement.”[46]

68.With respect, that approach cannot be accepted.  In dismissing the absence of agreement as something which does not “vitiate the agreement that had by then been reached”, Cheung JA begs the very question at issue:  Had the relevant agreement indeed been reached by then?  Could there be a binding agreement without settling the question of the rent free period?   No one doubts that both Mr Mak and Mr Siu confidently expected to be able to reach agreement nor that concessions might well be made by the plaintiffs to achieve that end, but that is not the same thing as saying that, by 27 January 1997 the parties had reached a concluded contract so that thereafter the defendant was precluded from lawfully declining to proceed with the tenancy. 

69.The Court of Appeal faulted the Judge for giving excessive weight to the documentary evidence at the expense of the oral testimony.  However, the oral evidence on the rent free period reveals serious inconsistencies between the evidence of Mr Siu and Mr Mak, with the latter giving evidence highly damaging to the plaintiffs’ case. 

(a) As previously noted, Mr Siu testified that a 90 day rent free period had been agreed and maintained throughout.  At first, giving evidence in chief, Mr Mak agreed.[47]  However, shortly afterwards, he retracted his earlier answer:

“Q. ... Now, you’ve mentioned earlier on that you had agreed to give Mr Siu a rent-free period of 90 days, three months.

A. On this aspect, from my recollection, I said that it was 90 days, but for the exact figure, because it was such a long time ago, I can’t remember very clearly.

Q. I see.

A. And there’s a possibility that it was one of the tactics played by the landlord because when we said that we would give a rent-free period of 61 days or two months, and when the time comes there might be a possibility that we could give one more month’s rent-free period to the tenant.  And on this aspect, we might make the tenants feel better psychologically.”[48]

(b) In cross-examination, Mr Mak made it clear that 90 days represented the maximum rent free period that he would have been prepared to offer and that, in the course negotiation, he would have offered shorter periods without revealing his “bottom line”.[49]  In relation to Mr Siu, his evidence was that “we might have mentioned 30 days at the beginning” and that “later on they came back with their counter-offer of 60 days”.  He accepted the suggestion that he was unlikely to have informed Mr Siu of his willingness to offer 90 days.[50]

70.Mr Mak’s evidence in re-examination was even more damaging:

“Q. Now, first of all, before you accepted the deposit from Mr Siu, did you and him arrive at a rent-free period that was acceptable to both of you?

A. We had not yet reached that agreement.

Q. But did you discuss the range of the rent-free period?

A. Yes.

Q.  Can you now remember what that range was?

A. I should have said that it was about two months.

Q.  Did Mr Siu express any objection to a rent-free period of two months?  Did he say that, ‘Oh, if you can only give me two months’ rent-free period, then I’m not going to take this place’?

A. He never said so.

Q.  Did he indicate to you his preferred rent-free period?

A. Of course, he said the longer would be better to him.

Q. Yes, but did he name a period; three months, four months?

A. I can’t remember.”

71.Testing the witness evidence against the contemporaneous documents, one sees that:

(a) on 1 February 1997, the Letter of Intent proposed a 30 day rent free period;

(b) the Draft Agreement of 4 July 1997 set the period at 61 days;

(c) no complaint was made about the proposed rent free period in the plaintiffs’ letter dated 9 July 1997 which commented on the terms of the Draft Agreement; and,

(d)             the plaintiffs themselves put the rent free period at 61 days in their subject to contract letter of 15 July 1997.

72.It is therefore clear that Mr Siu’s assertion that a 90 day rent free period had been agreed and maintained throughout runs contrary to the rest of the evidence.  Mr Mak’s evidence is that he did not reveal to Mr Siu his “bottom line” of 90 days and therefore that the parties plainly never reached agreement on that basis.  Every document, including those of the plaintiffs, weighs against Mr Siu’s assertion.  The Judge was therefore entirely justified in holding that the plaintiffs had failed to show that agreement had been reached on the rent free period.

F.(iii) Option to renew

73.The plaintiffs’ original pleading was that the parties had agreed that the tenant would take a three year lease with an option to renew for a further term of two years.  It was only by a later amendment that there was inserted “or alternatively three years”.  As with the rent free period, such an equivocal pleading naturally casts doubt on the existence or clarity of any concluded agreement on the matter pleaded.  It is also noteworthy that the pleading says nothing about the rent payable on a renewal, which is obviously a matter of significance.

74.The Judge examined the various ways in which the option to renew was treated in the documents and noted the arguments of counsel then appearing for the defendant (Mr Kenny C P Lin) as to how they differed from Mr Siu’s testimony.  He does not say so expressly, but it seems likely that his Lordship considered the terms of the option to renew as part of the “so many fundamental or, at the very least, important matters” about which the parties had been unable to agree.[51]

75.In the Court of Appeal, Ma CJHC did not specifically mention the option to renew but accepted that the parties had agreed “the duration” of the tenancy.[52]  Part of Cheung JA’s asserted understanding was that there should be “an option to renew for 3 years at prevailing market rental but not exceeding 15% of the previous rent.”  That assertion obviously goes beyond what was pleaded in postulating a 15% ceiling on any rent increase.  As previously indicated, it evidently derives from Mr Siu’s witness statement.  However, a concluded agreement in such terms receives little support from the oral and documentary evidence.

76.Mr Siu’s evidence was that the agreed optional period of renewal was three years.[53]  He said nothing about what, if anything, was agreed as to the rent payable on renewal.  Mr Mak could throw no light on what had been agreed.  This was his evidence in chief:

“Q.   ... Did you also talk about the grant of an option to renew to the tenant?

A. Usually, for the food and beverages business, we have a longer period for this.  For example, we would say how many years of fixed tenancy and how many years of optional tenancy.

Q.  Can you now remember what was the option granted?

A. It is impossible for me to remember all these terms because I had so many tenants.  I only remember that we had agreed on that.”[54]

77.The Letter of Intent which Mr Mak caused to be sent to Mr Siu on 1 February 1997 stated that the Lessee would “have the right to renew for a further term of Two years at the then prevailing market rental.”  It says nothing about a 15% cap on any rent increase.  Mr Siu testified that the renewal term was wrong and ought to have been three years, but said nothing about a 15% ceiling.  And, as noted above, although he says that he had complained to Mr Mak and who replied that the document was “just a standard form” which did not yet need to be signed,[55] Mr Mak had no recollection of the complaint or his alleged response. [56] 

78.The next document to deal with an option to renew was the Draft Agreement.  It puts the period of renewal at two years at market rent to be determined by arbitration if necessary.  This is obviously inconsistent with Mr Siu’s evidence and with the asserted understanding, since it refers to two and not three years, and since it says nothing about a 15% cap on any rent increase.

79.When the plaintiffs wrote on 9 July 1997 commenting on the terms of the Draft Agreement, they dealt with the option to renew as follows:

“As to our security of tenure and investment return, we want to seek a lease for 3 years fixed with an option to renew for a further term of 3 years.”

If there was already a concluded contract in January and if Mr Siu had previously complained to Mr Mak that the Letter of Intent did not properly reflect their agreement on the option to renew, it is hard to credit that none of this should be mentioned in the letter since the Draft Agreement plainly repeats the alleged error.  Moreover, the letter is couched merely in terms of a request for a three-year option to renew and claims no entitlement to such a term.  When asked why this was so, Mr Siu could only say that the letter was drafted by the Development Manager, but that is no answer.  It is also noteworthy that the request makes no mention of a 15% ceiling on a rent increase.

80.The first mention of an option to renew for three years with a 15% ceiling is in the plaintiffs’ without prejudice letter of 31 July 1997, written after problems had arisen.  It states:

“During the course of negotiation, you do clearly indicate that our request for a term of 3 years fixed with an option to renew for a further term of 3 years at a rental of a maximum increment not more than 15% is acceptable.  However, in the meeting dated the 29th July 1997, you indicated this was unacceptable.  We feel a little bit of surprise but to give a step backward, to allow a percentage rental of 15% of gross turnover, whichever the higher during the optional term.”

It concludes with the threat that the plaintiffs would not proceed

“until all the terms and conditions for all our shops P215-P216, P112, P126 and P123B ... are concluded and finalized.”

81.This is very much the language of negotiation.  It does not say that it had been agreed that the plaintiffs would have an option to renew for three years with a 15% cap on rent increases.  Instead, it says that the defendant “clearly indicated” that the plaintiffs’ request for such a term “is acceptable”.  The plaintiffs say they are “a bit surprised” that the defendant now says this is unacceptable and their reaction is not to hold the defendant to what had been agreed, but to offer a potentially higher ceiling for a rent increase on renewal, ie, an increase calculated on 15% of the gross turnover, if that should prove higher than a 15% increase over the rent previously payable.  The closing threat acknowledges in terms that the terms and conditions for the relevant premises have not yet been “concluded and finalized.”

82.There was, accordingly, ample justification for rejecting Mr Siu’s evidence.  Mr Mak gave him little support and the Judge was fully entitled to prefer the contemporaneous documents as a true indication of the parties’ respective positions on the option to renew. 

F.(iv) Other terms and “subject to contract”

83.As this Judgment departs from the reasoning and conclusions of the Court of Appeal, I have thought it right, in deference to that Court, to analyse the evidence on certain important terms in detail.  In my view, the Judge was fully entitled to find that there was no concluded contract because final agreement had not been reached as to the commencement date, the rent free period and the option to renew, all being matters which the parties had plainly intended to be regulated by their contract. 

84.Such absence of agreement is fatal to the plaintiffs’ claim.  It is therefore unnecessary for me to consider at any length the further matters which, the defendant contends, were also still subject to negotiation.  I will confine myself to stating as follows:

(a) On the evidence, it is clear that at the end of January 1997, the parties had agreed in principle that the defendant was to provide and pay for kitchen facilities needed to service the intended restaurant and food court.  However, it is equally clear that no final agreement was reached as to the precise extent and cost of such facilities until 9 July 1997, well after a binding contract was said to have been formed.  The agreement in principle plainly did not involve the defendant giving the plaintiffs a blank cheque in relation to the kitchen facilities to be installed at its expense.  Neither did it enable the defendant to dictate to the plaintiffs acceptance of kitchen facilities that they might consider unsuitable or of an inadequate quality.  The kitchen facilities were therefore, in my view, another contractually important issue in a state of negotiation as at 27 January 1997.

(b) Similarly, although the parties plainly agreed that the plaintiffs should be permitted to sub-let or license out parts of the premises for operation of the food court, the evidence indicates that the defendant’s agreement was not unconditional.  Mr Mak stated that the defendant would “of course” wish to screen the proposed sub-tenants, whereas the plaintiffs’ position was that they could sub-let without any such qualification.

(c) The evidence also indicates that operationally important issues had been raised but, as late as July 1997, had still not been settled, including the intended operating hours of the restaurant and food court.

(d) On the other hand, I do not accept Mr Chan’s submission that there had been no agreement as to the identity of the tenant in the light of the Judge’s unchallenged finding that :

“...Mr Mak and Mr Siu had agreed between themselves that the lease would be granted not to the 2nd Plaintiff, although the negotiations were to be conducted with them, but to a company that would be specially formed to operate the business from the premises.”[57]

85.It is similarly unnecessary for me to deal at length with the Judge’s finding that the matters which had been agreed “were always going to be subject to a formal lease being agreed between the parties.”[58]  In my view, he was entitled to come to that conclusion on the following basis:

(a) Both parties clearly anticipated that there would be a written tenancy agreement (as one would expect with a commercial letting between a listed property company and a substantial retail group).[59] 

(b) Mr Mak’s assertion that he considered the defendant bound and his view of arrangements stated to be “subject to contract” must be approached with great care.  He explained in cross-examination that he considered himself bound in honour to keep any promise made.  He said that even if the documents were stated to be subject to contract, he “would not make use of it”.[60]  At the same time, as noted above, he accepted that possession had been given to the plaintiffs on 5 July 1997 in anticipation that the defendant would be “able to have a formal tenancy agreement”.[61]  His evidence in this context was therefore highly equivocal and provides an unreliable basis for finding that the negotiations were not subject to contract.

(c) The Letter of Intent which was routinely required to be signed by a prospective tenant[62] and which Mr Mak caused to be sent to the 2nd plaintiff upon receipt of the initial deposit contained a standard clause stipulating that the terms were offered “subject to formal lease”.  The defendant was therefore evidently adopting its usual stance of conducting negotiations subject to contract.  The plaintiffs never protested that this was inappropriate.  The reasons given by Mr Siu for not signing the Letter of Intent did not include any objection to the “subject to lease” formula.[63]

(d) The plaintiffs’ own letter of 15 July 1997 was marked “subject to contract”.

86.The Judge rightly rejected the defendant’s claim to be entitled to forfeit the initial deposit.  Given that there was no concluded agreement of any kind, there was no basis for contending that the money should be forfeited if no tenancy agreement was signed.  The claim to retain the money in such circumstances was misconceived.  As Robert Walker LJ stated in Guinness Mahon Ltd v Kensington and Chelsea LBC [1999] QB 215 at 240:

“Where a supposed contract is void ab initio, or an expected contract is never concluded, as in Chillingworth v Esche  [1924] 1 Ch 97, no enforceable obligation is ever created but the context of a supposed or expected contract is still relevant as explaining what the parties are about. An advance payment made in such circumstances is not a gift and is not to be treated as a gift.”

The Court of Appeal duly dismissed the defendant’s appeal against the Judge’s decision on this point.  The decisions below on forfeiture of the deposit (and also dismissing the defendant’s counterclaim for mesne profits) are not the subject of appeal before this Court and remain undisturbed.

87.I should finally briefly mention Pagnan S p A v Feed Products Ltd [1987] 2 Lloyd’s Rep 601, which was heavily relied upon by Ms Eu.  In that case, it was recognized that in the course of a long negotiation, the parties may intend to enter into a legally binding interim agreement which is unaffected by their continued negotiations carried out against the background of such agreement.  In such a case, failure of the further negotiations does not affect the status of the interim agreement as a concluded contract.  However, that situation does not arise in the present case where the evidence simply does not support the existence of any such interim agreement. 

G. Conclusion

88.For the foregoing reasons, I would allow the appeal and set aside the Judgment of the Court of Appeal (save in respect of forfeiture of the deposit and the counterclaim).  I would direct by way of order nisi that:

(a) the respondents should pay to the appellant the costs of the appeal before this Court and before the Court of Appeal, including the costs of the application to the Court of Appeal for leave to appeal; 

(b) the order that half the costs of the application for leave to appeal before the Appeal Committee should be paid by the appellant to the respondents in any event should remain undisturbed;

(c) the costs order of the trial judge should likewise remain undisturbed; and

(d) any submissions on this costs order nisi be made in writing and filed and served within 14 days of the date of this Judgment, and any submissions in response thereto be filed and served within 14 days thereafter.

Mr Justice Nazareth NPJ:

89.I agree with the judgment of Mr Justice Ribeiro PJ.

Lord Millett NPJ:

90.I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Bokhary PJ:

91.The Court unanimously allows the appeal and makes the orders referred to in paragraph 88 of the judgment of Mr Justice Ribeiro PJ.

Mr Edward Chan SC and Mr Kenny C P Lin (instructed by Messrs D S Cheung & Co) for the appellant

Ms Audrey Eu SC and Mr Benjamin Chain (instructed by Messrs Louis K Y Pau & Co) for the respondents

[1] Halsbury’s Laws of England, 4^th Ed, Vol 27(1), para 60.

[2] Para 21.

[3] Paras 19 and 21.

[4] Para 42.

[5] Para 44.

[6] Para 6(2).

[7] Para 8(2).

[8] Para 8(4).

[9] Para 84.

[10] Para 86.

[11] Para 2(5).  Acceptance of that submission is expressed at para 8(1).

[12] Para 60.

[13] Witness statement, para 19.

[14] Para 52.

[15] Para 60.

[16] See for instance, Goff & Jones, The Law of Restitution (Thomson Sweet & Maxwell, 6^th Ed) §26-001 et seq.

[17] Transcript p 389.

[18] Para 65.

[19] Para 9.

[20] Transcript p 366.

[21] Transcript p 344.

[22] Mr Mak accepted in cross-examination that, apart from an error he identified in relation to the rent free period of 30 days, the Letter of Intent “represented at that stage the terms [he had] presented to the tenant before the signing of the tenancy agreement” and that it was “[his] stance up to that stage ...” (Transcript p 371).

[23] Transcript p 102.

[24] Transcript p 103.

[25] Transcript p 345.

[26] 3^rd Schedule.

[27] 6^th Schedule.

[28] 6^th Schedule.

[29] §2.06.

[30] §2.38(iii)

[31] §2.45, 5^th Schedule.

[32] §2.58.

[33] §2.52.

[34] Any privilege having been waived.

[35] Para 42.

[36] Transcript p 338.

[37] Transcript p 380.

[38] Respondents’ Printed Case, para 46.

[39] Respondents’ Printed Case, para 51.

[40] Transcript p 102.

[41] Para 3(7).

[42] Transcript p 94.

[43] Transcript p 163.

[44] Para 29.

[45] Paras 2(5) and 8(1).

[46] Para 70.

[47] Transcript p 340.

[48] Transcript p 346.

[49] Transcript pp 371-372.

[50] Transcript p 373.

[51] Para 42.

[52] Paras 2(5) and 8(1).

[53] Transcript pp 94 and 159-160.

[54] Transcript p 337.

[55] Transcript p 103.

[56] Transcript p 345.

[57] Para 47.

[58] Para 42.

[59] Mr Siu, when shown clause 7 of the Letter of Intent acknowledged that he anticipated that a formal lease agreement would be signed: Transcript p 94.  Mr Mak explained that although they were not able to sign the formal tenancy agreement because the amount of the deposit had not been finalised, he was not worried because he never doubted Mr Siu’s “sincerity and reliability”: Transcript p 342.

[60] Transcript p 375.

[61] Transcript p 389.

[62] Transcript p 344.

[63] Transcript p 102.