KWAN SIU MAN JOSHUA v. YAACOV OZER

FACV No. 19 of 1998

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 19 OF 1998 (CIVIL)

(ON APPEAL FROM CACV No. 150 OF 1997)

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J U D G M E N T

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Chief Justice Li:

1. I agree with the judgment of Mr Justice Litton PJ and the order he proposes.

Mr Justice Litton PJ:

Introduction

2. This appeal concerns a purported oral contract to sell a flat known as the 2nd Floor of K.Y. Mansion, No. 4A Shiu Fai Terrace, Stubbs Road together with a carparking space there. For simplicity's sake the flat and carparking space will be referred to as "the property".

3. The defendant was the owner of the property and, since about December 1983, the plaintiff occupied the property as the defendant's tenant. The property was subject to statutory control under Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap 7 and, in the successive tenancy agreements relating to the property, the carparking space let to the plaintiff was described as "carpark No. 4". This was a misdescription which no one had noticed. In fact, the space used by the plaintiff (and misdescribed as "carpark No. 4") had, at some time prior to the event giving rise to this piece of litigation, been sold to someone else.

4. The defendant had another flat in K.Y. Mansion in which he lived from time to time. He travelled extensively.

5. The relationship between the parties, as landlord and tenant, was not a happy one. In December 1989 the defendant took action in the High Court against the plaintiff for non-payment of rent as a result of which the plaintiff was ordered to pay the costs of the action. This order was made in August 1991.

6. As for the tenancy, the defendant had, in September 1990, served notice of termination under Part IV of the Landlord and Tenant (Consolidation) Ordinance and this was met by the plaintiff's application seeking a further renewal of the tenancy. The application became the subject of proceedings in the Lands Tribunal: Application No. 1074 of 1991, fixed for hearing on 21 November 1991.

Negotiations to buy the property

7. On 21 March 1991 the plaintiff's solicitors wrote to the defendant offering to buy the property. No reply was received to that letter. The plaintiff then made verbal approaches to the defendant but the discussions were desultory. The defendant was often away from Hong Kong. At one stage, a price of HK$5m was mentioned by the defendant and, later, the defendant's wife asked for HK$4.3m. It seems that, at about that time, the defendant had it in mind to sell the property and purchase a flat in Guildford Road, the Peak.

8. It is common ground that on about 15 or 16 November 1991 the parties met by chance in the lift lobby of K.Y. Mansion. Arising from what the parties discussed at this chance meeting, the trial judge (Deputy Judge Beeson) found that there was a concluded and binding agreement for the sale of the property at $4.25m for which she ordered specific performance in the plaintiff's favour; this was because the three essential elements for an "open contract" had been agreed: the property, the parties and the price. She also ordered that the defendant should compensate the plaintiff for the value of the carparking space which the defendant was unable to convey to the plaintiff because he did not own it.

9. On appeal to the Court of Appeal (Nazareth V-P, Liu and Leong JJ.A.), Deputy Judge Beeson's judgment was affirmed.

The oral agreement

10. The findings of the courts below regarding the oral agreement are set out in Nazareth V-P's judgment, as follows:-

" About 15 or 16 November 1991, the plaintiff and the defendant met casually in the building (in which the defendant also lived on an upper floor) and reopened negotiations on the sale price. They settled at $4.25m. There was at the time a Lands Tribunal hearing of the defendant's application for possession pending and due for hearing only a few days later, on 21 November 1991. Not surprisingly the two came to discuss the outstanding legal fees for the High Court action. The plaintiff gave evidence that a compromise was reached at $70,000. However, the defendant could not recall such agreement. The judge accepted that they discussed the Lands Tribunal hearing and probably also the amount of the outstanding legal fees for the High Court action. She also considered it more likely than not that this was an agreement to compromise the matter but that no sum was fixed. The judge found that the plaintiff and the defendant agreed on the sale of the flat and the price but discussed no other details or terms of the conveyance. She also found that the defendant said his lawyers would send an agreement to the plaintiff and that both parties were very clear as to the belief that it was for the lawyers to deal with all other formalities and that they expected them to do so. She found also that the plaintiff and the defendant intended that all matters outstanding were to be settled, the sale and purchase of the flat, the question of the High Court costs, and the Lands Tribunal's application for possession."

11. As can be seen from the findings set out above, three matters were mentioned in the lift lobby: (i) The Lands Tribunal proceedings (to determine the defendant's application for possession and the plaintiff's application for a fresh tenancy, due to be heard on 21 November); (ii) the outstanding legal fees for the High Court action, and (iii) the sale of the property. The judge found as a fact that the parties "intended that all matters outstanding were to be settled", and that, with regard to the sale of the property at $4.25 million, they were "very clear as to the belief that it was for the lawyers to deal with all other formalities and ... expected them to do so".

12. Pausing here to examine the intentions of the parties objectively, as revealed by the findings set out above, it is difficult to see how one could conclude that they had, there and then in the lift lobby, entered into a legally binding agreement to settle everything; and a finding that the parties intended to finalize one matter only, the sale of the property, leaving the other two matters unresolved would be directly contrary to the judge's finding that the parties "intended that all matters outstanding" should be settled.

13. It is worth emphasizing here the judge's use of the word "agreement" with regard to the High Court legal fees. She said (p.6 of her judgment):

"... there was an agreement to compromise the matter, but ... no sum was fixed." (Emphasis added).

14. As a layman's use of the word "agreement", in a loose and not a technical legal sense, this is perfectly understandable; but to say that the parties had entered into a legally binding agreement to discharge the plaintiff from further liability to pay the High Court legal fees when no sum was fixed would be absurd. Was the "agreement" to sell the property at a price of $4.25 million an agreement of the same kind? This question, crucial to the determination of the plaintiff's claim, received scant attention in the courts below.

The 18 November 1991 letter

15. On 18 November 1991 the defendant's solicitors sent a letter to the plaintiff's solicitors. It was rightly regarded as occupying a "crucial position" at the Court of Appeal hearing, for it was this, and nothing else, which was relied upon by the plaintiff as the written memorandum required to satisfy the provisions of s.3(1) of the Conveyancing and Property Ordinance, Cap. 219.

16. The letter was marked "Without Prejudice" (a fact not referred to in the Court of Appeal's judgment). It was written with reference to the Lands Tribunal proceedings, due to be heard on 21 November. It reads:

"Re: L.T. Application No. 1074 of 1991

With reference to the above application, we are instructed that our respective clients have reached a settlement on the following terms:-

1. There be a stay of proceedings on the present application.

2. Your client shall purchase and our client shall sell the suit premises at a price of $4.25 million, which shall be paid as follows:-

(a) $425,000.00 as part payment and deposit upon the signing of the sale and purchase agreement in the form annexed hereto, and

(b) the balance of purchase price in the sum of $3,825,000.00 shall be paid upon completion.

3. Completion shall be on or before 21st December 1991.

4. The parties shall enter into a sale and purchase agreement in the form annexed hereto within 7 days from the date of the Court order approving the settlement.

5. Such sale by our client be approved by Court under Section 119(H)2 of the Landlord and Tenant (Consolidation) Ordinance.

Please confirm the above terms and we shall draw up the necessary consent summons incorporating the above for filing before the 20th November 1991."

17. The reference to "Court" in paragraphs 4 and 5 above was clearly an error: What the solicitors must have meant was the "Lands Tribunal" which has power to approve sales of properties governed by Part IV of the Ordinance in certain circumstances: Nothing turns on this.

18. Two matters are worthy of note:

(i) The focus of the letter was upon the impending Lands Tribunal proceedings, and the proposal to enter into a formal sale and purchase agreement in relation to the property was stated to be part of the proposal to settle those proceedings.

(ii) Although the letter says that the parties had "reached a settlement" on the terms set out in the five paragraphs, in fact the only "settlement" in the lift lobby vis-à-vis the property was as to the sale price: The additional matters in the letter - the question of a deposit of $425,000 upon the signing of a formal sale and purchase agreement, completion on 21 December 1991, and court approval under s.119H(2) of the Landlord and Tenant (Consolidation) Ordinance - were never discussed.

The Lands Tribunal hearing

19. As can be seen, the letter asked the plaintiff's solicitors to confirm the terms to enable a consent summons (settling the Lands Tribunal proceedings) to be filed before 20 November. The plaintiff's solicitors did not respond. Not surprisingly the defendant attended the hearing on 21 November. The plaintiff did not attend personally but was represented by his wife and a clerk from his solicitor's firm. The plaintiff's wife sought an adjournment of the proceedings but that was refused. The defendant pursued his application for possession and was successful: an order was made in his favour and the plaintiff was granted a stay of execution for three months.

20. The judge criticized the defendant for not mentioning to the Tribunal the fact that, a few days before, he had "agreed to sell the flat that he was now endeavouring to resume for his own use". This criticism is based upon the assumption that, arising from the meeting in the lift lobby, the defendant had entered into a binding agreement to sell the property to the plaintiff. But if the parties were simply at a negotiating stage, then the criticism was unfounded; the negotiations might break down. Further, there had been no response from the plaintiff's solicitors to the letter of 18 November offering to settle the proceedings upon terms, so, for obvious reasons no consent summons was lodged by the defendant's solicitors prior to the hearing.

21. The judge also criticized the defendant for not serving the formal order for possession on the plaintiff until 7 days before the grace period expired. This criticism is even more difficult to understand. The process of drawing up formal orders, and having them served on the appropriate persons, are the responsibilities of solicitors: If there should have been failure in this regard it could hardly be placed at the defendant's door. Moreover, the plaintiff was represented at the hearing by his wife and a clerk from his solicitor's firm: He could hardly have been ignorant of the fact that an order for possession of the property had been made. The service of the formal order on him could not have told him anything new.

22. The judge's criticisms of the defendant's behaviour - which she said gave rise to "very serious doubts about his honesty" - coloured her entire approach to the evidence and enabled her to find, on the plaintiff's testimony, that the parties intended at the lift lobby to "bind themselves contractually". She found that "each took the view that they had agreed on all important matters; that all other details were for their solicitors to sort out and they did not concern themselves with them": As there was agreement on the property the parties and the price, the judge concluded that they had entered into an "open contract": a contract evidenced by the letter of 18 November: hence the plaintiff's claim succeeded.

Subsequent events

23. There was, as mentioned earlier, no response from the plaintiff's solicitors to the letter of 18 November. This had enclosed a draft sale and purchase agreement for the property, proposing completion to take place on or before 21 December 1991. On 5 December 1991 the plaintiff's solicitors sent a letter marked "without prejudice subject to contract" to the defendant's solicitors saying that they had instructions from the plaintiff to purchase the property on the "basic terms" set out in that letter. The terms offered in that letter were different from those in the letter of 18 November. Completion was to take place within 14 days from the date when "the court" should grant leave to the defendant to sell the property, and it contained a clause to the effect that the plaintiff would pay "a sum to be agreed" in settlement of the legal costs incurred in the High Court action. The sale was said to be conditional upon the defendant obtaining leave from the court to sell the property.

24. Further correspondence ensued. The sum of $70,000 in settlement of the High Court costs was agreed. On 12 December the plaintiff's solicitors asked the defendant's solicitors for a draft "conditional sale and purchase agreement" for their approval. On 19 December this draft was sent by the defendant's solicitors.

25. Pausing at this point, two factual errors in the judge's findings should be noted:

(1) The judge said (p.10F of her judgment) that the plaintiff, by his solicitors' letter of 5 December 1991, accepted the term offered in the letter of 18 November.

This clearly was not so.

(2) The judge said that the draft agreement sent with the letter of 18 November was returned by the plaintiff on 5 December 1996. This was not so. What was put forward, under cover of the letter of 5 December, was a new proposal, for completion to take place within 14 days from the date of the "court" granting leave for the sale of the property.

26. As mentioned earlier, the defendant's solicitors, on 19 December, sent to the other side a draft conditional agreement for sale and purchase for their approval. This contained a clause (clause 27) requiring the plaintiff to pay $70,000 in settlement of the High Court legal costs, at the same time as the payment of the deposit. After that there was further correspondence between the parties' solicitors. Before the defendant's solicitors eventually called off the negotiations on 18 February 1992, what they had in their hands were:

(i) The conditional sale and purchase agreement signed by the plaintiff;

(ii) a cheque for $425,000 to be held by them as "stakeholder" and

(iii) a cheque for $70,000 in settlement of the High Court costs.

27. The defendant's solicitors returned the $425,000 to the plaintiff's solicitors, but retained the $70,000 in discharge of the plaintiff's liability for the High Court costs.

Overall view of the case

28. Where parties have reached a binding agreement then, statutory restrictions and matters such as illegality apart, it is of course the function of the court to give effect to it. And, in ascertaining the intentions of the parties the court must, it goes without saying, look at the matter objectively.

29. In a case such as this, it would be highly unusual for the parties to have intended, on the basis of a casual meeting alone, to enter into a binding contract for the sale of the property. It is therefore important for the court to scrutinize the surrounding circumstances carefully, and not be too impressed by the parties' own protestations as regards their intent. The evidence, viewed as a whole, far from indicating an intention to enter into a binding agreement in the lift lobby, points to the opposite effect: It will be necessary to explore this more fully later, as it received no attention in the Court of Appeal.

30. If there was, indeed, the "open contract" as found by the judge, the plaintiff's case, when negotiations broke down in February 1992, would have been simple: There was already a concluded binding agreement made in the lift lobby on about 15 or 16 November; this was evidenced by the letter of 18 November; all that happened thereafter concerned the machinery for implementation of the parties' bargain; if such machinery should break down that still left the concluded agreement intact. The plaintiff could have sued upon it, asserting his rights as beneficial owner of the property. In fact, the writ was not issued until 7 February 1994: long after the plaintiff had obtained a renewal of the tenancy from the Lands Tribunal, putting himself in the position of the defendant's tenant, rather than that of a beneficial owner entitled to require the legal owner to convey to him the legal estate.

31. In these circumstances, it behoved the Court of Appeal to examine critically the judge's findings. This, unfortunately, did not take place. The Court of Appeal accepted the submission that once the judge had found that there was agreement as to the three essential matters: the property, the parties and the price: that was enough for the court to find the existence of a binding "open contract": a contract which, subject to satisfying the requirement of a written memorandum in s.3(1) of the Conveyancing and Property Ordinance, the court would enforce.

32. This approach is fundamentally flawed. As Lord Greene MR said in Clifton v. Palumbo [1944] 2 AllER 497 at 499E, there is nothing in the world to prevent an owner contracting to sell a large estate to a purchaser on terms written out on a half-sheet of notepaper, though that would be highly improbable. By parity of reasoning, there is nothing to prevent an owner selling a property on a "handshake", but when such an unusual case is put forward, and is accepted by the trial judge, the function of the Court of Appeal is to examine critically the factual foundation upon which the judge's finding is based. It cannot just accept blandly the label "open contract" as if that were some kind of magic shibboleth, sufficient by itself to confer on the purchaser the rights of a beneficial owner.

33. Further, as is common knowledge in Hong Kong, the property market is highly volatile. Whatever might have been the position in England in the last century - when the concept of an "open contract" was first developed in a climate of a stable pound sterling and no inflation - in the Hong Kong of today, the date of completion is an essential term of any contract for the sale and purchase of land: To the extent that in the case of a provisional agreement in the common form in use here, time for completion would normally be treated as of the essence of the agreement, even though no express provision to that effect is in the agreement: see Wong Wai Chi v. Cheung Kwok Fung [1996] 3 HKC 287.

34. The judge's finding that the parties were prepared to leave it to the lawyers to deal with the date of completion as a matter of formality - and the finding that the plaintiff was "prepared to leave it to [them] to do what was usual" - should have led her to conclude that, in all probability, there was no concluded agreement reached.

35. There were, in my judgment, at least four matters giving rise to the judge's conclusion which called for close scrutiny in the Court of Appeal:

(1) Her findings were in part self-contradictory.

(2) There were facts pointing in a direction opposite to the judge's conclusion.

(3) The requirements of s.3(1) of the Conveyancing and Property Ordinance were not satisfied.

(4) The judge's finding was not in accordance with the pleaded case.

36. Items (1) and (2) above were overlooked. Once such a point is reached, any argument that this Court's appellate role is inhibited by the concurrent findings of the two courts below cannot run; and to counsel's credit, this was never pressed upon us.

Self-contradictory findings

37. As mentioned earlier, the judge found that, at the meeting in the lift lobby, the parties "intended that all matters outstanding were to be settled". This cannot stand with a finding that the parties intended to conclude a sale of the property only, leaving the other two matters to be settled later. The judge attempted to reconcile this conundrum by saying that the other two matters - the Lands Tribunal proceedings and the High Court costs - were "parallel" or "separate" matters and the sale of the property was a "completed agreement" which gave rise to rights and liabilities standing on their own. This was, in effect, to impose a legal consequence upon the parties based upon an esoteric view of what an "open contract" must necessarily be: It was not to give effect to the parties' own intentions at all.

38. Another matter, to be found at the end of the judgment, is this: Whilst it was common ground that no mention of a deposit was ever made in the course of the discussion in the lift lobby, the judge nevertheless held that the plaintiff had "partly performed the contract by payment of the deposit" (p.22E, judgment). Here, she seemed to throw aside altogether the case based upon the concluded "open contract", which required the payment of $4.25 million on completion (and nothing else), in favour of a contract requiring the payment of a deposit - which the plaintiff had partly performed. She said at p.22J:

"The payment of the deposit was an act of the plaintiff referable to the contract sued on and referable to the premises the subject of the sale." (Emphasis added).

39. The contract sued on never required the payment of a deposit. This point will be more fully explored later in this judgment.

Surrounding facts pointing in a different direction to the plaintiff's case

40. It is of some significance that the judge's finding of a binding "open contract" involving nothing more than the parties, property and price is reflected in none of the written material before the court: in particular, the correspondence, an affidavit of the plaintiff's solicitors and the pleadings. Nor is it consistent with the plaintiff's own conduct and much of what he said in the witness-box.

41. The Court of Appeal did not refer to the correspondence and the affidavit, nor to the contradictory passages in the plaintiff's testimony. As to the averments in the statement of claim, the Court of Appeal said they were not "wholly consistent with the open contract found to have been made by the judge" but the matter was de minimis and capable of correction by amendment. But no amended version of the plaintiff's claim was sought. None was put forward

42. The matters contradicting the plaintiff's case can be summarized as follows:-

(1) In a letter of 12 March 1992 the plaintiff's solicitors said that the "essence" of the agreement made "way back in November 1991" was contained in their letter of 5 December 1991: a version which has since receded into the shadows.

(2) An affidavit of Mr Lane: In support of an application for a stay of the possession order, Mr Lane, a solicitor acting for the plaintiff, asserted that as at 18 November 1991 the parties were in negotiation and by the letter of that date the defendant's solicitors were merely making a without prejudice offer to sell the property. He further asserted that by 12 December 1991 the parties had concluded an "open agreement" to enter into a conditional sale and purchase agreement for the property at $4.25 million, but the parties continued in negotiations until mid-February 1992 when the defendant broke off the negotiation. Later, the plaintiff's solicitors attempted without success to "resuscitate negotiations".

Nowhere was it asserted that the plaintiff was a beneficial owner of the property pursuant to a concluded open contract.

(3) In about November 1992 the plaintiff obtained from the Lands Tribunal an order for a new tenancy to take effect from 1 April 1991 for two years.

It seems odd that a year after the concluded "open contract" it did not seek from the court an order for specific performance, to make good his claim as the beneficial owner of the property.

(4) In his own testimony, the plaintiff seemed doubtful as to whether he thought that by a mere "handshake" in the lift lobby he had reached a concluded agreement for the purchase of the property. He said that his understanding of buying and selling property in Hong Kong was that some writing was always required. He said:

"It is always my understanding. There is no agreement without both parties signed."

When, in cross-examination, he was asked to comment on Mr Lane's affidavit (where there was no assertion of any concluded agreement) he said:

"I cannot comment. He has been surely told. I paid two cheques, and I see copies of the cheques in one of those documents. No one would give a cheque without signing agreement."

There was much more in his testimony in the same vein. When it was put to him specifically by counsel that what took place on 15 or 16 November, right down to the series of letters between the solicitors, was that the parties were simply in negotiation, he said:

"I want to see the agreement that I signed. This would answer all your questions.... Maybe you dig and find the agreement ... All our talk is waste my time and, Her Honour, the Judge's time and everybody's time. Find the signed agreement."

43. Here, once again, the position appears to be that the plaintiff thought that his legal rights sprang from a concluded written agreement - not from the "open contract" made in the lift lobby.

44. This contradictory stance taken by the plaintiff is of course not conclusive; its significance lies in the fact that it led to confusion in the judge's mind. At p.22 of her judgment there is this odd finding:

" I found that Plaintiff had every intention of proceeding with the sale and that he had partly performed the contract by payment of the deposit which had been accepted by Defendant's solicitor. The Plaintiff's solicitors may have been unnecessarily prudent in stating that the Agreement for Sale and Purchase should be held in escrow while they checked with their client as to the sum for High Court costs, but as the payment of costs in that sum had already been agreed by letter of 12.12.91, I do not consider this can be taken as an indication that Plaintiff was unwilling to perform the contract. The payment of the deposit was an act of the Plaintiff referable to the contract sued on and referable to the premises the subject of the sale." (Emphasis added).

45. Here, the contract sued on, in the judge's mind, was plainly not the "open contract" concluded in the lift lobby. She was seeking to give effect to the conditional sale and purchase agreement forwarded by the plaintiff's solicitors on 15 January 1992, (together with the cheque for $425,000), which was never signed by the defendant. This was a radical departure from the pleaded case.

46. It would be appropriate at this point to refer to a passage in the judge's judgment (p.15) as follows:

" Both Plaintiff and Defendant confirmed in Court that they considered that on 15 or 16 November 1991 they had reached agreement on all they needed to agree on in respect of the sale. That is borne out by the statement of Charles Wong, Defendant's solicitor (dated 6.2.96) when he says he was instructed by Defendant that he had reached a settlement with Plaintiff on the sale of the property for $4.25 million and that 'the completion would be as the then common practice'."

47. What the judge failed to consider was that this might have been wholly consistent with the defendant's case. As Pennycuick VC observed in Damm v. Herrtage (1974) 234 EG 365 at 369:

" A lay vendor and purchaser normally discuss terms in the expectation that if they reach agreement in principle, the terms will be incorporated in a written document with a number of other terms, and that they will not be contractually bound until that written document is signed. It is of course possible for them to bind themselves orally, and the purchaser may make it clear to the vendor that that is what he is proposing, but bearing in mind the normal practice, in this connection, there is obviously room for misunderstanding .... If indeed the parties intend to bind themselves forthwith, the obvious and straightforward course would be for both of them to sign a document containing the terms of the contract and for that document to be described as an agreement".

48. Such an approach was, it would seem, brushed aside in the courts below.

49. Section 3(1) Conveyancing and Property Ordinance

Section 3(1) provides:

"... no action shall be brought upon any contract for the sale or other disposition of land unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged, or by some other person lawfully authorised by him for that purpose."

50. As is well-known, this provision has its origins in the Statute of Frauds 1677, s. 4, which bars legal remedies for contracts for the sale of land not evidenced in writing. Where the statute is not satisfied, it is the entire contract which is unenforceable, including those parts of it which do not relate to land but, e.g. to the goodwill and stock-in-trade of a business sold with the land: see Megarry and Wade: The Law of Real Property, 5 ed, p.542.

51. Here the oral contract found by the judge to have been made was for the defendant to sell to the plaintiff the property for $4.25 million. Full-stop. There were no other terms agreed. So a memorandum that provided for an initial deposit to be paid on the signing of a formal sale and purchase agreement, and the balance of the purchase price to be paid on completion on a fixed date is plainly not a memorandum of that contract.

52. As Swinfen Eady MR said in Roe v. R A Naylor Ltd [1918] 119 LT 359 at 361:

" Now, it is well settled that, in order to be a proper and sufficient note or memorandum within the Statute of Frauds, the note must contain the material terms of the bargain and without the addition of any fresh terms. Therefore a note containing an additional term of the bargain not assented to by the other side is not a sufficient note or memorandum of the previous bargain within the meaning of the Statute of Frauds or the Sale of Goods Act."

53. In Deneault v. Yangtzekiang Garment Manufacturing Co. Ltd [1977] HKLR 320 there was some debate as to how "absolute" that rule was. In that case, the memorandum relied upon by the purchaser required a deposit to be remitted to the vendor's solicitors forthwith but the oral contract did not contain the word forthwith. The Court of Appeal applied the principle in Roe v. R A Naylor Ltd but held on the facts that the word "forthwith" added nothing material to the oral agreement.

54. It is unnecessary in this judgment to revisit the argument in the Yangtzekiang case. That was, in a sense, an extreme case. Here, the letter of 18 November was simply not a recognition of the "open contract" found to have been made by the judge, however one construes it.

55. In the Court of Appeal, the point was dealt with in a curious way. Nazareth V-P took the defendant's counsel's submission to have been that, to satisfy the requirements of s.3(1), the memorandum must be of a concluded contract (p.9, judgment) and since the letter of 18 November contained "all the terms" of "the open contract" - property, parties and price - the fact that it contained "additional terms" which "related to other matters" was neither here nor there: There was a concluded oral contract, and there was enough in the letter of 18 November to evidence that contract. At p.10 Nazareth V-P added:

"It was not suggested that these matters such as a deposit, or the date of completion, left to be settled subsequently in accordance with the general law of property would reopen the open contract ...."

56. By this logic, so long as the Court can extract from the memorandum the three magic ingredients - property, parties and price - it matters not what else the memorandum contains: It is a good memorandum. This is to turn the logic of s.3(1) on its head.

57. The Court of Appeal misunderstood the concept of an "open contract" in a fundamental way. It extracted from the parties' agreement what were the bare ingredients to constitute an "open contract" and ignored the rest; as to the terms like the payment of a deposit and date for completion (and payment of the purchase price) they could be left "to be settled in accordance with the general law of property". The Court of Appeal did not elaborate upon what that general law of property was. Nor could counsel before us explain what that was.

58. Whilst in theory it is possible for parties to conclude their bargain for the sale of a flat with nothing more concrete agreed than the property itself and the price, it does not mean that, in the course of negotiations, once the price has been agreed, the other party can walk away and say: "Snap. We have an open contract". If that be the law, no-one can safely enter into negotiations step by step - and they can never retreat from an "agreed" position in the course of negotiations, however those negotiations might turn out later on to be.

59. This shows the importance of s.3(1): The requirement of a memorandum of the contract as finally agreed between the parties after negotiations. It emphasizes the point that, to be legally enforceable, there must be a memorandum evidencing the contract and nothing else. The legislature, by enacting s.3(1), has clearly opted for certainty in such matters. It is important that those advising parties can see their legal positions clearly beforehand. If parties have truly entered into a binding contract for the sale of land, property rights cannot be left suspended and surrounded with doubt, to be determined years after the event depending on a judge's view of the "credibility" of witnesses. It is no comfort to the parties to be told that, one day, a court of law (perhaps the Court of Final Appeal) will say whether they have a concluded bargain or not. Take this very case. We are told that the property, worth approximately $4.25 million in November 1991, is now worth over $10 million. If the plaintiff had been firmly told in February 1992: "Whatever you say was agreed in the lift lobby, there is no memorandum of that agreement on which you can sue; you would do better to swallow your disappointment and look for another property to buy": The parties would in all probabilities not be in the positions they are in today. The defendant would not have had his property sterilized for nearly five years by the lis pendens registered against it, and the plaintiff might well have become the owner long ago of another flat at 1992 prices. And they would not have incurred the costs and anxiety of prolonged litigation.

60. It is as well to recall, once again, the dictum of Lord Bridge in The Chikuma [1981] 1 WLR 314 at 321G - cited in World Ford Development Ltd v. Ip Ming-wai [1994] 2 HKLR 1 at 8-9 and 11:

"The ideal at which the courts should aim ... is to produce a result such that in a given situation both parties seeking legal advice as to their rights and obligations can expect the same clear and confident answers from their advisers ...".

The pleaded case

61. Paragraph 1 of the statement of claim alleged that by an agreement made orally on or about 15 November 1991 the defendant agreed to buy and the plaintiff agreed to sell the property. Full stop. No price was pleaded.

62. Paragraph 2 averred:

"The said oral agreement was part of an agreement between the Plaintiff and the Defendant for the settlement of Lands Tribunal Application No. 1074 of 1991 in which action the Plaintiff herein was the applicant and the Defendant herein was the respondent respectively."

63. Here, as can be seen, what was pleaded was a composite agreement involving the sale of the property as part of the settlement of the Lands Tribunal proceedings: Not the "open contract" as found by the judge.

64. Paragraph 3 of the statement of claim then sets out verbatim the letter of 18 November as evidencing "the said oral agreement".

65. Anyone looking at the pleaded case would naturally conclude that the oral agreement required a deposit of $425,000 to be paid upon the signing of the formal sale and purchase agreement annexed to the letter of 18 November, that the sale was conditional upon "court" approval under s.119H(2) of the Landlord and Tenant (Consolidation) Ordinance and that completion was to take place on 21 December 1991: and by implication, time was to be of the essence of the contract.

66. That was not the case as found by the judge.

67. The Court of Appeal's conclusion that the variance was deminimis cannot be supported. As was put in the course of the argument before us, if the pleader had amended para. 1 of the statement of claim by pleading the "open contract" (with the $4.25 million payable on completion as one lump sum) the agreement would have been at variance with the memorandum and the claim might well have been struck out. And if the plaintiff had stuck to the bare averments in paragraph 1 and asserted that the agreement was evidenced by the letter of 18 November, the contract would not have been that found established by the judge.

Conclusion

68. The judgments in the courts below cannot stand. Upon the facts found by the judge, and the evidence adduced, the only reasonable conclusion is that on 15 or 16 November 1991 the parties were in negotiation, and continued in negotiation until 18 February 1992 when, close to the formal agreement for sale and purchase being executed, the defendant called off the deal. Further, the concluded oral agreement as found by the judge was not evidenced in writing as required by s.3(1) of the Conveyancing and Property Ordinance. It was therefore unenforceable at law.

69. The orders of the trial judge and of the Court of Appeal must be discharged. The plaintiff's claim must be dismissed, with costs here and below.

Mr Justice Ching PJ:

70. I agree.

Mr Justice Bokhary PJ:

71. I will assume, without deciding, that there is in the eyes of Hong Kong law today such a thing as an "open contract" for the sale of land. Such a contract, if it exists, would be one by which the vendor and purchaser simply agree upon the sale of an identified property at a stated price. The general law of property, so the expression goes, would then have to step in to supply all the other terms: including even the date for completion. That is the sort of contract upon which the respondent succeeded in the courts below.

72. He seeks to rely on the following passage in Lord Cozens-Hardy MR's judgment in Perry v. Summerfields Ltd [1916] 2 Ch 187 at p.191:

"Mere arrangements which in the ordinary course of business are left to the legal advisers to settle, such as the date for completion, are subsequent matters which do not prevent ... a concluded agreement."

I have no quarrel whatsoever with the proposition that an agreement may be concluded even though the parties do not bother to agree between themselves such terms as are merely subsequent matters naturally fit for the sort of arrangements which in the ordinary course of business people tend to leave to their legal advisers to settle. But I doubt if anybody would have been more surprised than the learned Master of the Rolls himself to hear it suggested that when he identified the date for completion as such a matter, he was doing so not only in the context of the time and place with which he was concerned but also for Hong Kong over half a century later.

73. In today's Hong Kong the fixing of a date by when a contract for the sale of land must be completed is at least generally (if not inevitably) of at least considerable (if not vital) commercial importance. There is no practice in the ordinary course of business here of treating the date for completion as a subsequent matter simply to be left to legal advisers to settle.

74. So even assuming that an open contract can be made under our law, still our courts should always be slow to find that such a contract has indeed been made in any given case. The making of such a contract is not to be found just because there has been a meeting of minds as to parties, property and price. For the strong probability would be that such meeting of minds was no more than one stage in the course of on-going negotiations. This is because in Hong Kong nowadays the inherent probability is that negotiations for the sale of land would, if successfully concluded, result in a contract which includes express terms as to other important matters in addition to parties, property and price: not least of all the date for completion.

75. As it seems to me, neither the judge who concluded that an oral contract had been made nor the Court of Appeal who supported that conclusion ever applied their minds to that possibility let alone probability. They appear instead, if I may say so without sounding unsympathetic, to have been somewhat beguiled by heroic notions as to what the general law of property can step in to do. But, I feel bound to say, they would have been far better served by allowing themselves to be guided by these wise words of Sir John Pennycuick VC in Damm v. Herrtage (1974) 234 EG 365 at p.369:

"A lay vendor and purchaser normally discuss terms in the expectation that if they reach agreement in principle, the terms will be incorporated in a written document with a number of other terms, and that they will not be contractually bound until that written document is signed. It is, of course, possible for them to bind themselves orally, and the purchaser may make it clear to the vendor that that is what he is proposing, but bearing in mind the normal practice in this connection, there is obviously room for misunderstanding, and worse, in this transaction at an oral interview from discussion to binding contract....If indeed the parties intend to bind themselves forthwith, the obvious and straightforward course would be for both of them to sign a document containing the terms of the contract and for that document to be described as an agreement."

76. Those are the realities which should be borne in mind when dealing with cases like the present one. Expressions such as "open contract" and "parties, property and price" may be convenient. They may have their proper use. But there is a danger of being distracted by them. And the danger is increased when the latter expression is abbreviated to "the three Ps", thus investing it with added mystique.

77. I note with interest the reference in Wylie's Irish Conveyancing Law, 2nd ed. (in para. 6.18) to "the four 'P's, ie. specification of the parties, the property, the price, and any other essential provisions." (Emphasis supplied). These are said (ibid.) to be the essential elements which must be included in a written memorandum of an oral contract for the sale of land if the memorandum is to be effective. This is perhaps a further indication that a contract for the sale of land with agreement only as to parties, property and price would (if it exists at all) be a very rare thing indeed.

78. To continue, let me now proceed on yet another assumption in the respondent's favour. It has to do with the conclusion of the courts below that an oral contract had been made. I will assume that this conclusion is purely one of fact rather than one of mixed law and fact. That would confront the appellant with concurrent factual findings of an oral contract.

79. But even so, for the reasons which I have already given, those concurrent findings of fact would be fatally flawed. Such fatal flaw would consist of the lower courts' failure to consider a crucial question, namely, whether the meeting of the appellant and respondent's minds on parties, property and price was no more than one stage in the course of negotiations which they had yet to conclude.

80. Once that question receives consideration, it can be seen that the inherent and strong probability is that their meeting of minds was indeed merely one stage in such negotiations: in other words that no oral contract had been made. Indeed the judge seems, without realising it, in effect so to have found. For she spoke of the parties having "agreed on all important matters" and leaving "all other details ... for their solicitors to sort out." But in the circumstances of this case, the matters left to the solicitors were much more than mere details. They included the very important matter of the date for completion. Accordingly all that the parties achieved was an agreement to agree: and that is not a contract. The law preserves bargains; but it does not create them: that must be done by the parties themselves, if it is to be done at all.

81. Treating the lower courts' conclusions that an oral contract had been made as concurrent findings of fact, the present case would be one of those rare and exceptional cases (see Sky Heart Ltd v. Lee Hysan Estate Co. Ltd, FACV No. 9 of 1998, 14 December 1998 at p.23) in which even concurrent findings of fact may properly be disturbed.

82. In my judgment, the appeal succeeds upon the determination of the very first and most fundamental issue. The question thereunder is whether any contract had been concluded between the parties. And for the reasons which I have given, I am of the view that the answer must be in the negative.

83. That suffices to dispose of the appeal in the appellant's favour. There are also, as it happens, other grounds for doing that. But in regard to those other grounds, I do not propose to add anything to what has been said in my brother Litton's judgment, with which I respectfully agree.

84. In the result, I too would allow the appeal with costs here and below.

Lord Hoffmann NPJ:

85. I agree.

Chief Justice Li:

86. Accordingly, the appeal is allowed. The orders of the trial judge and the Court of Appeal are discharged and the plaintiff's claim is dismissed with costs here and below.