1st Plaintiff – The World Food Fair Limited ( once know as wealth province Investments Limited )

2nd Plaintiff – The World Enterprises Holdings Limited

Defendant – Hong Kong Island Development Limited ( Owner of shopping promenade and two complainants are the proprietors of retail stores ) In 1996. after conference. the complainants brought an action against the suspect for breach of an understanding to allow them a occupancy at the defendant’s shopping promenade. The suspect and complainants reach a verbal understanding. such as monthly rent. direction pre-pay HKD $ 200. 000 for get downing sedimentation.

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In Feb-Jul 1997. they circulated the missive of purpose by a formal understanding. recommended the rental. right of reclamation. rent-free period and the bill of exchange rental understanding. etc. Furthermore each side have missive conversation to see the possibility of formulate a new understanding. unluckily they didn’t achieve.

In 5 July 1997. defendant Lashkar-e-Taiba complainants enter and pull off that site. so the contractors can get down the fitting-out plants. All field had published the advertizements to engage the nutrient. drink contractors and employees. But the rental understandings still non subscribe.

In 29 July 1997. complainants know that defendant resistance to construct a nutrient tribunal in shopping promenade. and intend to set up a “medium and high class eating house with comprehensive services” . At that clip. complainants already pay a batch of money to adorn the site. They want defendant return the sedimentation and to do amendss. complainants claim that both sides already make understanding from all proviso.

A verbal contract with purpose and immediate binding. established on 27 January 1997. when complainants pre-pay the sedimentation. Therefore. defendant’s actions will consequences as a breach of contract. Contrary. suspect progress that sedimentation has to impound. and the of import term still in treatment degree ( get downing day of the month. length of rent-free period. pay rent of exercising of the right of reclamation ) . The suspect argued that before subscribing contract. all related discuss and achieve understanding will subject to contract.


( A ) Relation to a Lease & A ; the Intention with Essential Footings

In this instance. we know that all of the contract must incorporate four indispensable elements: “Offer” . “Acceptance” . “Consideration” and “The purpose to contract” .

Purpose to contract that is an indispensable component in apparatus the contact and lawfully enforceable. However. the purpose is abstract and necessary to determine purpose by objectively. Below are some of the chief points of ” Intention to contract” :

What the parties have said – After a series of meetings get downing in Sept 1996. the parties orally reached understanding on certain facets of the proposed occupancy.

What the parties have put down in composing – Between 1st Feb and 4 Thursday Jul 1997. footings of occupancy including a bill of exchange missive of purpose and a bill of exchange occupancy understanding passed between the parties. Neither of those two paperss was executed.

How the parties have behaved – More than one dialogues after a series of meeting. and the 2nd complainant issued a check for an initial sedimentation HKD $ 200. 000 to defendant.

And mentioning to the minimal footings as the “cardinal points of the contract” . those required by the parties to be included the “essential terms” . “Essential terms” is a necessary portion of the plaintiffs’ instance to demo the two parties had come to a concluding and complete understanding for. If non. there was no contract. They are merely in dialogue either party may withdraw. And though the parties may hold agreed all the central points of the intended contract. If same specifics indispensable to the understanding still stay to be settled afterwards. there was no contract excessively. The parties in such a instance. are still merely in dialogue.

The “Essential Terms”

Before the test justice. complainants and suspect was considerable to whether the parties had agreed the “essential terms” used in a proficient sense that look normally understood to the lower limit footings which must be agreed before there can be a complete understanding for any rental.

Minimal footings covering with ( 1 ) identify of the parties. ( 2 ) the premises to be leased. ( 3 ) the beginning and continuance oh the term ; and ( 4 ) the rent or other consideration to be paid.

( B ) Non-decisive factors in turn outing the being of a contract

Harmonizing applicable rules and accurately focused. the contract intended binding was orally concluded with HKD $ 200. 000 sedimentation. with subsequent dialogues simply corroborating or fine-turning the understanding non impacting the concluded contract.

Count of Final Appeal believe sedimentation and the ownership for suiting out plants are classified as carry out. It was still assume there have a pact contract. . Besides. it can proof the contract is existence. Although above action and pact contract are no struggle. parties and defendant trust it will adhering. It was under jurisprudence limitation. However. the action is non right. So. they pay sedimentation and ownership for suiting out plants is non definite action. It was non proof at that place have any contract.

In this Case. the parties agree they would come in into a contract. But they didn’t written contract. So. that’s why these was no proper occupancy. They stated topic to contract. If the words subject to contract appear they will hold the consequence to forestall a binding contract coming into consequence. The rent free period and the option to regenerate still under dialogue. Even if they said topic to contract. They didn’t enter into a binding contract.

( C ) Test for Determining
In this instance. it is apparent that whether the parties intended to come in into a concluded contract is a affair to be looked at objectively ( as noted. for case. in Kwan Siu Man v Yaacov Ozer. However. due to unusual circumstance of both supporters in the dialogues have been called by the complainants. Court of Appeal may given undue weight to what they said were their subjective purposes as stating against the defendant’s instance. Thus Cheung JA provinces: “The grounds of Mr. Siu and Mr. Mak showed that they had ne’er proceeded on the footing that their understanding was ‘subject to contract’ . It was a one-sided add-on imposed by the leasing section of the suspect in a standard papers. In fact Mr. Mak expressly disowned any impression that the understanding was capable to contract. ” The trial for determining whether the parties intended to come in into a concluded contact is “Subject to contract” . It normally appears on top of letters or on paperss exchanged by parties in the procedure of dialogue for a contract or understanding. It means nil in the missive should be treated as originating in any understanding between the transmitter and receiver.

A contract will be executed after the dialogue procedure and if the contents of the letters were to organize portion of the contract. it should be expressly stated in the contract. They denote that papers is non an offer or credence and dialogues are ongoing. Often the look without bias is used when capable to contract is meant.

( D ) Footings still under dialogue

In this instance. the footings that still said to be under dialogue are “Subject to Contract” . “rent-free period” . and “renewal period” .

For understandings that are formed capable to contract. it caused by the parties have reached conclusiveness in set uping all footings and intend to be instantly bound to execute those footings. at the same clip propose to hold the footings restated in a signifier which will be fuller or more precise but non different in consequence. The parties intend to be bound instantly therefore contract is formed.

And the parties wholly agreed upon all footings and intend no going from or add-ons to those footings. but have made public presentation of one or more of those footings conditional upon the executing of a formal papers. An offer in such a instance is non expressed to be capable or conditional upon a formal executing of contract and all indispensable footings have been agreed upon therefore contract is formed.

For the rent-free period. the pleaded instance was ambiguous. Oral grounds of the parties about the rent-free period revealed serious incompatibilities. with defendant giving grounds extremely damaging to the plaintiff’s instance. The complainants assert a 90-day rent-free period had been agreed and maintained throughout ran reverse to the remainder of grounds. Documents including those of the plaintiffs’ themselves. weighed against their averment. The justice was wholly justified in keeping that the complainants had failed to demo that understanding had been reached the rent-free period.

Similarly. the pleaded instance on reclamation option was besides ambiguous. Both missive of purpose and the bill of exchange occupancy understanding ( which besides inconsistent with the plaintiffs’ grounds in relation to tenancy footings ) said nil about the 15 % cap on any rent addition. If there was a concluded contract in Jan and if complainants had complained to defendant that the missive of purpose did non reflect their understanding. it was difficult to explicate why none of these mentioned in a subsequent missive on 9 July 1997. which besides claimed no entitlement to such term nor did it advert the 15 % cap on rent addition. There was ample justification for rejecting the plaintiffs’ grounds. The justice to the full entitled to prefer the contemporary paperss as true indicant of the parties’ several places on reclamation option.

( Tocopherol ) Significance of the usage of “Subject to contract”

In this instance. “Subject to contract” is significance to impact the judgement. “Subject to contact” in a commercial context. usually a given that the relevant purpose to make binding legal dealingss existed where the other elements of a contract exist. Besides frequently used to demo the parties are still negociating a contract.

In grounds Judge are to the full find out at that place was no concluded contract. merely a “Subject to contract” . Because concluding understanding had non been reached as to the beginning day of the month. the rent free period and the reclamation option. all being affairs which the parties manus obviously intended to be regulated by their contract. For case. Mr Mak caused to be sent to 2nd complainant upon reception of sedimentation contained a standard clause qualifying that the footings were offered “subject to formal lease” . Defendant obviously following its usual stance of carry oning dialogues subject to contract. And plaintiffs’ ain missive of 15 July 1997 was marked “subject to contract” .

Such absence of understanding is fatal to the plaintiffs’ claim or eventually can non convey an action against suspect for breach of understanding. Due to there are no any understanding or concluded contract between the parties.

( F ) CFA non let the sedimentation forfeited

Harmonizing to the judgement. the justice rejected the claim right from suspect to give up the sedimentation HKD $ 200. 000 because there was no complete understanding made between complainants and suspect. it means that there is no occupancy understanding was signed. The sedimentation should non be forfeited. Besides the justice quoted the instance of “Guinness Mahon Ltd v Kensington and Chelsea LBC “and ” Chillingworth v Esche ” and stated that ” where a supposed contract is null or expected contract ne’er concluded. no enforceable duty is of all time created but the context of a supposed or expected contract is still relevant as explicating what the parties are about. An beforehand payment made is such fortunes is non a gift and is non to be treated as a gift. ”

So. the Court of Appeal dismissed the entreaty of suspect against the determination of Judge. Besides the Court of Appeal dismissed the counterclaim for mesne net incomes of suspect. Deposit to be forfeited is non the entreaty topic before the Court of Final Appeal and remains undisturbed.


The grounds of the parties differed as to what. if anything had been agreed sing beginning of rental. It was for the justice to measure the witnesses’ testimony against documental grounds. The illation to be drawn by reading the missive of purpose. which inquiries to whether the parties were at that phase as to the proposed occupancy footings. was that the beginning day of the month was non steadfast but probationary. The 7-day notice demand besides militate against any determination that a steadfast beginning day of the month had been agreed.

Other relevant paperss besides weighed against a beginning day of the month being agreed. The bill of exchange occupancy understanding and other paperss besides did non propose that 1 August 1997 was a delayed beginning day of the month. The grounds indicated that the parties agreed a probationary start day of the month which was rapidly overtaken. It was non until bill of exchange occupancy understanding that a house day of the month ( From 4 Jul-1 Aug 1997 ) could be proposed as the intended beginning day of the month. Further. the complainants argued that 7-day notice was sufficient was ne’er its pleaded instance nor was it supported by grounds. and in any event the missive of purpose relied on was expressly capable to the rental. Defendant’s alternate statement that there was a steadfast understanding of beginning day of the month on 8 March 1997 but the hold had been assenting by complainants did non assist set uping the being of concluded contract. The justice was to the full entitled to reason that the lone beginning day of the month agreed to was simply a probationary day of the month and non a binding beginning day of the month.

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