RECENT DEVELOPMENTS IN CONVEYANCING

by

ANDREW CHRISTIE I INTRODUCTION: THE CONVEYANCING BACKGROUND

THE LAST twelve months have seen the publication of what I believe is the first text book on Hong Kong Conveyancing. To quote from Hartley Bramwell: 'By developing their own techniques to cope with their own particular problems in the conveyancing and property law field, Hong Kong lawyers have . . . displayed a sense of innovation and application which has matured into a conveyancing system which can no longer be described simply as the offshoot of another culture. In this sense, Hong Kong lawyers reflect the initiative and enterprise of the whole community in creating a prosperity and atmosphere of free enterprise which enables the territory to flourish under the law.' A flattering start. However, within the same year Mr Justice Li in Edward Wong Finance Company Limited v Pomay Investments and others No 2401 of 1976, a case to which I shall later return, had this to say in a dissenting judgment: ' . . . I am of the opinion that, despite the general practice in Hong Kong, the adoption of such practice (namely completion on undertakings) entails an inherent risk. To adopt such practice amounts to failing to exercise due care arid the ordinary prudence of a reasonable man.' Our practice has, however, stood the test of time and whilst its deficiencies are there for all to criticise, it has unquestionably played a significant role in the development of the real estate business in the territory. Without It not so much could have been

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achieved, and much no doubt would have been lost. It remains true, however, that Mr Justice Li had no hesitation in condemning what is a cornerstone of our conveyancing practice. Our legislation has for a long time been sadly wanting, but like so many other things it seemed to work. The Land Registration Ordinance, for example, was passed in 1844 and remained broadly unchanged since then until the passing of the 1980 amending legislation. Frequent calls however, had been made over the years for its amendment, since the system in latter years, although it worked well, had not really worked in accordance with the Ordinance. Additionally, we have had no real legislation on conveyancing itself, to the extent that the provisions of the English Law of Property Act relating to the appointment of receivers are incorporated in most debentures and mortgages in use in Hong Kong. It is sad that such provisions have to be lifted from the English system, as it readily identifies an embarrassing lacuna in what we have to offer locally. Now, at least, we have a new set of rules on registration procedures and the long-awaited Conveyancing Bill is about ready for publication. Against that background, I give you a view as I see it of our legislation and also of one or two aspects of our Hong Kong style practice. Additionally, I comment on two English cases Williams & Glyn's Bank v Boland [1979] 2 WLR 550 and Sudbrook Trading Estate Limited v Eggleton & others [1981] 3 WLR 361. These two, whilst not having the same crashing effect as Law v Jones [1974] Ch 112, do nonetheless require a careful consideration for the future, Unlike Law v Jones, I regret that the effects of these cases will be with us for a long time to come.

II

LAND REGISTRATION

The Land Registration (Amendment) Ordinance was passed on 7th August 1980 but only became operative on 8th June 1981. The new Regulations under the Ordinance also became operative on the same day. These amendments have been the result perhaps of three things. First, strangely enough, of the very successful

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procedures developed over the years for the maintenance of land office records and registration of instruments. The system and procedures, however, as I have said, were not wholly in accordance with the Ordinance. Success had bred acceptance, but some aspects of the system just could not be supported by statutory provisions. Secondly, the enormous increase in land transactions over the years, and consequently the number of memorials and instruments being registered and copies retained, must present a real storage problem. Thirdly, simply pressure from all quarters to modernise the legislation and bring it up to date. Before identifying the amendments, it should be noted that the effects of registration and the priority provisions have not been changed. These are contained in section 3 of the Land Registration Ordinance itself, which provides that instruments "shall have priority one over the other according to the priority of their respective dates of registration". The dates of registration are determined by reference to the regulations made under the Ordinance, where generally date of presentation is the date of registration. A slight complication is raised in section 5, which provides that all instruments, wills and judgments 'Which are registered within one month after the time of execution thereof respectively . . , shall severally be in like manner entitled to priority and shall take effect respectively by relation to the date thereof only in the same manner as if this Ordinance had not been passed.' The period of one month commences to run in the case of wills from the date of death, and in the case of judgments from the date of entering up or recording. So you have two tests for priority: first according to the date of registration (which is the date of presentation for registration); and secondly, provided registration is effected within a month of execution, from the date of the instrument. For : A to B dated loth January 1981

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Assignment A to C dated nth January 1981 If both assignments are presented within one month of their respective dates of execution the first assignment will have priority. This will be the case even if die second assignment is presented for registration before the first assignment. If it were not for section 5, the first rule of priority (section 3) would prevail and the second assignment would have priority, If however the first assignment is presented for registration after the period of one month then the second assignment will have priority if presented in time, If both are presented out of time, then priority takes effect on the strength of the dates of registration without any reference to the date of the instrument. In order, therefore, to jump the queue on priority, the time limits have to be observed. Clearly, also, because of the effect of section 5, instruments must bear the earliest possible date. There is no use sitting around without dating your document, since each day's delay is a day lost in priority. If they are instruments for registration, then let there be no delays in dating, stamping or registration, All instruments which are not registered are, as against any subsequent bona fide purchaser or mortgagee for valuable consideration, null and void. The Ordinance leaves no room for doubt. Not only is an unregistered deed null and void as against the purchaser/mortgagee, section 3(2) provides that it is absolutely null and void to all intents and purposes. Legally, the emphasis is probably unnecessary; null and void means null and void. We cannot have it in degrees, so 'null and void' and 'absolutely null and void to all intents and purposes' are one, and the same thing. However, I am of the view that the emphasis serves very good purpose since no one should be in any doubt about title to land and acquiring title to land. You may call it boiler plating, but section 4 provides the belt and braces: 'No notice whatsoever whether actual or constructive of any prior unregistered deed conveyance or other instrument in writing or will or judgment shall affect the priority of any such instrument as aforesaid as is duly registered.'

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If however, you may still be under any doubt as to the provisions regarding registration, 1 would refer you to Kwok Siu Lan v Kan Yan Che [1913] 8 HKLR 52 where the full court considered these points in their entirety. It was held that, in the absence of fraud, the effect of sections 3 and 4 of the Ordinance was as I have stated above, even though the bona fide purchaser for value had notice of the earlier unregistered deed. You might also bear in mind that these provisions have been so applied since 1844, so that time is on their side. Please remember that the Ordinance applies to instrumentsit does not deal with unwritten equities to which I shall later return. There is only one exception to the above and. that is that none of the registration or priority rules extends to bona fide leases at rack rent for any term, not exceeding 3 years. Finally on this aspect, and lest I may give a false impression by omitting any reference to it, you must bear in mind the 1978 amendment to the Ordinance which is now section 5A: 'Nothwithstanding section 3 or section 5 a charging order or lis pendens which is duly registered shall have priority from the commencement of the day following the date of its registration'. To achieve this priority, the order need not be registered within one month, although obviously it always will be. So, strictly there are three rules as to priority and not two as mentioned earlier. So that is the necessity for registration. The amendments relate to the manner in which registration is effected, and the keeping of records on microfilm. The sections which formerly made provision for the mode of registration, namely sections 6 to 13 inclusive of the Ordinance, have been repealed and replaced by a set of rules contained in the Regulations. The important changes to the mode of registration are as follows: i. The size of the instrument delivered for registration and any plan thereof is restricted to A4 or foolscap size. The memorial also must be on paper of A4 size. This is to facilitate microfilming of the records. It also avoids grubby dog-eared memorials.

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2. The colouring on the plan, apart from black and white, must be marked in the prescribed manner. The various colours are to be identified by the initial letter of the colour"P" for pink, "G" for green etc. The prefix "L" may be used to indicate a light shade of a colour. You can therefore only have a light shade of a darker colour, but not a dark shade of a lighter colour. Architects and others preparing plans must be advised of these requirements. 3. The ID card numbers of the parties must, where practicable, be stated in the instrument, Although in practice this is invariably done, it has never been a requirement before these regulations. 4. The memorial need not now be signed by the parties. The particulars required to be stated in the memorial, remain essentially unchanged, but no copy of the instrument is required to be attached to it. It is however necessary to attach a copy of any plan referred to. The Land Office records thus become a microfilm of the original instrument and any plan attached to it, together with an actual copy of the plan. 5. The procedures for registration are largely the same as the existing practice prior to these Regulations. These are as follows: When an instrument and memorial are delivered for registration, a number will be assigned to the memorial according to the order of time in which it is delivered. The date of delivery is recorded on both the instrument and the memorial. This date will remain unchanged even if the instrument is subsequently withheld from registration and will remain as the date of registration. The particulars of the memorial will then be recorded in the Memorial Day Book in regular succession according to the memorial number. After the entry in the day book, the instrument and the memorial will be scrutinized by the Land Officer to ensure that the requirements under the Ordinance and the Regulations have been complied with. This is now a statutory obligation, whereas hitherto it has simply been a matter of practice only. The scrutineer's task is not an enviable one. He will never be congratulated by the profession for his efforts, though in the performance of his duties he goes a long way to providing that our system of registration which is one of instruments only under the Ordinanceapproximates to a register of title. It is not however a register of title nor

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intended to be and the proper care must be taken each, time a transaction is put through. The system of scrutiny simply provides a double check; names, Identities, designations etc, of parties, premises locations etc. are all thoroughly checked and confirmed. It is a rare document that slips through with a flaw. The scrutineer is therefore to be congratulated, and whilst overly zealous attention to mindless detail is to be deprecated, this on the infrequent occasions that it arises is surely no more than a minor irritation, If the instrument and the memorial are found to be satisfactory after scrutiny, the particulars will be entered on the register card in respect of the premises affected. Registration is completed when the Land Officer signs a certificate of registration on the instrument, The instrument and the memorial will then be microfilmed, If all is not in order in regard to the matters specified in section 23 of the Ordinance, the Land Officer will withhold registration of the instrument. I shall return to section 23 later. The reasons for withholding registration will be stated on a docket annexed to the memorial. After rectification/clarification, the instrument and the memorial should be redelivered for registration together with payment of the prescribed fee. Concern has been voiced over the charging of these fees, especially in cases where clarification only is sought. If a mistake lias been made in the preparation of the document or its memorial, few would complain about the imposition of such a penalty. Where, however, only clarification is sought which does not result in any amendment being necessary to the document and/or its memorial, or where perhaps the Land Office has stopped a deed on its own mistake, is a fee properly payable by the client or his solicitors ? A minor refinement to the existing regulations would set this straight. Withholding of registration does not, however, affect the priority of the instrument because the date of the registration once entered remains unchanged. This is of course the real issue, as priority must be preserved at all costs. These amendments regarding mode of registration incidentally affect the Land Office at Victoria onlythe regulations in regard to the District Offices for the time being remain unchanged.

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The obligations of the Land Officer to register any instrument are now more fully set out in the new section 23. The extent of his liability for failing to register is set out in section 23A. He is bound to register if he is satisfied that: (a) the instrument may be registered under the Land Registration Ordinance, or is required by any other Ordinance to be registered under the Land Registration Ordinance. See, for example, section 2 of the Ordinance which provides that in general instruments affecting land may be registered, and see also section 7 of the Landlord and Tenant (Consolidation) Ordinance which permits exclusion orders to be registered against the premises affected. (b) that all provisions relating to registration have duly been complied with, and (c) the prescribed fee has been paid. I have referred throughout this lecture to instruments. This I would explain is for convenience only. The Ordinance still persists in making reference throughout to 'deeds conveyances and other instruments in writing and wills and judgments'. In particular section 2(1) as follows: '2. (i) The Land Office shall be a public office for the registration of deeds, conveyances, and other instruments in writing, and wills and judgments; and all deeds, conveyances, and other instruments in writing, and wills and all judgments, by which deeds, conveyances, and other instruments in writing, and wills and judgments, any parcels of ground, tenements, or premises in Hong Kong may be affected, may be entered and registered in the said office in the prescribed manner.' A definition clause would simplify matters. Formerly, the Land Officer was liable in damages to the party injured to the extent of the loss or injury sustained if he wilfully neglected or omitted to register any memorial. He was therefore only liable for wilful default. It has been retained and added to it is liability for negligent default. No liability arises if any act complained of is done by the Land Officer in good faith. The extent of criminal liability has also been altered. Under the former section 24, the Land Officer or his staff was liable to imprisonment for 14 years if he 'wilfully destroys, embezzles or

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secretes, forges, counterfeits, razes, defaces, or alters' any memorial or any entry in the register. Under the new section 24, the liability is on any person who dishonestly, with a view to gain for himself or another, or with intent to cause loss to another, 'destroys removes alters defaces or conceals' any memorial instrument or other entry on the register. We seem to have lost the offences of wilfully embezzling secreting forging counterfeiting or razing land office entries. 1 do not know what sanction there is if the Land Officer slips a memorial in unnoticed, but I feel sure there are better arguments than that for a system of priority notices. The new section 26A provides that copies of any registered instrument or memorial, or prints from the microfilms thereof, which have been certified by the Land Officer are admissible in evidence. The Land Officer is, therefore, spared the task of being gazetted as an authorised person under the Evidence Ordinance. You still have under section 23 of this Ordinance provision for the deposit and safekeeping by the Land Office of instruments deeds and wills. It is not clear what useful purpose this facility serves in practice, and one would have thought consideration must have been given to abolishing the service. The purpose it should serve is that where a property is sold off in shares the vendor/developer may deposit the title deeds when he has sold the last share, since he no longer has any interest. It is also not entirely clear that the documents which may be deposited have to affect land. Indeed, wills have to be submitted in a sealed envelope so there is no means of knowing whether or not any land is affected, unless the Land Officer cross checks the name with the register of persons which was formerly required to be kept under section 11 of the Ordinance. That requirement has incidentally now been removed from the Ordinance. The system for deposits has however been retained and indeed to some extent endorsed by the amendments to section 24 which identify dishonest interference with any instruments deposited in the Land Office as an offence. Presumably, this is a reference to deposits under section 22.

Recent developments in conveyancing III CASES

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Williams & Glyn's Bank v Boland [Jp79] 2 WLR 550. A matrimonial home was purchased by the Bolands and it was accepted that both parties contributed to the costs. The house was however registered in the sole name of the husband. The husband and his brother borrowed money from the bank for the purposes of their business and the husband executed a legal charge on the matrimonial home to secure the repayment of the business' debts to the bank. The business failed and the bank claimed possession of the premises. The wife's defence was that she had a share in the premises. The Court of Appeal held in favour of the wife. The case is very difficult to follow in some respects, especially in relation to its application to Hong Kong. The decision was primarily based upon the rights protected by section 70(1 )(g) of the Land Registration Act 1925, of which there is no equivalent In Hong Kong. In identifying from the judgments how the wife's position is brought within the rights protected by that section, however, we may consider how this decision may affect the rights of mortgagees under Hong Kong law. In formulation of Lord Denning MR: ' . . . a wife who has a share in the house, has an equitable interest in the land. It follows, in the case of unregistered land that if her husband sells or charges it over her head to a purchaser or lender who has knowledge or notice of her interest, he takes it subject to her interest.' Lord Denning on the authority of Gissing v Gissing [1971] AC 886 stressed that the wife's share in the house was acquired by virtue of her contribution, of to which I shall return in a moment. Ormrod LJ had this to say: 'So long as the land remains unsold, he (one who has an equitable interest in the land) has the same rights against his

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Law Lectures for Practitioners co-tenant in respect of the land as a legal tenant in common before the legislation of 1925 came into effect.'

Is this not therefore the position in Hong Kong? I think it is. The equitable interest is an unwritten equity and not therefore something capable of registration under the Land Registration Ordinance. May I in this regard refer you to the Hong Kong Law Journal (1974) 264 and an article written by the former Registrar General, Mr W K Thomson, on the Land Registration Ordinance: ' . . . it is surprising that the Ordinance did not at the same time grapple with the problem of unwritten equities. It deals with a competition between registered deeds; it deals with a competition between unregistered deeds and deeds registered or unregistered; but it does not deal with a competition between an unwritten equity and a registered deed, and it does not say in section 4 what is to be the effect of notice actual or constructive, of a prior unwritten equity.' He goes on at page 265: 'Other forms (of unwritten equities) that may still be encountered are . . . interests arising out of resulting trusts.' An interest arising out of a resulting trust is just what Lord Denning was referring to in the Boland case as the Very newand very acceptableground' established in Gissing v Gissing. In that case the House of Lords held that, in the case of the matrimonial home a wife who contributes in money or money's worth does obtain a proprietary interest, and not simply an interest in the proceeds of sale. 'It is done' quoth Lord Denning 'by way of a trust imposed upon the husband. Even though the house is taken in the husband's name alone, the law imposes a trust upon him by which he holds the legal estate in trust for them both jointly in such shares as justice requires.' If this case does have application here, and my own view is that it does, then it will clearly have very adverse consequences for mortgagees. After all, whilst the case was one of joint ownership

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A?

by a husband and wife, the effect of the judgment has much wider implications, Ormrod LJ: 'The fact that in both cases the wives are married to the person in whom the legal estate in the property is vested is therefore incidental; their contentions would be exactly the same if they were not married or were of the same sex as the legal proprietors. They are co-owners in equity with the persons holding the legal estate,' With the traditionally close family structure in our society where children parents and grandparents often live in the same domestic unit and pool resources, you may well find that those who have contributed to the pool have secured for themselves proprietary interests which cannot be defeated by a mortgagee. I personally do not believe that the problem can satisfactorily be solved other than by legislation. It remains therefore for you to ensure that mortagee clients advancing money on the security of matrimonial or family homes know of the risks. Warranties from the mortgagor are of little assistance. The decision has incidentally now been upheld by the House of Lords. Edward Wong Finance Company Limited v Pomay Investments & others No 24.01 of igj6. Whilst a number of issues are considered in this case it is of significance to conveyancers in Hong Kong from the point of view of completion. The text books and cases will identify for you that the principle is that on completion the purchaser hands over the purchase price in return for legal documents giving him title to the property. 'It is a fundamental principle that the payment of the purchase money and the delivery of the conveyance are to be performed interchangeably' (per Vaisey J in Palmer v Lark 1945 Ch 182). Observance of this rule is possible only where there is a face to face completion. This has been very rare in Hong Kong, the normal

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practice being to complete by post with appropriate undertakings from the vendor's solicitors for delivery of duly executed documents. What then happened in the Edward Wong case ? Completion was intended to be effected by post, The purchaser's mortgagee's solicitors forwarded a cheque in respect of the balance of purchase money to the vendor's solicitors on the vendor's solicitors' undertaking to forward to the purchaser's mortgagee's solicitors a duly executed reassignment of the existing mortgage on the property and a duly executed assignment, vendor to purchaser. On the face of it the transaction was quite straightforward and the then usual Hong Kong practice was adopted for completion. There are a number of issues of fact in the case, but since it is going to Privy Council appeal it would perhaps be improper for me to detail these. For today's purposes therefore, completion appeared to be in, accordance with the then accepted practice in Hong Kong, The vendor's solicitor did not honour his undertaking to produce the appropriate documents of title. Not only that, he emptied Ms petty cash tray and his client account and removed himself from the jurisdiction. His client never saw the purchase price so never executed any assignment, Who therefore is responsible to whom ? At first instance the Hong Kong courts gave judgment for the plaintiff purchaser and his mortgagee against their solicitors. This was because of the issues of fact. The trial judge felt that on the facts warning bells ought to have been sounded, so that the solicitor handling the transaction was on notice to take special care. This, however, was reversed on appeal and leave has been granted for further appeal to the Judicial Committee of the Privy Council. Without therefore going further into the particular facts and circumstances it is clear that our usual practice for completion was not entirely approved either by the trial judge or by the Court of Appeal. Penlington J: (trial judge) 'I am satisfied that the style of completion that was generally approved in 1976 was that while in the great majority of cases an undertaking could be accepted, a solicitor should be aware of the dangers and must give thought to the factors involved. If he did so and decided that he could safely accept the undertaking and,

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on scrutiny, that was a reasonable decision, he is not negligent. However, In a small number of cases, the solicitor should insist on a proper settlement and every case should be considered accordingly.' Chief Justice: (appeal) 'I suggest that the Law Society should readdress itself to the possibility of surrounding the Hong Kong style, if it is thought advisable to continue to use it, with precautions which will reduce or negative the chances of misappropriation by a dishonest solicitor acting for a vendor, rare though such a man will, I hope always be.' I have also quoted to you in my opening remarks from the judgment of, Mr Justice Li in this appeal. Silke J: (appeal) 'Solicitors in the post Yiu era are and should be aware that the unthinkable has happened and can happen again. Solicitors in practice today in Hong Kong are no longer known each to the other and the real interests of clients should not be allowed to be overridden by other factors' (a reference to the courtesy and convenience of Hong Kong style completion.) Accordingly the Law Society has issued a practice direction and the following should now be adopted as standard practice. 1. Sale and purchase agreements should contain a clause stating clearly that payment by the purchaser of the balance of the purchase price to the vendor's solicitor constitutes a full discharge of the purchaser's obligations. A vendor should have it drawn to his attention that, by the sale and purchase agreement, he has appointed his solicitor as his agent for the purposes of collecting the instalments, if any, and balance of the purchase price due to him. This will mean that the vendor will have to execute the documents, since he has received the purchase price through his solicitor, and otherwise give good title. If the vendor objects to this clause, being included, then it may, of course, be omitted but the solicitor acting for the purchaser will then be upon notice that he should insist upon a formal completion or otherwise satisfy himself that the cheque will be received by the vendor. 2. A solicitor acting for a purchaser should split the completion cheque between the vendor's solicitor and the vendor's mortgagee, for the ready discharge of the Mortgage.

Law Lectures for Practitioners No doubt this practice note will be followed by another when the results of the appeal are known, For the time being however, the above is the practice recommended by your society. Sudbrook Trading Estate Limited v Eggleton --.----.^

This case deals with a problem that arises all too frequently in Hong Kong, particularly in joint ventures, where a critical part of the transaction remains to be agreed e.g. the design of a building, Although the need for contractual certainty is one of the essential elements in the enforceability of agreements, and whilst that has been established many, many times over the years, difficulties do still often arise in practice. In this report, you will find a masterful summary by Templeman LJ of the case law on the subject. As the case is long, I will attempt to summarise the facts briefly. The contract, a lease, conferred upon the tenant an option 'to purchase the reversion in fee simple in the premises hereby demised . . , at such price, not being less than Pound 7^,000, as may be agreed upon by two valuers, one to be nominated by the lessor and the other by the lessee and in default of such an agreement by an umpire appointed by the said valuers. . . .' A nice neat little clause. The tenant exercised the option (there were in fact four leases and four options on identical terms save for minimum prices) but the landlord declined to appoint a valuer. At first instance, Lawson J made an order declaring that the clause conferred upon the tenant valid options to purchase which had been validly exercised. The landlord appealed on the grounds that the judge was wrong in law on a number of issues, but principally that he ought to have held that the option clauses were void for uncertainty in that the purchase price was not stated nor capable of ascertainment. The tenant argued (a) that the court should direct the landlord to appoint a valuer, and if necessary itself appoint a valuer and an umpire, or alternatively

Recent developments in conveyancing (b) that if the machinery for ascertainment of the price should for any reason fail, the court ought to remedy the defect and carry out the original intentions of the parties by determining a fair price which the machinery was obviously intended to produce. On the face of it sympathies should lie with the tenanthe has done all that was required of him as regards his options, he comes to court with clean hands, he accepts a valuation by third parties. The landlord on the other hand is the villain of the piecehe agreed to the option, he agreed to appoint valuers and he is in default on both scores. Of course the appeal must be dismissed. '
Not so. The appeal was allowed and their Lordships held that since the agreement was one where the parties had agreed the machinery for ascertaining the price, the parties had come to an agreement to agree. It was a well established principle that a court could neither compel a party to appoint a valuer nor order specific performance of an incomplete agreement. The court will only intervene to remedy a defect if either there had been part performance or the agreement was part only of a wider contract. In the circumstances, therefore, the court could not intervene to impose terms upon the landlord to make a contract to which he had not agreed.

The options were unenforceable. The appellate judgment reviewed the earlier authorities and it is quite clear that there is nothing new in the decision reached. The critical importance, however, of fixing a formula for the price is highlighted when simple factsand indeed I believe very common factssuch as these are the subject matter of litigation. To illustrate the main points I give you extracts from the judgment of Templeman J which I trust will largely speak for themselves: i. The ground is encumbered with authority, more ancient than modern. In Milnes v Gery (1807) 14 Ves 400, there was a contract for sale at a price to be determined by two valuers or an umpire chosen by the valuers. The valuers were appointed but were unable to agree on the choice of an umpire. The vendors sued for specific performance and asked the court to appoint a valuer

Law Lectures for Practitioners or to make a valuation. Sir William Grant MR dismissed the action, saying, at p 406; "The only agreement, into which the defendant entered, was to purchase at a price, to be ascertained in a specified mode. No price ever having been fixed in that mode, the parties have not agreed upon any price. . . .' And he said, at p 409: 'In this case the plaintiff seeks to compel the defendant to take this estate at such price as a master of this court shall find it to be worth; admitting, that the defendant never made that agreement; and my opinion is, that the agreement he has made is not substantially, or in any fair sense, the same with that; and it could only be by an arbitrary discretion that the court could substitute the one in the place of the other.' I would point out that the reason for the dismissal is that the courts will not in equity make any decree for specific performance which it cannot supervise control and carry into effect. Specific performance is after all an equitable remedy. The court will not order performance if there is not a guaranteed end result. 2. 'The principles which emerge from the authorities may be summarised thus; first, in ascertaining the essential terms of a contract, the court will not substitute machinery of its own for machinery provided by the parties, however defective that machinery may prove to be. Secondly, where machinery is agreed for the ascertainment of an essential term, then until the agreed machinery has operated successfully, the court will not decree specific performance, since there is not yet any contract to perform. Thirdly, where the operation of the machinery is stultified by the refusal of one of the parties to appoint a valuer or an arbitrator, the court will not, by way of partial specific performance, compel him to make an appointment. All three of these principles stern from on central proposition, that where the agreement on the face of it is incomplete until

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something else has been done, whether by further agreement between, the parties or by the decision of an arbitrator or valuer, the court is powerless, because there is no complete agreement to enforce.' 3. 'So we are driven to the conclusion that this appeal should be allowed. We arrive at that conclusion regretfully because this option was clearly intended to be effective arid was at the time thought to be effective. No doubt the formula seemed a sensible one. Nevertheless, it seems to us that in leaving the essential matter of the price to be left to be fixed by the agreement of persons who have to be nominated by the parties and who themselves have to agree on some third person to resolve any variance between them, the parties succeeded in selecting a classically uncertain formula which the court cannot assist them to operate.' Templeman LJ however identified three areas where the courts could intercede. Firstly, where something requires to be determined by reference to a formula eg "purchase at a reasonable valuation'. Even in the absence of some sort of machinery to determine the valuation the court will undertake the task. He quotes Harman LJ in Talbot v Talbot [1968] Ch at page 12: 'there is good authority for saying that an. option to purchase "at a fair valuation" or "at a fair price" is an option which the court will enforce, , . .' Secondly, again Templeman LJ: 'Where an agreement which would otherwise be unenforceable for want of certainty or finality in an essential stipulation has been partly performed so that the intervention of the court is necessary in aid of a grant that has already taken effect, the court will strain to the utmost to supply the want of certainty even to the extent of providing a substitute machinery.' So, for example, the determination of rent under a rent review clause may be done by the court. The third exception is the case where the term which is uncertain or in respect of which the machinery has broken down is construed

Law Lectures for Practitioners as relating to a subsidiary part only of a wider contract. This clearly is a particularly tricky area and Templeman LJ concedes that it is 'not perhaps always easily defensible in logic,' Does this mean eg that if the schedule of fittings and fixtures still remains to be determined then that is a subsidiary part only of a contract for the sale of a house or flat? Or does it mean that if part only of the schedule of fittings and fixtureseg. the colour of tiles, the make of electrical appliancesremains to be determined, then that is a subsidiary part ? Clearly the line of definition is hard to draw. The choice lies between: An agreement to agree which simpliciter is no agreement at all. This has no formula or machinery and is ineffective. An agreement to agree where there is a formula but no machinery. This is fine since the courts can step in and lend benevolent aid if necessary. (c) An agreement to agree where there is machinery but no formula e.g. arbitration. This is fine provided no further agreement is required between the parties and the nominated arbitrator is prepared to act. The machinery must be sufficiently certain, because if the parties have agreed their machinery, and it does not work, the courts will not substitute an alternative. (d) An agreement to agree where there is both the formula and the machinery. This is the ideal, but to many the clause in the Sudbrook case may have appeared to fit into this category, and it most clearly did not. In the meantime, leave has been granted for further appeal to the House of Lords, but we return to the same problem in the next case. Dr. Franklin Li & Others v Crocus Property Inc. Nos 4909 and 4910of1980. This case also deals with certainty of contract, and is one of very real significance in the Hong Kong context. It deals with the sale of premises in World Wide House in Central.

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. The facts are important in their simplicity. The vendor and purchaser signed a 'Confirmation of Instruction' followed by a standard Hong Kong form 'Agreement for Sale and Purchase' from which the vendor wished to withdraw. The plaintiff purchases sought specific performance. It was the basis of the purchasers' claim that the confirmation of instruction was a concluded written agreement which all parties intended should be a binding legal contract between them for the sale of the premises. It was a term of the confirmation of instruction that a formal 'Agreement of Sub-Sale and Purchase' would be signed by the parties once the MTR (the orginal developer) had given its consent to certain plumbing alterations. Subject to such consent being granted within the time limit allowed by the vendor, the purchaser claimed there was a binding agreement between the parties. (It was not disputed that such consent was in fact given.) They said, in the alternative, that there was a concluded oral contract between the parties and that the confirmation of instruction was a sufficient memorandum in writing to satisfy section 6 of the Law Amendment and Reform (Consolidation) Ordinance. Further that there had, in any event, been part performance of the oral contract so as to make it enforceable. It was the vendor's case that the confirmation of instruction was not intended to be a binding contract between the parties. It was no more than an instruction to the vendor's solicitors to prepare a formal 'Agreement for Sub-Sale and Purchase' for approval and execution by the parties, if they were still so minded, incorporating the matters set out in the confirmation of instruction and such other terms as the solicitors might advise. In particular the vendor said it would incorporate provisions for a 'Sub-Deed of Mutual Covenant' defining the respective rights and interests of the parties who would then be joint owners of the 15th floor of World Wide House. For this contention, they relied upon the following provision of the confirmation of instruction: 'The sub-purchaser shall pay the costs of preparation and completion of the Deed of Mutual Covenant and/or the furnishing of an attested copy to the sub-purchaser.'

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There were also arguments in regard to user of the premises which for the purposes of this paper I am ignoring. The third limb of the vendor's case was that the premises could not be defined and In particular the area of the premises could not be defined. The trial judge held that the confirmation of Instruction was intended to be a binding legal contract between the parties. The judge was however satisfied also that the parties all contemplated that there would be a sub-deed of mutual covenant between them, and this is where the problem starts. It was the case for the vendor that such a deed was an essential term of the contract and its terms had not been agreed and could not have been settled other than by further negotiation. Going back to the Sudbrook case the claim of the vendor seems to fit the first of the four choicesno formula, no machinery, a simple agreement to agree and therefore unenforceable. What the clause in the agreement of sub-sale and purchase which was signed by the purchaser actually said was as follows: "20. On completion, the vendor and the purchaser shall enter into a sub-deed of mutual covenant for the purpose of defining their respective right, interest and obligations of and in the whole of the fifteenth floor of World-Wide House and all costs and expenses etc. shall be borne by the purchaser,' Counsel for the purchasers, taking the opposing view, argued that the sub-deed of mutual covenant related to a subsidiary part only of the wider contract and should be severed (in other words, the third exception identified by Templeman LJ in the Sudbrook case). If there is an order for specific performance and the parties were to refuse to enter into a sub-deed of mutual covenant that would, according to the purchasers, simply be just too bad. The trial judge, however, was of the view: ' . . . that such a sub-deed was essential for the conveyance contemplated and that the terms of that sub-deed had not on the 15th July 1980 been agreed between them, nor indeed was it ever subsequently agreed. On this ground the plaintiffs' claim must fail.'

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I respectfully agree with the learned trial judge. Clause 20 can be no more than an agreement to agree, after all It was a deed of mutual covenant which by definition must require benefits, duties and obligations on both sides. The Sudbrook case required both parties to put in a valuer; the Crocus case required each to put forward his clauses for the deed. If one party fails to nominate a valuer, or fails to draft the clause he wants to see in the deed, as the case may be, the machinery breaks down. On the second of the purchasers' claims alleging an oral agreement, the judge was on the evidence of the opinion that there was no such oral agreement, so there could be no memorandum in writing to support it and obviously it could not be part performed. It is worth looking at the provisions regarding the calculation of the area of the premises, which was the vendor's third line of defence. The agreement for sub-sale and purchase set out that the gross floor area to be transferred should be calculated in accordance with Regulation 23(i)(b) of the Building (Planning) Regulations. Briefly, this identifies the area within the outside faces of the building and applies to the calculation in respect of the whole building. The question is as to whether it is appropriate for part of a building only. Certainly for the calculation of purchase price it would work. $2000 a square foot of gross floor area according to the formula gives you the purchase price. But in the present case, the formula was to be used to identify the area to be coloured pink on the assignment plan, ie. the area to which the purchaser was to have exclusive right of possession. But the formula under Regulation 23(1 )(b) takes into account lift shafts, fire escapes, stairways, plant rooms, outside walls and common areas. In other words, it takes into account areas to which no owner has exclusive possession. It was therefore held to be a formula which would not enable the architect to do the calculation and the purchasers' claim failed on that count also. Perhaps, with due respect to the learned judge there may have been room here for the court to lend some benevolent aid. This is a disturbing decision. As the learned judge remarks: 'I reach this conclusion with considerable reluctance. I have no doubt that if the vendor had chosen to honour the agreement which it had undoubtedly reached on the i5th July, the remaining terms

Law Lectures for Practitioners and conditions could have been settled. The vendor has chosen not to do so and, whatever the ethics of that decision may be, I am satisfied that legally it is so entitled.' But apart from the ethics, it surely calls to question yet another aspect of our Hong Kong conveyancing practice. The clause in regard to the deed of mutual covenant is a common one, the exceptional aspect of it being that no mention was made as to who was to prepare it and who was to determine what went into it. The more usual provision allows the solicitors for the developers to do these things by the use of words such a 'deed of mutual covenant in such form as shall be provided by Messrs, XYZ', or 'deed of mutual covenant to be prepared by Messrs. XYZ'. The question is whether the addition of such words adds certainty to an otherwise unenforceable agreement. To do so, I personally believe there would have to be evidence to show that the parties intended that the developer's solicitors should have virtually unfettered discretion in the matter. This view is to an extent supported by Judge Penlington when he refers to the architect's position in the instant case: 'I do not see any evidence that indicates that the parties agreed that he was to be an arbitrator and I do not think it was ever intended that he should have unbound discretion to define the areas being conveyed as he thought was reasonable.' Semble, therefore, had there been such evidence, then the architect's determination would have held good. There you have it on certainty of contract a grand ideal. Whilst the Sudbrook decision was reached regretfully, and the Crocus one with considerable reluctance, both stand nonetheless.1

These cases have been reversedsee page too and author's Postscript on page 101.