HUMPHREYS ESTATE (QUEEN'S GARDENS) LIMITED v. ATTORNEY GENERAL AND ANOTHER

Equity - land transaction always "subject to contract" - estoppel by encouragement and acquiescence - whether unconscionable to resile from agreement in principle.

Negotiations for proposed Conditions for Exchange relating principally to the grant of a long Crown lease of the Queen's Gardens site to H. K. Land at a premium, in return for which the Government would be allowed to occupy 83 flats in Tregunter Mansions, rent free, reached a satisfactory conclusion on all essential terms, but when the property market fell, and H. K. Land got into financial difficulties, they withdrew from the deal, relying on their rights under the "subject to contract" rule, a condition which the parties agreed had never been waived or expunged, expressly or implicitly.

The Government invoked the equitable jurisdiction of the Court. The essence of their case on the main issue was that H. K. Land, by permitting the Government to re-house many Crown servants by moving them from their previous accommodation into the 83 flats in Tregunter Mansions, had encouraged the Government to expect that thereafter H. K. Land would not withdraw from the transaction. In reliance on that expectation, the Government had permitted H. K. Land to enter upon the Queen's Gardens site and to demolish the buildings standing there. The subsequent attempt by H. K. Land to withdraw from the transaction, despite the fact that the essential elements of the agreement in principle between the parties had been wholly performed, should be regarded as unconscionable.

Held: [On the facts] that the equity relied upon by the Government had not been established and, on the subsidiary issue, that H. K. Land was entitled to revoke the licence under which possession was taken of the Tregunter flats.

Decision of High Court affirmed.

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JUDGMENT

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Fuad, J.A.:

1. This is an appeal from the decision of Jackson-Lipkin J. who, on 10 May 1985, entered judgment for the Plaintiff, Humphrey's Estate (Queen's Gardens) Limited on their claim against the Defendants, the Attorney - General and the Colonial Treasurer Incorporated, and dismissed the Defendants' Counter-claim in the action. I will refer hereafter t0 the parties as "H. K. Land " and "the Government"; Hong Kong Land is the parent company of the Plaintiff.

2. The dispute that led to the action arises out of certain Conditions for Exchange which were negotiated over a long period of time but which were never formally executed. The proposed Conditions related principally to the granting of a long Crown lease (of "the Queen's Gardens" site) to H. K. Land, in return for which the Government would be allowed to occupy 83 flats in Tregunter Mansions for the duration of H. K. Land's Crown lease to the land upon which they were to stand, rent free. H. K. Land was to pay a substantial premium since the value of the Queen's Gardens site was more than the value of the right to occupy the Tregunter flats.

3. The main issues that fell for determination at the trial concerned the doctrine of equity contended for by the Government in resisting H. K. Land's claim for possession of the Tregunter flats and the return of the premium they had paid, the nature of the licence under which the Government occupied the flats, and the Government's right to insist upon the execution of the Conditions of Exchange or to claim some lesser relief.

4. Negotiations began in 1979 between H. K. Land and the Government over the redevelopment of a site at Queen's Gardens. After discussions and considerable correspondence, the Public Works Department wrote to H. K. Land on 8 April 1980 outlining "provisional basic terms" for an agreement. Basically, this envisaged (a) the surrender of H. K. Land's interest in Inland Lot No. 1218 and the extension thereto (Balmacara and Glenealy Junior School); the remaining portion of Inland Lot No. 1093 (Friston) and Section A of Inland Lot No. 1093 (Victoria Lodge), (b) the as to the Government of 90 flats at a "nil" premium  in Block A of the Tregunter development and (c) free occupation by the Government of 30 flats in Block C of the Tregunter development. The Queen's Gardens site would be permitted to be redeveloped "together with the adjoining, private land in your ownership" by way of "contemporaneous exchange". These terms were said to tie granted "on the assumption that the Tregunter flats will be ready for occupation by the end of [1980]".

5. This letter of 8 April 1980 was signed by Mr. Ward, the Principal Government Land Agent and its final paragraph was in these terms:-

"3. I should now be obliged if you will consider the basic terms quoted above and advise me if they are acceptable to you. I must point out, however, that at this stage I have no authority to formally commit Government in this matter and the basic terms quoted may be varied or withdrawn at any stage prior to formal completion of the transaction. Furthermore any terms we might tentatively agree will be subject to ratification by the Governor-in-Council. I would also add that it is not the intention to create any legal obligation either on your Company or on Government, nor (regardless of whether correspondence may be entered into on the subject) will Government accept any such obligation, unless and until the document or documents necessary to give legal effect to this proposal are executed on behalf of H. E. the Governor and registered in and issued out of the Registrar General's Department (Land Office)."

6. After further discussions and correspondence, on 30 August 1980, Mr. Ward wrote again to H. K. Land setting out the revised basic terms which he would be "prepared to recommend to Government for consideration." Paragraph 3 of this letter was virtually in idential terms to the corresponding paragraph in the April letter.

7. On 9 September 1980 H. K. Land responded by raising a number of points for further discussion and resolution, saying that "in all respects the basic terms contained in your letter of 30th August are in principle acceptable to us.

8. Mr. Tam, "for the Principal Government Land Agent" sent a letter dated 17 September 1980 to H. K. Land, announcing the premium that would have to be paid. The letter said, inter alia, -

"My calculations show that after setting off the value of the Tregunter flats and the deferred cost of road works against the value of the Queen Gardens site, there is an excess of value in the order of $1.5 million."

9. This passage ended with the sentence: "[the] premium will be payable by you in this transaction if, subsequently approved by Government". And later the writer says: "Once again, I have to reiterate that I have no authority to commit Government as to the proposed transaction at this stage and any agreement reached in this matter will be subject to Government's formal approval."

10. On 21 November 1980 a meeting was held at the Crown Lands & Survey Office at which H. K. Land was represented. There is a detailed "file note" recording what was discussed. All it is necessary to say here is that the Government decided that the premium to be paid by H.K. Land should be increased to $77,377,119, a sum which would be reduced "if Glenealy Junior School is to remain where it is until the new school is built and Queen's Gardens is completed" to $13.8 million.

11. The Government followed this meeting by writing a letter dated 12 January 1981 to H. K. Land, headed "WITHOUT PREJUDICE". It began "...... I am pleased to inform you that subject to contract, Government has agreed in principle to grant the site [Queen's Gardens].....by private treaty on the following basic terms and conditions."

12. The letter is long and detailed. In summary, the lease term was to be 75 years; development conditions were set out; the premium was specified to be satisfied partly in cash and partly by the assignment to the Government of a number of penthouses, flats and car parking spaces in the Tregunter development - which assignment would be subject to a Deed of Mutual Covenant; provision was made for H. K. Land to pay Government $8.3 million more each month if the Government were not granted possession of the Tregunter flats etc. by 28 July 1981; there were a number of special conditions regarding road works, the Glenealy Junior School, Friston and Balmacara and the Victoria Lodge site. Paragraph 2 of this letter was as follows:-

"I should be obliged if you would now consider the above basic terms and advise me within 28 days from the date of this letter if they are acceptable to you. I must, however, point out that the above basic terms may be varied or withdrawn prior to formal execution of the transaction. Furthermore, any agreement reached shall be subject to formal approval by the Government and until the document or documents necessary to give legal effect to this transaction are executed and registered, this letter should not be construed as binding on Government in any way."

13. H. K. Land was prompt to reply. They did so on the following day, 13 January 1981. They said "We take pleasure in now formally confirming that the said basic terms are acceptable to this Company subject to the resolution of the following matters" and then follow suggestions regarding the Glenealy Junior School and Victoria Lodge sites, and the form of "the proposed documentation to effect the agreement between the parties". The letter ended by saying that H. K. Land "[looked] forward to finalising this transaction in the very near future." This letter, like the letter to which it was a reply, was also marked "WITHOUT PREJUDICE

14. Further correspondence and meetings ensued. These mainly concerned the form of the Deed of Mutual Covenant. Then, on 1 June 1981 the Government sent H. K. Land a copy of the draft Conditions of Exchange in respect of the transaction. Paragraph 2 of this letter said: -

"At this stage I invite your comments on the preliminary conditions forwarded herewith and I must emphasise that these are forwarded solely for your comment and information and that Government reserves the right to alter or substitute any of the conditions at any time before the transaction is finally completed and that there is no intention to create any legal obligation on Government nor Government accept any such obligation unless and until the documents necessary to give legal, effect to this proposal, are executed on behalf of the Government and duly registersd. I would also mention that I am not in a position to commit Government in any way and nothing contained herein must be taken as an offer of Grant....".

15. The next important development was that on 29 June 1981, the first Tregunter penthouse was handed over to the Government; the other flats and penthouses were handed over between that date and 11 August 1981. The learned Judge accepted that the parties had agreed that the occupation of the flats etc. would be on licence. The original draft could not be found, but the Judge was shown later drafts, and he concluded that up to November 1981 the parties were still not ad idem as to the period within which H. K. Land would be entitled to terminate the licence, if the proposed grant fell through.

16. The Judge noted that despite the fact that no form of licence was finally executed, the Government's occupation of the Tregunter flats etc. was "in all respects material to this action" on the terms of the draft licence, of which paragraph 1(b) and 2 were in these terms: -

"1. (b) Such occupation by the Licensee shall be that of a licence only and shall not create or be deemed to create any transfer or assignment of legal or other right or title to the Land and Premises in favour of the Licensee nor to have created any lease or tenancy or relationship of landlord and tenant between the Licensor and Licensee. For the avoidance of doubt it is recorded that ownership, possession and control of ...- remains in the Licensor.......".
"2. The Licensor may terminate this Licence and resume possession of ..... upon giving to the Licensee not less than 7 days, notice in writing on the happening of any one of the following events, namely: -
(a)	the Grant not being made within 3 months of the date hereof; or
(b)	breach of any of the terms or conditions hereof by the Licensee.
Upon the expiration of the said notice the Licensee shall forthwith deliver up vacant possession of ..... to the Licensor in such repair and condition as herein and by the terms hereof, required in the event that any alteration, decoration or addition (whether structural or non-structural and whether consent has been obtained or not from the Licensor to make such alteration, declaration or addition) has been made to ..... the Licensee shall deliver up vacant possession of the ..... to the Licensor together with all fixtures and fittings therein and all such alterations, decorations and additions shall be the property of Licensor free of payment or compensation thereof And Provided Always that the Licensor may demand the Licensee to remove all or any such alterations, decorations or additions made to ..... and make good any damage done to the..... due to such removal and to reinstate the ..... to its original state and condition at the sale cost of the Licensee.".

17. To return to the chronology of events, on 9 September 1981, H. K. Land submitted the prescribed form to the Government giving notice of the appointment of their "authorised person" for the purpose of the Building (Administration) Regulations, and certifying that the plans for the Queen's Gardens development had been checked by the authorised person.

18. Meanwhile, the Government had set up an informal committee to meet on a regular basis and "co-ordinate quarters redevelopment projects particularly where there was a need for re-housing the existing occupants of quarters to be redeveloped." The minutes of their first meeting (held on 24 August 1981) and dated 10 September 1981 stated the problems that had arisen due to the lack of co ordination in the past between the relevant departments of Government, and paragraph 6 of the minutes was as follows:-

"6. It was noted all the allocated flats at Tregunter would soon be occupied but the deal could not be concluded for some time yet. It was agreed that Accommodation Section would write to S for E (now S for L & W) expressing concern at the potential dangers involved in this situation. Government would be in a very embarrassing situation if the deal fell through and all the occupants had to be moved out. In this connection it is important that no redevelopment deal is concluded for Peak Rd. and Mr. Kellet until the Tregunter deal is finalised."

19. Then there is what I might call an "internal" memorandum written by Mr. Ward, and dated 18 September 1981, which I feel should be read out in full, for it contains important insights into the circumstances in which H. K. Land was allowed on to the Queen's Gardens site: -

"You are aware that the Tregunter flats have been taken over by Government and that all the Queen's Gardens flats will be vacated in the very near future. Conditions of Exchange have been virtually agreed with the Hongkong Land Co. and the transaction could be formally completed almost immediately the Queen's Gardens site is vacated.
2. However, one matter is still outstanding and this is the question of the, road costs. I believe you are aware of the background but to recap, the position is that an adjustment of about $20 M. was made in the initial premium calculation to allow for the improvement of May Road and Old Peak Road with the Hongkong Land Co. undertaking the work on behalf of Government. Unfortunately due to a mistake on the part of the Land Co. when considering the initial offer letter and plan there was a misunderstanding s to the full extent of the works required by Government and the allowed sum of $20 M, is insufficient to pay for all the improvements proposed. Highways Office when considering Hongkong Land's initial estimate confirmed that $20 M, was of the right order but it now seems that this was not the case.
3. After some months of discussion between Highways Office and Ove Arup & Partners (Hongkong Lands consultants) and with the benefit of much more detailed geotechnic and other information an estimate of about $40 M. has been arrived at by Ove Arup for the improvement work. This figure is being checked by Highways Office butt understand preliminary consideration suggests that it is of the right order for the total work involved.
4. The problem is that as the Tregunter flats have now been handed over to Government (I understand that in fact the majority of them have already been allocated), the Land Co. expects to be given early possession of the Queen's Gardens site in order to carry out demolition of the buildings thereon. However, the Company is not in a position to execute the Conditions until the question of the road costs is finally settled because these are a material part of the exchange transaction, and it is now necessary to decide how we should proceed.
5. I believe the transaction has reached a point of "no return", particularly as Government has taken possession of the Tregunter flats and in my view the only practical course is to allow the Land Co. to have possession of the Queen's Gardens site as soon as all the flats are vacant Possession of the site could be given by way of a Licence and I propose that such a Licence be issued on the following terms:-
( i )	The Hongkong Land Co. to pay the full exchange premium of $54,47 M. less a figure of $20 M. which is the estimated additional roadworks cost. This would mean that the Land Co. would have to pay to Government $34.47 M. on issue of the Licence. When the road cost is agreed the premium would be finally adjusted.
( ii)	The Licence would allow the Hongkong Land Co. to enter the site for the purpose of demolishing the existing buildings and for no other purpose.
(iii)	The Licence to include the usual clause making it clear that no contract exists between Government and the Company until such time as a formal document is executed.
6. The possible danger in proceeding as suggested above is that agreement on road costs may not be reached and if this should happen the exchange may never be concluded, but I do not expect this situation to materialise. Should the worst happen, Government would have to come to some alternative arrangement with the Land Co. for retaining the Tregunter flats already occupied or alternatively vacate these flats. Failure to conclude an agreement could be a messy business with claims for mesne profits etc. and counter claims and the advantage of retaining the Queen's Gardens flats in such an unlikely event is that these flats would provide accommodation to re - house some of the families who could be displaced. However the majority of the Tregunter flats will be occupied by families other than those at present living in Queen's Gardens and the limited number of flats in Queen's Gardens would not go very far towards solving the difficulty should it arise.
7. There is one further point that I should mention, and that is the possibility of HongKong Land making some form of monetary claim against Government should we not hand the flats over at an early date. Although Hongkong Land have not as yet suggested any form of compensation, I would not be surprised if they did so  should there be a long delay on Government's part."

20. There is then a letter dated 3 November 1981 which shows that H. K. Land sent the Government a cheque for HK$3,463,000 on account of the premium about which the writer said "We agree to place with you [the sum] on 24-hour call deposit at the rate of 161/2% p. a. for value today." Further amounts were paid between that date, and 23 August 1982, amounting in all to $103,865,608.

21. The licence envisaged by Mr. Ward in the internal memo. I have mentioned was issued to H. K. Land on 17 November 1981. I will read out those parts of the licence which seemed to the Judge (as I respectfully agree with his view) to be important:-

"I am directed to advise you that the Crown hereby grants to you a Licence restricted to yourself and your building demolition contractor ..... to enter upon the area ..... for the purpose of building demolition and associated works in connection with the demolition of the buildings and structures erected on the licensed area as may be approved in writing by the Principal Government Land Agent ......":

"(1) This Licence shall be deemed to be effective from the 17th November 1981 and may be revoked in writing by me or any person acting under my authority at any time hereafter without notice. In such event there will be no liability on Government to reimburse you for any monies you may have expended in connection with the demolition of any buildings on the licensed area or arising out of your occupation of the licensed area. In any event this Licence shall be null and void and spent of effect immediately upon the Conditions of Exchange ….. being completed."

"(21) All works of every description carried out by virtue of this Licence shall be at the Licensee's risk and without prejudice to Government. In the event that this Licence is revoked in accordance with Condition (1) hereof or that the permanent grant of the licensed area is not proceeded with for any reason whatsoever, the Licensee shall not be entitled to any compensation and damages for frustration of plans or value or cost to works executed and shall clear at his own expense the licensed area in such manner as shall be directed by me and to my satisfaction."

"(22) The issue of this Licence shall in no way be construed as having committed Government to the permanent grant of the licensed area nor the concept and form of development which may be agreed in the event of a permanent grant proceeding. Such concept and form of development shall be approved by me and subject to the Conditions of Exchange of the licensed area."

22. The Glenealy School was vacated on 7 January 1982 and the Deed of Surrender is dated 11 March 1982. The school was demolished by 16 April 1982.

23. On 17 February 1982 the Government sent H. K. Land a draft of the proposed Conditions of Exchange.

24. The tenancy and surrender agreements in relation to the land owned by the Ladies Recreation Club was executed on 30 June 1982.

25. Meanwhile the correspondence and discussions had continued, covering, inter alia, amendments to the draft Conditions. The final payment of the premium was made on 23 August 1982 and by the end of 1982 H. K. Land seemed content with the draft save for some minor amendments. On 4 February 1983 the Government enquired what amendments were proposed, and had to write again for a response on 18 February 1983. On 23 February 1983 H. K. Land wrote to Government saying in effect that the Conditions would not be executed until an outstanding item about water heaters had been resolved. By letter of 9 March 1983, H. K. Land proposed further minor amendments to the Conditions of Exchange. The Government replied that these proposals were being considered, suggesting that all but one of them could be made in manuscript to the final engrossments of the Conditions.

26. H. K. Land accepted that by "early 1983" the company had got into serious financial difficulties.

27. In the meantime the Queen's Gardens site had been cleared and at the end of July 1983 H. K. Land were told that the Building Authority had approved their plans for the development of the site.

28. On 24 August 1983 H. K. Land told the Government that after obtaining Counsel's advice, further amendments to the Conditions were to be proposed.

29. On the following day, the Government wrote urgently to the Managing Director of H. K. L and in forceful terms, calling upon the company to execute the Conditions of Exchange by 30 August 1983. Other high level and "without prejudice" meetings were held to no avail and on 14 November 1983 the Government sent "a complete set of conveyancing documents" to H. K. Land, the writer ending his letter, rather plaintively, with the words "I look forward to hearing from you at an early date with arrangements for the completion of this long outstanding matter."

30. The next letter from H. K. Land was dated 15 November 1983 and was in these terms:-

"We acknowledge receipt of your letter of 14th November, 1983.

Following your previous letter of 25th August, 1983, which had been copied to the Attorney General's Chambers, we raised with the Attorney General directly certain legal issues concerning the proposed Conditions of Exchange.

We have not yet received a response from the Attorney General in accordance with the arrangements we have made with him. Until we do have such response it would in our view, be inappropriate for us to reply to you on any of the issue raised in your letter of 14th November."

31. On 26 February 1984, H. K. Land's solicitors wrote to the Crown solicitor saying that their clients would be prepared to finalise the agreement: "...... if, but only if, the financial aspects can be re-negotiated to reflect present day relative valuation of the Tregunter flats and the Queen's Gardens sites and certain other related concerns of our clients can be met." Further letters followed, and in his letter of 23 March 1984, the Crown solicitor wrote "As you say, at least we are agreed that there was no legally binding contract between the parties." This phrase was seized upon by H. K. Land's solicitors in their letter of 29 March 1984. H. K. Land's stand was fully set out and explained in their further letter of 9 April 1984, and by this letter, re-payment of the $103,865, 608 was demanded. The letter also contained a notice to terminate the Government's licence to occupy the Tregunter flats, within 28 days.

32. These demands were not met and H. K. Land issued their writ, with a Statement of Claim, on 15 May 1984.

33. The Statement of Claim averred that the sum of $103.8 million had been paid as advance payment on account of the premium which would have became payable in respect of the proposed grant, during negotiations. These negotiations had broken down and the total sum paid over was therefore recoverable, with appropriate interest. The Statement of Claim went on to plead the circumstances in which the Government entered into possession of the Tregunter flats, in pursuance of a revocable licence. Due notice of termination had been given and ignored. The loss and damage suffered by reason of all this was the current market rental value of the flats, assessed at $2.4 million, with interest. The Plaintiff claimed declarations and orders and damages for trespass and/or mesne profits for the wrongful use and occupation of the flats.

34. The Government, by its Defence, explained that circumstances n which the cash premium had been paid, and pleaded that the negotiations had not broken down as alleged by the Plaintiff. Agreement had been reached, subject only to the execution of the formal documents required to give effect thereto. The Crown was willing to execute the documents which had been tendered to the Plaintiff for execution in November 1983.

35. The Defence went on to claim a beneficial interest in the Tregunter flats by reason of the matters pleaded and that it had a licence to occupy them pending execution of the document to give effect to the arrangement by virtue of this equitable interest. It went on to aver the matters relied upon as giving rise, by implication, to the licence claimed. Alternatively, it is pleaded, the licence was an express licence in the form agreed in the draft Exchange although not executed, and was effective pending execution of the licence and of the Conditions of Exchange. The licence was not revocable because: -

(a)	the effect of the implied licence was that the Crown could remain in occupation until the execution of the Conditions in the absence of any wilful or unreasonable delay on its part;
(b)	alternatively, if the licence were found to be express, on its proper construction, the Plaintiff could not rely on the notice provision while they wilfully refused to execute the Conditions.

36. It is further pleaded, in the alternative, that by their words and conduct, the Plaintiff had led the Crown to believe that they would not insist on their strict legal rights. As a result of the Plaintiff's words and conduct, the Crown had suffered prejudice or detriment, and could not now be restored to the position in which it had been before the right to revoke had arisen. The Plaintiff was thus estopped from revoking the licence, on the terms advanced, or at all.  Detailed particulars are then given " of the Plaintiff's "words and conduct" and of the way the Crown had been prejudiced or had suffered detriment.

37. There is then a Counterclaim based on averments that the Government had acted to its prejudice by reason of the agreement reached between the parties or, alternatively, as a result of relying on the expectation and understanding created and encouraged by the words and conduct of the Plaintiff as pleaded - particulars are given. For the purpose of the Counterclaim, additional particulars are given of the words and conduct of the Plaintiff which induced the Government to think and act as it did. It is averred that it would be unconscionable and inequitable to permit the Plaintiff to decline to complete the "arrangements and agreement" pleaded by executing the Conditions of Exchange or otherwise to resile from their apparent intention to do so, evidenced by their words and conduct.

38. The Government sought a declaration that the Plaintiff was estopped from requiring the Crown to deliver up possession of the Tregunter flats in terms of the notice of termination of 9 April 1984 or at all. The order sought is for -

"An order that the Plaintiff do satisfy and give effect to the equity raised in favour of the Defendant by reason of the matters pleaded in this Defence and Counterclaim by -
(a)	executing the documents tendered ..... with such modification (if any) as the Court may consider necessary or appropriate; alternatively,
(b)	executing such other documents as, the Court shall think fit to give effect to the arrangement or agreement pleaded ...... ,
(c)	doing all such other acts or things as -
	( i )	the Court may deem necessary or appropriate to give effect to the said agreement or arrangement; or
	( ii )	the Court may otherwise deem to be just."

39. I will conclude my account of the background and" pleadings by quoting a passage from the transcript which explains the position regarding the re-negotiations in 1983 and 1984 over the premium. It is a statement from the Bar made by Mr. Alexander, and agreed to by Mr. Godfrey:-

"Your Lordship will recollect that the questions raised with Mr. McFadzean as to when the company first approached with a view to a re-negotiation of the premium. Mr. McFadzean referred to his own without prejudice meetings and he also referred, to a meeting between Mr. Moore, a director of an associated company and the Attorney General. My Lord, I have explored the position with my learned friend and my understanding of it is this and he will correct me if I am wrong. That in September 1983 an approach was made in general terms for a re-negotiation of the premium. The Government indicated that it was premature to do that without first seeing a legal opinion on behalf of Hongkong Land. That opinion having been received, the Government took the view that it was still premature until they had received their own legal opinion. That took the matter into early 1984 and when opinions having been exchanged the Hongkong Land Company expressed the view that there should be re-negotiations, the Government took the view that there should not, and accordingly nothing further relevant followed the correspondence in February 1984. I hope I have summarised that position correctly."

40. I turn now to the oral evidence. The parties called only one witness each before the Judge. The Government's witness was Mr. Ward who is now the Deputy Director of Lands. In 1980 and 1981 he had held the post of Principal Land Agent. He told the Court that he would not have recommended that the Government should take possession of the Tregunter flats or that H. K. Land should be allowed to enter the Queen's Gardens site if he had thought that H. K. Land was reserving the right to go back on the transaction. After all the flats had been handed over he thought that the parties" had got to a point where we would soon be going to complete the transaction," and that this hand over "was a very important part of the transaction going through to a successful conclusion."

41. He made the same point a number of times in different words, one example is: -

"I thought that [the take over of the flats] was one of the most important aspects of the whole transaction and I thought..... both sides were then totally committed to resolving any other difficulties that might arise, and to conclude the transaction......"

42. He said that when he had taken the decision that H. K. Land's entry into Queen's Gardens should be on licence, it had never been suggested that they were reserving the right to resale - "I was totally of the view that they were going to continue with the transaction." He had earlier said that he knew H. K. Land well, and Mr. McFadzean was "an honourable gentleman."

43. Mr. Ward also told the Court that the effect of all that had been done under the contemplated arrangements, including the payment of the $103 million premium, upon his expectations as to H. K. Land's intentions was that "they were going to complete the deal." He added:

"If very early on, January 1981, they had come back to us and said 'no deal' I would have accepted that because nobody had done anything. It was still work on paper. Actions had not overtaken what we had written at that point of time."

44. In cross-examination, Mr. Ward was asked about the "subject to contract" point, and what he had to say in view of the fact that the Government had conceded that that stipulation had never ceased to have effect. Mr. Ward replied:

"I find it very difficult to accept it. I am told the legal position is this. I cannot argue that because I am not a legal man, but I do know that H. K. Land and the Government, sat down together and did many things and I thought to myself that was the legal position. We were into a deal that both sides were totally committed to completing ..... We could not go back - we had gone too far .... each had done certain things, and we had overtaken the words 'subject to contract.' I did not think the words .... even existed anymore."

45. Mr. Ward accepted that he was not a party to the negotiations between the Government and H. K. Land under which possession was taken of the Tregunter flats, and had not been aware of the provision in the licence for determination until he had come to Court.

               46. As regards the form of the Queen's Gardens licence, for which he was responsible, and paragraph 6 of his memorandum of 18 September 1981, the following exchange occurred - I am reading from the transcript - during his cross-examination by Mr. Alexander:

"A.	Yes, I remember that paragraph [paragraph 6 of his memorandum of 18 September 1981], my Lord.
Q.	Now, would it riot be right in light of that paragraph to suggest that you knew clearly that the parties were not irrevocably committed?
A.	No, my Lord. At this point in time I did not have authority to issue the licence or to approve the licence; I was here making a recommendation to the approving authority - the Secretary of Lands and Works.
Q.	I follow that totally, Mr. Ward!
A.	And when you make a recommendation, you are under an obligation to let the person who has the authority know all the facts; you let him know if there are any difficulties and if there are any dangers, you are at least, duty bound my Lord, to let him know!
Q.	But what you are saying here in 6 is, is it not, that there is a risk the whole deal could fall through although I think it unlikely?
A.	I think my Lord, I am saying two things, in my view it had gone to the point of no return and then I go on to caution the approving authority that as in Paragraph 6 there is a danger my Lord, and then the approving authority has to decide whether to accept my view or not accept it my Lord, that is the purpose of the Memo!
Q.	But the danger was that the Exchange might never be concluded, wasn't it?
A.	That is the danger as I have expressed in the Memo, yes.
Q.	And that meant the Government and Hongkong Land would have to negotiate a different basis on which the Government employees could stay in the flats or vacate Tregunter, did it not?
A.	Yes my Lord, but the only danger I saw was the road costs, I did not see any other danger!
Q.	You did not see any other danger because you took the view that it was that and that alone, that was putting the transaction at risk which you thought was a slight one?
A.	In fact my Lord, at that point in time I knew it was a slight one!
Q.	Well, you may have known it was a slight one but if you will meet my point, if the parties were legally committed in your view, you would not have been writing in those terms, would you?
A.	Yes my Lord, I personally thought the parties were committed, but I was making a recommendation to some body else - the Secretary for Lands and Works, and he of course was not under an obligation to accept my recommendation. I was obliged my Lord, to tell him all the facts, the possible dangers and this I saw as a possible danger, my Lord.
Q.	Let me ask you a question about 6; did you recognise fully that if agreement was not reached on the road costs, the Government could withdraw?
A.	I was not my Lord, thinking of Government withdrawing, I was thinking more of Hongkong Land withdrawing!
Q.	Certainly, and I ask the question specifically, did you take the view that if agreement was not reached upon road costs, the Government could withdraw?
A.	The thought of Government withdrawing my Lord, just did riot occur to me at that time!
Q.	But did you take the view that if agreement was not reached on road costs, the Hongkong Land Company could withdraw?
A.	I thought this was a possibility yes, my Lord.
Q.	You thought they could withdraw if agreement, was not reached on road costs?
A.	I was not sure my Lord, I really paw it as a possible danger - they could perhaps withdraw my Lord, but I do not know what we would have done if they had tried to withdraw at that time.
Q.	Did you ever take legal advice on the position?
A.	No, my Lord.
Q.	Thank you. So at all events, you went on or Government went on to implement the proposal that a licence should be granted to the Hongkong Land Company to demolish the Queen's Gardens premises?
A.	Yes my Lord, I got approval to do this. "

47. I have gone into Mr. Ward's evidence in some detail because it was upon his "expectation", if I may use that shorthand expression, that the Government relies.

48. Mr. McFadzean's evidence need not detain us long. He maintained that he always considered that the transaction, even when negotiations had reached a successful conclusion, was "subject to contract", and had maintained this view despite all that had happened. I will now read one exchange during his cross-examination by Mr. Godfrey:

"Q.	You would accept, would you not, that it would be accurate and I appreciate your qualification, 'subject to contract' to say this: That the agreement was at this stage that the - between the Crown and Hong Kong Land was that the Government would deliver the Queen's Gardens site unencumbered by these services within one month of the handing over of the Tregunter flats?
A.	Yes.
Q.	That was both the company's belief and the Government's belief?
A.	Yes.
Q.	It would follow, would it not, that in acting as we had agreed it was agreeing to act for the purposes of this transaction, the Government would be put to specific expense and would have to raise funds - provide funds for this purpose.
A.	Yes.
Q.	The Government did, as you may be aware, in fact, do that; that is to say, allocated funds for the purpose of these works and spent them on doing some of them - I did not say all; did you know that?
A.	Yes, I did.
Q.	So the company was aware that in relying on this transaction going through the Government was doing works and spending money on them.
A.	I think that is right. In the expectation of those transactions of what would happens, yes.
Q.	In the expectation. That is the word you would put upon it?
A.	Yes, I think both sides had a high hope the deal would eventually be consummated.
Q.	You would not go back upon the word 'expectation--'
A.	No.
Q.	You would accept that both parties had an expectation that the transaction was going to go through?
A.	Yes, I think so.
Q.	And each party was encouraging the other to think in due course it would?
A.	Yes. I think so, yes."

49. I do not propose to review the rest of his evidence and recount the reasons why H. K. Land decided to withdraw before completion. But I will say that the position in equity apart, I do not find anything reprehensible about Mr. McFadzean's conduct in the matter. If H. K. Land felt that the transaction was "subject to contract" despite all that had happened, they withdrew upon the most understandable of grounds. Had the bottom not fallen out of the property market, it is difficult to imagine that the deal would not have been completed.

50. Before I turn to the learned Judge's judgment, I will read what he said about the witnesses:

"They are both gentlemen of great integrity, and I was deeply impressed by the frankness and sincerity of their evidence, which I unreservedly accept. For my part, I can see no conflict whatever, between their evidence. However, should anyone, by examination of the jot and tittle of the transcript, uncover such a conflict, it should, in my judgment, be resolved in favour of Mr. McFadzean.  That is not because I have any doubt of the veracity of Mr. Ward - as I have said, I do not - but because he was but one finger of one hand on one limb of the body corporate of the Crown in Hong Kong, and there was demonstrated to me running throughout the documents, a lack of co-ordination between Branches, Sections, Departments and Divisions of H. K. G. which, although not surprising to a judge, might evoke cries of incredulity in the less worldly-wise."

51. I will now relate how the Judge saw the case in the light of the evidence, and the submissions addressed to him, indicating his main conclusions- without comment at this stage.

52. After reviewing the facts in considerable detail, the Judge summarised the original stand taken by H. K. Land, as follows: where there was an arrangement subject to contract, and where one or more of the parties had averred that there was no intention to create legal obligations, then, unless there was an express resilition, equity could not interfere. He then noted Mr. Alexander's concession that conduct could amount to an implied promise or representation that the "subject to contract" position would be abandoned subject, however, to the submission that there would have to be representations which were in the highest degree clear and unambiguous before such a situation could arise.

53. The Judge recorded that Mr. Godfrey had acknowledged the force and importance of the "subject to contract" principle, but had advanced an equity which could arise from words and conduct leading to a belief, expectation or understanding that the other party would not stand on its strict legal rights. A situation could thus arise where words and conduct cumulatively had reached a point where it would be "unconscionable" or "unjust" for the other party not to go ahead with what had been agreed in principle.

54. The judge then discussed, with reference to the authorities, the "subject to contract" rule and accepted the correctness of the summary of that rule in Megarry and Wade's: Law of Real Property (5th Edition) at pp. 568-570. He expressed the view that, particularly in Hong Kong, it was of cardinal importance that the rule be preserved, for without the umbrella of the "subject to contract" formula, conveyancing here could become a dangerous trap for the innocent and unwary.

55. He said that he had reached the conclusion that -

"…..no equity co-exists with the agreement of the parties that their negotiations should be 'subject to contract' and 'without binding legal effect.' In none of the cases cited to me, did the equity which was a invoked over-rule the mutual agree ment of the parties that their acts, negotiations and words were 'subject to contract', and spoken or done with no intention to create legal relations'. Each of the authorities to which Mr. Godfrey invited my attention was explicable on ordinary principles.... If I had felt that equity and justice demanded that I go beyond those authorities and, as it were, make new law, I would not have hesitated to do so. In my judgment, equity and justice demand the opposite. I will revert to the alleged existence of this parallel equity, if I may so describe it, later in this judgment. Yet, I can conceive of a position where the court would interpret the words and deeds the parties as amounting to an implied expunction of the 'protective terms' to which I have referred. For a court to reach that conclusion, in my judgment, there would have to be mutuality, and the words and conduct relied upon would have to be clear and unambiguous."

56. The Judge remarked that early in the trial, it had been conceded by the parties that he would not have to decide an issue between them as to whether or not the words "subject to contract" had been expunged, for the Government would not be submitting that they had.

57. In expressing his view that the equity pleaded and contended for by the Government undoubtedly existed, the Judge reviewed a number of authorities, from Ramsden v. Dyson (1866) L.R.1 E. & I. 129 to Taylors Fashions [1982] Q.B. 133 and said that it was now too late to argue (such an argument had not been advanced) that a court could not grant discretionary relief to prevent a party from resiling from an agreement which, by his words and conduct, he had led the other party to believe he would complete, in circumstances where his conduct was unconscionable (within the sense of the authorities to which he had referred). But, he added, that in itself was not enough. The words and conduct must have led to a belief that the other party would not so resile. And that belief must be bon fide and genuine and must be reasonable on any objective view.

58. In dismissing the contention that the effect of what the family in Greasley & Others v. Cooke [1980] 1 W.L.R. 1306 said to the housemaid who succeeded in her action, should be equated to what H. K. Land was said to have represented to the Government, the Judge said-

"In the case of Doris Cooke, something that would be laughable as between Lands and H.K.G., would suffice to lead a court objectively to decide that the representation was clear and unambiguous and that, as she acted on it (and to her detriment), she should be allowed to rely an it in equity: As between Lands and H.K.G., with all their resources, something infinitely more grave and, weighty, something greater in clarity, something totally unambiguous is required on the one hand, and a considered, reasoned, supportable and well-founded belief is required on the other."

59. He went on to say that if the criteria established by the cases had been met, he would have had no difficulty in granting the Government appropriate relief despite the fact that there still remained terms to be agreed between the parties. After discussing examples found in the cases, he said: "Quite clearly the Court can and will, where equity and justice require it, spell out, write in or complete terms necessary to give effect to its judgment."

60. When rejecting the submission advanced on behalf of the Government that an "independent and parallel" equity existed which arose but of words and conduct in such a way that the "subject to contract" formula and the disavowal of an intention to enter into legal relationships became irrelevant, the learned Judge had this to say -

"In my judgment, it would not be an application of equity to say that, notwithstanding that these parties did everything that they did, and said everything that they said, both' subject to contract' and 'without any intention to create legal obligations', their 'agreement in principle' would be enforceable, but would be to turn our entire system of conveyancing on its head. No vendor, and no purchaser, would be safe from the cry of unconscionability. It would provide a field-day for the crafty and wily, and would work its hardest on the just and honourable. What I mean is this, agreements subject to contract' would continue in a state of suspended animation, giving full protection to the parties, and affording them the right not to complete, yet, at the same time, the parties would be obliged to take action, along undefined lines to give effect to their original negotiations. Put that way, the fallacy in it becomes patent.".

61. The Judge then went on to consider what would need to be established if he were wrong and the "independent and parallel" equity advanced on behalf of the Government existed. His view was that "the requirements therefor would be the same as the equity I have found to exist....." and he summarised and discussed them in some detail. He then expressed the opinion that the Government, if that equity  availed then, would have to show that it had acted to its prejudice or detriment.

62. After reviewing the evidence before him, against the background of the facts set out in the opening part of his judgment, the learned Judge said -

"I have examined the words and conducts of Lands, and, prior to early 1983, I can not find anything, that either singly or cumulatively, brings them within the dicta to which I have referred. In my judgment, they are not unconscionable and not inequitable, phrase it as you will. I am unable to find in, or to derive from, any of those words or conduct, any assurance, promise, representation or understanding that Lands 'would not insist upon its is strict legal rights', such as would satisfy the criteria laid down in the authorities which I have already cited. At the highest that I can put it of what Lands said and did, is that they were those of, someone speaking 'as though there was a contract or would be a contract' and of someone looking 'on the bright side', to use the words of Templeman L. J. in Sherbrooke's Case. From the terms of the licence for the occupation of Tregunter, down to the letter to Mr. McDonald, (which, I add parenthetically, was written in an attempt to resolve a point of direct conflict between the Lands Division of the Lands Department and the Buildings Ordinance Office of the Building Development Department), there was, in my judgment, nothing that could have suggested to Her Majesty's Attorney-General, or to Vie Registrar-General, or to the Secretaries for Environment and (later) for Lands and Works, a resilition by Lands from its stance that it would, if circumstances required it, insist on its legal rights, and assert its freedom to withdrew.".

63. As regards the requirement of "belief" by the Government, he expressed himself as wholly unable to accept that any reasonable person, sufficiently informed, and aware of the contents of the Government's formal offer, H. K. Land's "without prejudice" acceptance, the Government's letter endorsing the proposed "conditions of exchange", the terms of the licence under which the Government occupied some of the Tregunter flats, and the terms of the Queen's Gardens licence (and bearing in mind H. K. Land's duty to its shareholders) could have formed an honest and objectively-reasoned belief that H. K. Land would not insist upon their strict legal rights, should the circumstances so require.

64. In relation to the nature and length of the licence granted to the Government to occupy the Tregunter flats, the Judge came to the conclusion that, there had been nothing unconscionable or dishonest in H. K. Land's delay in determining the licence on the facts before him; indeed an earlier determination might have been inequitable or unjust for, up to March 1984, H. K. Land was seeking a re-negotiation so that the transaction could go through.

65. The learned Judge's formal order directs the Government to repay H. K. Land the sum of $103,865,608 and grants H. K. Land declarations that the Government's occupation of the Tregunter flats etc, was as licensee only; that the licance had been determined; and that H. K. Land is entitled to possession of the flats. The order for possession was stayed, in effect, until the determination of this appeal.

66. There was then an order that the Government pay mesne profits for the period of wrongful use and occupation of the flats until possession is delivered up, at a rate or rates assessed by the Master.

67. Interest was awarded in favour of H. K. Land in the sum of $103.8 million and on the mesne profits.

68. The Notice of Appeal filed by the Government contained grounds of appeal in these terms: -

"(1)	That the Learned Judge erred in law in finding that there were no words  and/or conduct on the part of the Plaintiff (herein called HKL) that amounted to, or gave rise to an assurance, and expectation, a promise, a representation or understanding which was or were clear, unambiguous and unequivocal, that HKL would not insist upon its strict legal rights.
(2)	That the Learned Judge erred in finding that there was no evidence of an assurance, expectation, promise, representation or understanding on the part of HKL, which could have been accepted and believed by the 1st and 2nd Defendants (herein called HKG).
(3)	That the Learned Judge erred in finding that on the evidence HKL's conduct was not unconscionable or inequitable
(4)	That the Learned Judge erred in law in finding on the evidence that the conduct of HKL was not unconscionable, inequitable or unjust by its delay in determining the licence to occupy the flats at Tregunter.
(5)	That the Learned Judge erred in law in finding that HKL was not estopped from determining the licence to occupy the flats at Tregunter."

69. From the outset of the hearing of this appeal, (as, indeed, all along) Mr. Godfrey, on behalf of the Government, accepted that the use of the words "subject to contract" was apt to preclude the creation of a binding contract until the contract was finally concluded, or until the words had been expunged, and accepted that in this case no contract had been finally concluded. It was for this reason, he said, that the Governments claim had not been based on contract. Its claim for relief was founded in equity.

70. Mr. Godfrey formulated the equity for which he contended in this way: equity will intervene to preclude a party resiling from any arrangement for the sale or exchange of lands (whether concluded or not, or whether concluded subject to contract or not), where because of his subsequent dealings with the other party it would be inequitable to allow him to do so. The very case in which the intervention of equity was required, he contended, was where the party claiming equitable relief had no remedy in contract. Any understanding of any sort concerning the non-formation of a contract was immaterial to the claim for equitable relief based on such dealings.

71. He referred us to a number of authorities establishing or recognizing this equity. I turn to review some of them, some more fully than others, leaving discussion for later.

72. In Gregory v. Mighell (1811) 18 Ves. Jun. 328, the Plaintiff alleged that the Defendant had agreed to let to the Plaintiff certain premises and land for a term of 21 years on 29 September 1799 at a fair rent to be ascertained by two impartial persons. The Plaintiff entered on the land at Christmas the same year and had continued in possession for some 8 years upon the faith that the lease would be made. He had cultivated the land, spent money on it, and paid taxes since his occupation. In his judgment, the Master of the Rolls (Sir William Grant) dealt with the grounds upon which the Defendant had resisted the formal execution of the lease on the evidence before him. At pp. 333 - 334 the Master of the Rolls said: -

"It is said, however, that the possession was taken without the Defendants consent; and consequently is not to be considered as a  possession under the agreement. The Plaintiff had no other title to possess the land; and therefore his possession is prima facie to be referred to the agreement. As to the Defendant's allegation, that it was without consent, besides that it seems to be disproved by Gregory and Philcox, I do not conceive, that the Defendant is now at liberty to say, it was a possession, that had no reference to the agreement; as he permitted the Plaintiff to remain in possession, and to make expenditure upon the land for eight years, before he brought an ejectment. He must have known, that the expenditure was made upon the faith of the agreement; and I cannot now permit him to turn round, and say, the Plaintiff has been possessing merely as a trespasser; as he must be, if his possession is not to be referred to the agreement. The non-payment of rent is accounted for by the circumstance, that the rent was not fixed in the manner stipulated for by the agreement. After it was known, that the arbitrators had not fixed any rent, and that none of the other means, provided by the agreement, were resorted to, the Defendant still acquiesced in the Plaintiff's retaining possession of these lands. That is a case in which the failure of the arbitrators to fix the rent can never affect the agreement. It is in part performed; and the Court must find some means of completing its execution; as I have already said, the Plaintiff is not to, be considered as a trespasser. Some rent he must pay: the amount must be fixed in some other mode; and it seems to me, that it should be ascertained by the Master, without sending it to another arbitration; which might possibly end in the same way."

Specific performance of the agreement was decreed.

73. This case has been consistently followed, and was applied by Oliver J. (as he then was) in Taylors Fashions Ltd. v. Liverpool Trustees Co. [1982] 1 Q.B. 133. It had been relied upon by Lord Kingsdown in formulating the proposition, which has long been accepted as correct, to be found at page 170 of the report of Ramsden v. Dyson (1866) L.R. 1 H.L. 129: -

"The rule of law applicable to the case appears to me to be this: If a man, under a verbal agreement with a landlord, for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord and without objection by him, lays out money upon the land, a court of equity will compel the landlord to give effect to such promise or expectation. This was the principle of the decision in Gregory v. Mighell (1811) Ves. Jun. 328, and as I conceive, is open to no doubt."

74. The Ramsden v. Dyson equity was approved and applied by the Privy Council in Plimmer v. Wellington Corporation (1884) L.R. 1 H.L. 129. The equity was also recognised in Inwards v. Baker [1965] 2 Q.B. 29, where a son's expenditure of money on the land of his father, in the expectation induced and encouraged by his father, that he would be allowed to remain in occupation as long as he wished, created the equity and on the facts, the equity should be satisfied by allowing the son to remain in occupation of the bungalow he had built on the land for so long as he desired.

75. In Laird v. The Birkenhead Railway Company (1859) Johns. 500 the Plaintiff submitted a project to the directors of the railway company for a branch line to be constructed at his owe cost and for his own purposes. The directors expressed their assent and general agreement but details of the agreement were left for future arrangement. The Plaintiff carried out the work during the following year at considerable expense. The company then stopped him using the branch line until a definite agreement could be reached. Negotiations, ensued and the Plaintiff made proposals in a memorandum but no agreement was ever signed. In the intervening two and a half years, the Plaintiff used the line and paid tolls etc to the company on the terms he had put forward. The directors then insisted on the terms originally suggested by them before the user began and the Plaintiff, in turn, refused to make an agreement otherwise than in terms of the user he had actually enjoyed. At pp. 513-514, Wood V. - C. had this to say: -

".....but I am of opinion that there was a previous agreement by the directors, indefinite in a certain sense but still an agreement, that the Plaintiff should be allowed to join their railroad on reasonable terms, which were to be after-wards settled. They were so far satisfied that there would ultimately be a definite agreement that they permitted the Plaintiff to begin his works at once. Then they interpose and say, 'Before you use the branch we must come to an agreement as to the terms of the user.' After this they allow the Plaintiff, for two years and a half, to use the railroad, and by that user necessarily define the terms which they consider reasonable as to tolls and control over traffic, and which had previously been open. The questions for this Court are only these: Did the company allow the Plaintiff to expend his money on the faith that he would be permitted to join their line on reasonable terms? Certainly they did. Then is there any difficulty is saying what are reasonable terms? None whatever; for the railway company has for two years and a half taken tolls and exercised control on certain terms, which I must therefore assume to be reasonable."

76. The Ramsden v. Dyson equity was also applied by Goff J. (as he then was) in Holiday Inns Inc. v. Broadhead [1974] E.Q. 951, and Mr. Godfrey relies on the following passage from Goff J.' s judgment (at p.1087) as being a modern re-statement of the Government's case: -

"In my judgment the authorities clearly establish that there is a head of equity under which relief will be given where the owner of property seeks to take an unconscionable advantage of another by allowing or encouraging him to spend money, whether or not on the owner's property, in the belief, known to the owner, that the person expending the money will enjoy some right or benefit over the owner's property which the owner then denies him. This arises where the person expending the money does so under a mistaken belief that the property is his own, that belief being known to the other, as in Ramsden v. Dyson (1866) LR 1 HL 129, but mistake e is not an essential element of a claim to relief of this nature. The authorities also establish, in my judgment, that this relief can be granted although the agreement or understanding between the parties was hot sufficiently certain to be enforceable as a contract, and that the court has a wide, albeit of course judicial, discretion to what extent relief should be given and what form it should take."

77. Other cases, which Mr. Godfrey submits, demonstrate the modern, broader, approach (concentrated on ascertaining whether, in any given circumstances, it would be unconscionable for a party to deny that which, whether knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment), were Habib Bank Ltd. v. Habib Bank A.G. Zurich [1981] 1 W.L.R. 1265 and Amalgamated Investment and Property co. Ltd. V. Texas Commerce International Bank Ltd. [1982] 1 Q.B. 84.

78. One of the leading cases in this field of the law is Crabb v.Arun District council [1976] Ch. 179. I take the facts from the headnote. There the parties were adjoining landowners. The Plaintiff's land had access at point A on to a road owned by the Defendants and a right of way from A along the road. In order to sell his land in two parts, the Plaintiff sought from the Defendants a second point of access, at point B, and a further right of way along the road.

79. At a meeting on the site in July 1967, the additional access point, B, was agreed. Later the Defendants erected fencing on the boundary between the road and the Plaintiff's land, with gates at access points A and B. The Plaintiff sold part of his land in October 1968, together with the right of access at point A and his easement over the road, but without reserving any right in favour of the land he retained. After the sale, the Defendants removed the gate at point B and closed the gap by a fence so that the retained part of the Plaintiff's land became landlocked.

80. Pennycuick V. -C. refused to grant the Plaintiff the declaration and injunction he sought based on estoppel by conduct, holding that in the absence of a definite assurance by the Defendants, no question of estoppel could arise.

81. The court of Appeal unanimously allowed the Plaintiff's appeal. Lord Denning M. R. pointed out that there were "estoppels and estoppels" and "the species of estoppel called proprietary estoppel, therefore, does give rise to a cause of action." At p.189, in concluding his judgment, Lord Denning said: -

"The defendants knew that the plaintiff intended to sell the two portions separately and that he would need an access at point B as well as point A. Seeing that they knew of his intention - and they did nothing to disabuse him but rather confirmed it by erecting gates at point B - it was their conduct which led him to act as he did: and this raises an equity in his favour against them.

In the circumstances it seems to me inequitable that the council should insist on their strict title as they did: and to take the high-handed action of pulling down the gates without a word of warning: and to demand of the plaintiff ￡3,000 as the price for the easement. If he had moved at once for an injunction in aid of his equity - to prevent them removing the gates - I think he should have been granted it. But he did not do so. He tried to negotiate terms, but these failing, the action has come for trial. And we have the question: in what way now should the equity be satisfied?

Here equity is displayed at its most flexible...."

82. Lawton L.J. was also satisfied that a firm agreement had been reached. He said at p. 191: -

"I start with a firm agreement between the plaintiff on one side and the defendants' representative on the other to the effect I have already indicated. From then onwards there can be no doubt whatsoever that the plaintiff believed that he had got a firm undertaking from the defendants and he acted as if he had. In so doing he prejudiced his own position greatly by selling off the front portion of his land and failing to retain a right of way over it. It is also clear on the evidence, and was so found by the judge, that when the agreement was made the defendants knew that the plaintiff wanted access at point B because he intended to sell off part of his land."

He then reviewed the Defendants' conduct after this agreement and ended his judgment, at p.192, in these words: -

"Mr. Lightman's answer was that the plaintiff had not got an absolute right to have the gates put up. For the reasons I have stated, I am of the opinion that he had in the sense that he had been given a firm undertaking. The defendants, knowing that the plaintiff intended to sell part of this land, stood by when he did so and without a word of warning allowed him to surround himself with a useless piece of land from which there was no exit. I would allow this appeal and grant relief in the terms indicated by Lord Denning M.R.

In conclusion I should add this: as the result of the defendants resiling from their undertaking, this piece of` land which is designated for light industry has stood useless. It might well have been profitable riot only to the plaintiff but to other people living nearby. In an area where employment for the young is not always easy to find, we have the spectacle of this piece of land next door to a housing estate being rendered useless at a time when it could have been of value to the community. For that the defendants are solely to blame.

In the circumstances I agree with Lord Denning M.R. that they should not be paid anything for the right of way which they should have granted as long as ago as 1967."

83. Scarman L.J. (as he then was) put the Plaintiff's case and summarised the issues (at p.192) in this way: -

"The plaintiff and the defendants are adjoining landowners. The plaintiff asserts that he has a right of way over the defendants' land giving access from his land to the public highway. Without this access his land is in fact landlocked, but, for reasons which clearly appear from the narration of the facts already given by my Lords, the plaintiff cannot claim a right of way by necessity. The plaintiff has no grant. He has the benefit of no enforceable contract. He has no prescriptive right. His case has to be that the defendants are estopped by their conduct from denying him a right of access over their land to the public highway. If the plaintiff has any right, it is an equity arising out of the conduct` and relationship of the parties. In such a case I think it is now well settled law that the court, having analysed and assessed the conduct and relationship of the parties, has to answer three questions. First, is there an equity established? Secondly, what is the extent of the equity, if one is established? And, thirdly, what is the relief appropriate to satisfy the equity?"

84. Scarman L.J. said that in his view the law had developed so that it was now to be considered as correctly stated by Lord Kingsdown in his dissenting speech in Ramsden v. Dyson, L.R. 1 H.L. 129, which could properly be regarded as the starting--point of the law of equitable estoppel. He found the passage he cited (at pp. 105-106) from the judgment of Fry J. in Willmott v. Barber (1880) 15 Ch. D. 96 to be a valuable guide as to the matters of fact which have to be established if a plaintiff seeks to rely on this particular equity. I should mention that Scarman L. J had earlier stated that he did not think it helpful to pursue the distinction between promissory and proprietary estoppel.

85. In dealing with the fifth and last of Fry J.' s propositions, (that the Defendant, as the possessor of the legal title, must have encouraged the Plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal rights) at p.195, Scarman L.J. said:-

"Mr. Lightman, in the course of an interesting and vigorous submission, drew the attention of the court to the necessity of finding something akin to fraud before the equity sought by the plaintiff could be established. 'Fraud' was a word often in the mouths of those robust judges who adorned the bench in the 19th century. It is less often in the mouths of the more wary judicial spirits today who sit upon the bench. But it is clear that whether one uses the word 'fraud' or not, the plaintiff has to establish as a fact that the defendant, by setting up his right, is taking advantage of him in a way which is unconscionable, inequitable or unjust. It is to be observed from the passage that I have quoted from the judgment of Fry J., that the fraud or injustice alleged does not take place during the course of negotiation, but only when the defendant decides to refuse to allow the plaintiff to set up his claim against the defendants' undoubted right. The fraud, if it be such, arises after the event, when the defendant seeks by relying on his right to defeat the expectation which he by his conduct encouraged the plaintiff to have. There need not be anything fraudulent or unjust in the conduct of the actual negotiations - the conduct of the transaction by the defendants.

The court therefore cannot find an equity established unless it is prepared to go as far as to say that it would be unconscionable and unjust to allow the defendants to set up their undoubted rights against the claim being made by the plaintiff. In order to reach a conclusion upon that matter the court does have to consider the history of the negotiations under the five headings to which Fry J. referred."

86. Scarman L.J. had no doubt that on the facts of the case, the first four elements referred to by Fry J. existed. He then said: -

"The question before the judge and now in this court is whether the fifth element is present: have the defendants, as possessor of the legal right encouraged the plaintiff in the expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting their legal rights?

After reviewing the evidence, he concluded that the equity sought by the plaintiff had been established, and then turned to consider the extent of the equity and the relief needed to satisfy it.

87. Before us, Mr. Godfrey placed great reliance on he decision of Woolf J. (as he then was) in Salvation Army Trustee Co. Ltd. v. West Yorkshire Metropolitan County Council (1981) 41 P. & C.R. 179. There the Plaintiffs ("the S.A.") had been using a meeting hall on "the old site" for many years. At the beginning of the year 1965, they were told by the highway authority( "the City Council") that their site was "totally affected" by a road-widening scheme. The S.A. immediately responded by asking the City Council to let them know as soon as possible what proposals they had for an alternative site, saying that it was essential for the continuity of their services in the same locality for an agreement to be reached so that the alternative site could be ready for occupation before the old site was vacated. Correspondence ensued, and in October 1969, the City Council informed the S.A. that it had been resolved that negotiations be opened for the acquisition of the old site and that a particular alternative site ("the new site") be made available to the S.A. The S.A. was also told that the district valuer was being instructed to negotiate with them as regards their claim for compensation for the compulsory purchase of the old site, and that details of the new site were being sent to him.

88. There were further negotiations between the respective valuers, and agreement was reached by July 1971 as to the appropriate sum for compensation. These negotiations were "without prejudice" and subject to the approval of the acquiring authority. In January 1972 the S. A. 's solicitors wrote to the City Council setting out their understanding of the then position, adding that they would let the City Council have a draft contract for sale of the old site, and asking for a contract for the new site. The letter ended "The above is subject to contract."

89. In August 1972, planning permission was obtained and tenders were sought for the construction of a meeting hall on the new site. In March 1973 the tenders were received, the lowest being so much higher than the compensation payment originally contemplated as to make that sum wholly unrealistic. And so the position was renegotiated and "without prejudice" figures (accepted by the parties as being equivalent to "subject to contract") were agreed on 9 November 1973.

90. Then, three days later, came an important letter from the solicitors of the S.A.: -

"With reference to your letter of January 28, 1972, we understand from our clients that the terms have now been settled and therefore we are ready TO PROCEED with the matter. Our clients are now considering tenders in respect of the erection of the new hall and hope to be in a position to commence work in the comparatively near future. In the circumstances, our clients have requested us to apply on their behalf for permission to take possession of the new site. It will no doubt be appreciated that the act of taking possession would be part-performance of the agreed terms, and therefore please may we have an abstract of the corporation's title to the new site in St. Margaret's Avenue, so that we may have an opportunity of satisfying ourselves on the question of title."

91. No reply was sent to this letter. In December 1973 the S.A. accepted a tender; and at the beginning of February 1974 a contract was signed for the construction of the new hall. The S.A. took possession of the site later that month, construction work began at the end of April and was completed in February of the following year.

92. Under a statute of 1972, on 1 April 1974, the City Council ceased to exist and its powers and duties in respect of highways were transferred to the West Yorkshire M.C.C., and its housing functions to the district council. The sale of the old site went on and was completed.

93. On 13 March 1975 the M.C.C. informed the S.A.'s solicitors that the road improvement scheme originally envisaged was under review, and in the following month, that since the improvement works were not to be carried out for some years, they no longer wished to purchase the old site.

94. The S.A. originally sought specific performance of the agreement they alleged to be a contract for the sale of the old site, but at the start of the hearing before Woolf J. they conceded that they could not establish a contract and relied, instead, on the doctrine of proprietary estoppel (by a suitable amendment to their Statement of Claim), submitting that it created an equitable obligation entitling them to an order equivalent to an order for specific performance for the sale of the old site to the M.C.C.

95. Interestingly, it was Mr. Godfrey who had contended on behalf of the M.C.C., that as a matter of law, the principle of proprietary estoppel had no application and should not be extended, for it only benefited a plaintiff when the defendant is estopped by his own conduct from denying that the plaintiff has acquired an interest in the defendant's land. The doctrine did not apply, he submitted, so as to estop a defendant from denying that the plaintiff had disposed of an interest in his, the plaintiff's land.

96. After referring to Western Fish Products Ltd. v. Penwith District Council (1978) 38 P. & C.P. 70, Woolf J. said that had this case involved only the sale of the old site he would have regarded it as inappropriate to extend the application of the principles of proprietary estoppel so as to enforce the purchase of the old site. He then said, at p.191: -

"However, it is unreal to regard what is involved in this case as a transaction involving only the sale of the old site. Inextricably woven into the arrangement was the purchase of the new site with the disposal of the old site and the reinstatement on the new site of the hall that had been on the old site. That was the basis on which the price, or the compensation if compulsory purchase powers were to be used, was assessed, and, as the correspondence makes clear, the motivation of the Salvation Army was to carry out the arrangements smoothly as a whole so that the locality should not be deprived of their services. I come to this conclusion notwithstanding that the arrangement could well be carried out in two parts, those parts, in my view, being part of the same whole."

He added', at p. 192: -

"I therefore regard the principle of proprietary estoppel as being capable of extending to the disposal of an interest in land where the disposal is closely linked by an arrangement that also involves the acquiring of an interest in land. If this is right, it must also be right that the party bound by the equity cannot prevent effect being given to it by agreeing voluntarily to perform part only of the arrangement, leaving only the sale by the plaintiff to be enforced.

It follows that, if there had not been local government reorganisation that removed the highway function from the authority that owned the new site. I would have regarded this as a case where it would be unconscionable for the authority to resile from its previously stated intention of acquiring the old site and as one in which equity would intervene to prevent them from doing so, notwithstanding the fact that they were prepared to proceed, and actually proceeded, with the sale of the new site."

97. Woolf J then considered what the position was in the light of the reorganisation of the local authorities on 1 April 1974. He took the view that the present Defendants were not to be saddled with responsibility as a result of the conduct of the District Council after the date of the reorganisation. But in relation to what occurred before that date (as was common ground) the Defendants could not be in any better position than the City Council would have been in relation to what occurred up to that date. What was more, the conduct of the Defendants since that date had to be considered in the light of the activity of their predecessor. He concluded that, on the evidence, the City Council had, by its conduct, encouraged the S.A. to believe that the arrangement was one from which they (the City Council) could not lawfully resile, and a representation by them that they were committed to entering into the arrangement involving both the purchase of the old site and the sale of the new site. By the end of March 1984, therefore, they had been under an equitable obligation to go on with the whole arrangement, and in consequence, the Defendants, as their successors, had equally been under an obligation to perform that part of the arrangement that they had been in a position to complete on assuming the City Council's highway functions.

98. In addition, the conduct of the Defendants had to be judged on the basis that they were possessed of the same knowledge as that of the City Council as to what had happened before the reorganisation, and their silence had been "conscious silence" which was capable of creating a proprietary estoppel, at the very least, as having endorsed the intentions that the City Council had expressed. They actually knew, or ought to have known, that the S.A. were continuing to incur expenditure in the mistaken belief that they were under an obligation to vacate the old site and had a right to purchase the new site, and although they could not have stopped the building work on the new site, they could have indicated that they did not regard themselves as committed to the purchase of the old site.

99. Their conduct after the reorganisation therefore strengthened the S.A.'s case for the acquisition of an equity preventing the M.C.C. from resiling from the part of the arrangement made with their predecessors under which the old site was to be acquired.

100. I will now read the final part of his judgment:-

"Before I finish, I would like to add that I regard this case as being within the principle established by Crabb v. Arun District Council. It is novel in the sense that facts of this nature have not been before the courts before, but I would not like it to be thought that, in relation to the enforcement of a sale, it is likely to have wide application. Mr. Goodhart conceded in the course of argument that in the case of a normal arrangement to sell where there is no contract it would be virtually impossible to rely on the principle of proprietary estoppel. This case differed from the normal case because the arrangement for sale was part of a wider arrangement that involved the acquisition of an interest in other land and the sale and the acquisition were irretrievably interwoven. Furthermore, the case has the feature that the acquisition and sale really amounted to the exchange of one site for another. Finally, there is the fact that the defendant authority's predecessors allowed the plaintiffs to take possession of the new site at a time when it was known that the reason why the plaintiffs wanted possession was so that they could erect a near hall on the new site. These are a combination of facts that are unlikely to recur frequently. I make this clear because I would not want my decision in this case to interfere with the normal conduct of negotiations 'subject to contract', particularly in cases involving an acquiring authority that could, if necessary, exercise compulsory purchase powers."

101. In my judgment, the principles upon which the equity for which the Government contends for the main part of its case (I will not, here, fall into the trap of trying to attach an appropriate label to it) appear clearly enough from these and the other cases cited to us. The equity has been differently expressed from time to time; this is not surprising since it has been applied in greatly varying conditions and circumstances. It is not easy to put forward a formulation that will suit every case, and it would not be right to approach the authorities to which our attention has been drawn without a close scrutiny of the facts which governed the particular decision. The equity is easier, perhaps, to recognise than to define.

102. I think, too, that it is necessary to apply these equitable principles with care and not allow vague and unruly notions of what seem to be "fair" and "unfair" to prevail. In this context, Lawton L. J.' s reminder in Crabb v. Arun [1976] 1 Ch. 179 (at p.191) of the following passage from a judgment of Harman L.J. in another case is timely:-

"Equitable principles are, I think, perhaps rather too often bandied about in common law courts as though the chancellor still had only the length of his own foot to measure when coming to a conclusion. Since the time of Lord Eldon the system of equity for good or evil has been a very precise one, and equitable jurisdiction is exercised only on well-known principles."

103. And Ormrod L.J. is making the same point in E. & L. Berg Homes v. Grey [1979] 253 E.G. 473, at p.481, when he said, of the expectation "created or encouraged by the other side": -

"That is not, as I understand it, to be invoked as a general jurisdiction in equity to relieve hardship resulting from the application of the ordinary law; it is a restricted jurisdiction, and is one which should, in my judgment, be exercised with due caution."

104. However, if I may be permitted to say so, I regard Mr. Godfrey's formulation to be a valiant effort, which is justified by the authorities upon which he relies. Indeed, Mr. Alexander had no quarrel with the way he put the equity which he asked the Court to recognise, as a matter of principle, but submitted that it was a step too far to seek to maintain that because the equity did not need to be founded on contract, the Court was not required to give full weight to words which expressly negative the intention to create legal liability, and deny the suggestion that a party is not promising to be bound.

105. It was after discussing Salvation Army v. West Yorkshire M. C. C. (1981) 41 P. & C.R. 179 that Mr. Godfrey said he would "grasp the nettle". He described the central feature of the case against the Government as being that because of the contents of various documents, signed or, accepted with their eyes open, they were precluded from relying on the equity upon which they could otherwise rely. He conceded that the Court was entitled to take these factors into account, but rejected the contention chat they were in any way conclusive. He submitted that when they were properly analysed, and set against all the other factors and circumstances, it would be seen that they were, at best, only of minor significance. In any event, he would go further and suggest that on a proper analysis of the documents (here he was referring particularly to the Tregunter and the Queen's Gardens licences) not only did they not detract from the Government's case but they served to buttress it. If that argument were right, then, again at best, they should be regarded as of neutral effect.

106. Mr. Godfrey drew our attention to various parts of the Tregunter licence to indicate that the parties saw the whole transaction as finally concluded, for example, there was a reference in the Preamble to the fact that the "Licensor has agreed to assign [the flats]". This showed that H. K. Land treated themselves as having agreed.

107. As regards paragraph 1(b) of the licence, the Court, he contended, had to bear in mind that when looking at the position in 1984 (when H. K Land had withdrawn from the transaction) that paragraph was only one of the many factors that had to be taken into consideration; it was not the conclusive factor.

108. Mr. Godfrey then took us through the Queen's Gardens licence, and in referring to para. (22) he contended that although the paragraph envisaged the execution of a formal document, the cases showed that when there had been "further processes", as in Crabb v. Arun [1976] Ch. 179, the words employed could not preclude the recognition of the equity relied upon. He agreed that the "warning notes" struck by the wording of both licensees were relevant, but suggested that they did no more than create a factor which had to be weighed in the balance in reaching a conclusion whether, in the light of all that had been said and done, it would be unconscionable to permit H. K. Land to resile from the transaction.

109. In summary, Mr. Godfrey put the true effect of the licences in this way - the fact that the flats were occupied, and the Queen's Gardens site taken over, under licences, supported the Government's case. As was apparent from their terms, each licence was drawn up because of the agreement in principle, not independently of it, and they were entered into in anticipation of its performance. But for this anticipation, neither licence would have been featured in the case at all. Their grant were further acts encouraging the Government to expect that H. K. Land would complete the transaction and not withdraw from it.

110. In his helpful "outline",Mr. Godfrey put the gravamen of the Government's main case, in this way: -

"The essence of the case for HKG is that HKL, by permitting HKG to re-house a substantial number of senior Crown servants by moving them from their previous accommodation into the 83 flats HKG still occupies at Tregunter, encouraged` HKG to expect that thereafter HKL would not withdraw from the transaction; that, in reliance on that expectation, HKG permitted HKL to enter upon HKG's Queen's Gardens site and to demolish the buildings standing there (so that it now stands available for HKL's use); and that the subsequent attempt by HKL to withdraw from the transaction, notwithstanding that the essential elements of the agreement in principle between the parties had been wholly performed, must be regarded as unconscionable."

111. Mr. Godfrey drew attention to the events that had occurred after the agreement in principle had been reached in July 1981. Between gon and April 1981 she basic documents had been "more or less" agreed; then there was the entering into possession respectively of the Tregunter flats and the Queen's Gardens site, permission being given to demolish the flats on the Queen's Gardens site in November 1981; the demolition had been completed by May 1982; in March 1982 the Government had surrendered the site of the Glenealy School and had received an additional premium as envisaged by the agreement in principle; the school building had then been demolished.

112. A further matter, material to the Court's decision, Mr. Godfrey submitted, was that Land was anxious to get, early possession of the whole of the future site so they could develop it as soon as possible, and this was why they had asked for the surrender of the lease of the Glenealy School site. The additional sum due to the Government for this surrender ($63 million) had in effect been paid  by increasing the premium for the overall deal. All this was additional encouragement that the deal would go through. What happened on the French Consulate (Victoria Lodge) site added fuel to the Government's legitimate expectations. Whatever might be the position at law, Mr. Godfrey submitted, after all this, H. K. Land could not, in equity, be allowed to resile. The licences should not be allowed to defeat the equity raised by the Government's expectation, encouraged by H. K. Land's words and deeds.

113. Mr. Alexander, on behalf of H. K. Land, began his submissions by stressing the stark reality of the stand the Government had taken. Everyone agreed that the negotiations with H. K. Land had all along been "subject to contract" and had not come to fruition, and yet the Government was asking the Court to require H. K. Land to enter into the unexecuted contract. This was in the forefront of his case, and he later amplied the point he was making.

114. Mr. Alexander emphasised that it was common ground that the express basis upon which the parties had dealt throughout with each other was that each contemplated that there should be no legal liability on either party until formal execution of the documents. It must therefore follow that either party was free to withdraw from the proposed contract. It was also common ground that the parties had never agreed either expressly or impldedly to expunge the clearly stated stipulation that there should be no legal liability on either side, and there should be freedom to withdraw before the final documents were executed. This right, therefore, must be regarded as having remained alive and available to either party throughout the dealings which followed the agreement in principle in mid-January 1981.

115. Mr. Alexander readily acknowledged that both parties had all along acted in the expectation that a legally binding agreement would eventually be reached, and it was perfectly clear that the Tregunter and the Queen's Gardens, licences were granted only because the parties were working towards a final binding agreement. But it was wrong to ignore the basis upon which the licences were issued, for their very terms showed that the parties were well aware that a legally binding agreement might not be reached. The equity for which the Government strived had to be based upon the contention that the parties had promised (or, by their conduct, shown) that in no circumstances would they rely on their legal rights. Here the basis upon which the parties were dealing with each other h ad never changed.

116. He said that all the "subject to contract" authorities showed the great importance of this reservation, which enabled attempts to be made to reach final agreement on the basis of the certainty that neither party is committed until he agrees to be legally bound by executing the appropriate documents. After making an agreement in principle, "subject to contract", parties often conducted further negotiations in language which assumed that the deal would go through. This was because they would be expecting, hoping and working towards such a result. But subsequent negotiations could not prevent either party exercising his freedom to withdraw.

117. Mr. Alexander cited a number of the "subject to, contract" cases, both to show the basis of the principle, and to illustrate that parties, not legally bound, often do a great deal in contemplation that a legally binding agreement will be reached. In Rose and Frank Co. v. J.B. Crompton and Bros. Ltd. [1923] 2 K.B. 261 the principles are stated by Bankes L.J. at p.282, by Scrutton L.J. at p.288, and Atkin L.J. at p.294. I will not read these passages, but I will read the concluding passage of the judgment of Lord Greene M.R. in Eccles v. Bryant and Pollock [1948] 1 Ch. 93, at p.104:-

"It is of the greatest importance, it appears to me, that these principles should be upheld. The inconvenience and chaos into which these matters would be thrown by the adoption of any other rules appear to me to be very great; but ultimately the matter comes down to this: Parties become bound by contract when, and in the manner in which, they intend and contemplate becoming bound. That is a question of the facts of each case, but in this case the manner of becoming bound which the parties and their solicitors must have contemplated from the very beginning was the ordinary, customary, convenient method of exchange. From that contemplation neither side and the solicitors to neither side ever resiled, and there is no justification for taking the view that some new method of making the contract was ever contemplated by anybody."

118. I will also read a passage from the judgment of Templeman L.J. (as he then was) in Sherbrooke and Another v. Dipple and Another [1980] 255 E.G. to 1203, at p.1205:-

"Accordingly, in my judgment, the learned judge, with great respect fell into the error which was adumbrated by Brightman J. namely of thinking that because parties got near a contract or conveyance, because parties assumed that they would go happily on until matters had become binding, therefore the subject to contract qualification either ceased to have effect or was replaced by a new contract. That, in my judgment, is not the position. It is always the case that in subject to contract negotiations one side or both from time to time speak as though there was a contract or would be a contract, and that is because everybody looks on the bright side and thinks a sale is going to take place. The fact of the matter is that for very good reasons the subject to contract formula enables one to see at once whether there is or is not a contract either a contract exchanged or conveyance executed and delivered - or whether parties are in the negotiations stage. Once one gets away from principle, then all is difficulty, and reliance on odd conversations and letters produces uncertainty in law."

119. Mr. Alexander summed up what the Government was really asking the Court to do in this way: to force upon H. K. Land a contract despite the express agreement of the parties that neither should be obliged to accept legal liability, and that each should be free to withdraw. The Government, one party to the transaction, was thus seeking an order which would controvert the basis on which both parties had continued to deal. He contended that to grant relief which required a party to implement or in any way give effect to arrangements made "subject to contract" by means of an estoppel or other equity, would deprive that party of the protection of the express understanding that there was to be no obligation placed upon him unless and until the parties entered into the necessary agreement. Such an equity could not be recognised because it would:-

(a)	contradict and conflict with the express understanding on which the dealings between the parties had been conducted;
(b)	be contrary to authority which contemplated that neither party was required to contract and each remained able to withdraw until the necessary formal agreement had been executed; and
(c)	create uncertainty in situations where the parties had stipulated for protection against legal liability until they both agreed to the necessary contract.

120. Mr. Alexander pointed out that the Government was not saying that H. K. Land should be required to buy the Queen's Gardens site upon reasonable terms, but that they wanted the "price" for the site which would have been the price stipulated in the contract if one had been made. This submission led to a spirited exchange between Counsel during Mr. Godfrey's reply. I do not think it would be productive to go into the matter very fully. Suffice it to say that Mr. Godfrey took us through the pleadings again and drew our attention to the alternative reliefs that had been asked for by the Counterclaim. An order for the execution of the Conditions of Exchange was the principal relief sought, but the alternative reliefs prayed for were drawn in very wide terms. He asked us to note, once again, Scarman L. J.' s judgment in Crabb v. Arun [1976] Ch. 179, at p.192, where he said that the first task of the Court was to decide if an equity has been established; then to determine what was the extent of the equity; and finally to resolve what relief was most appropriate to satisfy the equity. I would mention here that I find it difficult, conceptually, to see how the first two of the questions that the Court has to answer can be divorced from each other.

121. But Mr. Alexander is surely on firm ground when he says that the main issue in the case was fought out on the basis that the equity which the Government asked the Court to recognise was the right in equity to insist upon the execution of the agreement reached in principle, in the form of the final draft. This is how I understand the case was argued in the lower court. Mr. Godfrey is quite right about the effect of the wording of the prayer in the Counterclaim which seeks alternative reliefs. But this concerns the way the equity should be satisfied. The equity sought to be recognised is in paragraph 18 of the Government's Defence and Counterclaim:-

"18.    By reason of the matters pleaded herein, it would be unconscionable and inequitable for the Plaintiff to be permitted not to complete the arrangements and agreement pleaded in paragraphs 3, 4 and 5 of the Defence herein, by executing the said Conditions of Exchange or otherwise to resile from its apparent intention to do so as evidenced by its words and conduct as pleaded herein."

And I note the form of the orders sought in the Notice of Appeal.

122. In practical terms, if the Court were being asked to order something less (in the light of the nature and extent of the equity pleaded and put forward for acceptance) say, by altering the amount of the premium, or by making an allowance in H. K. Land's favour for the occupation of the Tregunter flats, H. K. Land could, I feel, riposte that a re-negotiation of the basic terms of the "subject to contract" agreement in principle was what they were seeking all along, once they had decided not to complete on the previously agreed terms. In these circumstances, apart from the question of the revocability or otherwise of the Tregunter licence, this action might never have been brought.

123. I need say no more than that, speaking for myself, if the Government's appeal were to succeed, and if I considered that the equity sought to be recognised did not extend to enforcing the execution of the Conditions of Exchange, I would invite further argument about the entire basis of the Government's Counterclaim - and that is all Mr. Alexander was asking for.

124. During the course of his argument, Mr. Alexander referred us to the Government's pleadings and asked us to note that what Mr. Godfrey called the "essence" of his case was wholly unpleaded. He pointed out that the words and conduct relied upon in the Defence and Counterclaim to raise the equity were dealings from January 1982 onwards. Mr. Alexander said that while the Judge had been right to hold, in the absence of any application to amend, that only the pleaded case should be looked at, he had, in fact, gone on to consider the unpleaded case. Mr. Alexander submitted that since the basis upon which an estoppel is claimed must be clear, it was incumbent on the Government to specify the particular words and conduct relied upon, and it could be seen that the Government's case had radically altered. This is the principal matter raised by H. K. Land in their Respondent's Notice.

125. Moreover, Mr. Alexander submitted, this "pleading point" was especially significant in this case, because it showed that no one regarded the occupation of the Tregunter flats and the handing over of the Queen's Gardens site as a commitment by H. K. Land that the deal would go through to completion. Had this really been the foundation of the Government's case, it would have been earlier identified, and clearly pleaded.

126. I must confess that in my view there is considerable force in Mr. Alexander's submissions, as I read the pleadings, despite Mr. Godfrey's helpful explanations. But Mr. Alexander very fairly conceded that the evidence that he led; his cross-examination of Mr. Ward; and his submissions to the Judge, were not affected by the defects of which he complained, and he did not wish to submit that the H .K. Land's presentation of their case had thereby been prejudiced.

127. But I will say that I do not feel able to draw the inferences from all this that we were invited to draw, which would have the effect of weakening the Government's case.

128. Mr. Godfrey invited us to hold that Mr. Ward's evidence was enough to establish the Government's expectation encouraged by, or acquiesced in, by H. K. Land, which was the basis of their case, because he had been accepted by the Judge as an honest witness, and he was the person mainly responsible for the Government's side of the negotiations.

129. Mr. Alexander, in referring to Mr. Ward's evidence, argued that the words and conduct of H. K. Land in relation to these matters included the going into possession of the property and must embrace the terms under which possession was taken. The Government could not maintain that Mr. Ward's belief was reasonable when he did not know the full facts. It must be inferred, he suggested, from the circumstances, that all the lawyers and other people involved fully appreciated the true legal position: that there was freedom to withdraw by either party. It was wrong to seek to rely on the evidence of the one person who did not know.

130. Mr. Alexander laid stress on the fact that although Mr. Ward had not been involved in the drawing up of the licence for the Tregunter flats, and Mr. Picken had been directly responsible, Mr. Picken had not been called - this, he suggested, was because "no self-respecting lawyer" could possibly have stated to the Court, is the light of the continuing "subject to contract" arrangement, and the wording of the two licences, that these events had led the Government to believe that H. K. Land had abandoned their right to withdraw from the deal, on ordinary principles.

131. Of course, the Government's servants and agents are the only medium through which their expectations can arise. There may be cases, I do not know, where all the circumstances point with such blinding clarity to the expection sought to be relied upon, that a witness need not be called to explain his understanding of the position. But such cases will be rare, and it is not suggested that this is one of them. But where more than one official is involved in the essentials of a transaction, and take different parts in the negotiations as they develop, the Government's expectations, if they are to be legitimate, must arise from their joint appreciation of the effect of the words and conduct said to give rise to an equity in the Government's favour. Their combined states of mind will be the state of mind of the Government.

132. I permit myself to ask the question whether, had Mr. Ward realised the true position, his evidence, which explained the expectation advanced, would necessarily have been the same.   It is idle to speculate, but not, I think, improper to acknowledge, that someone who appreciated that, all along, the transaction had been "subject to contract", and that this position had never changed, and who had known the terms of the Tregunter licence, might have answered the questions on the point put by Mr. Alexander in more than one way. He might possibly have answered: -

(a)	"Although I realised that everything was subject to contract, all that had been done and said by H.K. Land and on our side led me to expect that, despite this reservation, they would execute the Conditions; even if, for example, the bottom had fallen out of the property market before completion";

But he might have responded:-

(b)

"I realised throughout that either party could withdraw until the Conditions of Exchange had been finally executed, and, knowing the terms of the Tregunter licence, I cannot, in all conscience, say that I had an expectation that, come what may, even if unforeseen circumstances arose, H.K. Land would not insist on their legal rights".

133. However, having said this, I do not consider that this is one of those exceptional cases where it would be proper to draw inferences unfavourable to the Government from its failure, without explanation, to call, for example, Mr. Picken (whom they might reasonably have been expected to call). But, where Mr. Ward's evidence is relevant, there is no doubt in my mind that his lack of appreciation of the central position, and his ignorance of some of the facts important to the issues in this case, must be weighed in the scales - here, I am referring particularly to the conditions under which possession was given of the Tregunter flats.

134. In taking us through the authorities upon which Mr. Godfrey mainly relies, Mr. Alexander has asked us to note certain features which he submits are not present in the case before us. He suggests that one common factor is that in all the cases the party against whom the equity was raised had given a firm assurance by his words and conduct, from which he was not permitted to resile. He contended that the cases showed that for the equity to arise, an irrevocable commitment had to be established. With respect, I think this is putting the matter too high. The burden on the party seeking to have the equity recognised is no more than to show that the other party, by his words and conduct, which might include silence or acquiescence, has encouraged him to have a reasonable expectation or belief that a certain course will be followed or maintained.

135. Mr. Alexander also contended that for the Government's equity to arise, it is necessary for the Court to be satisfied that H.R. Land's words and conduct (including acquiescence) were clear and unequivocal. He sought to rely upon a number of authorities to support his submission. When examining these cases, valuable though they are, I think it is important to recognise that despite the assistance they afford, the equity relied upon here (for the main part of the Government's case) and promissory estoppel have their differences - upon this, at least, the text-book writers are agreed. Woodhouse Ltd. v. Nigeria Produce Ltd. [1972] A. C. 741 and Spence v. Shell [1980] 256 E.G. 55 were promissory estoppel cases, and they certainly emphasise that to found such an estoppel, the representation, promise or assurance prayed in aid must be clear and unambiguous. But is this rule limited to the application of the promissory estoppel doctrine?

136. E. & L. Berg Homes Ltd. v. Grey and Another [1979] 253 E.G. 473, I think it can be said, was a proprietary estoppel case, and Brandon L.J. (as he then was) said at p.479 in general terms: "A statement by way of representation or promise in order to found an estoppel must be clear, and unambiguous."

137. It seems to me that the distinction to be addressed is not so much any difference there might be between the two doctrines, but rather the nature of the "representation" relied upon. Where a representation is made by words (which may or may, not be contained in a letter or other document) the principal issue before the Court will be the true construction of the representation in the light of the surrounding circumstances (see the Woodhouse case), which is strictly a matter of law. But where words, conduct (and acquiescence) are in issue, I doubt if the same degree of unambiguity can be insisted upon; and it will be a question of mixed law and fact.

138. While I find it difficult to imagine circumstances in which the equity urged upon us could arise from wholly equivocal words or conduct, I propose to approach the issues in the present case by considering whether the conduct etc of H.K. Land was such that it was reasonably understood by the Government that H. K. Land would not insist upon their legal rights. I do not think that Counsel are divided on this general proposition.

139. I have no doubt that great importance must be attached to the "subject to contract" principle. I agree with the learned Judge's views on the matter - they are entirely consistent with authority. It is, perhaps, as well to remind oneself what is involved. By the use of this reservation, the parties have expressly stipulated that the execution of a further contract is a condition of the bargain they have reached, and there will be no enforceable contract while that condition remains unfulfilled - and the Court will not recognise a contract to make a contract.

140. As we know, the parties here recognise that the transaction was always "subject to contract" and this stipulation was never waived or expunged. I must say that, speaking for myself, I would have found it difficult to imagine circumstances in which the Court would be entitled to disregard the clear understanding between the parties that neither shall be bound until the condition they have stipulated has been fulfilled, in the exercise of its equitable jurisdiction. But the Salvation Army case (1981) 41 P. & C.R. 179 shows that in very unusual circumstances this can happen.

141. The "subject to contract" formula can, of course, be expressly or impliedly waived, and depending upon the stage the bargain has reached, and its nature, the contract will normally be specifically enforced, or its breach will sound in damages. There would be no need to have resort to equitable principles. If the "subject to contract" formula has never been impliedly waived, can one party be heard to say that he reasonably understood, in the light of the other party's words and conduct, or acquiescence, that the formula had been rendered meaningless? I am bound to say that I find it conceptually very difficult to accept such a proposition.

142. However that may be, I will approach the facts of this case upon the assumption that the equity upon which the Government relies can arise in very exceptional circumstances; even where the "subject to contract" doctrine applies. Are they present here?

143. In my view Mr. Alexander was right to draw attention to the fact that in this controversy, the "subject to contract" reservation was not a mere incantation in the documents and in the letters exchanged, as is often the case. As we have seen, right from the start, when, on 8 April 1980, the Government forwarded the basic terms to H. K. Land for consideration, the letter stated that it was "not the intention to create any legal obligation either of your Company or of the Government" adding "regardless of whether correspondence may be entered into on the subject." And precisely the same caveat was entered in the letter of 30 April 1980. The point was made, again in plain and forceful language, in the Government's letter of 17 September 1980. Then, in their letter of 12 January 1981, the Government emphasised, once again, that the "basic terms may be varied or withdrawn prior to formal execution" and that they would not be bound "until the documents ..... necessary to give legal effect to this transaction are executed and registered." The point was reiterated in clear language in the Government's letter of 1 June 1981. And so it cannot possibly be contended that "the Government" did not understand or mean what was being said.

144. It is common ground that the crucial events upon which the Government relies in the effort to persuade the court to recognise their principal equity, is the granting and taking possession, respectively, of the Tregunter flats and the Queen's Gardens site. Obviously this would not have happened but for the fact that both parties, at that time, confidently expected the whole transaction to proceed to completion. But the circumstances in which possession was taken and given of these two properties seem to me to be of the highest significance to the outcome of this appeal.

145. In relation to the Treguater licence (in the second half of 1981) it is not irrelevant to note that it was the Government's own draft of paragraph 1(b) that was accepted by H. K. Land - and the words are, once again, plain and unambiguous. The occupation "shall be that of licence only and shall not create any transfer or assignment of legal or other right or title to the Land" [The emphasis is mine]. And paragraph 2 must be taken as a clear recognition that the grant of the Queen's Gardens site might never be made. There was provision for the licence to be terminated and what should be done about, inter alia, fixtures and fittings.

146. When one looks at the Queen's Gardens licence (November 1981) one sees that the Government are reserving their right to revoke it "at any rime ..... without notice," (paragraph (1)). Paragraph (21) expressly recognises that the "permanent grant" of the site might not be "proceeded with" ..... "for any reason whatsoever" and we have, in paragraph (22) the express stipulation that the Government is not, by having granted the limited licence, to be regard as having been committed "to the permanent grant of the ..... area."

147. As has been noted, Mr. Ward did not know of the terms of the Tregunter licence. It cannot, I think, fairly be maintained that his expectation was not coloured by his ignorance. If the Tregunter flats had been handed over without conditions, Mr. Ward's view that the "point of no return" had been reached, despite the "subject to contract" reservation that had prevailed until then might well have been valid. And the conduct of H. K. Land in so granting possession of the flats (even without a formal assignment might have given rise to a reasonable expectation that H. K. Land would not resile from the agreement in principle, giving rise to the equity for which the Government seeks.

148. It seems to me that when possession or occupation of property is a fact in issue in this kind of case, if any conditions or limitations are placed upon that possession or occupation, then unless something happens afterwards to indicate that the conditions have been waived or removed, or that the owner's words or conduct have led the occupant reasonably to believe so, they must prevail.

149. To illustrate what I mean, had the housemaid in Greasley and Others v. Cooke [1980] 1 W.L.R. 1 306 not been given to believe that she could regard the property as her home for the rest of her life, but had gone into the house under an express licence, it seems hardly likely that she would have succeeded. The same can be said about the son in Inwards v. Baker [1965] 2 Q.B. 29, if his father had not encouraged him to believe that he would be allowed to stay on the land as long as he wished. It is not, I think, necessary to give other examples from the cases to indicate how essential it is to know all the surrounding circumstances in which occupation of property is permitted.

150. Mr. Ward did, however, know the terms of the Queen's Gardens licence; he was responsible for the very idea. The Judge accepted Mr. Ward's explanation, in referring to the licence, that he was following a "standard form". I do not question this finding, but standard form or not, the meaning of the licence is clear, and it will simply not go away. I do not consider one can escape the true import of the licence: that either party was free to withdraw and that a binding contract might never come to fruition. There can be no doubt about the honesty of Mr. Ward's opinion (in effect, that being in "standard form", the licence did not mean very much) but in my view "the Government" cannot be heard to say that they were encouraged by H. K. Land's conduct, in taking possession of the site, to believe that if circumstances so dictated, H. K. Land would not insist on their right to withdraw. It would be an extraordinary situation, indeed, if a party insisting on preserving his own legal rights to withdraw, could, by the same breath, assert that he did not realise that the other party might exercise the same right.

151. It seems to me that Mr. Ward's memorandum of 18 September 1981 is also important. Again, his integrity is not in question, but the words of his paragraph 6 speak for themselves. He, himself, acknowledged that "the exchange may never be completed", and it is no answer to say that he was only worried about the disagreement over road costs. He did not expect it to happen, no doubt, (no one did) but this paragraph is the plainest recognition of the very real possibility.

152. Then, there is the minute of the "quarters committee" meeting which took place on 24 August 1981 (between the taking over of the Tregunter flats and the handing over of the Queen's Gardens site) which shows that "the Government", through others of its servants, fully appreciated the position: "Government would be in a very embarrassing situation if the deal fell through and all the occupants (of Tregunter) had to be moved out."

153. It must also be borne in mind that provided parties to an agreement in principle are aware of the significance of the "subject to contract" doctrine in property deals (and who is not?) each must realise that either party might withdraw, even without  good cause, and certainly if the "buyer" gets into financial difficulties before the transaction can be finalised. To "expect" otherwise will, normally, be fanciful.

154. In my view, apart from the principles which they establish, or re - state, none of the cases cited to us by Mr. Godfrey advance the Government's case. I will only refer again to the Salvation Army case (1981) 41 P. & C.R.179, which was, indeed, a "subject to contract" case in broad terms. As Woolf J. was at pains to emphasise, in the passage at the end of his judgment which I have already read, it was an entirely novel case. Despite the "subject to contract" umbrella, the new site had been handed over after the S.A.'s solicitors had said that they regarded this as "part performance", and the transfer of the new site had proceeded to completion. I will not repeat the salient facts of the case, but one has only to read them to see how different are those of our case.

155. I will be bold enough to state my opinion that despite the concession that the "subject to contract" umbrella had never been taken down, the Government would have had a fair chance of success in this action, accepting Woolf J.' s reasoning in the Salvation Army case, if the Queen's Gardens site had been handed over without conditions, or even if there had been a licence, if the Tregunter flats had been taken over without the licence - or vice versa. The facts would then have come within measuring distance of the facts in the authority cited to us H. K. Land's conduct in accepting the Queen's Gardens site, without restrictions, or handing over the Tregunter flats, without conditions, might have entitled the Court to enforce the equity in relation to the entire transaction. But this did not happen.

156. I have reached the conclusion, greatly assisted by the very complete and helpful submissions addressed to us both by Mr. Godfrey and by Mr. Alexander, that if "the Government" entertained the expectation, or held the belief, that by the taking of possession of the Queen's Gardens site, or the handing over of the Tregunter flats, or both, H.K. Land would in no circumstances insist upon their legal right to withdraw from the transaction before formal completion, that expectation or belief was unreasonable and unjustified.

157. As regards the events that took place after the "exchange" of property, I mean no disrespect to Mr. Godfrey's submissions when I say that I am quite unable to find words or conduct on the part of H. K. Land which would avail the Government. In this context the following exchange in the transcript is instructive - when Mr. Alexander was cross-examining Mr. Ward:-

"Q.	In fact, after the end of 1981 did you have much direct involvement with the transaction at all?
A.	Direct involvement my Lord, no, indirectly I would prefer to put it!
Q.	Yes. Would it be right to say that largely after 1981, it was being dealt with either the Registrar- General's Department on the legal side, or the Buildings Ordinance Office and where it carne to your Department I think we" see the letters tend to be written by Mr. Scott-Will and Mr. Gottrell, is that fair?
A.	That is correct my Lord, yes."

158. There was, therefore, no evidence from anyone in full possession of all the relevant facts to establish that "the Government" was encouraged to believe, from 1982 onwards, that H.K Land would not rely on their right to withdraw from the contract, if they felt it necessary to do so.

159. On the main issue, I find it impossible to strike off the fetters that the Government put upon themselves - and tightened from time to time. The Government must, therefore, fail on this issue.

160. I now turn to consider the subsidiary issue. Mr. Godfrey formulated the issue in this way: whether H. K. Land is entitled to revoke the licence under which they let (or are to be treated as having let) the Government into possession of the Tregunter flats, still occupied by them, notwithstanding the dealings between the parties after the grant of the licence. He said that this issue could conveniently be described as the "promissory estoppel issue, and contended that it would be inequitable in the light of all the dealings between the parties, after the grant of the Tregunter licence, to permit H.K Land to revoke the licence. I should mention here, that H. K. Land has made it clear that if the Judge's decision is upheld, they would be happy to allow the Government to remain in occupation of the flats provided suitable arrangements to reflect the parties' rights can be agreed.

161. The principle Mr. Godfrey relies upon is stated by Lindley L.J. in Birmingham District Land Co. v. London and North Western Railway Co. (1888) 40 Ch. D. 268, at p.281:-

"The legal principle applicable to this case appears to me to have been settled in Hughes v. Metropolitan Railway Company, a case something like this, in which persons were held to have so conducted themselves as to have enlarged the time for doing what had agreed to be done by a particular date. I cannot express the principle better than by reading a short, passage from the judgment of Lord Cairns. He said: 'It is the first principle upon which all Courts of Equity proceed that if parties who have entered into definite and distinct terms involving certain legal results - certain penalties or legal forfeiture - afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to, enforce them where it would be inequitable having regard to the dealings which have thus taken place, between the parties. ' That is the general principle, and I think that it is plainly applicable here."

And Bowen L.J., at p.286 had this to say:-

"It seems to me to amount to this, that if persons who have contractual rights against others induce by their conduct those against whom they have such rights to believe that such rights will either not be enforced or will be kept in suspense or abeyance for some particular time, those persons will not be allowed by a Court of Equity to enforce the rights until such time has elapsed, without at all events placing the parties in the same position as they were before. That is the principle to be applied. I will not say it is not a principle that was recognised by Courts of Law as well as of Equity. It is not necessary to consider how far it was always a principle of common law."

162. Mr. Godfrey contends that, on the basis that H. K. Land had power to determine the licence if the grant had not been made "within 6 months of the date hereof", this period would have ended on 10 February 1982. But, instead of determining the licence, H. K. Land had accepted the surrender of the Glenealy School site; demolished the school; and encouraged the Government to deal with the Ladies Recreation Club over land belonging to the Club and needed by H. K. Land to help the development of the Queen's Gardens site.

163. This conduct, submitted Mr. Godfrey, was calculated to encourage the Government to expect that H. K. Land would not seek to assert against the Government their right to revoke the licence. And so their attempt to revoke it, because of their own refusal to complete the whole transaction (in particular since it had become impossible to put the Government back in the position it was in when the right to revoke the licence had first arisen) was inequitable and, under the promissory estoppel rule, the Court should disallow any claim that H. K. Land had validly revoked the licence.

164. Mr. Godfreyi referred us back to Ramsden v. Dyson (1866) L.R. 1 H.L. .129 and submitted that the position was precisely that which Lord Kingsdown had in mind in paragraph of his speech on p.171 which begins: "If, on the other hand...". Mr. Godfrey paraphrased that paragraph to suit the positive case dictated by the facts before us, in this way:-

"If, on the other hand, a licensee being in possession of land, and knowing the nature and extent of his interest, lays out money upon it in the hope or expectation of an extended terms or an allowance for expenditure, then, if such hope or expectation has been created or encouraged by the licensor, the licensee has a claim which any Court of law or equity will enforce."

165. A long line of cases has established the "promissory estoppel (here it is safe to attach a label to the equity which the Court will recognise and give effect to) upon which Mr. Godfrey relies. Mr. Alexander, however, submits that on the facts of this case, the doctrine does not help the Government. I entertain no doubt that, as Mr. Alexander suggests, the Court must have regard to the following features present here:-

(a)	on this part of their claim, the Government is not suggesting that they took possession as a result of words and conduct by H. K. Land that created the licence, but claiming that their conduct raises an equity which will allow the Government to continue in occupation of the Tregunter flats because the doctrine of equity upon which they rely will prevent H. K. Land from acting inconsistently with the promise given, or expectation raised or encouraged;
(b)	possession was taken under a licence - the letter of 3 February 1982 from H.K Land contained the express understanding that this was so, and confirmed its terms;
(c)	the licence made express provision for its determination if the Conditions of Exchange were not executed;
(d)	it was never contemplated that the Government could remain in possession if for any reason the contract was not completed.

166. So, too, I do not think that it can be doubted that for this type of estoppel to succeed, the conduct, promise or encouragement (to indicate that the licence will not be revoked) must be clear and unambiguous: Woodhouse Ltd. v. Nigeria Produce Ltd. [1972] A. C. 742; E. & L. Berg Homes v. Grey and Another [1979] 253 E.G. 473 and Spence v. Shell [1980] 256 E.G. 55.

167. Moreover, silence or inaction cannot be regarded as a "representation" unless a legal duty (a moral duty is not enough) was owed by the representor to the representee to take the steps, the failure take which is relied upon as the creation of the estoppel. As Robert Goff L. J. (as he then was) said in Allied Marine Ltd. v. Vale de Rio Doce Navegacao S. A. [1985] 1 W. L. R. 925, at p.937: -

"We should add that we see the same difficulty in invoking the principle of equitable estoppel in such circumstances. It is well settled that that principle requires that one party should have made an unequivocal representation that he does not intend to enforce his strict legal rights against the other; yet it is difficult to imagine how silence and inaction can be anything but equivocal."

168. And I agree with Mr. Alexander, too, that apart from all this, the Court in examining the conduct relied upon as creating the estoppel has to bear in mind the practicalities of the situation. At the material time, H. K. Land was seeking to re-negotiate the terms of the Conditions of Exchange, and it cannot be held against them that they did not demand possession of the Tregunter flats (and in this way assert their legal rights) until it became plain that they had to take the Conditions of Exchange as they stood, or not at all. Although the situation here is rather different, I think that Buckley L. J.' s conclusion in Shaw v. Applegate [1977] 1 W.L.R. 970, at p.978, on the submission that the plaintiffs' acquiescence and failure to sue earlier deprived them of their legal rights, is helpful:-

"In the present case, having regard to the doubtful state of mind of the parties during the period from the spring of 1971 to August 1973, I do not think that one could reach the conclusion that in this case the plaintiffs would be acting dishonestly or unconscionably in seeking to enforce their rights under the contract because of their failure to sue at an earlier date. After all, it should not, I think, be the policy of the courts, to push people into litigation until they are really sure that they have got a genuine complaint and have got a case in which they are likely to be able to succeed, and acquiescence at a time when the parties are in doubt as to what their true rights are could, it seems to me, seldom satisfy the tests I have been discussing. Accordingly, in my judgment, there is not here sufficient acquiescence to bar the plaintiffs from all remedy in respect of this covenant, or to deprive them of any continuing cause of action."

169. The same note of caution was struck by Ormrod L.J. in E. & L. Berg Homes v. Grey [1979] 253 E.G. 473, at p.481:-

"Also I think it is important that this court should not do or say anything which creates the impression that people are liable to be penalised for not enforcing their strict legal rights. It is a very unfortunate state of affairs when people feel obliged to take steps which they do not wish to take, in order to preserve their legal rights and prevent the other party acquiring rights against them. So the court in using its equitable jurisdiction must, in my judgment, approach these cases with extreme care."

170. Furthermore, the Government called no evidence (I do not consider that the facts sufficiently spoke for themselves) to suggest that anyone who could represent their state of mind thought that H.K Land made any promise or representation during the relevant period, upon which they acted.

171. I am unable to find any ground upon which the Government could succeed on this subsidiary issue.

172. It will have been seen that I have agreed with the learned Judge's main conclusions, although I have not reached them all by precisely the same route. The Government is highly experienced in property dealing, and had access at all times to competent legal advice. Their eyes were wide open, and everything was said and done deliberately. Despite Mr. Godfrey's attractive and forceful submissions on the Government's behalf, once it was conceded that the fact and terms of the two licences were relevant considerations, their stand was based, if I may be permitted to say so, on the most fragile of foundations - and these gave way. I am unable to hold that equity, even "at its most flexible" can assist the Government when all the circumstances of this transaction are taken into account.

173. For the reasons I have attempted to give, 1 would dismiss this appeal.

Li, V.-P.:

174. I have the benefit of reading my brother Fuad J. A.' s draft judgment with which I entirely agree. He made such a thorough analysis of the relevant facts and gave such careful consideration to the law and authorities cited that leaves nothing useful I can add. At the risk of repetition, however, I would like to make the following observations.

175. It is common ground that even though the parties had come to terms in principle for the whole arrangement none of the terms were legally binding. However, from the beginning of the negotiations, up to and including the granting of licences, the parties were ad idem on one term and one term only and that was: all the other terms for the transaction were "subject to contract" and that either party could alter the terms or withdraw from the transaction at any stage prior to the execution, exchange and registration of the formal documents. It is also common ground that neither party had executed any formal document.

176. Thus the Government's claim is for equitable relief.  It is contended that where one party has performed practically ail the obligations on its part in expectation that Hong Kong Land will also honour their obligations, such performance haying been encouraged and/or induced by Hong Kong Land, a Court of Equity will not permit Hong Kong Land to resile from performing their part of the obligations.

177. A series of authorities were cited to us in support of this proposition. Howevev, in Willmott v. Barber (1880) 15 Ch. D. 96, Fry J. at p.105 said:

"It must, however, be borne in mind that a person who stipulates for a written licence to assign a lease wisely stipulates for evidence in writing of his consent to an assignment, in order that the contest which often arises when there is only parol evidence may be avoided; the writing is to be an end of all strife between the parties. It requires very strong evidence to induce the Court to deprive a man of his legal right when he has expressly stipulated that he shall be bound only by a written document. It has been said that the acquiescence which will deprive a man of his legal rights must amount to fraud, and in my view that is an abbreviated statement of a very true proposition. A man is not to be deprived of his legal rights unless he has acted in such a way as would make it fraudulent for him to set up those rights. What, then, are the elements or requisites necessary to constitute fraud of that description? In the first place the plaintiff must have made a mistake as to his legal rights. Secondly, the plaintiff must have expended some money or must have done some act (not necessarily upon the defendant's land) on the faith of his mistaken belief. Thirdly, the defendant, the possessor of the legal right, must know of the existence of his own right which is inconsistent with the right claimed by the plaintiff. If he does not know of it he is in the same position as the plaintiff, and the doctrine of acquiescence is founded upon conduct with a knowledge of your legal rights. Fourthly, the defendant, the possessor of the legal right, must know of the plaintiff's mistaken belief of his rights. If he does not, there is nothing which calls upon him to assert his own rights. Lastly, the defendant, the possessor of the legal right, must have encouraged the plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal right. Where all these elements exist, there is fraud of such a nature as will entitle the Court to restain the possessor of the legal right from exercising it, but,in my judgment, nothing short of this will do."

Relying on the judgment of Lord Denning in Inwards v. Baker [1965] 2 Q.B. 29, where the Master of the Rolls said at p.36:

"It is quite plain from those authorities that if the owner of land requests another, or indeed allows another, to expend money on the land under an expectation created or encouraged by the landlord that he will be able to remain there, that raises an equity in the licensee such as to entitle him to stay. - So in this case, even though there is no binding contract to grant any particular interest to the licensee, nevertheless the court can look at the circumstances and see whether there is an equity arising out of the expenditure of money. All that is necessary is that the licensee should, at the request or with the encouragement of the landlord, have spent the money in the expectation of being allowed to stay there. If so, the court will not allow that expectation to be defeated where it would be inequitable so to do.",

learned counsel for Hong Kong Government contends, if I understand him correctly, that: where one party in any bargain or arrangement spent money or acted to his detriment which has been induced or encouraged by the other party or acquiesced in by the other party, with full knowledge of his expenditure or act, coupled with an expectation that the other party would also act in accordance with the bargain or arrangement, then the Court will grant him relief if the other party attempts to resile from the bargain. It is further contended that by their conduct and correspondence since February 1982 Hong Kong Land had encouraged the Government to act to its detriment with an expectation that Hong Kong Land would carry out their part of the bargain.

178. As to the principle upon which equitable relief will be granted in such circumstances, I do not think there is any serious dispute. The dispute lies in the interpretation of the facts and the conduct of each party.

179. In this connection I have to observe that the arrangement between the father and son in Inwards v. Baker was not "subject to contract". There was no such mutual understanding in that case. Indeed practically all the cases cited in support revealed no such understanding: Habib Bank Ltd. v. Habib Bank A.G. Zurich [1981] 1 W.L.R. 1265; Taylors Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd. [1982] 1 Q.B. 133; Amalgamated Investment & Property Co. Ltd. v. Texas Commerce International Bank Ltd. [1982] 1 Q. B. 84.

180. It is further contended for the Government that where the claim is founded on equity, the "subject to contract" formula is irrelevant. The case of Salvation Army Trustee Co. Ltd. v. West Yorkshire Metropolitan County Council (1981) 41 P. & C.R. 179 was cited in support of this proposition.

181. In that case both plaintiff and defendant's predecessor started negotiations "without prejudice" and "subject to contract" for the defendant's predecessor to acquire the old building and site belonging to the plaintiff on payment of compensation at a rate much higher than its market value and at the same time for the plaintiff to be granted a new site to build a new hall. When terms in principle were all agreed the plaintiff's solicitor on 12/11/73 wrote to defendant's predecessor to the effect that the plaintiff was ready to proceed and stated that it would be no doubt be appreciated that the plaintiff's act of taking possession would be part performance of the agreed terms. The plaintiff was granted possession of the new site by formal documents.  To the knowledge of the defendant's predecessor, the plaintiff expended money to build on the new site without being disabused of their mistaken belief by the defendant's predecessor or the defendant. In the meantime the area where the old site was situated was taken over by the defendant owing to a reorganisation. The defendant declined to acquire the old site. In an action by the plaintiff claiming for proprietary estoppel Woolf J. having reviewed the authorities and the facts in that case said at p.194:

"I can find no evidence that indicates that the city council should have appreciated that the plaintiffs were under any misapprehension until the city council received the letter of November 12, 1973, from the plaintiffs' solicitors. By that time, the plaintiffs had already made clear their anxiety to proceed with the construction of the new hall as soon as possible, but there is nothing to suggest that the matter was not going to be dealt with in the ordinary manner, with negotiations resulting in a subject - to - contract agreement, to be followed by formal legal documentation. The letter of November 12, 1973, did show a misepprehension, because it indicated that it was the plaintiffs' view that, if they were allowed into possession, they would be entitled to the new site. However, that letter was not answered prior to March 31, 1974, so it is necessary to consider the remainder of the material before me to see whether or not there was the necessary encouragement by the city council. The one matter that could amount to such encouragement is related to the admission on the pleadings that in February 1974 the plaintiffs took possession of the new site."

Taken also as an act of encouragement the judge said at p.195:

" ..... they were aware in consequence of the letter of February 8, 1974, that an architect was having or about to have trial holes dug on the new site and that the plaintiffs regarded the position as one of urgency, as was indicated by their solicitors' letter of February 21, 1974, which asked for immediate attention. Yet, on the material before me, there was no protest of any sort at any stage, though there has to be taken into account the fact that any activity of the plaintiffs on the site would have been extremely limited until the contractors started work after April 1974."

He came to the conclusion that (at p.196):

"The defendant authority either actually knew, or certainly, on the material before me, ought to have known, that the plaintiffs were continuing to incur expenditure under the mistaken belief to which I have referred, and, although they were not entitled to stop building work on the new site, they could nave indicated that they did not regard themselves as committed to the purchase of the old site. Instead, they stood by without enlightening the plaintiffs. At the very least, their silence should be regarded as an endorsement of the intentions that the previous highway authority had expressed."

182. Having regard to the facts of the case I am of the opinion that when the formula "subject to contract" was employed by the parties such formula must be expunged clearly and unambiguously by the words or conduct of the same parties before equitable relief can be claimed. Where only one party sought to expunge it, such expunction must be known to and acquiesced in by the other party so as to make it unconscionable for the other party to insist on its legal rights.

183. Applying these principles to the appeal I am further of the opinion that the Government had never evinced an intention - let alone in clear words - to expunge that formula. Nor can it be said that Hong Kong Land knew of such intention even up to the time the licences in respect of the Tregunter flats and Queen's Garden site were granted. Each party made clear that such licences could be revoked, and the terms of the re-arrangement, amended. All the subsequent acts and conduct of the parties as from 1982/3 were referrable to the terms agreed in principle but subject to contract. Such has been subject to careful analysis by my brother Fuad and I shall not repeat the same. Perhaps I may seek support of my opinion by referring to the last paragraph of Woolf J.' s judgment at p.198 when he said:

"It is novel in the sense that facts of this nature have not been before the courts before, but I would not like it to be thought that, in relation to the enforcement of a sale, it is likely to have wide application. Mr. Goodhart conceded in the course of argument that in the case of a normal arrangement to sell where there is no contract it would be virtually impossible to rely on the principle of proprietary estoppel. This case differed from the normal case because the arrangement for sale was part of a wider arrangement that involved the acquisition of an interest in other land and the sale and the acquisition were irretrievably interwoven. Furthermore, the case has the feature that the acquisition and sale really amounted to the exchange of one site for another. Finally, there is the fact that the defendant authority's predecessors allowed the plaintiffs to take possession of the new site at a time when it was known that the reason why the plaintiffs wanted possession was so that they could erect a new hall on the new site. These are a combination of facts that are unlikely to recur frequently. I make this clear because I would not want my decision in this case to interfere with the normal conduct of negotiations 'subject to contract', particularly in cases involving an acquiring authority that could, if necessary, exercise compulsory purchase powers."

184. For the aforesaid reasons I agree chat the appeal should be dismissed.

Yang, J. A.:

185. I agree.

186. I have had the advantage of reading my brother Fuad J. A.' s judgment, which, if I may say so with the utmost respect, deals with the facts and law clearly and fully. There is nothing that I can usefully add.