PANG NAP PUI v. SECRETARY OF JUSTICE

HCA 3857/1994

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3857 OF 1994

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J U D G M E N T

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Introduction

1.  This case concerns the Government’s now longstanding policy of giving land to certain indigenous New Territories residents so that they might build a home on it for themselves and their family.  Happily none of the material facts are in dispute.

2.  On 6 October 1989, Mr Pang Kwei Shui, now deceased, applied for a small house grant.  He did this on a prescribed form [pages 33-34, Bundle B].  He declared on the form that he was a male indigenous villager and that he wished to have land granted to him to build a small house on it.  On 5 February 1990 the District Lands Officer for his area, to whom he had applied, sent him a letter telling him that his application had been successful [See pages 42-32, Bundle B].  This letter set out the terms of the approval.  It is there to be read in the evidence.  It contained details of the area and dimensions of the house to be built on the land as well as, of course, the location of the site.  The approval of the application was to be open for acceptance by Mr Pang until 28 February 1990.  In order to signify his acceptance he had to pay an administrative fee of $1,000 and the required premium of $147,540.

3.  Two paragraphs of the letter of approval are of crucial importance.  Firstly, the second complete paragraph on page 2 [page 43] which in its material parts is to this effect:  Having set out the requirement, on Mr Pang’s part, to pay an administrative fee and the premium before the due date it says this;

“… whereupon the condition of Grant/Exchange [by which the land would be transferred to him] will be prepared for your execution following the aforesaid balloting exercise [by which the particular piece of land would be selected for Mr Pang ].  If you wish to have the conditions executed by an Attorney you should also send me a formal Power of Attorney.  Please note that the administration fee will not be refunded if for any reason you decide not to proceed with the transaction nor any interest be payable in respect of the refund of the premium.” [Emphasis provided]

4.  Secondly there is the penultimate paragraph, which is why this litigation is taking place.  I will set it out in full:

“Please note that until the relevant documents to give effect to this approval are executed and registered in the District Land Registry, this letter is not binding upon Government in any way.”

5.  Why these two paragraphs are fundamental to the outcome of this action will emerge shortly, after I have completed recounting the relevant facts.  Suffice it to say at this stage that on the Government’s behalf [the Defendant, represented by the Secretary for Justice] it is submitted that the approval of Mr Pang’s application contemplated that both parties had the right to withdraw from that transaction up to and until the Condition of Grant and any other necessary conveyancing documents were executed and registered in the District Land Registry.  Unsurprisingly, this interpretation is not accepted by the Plaintiff.

6.  Following the approval of his application, Mr Pang paid the administrative fee of $1,000 on 15 February and the premium of $147,540 on 28 February.  On 20 July 1999 he was sent a letter from the District Lands Officer, North, he being the responsible official for the administration of this matter, to attend the ballot on 30 August 1990, by which he would learn which plot of land had been allocated to him [page 52].  His son, Mr Pang Nap Pui, attended on his behalf and, as expected, a particular plot of land was allocated to Mr Pang.

7.  Sadly, on 20 February 1991 Mr Pang, who was by then in his eighties, died before the Government had executed the documents conveying his allocated plot of land to him.  Unfortunately, there was also substantial delay in getting the plots of land ready in preparation for the construction of the small houses on them.  This delay related to all the 16 building plots covered by the ballot of 30 August 1990 and was not restricted just to Mr Pang’s plot.

8.  At this stage the reasons for the delay can be briefly stated although, as I will relate presently, this question of delay was considered in very great detail by the Ombudsman.  The site formation work had not been completed by the time that the premiums had been collected from all of the 16 successful applicants.  There were disputes amongst Government departments as to which department would be responsible for the construction and maintenance of the sewage and drainage and of the paving works around the building plots.  This was not finally resolved between the departments until 7 February 1991.  The works were then completed notwithstanding which, the Conditions of Grant were not executed until 8 May 1992 [pages 171-194 (see 193)] which is when the other successful applicants received their land.

9.  Following Mr Pang’s death, the District Lands Officer investigated the housing position of his widow Madam Man Yau-mui.  She was interviewed on 25 June 1991 in the presence of her son Mr Pang Nap-pui, who is the Plaintiff in this action.  The Lands Officer’s findings were that Madam Man was living at 63, Fanling Lau which was an old house owned by her late husband.  He therefore determined that in such circumstances she had no housing need.  This being the case the District Officer determined that he would withdraw the proposed land grant given to her late husband.  This was done formally by letter dated 9 November 1992 although the decision had already been communicated by telephone to the Plaintiff, on his mother’s behalf, on 12 September 1991.  I mention this by way of completing the narrative.  This decision by the Lands Officer has no bearing on the issues that fall to be decided by me, but I should observe that had the Lands Officer concluded that the widow was in need of housing, he would, as a matter of concession have completed the land grant to her.  His investigations also showed that the Plaintiff himself was already living in a home of his own close to his mother.  The Lands Officer took the position therefore that he was able, as a matter of law, to withdraw the land grant which he did and to arrange the return of the premium paid by the late Mr Pang to the Plaintiff as the executor of his estate.

10.  It is by this course that the matter has come to be litigated, I have to say, in an extraordinarily leisurely way having regard to the fact that the writ was issued as long ago as 1994.

The issues

11.  Mr Valentine Yim, on behalf of the Plaintiff, who brings the action on behalf of the estate of his late father, has pressed the matter on three bases which I will refer to, one of which, it seems to me, is inapplicable to the case because, as Mr Y C Mok, for the Defendant, submits there are in fact only two real issues.  Firstly, whether there was a valid agreement between the deceased and the Government which is now liable to be specifically performed.  In this regard it is accepted by the Government that the benefit of any valid agreement passed to the late Mr Pang’s estate.  It is not said that the benefit of such an agreement was extinguished upon Mr Pang’s death.  Secondly, the other issue is, if there was no valid agreement, whether in all the circumstances of this case the Government should be estopped from refusing to make the land grant.

12.  Mr Yim also relies on the prevention principle, which was fully considered by Ribeiro PJ in his judgment in the case of Kensland Realty Ltd v Whale View Investment Ltd & Anr [2001] 4 HKCFAR 381 at 409H-417B, whereby a party to a contract will not be allowed to benefit from his own wrong.  As I propose to demonstrate in due course this principle can have no application on the facts of this matter.

Was there a valid agreement between the parties?

13.  This turns on an interpretation of the letter of approval of the deceased’s application as a whole [Bundle, pages 42-43 supra], with particular reference to the effect of the penultimate paragraph at page 43 which I have set out at paragraph 4 above.  As a matter of convenient shorthand I will call it the “subject to contract clause”.

14.  Mr Yim begins by inviting me to discern the intention of the parties as to the time for the execution of the Condition of Grant which he submits, in all the circumstances, must have been shortly after the conclusion of the ballot on 30 August 1999.  He makes reference to the second complete paragraph on page 43, the effect of which he says is that after payment of the administrative fee and the premium, the condition of grant will be prepared for execution by the successful applicant.  The words used are: “Whereunpon the Condition of Grant/Exchange will be prepared for your execution following the aforesaid balloting exercise”.  Mr Yim helpfully reminds me that the definition of “Whereupon” is; upon which; immediately after and in consequence of which; OED 3^rd Edition.

15.  Nevertheless, there were delays, for reasons which I have briefly touched upon.  Those were reasons, such as internal disagreements between Government departments, which the deceased would not have been privy to and which therefore would not have bound him.  These delays which caused the Lands Office to defer the execution of the Certificate of Grant until the works were completed, constituted a breach of the Government’s obligation to prepare the Certificate of Grant for Execution by the deceased after the ballot had determined which plot each successful applicant had been allocated.

16.  I have no doubt that the contemplated timetable, by whoever drafted the letter of approval of the application for a land grant which is a standard letter was that the Certificate of Grant would be prepared within a reasonable time shortly after the ballot.  These delays were not the contemplated scenario of how this scheme was to operate and it is clear that the letters of offer were on this occasion sent out prematurely during the currency of the dispute between the government departments or at least before the site formation works had been completed.  The scheme was a relatively novel one at that stage and the Lands Office had to a great extent proceeded on a trial and error basis.  Whatever the rights and wrongs of the delays were, I have no doubt that the Lands Office were proceeding with the utmost good faith in its effort to implement this scheme in a way that best served the interests of the successful applicants.

17.  But it seems to me that this part of Mr Yim’s argument cannot be taken in isolation from the effect of the “subject to contract clause”.  Whatever the intention of the parties may have been as to the intended time of the preparation of the Certificate of Grant for execution which would identify the moment of performance [failing which there would be a breach, by the Government in this instance] can only work if there was, in fact, a valid subsisting agreement between the parties.  This can only be decided once the effect of the “subject to contract clause” is determined and so this part of Mr Yim’s submission is a premature one.  It need only be answered if there was a valid subsisting agreement.  Mr Mok says there was not — if he is right that renders this part of Mr Yim’s case otiose.  This is the correct analysis with the result that I must first determine the effect of this crucial clause.

“Subject to Contract”

18.  The starting point is that the courts have repeatedly held that the words “subject to contract” and/or words to similar effect such as the ones but I am required to consider, are conditional in nature and that a concluded agreement will not have been reached until the condition has been satisfied.

19.  Mr Yim has referred me to a number of authorities, all of course decided on their own particular facts, where the court has felt able to mitigate the strictness of the rule.

20.  In Alpenstow Ltd v Regalian Plc [1985] 1 WLR 721, Nourse J (as he then was) at 730B observed that:

“But there might be a very strong and exceptional context which would induce the court not to give them that particular meaning in a particular case … Speaking generally you would expect to find the words ‘subject to contract’ at the preliminary stage of a negotiation, not, as here, some four or five months on.  You would not expect to find them, as you do here, in a detailed and conscientiously drawn document which admittedly cancelled and replaced a previous binding agreement.”

Having said so Nourse J then went on in that case to find that there was “a very strong and exceptional context” which persuaded him not to give the words “subject to contract” their prima facie meaning.  This approach is not new.  In Rossiter v Miller [1878] 3 App Cas 1124, where the Defendant had offered to purchase land and was informed that he must purchase subject to certain conditions; his offer remained open and was accepted “subject to the conditions and stipulations printed on the plan”.  The House of Lords held that there was a completed contract.  Lord Blackburn at page 1151 said:

“… the mere fact that the parties have expressly stipulated that there should be a formal agreement prepared … does not, by itself, show that they continue merely in negotiation.”

This line of reasoning was followed, on their particular facts, in the cases of Michael Richards Properties Ltd v Wardens of St. Saviours [1975] 3 All ER 416 at 424f-h and in Hong Kong Housing Authority v Hung Pui & Anr [1987] 3 HKC 495 at 497H-I.  In these two latter cases the court in each case held that the words “subject to contract” made no sense in the circumstances and were prepared to ignore them.

21.  Mr Yim submits that this is precisely the situation here.  He says that when one looks at the letter of offer [pages 42-43] the clear intention of the parties was that they had entered into a binding agreement once the applicant [the deceased] had accepted the basic terms and paid the administrative fee and the premium.  Once these were paid by 28 February 1990, there was nothing further to negotiate or to be agreed between the parties.

22.  Mr Mok responds by inviting consideration to the words of the “subject to contract” clause in this case, which spells out in longhand the intention that nothing will be binding until execution and registration of all the formal documents, which is much more than a mere exchange of contracts which is the usual situation where one will find the “subject to contract” condition applying.  He submits that there can be no alternative construction to this particular clause.

23.  This submission does not stop there because he also draws attention to the second complete paragraph on page 43 (paragraph 3 above) which plainly gives the successful applicant the right to withdraw after he has completed the process of payment of the administrative fee and premium and even after the balloting process.  He may withdraw at any stage up to the Execution of the Grant and its registration on terms of him not being able to get a refund of the administrative fee and on getting back his premium in full but without any interest on this amount.

24.  What Mr Mok gets from this is that where the Government was prepared to give an applicant that right of withdrawal it is hardly likely that it was prepared to deprive itself of any reciprocal right of withdrawal.

Conclusion on this issue

25.  I am persuaded that Mr Mok’s analysis is the correct one.  The terms of the letter of offer are clear and I am unable to read these provisions as meaning that the Government cannot withdraw [which is what Mr Yim contends for] but that the applicant can, at any time before execution and registration merely for the loss of the $1,000 administrative fee and interest on the premium of $147,540.  This comes as a package of measures by which either party is free to withdraw before the final act of execution and registration.  This is the bargain that an applicant, who applies for this highly concessionary scheme to acquire land upon which to build a home, enters into.  I can see no reason to depart from the clear terms of these two paragraphs.  The fact that there may well be nothing further to negotiate between the parties cannot displace the suspensive effect of these two provisions based on a perfectly reasonable mutuality in the right of withdrawal.  Mr Yim has the added difficulty of having to distinguish the Privy Council’s decision in A. G. v Humphrey’s Estate (Queens Gardens Ltd) [1987] AC 114.  Although that case may have more application under the alternative estoppel limb of the Plaintiff’s case, the fact is that the Privy Council upheld the parties right to withdraw and not to proceed to a land grant on the basis of a slightly differently worded “subject to contract” type of clause.  That clause bears repetition here.  Whilst fuller than the one in this case, I would hold that its purport is indistinguishable:

“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.”

This being my view, subject to Mr Yim’s submissions on the prevention principle, there is  in my judgment no valid agreement in this case with the result that the action must fail and stand dismissed.

The preventive principle

26.  Mr Yim has submitted that the Defendant, which is responsible for the delays before it was eventually in a position to proffer the Certificate of Grant for Execution should not now be able to avoid liability under the contract.  The principle is well known and Mr Yim has helpfully referred to a series of authorities including Kensland Realty (supra) where the principle has been applied.

27.  Mr Mok’s analysis of all of these cases, which is to the effect that the principle can only apply to circumstances where a binding agreement already exists, is the correct one.  It operates within the parameters of a binding agreement.  It cannot be invoked to somehow create a binding agreement and then go on to enforce it.  I am satisfied that it cannot have any application in the circumstances which confront these parties.  I have found that there is no binding contract and in such circumstances that is determinative of this part of Mr Yim’s case.  It becomes fruitless to give it further consideration.  Whilst the question of the delays, which have caused the Plaintiff and his family a great sense of grievance, causing him to petition the then Governor and having the matter referred by his LegCo member to the Ombudsman can, I am afraid, have no bearing on the narrow and decisive question of law which I have been required to answer.  Whilst it is clear, from a reading of the Ombudsman’s very full report, that various Governments could have done better on this occasion, the Ombudsman’s findings and conclusions do not impinge on the legal issues that I have been required to answer.

The second issue — estoppel

28.  This is the second string to Mr Yim’s bow.  It is a fall-back position.  He submits that if I find that there is no binding agreement then, in justice, the Government is estopped in all the circumstances of the case from withdrawing from this transaction.  But in this regard, Mr Yim finds himself on even shakier ground.  He makes the submission against the difficult circumstances that the Government was legally entitled to withdraw at any time prior to execution and registration.  In Humphrey’s Estate — notwithstanding the extreme factual circumstances, the Board concluded that:

“But at no time did Hong Kong Land indicate expressly or by implication that they had surrendered their right to change their mind and to withdraw.”

In Snell’s Equity, 31^st Edition, paras 10-18, the matter is authoritatively expressed in this way:

“It is not sufficient that A believes that he will obtain an interest over O’s property if he [is] also aware that O may change his mind.  The question of the strength of A’s belief often arises in the context of ‘subject to contract’ negotiations. Negotiations for a lease or other interest in land which are expressly made ‘subject to contract’ cannot ordinarily give rise to an estoppel because both parties know that they will not be bound until a formal contract is executed and either party is free to withdraw from the negotiations at any time.  In order to establish an estoppel it is necessary for A to show that O ‘crreated or encouraged a belief or expectation on the part of [A] that [O] would not withdraw from the agreement in principle’ or that O made a separate representation that the terms agreed would be binding notwithstanding the absence of a binding contract.”

29.  On the facts before me the Government gave no indication whatsoever that it would not withdraw from this agreement although I have no doubt that the mutual expectation was that everything would eventually go through to a successful (if on this occasion delayed) conclusion, as it did for the other 15 applicants.  Nevertheless, much more than such a hope and/or expectation is required before an estoppel can be said to have arisen.  What happened here was merely the exercise by one party of its right to withdraw before execution.

The result

30.  I am afraid that Mr Yim’s admirable efforts on behalf of the Plaintiff are to no avail.  For the reasons that I have given the Plaintiff must fail on both issues with the result that the action will stand dismissed and there must therefore be judgment to the Defendant with costs.  If the Plaintiff has the benefit of Legal Aid there will also be an order for legal aid taxation of his costs.  The order for costs will, in the usual way, be an order nisi.