NATHAN KANER AND ANOTHER v. JOHN MICHAEL JERWOOD AND OTHERS

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JUDGMENT

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Cons, J. A:

1. This is an appeal from Mantell J. who on the 22nd March this year made certain declarations and consequential orders in respect of shares which the 1st Defendant had admittedly held at one stage on trust for the 1st Plaintiff. The shares have since been sold, and part of the 1st Plaintiff's alleged interest therein assigned, which accounts for the presence of further parties to the action. But the interests of those others are so closely connected with those of their respective protagonists that for practical purposes we may treat each as one party and refer to it, without any intention of disrespect, as did the judge below, as simply either "Kaner" or "Jerwood".

2. During the hearing of this appeal we were taken through the complete transcript of the evidence below and through all the documents. We listened to a great deal of argument thereon. Our attention was drawn more than once to particular passages of the evidence and to particular documents. We were invited to draw specific inferences and in some instances it was suggested that there could be no other possible alternative. There were criticisms that the judge failed to make findings upon particular disputes. However in view of the decision to which I have come I do not think it desirable to express any opinion in these respects, but to restrict my comments to the absolute minimum that is necessary to explain why I have so made up my mind.

3. The shares at the root of the action were shares in a company ("the Company") incorporated in 1969 to trade mainly in pearls.  Kaner became its Managing Director and Jerwood, who had apparently been the idea behind the incorporation, one of the other directors. Jerwood had for some time been in the pearl business in Japan, selling to wholesale and retail outlets throughout the world. The object of the Company was to import from Jerwood and sell on.

4. Upon incorporation only two shares were issued, - to the solicitors who had subscribed to the Company's memorandum, - but it is agreed that the beneficial holding was divided as to 50% in favour of Jerwood, 25% in favour of Kaner and the remaining 25% in favour of two brothers, surnamed Chow, who had been friends and business associates of Jerwood and were running a retail business in the Peninsula Arcade. When shares were first allotted in accordance with the beneficial interest, that is in 1972, Kaner's 25% was taken in the name of Jerwood. Three years later an employee of the Company, one K. S. Tang, was accepted as a further shareholder and by the end of 1975 he held 10% of the equity, the other interests being reduced accordingly, so that Jerwood held 45%, and the Chows and Kaner 22.5% each. Kaner's share was still retained in Jerwood's name, but on the date that the shares were first allotted to Tang, that is 7th May 1975, Jerwood executed an informal declaration that he held in effect that percentage of his shares "on account of" Kaner (page 258 of the Appeal Bundle).  On the 25th June the same year Jerwood wrote a letter addressed to Kaner and his wife confirming that he held shares for Kaner and agreeing at any time, if so requested, to assist in the sale of the shares, or failing any offer by a third party, to purchase them himself at book value on the date of the transaction (page 259).

5. In June 1977 Kaner left the Company to set up his own business in San Francisco, from where he carried on trade with Jerwood in Japan in the same way as did the Company from Hong Kong.  Kaner also had dealings with the Company itself.

6. In view of Kaner's departure for America, Jerwood set about what has been referred to throughout as "restructuring the Company", that is in Jerwood's words "to liquidate the original shareholders in ("the Company") and simultaneously introduce new shareholders who also provide management" (page 262). At one stage there were discussions with a company by the name of F. G. Giles Ltd., and the person who took over the management of the Company when Kaner left, one Lomay, was connected therewith. However that did not work out and from November 1977 onwards one Irene Woo became the Managing Director, taking a beneficial interest in the Company of 49%.  At that stage Tang and the Chow brothers still held their respective share certificates. There had been discussions with Jerwood as to the value of their respective interests, complicated by the existence of possible bad debts and unsaleable stock, and matters were not settled until March - (Tang) - and June - (the Chows) - 1978. Upon payment of the amounts then agreed the shares were handed over to Jerwood and registered in his and Irene Woo's names.

7. The essential question in the proceedings below was whether a similar agreement had been concluded between Kaner and Jerwood with respect to Kaner's beneficial interest in the shares held in Jerwood's name or whether that interest continued throughout to the present day, although now restricted to the proceeds of their sale. Jerwood's evidence was that such an agreement had been concluded at least prior to Kaner's departure for the U.S.A. in 1977, the consideration being whatever price he should be able to arrange with the Chow brothers, whose interest in the Company, it will be recalled, was to the same extent. Kaner strenuously denied such sale, or even discussion at any time or of any kind whatsoever tending towards a sale.  "The conflict" as the judge said, was "stark and not made easier to resolve by the fact that neither of the main witnesses (i.e. Kaner and Jerwood) was impressive". He then set out the matters which he felt tended to point one way or the other and led him to his final conclusions, which were that "Kaner disposed of his beneficial interest in the shares to Jerwood" and that "the transfer took place not later than December 1981". A crucial factor in his train of thought was that in that month Kaner, as the judge apparently found, knowingly witnessed Jerwood's signature on forms transferring the legal interest in the shares to third parties. The judge must have taken the view that no man in his right reason would have done that unless he had already in some way or other settled his beneficial interest to his own satisfaction, and then accepted, from the evidence of Jerwood, that the settlement was by way of sale to him. As to the possibility that the sale may have taken place earlier than December 1981 the judge said "the burden being on the Defence there is no sufficient evidence to satisfy me".

8. The judge found that the terms of the sale of his shares were that Kaner"would be paid their book value at the date of the transaction with full participation in profits up to that date giving credit for any sums received, or credited to his account". Book value at the date of the transaction was imported from the letter of the 25th June 1975 to which we have already referred. The judge took that letter to be "an open offer" which Kaner must at sometime have accepted. The giving of credit, said the judge, "must have been an implied term of the agreement", while participation in profits until then would be automatic in the absence of express agreement to the contrary.

9. It is immediately apparent that the judge's conclusion was far removed from either contention put forward by the parties. It reflected that of Jerwood to the extent that there had been indeed a sale, but neither the date nor the consideration was in any way what he had suggested. It reflected that of Kaner not at all, although in practical terms it gave him the major part of what he had claimed. By the same token the judge's decision satisfied neither party. We have both an appeal and a cross-appeal. Jerwood asks us to find in his favour on the facts, submitting that the evidence leads irresistably to the conclusion that there was such a sale as he put forward, or if we are not disposed to go that far, to order a retrial. Kaner's argument is one of law, that the contract as eventually found by the judge was therein misconceived. It is said, and so conceded by counsel for Jerwood, I think correctly, that by the nature of its particular terms the letter of the 25th June 1975 did not constitute an offer which was in law capable of being accepted to form a contract. That I would call, with every respect, the first error into which the judge fell. That being so as a matter of law, the argument continues, the contract which the judge found not having ever existed, and there being no acceptable evidence of anything else to bring the trust to an end, the trust must have continued until the present time.

10. It is an initially attractive argument, but it faces one insurmountable hurdle, in that it runs in direct contradiction to a clear finding by the judge that, quite apart from that letter, he was satisfied that there had been an agreement of some kind. A similar hurdle faces Jerwood's invitation to find on the facts in his favour. The judge equally clearly found that there was no agreement prior to Kaner's departure for America and that, as I earlier indicated, was the date of the agreement according to Jerwood's evidence. That was the only date of agreement as far as he was concerned, but unfortunately those responsible for drafting his Defence had added alternative dates of "by July 1978" or "by August 1979", although the documents show that those dates relate to questions of payment rather than to questions of agreement. This may have led the judge into what I would respectfully call his second error, for at the very beginning of his judgment he remarks "Mr. Jerwood contends that Mr. Kaner transferred his beneficial interest in the shares to him or his nominee at some date between mid-1970 and late 1981"; and later on "if the assignment was not in 1977 Jerwood said it was made on some later date to be gathered from all the evidence but in any event not later than December 1981". In the light of his ultimate conclusion I think it more than probable that this misapprehension seriously influenced the judge in his assessment of Jerwood as a witness.

11. I must next refer to a letter written by Jerwood to Kaner on the 11th June 1979, a letter to which the judge attached particular importance in the reasons that he gave. I set it out in full -

12. The judge found this letter to be "quite inconsistent with a sale having taken place". He was influenced by the fact that it was written in the present tense, that it did not specifically refer to any bargain already made and that the reference to a debit's being open in the books of the Company against Kaner was in contradiction to a letter written by Jerwood the year before authorizing the Company to close Kaner's account by debiting his own with the appropriate sum. With respect to the learned judge I do not think the letter can be construed so conclusively. It is not uncommon to discuss a settlement of accounts in the present tense. Nor did the situation necessarily require the fact of a bargain, if one had already been made, to be reiterated. There is considerable doubt that the letter written the year before was ever copied to Kaner, or indeed delivered to the Company or anyone else. Furthermore it was one year later and Jerwood was writing from Tokyo where in all probability he would not have had the detailed information that would have been available to him here.

13. Finally there is the question of the $400,000 paid to Kaner on the 16th May 1977, i.e. before he left for America. This payment was processed through the books of the Company but in fact came from Jerwood. At one stage the judge refers to it as "part payment", but later as a "payment on account". In either case he would seem to relate it directly to a contract to purchase Kaner's interest in the Company, a situation I cannot reconcile with the finding that the contract which the judge found would not have been made until perhaps 4 years later.

14. It is trite comment that this Court will be slow to interfere with a decision based on findings of fact made at first instance. We have been referred to many authorities to remind us of that principle.  Even so, it is a course that may be called for on occasion. In Onassis and Calogeropoulos v. Vergottis⁽¹⁾ Viscount Dilhorne said (at p.405) -

Lord Morris gave his view:

15. A situation where the judge reaches a conclusion at variance with the case of either party is not dissimilar from that where a plaintiff's evidence is said to be something "new, separate and distinct from that originally pleaded", as for example in Waghorn v. George Wimpey & Co. Ltd. ⁽²⁾. The test then employed by Geoffrey Lane J. was this -

16. A similar approach was adopted by the Court of Appeal in Lloyde v. West Midlands Gas Board⁽³⁾, where it was indeed the judge himself who had introduced the new concept. Davies L. J. with whom the other two Lord Justices expressly agreed on this point said -

17. It is not easy to estimate how differently in the present instance would have been the preparation by either party of his case or the way in which the evidence was led had counsel known in advance what eventually came to be in the judge's mind. Certainly their submissions would have been different. That much is clear from the lengthy argument addressed to us. In addition there are the four matters I have earlier mentioned. All in all I am left in no doubt that there has been "error ..... sufficient to give rise to a substantial wrong or miscarriage" and that Jerwood was in fact denied an appreciable chance of success in the court below. Unless therefore there are reasons to the contrary a retrial ought to be ordered.

18. Section 6(1)(c) of the Law Amendment and Reform (Consolidation) Ordinance Cap. 23, which has since been re-enacted with a slight but important variation in the Conveyancing and Property Ordinance Cap. 219, was in these terms -

19. It has been conceded without argument before us that if Jerwood were to establish the transaction for which he contends the subsection, as it then stood, would apply. The real question is whether the doctrine of part performance, on which he would seek to rely, would then be available to him or whether the doctrine is limited in its operation to transactions relating to land. There are dicta by Brett and Cotton LL. J. in Britain v. Rossiter⁽⁴⁾ which support the latter view, but that case was concerned with a contract for personal service and the true ratio of the decision appears to be that equity would not in any event have granted specific performance of such a contract.

20. The question came directly before Kay J. in McManus v. Cooke⁽⁵⁾ where, after referring to a great number of authorities, he came inter alia to the conclusions -

21. This view is confirmed by a brief comment of Viscount Dilhorne in Steadmen v. Steadmen⁽⁶⁾ :

22. I see no reason in principle to restrict the doctrine in the manner suggested and would respectfully agree with the propositions put forward by Kay J.

23. It is suggested that even so Jerwood is doomed to failure because the only act of part performance accepted by the judge below was the payment of $400,000 to which we have already referred. Prior to Steadmen v. Steadmen⁽⁶⁾ there might have been considerable force in that argument, for it had often been suggested until then that a general rule existed to the effect that the mere payment of money could never amount to a sufficient act of part performance. It is now clear that this is not so. Lord Reid (at p. 541B) thought that "to make a general rule that payment of money can never be part performance would seem to me to defeat the whole purpose of the doctrine and I do not think that we are compelled by authority to do that". Lord Simon of Glaisdale (at p. 565B) felt that the rule could not be justified in such absolute terms and that circumstances might be established which would "make a nexus with a contract the probable hypothesis". Lord Salmon spoke to similar effect (at p. 570G) "nevertheless the circumstances surrounding a payment may be such that the payment becomes evidence not only of the existence of the contract under which it was made but also of the nature of that contract".

24. Lord Salmon takes perhaps a stricter view of what has to be established than Lord Reid who (at p. 541H) put the test simply as -

Be that as it may, Lord Salmon continues "What the payment proves in the light of its surrounding circumstances is not a matter of law but a matter of fact". Matters of fact are for the trial judge, to be decided by him after he has heard all the evidence and arguments that the parties wish to put forward. It is not for this Court to preempt his decision and I prefer to make no further comment at this stage.

25. For these reasons I would allow the appeal, set aside the judgment of the court below and remit the action to that court for retrial.

Sir Alan Huggins, V. -P.:

26. It is not in dispute that the shares were held by Mr. Jerwood in trust for Mr. Kaner.   The issues areas set out by the trial judge in his judgment.

27. Although as a rule we would not interfere with a judge's findings of fact, we must do so where we are persuaded that a finding is clearly wrong Here the judge inferred that an agreement for the transfer of Mr. Kaner's beneficial interest to Mr. Jerwood must have been made on or before December 1981. He was not satisfied that it was made earlier than December 1981 and, in particular, that it was not an oral agreement made in or before June 1977, in or before July 1978 or in or before August 1979 - as alleged in the Defence. Mr. Jerwood's real case was that there was an oral agreement in mid-1977 but that, upon the true construction of that agreement, it might be that the price of the shares was to be based upon a valuation of them at a later date. He was not believed.

28. I do not think that the judge's reasons for accepting that the sale had been effected by December 1981 can be faulted. Where I think he fell into error was in saying that there was no sufficient evidence that the agreement took place earlier than December 1981. He himself said that the sum of $400,000 paid to Mr. Kaner on 16th May 1977 was part payment of the purchase price of the shares and constituted part performance of the contract. They could not be part performance of a contract which had not yet been concluded.

29. Mr. Ching has argued that, once the judge rejected the evidence of Mr. Jerwood as to the agreement pleaded, Mr. Kaner was entitled to judgment: it mattered not that he found some other agreement. Whilst I agree that the rejection of Mr. Jerwood's evidence destroyed the case he had pleaded, the finding of another agreement equally made it unconscionable that judgment be entered for Mr. Kaner on the basis that he was still entitled to the beneficial interest. More important for our purposes, the judge's error as to the date of the agreement gives Mr. Jerwood ground for contending that if the judge had not made this error he might have been less inclined to reject his (Mr. Jerwood's) evidence. We cannot say what may have happened. The judge disbelieved Mr. Jerwood although, merely on a reading of the transcript, one may think that his evidence appeared far more credible than that of Mr. Kaner. He was entitled to disbelieve Mr. Jerwood and we are not to substitute our assessment for his, for he was a seeing and hearing judge. Unless any agreement made would be void, either as a matter of law or by election of one of the parties to it, I cannot see any alternative to ordering a new trial, however much I would wish to be able finally to dispose of the matter.

30. A further reason for a new trial is that the judge made an unwarranted finding as to the terms of the agreement which he was satisfied had been made: he said that the terms were those set out in the "offer" contained in a letter dated 25th June 1975 from White Birch Co. Ltd. It is conceded that that letter did not, as found by the judge, constitute an "open offer", which Mr. Kaner had (possibly some five years later) accepted by his conduct. What then were the terms of the agreement (if any) and did Mr. Jerwood fulfil his part of the bargain? Only by a new trial can these questions be answered.

31. There is only one other point arising on the first part of the appeal upon which I find it necessary to comment. The judge appeared to regard Mr. Jerwood's letter of 11th June 1979 as entirely inconsistent with a sale's having taken place by that date. With respect I think that he attached too much weight to the tense of the verbs in that letter and that it contains no such inconsistency: it is not unusual in English to use the present tense when referring to past transactions recorded in a book of account. No reliance has been placed upon the word "advanced" as suggesting that the payment of $400,000 was a loan rather than a payment by Mr. Jerwood for the shares.

32. Would any agreement for the transfer of Mr. Kaner's beneficial interest be unenforceable? The contention that it would not be enforceable is based upon the absence of any writing which would satisfy s .6(1)(c) of the Law Amendment and Reform (Consolidation) Ordinance, which was in force at the material time.  Cons, J. A. has reviewed the authorities which were cited to us, and I respectfully agree both with his view of the law and with his conclusion that we should not pre-empt the decision on a question of fact of the judge who would preside over a new trial.

33. I also would allow the appeal and order a retrial.

Fuad, J. A.:

34. I have had the advantage of reading the judgments of my Lords. I agree that the appeal should be allowed and that a new trial should be ordered. There is nothing I can usefully add to what has already been said.

Sir Alan Huggins, V.-P.:

35. There will be an order nisi that the Appellants have their costs in this court and that the costs below be costs in the cause.

(1)    [1968] 2 L1. L. R. 403

(2)    [1969] 1 W. L. R. 1764

(3)    [1971] 1 W. L. R. 749

(4)    [1879] 11 Q.B. 123

(5)    [1887] 35 Ch, 681

(6)    [1976] A. C. 536 at 555F