ANTHONY FRANCIS LI and CLARENCE A LI, Managers of LI TO WAN TSO v. KWOK WUI KNITTERS LTD

HCMP 1044/2019

[2025] HKCFI 4433

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1044 OF 2019

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J U D G M E N T

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A.  INTRODUCTION

1.  This is the trial of a dispute concerning a provisional agreement dated 14 August 2014 entered between Li Lap Kin (“LLK”)  as the then manager of Li To Wan Tso (“LTWT” or “Tso”)  as vendor and the Defendant as purchaser, in respect of the sale and purchase of the Subject Lots (“Provisional Agreement”).

2.  By the present Action, the Plaintiff (“P”), as current managers of the Tso, claims against the Defendant (“D”)  for, inter alia, a declaration that the Provisional Agreement is null and void and of no effect and unenforceable.

3.  By counterclaim, D claims against P for, inter alia, (1)  a declaration that the Provisional Agreement is enforceable and/or binding on P; and (2)  specific performance of the Provisional Agreement, with damages in addition to or in lieu of specific performance.  D also advances an alternative case of restitution if in the event the Court declares that the Provisional Agreement is null and void and of no effect and unenforceable.

4.  At trial, both parties narrowed down their respective cases and reliefs claimed as will be detailed below.

5.  These proceedings were previously commenced by way of an Originating Summons dated 17 July 2019.  On 22 May 2020, by Order of Master Dick Ho, these proceedings were ordered to be continued as if begun by writ. Such order was upheld on appeal by Lok J by a decision dated 17 August 2021.

B.  FACTUAL BACKGROUND

6.  Unless otherwise indicated, the following facts are undisputed or otherwise indisputable, and I find them as facts.  Matters from the parties agreed statement of facts have also been incorporated.

B1.  THE PARTIES

7.  LTWT is and was at all material times a Chinese customary ancestral land-holding institution and the registered owner of the Subject Lots. It also owned a building called “Fat Tat Tong”, which was declared a monument in 2013.

8.  LLK was the previous sole manager of the Tso with effect from 13 April 2010.  After the passing away of LLK on 12 August 2016, Anthony Francis Li (“AFL”)  and Clarence A Li (“CAL”)  were appointed as managers of the Tso in succession of LLK, with effect from 23 March 2018.

9.  D is and was at all material times a limited company incorporated in Hong Kong.

10.  Ho Kwun Cheong (“HKC”)  and Ho Man Lap (“HML”)  are directors of D.  HML is also the shareholder of D.  HML is the father of HKC.

B2.  THE SUBJECT LOTS

11.  The Subject Lots are situated within or near Ha Wo Hang, a small village in Sha Tau Kok in the North District of Hong Kong.

12.  The Tso wished to dispose of the Subject Lots (which comprise of 28 plots of land), including:

(1)  Land lots surrounding Fat Tat Tong and certain pieces of land scattered in the surrounding area.  Upon sub-division, only land lots outside Fat Tat Tong were to be sold whereas Fat Tat Tong was kept intact. These subdivided land lots that formed part of the Subject Lots were later known as Lot Nos. 1114 Section A, 1114 Section B, 1114 Section C, 1115 Section A, 1115 Section B, 1118 Section A.

(2)  Land lots (such as Lot Nos. 963, 1071, 1072, 1079, 1082, 1084, 1085, 1087, 1091, 1099, 2975 and 1411)  which were on hill slope and without access.  They were undeveloped and of little value.  The Tso no longer wished to be responsible for maintaining these lands and intended to sell them or to pass the risks to the purchasers in the knowledge that some of their lands were located on the hillside which might become a financial burden. Further, the Tso had received letters from the Government claiming for costs of slope maintenance works carried out by the Government on the Tso’s land.

(3)  Land lots (namely, Lot Nos. 1017, 1026, 1010, 1012, 1020, 1072, 352 Section A, 358, 359, 1288)  which were landlocked and surrounded by other lots with no direct access road.  Some of the lots (namely, Lot Nos. 358, 359 and 1288)  had also been occupied by previous tenants or by squatters with temporary structures erected thereon.  These lots were subject to litigation risks.

13.  In around 2011 and 2013, LLK encountered two potential buyers.  Such buyers only wanted to purchase some of the most well-situated lots from the Tso.  But LLK considered that it would not be in the interests of the Tso to sell only the good lots in piecemeal fashion and to keep the bad lots indefinitely.

14.  In around August 2013, LLK informed HML of the following features of the Subject Lots:

(1)  The lots were not surveyed.  Despite obtaining a quotation for conducting surveying work of the lots, the Tso had no financial resources to pay for such work.

(2)  The main access road to Ha Wo Hang was blocked by a large Feng Shui tree which could not be cut down and had prevented large vehicles from being able to enter Ha Wo Hang.  The main access road also needed repair. The Tso had no financial resources to repair the main access road or construct a new access road (“Road Construction and Repair”)  and was looking for a potential buyer who would be willing to spend money on the same.  Further, some of the lots adjacent to the main access road might have to be acquired by the potential buyer before the Road Construction and Repair could be commenced.

15.  In around end of 2013, LLK and HML discussed the sale of the Subject Lots to D and agreed that:

(1)  D was prepared to take on the Road Construction and Repair provided that the costs of the same were taken into account in setting the purchase price.  The agreement recording the Road Construction and Repair was eventually signed in around March / April 2016, and the estimated costs of the repair was HK$2,000,000.

(2)  D would be responsible for the costs in surveying, grass cutting, iron-net fencing and sub-division of the lots.

(3)  Taking all the circumstances into account, the purchase price would be HK$400,000.

(4)  It was discovered that some of the lots of the Tso had to be excluded from the sale as they were burial lands.  The purchase price was eventually agreed to be reduced to HK$350,000.

B3.  THE PROVISIONAL AGREEMENT

16.  By a Provisional Agreement dated 14 August 2014, it was agreed between LLK (as the then manager and acting for and on behalf of the Tso)  as vendor and D as purchaser that the Subject Lots be sold to D at an aggregate consideration of HK$350,000 (“Sale”).

17.  The Provisional Agreement contained the following material terms:

(1)  Clause 2 (with sub-heading “Consideration and payment”):

“The purchase price of the Lands shall be HK$350,000.00 which shall be paid by the Purchaser to the Vendor as follows:

(a)  Initial deposit in the sum of HK$35,000.00 (“the Deposit”)  shall be paid upon signing of this Agreement;

(b)  Formal Agreement for Sale and Purchase shall be signed by the parties;

(c)  Balance of the purchase price in the sum of HK$315,000.00 shall be paid upon completion.”

(2)  Clause 5 (with sub-heading “Specific Performance”):

“5. The Vendor and the Purchaser agree that this Agreement constitutes a binding “specific performance” obligation. If necessary, either the Vendor or the Purchaser may bring an action against the other party of this Agreement for obtaining a decree for specific performance of this Agreement and to sue for other liabilities and damages.”

(3)  Clause 7 (with sub-heading “Title document”)  (“Best Endeavours Clause”):

“The Vendor and the Purchaser shall use their best endeavours to ensure the effectiveness and performance of this Agreement. The Vendor is obliged to provide his good title to the Lands, obtain the necessary consents from the members of the Tso (if any)  and furnish to the Purchaser such original (if the same relates exclusively to the Lands)  or certified or attested copies of any deeds or documents of title as may be necessary to prove such title. The Vendor shall prove and give his good title to the Lands in accordance with sections 13 and 13A of the Conveyancing and Property Ordinance (Cap. 219), respectively.”

18.  Pursuant to Clause 2(a)  of the Provisional Agreement, D paid the initial deposit to LLK in cash.  D also paid the stamp duty of the Provisional Agreement.

B4.  COMMUNICATIONS WITH THE DO

19.  At all material times, the Sale was subject to the consent of the Home Affairs Department (North District Office)  (“DO”)  pursuant to section 15 of the New Territories Ordinance (Cap. 97)  (“NTO”).

20.  On 23 June 2015, Messrs. Ng and Fang (“N&F”)  sent a letter to the DO stating that they acted for LLK as manager of the Tso and that the beneficiaries of the Tso desired to sell the Subject Lots for their benefit.  Amongst other documents attached to this letter was:

(1)  A form entitled “Application for Sale of Tso Property” dated 18 June 2015 and signed by LLK as manager of the Tso; and

(2)  A form of consent dated 10 April 2015 and signed by 10 out of 16 members of the Tso stating that they agreed to the sale of the Subject Lots for HK$350,000.  I note, in passing, that it is P’s pleaded case that AFL’s signature on an earlier consent form was forged and not genuine.  But in the absence of any notice of non-admission under Order 27 rule 4 of the Rules of the High Court (Cap. 4A), and given that P is deemed to have admitted the authenticity of the same under Order 27 rule 4(1), I do not consider it to be open to P to challenge the authenticity of AFL’s signature on the earlier consent form.  In any event, P did not maintain this challenge by the time of the trial.

21.  On 25 August 2015, N&F sent a letter to the DO referring to the previous letter dated 23 June 2015 and a telephone conversation between the DO and N&F, noting that certain documents and information were missing in respect of the earlier application.  Amongst other documents enclosed was a fresh “Application for Sale of Tso Property” dated 21 August 2015.

22.  Unless otherwise stated, the application made on 23 June 2015 and 25 August 2015 will be collectively referred to as the “Application”.

23.  On 11 September 2015, N&F sent a letter to the DO referring to the previous letter dated 25 August 2015 and a telephone conversation between the DO and N&F, enclosing a certified true copy of a general demand note as requested.

24.  On 7 January 2016, N&F sent a letter to the DO enquiring on the status of the Application.

25.  By letter dated 26 January 2016 (“1^st DO Letter”), the DO informed N&F the following:

“The selling price of HKD$350,000 for the above properties is considered to be unreasonably lower than the market price. Unless satisfactory explanations from your client could be provided, we regret to inform you that this application could not be processed by this office.”

26.  On 30 March 2016, LLK and HKC attended a meeting with persons from the DO, during which the alleged low purchase price of the Subject Lots was discussed.

27.  By letter dated 27 April 2016 (“N&F’s 27.4.2016 Letter”), N&F explained the reasons for the apparently low purchase price, including:

(1)  The unmarketability of some of the lands in the Subject Lots as they were situated on a steep hillside.

(2)  The lands surrounding Fat Tat Tong were not easily accessible and not valuable.

(3)  The members of the Tso wanted to sell the Subject Lots as a bundle and not to have the responsibility of maintaining these lands as most of the Tso’s members were over 60 years old.

(4)  Attempts were made by the Tso to sell the Subject Lots for some 15 years, but only two purchasers had expressed their interests in purchasing the more valuable lots.

(5)  The Subject Lots were exposed to litigation risks involving trespassers.

(6)  D would have to bear substantial additional expenses in relation to the Sale.

28.  As stated in N&F’s 27.4.2016 Letter, a bilingual notice of the Sale was posted up in Ha Wo Hang stating that any person who considered the arrangement to be unreasonable and wished to lodge an objection should do so within 30 days from the day of this notice (on 19 October 2015).  No such objection was lodged within 30 days.

29.  By letter dated 24 May 2016 (“2^nd DO Letter”), the DO replied to N&F’s 27.4.2016 Letter as follows:

“You mentioned in your letter that members of the Tso played a part in the decision making of selling the above lots all together at the price of HKD$350,000. There are in fact other substantial additional expenses such as legal costs and incidental expenses to be paid by the buyer after the sale of the lots. While we will give you a substantial reply in response to your explanations as mentioned in your letter dated 27.4.2016 in due course, please be informed that a member of the Tso, who does not want to disclose his identity, lodged an objection to this office recently. He objected to the proposed sale and considered the selling price is unreasonably too low.

I should be grateful if you would ask your client to liaise with the Tso’s members so that a consensus in the proposed sale of properties including the selling price can be achieved among the members.”

30.  By letter dated 7 June 2016, N&F indicated to the DO that they would provide a response to the 2^nd DO Letter upon receiving the DO’s substantive reply.

31.  By letter dated 23 June 2016 (“3^rd DO Letter”), the DO replied to N&F as follows:

“Is it, in your opinion, uncommon or even rare that a purchaser of rural land should shoulder the costs of potential litigation, trespassing issue, substantial additional expenses in relation to surveying, setting-out fees and sub-division of lots as incurred from this transaction? Would you obtain for our reference a valuation of the lots from an authorized professional?

Furthermore, there is still an objection outstanding. The manager of the Tso should resolve it before we would proceed with your client’s application.”

32.  By letter dated 5 December 2016, N&F replied to the 3^rd DO Letter and stated, inter alia, that it was common for the purchaser to offer a lower purchase price for land with inherent problems; the sale was decided by members of the Tso who had more than just commercial considerations in mind; and the alleged objection was invalid and out of time.

33.  By letter dated 22 December 2016 (“4^th DO Letter”), the DO replied to N&F as follows:

“As informed by members of Li To Wan Tso (李道環祖), the sole manager of the Tso Mr. LI Lap-kin (李立堅)  passed away in August 2016. Members of the Tso informed that they intend to submit an application for the appointment of a new manager. They also expressed their reservation to the above proposed sale of the Tso’s properties. In this regard, I would like to inform you that this office is unable to proceed the above application further.”

B5.  EVENTS AFTER THE DEATH OF LLK

34.  Following the death of LLK, HKC communicated with Ms Anna Li (“Anna”), the daughter of LLK.  Anna informed HKC that her uncle AFL and her brother would be taking care of any affairs concerning the Tso.

35.  D also communicated with AFL:

(1)  In December 2016, HML met with AFL in the United Kingdom to discuss the steps required in completing the Sale.

(2)  On 13 January 2017, AFL wrote an email to HKC seeking information and documents in relation to the Sale.

(3)  On 20 January 2017, HKC replied to AFL providing the requested information and documents.

(4)  In February 2017, HKC followed up on the Sale with AFL by way of WhatsApp messages.  The only written response from AFL was a message dated 23 February 2017 in which he stated that there were “a number of family discussions which are ongoing and not finalised” and that AFL would be in contact “in due course”.

(5)  There was no further response from AFL despite HKC’s repeated chasers from July 2017 to April 2018.

36.  On 10 June 2019, Messrs. Ng, Lie, Lai & Chan issued a letter to D stating that they were acting for the Tso and gave notice to D to annul the Provisional Agreement.

C.  THE PARTIES’ CASES

C1.  P’s PLEADED CASE

37.  P’s case as pleaded in the Statement of Claim (“SOC”)  may be summarised as follows:

(1)  P pleads that the Provisional Agreement was agreed between LLK “as the then manager of LTWT” as vendor and D as purchaser.

(2)  At the time of the execution of the Provisional Agreement, D knew or ought to have known that the Sale under the Provisional Agreement was subject to and conditional upon the grant of DO’s consent under section 15 of the NTO, without which the Sale could and shall not be effected in law.  Thus, DO’s consent is a condition precedent to the validity of the Provisional Agreement, without which the Provisional Agreement is of no effect and not binding on the parties to it.

(3)  By mutual understanding and/or intention of the parties to the Provisional Agreement, in particular that the Provisional Agreement should not be everlasting pending the granting of DO’s consent indefinitely and/or by reason of business efficacy, it was an overriding implied term of the Provisional Agreement that DO’s consent must be granted within a reasonable time after the execution of the Provisional Agreement, failing which any party to the Provisional Agreement may choose to terminate the same (“P’s Implied Term”).  The reasonable time in the circumstances of the Provisional Agreement should not be later than one year or such time as the Court deems fit after the execution of the Provisional Agreement.

(4)  While there were communications between N&F and DO in relation to the application for consent, at the end of such communications, DO refused to grant the DO’s consent applied for and confirmed that the DO shall not entertain and process the application, at the latest by 22 December 2016.

(5)  As a result of DO’s refusal to grant consent, the Provisional Agreement could not be proceeded with or performed and was rendered “null and void and of no effect”.

(6)  Further or alternatively, the condition precedent of the Provisional Agreement was not fulfilled and the Provisional Agreement was rendered “null and void and of no effect”.

(7)  Further or alternatively, P’s Implied Term was not fulfilled as no DO consent was granted within a reasonable time.  P was entitled to and had exercised its right to terminate the Provisional Agreement.

(8)  Further or alternatively, the Provisional Agreement has been frustrated by the refusal by the DO to grant the requisite DO consent and/or failure to obtain the same since the execution of the Provisional Agreement.

(9)  By reason of the matters above, the Provisional Agreement has been rendered “null and void, of no effect and unenforceable, and/or terminated”.

C2.  D’s PLEADED CASE

38.  D’s pleaded defence and counterclaim as pleaded in the Amended Defence and Counterclaim may be summarised as follows:

(1)  First, D denies the allegation that the Provisional Agreement was rendered null and void and of no effect.  D avers that a transaction for the sale of land by a Tso without the consent of the DO is not a nullity; and that the requisite consent from the DO under section 15 of the NTO can be given retrospectively.

(2)  Second, D denies that there was any mutual understanding and/or intention of the parties that the Provisional Agreement was subject to P’s Implied Term.

(3)  Third, D avers that, by reason of its obviousness and/or for business efficacy, it is an implied term of the Provisional Agreement that successor(s)  to LLK as manager of the Tso should not act to prevent the completion of the Provisional Agreement (“D’s Implied Term”).

(4)  D avers that P is in breach of the Provisional Agreement, in that: (1)  P, as successors to LLK as the managers of the Tso, are bound by the terms of the Provisional Agreement including the Best Endeavours Clause; (2)  P has a duty to use best endeavours to proceed with the Sale and obtain consent from the DO, whether by way of proceeding with the Application or submitting a renewed application; (3)  D had been communicating with Anna and AFL since the death of LLK; and (4)  P failed to proceed and/or use their best endeavours to proceed with the Sale or Application.

(5)  Further or alternatively, P was in breach of D’s Implied Term.

(6)  Further or alternatively, P is estopped from objecting to the Sale and/or denying the enforceability of the Provisional Agreement by virtue of their position as successors of LLK and/or the form of consent signed by the majority of the members of the Tso including AFL and CAL.

(7)  Accordingly, D denies that the Provisional Agreement was terminated by a frustrating event, such event being self-induced by P.

(8)  By counterclaim, D pleads that the Provisional Agreement is enforceable and/or binding on P as successors to LLK and managers of the Tso. D therefore claims: (a)  specific performance of the Provisional Agreement against P; and (b)  further or alternatively, damages in addition to or in lieu of specific performance.  D further pleads an alternative case of unjust enrichment if in the event the Provisional Agreement is set aside.

C3.  P’s PLEADED RESPONSE

39.  P’s response to D’s case in the Amended Reply and Defence to Counterclaim may be summarised as follows:

(1)  P pleads that there was no unanimous consent of members of the Tso in relation to the Provisional Agreement.  In particular, P alleges that the signature of AFL on the consent form was forged and not a genuine signature of AFL.

(2)  P denies that the Tso intended to dispose of the Subject Lots in view of their lack of marketability and that the Sale was not beneficial to the interests of the Tso.

(3)  P repeats its allegation that DO’s consent was not given and was refused.  P further denies that the Provisional Agreement obliged either party to obtain DO’s consent.  Further or alternatively, LLK and P fully complied with and performed the terms, conditions and obligations of the Provisional Agreement including the Best Endeavours Clause.

(4)  P also denies (i)  D’s Implied Term; (ii)  D’s plea of estoppel; and (iii)  D’s claim for specific performance.

D.  ISSUES FOR DETERMINATION

40.  Having considered the parties’ pleaded cases, the agreed list of issues, and the clarifications made by the parties during the course of the trial, I am of the view that the main issues which I am required to determine in the present case are as follows (collectively, the “Issues”):

(1)  Whether the granting of consent by the DO pursuant to section 15 of the NTO is a condition precedent to the validity of the Provisional Agreement? (“Issue 1A”)

(2)  Whether the DO has refused to grant consent? (“Issue 1B”)

(3)  Whether the Provisional Agreement had been frustrated by the refusal of the DO to grant consent and/or failure to obtain the same since the execution of the Provisional Agreement? (“Issue 2”)

(4)  Whether P’s Implied Term should be implied into the Provisional Agreement? (“Issue 3”)

(5)  If the Provisional Agreement were held to be valid, whether D is entitled to specific performance of the Provisional Agreement and/or to declaratory relief? (“Issue 4”)

(6)  Alternatively, if the Provisional Agreement were held to be invalid, whether P is liable to D for unjust enrichment? (“Issue 5”)

E.  WITNESSES

41.  P did not call any witness and did not file any witness statement(s)  in these proceedings.  Counsel for P (Mr Erik Shum with Mr Kev LH Wan)  submitted that it was not necessary to do so as P’s case is borne out by documents and correspondence in writing.

42.  However, I agree with the submission of Counsel for D (Mr Roger Phang with Mr Jeff Chan)  that the consequence of P not calling any factual witnesses is that there is no direct evidence from P to support its pleaded case or to contradict D’s pleaded case insofar as the same is not admitted between the parties.

43.  By contrast, D called two witnesses, namely HKC and HML.

E1.  D’s WITNESS – HKC

44.  As noted above, HKC is a director of D and son of HML.  He gave an account of his involvement in the Sale under the Provisional Agreement, including the application for consent from the DO, the communications with the DO, along with the events after the death of LLK.

45.  HKC was unshaken in cross-examination.  The evidence which HKC gave on Day 2 complimented the evidence in his witness statement:

(1)  While HKC was a solicitor by profession, he was not familiar with New Territories land.

(2)  Throughout the application process, LLK supplied information concerning the lots and their background.  In particular, regarding N&F’s 27.4.2016 Letter, the points advanced in the letter in respect of the apparently low purchase price was suggested by LLK.

(3)  After the 4^th DO Letter and the death of LLK, HKC did not contact the DO again as a manager was required to be appointed under section 15 of the NTO.  Given that it was not clear when a new manager of the Tso would be appointed, and given that the 4^th DO Letter was that the DO would not proceed without a manager, HKC considered that contacting the DO would serve little utility.  On the other hand, if a new manager were to be appointed, then there would be utility in contacting the DO.

(4)  Although the first application to the DO for consent was made around 10 months after the Provisional Agreement was signed, HKC explained the reasons why it took some time for the application to be submitted (for example, needing to obtain the consent of other members of the Tso).  Given that there was no deadline in the agreement, HKC considered 10 months to be reasonable.

(5)  The parties did not set a timeline or deadline in the agreement as to when consent must be obtained.

46.  In the absence of evidence to the contrary from P and having considered HKC’s evidence as contained in his witness statement and as given at trial, I find HKC to be a credible witness and accept his evidence in full.

E2.  D’s WITNESS – HML

47.  HML, as noted above, is also a director and shareholder of D and the father of HKC.  He gave an account of the details of the Tso’s lands and the negotiation with LLK regarding the sale and purchase of the same.  He was similarly unshaken in cross-examination.  In the absence of evidence to the contrary from P and having considered HML’s evidence as contained in his witness statement and as given at trial, I also find HML to be a credible witness and accept his evidence in full.

F.  DECISION

48.  I now turn to consider the Issues.  For the avoidance of doubt, this Court has duly considered all the submissions made by the parties in determining the Issues.

F1.  ISSUE 1A – WHETHER THE GRANTING OF CONSENT IS A CONDITION PRECEDENT TO VALIDITY?

49.  This first issue concerns the validity of the Provisional Agreement, specifically whether the granting of consent by the DO is a condition precedent to its validity.

50.  As noted above, P’s pleaded case is that the refusal by the DO to grant consent under section 15 of the NTO renders the Provisional Agreement “null and void and of no effect”.  This was the same position taken in P’s written opening submissions.

51.  But on the first day of trial, P conceded and accepted that the refusal by the DO to grant consent would not render the Provisional Agreement void ab initio, but “voidable” instead.  Thus, P effectively abandoned its pleaded case that the Provisional Agreement was “null and void” without the consent of the DO.

52.  In my view, this concession by P was rightly made, as shown by the following authorities.

53.  Section 15 of the NTO provides:

“Whenever any land is held from the Government under lease or other grant, agreement or licence in the name of a clan, family or t’ong, such clan, family or t’ong shall appoint a manager to represent it. Every such appointment shall be reported at the appropriate New Territories District Office of the Home Affairs Department, and the Secretary for Home and Youth Affairs on receiving such proof as he may require of such appointment shall, if he approves thereof, register the name of the said manager who shall, after giving such notices as may be prescribed, have full power to dispose of or in any way deal with the said land as if he were sole owner thereof, subject to the consent of the Secretary for Home and Youth Affairs, and shall be personally liable for the payment of all rents and charges and for the observance of all covenants and conditions in respect of the said land. Every instrument relating to land held by a clan, family or t’ong, which is executed or signed by the registered manager thereof in the presence of the Secretary for Home and Youth Affairs and is attested by him, shall be as effectual for all purposes as if it had been executed or signed by all the members of the said clan, family or t’ong. The Secretary for Home and Youth Affairs may on good cause shown cancel the appointment of any manager and select and register a new manager in his place. If the members of any clan, family or t’ong holding land do not within 3 months after the acquisition of the land make and prove the appointment of a manager, or within 3 months after any change of manager prove the appointment of a new manager, it shall be lawful for the Government to re-enter upon the land held by such clan, family or t’ong, which shall thereupon become forfeited. Such re-entry shall be effected by the registration of a memorial thereof in the Land Registry.” (emphasis added)

54.  The relevant authority on the effect of section 15 of the NTO (which this Court is bound by)  is Man Ping Nam, the manager of Man Sham Chung Wui v Man Mei Kwai, unrep., CACV 193/2002, 11.12.2002 (“Man Ping Nam (CA)”)  where Le Pichon JA explained at §§24, 25 that a transaction without the consent of the DO would not be rendered a nullity and would at most be voidable.  Whether the same would be set aside depends on the circumstances of the case:

“24. The counterclaim was not an action by a beneficiary against his trustee for breach of trust. Nor was it for his removal under that part of section 15 of the Ordinance which conferred power on the Secretary “on good cause shown” to cancel the appointment of any manager and to select and register a new manager in his place. Assuming, for the sake of argument, that the deputy judge was correct that the Secretary's consent was required for a letting of land by the manager, what are the consequences of a letting without consent? Section 15 does not state that such a transaction would be a nullity. Whilst it might enable the other party to the transaction to avoid it, if he chooses not to do so, can the transaction be impugned at the behest of a beneficiary? It was said that, in the court below, counsel for the plaintiff had conceded that a member of the Wui had a sufficient interest to challenge the validity of the alleged wrongful purported tenancy i.e. the alleged extension etc. of the fish pond tenancy. Even on the assumption (and I express no view as to its correctness)  that it was open to a beneficiary to impugn a letting made without the Secretary’s consent (again assuming the necessity of such consent), it does not follow that the letting would necessarily be set aside. At best, the transaction would be voidable but whether or not the court would set it aside would depend on the particular circumstances, such as the terms of the transaction itself, whether consent could be obtained retrospectively, the reason why it was not obtained before the transaction was entered into and like considerations.

25. Section 15 itself was not framed in terms of an outright prohibition; rather, it was made ‘subject’ to consent. In principle, there is no reason why consent could not be given retrospectively. That retrospective consent is obtainable in practice is clear from the evidence of the respondent’s expert. The deputy judge accepted (at paragraph 85)  that if consent were to be forthcoming in a particular case, the tenancy should be regarded as fully valid from the beginning.” (emphasis added)

55.  Recently, the Court in Man King Chuen v The Personal Representative(s)  of Wai Tze Hang Alex, deceased [2023] HKCFI 1435 also considered that non-compliances with section 15 of the NTO did not render the transaction void ab initio and that the absence of consent only rendered the sale a conditional one (citing Light Ocean Investments Ltd v Enway Development Ltd [1994] 3 HKC 31), at §§103 to 104 per K Yeung J:

“103. The evidence in my view also establishes that section 15 of the New Territories Ordinance had never been complied with. In particular, the 1^st Agreement was not executed in the presence of and attested by the Secretary for Home Affairs, and that no consent of the same had been obtained from the Secretary for Home Affairs.

104. But again, such non-compliances did not render the 1^st Agreement void ad initio. As observed by Huggins J in Lai Chi Kok Amusement Park at p.140, the intention and effect of requiring execution and attestation of the instrument in the presence of the Land Officer was to provide a method of conclusive proof (1)  that the Land Officer had in fact consented to the disposition and (2)  the identification of the Land Officer concerned. In Light Ocean Investments, as noted above, the absence of such consent rendered the sale a conditional one, but that if consent were to be obtained subsequently, title could still be passed. I do not accept Mr Man’s submissions to the contrary.” (emphasis added)

56.  For the avoidance of doubt, I have considered the other authorities cited in P’s opening submissions concerning section 15 of the NTO. Suffice to say that the Court does not consider any of these authorities to detract from or undermine the principles set out in Man Ping Nam (CA).  Indeed, in P’s written closing submissions, P effectively accepted that Man Ping Nam (CA) applies to the present case and further accepted that the only remaining issue is one of fact, namely whether the DO had refused the application for consent.

57.  Accordingly, I accept D’s submission that the Provisional Agreement was not rendered null and void and/or void ab initio by reason of the absence of consent from the DO (a position which P now also accepts).  As the authorities above show, before consent from the DO is obtained, the Provisional Agreement is only at best voidable and whether the Court should set aside the same depends on the circumstances, such as whether the DO had refused consent – a question which I now turn to.

F2.  ISSUE 1B – WHETHER THE DO HAD REFUSED TO GRANT CONSENT?

58.  The next issue to consider is one of fact, namely whether the DO had already refused consent to the Sale such that the Provisional Agreement was rendered of no effect and/or unenforceable.  As noted above, P accepted that this was the only remaining issue of fact as regards Issue 1.

59.  Both parties accept that if the DO had in fact refused to grant consent to the Sale by virtue of the letters from the DO, the Provisional Agreement would be unenforceable.

60.  It is P’s pleaded case and submission that the DO had already refused to grant consent under section 15 of the NTO by virtue of the letters exchanged between N&F and the DO.  In gist, P submits that:

(1)  The DO had already refused the application for consent by the 1^st DO Letter, given the use of the words the “application could not be processed”.  That consent was already “refused” was also confirmed by Ms Lam and Ms Teresa Wong as recorded in an email dated 29 January 2016, where the words “專員不批” was used.

(2)  By the 4^th DO Letter, the DO expressly stated that it was “unable to proceed with the above application further”, thus putting an end to the application.  The DO decided not to process the application anymore, which amounted to a refusal or rejection of the application.

(3)  Throughout the process of the application, the core concern of the DO was the undervalue issue.  The application came to a “dead end” when (1)  this primary concern remained unresolved; (2)  there was an outstanding objection of the member(s)  of the Tso; and (3)  the death of LLK.  The DO thus decided to terminate the application.

(4)  Further, even from D’s own perspective, the application came to an end, given D’s inaction and absence of further correspondence with the DO after the 4^th DO Letter.

61.  By contrast, it is D’s pleaded case and submission that P failed to demonstrate that the DO had refused to grant consent in its letters.

62.  I bear in mind that the burden is on P to demonstrate that the DO had refused to grant consent, as it is trite that the burden of proof is on the party to satisfy the Court that it is entitled to the relief for which it is asking: Amstrad Consumer Electronics Plc v The British Phonographic Industry Ltd [1986] FSR 159 at pp204-205 per Lawton LJ.

63.  Having considered all the evidence and the submissions of the parties, I consider that P has failed to discharge its burden of demonstrating that the DO had already refused to grant consent by its letters.

64.  First, I begin with an analysis of the letters from the DO. As the DO is not a party to these proceedings and as there is no evidence from the DO as to the meaning of its letters, this Court can only ascertain the meaning of the DO’s letters by construing the same.

65.  For reasons to be elaborated below, I am unable to see how the following letters from the DO can be construed to be a “refusal” or a “rejection” of the application for consent:

(1)  The 1^st DO Letter was plainly not a refusal of consent to the Sale.  The words used by the DO were “[u]nless satisfactory explanations from your client could be provided” the application could not be processed by the DO.  This was plainly not a refusal of consent as if consent was already refused, there would be no need for the DO to seek any explanation.  Similarly, I am unable to see how the words “could not be processed” can be construed to imply a refusal, when there is nothing in those words to suggest that the DO had substantively refused or rejected the application.

(2)  The 2^nd DO Letter similarly does not express any refusal of consent.  The letter provides that the DO would give N&F a “substantial reply” in due course, which suggests that the 2^nd DO Letter was not a substantive reply or decision from the DO.  The fact that the letter then goes on to ask N&F’s client to liaise with the Tso’s members so that a consensus on the Sale could be achieved further militates against any reading of the 2^nd DO Letter as expressing a refusal of consent.

(3)  The 3^rd DO Letter also cannot be construed to be a refusal of consent.  There, the DO was asking a series of questions concerning the purchase price of the lands.  The very fact that the DO was seeking further answers from N&F again militates against any suggestion that the DO had already substantively refused N&F’s application for consent.  The DO’s indication that it would proceed with the application once the outstanding objection was resolved is similarly not an expression of refusal or rejection.

(4)  The 4^th DO Letter, likewise, does not express any refusal of consent.  First, the Court is unable to see how the words “unable to proceed the above application further” can be construed as a refusal.  The words “refuse” or “reject” simply cannot be found in this letter.  Second, this Court agrees with D’s submission that one must bear in mind the statutory context of the 4^th DO Letter.  It is not surprising that the DO would be “unable to proceed” further as section 15 of the NTO requires there to be a manager of the Tso (which there was none at the time as LLK had passed away).  Viewed from this lens, the words “unable to proceed” simply cannot be read as expressing any substantive refusal or rejection of the proposed Sale.  Third, the fact that the 4^th DO Letter further goes on to say that “[m]embers of the Tso informed that they intend to submit an application for the appointment of a new manager” is significant, because such sentence would not have been necessary if the DO had already rejected or refused the application for consent by this 4^th DO Letter.  To the contrary, the addition of this sentence in fact entertains the possibility that the application could be further processed in the future.

66.  Second, as noted above, P placed heavy reliance at trial on an email dated 29 January 2016 (“29.1.2016 Email”)  between Mr Roy Liu (of N&F)  and the DO recording a telephone conversation between Mr Liu with a Ms Lam and a Ms Teresa Wong (of the DO).  In particular, P submits that this email shows that (1)  even Mr Liu considered the 1^st DO Letter as expressing a refusal of consent; and (2)  the DO had already refused consent as Ms Wong and Ms Lam said: “專員不批”.  I am unable to accept this submission.

(1)  To begin, the Court considers that the 29.1.2016 Email and the words “專員不批” must be read against the whole context of the letters exchanged between N&F and the DO.  Indeed, if P is right that this 29.1.2016 Email and the 1^st DO Letter is a clear expression of refusal of consent by the DO, then one wonders why the DO would subsequently send the 2^nd, 3^rd and 4^th DO Letters, two of which (the 2^nd and 3^rd letters)  asked and/or requested the Tso to take further steps and/or to answer various questions. 

(2)  Clearly, whatever is expressed in the 29.1.2016 Email or in the telephone conversation as recorded in that email cannot be taken to be a firm or substantive refusal of consent by the DO.  By sending the subsequent 2^nd and 3^rd letters, the DO was clearly prepared to engage in continued discussions with N&F regarding the Sale and actively sought further documents and information for the purposes of the application.

(3)  As the relevant personnel from the DO is not before the Court and has not been called to give evidence, I am unable to accept P’s submission that the words “專員不批” necessarily mean that the DO had refused consent, especially when one views such words against the above context.

(4)  In any event, I also do not accept P’s submission that the first question asked by Mr Roy Liu (“問為什麼不批出同意”)  show that even N&F regarded the 1^st DO Letter as amounting to a refusal.  Mr Liu simply asked why consent was not issued yet (and not why consent was refused).

(5)  For completeness, and without detracting from the above analysis, I also agree with D’s submission that it is strictly unnecessary for the Court to deal with the 29.1.2016 Email as P has not relied on this evidence as part of its pleaded case on the refusal of consent by the DO.

67.  Third, I do not accept P’s submission that the application for consent must have come to a “dead end” (and thus refused)  because of the three matters identified by P (namely, the (i)  undervalue concern remaining unresolved; (ii)  outstanding objection from member(s)  of the Tso; and (iii)  death of LLK):

(1)  As to the undervalue issue remaining unresolved, this does not support P’s submission that the DO had already refused to give consent.  First, the issue of undervalue was expressed by the DO as early as the 1^st DO Letter.  The fact that the DO continued to press for more information and explanations regarding the alleged undervalue in subsequent letters militates against the submission that the DO had already refused consent.  Second, there is no dispute that N&F gave a lengthy explanation for the purchase price in N&F’s 27.4.2016 Letter.  In the subsequent letters, the DO never expressed its views regarding the explanations given by N&F or rejected the same (especially given that the 3^rd DO Letter is couched in the form of questions as opposed to expressing any firm view on the purchase price).  Indeed, the 4^th DO Letter does not even mention the pricing or undervalue issue.  I am simply unable to read from the letters any expression of refusal or rejection by the DO due to the issue of the purchase price.

(2)  As to the apparent objection from member(s)  of the Tso, this does not support P’s argument that the DO had already refused consent.  Indeed, in the 2^nd and 3^rd DO Letters, rather than rejecting or refusing the application, the DO simply asked the applicant to liaise with the Tso’s members so that a consensus could be achieved.  In other words the existence of the “objection” is not indicative of a refusal of consent. Likewise, the use of the word “reservation” in the 4^th DO Letter also does not indicate a refusal or rejection.  In any event, and for completeness, I accept D’s submission that there is no evidence before the Court to suggest that unanimous consent from members of the Tso was required before consent could be given by the DO.  This is clear from, amongst others, the very fact that the DO did not refuse outright the application for consent on the ground that there was no unanimous consent in all of the four DO letters.  P also confirmed at trial that it did not dispute that unanimous consent was not required.

(3)  As to the reference to the death of LLK in the 4^th DO Letter, as noted above, it is not surprising that the DO could not proceed with the application further as a manager must be appointed to represent the Tso under section 15 of the NTO.  I accept D’s submission that this did not represent a refusal of the application by the DO.

68.  Fourth, as to P’s reliance on cases such as Sime Darby Motor Services Ltd v Director of Lands [2024] 2 HKLRD 319 and Million Way Limited v To Shing Wo and Siu Hing Fong as Managers of Tin Hau Wui & Ors, unrep., HCA 436/2007, 25.5.2010 (“Million Way (CFI)”)  in an attempt to argue that the words “unable to proceed the above application further” as used in the 4^th DO Letter may be construed as a refusal, I am not persuaded by such submission for the following reasons:

(1)  In general, I consider the citation of such cases to be unhelpful.  Each case must be decided on its own facts and context.  The words used by Government departments in different cases may not necessarily have the same meaning as the words used in the present case.

(2)  For instance, the words used by the District Lands Officer in Sime Darby Motor Services Ltd (supra)  at §24 were very different from the present case, most notably: (1)  the words “would not be further processed” only appeared after the District Lands Officer had given reasons for the same (as recorded in §24).  Thus, the letter at §24 appears to be a reasoned decision, unlike the present case where the DO had never expressly refused or rejected the application or the explanations put forward by N&F regarding the purchase price; (2)  the words “would not” as used in the letter at §24 were more definite than “unable to proceed” in the 4^th DO Letter in the present case; (3) the words “you may wish to review your proposal for further consideration by this office” appeared in the letter at §24 but are not found in the 4^th DO Letter in the present case.  This suggests that the application in that case had reached a dead-end whereas the application in the present case had not; and (4) the Director of Lands was a party to the proceedings in Sime Darby Motor Services Ltd (supra)  (being a case on judicial review)  and was able to clarify to the Court that the letter at §24 was essentially a rejection (at §28(1)).  The same cannot be said of the present case as the DO is not a party and has not made any submissions to this Court.

(3)  Similarly, P’s citation of Million Way (CFI) at §60 does not assist.  It is not clear to me what the exact circumstances were in Million Way (CFI) which led the DO to issue the letter mentioned in §60.  Nor do I have sight of all the letters exchanged between the parties and the DO in that case.  I do not see how one can simply transpose the Court’s comments in that case into the present case, when the facts and circumstances are not even the same (and P has not sought to argue that the facts are the same).

69.  Fifth, as to P’s submission that D’s inaction after the 4^th DO Letter also reflects, from D’s own perspective, that the application for consent had come to an end, this is not consistent with what HKC said during cross-examination.  Indeed, HKC explained at trial that whilst there would be no purpose in contacting the DO in the meantime when the Tso had not appointed a new manager yet (as required under section 15 of the NTO), HKC considered that there would be utility in contacting the DO in the event a new manager of the Tso was appointed.

70.  For the reasons above, in my judgment, P has failed to discharge its burden of proving that the DO had refused to grant consent for the Sale by virtue of the letters issued by the DO.  None of the four DO letters signify a refusal or rejection of the application for consent.

F3.  ISSUE 2 – WHETHER THE PROVISIONAL AGREEMENT HAD BEEN FRUSTRATED?

71.  P’s alternative case is that the Provisional Agreement had been frustrated by the DO’s refusal to grant consent and the failure to obtain the same since the execution of the Provisional Agreement.

72.  At trial, P accepted that its case on frustration added nothing to its other claims, given that its case on frustration also relies on P’s allegation that the DO had refused consent.  Whether frustration can be made out thus rises and falls with the Court’s decision on Issue 1B above.

73.  Given my decision above on Issue 1B (that the DO had not, by its letters, expressed any refusal or rejection of consent), P’s case on frustration must fail.

74.  But assuming that this Court was wrong on Issue 1B and that the DO had refused to grant consent, I will go on to consider whether P’s case of frustration has been made out.

75.  The following principles on the frustration of contracts are undisputed:

(1)  Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract: Wong Lai Ying v Chinachem Investment Co Ltd [1980] HKLR 1 at p7 per Lord Scarman.

(2)  Frustration operates to kill the contract and discharge the parties from further liability under it.  Therefore, it cannot be lightly invoked but must be kept within very narrow limits and ought not to be extended: Chitty on Contracts (35^th edn)  at §27-007.

(3)  The application of the doctrine of frustration requires a multifactorial approach.  Among the factors which have to be considered are the terms of the contract itself, its matrix or context, the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances: The Sea Angel [2007] CLC 876 at §111 per Rix LJ.

76.  Applying these principles, I am unable to see how the doctrine of frustration may be invoked even if (for the sake of argument)  the DO had refused consent:

(1)  Not only must the Provisional Agreement be incapable of being performed, P will also have to show that the circumstances in which the performance of the obligation is called for would render it “radically different” from that which was undertaken by the contract. 

(2)  P has not explained why the refusal of consent would render the performance of the Provisional Agreement a thing “radically different” from that which was undertaken in the Provisional Agreement.  As it is common ground that the Sale under the Provisional Agreement has always been subject to the obtaining of consent from the DO, if consent had been refused, there is simply no question of the parties performing the obligation of Sale under the Provisional Agreement at all, and consequently there would be no performance of an obligation that would be rendered “radically different” from that which was undertaken in the agreement.

77.  In my judgment, the doctrine of frustration is not applicable or engaged in the present case.

F4.  ISSUE 3 - WHETHER P’s IMPLIED TERM SHOULD BE IMPLIED?

78.  The next issue to consider is P’s alternative case that P’s Implied Term should be implied into the Provisional Agreement and that D had been in breach of the same.

79.  In gist, P submits the following in support of P’s Implied Term:

(1)  P contends that P’s Implied Term is clear, and the determination of what is a “reasonable time” presents no realistic difficulty or does not give rise to uncertainty.  P says the Court is more than capable of deciding whether or not a reasonable time for performance had in fact passed.

(2)  P further submits that it is both necessary and possible to imply P’s Implied Term in order to give the agreement practical and commercial coherence, given that there is no express termination clause or completion date or no clause allocating rights and liabilities between the parties should consent be refused.

(3)  Any reasonable person would have said that it goes without saying that the agreement would not have remained alive indefinitely and that the Best Endeavours Clause implies a corresponding term that the agreement should be terminated at some point when the parties’ efforts fail.

80.  D’s response, in gist, is that P’s Implied Term should not be implied as (1)  there is no evidence that the parties would have agreed that consent from the DO must be granted within a reasonable time; and (2)  the proposed implied term is inconsistent with the undisputed evidence that the Tso attempted to sell the Subject Lots for some 15 years but was unable to locate a purchaser, and consequently there is no reason why the parties would have agreed to impose a time limit under the agreement.

81.  The following principles on implied terms are undisputed:

(1)  The requirements for implying a term were summarised and discussed in Lo Yuk Sui v Fubon Bank (Hong Kong)  Limited [2019] HKCA 261 at §§30-32:

“30. In respect of the proper test for implication of term, Mr Jat referred us to the Court of Final Appeal’s judgment in Kensland Realty Ltd v Whale View Investment Ltd (2001)  4 HKCFAR 381 where the requirements identified by Lord Simon in BP Refinery v Shire of Hastings (1978)  52 ALJR 20 were adopted:

‘ ... for a term to be implied, the following conditions (which may overlap)  must be satisfied: (1)  it must be reasonable and equitable; (2)  it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3)  it must be so obvious that “it goes without saying”; (4)  it must be capable of clear expression; (5)  it must not contradict any express term of the contract.’

31. These requirements were commented upon by Lord Neuberger in Marks & Spencer plc v BNP Paribas Securities Services, supra at [21]:

‘I would add six comments on the summary given by Lord Simon in the BP Refinery case 180 CLR 266, 283 as extended by Bingham MR in the Philips case [1995] EMLR 472 and exemplified in the APJ Priti [1987] 2 Lloyd’s Rep 37. First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, paragraph 27, although Lord Simon’s requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is ‘vital to formulate the question to be posed by [him] with the utmost care’, to quote from Lewison, The Interpretation of Contracts 5^th ed (2011), p 300, paragraph 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of ‘absolute necessity’, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption JSC in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.’

32. We respectfully agree with these comments. In the more recent decision of the Privy Council in Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2, Lord Hughes (with whom Lord Neuberger, Lord Clarke and Lord Carnwath agreed)  summarized the law at [7]:

‘It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work, and this it may be if (i)  it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, “Oh, of course”)  and/or (ii)  it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement.’”

(2)  The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the Court comes to the task of implication with the benefit of hindsight, and it is tempting for the Court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong: Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472 at p482 per Sir Thomas Bingham MR (as he then was).

82.  Applying the authorities above and having considered the evidence and submissions of the parties, I consider that P’s Implied Term should not be implied as it fails to satisfy the requirements for an implied term.

83.  First, this Court notes that P’s Implied Term is pleaded on two bases, namely “by the mutual understanding and/or intention of the parties to the Provisional Agreement” and/or “by reason of business efficacy”.

84.  Starting with the former, I note that there is no direct factual evidence from P’s side to support the existence of such “mutual understanding and/or intention” (having adduced no evidence in support of the same and having called no witnesses).  There is no evidence upon which the Court may find such “mutual understanding and/or intention” and I reject the first basis of the implied term relied upon by P.

85.  Second, I do not accept that P’s Implied Term is necessary to give business efficacy to the Provisional Agreement.

86.  In particular, in considering necessity, it is relevant to take into account the following undisputed context in which the Provisional Agreement was entered:

(1)  In 2009, when LLK was appointed as manager of the Tso, the previous managers of the Tso had already been attempting (and had failed)  to sell the Tso’s lands for the past 15 years.

(2)  Discussions ensued between LLK and HML in around 2013 during which LLK explained that it had been difficult to find potential buyers to purchase all the lands of the Tso altogether without cherry-picking the good pieces of land.  The Tso no longer wished to bear the burden of maintaining all the lands as most of the members were over 60 and some were over 80.

(3)  The nature of the Subject Lots were such that some of the lots lacked marketability.

(4)  At the end of 2013, HML agreed to purchase the lands and LLK and HML further discussed the estimated costs for the Road Construction and Repair.

(5)  It was not until 14 August 2014 (some 8 months later)  that HML met LLK in the UK and entered into the Provisional Agreement.

(6)  The Provisional Agreement does not contain any express term specifying the completion date for the Sale.  Instead, it has Clause 7 (namely the Best Endeavours Clause)  and also Clause 5 (where parties agreed that the Provisional Agreement constitutes a binding “specific performance” obligation).

87.  Against the above context, it is evident that P’s Implied Term is not necessary to give business efficacy to the Provisional Agreement:

(1)  As can be seen above, the present case is not one where the sale of the lands was urgent or that the parties had a clear timeline or deadline to meet.  To the contrary, there was evidently no urgency in proceeding with the Sale – as can be seen from how LLK and HML dealt with each other in executing the Provisional Agreement.

(2)  It is similarly not necessary and/or obvious that the parties would have agreed to an implied term imposing a deadline for the DO’s consent to be granted after which the agreement may be terminated, in view of the lack of marketability of the Subject Lots and the fact that previous managers have already attempted (but without success)  to sell the Subject Lots for the past 15 years.

(3)  The fact that the Provisional Agreement does not contain any completion date and that the Best Endeavours Clause does not specify a time limit until which the parties are to use their best endeavours, further undermines the suggestion that P’s Implied Term is necessary to give business efficacy to the Provisional Agreement.

88.  As to P’s submission that P’s Implied Term is necessary because the Provisional Agreement would be kept “alive indefinitely” and the parties would be “locked in” without such an implied term, I do not accept this submission.  First, I do not agree that the Provisional Agreement would be kept alive “indefinitely”, as there is no conceivable reason why the DO would indefinitely refrain from formally making a decision as to whether to grant consent to the Sale.  Second, it would not be open for a party to simply “sit on or idle the matter” indefinitely as the Best Endeavours Clause precisely caters for such a situation and requires the parties to use their best endeavours.  Third, and in any event, this submission ignores the background of the Provisional Agreement and the Subject Lots, being the inability for the Tso to sell the Subject Lots for some 15 years until D came along and agreed to purchase the same.

89.  As to P’s reliance on Million Way (CFI) at §40 where the Court remarked that there must be an implied term that the formal agreement would have lapsed within a reasonable time if the DO did not consent to the sale and that the agreement would not have remained alive indefinitely, in my view this case does not assist P.  Leaving aside the fact that the learned Judge’s holding at §40 appears to have been obiter, the formal agreement in that case provided that the agreement shall automatically cease to have any effect if consent was not issued within 1 year of the agreement (§§13-15), which suggests that the parties there had intended to impose a time limit under their agreements (unlike the present case).  Further, Million Way (CFI) serves as a clear illustration that if the parties had intended that there should be a time limit when consent from the DO must be obtained, they would have said so expressly in the agreement.  This is another reason why I consider that it would not be appropriate for the Court to imply P’s Implied Term.

90.  Third, I do not consider P’s Implied Term to be so obvious that it goes without saying.  For the same reasons above, in view of the whole history and lack of marketability of the Subject Lots, it is not at all obvious that the parties would have agreed to a time limit or deadline for the granting of consent by the DO.

91.  Fourth, I consider that P’s Implied Term is incapable of clear expression and is too vague to be implied.

92.  In its pleading, P suggested a reasonable time when DO’s consent must be granted would be not later than 1 year or such time as the Court deems fit.  In oral opening, P submitted that a reasonable time could be 2 years (or even 3 years)  from the Provisional Agreement (referring to the fact that the Provisional Agreement was entered in 2014 and the exchanges of letters with the DO ended in December 2016).  Then, in its written closing submissions, P suggested that a reasonable time in the circumstances would be around the time when the new managers of the Tso were appointed on 7 November 2017 (namely 3 years and 3 months since the Provisional Agreement).  Finally, in oral closing, P submitted that a reasonable time had elapsed by the time of P’s letter before action in June 2019, which was close to 5 years from the Provisional Agreement in August 2014.

93.  Such shifting in P’s case on what the “reasonable time” should be precisely demonstrates the vagueness of the implied term sought to be implied by P.  Such implied term falls into what Sir Thomas Bingham MR (as he then was)  cautioned was tempting, but wrong, for the Court to fashion an implied term retrospectively to suit the merits of the case: Philips Electronique Grand Public SA (supra).

94.  Further, P’s reliance on Sheffield City Council v Scotfield Group Ltd & Anor [2023] EWHC 990 (Ch)  at §51 where the Court rejected the fact that an implied term requiring completion of an obligation within a reasonable time would cause any realistic difficulty, does not assist P.

(1)  I agree with D’s submission that the fact that the Court may be capable of deciding whether or not a reasonable time for performance has passed is not by itself a reason for implying a term into a contract.  The test remains whether P’s Implied Term is obvious and necessary to give business efficacy to the Provisional Agreement.

(2)  Further, the facts of Sheffield City Council were that the parties had expressly provided for a clause suspending time for completion until evidence is provided of a building contract.  It was in these circumstances that the Court held that there was an implied corresponding obligation on a party to provide evidence of the building contract within a reasonable time (at §49).  In the present case, no time for completion or right of termination had been specified in the Provisional Agreement.  It is not obvious or necessary that a right of termination based on time should be implied.

95.  I also do not consider that the ruling in Kensland Realty Ltd (supra)  advances P’s case any further.  An implied term that split cheque directions be given a reasonable time prior to completion (Kensland Realty Ltd at §28)  is conceptually different from an implied term that provides for a right of termination of the contract after a reasonable time.  In the former case, the parties had expressly provided for the time when completion was to occur.  In the latter (present)  case, the parties did not provide for an express completion date and did not provide for when the Provisional Agreement may be terminated.

96.  For the avoidance of doubt, I do not consider it to be necessary to take into account the subsequent conduct of the parties (even if permissible in law)  in determining that P’s Implied Term should not be implied.

97.  For these reasons, in my judgment, P has failed to demonstrate that P’s Implied Term should be implied.  As no such implied term is to be implied into the Provisional Agreement, it follows that it is unnecessary for me to consider whether D was in breach of such implied term.

F5.  ISSUE 4 – WHETHER D IS ENTITLED TO SPECIFIC PERFORMANCE AND/OR DECLARATORY RELIEF?

98.  D counterclaims for, inter alia, the following reliefs: (1)  a declaration that the Provisional Agreement is enforceable and/or binding on P; and (2)  specific performance of the Provisional Agreement, with damages in addition to or in lieu of specific performance.

99.  By the time of closing, D further refined the reliefs which it sought from this Court, namely (1)  specific performance of Clause 7 of the Provisional Agreement; and (2)  a declaration that the Provisional Agreement is enforceable and binding subject to the consent of the Secretary for Home and Youth Affairs.

100.  These reliefs will be addressed in turn.

F5.1  Specific performance

101.  D’s case is that P was in breach of the Best Endeavours Clause.  Further, D pleads an implied term that the successor(s)  to LLK as manager of the Tso should not act to prevent the completion of the Provisional Agreement by reason of its obviousness and/or for business efficacy.

102.  P’s case in response is that the Best Endeavours Clause does not oblige either party to apply for consent and Clause 7 relates to matters of title.  In any event, the Tso had (through LLK)  already performed its “best endeavours”.

103.  The following principles on how the Court should construe a “best endeavours clause” are applicable to the present case:

(1)  Using “best endeavours” means that the party shall take all reasonable steps which a prudent and determined man acting in his own interests and anxious in completing the transaction would have taken.  Second-best endeavours will not do.  If that person fails to use proper skill and care in going about the task that he undertakes to do with his endeavours, or that he deliberately delays or procrastinate the pursuit of that object, or going about doing it in such a way disregarding the interests of the person to whom he has given his undertaking, he fails in his obligations: Okachi (Hong Kong)  Co Ltd v Nominee (Holding)  Ltd [2005] 4 HKLRD 447 at §95 per DHCJ Poon (as he then was).

(2)  An obligation to use “best endeavours” is more stringent than an obligation to use “reasonable endeavours”: Rhodia International Holdings Ltd v Huntsman International LLC [2007] 1 CLC 59 at §§34-35 per DHCJ Julian Flaux QC (as he then was).

104.  Despite P’s submission that “best endeavours” connotes no greater degree of endeavour than “reasonable endeavours”, P never expressly disagreed with the correctness of the authorities set out above (including Rhodia International Holdings Ltd (supra)).  In any event, nothing turns on this point as can be seen from the undisputed facts at §107 below.

105.  Having considered the submissions and evidence of the parties and applying the principles above, I consider that P is in breach of the Best Endeavours Clause for the following reasons.

106.  First, I consider that, on a proper construction, the Best Endeavours Clause requires the parties to use their best endeavours to ensure the effectiveness and performance of the Provisional Agreement, including obtaining consent to the Sale from the DO:

(1)  To start with, such construction is supported by the fact that consent to the Sale from the DO is related to (and indeed necessary to ensure)  the effectiveness and performance of the Provisional Agreement.  Thus, properly construed, the requirement for parties to obtain the DO’s consent must be covered within the phrase “effectiveness and performance” of the Provisional Agreement.  I consider that the fact that Clause 7 does not expressly refer to consent from the DO does not undermine the construction above.

(2)  I do not agree with P’s submission that the heading of Clause 7 (which states “title document”)  confines or narrows the scope of Clause 7 to only matters of title.  Such submission ignores the principle that a heading in a contract cannot override clear words in a clause or create an ambiguity where, but for the heading, none would otherwise exist: Lewison, The Interpretation of Contracts (8^th edn)  at §§5.108-5.112. Indeed, the meaning of the first sentence of Clause 7 is clear.  Clause 7 relates to the effectiveness and performance of the Provisional Agreement. There is nothing to confine “effectiveness” and “performance” to only title matters.

(3)  That Clause 7 does not only relate to “title documents” is further reinforced by the obligation on the vendor to “obtain the necessary consents from the members of the Tso (if any)”, which does not relate to title documents.

107.  Second, the undisputed facts in this case support the finding that P (as the successor managers of the Tso)  were in breach of the Best Endeavours Clause in failing to use their “best endeavours” to proceed with the application for consent from the DO:

(1)  It is an undisputed fact that P had not made any attempt to proceed with the application for consent or to submit any renewed application.

(2)  Indeed, following the death of LLK, HKC had followed up on the progress of the Sale with AFL and the only written response HKC received was a message from AFL on 23 February 2017 that discussions within the family were still ongoing and that AFL would be in contact in due course.  No further response from AFL was received despite HKC’s chasers from July 2017 to April 2018.

(3)  Quite apart from using “best endeavours” to ensure the effectiveness and performance of the Provisional Agreement, P had in fact set about to eradicate the Provisional Agreement, having sent a letter to D on 10 June 2019 to annul the Provisional Agreement.  P also commenced these proceedings on 17 July 2019 seeking a relief that the Provisional Agreement be declared null and void.

(4)  P’s reliance on the fact that LLK alone had and/or LLK and D had jointly discharged their obligations to use best endeavours does not assist P.  D’s pleaded case on breach of Clause 7 is directed against P, not LLK.  I agree with D’s submission that the fact that LLK might have discharged the “best endeavours” obligation is neither here nor there.

(5)  For completeness, insofar as P argues that the lack of unanimous consent from members of the Tso had prevented P from using “best endeavours” to proceed with the application or submit a renewed application, I do not accept such submission.  As noted above, there is no evidence before the Court to suggest that unanimous consent was required before consent could be granted by the DO.

108.  Third, insofar as P submits that they (as managers of the Tso)  are not bound by Clause 7 to use best endeavours to obtain and/or proceed with the application for consent from the DO, I do not accept this submission:

(1)  It has never been P’s position on its pleadings that P is not bound by the terms of the Provisional Agreement.  Indeed, P pleads in the SOC that they were appointed as joint managers of the Tso succeeding LLK and the Provisional Agreement was entered into between D as purchaser and LLK “as the then manager of LTWT” as vendor.

(2)  Insofar as P takes such a position, this would be contrary to authorities such as Lai Chi Kok Amusement Park Co., Ltd (No. 1)  v Tsang Tin-sun & Ors [1965] HKLR 413 where the Court held that a succeeding manager took over the rights and obligations of his predecessor (at p428).

(3)  Further, taking such position would be completely inconsistent with P’s locus in commencing these proceedings and seeking to annul the Provisional Agreement; and P’s pleaded case that it exercised “its right to terminate the Provisional Agreement by commencing the present action seeking the relief herein”.  I agree with D’s submission that, in commencing these proceedings, P must have adopted the position that it is a contracting party to the Provisional Agreement by virtue of being the successor to LLK as manager of the Tso.

109.  Given that P is clearly bound by the Provisional Agreement as successor managers to the Tso (including the Best Endeavours Clause), I do not consider it necessary to determine whether D’s Implied Term should be implied.

110.  As I am of the view that P is in breach of the Best Endeavours Clause, the next question is whether D is entitled to specific performance of the Best Endeavours Clause.

111.  It is noted that P has not advanced any specific defence or reason why D is not entitled to specific performance in its pleadings.  Without prejudice to this starting point, I agree with D’s submission and consider that D is entitled to specific performance of the Best Endeavours Clause contained in the Provisional Agreement:

(1)  First, as a matter of law, it is possible for the Court to order specific performance of part of the obligations contained in a contract. This is supported by Snell’s Equity (35^th edn)  at §17-025 where the learned authors explained:

“(b)  Partial specific performance and severance. If one obligation under a contract is of a type that will not be specifically enforced, it has been suggested that all obligations arising under the contract will be incapable of specific performance, but this is rarely applied in practice and is difficult to justify in principle since the claimant is presumably willing to accept part performance only. A contract may be divisible, containing what in substance are two or more contracts. If one or more of these cannot be specifically enforced, a decree may still be granted for the remainder, possibly accompanied by compensation for breach of the obligation that cannot be enforced, unless the obligations are interdependent. …”

(2)  In Rainbow Estates Ltd v Tokenhold Ltd [1999] Ch 64, DHCJ Lawrence Collins QC (as he then was)  said at p73B-C:

“…Third, the court should not be constrained by the supposed rule that the court will not enforce the defendant’s obligation in part … it is by no means clear that there is such a principle, and in any event if there is such a principle, it applies where the contract is in part unenforceable (Jones & Goodhart, Specific Performance, pp. 57-61); it does not mean that the court cannot in an appropriate case enforce compliance with a particular obligation such as a repairing covenant”.

(3)  While P sought to distinguish the authorities cited by D, such as Rainbow Estates Ltd, there is no attempt by P to explain why the general principle that specific performance of part of the obligations contained in a contract is inapplicable to the present case.  In any event, I do not see any reason why these principles do not apply.

(4)  Second, I do not agree with P that such an order of specific performance would be “unknown, novel and open-ended leading to difficulty of supervision and enforcement by the Court”.  In fact, there are examples of cases such as Hewavisenti v Wickramsinghe [2021] EWHC 2045 (Ch)  where Courts have ordered specific performance of an agreement for breach of a “best endeavours” clause (§§9, 90, 91)  and also held that damages would not be an adequate remedy (§90).

(5)  In any event, there is no evidence to suggest that it would be “impossible” for P to perform the “best endeavours” obligation under Clause 7, whether by way of proceeding with the existing application or submitting a renewed application to the DO.

(6)  Third, as the present case concerns the sale and purchase of the Subject Lots which are unique, I am satisfied that damages would not be an adequate remedy and that it would be appropriate to award specific performance of the Best Endeavours Clause.

(7)  Fourth, I also accept that D is ready, willing and able to complete the Provisional Agreement.  No evidence to the contrary was advanced by P and there is no reason why I should not accept D’s position.

(8)  Fifth, I do not accept P’s submission that the relief of specific performance of the Best Endeavours Clause now sought by D is unpleaded or not part of its case.  I accept that D had all along acknowledged in its pleadings that the Sale is subject to consent of the DO under section 15 of the NTO and that D’s case has always been that P was in breach of the Best Endeavours Clause.

(9)  Sixth, and insofar as necessary, the parties’ agreement in Clause 5 of the Provisional Agreement (that the Provisional Agreement constitutes a binding “specific performance” obligation)  also reinforces D’s entitlement to relief.

112.  It follows that I am prepared to grant an order that there be specific performance of the Best Endeavours Clause in the Provisional Agreement.

113.  Although D also claimed damages “in addition to” specific performance, D has not particularised or put forward any evidence as to what damages should be awarded in addition to specific performance of Clause 7 (and in what amounts).  It follows that I am not prepared to award D with damages “in addition to” specific performance.

F5.2  Declaratory relief

114.  As noted above, D also seeks a declaration that the Provisional Agreement is enforceable and binding subject to the consent of the Secretary for Home and Youth Affairs.

115.  In support of the declaration sought, D submitted that such declaration would serve a useful purpose in that it would prevent P from continuing to seize upon the perceived uncertainty over the lack of consent from the DO, and would be useful in “clearing the air” for the parties so that they can continue resolving the matter arising from the application to the DO for consent.

116.  P’s position, in response, is that the DO’s consent had not been granted and a declaration that the Provisional Agreement is enforceable and/or binding on P is wrong in principle.  Insofar as D seeks a declaration that the Provisional Agreement be enforceable subject to the consent of the DO, P points out that this is not D’s pleaded case.

117.  It is well-established that a declaratory judgment is a flexible and discretionary remedy.  Whether a declaration satisfies the requirement of “practical utility” in any one case will turn very much on its particular facts. On the one hand, the court has always been reluctant to grant a declaration that would not serve any practical purpose; on the other hand, “useful purpose” has been interpreted in a broad and flexible sense: Koo Ming Kown v Mok Kong Ting [2022] HKCFI 642 at §15 per Cheng J.

118.  Having considered the parties’ submissions, I am satisfied that the declaration sought by D should be granted and that it would serve a useful purpose.  Further, given my view above that specific performance of the Best Endeavours Clause should be granted, the declaration sought by D would complement the order for specific performance.

119.  I do not accept P’s submission that the declaration now sought by D represents a “change” in D’s case.  As noted above, I consider that D’s pleaded case has always been that the Sale required consent from the DO and the declaration now sought by D is consistent with this position.

120.  As I am minded to grant declaratory relief and specific performance in the manner explained above, for the avoidance of doubt, I reject P’s claim for the registration of the Provisional Agreement in the Land Registry to be vacated.

F6.  ISSUE 5 – ALTERNATIVELY, WHETHER P IS LIABLE TO D FOR UNJUST ENRICHMENT?

121.  As I have refused P’s claim to set aside the Provisional Agreement, it will not be necessary to consider D’s alternative case of unjust enrichment, which is an alternative case that assumes the Provisional Agreement is “null and void and of no effect and unenforceable”.

122.  But for completeness, had it been necessary to consider D’s alternative case of unjust enrichment (assuming I was wrong on Issues 1A and 1B above), I would have allowed the same – applying the established framework for an unjust enrichment claim in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004)  7 HKCFAR 79 at §67:

(1)  The Tso had been enriched by the following benefits, namely (1)  the deposit of HK$35,000 paid by D to LLK in cash upon signing the Provisional Agreement; and (2)  the surveying and setting out costs incurred for the sub-division of Lot Nos. 1114, 1115 and 1118 in the amount of HK$39,300; and legal fees for subdivision in the amount of HK$80,000.  Such amounts are not disputed or challenged by P.

(2)  Such enrichment was at D’s expense.  P has not contended otherwise.

(3)  The enrichment was unjust on the ground of total failure of consideration, assuming the Provisional Agreement was held to be unenforceable and/or was set aside.

(4)  P has not advanced any specific defence to the unjust enrichment claim in its pleadings apart from a bare denial.  Even if I were to consider the defence raised by P in its oral opening and written closing that it is not liable because D “took a risk” in incurring expenses in respect of a conditional contract, I do not consider this to be a valid defence.  I accept D’s submission that the issue of risk-taking is relevant to the unjust factor of mistake (see Goff & Jones on Unjust Enrichment (10^th edn)  at §9-35)  but the unjust factor relied on by D is total failure of consideration and not mistake.

123.  As I have declined to set aside the Provisional Agreement, it will not be necessary for me to say any further as regards D’s alternative case of unjust enrichment.

G.  DISPOSITION AND ORDERS

124.  For the reasons above, I dismiss P’s claims in this Action.

125.  Further, I grant judgment on the counterclaim in favour of D to the extent of the terms set out below.

126.  I make the following orders:

(1)  A declaration that the Provisional Agreement is enforceable and binding subject to the consent of the Secretary for Home and Youth Affairs.

(2)  An order of specific performance of Clause 7 of the Provisional Agreement that P does use its best endeavours to ensure the effectiveness and performance of the Provisional Agreement.

(3)  An order nisi that the costs of this Action (including all costs reserved)  be paid by P to D with certificate for two counsel, such costs to be taxed if not agreed.

127.  In the event that no application to vary is made within 14 days after the date of handing down of this Judgment, the cost order nisi made above at §126(3)  shall become absolute.

128.  I thank all counsel for their helpful assistance.