The Judicial Committee of the Privy Council Decisions

Privy Council Appeal No. 8 of 1997

(1) Lobley Company Limited and

(2) Milliwin Development Company Limited Appellants

v.

Tsang Yuk Kiu Respondent

FROM

THE COURT OF APPEAL OF HONG KONG

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REASONS FOR REPORT OF THE LORDS OF THE

JUDICIAL COMMITTEE OF THE PRIVY COUNCIL

OF THE 3rd June 1997, Delivered the

25th June 1997

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Present at the hearing:-

Lord Goff of Chieveley

Lord Lloyd of Berwick

Lord Nicholls of Birkenhead

Lord Steyn

Lord Hope of Craighead

  ·[Delivered by Lord Hope of Craighead]

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1. This is an appeal from a judgment of the Court of Appeal of Hong Kong of 3rd October 1996, by which the appellants' appeal from the judgment of Sears J. in the Supreme Court of Hong Kong of 7th December 1995 was dismissed.  In his judgment Sears J. had held that the appellants were liable to the respondent for breach of contract.  At the conclusion of the argument, having heard counsel for both parties, their Lordships indicated that they would humbly advise Her Majesty that the appeal should be dismissed, for reasons which they would deliver later; and the appellants were ordered to pay the respondent's costs before the Board.  Their Lordships now set out the reasons for the decision which they have reached.

2. The appellants, Lobley Company Limited ("Lobley") and Milliwin Development Company Limited ("Milliwin") were two private  companies  incorporated  in  Hong  Kong with common directors whose business was property development.  They were each owned as to 60% by a company controlled by Lucas Sasmito, also known as Mr. Lai ("Mr. Sasmito") and a relative Tsang Kwong Fun, and as to 40% by a company controlled by the respondent, Tsang Yuk Kiu ("Mr. Tsang").  By the autumn of 1991 Mr. Sasmito and Mr. Tsang had fallen out with each other, and they wished to disengage their respective interests in the two companies.  Each company held one property.  Lobley owned a site at 70-74 Ma Tau Wai Road and Milliwin owned a site at Dundas Street.  It was decided that the disengagement could be achieved by selling these properties.

3. On 2nd September 1991 a meeting of the directors of the appellant companies was convened.  Four directors attended this meeting, including Mr. Sasmito and Mr. Tsang.  Among those present were Felix Wong Ling Chung ("Mr. Felix Wong") as alternate director to Mr. Sasmito's wife, Mrs. Linda Sasmito.  Representatives of the solicitors of Mr. Sasmito and Mr. Tsang were also present.  Various proposals for the disposal of the properties were discussed.  Mr. Sasmito and those supporting him on the one hand and Mr. Tsang on the other were unable to agree about any of the proposals which were put to the meeting as to the sale and purchase of the two sites.  The minutes of the meeting record that the following resolution was then passed, Mr. Tsang having abstained from voting on it:-

"As it cannot come to an unanimous agreement among the directors, IT WAS RESOLVED that the meetings of Lobley and Milliwin be adjourned to be held on Monday 9th September 1991 at 2.30 p.m. at the same place during which time the directors or other parties would be invited to submit offer bids in respect of the sites at Ma Tau Wei (sic) Road and Dundas Street.  The offer should be an irrevocable offer accompanied by a cashier order being 10% of the proposed purchase price.  Completion shall be made within one month from the date of the signing of the formal agreement for sale and purchase which shall take place within 7 days of the date of the acceptance of the offer, the properties will be sold to the highest bidder.  The Companies would not pay commission to any parties in respect thereof."

4. In a contemporaneous note Steven Cheng, who was present at the meeting on behalf of Mr. Tsang's solicitors, recorded that it was resolved also that the cashier orders were to be made payable to the two companies.

5. The Boards of the appellant companies met again on 9th September 1991.  Various bids had been received for the two sites, and  they  were  tabled  at  the  meetings for consideration by the directors.  The highest bid for the site at Ma Tau Wai Road owned by Lobley was by a company called On Wealth Limited, a company in which neither Mr. Sasmito nor Mr. Tsang had an interest.  This was a company which had been invited to bid by Mr. Felix Wong, who had dispatched copies of a draft offer document to various parties by way of invitation to tender.  It was common ground before Sears J. that Mr. Felix Wong had not been authorised to do this as their agent by the appellant companies, but that he was acting as agent for On Wealth Limited in placing their bid before the Board meetings.  The bid by On Wealth Limited did not comply with the terms of the resolution of 2nd September 1991 because it was accompanied not by a cashier order for 10% of the purchase price made payable to Lobley but by a certified cheque made payable to Mr. Sasmito's solicitors.  The highest bid which complied with the terms of the resolution was by Winsheer Investments ("Winsheer"), which was a company controlled by Mr. Tsang.  Likewise, in the case of the site at Dundas Street owned by Milliwin, the highest bid was by a company called Profit Sight Investment Limited in which neither Mr. Sasmito nor Mr. Tsang had an interest.  That company also had been invited to bid by Mr. Felix Wong who was acting as its agent.  And its bid also did not comply with the terms of the resolution of 2nd September 1991, because it was accompanied by a certified cheque for the deposit made payable to Mr. Sasmito's solicitors, not by a cashier order made payable to Milliwin.  The highest conforming bid was by Winfull Development Limited ("Winfull"), which was a company controlled by Mr. Tsang.

6. Mr. Tsang's solicitor, Angela Lee, pointed out that the highest bids in each case were irregular.  She said that they should be disqualified and that the bids by Mr. Tsang's companies, which had conformed in all respects with the requirements of the resolution of 2nd September 1991, should be accepted.  Mr. Sasmito said that the error which the highest bids had made was a purely technical one as his solicitor, who was present at the meetings, could draw up cheques for the deposits there and then made payable to the appellant companies.  He proposed that the highest bids should be accepted.  Mr. Tsang opposed these resolutions, but Mr. Sasmito's proposals were carried and the sites were sold to the highest bidders.  Mr. Tsang then issued proceedings against the appellant companies, in which he asserted that there was a contract between him and the appellant companies whereby the companies were bound to accept the highest offer which complied with the resolutions of 2nd September 1991, that his companies Winsheer and Winfull had made the highest conforming bids and that the appellant companies were in breach of contract in accepting instead the bids by the highest bidders whose bids had not complied with the resolution of 2nd September 1991. After trial, at which evidence was led, Sears J. held that the offers by the highest bidders did not conform to the terms on which bids had been invited and that it was unfair to the other bidders to change the rules which the resolution of 2nd September 1991 had laid down.  The effect of his judgment was that Lobley were held liable to pay damages to Winsheer and Mr. Tsang in the sum of HK$52,400,000 and that Milliwin were held liable to pay damages to Winfull and Mr. Tsang in the sum of HK$85,000,000.  The Court of Appeal (Nazareth V.-P., Godfrey and Mayo JJ.A.) in a unanimous judgment dismissed the appeal.  It had been made to them on three grounds.  The first ground, which is no longer in issue, related to the terms of the orders made by Sears J.  The second ground related to what Godfrey J.A. described as a pleading point, as to how the contract which Mr. Tsang relied on with the two companies had been constituted.  The third ground was that the certified cheques for the deposits drawn in favour of Mr. Sasmito's solicitors sufficiently conformed with the terms of the resolution of 2nd September 1991.  The third ground has not been pursued in this appeal.  It is now accepted that the highest bids which were presented at the meeting on 9th September 1991 did not conform with the terms of the resolution of 2nd September 1991, because they were accompanied by certified cheques payable to Mr. Sasmito's solicitors and not by cashier orders payable to the appellant companies.  So the only live issue before their Lordships' Board was whether the appellant companies were bound by the resolution of 2nd September 1991 to sell the properties to the highest bidders whose bids conformed with the terms of that resolution.

7. The respondent's case, as set out in paragraph 5(a) of his amended Statement of Claim, was that the resolution of 2nd September 1991 took effect as a contract between him and the appellant companies, whereby the appellant companies were bound to accept the highest offer made by any of the directors and other parties invited to submit offer bids complying in all respects with the conditions of tender which the resolution had set out.  The basis in law for that argument is that which was described in Harvela Investments Limited v. Royal Trust Company of Canada (C.I.) Limited and Others [1986] AC 207.  In that case telex messages had been dispatched by the vendors to two parties inviting offers for the purchase of shares in a company.  The invitation stipulated that the offers had to be made in a particular manner by a stated time on a given date, when the vendors would accept the highest offer.  The plaintiff submitted an offer in a fixed sum, while the second defendant submitted an offer bidding a sum which could be ascertained only by reference to a rival bid.  It was held that the terms of the invitation were such that the vendors were not entitled to accept the referential bid.  In his analysis at page  224C-F  Lord  Diplock  said  that  the  telex  was  not  a mere invitation to negotiate for the sale of the shares, but that its legal nature was that of a unilateral or "if" contract to which the vendors and the recipients of the telex were the promisor and promisees respectively.  The recipients of the telex did not assume any legal obligation to anyone to do or refrain from doing anything at the time when they received the invitation, but the vendors assumed a legal obligation to the promisees which was conditional upon the happening of an event which was specified in the invitation.  The point can perhaps be put most simply in this way.  The telex was not merely an invitation to treat.  It was itself an offer, which contained a promise to accept the highest offer which complied with its terms.  The promisee who submitted the highest offer which complied with its terms was not making an offer but was making what was in law an acceptance.  As Mr. Goldsmith Q.C. for the respondent pointed out, the legal concepts are the same as those in Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256, where the advertisement was held to be an offer and the person who did the act called for in it accepted the offer and completed the contract.

8. Mr. Thomas Q.C. for the appellants said that, in accepting this argument, the courts below had extended the decision in Harvela Investments Limited v. Royal Trust Company of Canada (C.I.) Limited and Others, because the dispute in this case was not about whether the appellant companies were bound to sell to the highest bidder.  The question was whether the appellant companies had bound themselves to accept only those bids which conformed with the terms of the resolution, even although they were not the highest bids.  In answer to that question he submitted that the resolution of 2nd September 1991 should be seen, in view of its language and what had been done afterwards, as a resolution only which the directors were entitled to depart from at the next meeting, and not as invitations of a contractual nature which contained promises to those who might bid.  It contemplated that steps would be taken after the meeting to issue separate and distinct invitations to the directors and other parties.  That was what had happened, because after the meeting of 2nd September 1991 Mr. Felix Wong had sent copies of draft offer documents to the other parties including those companies which made the highest offers.  It was sufficient that these offers were in the terms set out in the documents provided by Mr. Felix Wong, notwithstanding the fact that they were not in all respects in conformity with the resolutions of 2nd September 1991.  If however the resolutions did amount to invitations of a contractual nature to the directors who were present at the meeting on that date, it should not readily be inferred that the Boards of the appellant companies were intending to bind themselves  in  such a way as to prevent them from accepting the highest bids in accordance with what would be seen normally as being in the best interests of the company.

9. Their Lordships were not persuaded that this case involves any extension of the principles which were applied in Harvela Investments Limited v. Royal Trust Company of Canada (C.I.) Limited and Others.  It was not disputed as a matter of law that, if the appellant companies had communicated an invitation to Mr. Tsang which contained a promise to accept the highest bid which conformed with the invitation, they were bound by their promise if Mr. Tsang submitted a bid which was a conforming bid.  The whole question then depends upon whether the resolution of 2nd September 1991 was of that character.  There are clear indications in the pleadings which were before Sears J. at the trial that the fact that the resolutions were of a contractual nature was admitted by the appellant companies.  Paragraph 12(1) of the re-amended defence stated that it was admitted that, upon the receipt of offer bids complying with the conditions of tender, the companies bound themselves towards every offeror of such a bid to accept the highest offer which complied with the conditions of tender.  But, even if this admission had not been made, the terms of the resolution, the surrounding circumstances and the evidence of both Mr. Sasmito and Mr. Tsang point clearly to this as being the only reasonable conclusion on the facts.

10. It is plain from the minutes of the meeting on 2nd September 1991 that Mr. Sasmito and Mr. Tsang, having fallen out, were trying without success to resolve the problem as to how to disengage themselves from each other.  The problem was resolved by the proposal that they would come back in a week's time when bids for the two properties would be considered and that the highest bid would win.  The evidence which both Mr. Sasmito and Mr. Tsang gave at the trial was that they understood that they were being invited there and then to submit bids.  As Godfrey J.A. said in the Court of Appeal, they were both fully aware of what had been decided and they both treated themselves as having been invited to submit bids.  There was no evidence that they were expecting to receive a separate invitation, nor that it was contemplated by the appellant companies that a separate invitation was needed before the directors could submit bids.

11. As for the other parties, they would clearly have to be invited as they were not present at the meeting and the offer was not being made to the public.  But no evidence was led about the arrangements, if any, for the making of invitations to other parties or what the other parties were told about what type of bid was required.  Mr. Felix Wong gave evidence, but he was not asked to deal with this point and it was not established that he was acting as  an  agent  for  the  appellant  companies  when he provided the other parties with copies of the draft offer documents.  The evidence may have been silent on these points because it was common ground at the trial that the bids would have to conform with the terms of the resolutions before they could succeed, but it is unnecessary to dwell on this point.  What matters is what was understood by the directors who were present at the meeting at which the resolution was passed.  It is what they were told at that time which determines whether there was a promise to them by the appellant companies, which it was open to them to accept by submitting conforming bids.

12. In the result, by submitting bids to each of the two companies which were the highest conforming bids, Mr. Tsang accepted the offers which were made to him in terms of the resolution by the two appellant companies.  As the appellant companies accepted bids which were not in conformity with the terms which had been promised to Mr. Tsang, they were in breach of their contract and are liable to him in damages.

© CROWN COPYRIGHT as at the date of judgment.