part performance

Question 1

rules of part performance

Answer 1

EQUITABLE DOCTRINE OF PART PERFORMANCE

CPO S 3(2): “S 3 (1)— written evidence requirement applies to contracts or other dispositions whenever made and does NOT affect the law relating to part performance or sales by the court.”
Part performance does not require writing

Although NOT all oral contracts are enforceable (as per section 3(1) of CPO), an oral agreement may be enforceable in equity if it is supported by a sufficient act of part performance.
Some oral contracts are unenforceable → due to formality requirements

The situation in HK is different from that in England. As from 27th September 1989, the doctrine of PP is NO longer applicable in England. But Hong Kong still operates PP doctrine.
PP doctrine Abolished in English Law

Question 2

rationale of part performance

Answer 2

S4 of the Statute of Frauds 1677 in England provided: …No action may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement … is in writing…

… to require writing as evidence of the existence of contract.

Soon, however, it was discovered that some people were using the requirement of writing as a means of avoiding their obligations under oral contracts for the disposition of an interest in land, particularly where the other party to the contract had performed some or all of his obligations. The Court of Chancery developed the doctrine of part performance so that in such a situation the statute itself would not be able to be used as a means of unconscionable dealing. Under the doctrine, ‘the defendant is really “charged” upon the equities resulting from the acts done in
execution of the contract, and not (within the meaning of the statute) upon the contract itself.’2

Question 3

Effect of PP + basis in equity

Answer 3

It was HELD that a contract, initially unenforceable because of the statute, could become enforceable by virtue of acts done by the plaintiff AFTERWARDS.

*Effect: under the doctrine of PP, if one party has performed a sufficient act of part performance of an oral contract, then equity may intervene in his favour.

The basis is that where one party seeking to enforce a contract has acted in reliance on its existence, equity considers it unconscionable for the other party to rely on the lack of written evidence.

NOTE, equity would enforce an oral agreement NOT simply because there is an oral agreement BUT because

(1) there has been a sufficient act of part performance undertaken by the innocent party of the oral agreement; and that
(2) it would be fraudulent (or unconscionable) if the agreement could NOT be enforced against the other party.

Question 4

WHAT DOES the plaintiff need to prove if relying on the doctrine of pp

Answer 4

1. Evidence of the contract
2. Contract specifically enforceable
3. An act of part performance

Question 5

Doctrine of PP step 2 in general

Answer 5

This kind of ORAL contract is only enforceable in equity. Hence, it must be CAPABLE OF specific performance.

Because of the availability of specific performance of the contractual promise, the disposition of the interest becomes almost inevitable.

Question 6

Steadman v Steadman #fact

Answer 6

The parties’ marriage had broken down. The wife had applied for a declaration that the matrimonial home was jointly owned and an order for sale. The husband was making maintenance payments to the wife and he had applied for a variation of the maintenance order. Negotiations took place at the door to the courtroom and A compromise agreement was reached, which has been termed an ‘oral package deal’—it was agreed that the wife would sell her interest in the house to her husband for GBP1500. He also agreed to pay GBP100 in respect of arrears of maintenance payments. The agreement was explained to the court which made orders implementing what the parties had agreed concerning maintenance. The husband paid the GBP100 and his solicitors prepared a deed to transfer the wife’s interest in the house to the husband. The wife, however, refused to sign the deed and relied on the English equivalent of s.3(1) of the Conveyancing and Property Ordinance. The husband argued that she was legally bound to transfer her interest in the matrimonial home to him since there had been acts of part performance of the oral agreement. The husband succeeded.

In sum: divorce-> maintenance order->negotiate->oral deal->Wife refused to sign the dee that transfer the wife’s interest in the house to the husband.

Question 7

Steadman v Steadman #decision

Answer 7

accepted that there had been sufficient part performance by Mr. S, but not before lengthy dissertations as to the requirements for such sufficiency.

In essence, the House of Lords held that part performance is available where the alleged acts of part performance point on the balance of probabilities to some contract between the parties and either showed the nature of the contract or were consistent with the oral agreement alleged. There was some inconsistency of view between the members of the House of Lords as to whether the acts relied on had merely to point to the existence of a contract or whether they had to point specifically to the existence of a contract concerning land. There was also a difference of aproach as to which of the acts that had been performed were relevant.

Lord Simon of Glaisdale provided an explanation as to why he thought that it was enough that the acts showed on the balance of probabilities that some contract (not necessarily a land contract) had been entered into:

‘The law here is not logical: it represents the compromise of the two principles to which I have referred near the outset of this speech. If the contract alleged is such that it ought not to depend on oral testimony, it is this contract, not merely some contract, that the acts should prove. If the plaintiff has so performed his obligations under the contract that it would be unconscionable for the defendant to plead the statute, it is immaterial whether or not the plaintiff’s acts prove the contract – let alone some other contract. But it is this sort of illogical compromise, doing some deference to each of two competing and inconsistent principles, in which English law abounds. There is no reason to disturb it so long as it does subsantial justice’ (at 562)

The equitable doctrine of part performance does not require the court to find some acts that point to the existence of a contract and only then to hear oral evidence of the alleged contract. It looks at the acts and the alleged contract side by side when deciding whether the acts are acts of part performance.

Question 8

Doctrine of PP step 1

Answer 8

Evidence of contract

The court will NOT assist the plaintiff if there is NO final contract (=must be final), such as when the parties are still at the stage of negotiation with each other. There MUST be a CONCLUDED contract and it must be possible to ascertain its terms.
E.g. If encounter ‘subject to contract’ ‘provisional agreement’ = not binding/ final
‘subject to contract”: At pre-formal contract stage, the buyer and seller are negotiating.
“Provisional agreement”: The practice of using the words “subject to contract” by buyer’s solicitor in his letter to the seller’s solicitor does not change the binding effect of the provisional agreement.
Unless it explicitly specifies—this does not constitute a contract.

Landmark: World Food Fair Ltd. & Another v. Hong Kong Island Development Ltd. [2005] 1 HKLRD 665

Question 9

Doctrine of PP step 3

Answer 9

#AN ACT OF PART PERFORMANCE
(a)  An Act of the Plaintiff + Defendant's knowledge
Since the basis of the doctrine is the FRAUD against the plaintiff, the act of pp must have been done by the plaintiff WITH the knowledge of the defendant that the act was done on the faith of the contract.  Therefore, if the only act of pp of a "contract" has in fact been done by the defendant, that is, the party who refuses to perform the contract, there is NO fraud as the party who has suffered from losses is the defendant himself, NOT the plaintiff.
Plaintiff cannot seek remedies if he is not the victim → need to show that YOU, not the defendant, has done sufficient act 

(b) An Act Referable to the Contract
What kind of acts done by the plaintiff will be sufficient?
The act of part performance must be “unequivocally referable to the contract”.
in Wakeham v. MacKenzie (1968) 1 WLR 1175

Question 10

Wakeham v. MacKenzie (1968) 1 WLR 1175 (Facts)

Answer 10

Facts:
1. Mrs. W was a widow who gave up possession of her council house (i.e. public house) in order to look after an old widower.
Ms W gave up social benefits to look after the old widower
2. She did NOT receive any wages from him and she paid for her own board and heating- the understanding was that :) the widower would leave his house to her on his death, which occurred 14 months later.
3. It turned out that the :( widower did NOT in fact leave his house to Mrs. W.
4. Mrs. W sought specific performance of the widower’s oral arrangement.

Question 11

Wakeham v. MacKenzie (1968) 1 WLR 1175 (judgement)

Answer 11

Judgment:

1. A decree of specific performance was made to transfer the widower’s house to the plaintiff because her following acts were considered to be SUFFICIENT acts of part performance:
   - (1) paying for her board and heating;
   - (2) giving up her council house (social welfare); and
   - (3) looking after the widower (without being paid).
2. The court held that the act of part performance must, ON THE BALANCE OF
   PROBABILITIES, indicate that there is in existence between the parties a contract of the kind
   alleged.
   If there was no such oral agreement, Mr W would NOT have done those acts
   To address the question of ‘is there a concluded oral agreement’ → court based on the balance of probabilities
   Court tend to argue backwards → concluded the contract through P’s act

Question 12

Acts that have been ruled by the courts regarding their eligibility as sufficient acts of pp

Answer 12

(a) Possession → BEST :)))))

The taking of possession of the defendant’s property by the claimant with the D owner’s consent is often regarded as the best example of a pp act. Wu Koon Tai v Wu Tau Loi [1996] 2 HKLR 477
E.g. by handing over the key to the tenant, it shows the consent of P to take possession of your property (evidence to show the existence of tenancy agreement)

….because possession is an act which demonstrates unequivocally that the P must have been granted some right by the D owner to go onto the D’s land. Furthermore, it is an act in which the d owner must have played an active part by the granting of possession to the P.

(b) Alterations

Making expensive alterations or improvements to the property will often be acts of pp, e.g. when carried out by someone who has no apparent right of possession or if he/she is a tenant holding over.

It was HELD in Broughton v. Snood (1938) Ch 345 that the carrying out of alterations by a tenant holding over AFTER the expiry of his lease or very close to its expiry may indicate that the tenant is acting in RELIANCE on a promise to extend his tenancy.

(c) Preparatory Acts

An act that is preparatory to the contract itself, as opposed to carried out in performance of or as a result of the contract, is NOT sufficient, such as an act of instructing solicitors to prepare a transfer of the land.
E.g. sell land → hire solicitors and signed MOU (not binding) = insufficient
E.g. land seller promotes that government will have project soon on this land → ask you to collaborate with him (oral) → you done all the lobbying etc. → when government offer permit seller refused collaboration = insufficient act

Question 13

Walsh v Lonsdale (1882) #Facts

Answer 13

(1) L agreed to grant a seven-year lease of a mill to W but failed to grant the lease by deed. One of the terms of the lease was for the tenant to pay rent in advance. W entered into possession and paid the rent BUT not in advance for some two and half years.
(2) When L demanded a year’s rent in advance pursuant to the agreed seven-year lease, W refused to pay. L sought to exercise the right of distress (self-help remedy), which entitled L to distrain W’s goods in order to cover the rent payment demanded.
(3) W claimed that the distress by L was unlawful, arguing that it was the periodic tenancy at common law. L argued that the distress was NOT illegal because it was the seven-year lease, which contained a provision for payment of rent in advance, that determined the rights of L and W.

Fixed term lease: the lease term agreed in contract
periodic tenancy: If a tenant, with the consent of the landlord, enters into possession and pays rental, a periodic tenancy will be implied at law, and as such he/she was NOT obliged to pay rent in advance. Periodic leases continue indefinitely, from one period to another, such as from week to week, month to month, year to year, etc. (depends on the frequency of paying rent on the part of the tenants)
When fixed term lease ends → tenant continue to pay landlord and landlord accepts = periodic tenancy

Landlord: it is an equitable lease – need to pay in advance
Tenant: lease under common law – “it is a periodic lease” - NO need to pay rent in advance → NO breach

Question 14

Walsh v Lonsdale (1882) #Facts

Answer 14

(1) L agreed to grant a seven-year lease of a mill to W but failed to grant the lease by deed. One of the terms of the lease was for the tenant to pay rent in advance. W entered into possession and paid the rent BUT not in advance for some two and half years.
(2) When L demanded a year’s rent in advance pursuant to the agreed seven-year lease, W refused to pay. L sought to exercise the right of distress (self-help remedy), which entitled L to distrain W’s goods in order to cover the rent payment demanded.
(3) W claimed that the distress by L was unlawful, arguing that it was the periodic tenancy at common law. L argued that the distress was NOT illegal because it was the seven-year lease, which contained a provision for payment of rent in advance, that determined the rights of L and W.

Fixed term lease: the lease term agreed in contract
periodic tenancy: If a tenant, with the consent of the landlord, enters into possession and pays rental, a periodic tenancy will be implied at law, and as such he/she was NOT obliged to pay rent in advance. Periodic leases continue indefinitely, from one period to another, such as from week to week, month to month, year to year, etc. (depends on the frequency of paying rent on the part of the tenants)
When fixed term lease ends → tenant continue to pay landlord and landlord accepts = periodic tenancy

Landlord: it is an equitable lease – need to pay in advance
Tenant: lease under common law – “it is a periodic lease” - NO need to pay rent in advance → NO breach

Held: Landlord entitled to exercise right of distress - it is an equitable lease

Question 15

CONDITIONS OF SALE

Answer 15

Since the 1960s, very few government leases have been entered into by the Hong Kong government.
Merely relevant with government leases (not other leases)
Instead, existing leases of land are sold at a public auction at a premium.
A Memorandum of Agreement (not formally legally binding) will be signed by the highest bidder and the Hong Kong government.
“Such Memorandum of Agreement is attached to a set of Conditions of Sale, and, together they amount to an agreement by the Hong Kong government to grant a government lease upon COMPLIANCE of all the conditions.”
–A-G v. Tong Iu & Another [1968]
MOA + Conditions of Sale = lease grant to the highest bidder → comply with all conditions (compliance takes time - e.g. constructing the stupid shopping mall)
Time gap between signing of MOA + Conditions of Sale vs compliance of ALL conditions
MOA + condition of sale not legal lease → but protected by equitable lease
To ensure bidder will comply with the conditions + bidder’s right over property will be protected
→ equitable lease serves to fill in the gap between the granting of lease and actual compliance

Question 16

If Bob, as the highest bidder at a public auction of a piece of government land, has entered into a Memorandum of Agreement with the Hong Kong government,.
=> what is the NATURE of his INTEREST in the land?

Answer 16

In this situation, a legal lease is NOT created. This is because the required rules of formalities, e.g. the use of a seal, have NOT been complied with.
Bob, as the purchaser under an AGREEMENT for a government LEASE, has an equitable interest in the land. Under the rules of equity, Bob can seek an order for specific performance of the agreement if the Hong Kong government refuses to grant him a government lease upon COMPLIANCE of the terms contained in the Conditions of Sale.
Applying the judgment of W v. L, an agreement for a lease is as good as the lease itself PROVIDED THAT that the remedy of specific performance is available.
Besides Conditions of Sale granted by the HK government, the following are the situations in which the rule in Wv. L will apply:
(i) an agreement for the grant of an interest in land; and
(ii) where inadequate legal formalities have been employed.

Question 17

Parker v. Taswell (1858) 2 De G&J 559

Answer 17

An example of application for W & L
Facts:
(1) D agreed to renew P’s lease of a farm for a term of 10 years BUT the document recording their agreement was only exercised under hand, NOT by deed.
(2) A dispute arose between the P and D regarding certain terms of the lease and as a result, P brought an action for specific performance of their agreement.

Judgment:

• An order for specific performance was granted.
• a lease NOT created under seal was NOT devoid of all efficacy.
• It could be enforced as an agreement to create a lease BECAUSE it was plain that the intention of the parties was that there should be a lease. In this case, P could claim that he had an equitable lease.

Question 18

WHAT MUST BE ESTABLISHED FOR THE W V L RULE TO APPLY? — in general

Answer 18

1) An Agreement for a Lease

2) The remedy of Specific Performance must be Available

Question 19

W & L —An Agreement for a Lease

Answer 19

a) There must be an enforceable agreement between the parties.
The agreement must therefore comply with section 3(1) of the CPO, that is, the agreement must be in writing or is capable of being proved by writing.
If the agreement is purely oral, it must be supported by a sufficient act of part performance – s.3(2) of the CPO.
There must also be consideration BECAUSE equity will NOT assist a volunteer - THEREFORE the rule in Walsh v. Lonsdale will NOT be applicable if INCORRECT formalities have been employed to effect a GIFT of land.

b) Creation or Disposition of an Interest in Land
Besides leases, the rule in Walsh v. Lonsdale applies to the creation or disposition of an interest in land,
e.g. If A agrees to sell B his flat, B will be recognised as the owner of the flat IN EQUITY as soon as the written agreement is made (as in Lysaght v. Edwards (1876) 2 CH D 499).
E.g. Double sell: signed with A but then wanted to sell to B → first buyer has equitable interest over land despite insufficient formalities
If A agrees in writing to grant an easement or mortgage to B, BEFORE the legal documents are executed under seal, B will already be regarded as the holder of an equitable easement or mortgage, as the case may be.
Extends to other property rights - easement + mortgage

Question 20

W & L—The remedy of Specific Performance must be Available

Answer 20

The essential feature of the rule is the availability of specific performance

(a) Discretion of the Court
The success of applying the rule in W v. L depends upon the willingness of the court to grant the discretionary remedy of specific performance. If, for any reason, an agreement is NOT one that the court can or will grant specific performance, the plaintiff can have nothing more than a right to sue the defendant for damages under the agreement.
The court may decline to order specific performance if:
the court does NOT consider it equitable to award the remedy owing to the CIRCUMSTANCES of the case - as in Chu Kit Yuk & Another v. Country Wide Industrial Ltd. & Others (1995) 1 HKC 363;
Court feels that it is NOT necessary to grant equitable remedies to P
if the plaintiff has NOT come with “clean hands” because he/she is in breach of the agreement also - as in Coatworth v. Johnson (1886) 55 LJQB 220.
P must be an innocent party
if the grant of a decree for specific performance would cause hardship because it would force the landlord to breach his/her OWN obligations - as in Warmington v. Miller (1973) QB 220.

(b) A Clear Intention to Exclude the Remedy of Specific Performance
The parties to the contract may vary or exclude the right to specific performance provided a clear intention to do so is shown.
In Hong Kong, it is NOT uncommon for a vendor to try to exclude the purchaser’s right to specific performance should the vendor fail to complete the agreement, e.g. because he/she has accepted a higher offer for his/her property.
BUT, such an exclusion of the right to specific performance will only be effective if clear words are used.
There have been many cases brought over the past few years to determine the kind of wording which will be effective but only a small number of cases have succeeded, e.g. Wong Lai fun v. Le Ha (1992) HKLR 125.

Question 21

World Food Fair Ltd. & Another v. Hong Kong Island Development Ltd #CA

Answer 21

considerable discussion as to whether the parties had agreed the “essential terms”
The Judge correctly noted the applicable principles and accurately focused on the plaintiffs’ contention that a contract intended to be immediately binding was orally concluded prior to payment of the $200,000.00 deposit, with subsequent negotiations merely confirming or fine-tuning the agreement or, at any rate, not affecting the concluded contract.
concluded that the evidence :“… can only admit of one answer which is that the parties had never got beyond the stage of negotiation. Whilst Mr Mak and Mr Siu had come to a broad consensus as to what was to be let and for what purposes as well as the rent and a hoped for starting date for the tenancy these matters were always going to be subject to a formal lease being agreed between the parties.
He considered the willingness of the plaintiffs to incur significant expenses before signing any agreement explicable as follows: “The truth of the matter was that Mr Mak and Mr Siu, who in the past had always managed to iron out difficulties over leases and who trusted each other to be able to do so fully expected, once the principle had been agreed, that they would be able to conclude a mutually acceptable tenancy agreement. … [This] expectation was not realised.”
CA
decision to reverse the Judge → CA view that proof of the concluded contract is provided by evidence of its performance.
Both of their Lordships identified the conduct constituting such performance as payment of the initial deposit on 27 January 1997 and being let into possession for the fitting out works on 5 July of that year. Ma CJHC considered the deposit to be “of great significance”[7] and entry into possession as “conclusive”.

Question 22

World Food Fair Ltd. & Another v. Hong Kong Island Development Ltd #facts

Answer 22

Issue: whether the parties had reached a concluded contract for the letting of space in a shopping mall
P, with the D’s consent, were let onto the property and spent significant sums of money on fitting out works and on other preparatory steps on the premises. This was done in anticipation of their taking up a tenancy in the mall. However, no lease or tenancy agreement was ever signed. D changed its policy regarding the desired composition of its tenants and, in consequence, the parties fell out and P eventually withdrew. They sued D, alleging that the parties had entered into an oral contract for the grant of a lease of the premises which D had repudiated by insisting on terms inconsistent with what had been agreed. They claimed damages for breach of contract and the return of $200,000 (the legal status of which was controversial) paid by them to D.

Question 23

World Food Fair Ltd. & Another v. Hong Kong Island Development Ltd #CFA

Answer 23

Significance: Drastic steps taken ≠ concluded contract

Key issue: how to determine whether there is a concluded contract (Necessary to establish PP)
Performance itself does not establish a final contract, still require to look at the agreed terms
Ribeiro PJ explained that the negotiations had not resulted in a contract at all since there was no agreement as to the start date of the lease and the rent-free period (an element of the overall rent calculation) nor as to the length of term to be granted pursuant to the option to renew that would be contained in the lease.
There was no need to worry about whether the relevant formalities had been complied with since there was no contract.

Difficulties in the approach of the Court of Appeal—Pre-eminence given to deposit and possession

• circularity inherent in the Court of Appeal’s approach. In regarding payment of the deposit and the giving of possession for fitting out works as “performance” which decisively proved the existence of a concluded contract, the Court of Appeal implicitly assumes that there existed a concluded contract of which such acts constituted “performance”, which “performance” is then relied on to prove the existence of that very contract.
  28. Such acts are no doubt consistent with the existence of a concluded contract but they do not prove its existence.
• 29. It is not uncommon for parties in the course of negotiations which are still incomplete or subject to contract to pay deposits or to allow builders access to the premises. Such acts are no doubt done with a view to commercial advantage but they involve the risk that the other party may decide to withdraw from the deal without any contract coming into being. Many examples of such conduct can be found, for instance, in textbooks on the law of restitution regarding claims for recovery of expenses incurred or in respect of benefits conferred where anticipated contracts do not materialise
      A deposit paid pursuant to a concluded contract will generally be intended to secure performance of the contract and be subject to forfeiture (as discussed in Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234 at 260-263). But, as the authorities show, the parties may intend a different role for a deposit. If pre-contractual negotiations are lengthy, a deposit may be sought, not as an earnest of completion and performance, but as signifying serious intent on the part of the potential tenant or purchaser (purpose of deposit, prove the intention to have a concluded contract but not a proof of an existing contract). Indeed, the request for an “initial deposit” rather than demanding execution of a tenancy agreement and the full deposit in the present case may suggest that the parties had not yet reached final agreement, since there would have been no need for the landlord to seek the comfort of an initial deposit if the parties were already legally bound.
• 33. A dramatic example involving handing over possession and effecting works on the site pursuant to an agreement subject to contract can be found in Attorney General v Humphreys Estate (Queen’s Gardens) Limited [1987] AC 114 (PC). Lord Templeman described the steps taken as follows:
      “A major part of this agreement, as subsequently modified and expanded, was carried out. In particular the government took possession of the Tregunter flats and fitted them out, and moved in senior civil servants to that accommodation by August 1981. The government disposed of the residences formerly occupied by those servants. HKL [Hongkong Land] took possession of Queen’s Gardens by November 1981 and demolished the existing buildings on the Queen’s Gardens and adjoining sites by May 1982 with a view to redevelopment. HKL paid to the government by August 1982 the full sum of $103,865,608, the agreed difference between the value of the Tregunter premises and the value of Queen’s Gardens.” (at 120)
• Yet it was not in doubt that there was no concluded contract and that those drastic steps had been taken merely in the confident hope and expectation of a final agreement being executed, which in the event never materialised. The government’s arguments based on proprietary estoppel having failed, it was held that Hongkong Land were entitled to withdraw.