KONG COLIN CHUNG PING AND ANOTHER v. KONG WING ON AND OTHERS

HCMP 2045/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2045 OF 2012

________________

___________________

J U D G M E N T

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1. The plaintiffs who are two of the beneficiaries under the will of the late Kong Wing Hong (“the testator”) seek a declaration that the tenancy agreements exhibited as “KWO-7” to the affidavit of Kong Wing On (“the defendant”) are invalid, void and/or not enforceable. At the conclusion of the hearing judgment was reserved which I now give.

Background facts

2. The testator died on 9 June 2003 leaving a last will and testament dated 11 March 1996 and a codicil dated 24 June 1997 (“the 1997 codicil”).  The defendant obtained a grant of probate to the testator’s estate on 6 March 2006.  He is the testator’s younger brother and was 83 years of age at the testator’s death.

3. There are four beneficiaries under the testator’s will and 1997 codicil: the defendant, Tam Wai Fong (the testator’s long-term partner) and the plaintiffs (the testator’s grandchildren).

4. The testator and the defendant (“the brothers”) had operated in partnership a pharmaceutical business and related business trading under the business name of On Hong Ning Drug Company (“the Business”) since about 1950.  They were also equal shareholders (each holding one share) and permanent directors for life of On Hong Ning Drug Company Ltd (“the Company”) and On Hong Ning Drug Company (Mongkok) Ltd (“the Mongkok Company”), incorporated in 1970 and 1969 respectively (collectively “the Companies”).  However, it would appear that the Company has never been in operation and the Mongkok Company has been dormant since the end of 1993.

5. The Business was and continues to be conducted from two addresses:

(1)    the basement, ground floor, 1^st, 2^nd, 14^th floors and roof of 792 Nathan Road (“the Nathan Road premises”) being part of a building that comprises 16 floors in total (“the Prince Edward Building”); and

(2)    the building comprising the basement, ground floor and 1^st floor of 313 Nathan Road (“the Jordan premises”)

The Nathan Road premises and the Jordan premises are hereafter collectively referred to as “the Premises”.

6. The brothers were tenants in common of the Prince Edward Building and the Jordan premises.  While the Business occupied the Premises, there was no lease and during the testator’s lifetime no rent was paid or other payment made in respect of such occupation.

7. Although the estate comprised other properties, it is unnecessary for present purposes to describe them here.

8. In September 2012, the plaintiffs issued an originating summons for:

(1) the removal of the defendant as executor of the estate;

(2) the appointment of a fit and proper person to replace him as executor;

(3) an order for a true and perfect inventory and account of the estate to be made by the defendant pursuant to section 56 of the Probate and Administration Ordinance;

(4) an account by the defendant of his dealings with the estate and any assets therein; and

(5) an order for payment of all sums found due on the taking of such account and other consequential relief.

9. The plaintiffs complained that the defendant (who was the sole executor until 13 November 2013) failed to render proper accounts, failed to properly administer the estate and by occupying the Premises and not accounting for rental income, put himself in a conflict of interest situation and was in breach of his fiduciary duties.

10. The defendant filed his affidavit in opposition to the originating summons on 5 December 2012 (“the 1^st affidavit”), disclosing that the testator and the defendant as landlords and the Company as tenant had entered into two tenancy agreements in 1996.  The exhibit marked “KWO-7” to that affidavit contains the two tenancy agreements, the validity of which is in issue.

11. After learning of the existence of the tenancy agreements, the plaintiffs obtained leave in May 2013to amend the originating summons.  The amendment inserted (as paragraph 1A) an additional head of relief: for a declaratory order that the tenancy agreements are invalid, void and/or not enforceable.

Procedural history

12. The procedural history explains why these proceedings have been brought by the plaintiffs (who are beneficiaries) and the unusual developments that have occurred.

13. The originating summons was fixed for hearing on 13 November 2013 with three days reserved.  Prior to the hearing, no written submissions from the defendant were received by the court which was an unusual state of affairs.  At that stage, the defendant’s solicitors were Philip KH Wong, Kennedy YH Wong & Co (“PWKWC”).

14. It transpired that the partner at PWKWC in charge of the matter having, several months earlier, retained senior and junior counsel to represent the defendant, had their diaries vacated two to three weeks prior to the hearing, informing them that the matter had settled when, in fact, that was not the case.  Mr Chain (who had been counsel in the matter until his diary was vacated) was instructed by PWKWC the evening prior to the hearing, but limited to applying for an adjournment.

15. The plaintiffs opposed the application for an adjournment on the basis that there was urgency in the matter given, inter alia, the advanced age and ill health of the defendant and the fact that an asset of the estate required urgent attention.  Although Mr Chain tried to take instructions to see if the defendant would be willing to resign, he was unable to do so as the defendant was said to be “still asleep” when PWKWC tried to contact him.

16. In those circumstances, an order was made, inter alia, removing the defendant as executor of the testator’s estate and appointing Mr Li Ka Sing as the substituted executor. The court ordered PWKWC to pay the costs of the hearing (summarily assessed) to the plaintiffs and all matters under the originating summons were adjourned to 26 November 2013 for further directions.

17. At that adjourned hearing, it was ordered that paragraph 1A of the amended originating summons be set down for trial on 25 February 2014 with one day reserved, the parties agreeing that no oral evidence was required.

18. The defendant then applied for and was granted leave to file a further affirmation within 28 days and the plaintiffs were granted leave to file an affirmation in reply.  §4 of the order dated 26 November 2013 expressly provided that “if the further affidavits raise issues of disputed fact, they shall not be admitted into evidence”, the court indicating that the date fixed for the hearing of the validity of the tenancy agreements was a “milestone” date.  A further directions hearing was then fixed for 13 February 2013.

19. On 24 December 2013, the affirmation of Chan Cam Pui Rose (“Ms Chan”) was filed on behalf of the defendant.  The plaintiffs took out a summons on 12 February 2014 (amended on 17 February 2014) to strike out that affirmation in whole or in part due to its contents being scandalous, irrelevant and/or oppressive; alternatively, for an injunction to restrain the defendant from adducing or relying on that affirmation.

20. At the directions hearing, Mr Li, (“the Executor”) was added as the second defendant pursuant to Order 15, rule 6(2)(b) and the striking out application fixed for hearing on 21 February 2014.

21. At the conclusion of the striking out hearing, the decision was reserved and is now dealt with as part of this judgment.

The tenancy agreements and related matters

22. The brothers were long standing clients of PWKWC (and its predecessor firm, Philip KH Wong & Co).  In late 1995, PWKWC received instructions to draw up various documents.  However, it is unclear who gave the instructions, how they were given and to whom they were given.  Had a file note recording the instructions received existed, that would have cast light on the matter.  None is in evidence.

23. The brothers executed a deed dated 11 March 1996 (“the Deed”) whereby they agreed to execute mutual wills under which each bequeathed to the other his share and interest in the Business and the Companies conditional on the other surviving him, failing which such gift would lapse and fall into his residuary estate.

24. Apart from executing the mutual wills dated 11 March 1996, each of the brothers also executed a codicil of that date which dealt with other bequests concerning property that was not the subject matter of the mutual wills.  In the testator’s case, the codicil he executed on 11 March 1996 was revoked by the 1997 codicil.

25. The defendant’s evidence (§4 of his 2^nd affidavit) is that he and the testator:

“… had purposely entered into with the deed and the mutual will arrangement to ensure the surviving brother would continue the business and could securely continue to live on the business in his remaining years, after the death of one of us.” (emphasis added)

26. The defendant explained that there had always been consensus between the brothers that the business should continue to be operated with least interruptions up on the death of either the testator or the defendant and that was the reason for the tenancy agreements.

27. The tenancy agreements had been drafted by PWKWC.  The back sheet of each bears the name of the firm.  Except that one relates to the Jordan premises and the other to the Nathan Road premises, they are identical in all other respects.  Accordingly, it is sufficient to set out the contents of only one of them in full.  Each comprised three pages including the back sheet:

“Premises:	[The Jordan premises / the Nathan Road premises]
Landlord:	KONG WING HONG (江永康) of House No8, Windsor Park, 2/88 Ma Ling Path, Kau To, Shatin New Territories, Hong Kong, and
	KONG WING ON (江永安) of No120 Dumbarton Road, Kowloon, Hong Kong
Tenant:	ON HONG NING DRUG COMPANY,LIMITED (安康寧大藥房有限公司) whose registered office is situate at Ground Floor, No792 Nathan Road, Kowloon, Hong Kong.
Term of Tenancy:	five years commencing from __ to ___.
Rent:	HKD3.00 per month exclusive of Rates.
Rates, Crown Rent, Property Tax, utilities and management expenses:	to be borne by the Tenant.
Use:	non-domestic use.
Sub-letting:	right for the Tenant to sub‑let or to authorise use of the Premises by way of Licence to KONG WING HONG and KONG WING ON or any one of them trading as ON HONG NING DRUG COMPANY (安康寧大藥房).
Stamp duty:	Stamp duty payable in respect of the tenancy of the Premises be borne by the Tenant.
Renewal of Tenancy:	option for the Tenant to renew the tenancy hereby created four times, each time for a term of five years on the same terms (this option clause excepted).
Dated the ___ day of ___ 1996.
Landlord:

	(KONG WING HONG)	(KONG WING ON)
Address:	House No 8, Windsor	No 120 Dumbarton
	Park, 2/88 Ma Ling	Road, Kowloon
	Path, Kau To, Shatin,	Hong Kong
	New Territorise,
	Hong Kong

Tenant:
Address:	Ground Floor,
	No 792 Nathan Road,
	Kowloon,
	Hong Kong.
	Dated the ___ day of ___ 1996.
	&&&&&&&&&&&&&&&&&&&&&&&
	TENANCY AGREEMENT
	of
	[Address of the Jordan premises /
	the Nathan Road premises]
	&&&&&&&&&&&&&&&&&&&&&&&
	Registered in the Land Registry
	by Memorial No ____ on ____
	PHILIP K H WONG,
	KENNEDY Y H WONG & CO
	SOLICITORS & NOTARIES,
	HONG KONG”

28. The defendant gave the following account in §48 of his 1^st affidavit as to how and why the tenancy agreements came into being:

“In order to facilitate our consensus that the business should continue to be operated with least interruptions upon the death of either the [testator] or myself, the [testator] and I, as landlords, and [the Company], as tenant, entered into two tenancy agreements in 1996 whereby [the Company] is entitled to occupy the [Premises] at a rent of HK $3 per month (exclusive of rates) and with the right to sub‑let or to authorise use of the [Premises] by way of license to the [testator] and myself and any one of us trading as On Hong Ning Drug Co (安康寧大藥房有限公司) (‘the Tenancy Agreements’) (see KWO-7). Furthermore, there was a mutual agreement between the [testator] and I that the term of the tenancies under the Tenancy Agreements would be left blank and were to be filled in by the [testator] or myself upon the death either one of us. Both of the Tenancy Agreements provide for an option to renew for four times, each time for a term of five years. The intention was that either of us could carry on the business with least interruption for at least 20 years, so that we can live on the earnings of the business, upon the death of either of us.”

29. Eight months later, on 13 July 2013, the defendant made his 2^nd affidavit and in §5 elaborated on §48 of his 1^st affidavit as follows:

“… the genesis of the two Tenancy Agreements could be traced back to the mutual agreement between the [testator] and me to ensure that the business could continue, and could continue to be run at the [Premises] on rent-free basis, for the benefit of the surviving brother after the prior demise of one of us. This was the same mutual agreement underlying the execution of the Deed and the mutual wills in 1996. The Tenancy Agreements were drafted by the same firm of solicitors who prepared the Deed and the mutual wills. They were also prepared in 1996 at the time when the Deed and mutual wills were executed. Pursuant to that mutual agreement, the [testator] and I pre-signed the Tenancy Agreements leaving blank the date and term, and agreed that the same should be filled upon the death of either one of us, by the surviving brother. Further, in order to ensure the arrangement could last through the life of the surviving brother, the Tenancy Agreements expressly provided for an option to renew for four times, each time for a term of five years. For the reasons given above, and pursuant to the mutual agreement, I therefore filled in the term of tenancies as both 5‑year term commencing 9 June 2003 (being the date when the [testator] died). Further, upon legal advice, I caused the same to be dated and submitted for stamping in April this year.”

30. It would appear from the copies of the tenancy agreements the defendant then exhibited as “KWO-11” that, apart from filling in the commencement date of the term, the defendant caused the rubber stamp of the Company to be affixed to each of the tenancy agreements, signed the same as “Chairman” and inserted the date “18 April 2013” next to his signature. Prior to that date, the tenancy agreements had not been executed by the tenant.

THE CHAN AFFIRMATION

31. Ms Chan who made the affirmation dated 24 December 2013 (“the Chan affirmation”) has been in the employ of PWKWC as a legal executive since November 1990 and as such executive by its predecessor firm since 1985.  Plainly, Ms Chan would have been working under the supervision of a partner but, for reasons not explained, the supervising partner has chosen to remain silent in this affair.

32. The plaintiffs object to the Chan affirmation on the basis that it contains privileged material, opinion/hearsay evidence and finally, because it raises disputed issues as to which the plaintiffs would wish to have cross examination, it should not be admitted into evidence having regard to paragraph 4 of the order dated 26 November 2013.

33. The Chan affirmation is essentially an account from Ms Chan’s perspective of Ms Chan’s dealings/contact with the brothers when the Deed, the mutual wills and the tenancy agreements came into being.  There are several exhibits to the affirmation including the following.

34. The first is an undated Chinese document prepared by Ms Chan (“the notes”) setting out matters requiring clarification or instructions and a list of topics requiring consideration.  The notes appear to be an aide memoir.  While they contain manuscript annotations in Chinese, none has been translated.  The only translation to be found in the body of the affirmation itself is the list of topics.  The second is a one-page document in English dated 25 November 1995 itemizing the documents to be drafted, identifying the areas that required further instructions.  However the notes and the 1995 document shed no light on the relevant issues. 

35. Also exhibited were PWKWC’s bills issued to each of the brothers, the cheques received in settlement and the formal receipts issued.  In addition, a deed of revocation and the testator’s will concerning a PRC property were also exhibited.

36. That is the sum total of exhibits to the Chan affirmation notwithstanding Ms Chan’s access to PWKWC’s files.  That in itself is surprising and gives rise to the inescapable inference that no file note exists that recorded (whether or not contemporaneously) instructions received, attendance on the client(s), meetings, advice rendered etc. and that diaries (assuming they existed) are no longer available.

37. The Chan affirmation concerns events that took place some 18 years ago.  Notwithstanding the fact that Ms Chan had almost nothing with which to refresh her memory concerning her communications with her clients (other than the documents drafted by her firm, the notes and the 1995 document), she was able to make a relatively lengthy affirmation (exceeding 9 pages). In the absence of contemporaneous file notes, it could be said to be a remarkable feat but its reliability is quite another matter. In any event, much of the Chan affirmation was taken up with accounts or descriptions of the wishes and intentions of, inter alia, the testator. But there being no record of the actual words used, they can only be Ms Chan’s conclusion as to such wishes/intentions, based, it seems, on little more than her recollection. It is evident that the Chan affirmation can have little (if any) probative value of the testator’s wishes or intentions even if it were admissible.

38. If the Chan affirmation is allowed into evidence, cross examination of Ms Chan would be inevitable.  Necessarily, that course would derail the milestone date which I had already made plain would not be allowed to happen.  As a case management matter therefore, it is clear that the Chan affirmation is not to be admitted into evidence and that is the course I propose to adopt.

39. In deference to counsel, I propose to say a few words on the question of joint privilege.

40. A significant part of the Chan affirmation contains material protected by legal professional privilege.  The issue is whether the privilege was a joint privilege, which is question of fact.  Joint privilege arises where two or more parties jointly retain the same solicitor or they had a joint interest in the subject matter of the communication at the time that it comes into existence. 

41. If joint privilege is established, the parties to it cannot assert privilege against one another even if they subsequently fall out.  However, against any third party (other than a successor in title who stands in the shoes of the original party), both can maintain a claim for privilege. Where joint privilege exists, it can only be waived jointly.

42. Mr Chain contended that given the Deed, the mutual wills and the tenancy agreements, there must have been a joint retainer.  I can see the force of the argument.  Nevertheless, this case has highly unusual features.

43. Apart from drawing up the Deed, the mutual wills and the tenancy agreements, PWKWC also prepared a codicil for each of the brothers that concerned testamentary disposals of other assets such as his half share in the Prince Edward Building and the Jordan premises. 

44. There is a clear distinction between a joint retainer and separate retainer of a common solicitor.  Each of the brothers obviously also obtained advice on an individual and exclusive basis in connection with at least some of their testamentary dispositions.  So, on the facts, the separate retainer of a common solicitor is a distinct possibility.

45. There is no clear and unambiguous account of how contact was first made with PWKWC in relation to the work to be done, between whom, and exactly what the instructions were.  That is probably attributable to the absence of properly kept records on the part of PWKWC. Further, from the way the Chan affirmation has been worded, it is difficult to tell with any degree of certainty whether the brothers ever attended a meeting at PWKWC together.  Despite the fact that a number of meetings took place, it would appear that the brothers went separately at different times of the same day and/or on different days.  They were also separately billed and for different amounts.  All those matters are wholly consistent with the separate retainer of a common solicitor.

46. The factual question whether joint interest privilege exists does not admit of an easy answer in the present case largely because of the absence of PWKWC’s file notes and in particular of any written record of the original retainer for the work in question. The burden lies on the party asserting joint privilege. On the present facts, I am not persuaded that joint privilege has been established. 

47. As a footnote, I would add that had joint privilege been established, it would then have been necessary to consider the scope of the rule in Russell v Jackson (1851) 9 Hare 387 (which established an exception to the solicitor-client privilege in the wills context) and the decision of the Canadian Supreme Court in Geffen v Goodman Estate [1991] 2 RCS 353 (which applied the exception outside a wills context).

48. Mr Chain submitted that even if joint privilege did not exist, at the very least, there would have been common interest privilege.  Common interest privilege is considered to be “residual in nature”.  It arises where party A voluntarily discloses the document which is privileged in its hands to party B who has a common interest in the subject matter of the communication or in litigation in connection with which the document was brought in to being: Thanki, The Law of Privilege, 2^nd Edition, §6.16.  It is apparent that that description does not fit the present case and has no application. 

WHETHER THE TENANCY AGREEMENTS ARE VALID

49. This question gives rise to sub-issues.  Both Mr Lynn who appeared for the plaintiffs and Mr Siu who appeared for the Executor (recently joined as the second defendant) challenged the validity of the tenancy agreements.

    Section 4 of the Conveyancing and Property Ordinance, Cap 219 (“the CPO”)

50. The first objection raised is that, as required by section 4 of the CPO, the tenancy agreements should have been by deed

51. While void at law, an informal lease if sufficiently evidenced in writing and made for value is treated as a contract to grant the lease agreed upon.  Under the doctrine in Walsh v Lonsdale (1882) 21 Ch D 9 it is treated as an effective lease.  Therefore, unlessthe tenancy agreements can be shown to satisfy section 3 of the CPO (considered in §§ 81-88 below), non-compliance with section 4 would render the tenancy agreements void.

    Failure to specify a commencement date for the term

52. Mr Lynn invited attention to the fact that at the date of the testator’s death, no commencement date for the term was specified in the tenancy agreements.  Nor did they identify any ascertainable event from which the term was to commence.  He submitted that the tenancy agreements are not concluded agreements and thus are void and unenforceable: Harvey v Pratt [1965] 1 WLR 1025 and One Queen Co Limited v Chan Siu Lan & Anor [1989] 1 HKC 146 (where the identifiable event was evident from the terms of the agreement itself).

53. Mr Chain’s answer was that the law has moved on since Harvey v Pratt.  He referred to the decision of a Neuberger J (as he then was) in Liverpool City Council v Walton Group Plc [2002] EGLR 149 at §46, where it is stated that

“The question that therefore falls to be determined is whether, after considering all those matters that can properly be taken into account when construing the agreement and the draft lease, one can, with ‘reasonable certainty’, be satisfied as to the date upon which the parties intend the lease to start.”

54. Based on those observations, Mr Chain submitted that the context is important and the factual matrix of the tenancy agreements must be looked at.  But before doing so, it is necessary to consider the phrase “those matters that can properly be taken into account” in the context of the factual situation in Liverpool.

55. In that case, the council and W entered into an agreement whereby W agreed to develop land for the council.  The agreement, which was subject to conditions precedent, contained provisions under which W would be entitled to the grant of a 999-year lease.  Clause 4.13 of the agreement referred to a draft lease which was annexed to the agreement. The observations cited highlighted the central point raised by the issue in Liverpool, namely, whether the agreement for lease in clause 4.13 is void in law because it did not contain a commencement date.

56. The judge reached the view “with reasonable certainty” from reading the draft lease with the agreement, and in particular with clause 4.13, that the term was to commence from the date of execution.  He stated (at §§57-58):

“Under the agreement, W was to carry out a lot of work at substantial expense, and with a real risk that it would be all wasted, in return for which it was to be granted a very long 999-year lease at no rent. The parties had set out a number of hurdles that [W] had to cross, and if and when the council were satisfied that they had been crossed, the council had to serve a notice, whereupon the parties had six weeks within which to execute the projected lease, in return for which [W] was to pay a very substantial sum, and from which date, on any view, [W’s} obligations as lessee would arise.

… The only candidates that could properly be put forward as alternatives for the date upon which the term is to commence are the date of execution of the leases and the date upon which the decision notice is served … Looking at the matter from the perspective of persons of reasonable intelligence and commercial common sense …it appears to me that the earlier date, namely the date of the decision notice, would probably not even have occurred to them as a possible start date …

57. In that case, the matters that “could properly be taken into account” were not at large as being the surrounding circumstances generally but were confined to matters that emerged from the agreement read with the draft lease.  What Mr Chain invited the court to do in the present case is rather different.  I do not consider that the Liverpool case is authority for Mr Chain’s approach which is to resort to extrinsic material including prior negotiations and declarations of subjective intent.

57.     Prima facie, the tenancy agreements appear to be void as incomplete agreements under the Harvey v Pratt principle, subject to the further questions whether there is an implied term that they are to commence on the date of death of either of the testator or the defendant (whichever shall first occur) and whether a sufficient memorandum of the terms of the tenancy agreements exists for the purposes of section 3 of the CPO.

    Implied term

58. Mr Chain submitted that, as a matter of law, the implication of terms is an exercise in interpretation, citing Attorney General v Belize Telecom Ltd [2009] 1 WLR.  He submitted that the intention of the brothers as to when the term under the tenancy agreements should commence is clear when viewed against the objective context or factual matrix.  In substance, it reflects Mr Chain’s approach based on the Liverpool case. The question is what the relevant background is under Belize.

59. The factual matrix Mr Chain outlined (derived from the evidence of the defendant) was as follows: the brothers have been carrying on the Business as equal partners for decades; they were the owners of the Premises; the Business had always occupied the Premises rent-free and without legal formalities; the brothers executed the Deed and made mutual wills bequeathing their respective share of and in the Business and the Companies to one another; and solicitors were instructed to prepare the tenancy agreements which the brothers signed.

60. In terms of background knowledge or relevant factual matrix, it is Mr Chain’s case that the defendant’s evidence is admissible generally by way of background and, in particular, to explain why the commencement date of the term was not filled in (namely, that the brothers mutually agreed that it should be left blank, to be filled in on the death of either of the brothers) and why the tenancy agreements which had been professionally drawn up and intended to be stamped and registered (as is apparent from the back sheets) were not.

61. Mr Chain submitted that the overwhelming inference to be drawn from the factual matrix is that the brothers intended the survivor to enjoy the Premises for the continuation of the Business.  He submitted that in those circumstances, as a matter of interpretation, it could be said “with reasonable certainty” or it “went without saying” that the commencement date of the term would be the death of either of the brothers.

62. I turn to consider Belize.  In delivering the judgment of the Board) Lord Hoffmann explained (at §§16-18) that:

“16. The court has no power to improve upon the instrument which it is called upon to construe… It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed… It is this objective meaning which is called the intention of the parties…

17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs…

18. … the implication of the term is not an addition to the instrument. It only spells out what the instrument means.” (emphasis added)

63. Then at §21 Lord Hoffmann stated:

“It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean”.

64. A critical distinguishing feature of the present case is that, unlike Belize where the parties did not expressly provide for an eventuality that occurred (because the draughtsman had not fully thought through the contingencies which might arise), the “term of tenancy” was an express provision: the term was for 5 years except that the brothers failed to specify the commencement date, leaving it blank.  It was therefore a matter that was very much within the contemplation of the parties since they had made express provision for it.  Prima facie, Belize is thus distinguishable.

65. In my view, to imply a term in the circumstances described above would be to add to an instrument rather than to interpret it and that is not permissible: see §62 above.

66. If I am wrong about this, then the question to be decided is that posed in §21 of Belize.

67. Mr Chain placed considerable reliance on the following passages from the speech of Lord Hoffmann in the House of Lords’ decision in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 as support for the admissibility of the defendant’s evidence generally and, in particular, to his explanation as to why the commencement date was left blank:

“33. I do however accept that it would not be inconsistent with the English objective theory of contractual interpretation to admit evidence of previous communications between the parties as part of the background which may throw light on what they meant by the language they used. The general rule... is that there are no conceptual limits to what can properly be regarded as background. Prima facie, therefore, the negotiations are potentially relevant background … In principle, however, I would accept that previous negotiations may be relevant.” (emphasis added)

…

42. The rule excludes evidence of what was said or done during the course of the negotiating the agreement for the purpose of drawing inferences about what the contract meant.  It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties, or to support a claim for rectification or estoppel.  These are not exceptions to the rule.  They operate outside it.”

68. §33 of Chartbrook is relevant to situations where there is ambiguity as to “what they meant by the language they used”: in such a case, the relevant background might throw light on what the parties meant.  But that is not the present case.  If anything, Lord Hoffmann’s observations in §33 of Chartbrook reinforce the view expressed in §65 above.

69. As regards § 42 of Chartbrook, Mr Chain’s position was that the evidence as to the commencement date is admissible to establish a fact which is relevant as background.

70. The effect of the Deed and the mutual wills is that the share in the Business and the Companies would devolve on the surviving brother.  However, it is to be observed that when the Deed and mutual wills were executed, the brothers were already in their 70s and there could be no foregone conclusion that the Business would necessarily be carried on.

71. Significantly, unlike his share in the Business and the Companies, the testator did not bequeath his half share in the Premises to his brother.  He had other testamentary provisions in mind. In other words, it was not go to his brother. That is relevant in the context of the term to be created under the tenancy agreements.

72. The defendant’s evidence as to the “objective” of the Deed and mutual wills is that they “would ensure that the surviving brother would continue the Business and could securely continue to live on the business in his remaining years” and that underlying the Deed and mutual wills was a mutual agreement between the brothers “to ensure that Business could continue to be run at the [Premises] on rent-free basis, for the benefit of the surviving brother”, that same mutual agreement being said to be the genesis of the tenancy agreements (see §§4‑5 of the defendant’s 2^nd affidavit).

73. The first matter to note is that evidence of a party’s objective in pre-contractual negotiations is within the exclusionary rule.  Lord Wilberforce considered it “totally dangerous” to admit evidence of one party’s objective: even if that was known to the other party and that it would be a matter of speculation how far the common intention was that the particular objective should be realized: see Prenn v Simmonds [1971] 1 WLR 1381 at 1385 (cited by Lord Hoffmann in Chartbrook at §31).  While surrounding circumstances are objective facts, “statements in the course of pre-contractual negotiations will be drenched in subjectivity and, if oral, be very much in dispute”: Chartbrook at §38.  It is also important not to lose sight of the fact that after revisiting the rule that pre-contractual negotiations are inadmissible (“the exclusionary rule”), the House of Lords reaffirmed it. In my view, the defendant’s evidence as to intention or objective at the pre-contractual negotiating stage is inadmissible as background and context under Chartbrook.

74. Were it permissible to take that evidence into account then, according to the defendant, the rationale for the term (five years renewable four times, each time for a term of five years) was to achieve the objective which was “to ensure the arrangement could last through the life of the surviving brother” (§5 of the defendant’s 2^nd affidavit).

75. But it is immediately apparent that the rationale is at odds with the term contained in the tenancy agreements since, potentially, that term could last for 25 years and was not limited to the lifetime of the surviving brother as one would have expected having regard to §§ 25 and 72 above.  Importantly, the tenant was the Company and not the surviving brother.

76. It is evident that the term of the tenancy agreements does not sit comfortably with the objective stated in §§4-5 of the defendant’s 2^nd affidavit.  The mismatch cannot be attributed to the fact that the brothers were laymen and untrained in the law given that a firm of solicitors (PWKWC) had prepared the tenancy agreements.

77. It might be mentioned that even on that issue of objective, the defendant has not been consistent in his evidence.  §8 of the defendant’s 1^st affidavit stated a different intention: “that we can live on the earnings of the Business for at least 20 years in the event that either of us died”.

78. The defendant also asserted that there was a mutual agreement that “the term” (as per §48 of the 1^st affidavit) or “date and term” (as per §5 of the 2^nd affidavit) of the tenancies was/were to be left blank, to be filled in by the surviving brother. But the tenancy agreements were not home-made documents.  Rather they were professionally prepared.  Drafting difficulties that could have caused the commencement of the term to be left blank simply did not exist.

79. It would appear from §17 of Supplement Submissions that Mr Chain recognized that the defendant’s explanation as to why the commencement date was left blank is not admissible to prove the implied term.  While there is a suggestion in his supplemental submissions that such evidence is admissible to support a claim for estoppel, no such claim has been raised. It was then said that it is admissible to establish a fact which is relevant as background. The alleged ‘fact’ is nothing other than an alleged oral collateral agreement between the brothers to establish an ascertainable commencement date. But as the alleged oral agreement would not have presented drafting difficulties, if it did exist, it is simply not plausible that PWKWC would have left the commencement date blank.

80. Accordingly, I am unable to accept the submission that in the present case, as a matter of interpretation, the commencement of the term ought to be implied as being the date of death of the first of the brothers to die.

    Section 3 of the CPO

81. This provision requires there to be a sufficient a memorandum or note in writing of all the material terms before any action can be brought upon any contract for the sale or other disposition of land.  The issue is whether the tenancy agreements the defendant signed on 18 April 2013, having first filled in the date of the testator’s death as the commencement date of the term, satisfy section 3.

82. Mr Lynn’s position, quite simply, is that the tenancy agreements so signed by the defendant on 18 April 2013 were not memoranda because they do not memorialise anything.

83. Mr Chain submitted the tenancy agreements as signed by the defendant on 18 April 2013 after inserting into each the date of the testator’s death as the commencement date satisfy section 3 as the written memorandum of an agreement need not exist at the time of the agreement. Megarry & Wade, The Law of Real Property (5^th edition, 1984) at 575-576 was relied on in support.

84. The gist of that passage is that the written memorandum of all material terms must have come into existence before the party seeking to enforce the agreement commences the action.  A long intervening period is not necessarily fatal.  Thus, in Barkworth v Young (1856) 4 Drew 1, the written memorandum (containing all the terms of an earlier oral agreement) made 14 years later and in the form of an affidavit by the party sought to be bound was sufficient to satisfy the statute of frauds.  To that extent, Mr Chain’s submission that the memorandum need not exist at the time of the agreement is correct.

85. Mr Chain then made the point that the amendment to the originating summons seeking relief in relation to the tenancy agreements was only made in May 2013 by which time the defendant had already inserted a commencement date into the tenancy agreements, that having been done on 18 April 2013.

86. I disagree with Mr Chain’s analysis.  An amendment relates back to the date of commencement of the proceedings, namely, September 2012. The plaintiffs filed their affidavits in September 2012 making complaints against the defendant who, until removed as such on 13 November 2013, was the sole executor of the estate.  The defendant (who was still the executor) answered the allegations in his 1^st affidavit (December 2012). The commencement date of the tenancy agreements was not inserted until April 2013 which was four months later.

87. Further, the testator never put his signature to tenancy agreements that specified a commencement date.  It is evident that the passage relied on does not address the issue whether a missing material term in a document signed by the person sought to be bound can be inserted (posthumously as it were) into that document by another after his death so as to bind his estate, that being what has occurred in the present case.  None of the cases counsel referred to concerned the insertion of a material term into a document by a party seeking to enforce the agreement.

88. I do not accept that the passage in Megarry provides the answer to the question whether what had occurred in the present case was sufficient to satisfy the Statute of Frauds.  If, as is my view, the tenancy agreements as at the date of the testator’s death were void because of the failure to specify an ascertainable commencement date, they were not and could not have been remedied or validated by what the defendant had done on 18 April 2013.

Conclusion

89. For the reasons stated, I hold that the tenancy agreements are void and unenforceable.  Accordingly, the plaintiffs are entitled to the declaration sought.  I also make a costs order nisi in favour of the plaintiffs and the Executor.