YAACOV OZER v. KWAN SIU-MAN JOSHUA

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1997, No. 150
(Civil)

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J U D G M E N T

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Nazareth, V.-P. (giving the judgment of the Court) :

1. This is an appeal against the judgment of Deputy Judge Beeson (as she then was) given on 9 July 1997 by which she found there was a binding agreement between the parties for the sale and purchase of a flat and parking space and ordered specific performance of the agreement by requiring the defendant to convey the flat to the plaintiff.

2. There was a long and somewhat troubled history to the matter. The plaintiff began living in the flat as the defendant's tenant in December 1983. The relationship was not particularly amicable and the tenancy subsequent to March 1989 was achieved through the Lands Tribunal. In December 1987 the defendant commenced a High Court action against the plaintiff for possession and arrears of rent. The judge described the plaintiff as a difficult tenant. The defendant wanted to get the plaintiff out while the plaintiff wished to stay. Ultimately the defendant came to the point that he wished to sell the flat as he wished to move elsewhere. Because of the protective provisions of the Landlord and Tenant Ordinance, he recognised that realistically he would not be ill-advised to sell to the plaintiff. As for the plaintiff, if he wished to secure the flat as his residence, he could only buy from the defendant. It was against that background that the alleged agreement for sale and purchase arose.

3. On 27 September 1990 the defendant served notice on the plaintiff notifying him that he wished to terminate the tenancy on 31 March 1991 because he wished to live there with his family. The plaintiff gave notice that he would seek a new tenancy. A hearing was fixed for 21 November 1991. On 21 March 1991 the plaintiff through his solicitors wrote to the defendant offering to buy the flat. No reply was received to that letter, the defendant subsequently stating that he did not receive it. The plaintiff then began to make verbal approaches to the defendant, but as the defendant was very often not in Hong Kong, the negotiations proceeded rather slowly. The defendant had mentioned a price of HK$5m which the plaintiff attempted to negotiate downwards. The evidence points to the plaintiff having raised his offers to $4.2m while the defendant's wife held out for $4.3m.

The oral agreement

4. 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.

5. The defendant instructed his solicitors to prepare the Sale and Purchase Agreement. He did not give, apparently, any instructions about the deposit or settlement day or mode of payment. The defendant said he wanted settlement to be made as soon as possible because he intended to buy another property in Guilford Road. He did not inform the plaintiff of this nor did he tell his solicitors what day would enable him to achieve his aim. He agreed that he was happy with the one-month agreement provided in the Agreement subsequently prepared by his solicitors. For his part the plaintiff agreed a settlement date was not discussed. He did not propose one and said he was prepared to leave it to the solicitors to do "what was usual".

The 18 November 1991 letter

6. On 18 November 1991 the defendant's solicitors sent a letter to the plaintiff's solicitors. It came to occupy a crucial position in the competing submissions before us. It was in the following terms:

"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 $2.25 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 form the date of the Court order approving the settlement.

5. Such sale by our client be approved by Court under Section 119H(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.

Yours faithfully,"

Each side subsequently agreed that the Sale and Purchase Agreement enclosed contained the details they expected their solicitors to include.

7. The plaintiff's case was that he signed and initiated this agreement after considering and agreeing its terms. He said that soon afterwards he was required to sign another agreement in identical terms at the request of the defendant's solicitors. He recalled paying two cheques to his solicitor, one for the deposit which was $425,000 and the other for $70,000 being the agreed amount for the High Court costs. The correspondence showed that the agreement was not returned by the plaintiff until 5 December 1991. No explanation was given for the delay. The parties agreed on 15 or 16 November that there was no point in the Lands Tribunal proceedings continuing and the plaintiff was told by his lawyer to attend in person to vacate the hearing of 21 November 1991. On the day of the hearing the plaintiff was ill and could not attend. His solicitor was also unable to attend but suggested that the plaintiff sent his wife and said a representative from the firm, whom the judge presumed would be a clerk, would attend with her. The plaintiff claimed that he telephoned the defendant on the morning of the hearing to say he was ill and was assured by the defendant that he was not attending either. The defendant in evidence denied the conversation. Both the defendant and his solicitor did attend the hearing. The plaintiff's wife asked for an adjournment but that was refused. She was nervous and reluctant to go on and did not say anything further, despite being asked by the Lands Tribunal Officer if she wished to say anything.

8. The defendant pursued his application for resumption of the premises but made no mention at all of the agreement to sell the property. His application to resume was successful and a stay of three months was granted for the plaintiff's benefit. Neither the defendant nor his solicitor notified the plaintiff of the result of the hearing, nor was any order served upon him. The plaintiff's wife was unable to tell her husband what had happened and he did not make any further enquiries, no doubt the judge thought, because the sale was proceeding. Only at the expiration of three months when a notice to quit was placed on the plaintiff's door did the Lands Tribunal Order come to the plaintiff's attention. The notice was posted only seven days before the end of the grace period. At that stage, the plaintiff sought a review of the Lands Tribunal Order, which was eventually reversed. The judge pointed out that if the Lands Tribunal Officer had been informed at the hearing on 21 November 1991 of the sale, it is likely that the proceedings would have been adjourned or withdrawn.

9. She commented that the defendant's behaviour at the Lands Tribunal hearing on 21 November was inexplicable in the light of the instructions he had given to his solicitors about the sale. She concluded that his behaviour gave rise to very serious doubts about his honesty which, she said, were reinforced by his failure to serve any order on the plaintiff until the three-month stay had all but expired.

10. The judge noted in her judgment that "The plaintiff's solicitors apparently not knowing of the Lands Tribunal Order, replied to the letter of 18 November 1991 on 5 December 1991 setting out their client's acceptance of the terms offered earlier." A series of letters then followed. A second vendor had to be added when the defendant's solicitors found out that the car space was owned by the company of the defendant's father rather than himself and the defendant realised that he would need the Lands Tribunal's consent to sell the property.

Car parking space No. 4

11. During this period the plaintiff's solicitors discovered that car parking space No. 4, which he had been using all along and the sale of which was provided for in the Agreement, was not in the defendant's name and could not be transferred as agreed. Alternative spaces were offered to the plaintiff. He made a fuss about the matter, demanding space No. 4. The plaintiff then received a letter from the defendant's solicitors referring to his "insistence" on space No. 4 being evidence of his refusal to accept the contract. It stated that the plaintiff was in breach of agreement and purported to repudiate the contract.

12. We pause here to mention that following the 18 November 1991 letter there was considerable correspondence between the parties. It is not necessary to detail that correspondence. In the earlier stages the draft Sale and Purchase Agreement made progress, passing to and fro. The deposit of $425,000 and the payment of $70,000 in costs were made and returned and made again. Later, on behalf of the defendant it was stated that no agreement had been made, that it was conditional, and that he had stopped negotiating not because of any failure to agree about the car park but because his sister had decided to return to Hong Kong and he needed the flat for himself (this judge observed was patently untrue in the light of an earlier letter which made no mention of that need and so forth). The plaintiff made attempts to revive the sale without success and a final refusal was received on 21 August 1992.

The writ and the statement of claim

13. The plaintiff filed his writ and the statement of claim on 7 February 1994. The defence was filed on 26 April 1994, a reply on 14 May 1997 and re-amended defence on 22 May 1997. The matter came before Deputy Judge Beeson on 9 July 1997.

The five issues

14. From the competing submissions of counsel five issues can be identified:

(1) Whether there was an oral contract for sale and purchase of the flat.

(2) Whether the contract was enforceable, i.e. was there a sufficient written memorandum evidencing it.

(3) Whether the contract pleaded was the contract made orally by the parties.

(4) Whether the plaintiff abandoned the oral contract made.

(5) Whether the plaintiff could have mitigated his damages by purchasing a car parking space pending resolution of his dispute with the defendant.

Whether there was an oral agreement on 15/16 November 1991

15. It was not disputed by the parties that they agreed to the sale and purchase of the flat for the price of $4.25m. However, Mr Edward Chan SC, who with Mr Horace Wong appeared for the defendant, contends that the oral agreement here was not one merely upon those three essential elements, but was part of a wider agreement which included the additional terms that the legal costs of the High Court action were to be finally settled by payment of $70,000 by the plaintiff, that a deposit of 10%, i.e. HK$425,000 was to be paid upon the signing of the sale and purchase agreement and that the sale and purchase was to be conditional upon leave being obtained from the court to allow the defendant to sell the property to the plaintiff.

16. This aspect of the matter was touched upon by the judge at page 14 of her judgment:

"The memorandum relied on by Plaintiff is the letter of 18.11.91. Plaintiff claimed there were 2 terms of the sale - the price of the flat and the costs of the High Court action - in reality the question of costs can be viewed as a separate agreement. If so what was agreed were the parties; the premises and the price - with both parties accepting that the solicitor would prepare the agreement and all other terms.

Defendant contends that this letter is what he terms an 'offering letter'. It is difficult to construe the letter as such, given the very clear wording that recognises 'our respective clients have reached a settlement in the following terms' and ends 'please confirm the above terms'.

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.'

Charles Wong prepared the letter on 18.11.91 incorporating terms 3, 4 and 5 of his own volition - terms 4 and 5 not being terms Plaintiff or Defendant as laymen would have known were needed."

17. The judge was there considering whether there was an oral contract and also a written memorandum evidencing the contract. She found both that there was a contract for the sale of the flat and also that the letter of 18 November 1991 was a sufficient memorandum in terms of s.3 of the Conveyancing and Property Ordinance, a matter to which we shall return.

18. Upon the submissions made to us and the evidence to which our attention was drawn, we think that the judge's implicit finding that there was such an oral agreement as to the price, the property and the parties cannot be faulted. There may well have been other matters touched upon. None of all that in our judgment detracts from the binding oral agreement found. Nor do we accept Mr Chan's submission that it is most unlikely that an agreement would have been reached in a casual encounter of so short a duration. That ignores the earlier negotiations and exchanges between the defendant and more particularly his wife and the plaintiff. Once that agreement was reached neither the expectation of a formal or written agreement, nor further negotiations could derogate from or nullify it.

Whether valid as an open contract

19. Mr Chan submitted that the oral agreement should not be accepted as an open contract. Such an agreement would be most unbusiness like. That may be so generally, but not so in this layman's accord, and, as we have said, we see no reason to fault the judge's finding that there was an oral agreement as to the price, property and parties.

20. Can such an agreement be a binding sale and purchase agreement (a written memorandum apart)? Upon the authorities the answer is clearly in the affirmative as Mr Warren Chan SC, who appeared with Mr Malcolm Merry for the plaintiff/respondent, amply demonstrated (see e.g. Gray, Elements of Land Law, 2nd Edn 253; Barnsley's Conveyancing Law and Practice, 4th Edn 421). Mr Edward Chan did not appear to dispute that as the ordinary legal position. He submitted inter alia that there was nothing more than an agreement to agree upon the date of completion between the solicitors, and in reliance upon May and Butcher Ltd v The King [1934]2 KB 17, that the contract could not be a legally enforceable contract as such. We are unable to accept that submission. Here, the essential terms of an open contract were agreed, it was far from being merely an option to offer a contract as in that case, which we do not find of relevance.

21. We reject also the submission that provisions for completion and for a deposit were essential elements of such an agreement without which there could not be an open contract (see Perry v Suffields Limited [1916]2 Ch 187).

22. Likewise we do not accept that the correspondence subsequent to the bare open agreement having been reached (including the plaintiff's "without prejudice subject to contract" letter of 5 December 1991 with its counter proposals for a completion date, upon which Mr Edward Chan placed particular reliance) and relevant oral evidence were overlooked or lead to the inevitable conclusion that the judge was wrong in finding that the plaintiff was a truthful witness, or undermines the oral agreement already earlier reached.

23. In our judgment, the oral agreement was a binding open contract.

Was the letter of 18 November 1991 a sufficient memorandum of the open contract?

24. It is the letter of 18 November 1991, the text of which has already been reproduced in this judgment, that the plaintiff relies upon as the evidence of the bare open contract of sale and purchase. In paragraph 2 it clearly provides for the sale and purchase of the particular property. It also specifies the price. And from it the parties also are clear. That is not in dispute.

25. Upon that basis, there is prima facie no reason why it should not be accepted as a written memorandum or note required by s.3(1) of the Conveyancing and Property Ordinance which 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."

26. However, it is to this point that Mr Edward Chan directed one of his major challenges. He submitted that the memorandum must be of a concluded contract. We think, as already indicated, that it was. He submitted that it was essential that the memorandum should contain all the terms of the contract; the omission of a single term, even if it was a subsidiary one, was fatal, he said in reliance upon Megarry and Wade: The Law of Real Property 5th Edn pp. 580-581 paragraph (f), which in turn cites Nesham v Selby [1872]7 ChApp 406.

27. However, it is our view, as it seems to us was the view of the judge, that the additional terms in the letter of 18 November 1991, related to other matters, which although agreed, were not part of the open contract. They related to Lands Tribunal Application No. 1047 of 1991, and to matters subsequently agreed.

28. As to the two authorities relied upon by Mr Edward Chan in that context, (i.e. Nesham v Selby [1872]7 ChApp 406, and J.N. Roland Deneault v Yangtzekiang Garment Manufacturing Co Ltd [1977] HKLR 320) they were concerned with the inclusion of terms that were not agreed or that were disputed at the time of the oral agreement. We do not consider them to be of assistance, particularly as the letter of 18 November 1991 contained no other terms than those of the open contract which was a complete agreement, and the remainder of the items were concerned with another matter, i.e. the Lands Tribunal Application which was not part of the open contract, or were matters subsequently agreed. 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, as we have said in reliance upon Perry v Suffields, or operate in novation of it.

Whether the contract pleaded was the contract made orally by the parties

29. It is plain from the plaintiff's statement of claim that what he pleaded as the oral agreement was the substance of the letter of 18 November 1991. This included averments that "the oral agreement was part of an agreement between the plaintiff and the defendant for the settlement of" the Lands Tribunal Application; that $425,000 would be paid as a deposit, that completion was to be on or before 21 December 1991; that the parties would enter a sale and purchase agreement within 7 days of the court approving the settlement.

30. These averments are not wholly consistent with the open contract found to have been made by the judge and accepted by us. More had been pleaded. They clearly did not mislead or prejudice either side. Nevertheless, leave to make the simple amendments necessary should have been sought. Even at this stage, we would grant leave to amend. The shortfall is de minimus, and we would simply treat the pleading as if it had been amended accordingly. We find no merit in this ground.

Whether the plaintiff repudiated the oral contract

31. The defendant here relied essentially upon the plaintiff's application for a new tenancy as a plain and obvious repudiation of the term that the Lands Tribunal Application was to be settled. Moreover, it was said that in obtaining the Tribunal's order for a new tenancy, the plaintiff put it beyond himself to settle the Lands Tribunal Application and to perform the oral contract.

32. However, it was in fact the defendant who precipitated that situation. Having made the oral agreement about 16 November, he got his solicitors to write the letter of 18 November 1991, yet on 21 November applied for possession having led the plaintiff (who was ill) to believe he would settle the application. Having obtained an order for possession, he then studiously refrained from revealing this to the plaintiff until a week before possession was to be given to him. The submission came ill from him. It was open to the plaintiff to seek the setting aside of the order for possession and even obtaining a new tenancy. The presence of the plaintiff's wife at 21 November hearing, unable as she was to communicate and to comprehend what was going on, in the circumstances simply did not suffice to fix the plaintiff with knowledge of what the defendant somewhat surprisingly proceeded to do, even if the wife was accompanied by a clerk of the plaintiff's solicitors.

33. To have protected himself from the defendant's alarming behaviour (particularly his inexplicable obtaining of the order for possession, his consistent omission to mention it for almost three months, and then his last minute demand for possession), by himself obtaining a new tenancy, for the termination of which one way or another he would have had no difficulty in securing the Tribunal's consent or approval, the tenants response seems to us to have been a reaction not inconsistent with his primary and undoubted intention to purchase the flat. We do not accept that the plaintiff's action evinced any or any clear intention to repudiate the bare open agreement.

Could the plaintiff have mitigated his damages by purchasing a parking space?

34. Finally, it is necessary to address the defendant's point that the plaintiff should have mitigated his damages by purchasing a parking space in lieu of that which the defendant agreed to sell as soon as he got to know the defendant did not own it.

35. The so-called duty to mitigate damages extended only to taking such measures as were reasonable. We do not think these could extend to the purchase of a parking space when the defendant was actively challenging the agreement for sale and purchase and pursuing an order for possession in the Tribunal. As to the time from which the damages should run, there is no reason why this should not be from the date of the breach.

36. There remains in our view only one matter that should be mentioned. It can be seen from the passage from the judge's judgment which has already been cited, that she referred to the witness statement of Charles Wong, the defendant's solicitor, in support of the confirmation in court of both the plaintiff and the defendant "that they considered that on 15 or 16 November 1991 they had reached agreement on all they needed to agree in respect of the sale". It was not in dispute that the statement of Charles Wong was not admissible and on behalf of the defendant, complaint was made that the judge relied upon it. All that need to be said is that it is difficult to see what better evidence there could be than the unretracted confirmation by the parties themselves. It is inconceivable that the judge would not have accepted that confirmation regardless of the existence or knowledge of Charles Wong's statement.

Conclusion

37. For the reasons we have given, we dismiss the appeal. As to the costs of the appeal, we make an order nisi that the plaintiff is to have his costs of the appeal.